Other long-standing procedures Lump sum construction contracts Under the standard ICE or FIDIC Conditions, the financial

outcome of a project is not absolutely fixed, because the promoter has to pay for any extra work caused by conditions which an experienced contractor could not have foreseen . This does not suit some promoters who wish to be certain what an intended project will cost, so fixed price contracts came into use, often for a lump sum. Under them the construction contractor has to take all risks, such as meeting unexpected ground conditions. Such fixed price contracts can be satisfactory for both promoter and contractor for relatively simple, easily defined works involving little below-ground work. Naturally a contractor s price for undertaking a contract for a fixed sum is higher than for a bill-of-quantities contract for the same work under which he is paid by measure of the work he is required to do. But this can suit a promote r who prefers to be certain about his financial commitment and where the works he requires can be well defined in advance. However, if the possible risks on the contractor appear high due to many imponderables such as the works being large or complicated, or ground conditions being uncertain then the extra charge made by the contractor for shouldering the risks may be high. Should the promoter require amendments as construction proceeds, then these will also prove expensive. Cost reimbursement contracts These contracts have been in use for many years on projects which involve unforeseeable amounts or kinds of work such as the repair of a dam or collapsed tunnel, or repair of sea defences. Payment to the contractor is usually on the basis of: (i) direct costs of materials, labour and plant used on the site; plus (ii) a percentage addition for overhead costs; plus (iii) a fixed fee, or furthe r percentage on for profit. Often a cost reimbursement contract for specialist work is negotiated with a suitably experienced contractor. If competitive biddin g is required this would be based on comparison of contractors quotations for overheads and profit. The advantage is that the promoter s engineer in charge of the project can work in partnership with the contractor to devise the cheapest means of overcoming problems. The main disadvantage for a promoter is that he carries all the risk of cost overruns, while the contractor is assured of his profit and fees. Where the works can be reasonably well defined, it may be best to use a measurement type of contract with a contingency sum allowed for any changes found necessary. Sometimes a target cost is set under a cost reimbursement contract, the contract or sharing in any savings or excesses on the target cost. This gives the contractor an incentive to be efficient; but problems can arise if the target ha s to be altered because the work found necessary differs from that expected (see Section 3.1(e)). Design and build contracts These contracts are useful to a promoter who wishes to delegate the whole process of design and construction, or for whom gaining the output of a project is of more importance than the details of design. They also suit promoters who would not expect to be involved in construction work, such as health or educatio n authorities. D&B contracts can offer a price advantage because the contractor can reduce his costs by using easy-to-construct, standard, or previously used designs which suit his usual methods of construction and existing plant. Adisadvantage to some promoters is that they lose control over the designs for which they are paying and may thus not get works wholly to their liking. Such contracts should only be used where there is little risk of the promoter s

requirements changing during construction. Since the contractor is taking on more risks including those of design and buildability, prices will usually be higher than for a measurement contract. Any attempt to achieve a short completion time for a project by use of such conditio ns may also lead to increased prices and possible overruns of time, as not all of the processes of design and construction can overlap.