CONTRACT ASSIGNMENT

Author
Marla Narasimha koundinya st118220
DESIGN-BID-BUILD
Introduction
■ Design-Bid-Build (DBB), or design then bid then build, is the traditional delivery
system for the public sector,
■ in which an agency will use in-house staff (or, alternatively, use consultants) to prepare
fully completed plans and specifications that are then incorporated into a bid package.
■ Contractors competitively bid the project based on these completed plans and
specifications.
■ The agency evaluates the bids received, awards the contract to the lowest responsible
and responsive bidder, uses prescriptive or method specifications for construction, and
retains significant responsibility for quality, cost, and time performance.
Flow of work

Conceptual Final
Select
Planning Design Detailed
Architect
drawings Drawings

Make tender Select

Tendering
documents Contractor
Payment methods
1. Lump sum contracts - where the contract sum is determined before construction starts,
and the amount is entered in the agreement.
2. Measurement contracts – where the contract sum is accurately known on completion
and after re-measurement to some agreed basis.
3. Cost reimbursement – where the contract sum is arrived at on the basis of the actual
costs of labor, plant and materials, to which is added a fee to cover overheads and
profit.
Owners Risk
1. Requires significant owner expertise and resources
2. Shared responsibility for project delivery
3. Owner at risk to contractor for design errors
4. Design and construction are sequential, typically resulting in longer schedules
5. Construction cost unknown until contract award
6. No contractor input in design, planning or value engineering (VE).
Contractor’s Risk
1. Requires significant owner expertise and resources
2. Shared responsibility for project delivery
3. Owner at risk to contractor for design errors
4. Design and construction are sequential, typically resulting in longer schedules
5. Construction cost unknown until contract award
6. No contractor input in design, planning or value engineering (VE).
DESIGN BUILD
Design and Build

■ Design and Build procurement works on the basis that the main
contractor is responsible for undertaking both the design and construction
work on a project.
■ Design and build projects can vary depending on the extent of the
contractor’s design responsibility and how much initial design is included
in the owner’s requirements.
■ Traditional approach contains designer on one side and contractor another
side but in Design-Build only contractor is responsible for both design
and building. It is now commonly used in many countries and forms of
contracts are widely available.
Features of Design and Build
■ As design and construction can be carried out in parallel, the
overall programme time of design and build projects can be
shorter
■ There is reasonable certainty over costs because the contract
price is known at the outset.
■ Design and Build is a relatively low risk procurement option
for the employer, in terms of cost and time.
■ There can be a risk related to design and quality, particularly if
the owner's requirements were not properly gathered and if
insufficient time went into examining the contractor's
proposal.
Types of Design and Build Contract

Design and
Build

Package deal
Design and
or turnkey
build contracts
contracts
 Package deal or turnkey contracts Design and build contracts
This is where the owner accepts a proposal This is where project documents are compiled
based on a standard design from the contractor, with the contractor's design obligations relating
effectively providing a single point of to the whole of the works in mind.
responsibility as the contractor is responsible
for the design and construction of the entire
project.

Structure of design and build contract

There are 2 types of design and build contracts.
Design and consultant

client

client Design and

consultant
Contractor
subcontracto
Contractor r

subcontractor
Advantages of design and build contract

■ Construction can start earlier, reducing the overall project delivery time
■ A lump sum can be obtained before the design is complete.
■ The employer only has one organisation to deal with
■ The ability to adopt a two stage procurement approach
■ The ability to novate the design team to the design and build contractor
 Disadvantages of design and build contract
■ If the specification is too open to interpretation, the contractor may exploit this to their
advantage
■ Tender returns may be difficult to compare if an inadequate pricing document is not
included with the tender documents
■ The employer may pay more if they ask the contractor to take on an unreasonably high
level of risk due to a lack of design clarity at the point of tendering
■ The quality may be compromised if the owner’s requirements do not protect the owner
adequately by way of ensuring specifications are adhered to
LUMP SUM
Lump sum
What is lump sum?
Lump sum is a payment method where the
contractor agrees to provide contractually
specified work at a one specific price.

When to use lump sum contract?

•A lump sum contract is to be used if the requested work is well-defined and
construction drawings are completed.

•It is also a preferred choice when complete pre-construction studies and assessments
are completed and the contractor has analysed those documents.

•Typically used with Design-Bid-Build method of project procurement.

Risk associated with Lump sum
payment method
Owner
■ Low financial risk as the scopes are well
defined and the final price is known.
■ Changes in lump sum contract are difficult
and costly. Contractor can claim high.
■ Risk associated with work quality. If the
owner is not able to write the
desired specification, then he should expect
that the contractor will use the lowest
suitable grade materials. This will increase
the profit of the contractor.
Contractor
■ High financial risk to Contractor as the
BOQ is done by the contractor.
■ The dynamics of inflationary risk if not
considered in the contract.
■ If completion of the project delay can cause
penalty. To avoid that Contractor need to
assign best personnel due to maximum
financial motivation to achieve early
completion and superior performance .
REMEASUREMENT
Re-measurement
What is Re-measurement?
•The Re-measurement Contract contains a Bill of Quantities ( BQ )provided
by the employer or its consultants, however the BQ quantity is estimated and
not final . The contractor will quote against each BQ item and enter a unit rate
or unit price to build up the total contract price on basis of those BQ quantities
.

•Payment is made on the basis of units of work actually done and measured in
the field multiplied by the unit prices.

•Useful on projects where the nature of the work is well defined, but the
quantities of work cannot be accurately determined in advance of construction
 Risk associated with Re-measurement payment method
Owner
■ High financial risk as the scopes are not
well defined and the project cost is not
finalized ,only unit price is decided.
■ Changes in specification of any work can
be costly. Contractor can claim high.
■ Risk associated with bid process to
determine work quality. As the end
product of same specification can be
different due to different method
statement, as a result there is a imbalance
in bid process.
Contractor
■ High financial risk to Contractor as the
unit price is decided earlier if there any
market inflation in terms of material or
labor can effect the overall project cost.
■ Cancellation of any item can reduce the
overall profit as the bidding is too
competitive and the contractor look for an
overall profit.
■ Risk associated with quality, if any of the
work is not done as given in
specification(method statement) can
cause penalty.
UNIT PRICE CONTRACT
 Unit price contract
■ A written contract wherein the owner agrees to pay the contractor a specified amount of
money for each unit of work successfully completed as set forth in the contract.
■ Re-negotiable for rates if the quantity of work considerably exceeds the initial targets.

Where to use unit price contract

•Require sufficient design definition to estimate quantities of units
•Ideal for work where quantities can not be accurately established before construction starts
•Owner is at risk for total quantities, contractor is at risk for fixed unit price
Advantages of Unit price contract
■ Easy for contract selection
■ Early start is possible
■ Saves the cost of preparing bills of quantities by the contractor
■ Fair basis for competition
■ Compared to lumpsum contract changes in document can be made eaisly by owner
■ Less risk for contractor
Disadvantages of Unit price contract
■ Final cost is not known at start (only Boq is estimated)
■ Staff needed to measure the finished quantities and report on the units not completed
■ Unit price some times tend to draw unbalanced bid
Critical items of Unit price contract
■ Unbalanced bids
■ Completed work estimation
■ Defining unit
■ Delay in completion
Risk

Owner Contractor

Risk
Cost Reimbursable contract
■ In cost Reimbursable contract owner must reimburse the cost and expenses of contractor
and in addition to that fee must be paid
■ Cost-reimbursable contracts are used when the scope of work isn’t well defined or is
subject to change
■ cost reimbursable contract might be used where the risks associated with the works are
high
COST REIMBURSABLE
Where to use Cost Reimbursable contract

■ Cost-reimbursement contract is appropriate when it is desirable to shift some risk of

successful contract performance from the contractor to the buyer.
■ Commonly used when the item purchased cannot be explicitly defined.
■ Used where there is not enough data to accurately estimate the final cost.
Types of Cost Reimbursable contracts

Cost
Reimbursable

Cost plus
Cost plus fixed Cost plus Cost plus award
percentage of
fee incentive fee fee
cost
Advantages of Cost Reimbursable contract
■ A cost-plus contract is often used when long-term quality is a much higher concern
than cost
■ Final cost may be less than a fixed price contract because contractors do not have
to inflate the price to cover their risk
Disadvantages of Cost Reimbursable contract

■ There is limited certainty as to what the final cost will be.

■ Requires additional oversight and administration to ensure that only permissible costs
are paid and that the contractor is exercising adequate overall cost controls.
■ There is less incentive to be efficient.
Critical items of Cost Reimbursable contract

■ Oversite administration
■ Design changes
■ Work delay
■ Contract breach