Construction Contracts: Types and Applications

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Questions and Answers

What is the primary purpose of the Negotiation process in Contract Formulation?

To deal with the recommended winner of the tender on the requirements of the tender (correct)

To ensure the successful completion of the project

To finalize the contract document

To identify contractual responsibilities of Stakeholders

What is the primary output of the Signing of Contract Agreement process?

A contract administration plan

A contract document (correct)

A project schedule

A tender document

What is included in a Construction Contract Document?

Only the Signed and Sealed Form of Contract Agreement

Only the Technical Specification and Methods of Measurement

All of the above, plus Priced Bill of Quantities and Drawings (correct)

Only the General and Particular Conditions of Contract

What is the primary goal of Contract Administration?

To ensure the successful completion of the project under consideration Signup and view all the answers

What is the relationship between Contract Formulation and Contract Administration?

The signed contract agreement forms the basis for Contract Administration Signup and view all the answers

What is the primary responsibility of Stakeholders in Contract Administration?

To identify their contractual responsibilities Signup and view all the answers

What is the process that ensures the successful completion of the project under consideration?

Contract Administration Signup and view all the answers

What is included in the activities or tasks of Contract Administration services?

Identifying contractual responsibilities of Stakeholders, and other tasks Signup and view all the answers

What is the primary challenge of a Contract Administrator?

To represent the owner's interests effectively Signup and view all the answers

What is the primary focus of the Maintenance Period?

Quality problems overseen by supervisors Signup and view all the answers

What is the purpose of the Completion Certificate?

To confirm the contractor is no longer responsible for the project Signup and view all the answers

What is the role of the Closing of Accounts phase?

To release remaining retention moneys and performance securities Signup and view all the answers

What are the two most important issues in Contract Changes Management?

Uncertainties and Changes Signup and view all the answers

What is the purpose of the Provisional Certificate of Completion?

Not mentioned in the text Signup and view all the answers

What is the typical duration of the Maintenance Period?

One year Signup and view all the answers

What is the purpose of remedial works during the Maintenance Period?

To rectify damages caused by the contractor's negligence Signup and view all the answers

What is the purpose of Clauses 51 and 52 of the General Conditions of FIDIC Red Book?

To enable Project Owners to use the Engineer to make requirement changes Signup and view all the answers

What can requirement changes cause?

Review of designs and/or create additional or changes in designs Signup and view all the answers

What is a unilateral change order?

A type of change order that provides the right to any of the parties to make changes without causing any effect on the other parties Signup and view all the answers

What is the purpose of a change order?

To provide written instructions to make changes with or without the consent of regulatory bodies Signup and view all the answers

What happens when a contractor is entitled to request and agree upon new or existing rates for changes?

The contractor is entitled to request and agree upon new or existing rates for changes Signup and view all the answers

What is a bilateral change order?

A type of change order that requires the agreement and/or consent of the two contracting parties Signup and view all the answers

How can requirement changes modify contracts?

Time changes accompanied by cost compensations, cost changes only, or a combination of these two Signup and view all the answers

What type of contract is suitable for construction works where contractors have prior experience?

Cost plus contract Signup and view all the answers

Why are cost plus contracts used in certain situations?

Because it is difficult or impossible to predict costs Signup and view all the answers

What is the main advantage of cost plus fixed fee contracts?

The owner has less risk of cost overruns Signup and view all the answers

When is a cost plus percentage contract preferred?

When the project is complex or has uncertain timelines Signup and view all the answers

How is the fee determined in a cost plus fixed fee contract?

As a lump sum based on the project scope and estimated cost Signup and view all the answers

Why is it essential to define the scope of work for a cost plus fixed fee contract?

To negotiate the contract with the contractor Signup and view all the answers

What is a key factor in selecting a contractor for a cost plus fixed fee contract?

The contractor's merit Signup and view all the answers

What type of contracts are used in situations where the amount of effort required depends on another contractor's work?

Cost plus contracts Signup and view all the answers

What is the primary effect of time extension in a project?

To relieve liabilities of delay damages such as liquidated damages Signup and view all the answers

What is the condition for a project doer to be entitled to compensation and time extension?

If delays are justified and compensable Signup and view all the answers

What is the purpose of acceleration in a project?

To relieve project doers from liabilities they should cover to the project owners Signup and view all the answers

What is the process for claiming compensation and time extension?

Notification; Justifications; Time Impact Analysis; Submission; Review and Approval Signup and view all the answers

Why is entitlement to compensation associated with causes of delay?

Because it is associated with critical activities or beyond floats in non-critical activities Signup and view all the answers

What is the relationship between delay and disruption clauses in the Conditions of Contract?

They do not make provision for payment or entitlement of extension of time a condition precedent to entitlement to compensation Signup and view all the answers

Study Notes

Contract Types and Management

Cost-plus contracts are used in situations where it's difficult or impossible to predict costs during the negotiation, bid, and award process.
Factors that make cost calculation impossible include unpredictable weather, remote locations, combat, or war, and contracts dependent on another contractor's work.

Cost-Plus Fixed Fee Contract

A cost-plus fixed fee contract is desirable when the scope and nature of the work can be broadly defined.
The fee amount is determined as a lump sum based on the scope of work, approximate cost, nature of work, estimated time of construction, manpower, and equipment requirements.

Contract Formulation

Involves two sub-processes: Negotiation and Signing of Contract Agreement.
Negotiation is a process where project owners and their representatives deal with the recommended winner of the tender to agree on the requirements.
Contract agreement is signed, forming the contract document that serves as the basis for contract administration.

Contract Administration

Ensures the successful completion of the project under consideration with substantial compliance of the Terms of the Contract.
Activities included in Contract Administration services:
Identifying contractual responsibilities of stakeholders
Monitoring and influencing the contractor's activities without jeopardizing the owner's interests
Ensuring compliance with the terms of the contract

Closing of Contract

Involves issues related to Maintenance Period and Remedial works, dealing with Left Over Claims and Disputes, and Closing of Accounts.
Maintenance Period usually lasts one year, focusing on quality problems overseen by supervisors.
Left Over Claims and Disputes are settled during this phase.

Contract Changes Management

Uncertainties and Changes are the two most important issues considered in contract change management.
Clauses 51 and 52 of the General Conditions of FIDIC Red Book provide provisions for Alterations (Additions and Omissions).
Requirement changes can be additional or excess, and the contractor is entitled to request and agree upon new or existing rates for such changes.

Change Orders

Written instructions directing the Project Doer to make changes with or without the Consent of Regulatory Bodies.
There are three kinds of Change Orders:
Unilateral Change Order: provides the right to any party to make changes without affecting the other parties.
Bilateral Change Order: requires the agreement and consent of the two contracting parties.
Multilateral Change Order: requires the agreement and consent of three or more contracting parties.

Time and Cost Changes

Requirement changes based on the different types of change orders modify contracts in one of or a combination of the following ways:
Time changes only
Time changes accompanied by Cost Compensations
Cost Changes only

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Description

This quiz covers the different types of contracts used in construction, including cost-plus contracts, and their suitability for various projects.