Contracts Management
Lecture 6
Contracts by Role
1
Outline
Contract classifications
2. Review of Methods of Payment
3. Review of Contractual Relationships
4. PFI and Partnering
 Objectives / Learning outcomes
To understand the roles and responsibilities under
various contract procurement strategies
1.
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Construction Project Procurement
 Acquisition of all the goods and services
required for the building project from outside the
client organisation.
 Includes consideration of the construction
contracts as well as the supply of the equipment
and materials.
3
Participants

Construction projects have a number of direct
participants.




each of them performing specific roles.
independent of each other
have different and often, contradicting objectives
In order to harmonise project operations, there is
always need to reach agreement


on who provides what and how much is to be paid to who,
when and under what conditions.
the agreement needs to be enforceable; this calls for a
contract of some sort, in which duties and liabilities are
clearly defined for each party.
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Contract Classification
Two classifications may be considered
 METHOD OF PAYMENT
 Covered
last week
 CONTRACTUAL RELATIONSHIPS
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Method of Payment
 The method of payment is an important issue for
the client in all phases of the construction
project. This because it influences decisions
relating to project variations, cash flow,
information flow, client control and …
risk management.
 Types of contract may be classified by payment
in a number of ways
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Method of Payment

Fixed Price




Measurement
Measurement
Fixed
Reimbursable Price




Bill of Quantities
Schedule of rates
Lump sum
Cost plus % fee
Cost plus fixed fee
Cost plus fluctuating fee
Cost reimbursement
Cost reimbursement
Cost reimbursement
Other

Design & Build
Management contract
Fixed
Cost reimbursement

Direct labour
Measurement

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Method of Payment
 Lump sum, measurement and cost
reimbursement contracts offer different
opportunities and risks to the client and other
parties.
 Clearly, each of the contracts is suitable for
different situations.
 From the advantages and disadvantages of lump
sum, measurement and cost reimbursement
contracts, Dr Tutesigensi developed the
following Figure to summarise the salient issues.
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Very
All
a
Little
Lump Sum Contract
Measurement Contract
b
Very
Cost Reimbursable
Contract
All
Little
Minimum
Low
Low
Low
Minimum
Easy
a
b
c
d
Information available at time of contract
Information required for owner control
Client control effort required
Scope for variations
c
d
e
f
g
h
Maximum
High
High
High
Maximum
Difficult
e
f
g
h
Complexity of project
Liklehood of client overspend
Client risk
Client control
A Guide to Choosing an Appropriate Contract
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Method of Payment
 Although a particular contract will be primarily of
one type, it is almost certain that there will be
small elements of the other types within the
overall project.
 A typical
measurement contract will for example
have some elements of the work that will be on a
lump sum basis (eg prime cost items) and some
elements that will be on a cost reimbursement basis
(eg dayworks items).
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Contracts by Contractual Relationships
The management of a project is an important issue to
consider side by side with the type of contract.
 Flexibility is an important feature from the point of view
of the Client as also is the ease or difficulty of effective
co-ordination.
 When construction contracts are classified on the basis
of contractual relationships between participants, four
basic contract types become apparent:

– Traditional general contract (TGC),
– Design and build contract (DB),
– Management contract (MC)
– Construction management contract (CM).
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Traditional General Contract (TGC)
Project Management Team
Client
Designer
Main Contractor
Sub contractors


Mainly managed using the Joint Contracts Tribunal (JCT)
Standard Form of Building Contract, 1980 Edition, also
commonly referred to as JCT 80 or the JCT Intermediate Form of
Building Contract, 1984 Edition, commonly referred to as IFC 84.
For civil engineering projects the ICE Conditions of Contract are
used.
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Design & Build (DB)
Project Management Team
CLIENT
Design & Build Firm
Designer
In house or External
Trades
Contractors
The building design and build contract in UK is
managed using the JCT Standard Form of Building
Contract with Contractor’s Design, 1981 Edition, also
commonly referred to as CD 81.
 For civil engineering there is the ICE Design and
Construct Conditions of Contract.
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
Management Contract (MC)
Project Management Team
CLIENT
Designers
Management
Contractor
Trades Contractors


Managed using the JCT Standard Form of Management
Contract, 1987 Edition, also commonly referred to as MC 87 for
the contract between the client and management contractor.
Managed using standard Works Contract forms for the contract
between the various works sub-contractors and the management
contractor
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Construction Mgt. Contract (CM)
CLIENT
Designer
Construction
Manager
Trades
Contractors
 The construction management contract in UK is
managed using the Joint Contracts Tribunal
Standard Form of Building Contract, 1980
Edition, with amendment and addition of various
clauses.
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Other Contract Types
 Contracts such as Design & Management will
need special forms of contract (one-off) to be
designed for their operation (Pike, 1993; Franks, 1998).
 Standard Forms of Contract should not be used
for contracts where the relationship between
parties is not as envisaged in the contract
document
 i.e.
using ICE Standard Form where the contractor
has some design responsibility
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Public Finance Initiative (PFI)

A promoter is appointed to develop a facility (and
operate it) thereby leaving the client to concentrate on
the core business but meanwhile making sure that
services are provided without capital investment .



design, build, finance and operate (DBFO)
build, own and operate (BOO)
build, own, operate and transfer (BOOT)
Provide and guaranteed lease is similar
 The client pays an annual and/or usage fee to the
promoter
 H.M. Treasury provides contractual guidance

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Partnering
 A procurement approach in which two or more
parties agree to work together, in a relationship
of trust, to achieve specific primary objectives by
maximising effectiveness of each participant’s
resources (Franks, 1998)
 Success depends very much on cultivation of
receptive attitudes of mind and willingness to
succeed rather than enforceable conditions of
contract., although a contract is advisable.
 Partnering creates a quasi-organisation (project
specific ?) with tremendous in-house capability
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
Contractual relationships show different types of
contract; the different types of contract offer different
benefits to the client. It is advisable that judgement be
based on the following:
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The availability of resources in the client organisation;
The required level of involvement by the client in the project;
Complexity of the project;
The need to separate design from management;
The need to accommodate variations in specifications;
The required speed of project execution;
The required level of price certainty at beginning of
construction; and
Clarity of client’s contractual remedies
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Minimum
a
Maximum
TGC
b
DB
c
TGC
DB
TGC
DB
TGC
f
MC
g
MC
CM
MC
DB
d
e
MC
TGC
MC
DB
CM
TGC
DB
MC
CM
CM
MC
TGC
CM
CM
CM
DB
DB
Legend
a
b
c
d
e
f
g
Required level of involvement by Client in project
Copmlexity of project
The need to separate design from management
The need to accommodate variations
Required speed of project execution
Required level of price certainty at beginning of project
Clarity of clients' contractural remedies
A Guide to Choosing an Appropriate Contract
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Conclusions
 Contracts can be defined by
 Method
of payment
 Contractual roles
 Many procurement methods have Conditions of
Contract for that particular method
 More recent procurement methods do not have
standard conditions of contract
 Different types of contract offer different benefits
to the client and different risks to all parties
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