Contract Mgt_2.1_Contract Types 1

Part 2Contract Types –

Project Delivery Methods

Project Contract Management Contract Types - 1

Construction Project Contract Management

Types of Construction Contracts

Contract Types - 1

• Construction contracts can be simple or very complex – it is up to the client to decide.

• Very simple contracts will have very few terms and will usually be for small projects – if they are used at all.

eg. Building a chicken coop

• Small construction contracts are usually based on the client directly engaging the services of the contractors and managing the project. These are Construction Management contracts.

• Larger projects usually require a Turnkey solution.Project Contract Management Contract Types - 1

Construction Management Contracts

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• The client will employ a Construction manager to manage and direct the project;

• Design etc. will be completed separately and again, the client will engage someone directly to do this;

• This means that the client will have to have a large input at all stages into the project but will also have greater control;


Turnkey Construction Contracts

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• Generally, modern contracts will be Turnkey contracts.

• This means that the client will walk into the facility without having to do any extra works.

• This means that the contract between the client and the main contractor is very detailed and the main contractor has a lot of responsibility.


Turnkey Construction Contracts

• A turnkey or a turn-key project is a type of project that is constructed by a contractor and sold or turned over to a client in a ready-to-use condition.

• Turnkey contracts may also be called Design and Build contracts.

• Turnkey contracts are also known as Engineering, Procurement Construction contracts (EPC).

Contract Types - 1Project Contract Management Contract Types - 1

Types of Turnkey Construction Contracts

• Contractors try to make a profit in a number of different ways out of a project.

• Turnkey projects allow the client and contractor to agree additional services including maintenance, operation and commissioning of the project.

• There are many ways of describing these contracts and we will look at the most common.

Contract Types - 1

Types of Turnkey Construction Contracts

• Design only:• Build only;• Design and Build;• Design, build and operate (DBO);• Design, build, operate and maintain

(DBOM);• Design, build, operate and own (DBOO);• Design, build, operate and transfer

(DBOT);

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• The type of contract will be one of the following below and with a payment method agreed.

• Engineering, procurement, construction (EPC);

• Engineering, procurement, construction, commissioning (EPCC);

• Engineering, procurement, construction, management (EPCM);

Design & Build contracts• The main contractor will design and build the

project;

• A typical example of such a project would be a warehouse.

• The client may choose to let the contractor supply operational, commissioning and similar services after handover.

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Design & Build Construction Contracts

Contract Types - 1Design team Sub-contractors

Main Contractor

Client’s Project Manager

Client


Variations of Design & Build Construction Contracts

• Design, build, operate and maintain (DBOM):

• The main contractor will design, build, operate and maintain the project after completion;

• This is a common contract for constructing toll roads.

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• Design, build & operate and transfer (DBO):

• The main contractor will design, build and then operate the project for the client;

• A typical example would be?

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Design, Build & Operate Contracts


Main Contractor


Client

Operating company


• Design, build, operate and transfer (DBOT):

• The main contractor will design, build, operate for a time and then transfer the project to another party.

• This is very common in Europe where Governments who are short of money get contractors to build roads or tunnels, and allow them to take tolls for a fixed time.

• At the end of this time, ownership of the road or tunnel is transferred to the Government.

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Design, Build, Operate & Transfer Contracts


Main Contractor


Client

Government


Other Design & Build Construction Contracts

• Design and build, operate and maintain (DBOM):

• The main contractor will design, build, operate and maintain the project – for additional payments;

• A typical example of such a project would be a power station.

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EPC Construction Contracts

• Engineering, procurement, construction (EPC):

• Under an EPC contract, the contractor will design the installation, procure the necessary materials and construct it, either through own labor or by subcontracting part of the work. This is similar to a Design and Build contract.

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• Engineering, procurement, construction, commissioning (EPCC):

• This is the same as an EPC contract but the contractor will also be engaged to commission the project.

• This type of contract is used in the ship-building industry.

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• Engineering, procurement, construction management (EPCM):

• Under the EPCM model the contractor does no building or construction – rather he develops the design and manages the construction process on the Owner’s behalf.

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Summary

• The type of contract will be described using the payment method and the work requirement.

• Eg. A contract for power station would probably be a fixed fee EPCC contract.

• Would a Design, Build and Operate contract be suitable?

Contract Types - 1Project Contract Management Contract Types - 1

Review

Which of the following are not a contract:

A. EPC;

B. MAFF;

C. Design & build;

D. Design, build and operate;

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Review

Which of these contracts has the smallest amount of risk for the client?:

A. Construction management contract;

B. Design, Build and Operate;

C. Design and build;

D. EPCM;

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Assignment #2 - Scope

Construction Contract Management Assignment

• You are employed by the Ministry for Rural Rehabilitation as a Project Manager.• You have been tasked with developing and creating the contract for the construction of

a new school on a greenfield site.• The school must meet the following requirements:

• 8 classrooms;• 3 offices;• 2 sets of restrooms, each having male and female facilities;• Have an Exercise yard which must be paved;• Full drainage to be installed and commissioned with on-site sewage treatment tank;• A Centrally controlled Comfort heating and cooling to be installed;• A boundary wall with one set of double vehicle gates plus two pedestrian entrances;• Total floor area = 500 m2;• Construction must meet OSHA standard number 1926 for managing health and safety on site;• Construction quality standards will be as defined by the Client;• Construction must be completed by 31 Dec 2011 as it is due for use in January 2012;• Construction cost cannot exceed $200,000;• Preference should be given to locally appointed Main and sub-contractors where they are

available, suitably qualified and can deliver to the standards required;

Assignment #2

Construction Contract Management Assignment

• You must decide on one of the following types of contract to deliver the project:

• Design & Build;

• EPCM;

• Design, build and operate;

• Construction Management.

• Which type will you recommend and explain why you choose this type and why the others are not as suitable?

Thank youConstruction Project Cost Management

Contract Mgt_2.1_Contract Types 1

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