Construction Contracts Overview

Construction Contracts

• Letter of Intent (LOI): A preliminary agreement outlining intentions for a formal contract, used for pre-contract work. Includes scope of work, lump sum cost, payment terms, start date, contingency plans, and project continuation details.

Types of Construction Contracts

• Lump-sum/Stipulated Contract: Fixed price based on defined project scope and schedule. Both buyer and seller share risk in this case.

• Fixed Fee Contract: Fixed fee for defined work. Appropriate when scope and schedule are certain; buyer and seller share risk.

• Unit Price Contract: Price based on estimated quantities and unit prices. Suitable for projects with identifiable quantities and prices.

• Cost-Plus Contract: Contract costs plus percentages or fees, potentially with guarantees or bonuses.

  • Cost + Fixed Percentage: Costs plus a percentage mark-up on direct costs.
  • Cost + Fixed Fee: Costs plus a fixed fee with a guaranteed maximum price.
  • Cost + Fixed Fee with a Guaranteed Maximum Price (GMP Contract): -Direct, indirect costs, and a maximum project cost.
  • Cost + Fixed Percentage/Bonus: Costs plus a percentage plus incentives for early/budget completion.
  • Cost + Fixed Fee with GMP and Bonus: Project maximum price and a bonus for finishing earlier/under budget.
  • Cost + Fixed Fee with Agreement for Sharing Cost Savings: Cost savings shared between parties.

• Incentive Contract: Compensation based on contract performance (budget, schedule, quality).

• Turnkey and BOT (Build-Operate-Transfer) Contract: Project handover after construction or operation period (BOT).

Typical Contract Contents

• Introductory Information: General project details.
• Bidding Requirements: Criteria for contractors.
• Contracting Requirements: Details for contract execution.
• Specifications: Detailed instructions and requirements for work and payment, including codes and standards.
  • Attributes of well-written Specifications: Clear, concise, technically accurate, simple language, no conflicts, and no repetition.
  • 3 Parts of Specifications:
    • General: Administrative procedures, temporary requirements.
    • Products: Materials, equipment, systems.
    • Execution: Incorporation methods.
  • 4 Methods of Specifying:
    • Descriptive: Detailed material and installation properties.
    • Performance: Specified outcome rather than method.
    • Reference: Standards-based specifications.
    • Proprietary: Use of specific products/manufacturers.
• Drawings: Visualizations, communications, documentation.
  • Drawing Fundamentals: Preliminary design, presentation drawings, working drawings, shop drawings, assembly drawings, and specialized drawings.
  • Drawing Types: Site plans, pit maps, demolition plans, topography maps, drainage plans, site improvement drawings, structural drawings (foundation, framing, steel, erection), architectural drawings, mechanical drawings, electrical drawings (power plans, reflected ceiling plans), plumbing drawings, bill of quantities, appendices.
• Project Manual: Bounded portion of contract documents.
• General Conditions Of Contract (GCC): Rules, regulations, and duties of all parties involved.

GCC Under CIAP 102 (Private Construction)

• Definitions & Documents: Key terms, drawings, specifications.
• Laws, Regulations, Site Conditions, Permits & Taxes: Relevant factors.
• Equipment and Materials: Those provided by contractor or owner.
• Premises and Temporary Structures: Use of and facilities
• Protection of Work & Property: Safety of projects and adjacent areas, utilities.
• Labor, Work, and Payments: Contractor responsibilities from start to completion.
• Contractor/Subcontractor Relationships: Roles.
• Work Suspension and Contract Termination: Procedures for interruptions and project ending.
• Responsibilities and Liabilities: Parties' obligations.
• Owner's Representative: Duties of the overseeing representative.
• Schedule of Time Limits: Timeframe for pre-and-construction activities.

GCC Under the PBD (Philippine Bidding Documents)

• Covers a wide range of contract elements, covering obligations, rights, and responsibilities of parties.
• Definitions: Clear language for understanding key terms.
• Interpretation: Prioritized document usage.
• Governing Language & Law: Specific languages and laws.
• Possession of Site: Transfer from procuring entity.
• Contractor's Obligations: Duties and responsibilities, safety.
• Performance Security: Protection for project completion.
• Subcontracting: Allowed parameters.
• Liquidated Damages: Penalties for delayed completion.
• Site Investigation Reports: Information disclosed.
• Resolution of Disputes: Procedures for issues.
• Suspension of Funds: Potential funding cuts or delays.
• Approval of Drawings & Temporary Work: Procedure prior to implementation.
• Acceleration and Delays: Procedures and fee proposals.
• Extension of Completion Dates Adjustments in project timelines.
• Right to Vary (10%): Adjustments in contract costs.
• Contractor's Right to Claim: Remedies for changes.
• Dayworks: Rates for additional work.
• Early Warnings: Notices to the owner.
• Program of Work: General plan from contractor.
• Management Conferences: Documentation of meetings.
• Bill of Quantities (BOQ): List of items and their cost.
• Instructions, Inspections, and Audits: Verification and control systems.
• Identifying Defects: Assessment and control by the owner.
• Cost of Repairs: Remedial work under warranty.
• Correction of Defects: Procedures for rectifications.
• Uncorrected Defects: Third party handling problems.
• Advance Payment (15%): Early payment.
• Progress Payments: Payments for completed work
• Payment Certificates: Monthly reports on work details.
• Retention: Holdbacks on payment until final acceptance.
• Variation Orders: Changes in quantities and scope.
• Contract Completion: 95% of the project is complete.
• Taking Over: 7 days after project completion, operating manuals provided.
• Termination Payments: Financial settlements if termination is initiated.
• Extension of Contract Time: Contractor's entitlement to extensions.
• Price Adjustment: Price increases if approved by GPPB.
• Completion Certificates: Confirmation of completion.

This quiz covers various types of construction contracts, including Lump-sum, Fixed Fee, Unit Price, and Cost-Plus contracts, as well as the concept of a Letter of Intent. Learn how each contract type functions and understand their advantages and applications in the construction industry.