Microsoft PowerPoint - Chapter 5a - CONTRACTUAL ARRANGEMENT - Contract Price

7/29/2019 Microsoft PowerPoint - Chapter 5a - CONTRACTUAL ARRANGEMENT - Contract Price.

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PROFESSIONAL PRACTICE IPROFESSIONAL PRACTICE IPROFESSIONAL PRACTICE IPROFESSIONAL PRACTICE I

[QSD 289][QSD 289][QSD 289][QSD 289]

1MohammadMohammadMohammadMohammad NasharudineNasharudineNasharudineNasharudine ShuibShuibShuibShuib


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SECTION DESCRIPTIONS LINKS

1 INTRODUCTION2 GENERAL MATTERS

3 STANDARD FORM OF CONTRACT

4 METHOD OF PRICE DETERMINANTION

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5 CONTRACTOR SELECTION & APPOINTMENT

6 PROCUREMENT OPTIONS

7 CONTRACT STRATEGY

8 CLIENT PROCUREMENT NEEDS


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Client organizations are divided between those inprivate and public sectors although this distinctionis becoming more difficult to define since the

privatization of many national bodies. The private sector includes industrial, commercial,

social, charitable and professional organizations,and individuals.

e pu c sec or s a en o mean governmendepartments, nationalized industries, statutoryauthorities, local authorities and developmentagencies.

The experience which a client has of building

procurement ranges from extensive, in the case of aclient with a project management team, to none,where a private individual may want a developmentonly once in a lifetime.

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The traditional method of organizing

construction work starts with appointing aconsultant designer, usually an architect or

engineer, or both. Other specialists may be

,

appointed to provide cost information,

prepare bills of quantity, compare bids and

maintain financial management during

construction.

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BASE ON CONTRACTPRICE

CONTRACTUALARRANGEMENT

BASE ONCONTRACTORSOBLIGATIONS

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Fixed Price

Cost

Reimbursement

Conventional

Design and Build

ManagementContracting

Others


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MEASUREMENTCONTRACT

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@CONTRACT PRICE

QUANTITIES

RATES

DRAWINGS &SPECIFICATIONS

BILLS OFAPPROXIMATEQUANTITIES


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LUMP SUM(contract sum

pre-determined)

FIXED PRICE

RE-MEASUREMENT(contract sum to be

ascertained on completion)

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Bills of Quantities(BQ)

Drawing andSpecifications

Schedule of Rates(adhoc/std)

Approximate Billsof Quantities


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FIXED PRICE


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LUMP SUM(contract sum

pre-determined)

FIXED PRICE

RE-MEASUREMENT(contract sum to be

ascertained on completion)

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Bills of Quantities(BQ)

Drawing andSpecifications

Schedule of Rates(adhoc/std)

Approximate Billsof Quantities


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The contractor contract to do the work at a

price he estimated in advance.He takes the risks of calculating approximately

how much work is involved & its cost.

Contract sum is predetermined & stated in thecontract.

Traditional contracts are usually fixed price

contract.

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LUMP SUM(contract sum pre-determined)

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Bills of Quantities (BQ) Drawings and Specifications


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The contract price is agreed at time of the

formation of the contract. The contractor is responsible for carrying out

all the works shown in BQ or Drawings and

spec ca ons. Example: PAM, PWD, CIDB etc.

Advantages: client is able to define the

works & prepare documentation.

Drawbacks: Documentation must be

complete before tender.

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Prepared by QS

Subject to adjustment for variations. For civil engineering works, the BQ are based on

estimated quantities (Provisional Quantities),

the whole work subject to re-measurement. All the contractor tender on the same

measurement data.

Drawback: provide the best basis forestimating, tender comparison & financialadministrations.

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The contractor is responsible for carrying out all

the works as shown on drawings &specifications.

The contractor must calculate his TENDER SUM

ase upon e

SPECIFICATIONS.

The contractor will calculate his own quantities.

The contractor must submit & priced the

schedule of rates in order to value variations.

drawback: does not provide for easycomparison of tender sums.

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RE-MEASUREMENT


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RE-MEASUREMENT(contract sum to be ascertained

on completion)

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Schedule of Rates(adhoc/standard)

Approximate Bills ofQuantities


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The parties do not pre-agree any price for

the works as a whole. But they do pre-agree the rates of payment

to which the contractor shall be entitled.

Sometimes described as dayworks contract orcontract with approximate quantities.

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The cost of the works is calculated by applying anagreed schedule of rates to the work actuallydone.

The schedule is similar to a BQ but without thequantities.

Contractor is re uired to insert his rice a ainst

the items in the schedule. Alternatively, a priced schedule is prepared & the

contractor is asked to quote a percentageadjustment (plus @ minus) to the rates.

The contractor is paid for the actual workdoneaccording to the schedule of rates.

The total cost the project is unknown until the

works is completed. 33


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All the works would be re-measured upon

completion.

Approximate quantities are prepared & thecontract price is based upon the actual quantities

of works executed which are re-measured durin

the course of construction. Example: Civil Engineering Works

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COST


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COSTCOSTCOSTCOST

COSTCOSTCOSTCOST ++++ %%%%

COSTCOSTCOSTCOST ++++ FIXEDFIXEDFIXEDFIXED

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REIMBURSEMENTREIMBURSEMENTREIMBURSEMENTREIMBURSEMENT FEEFEEFEEFEE

COSTCOSTCOSTCOST ++++FLUCTUATINGFLUCTUATINGFLUCTUATINGFLUCTUATING

FEEFEEFEEFEE


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Also known as PRIME COST / COST PLUS because

the method of payment is by reimbursement tothe contractor of his prime cost plusmanagement fee.

r me cos means: e o a cos o e

contractors, of using & hiring plant & employing

labours to carry out construction works.

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Advantages

The time required for preparation of tender

document & for obtaining tender is minimized.

Early start on site to be made.Work on site may proceed before the detailed

desi n is com lete.

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Disadvantages

The parties have least indication of theircommitments.

Cost of construction to the client is greater. The computation & verification of the total

prime cost is a long & tedious process.


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Most uneconomical type of contract & should

only to be used in certain circumstances.

For example: where cost is less important factorthan time.

3 types:-

a. Cost Plus Percentage Feeb. Cost Plus Fixed Fee

c. Cost Plus Fluctuating Fee

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COST PLUSPERCENTAGE

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REIMBURSEMENTCONTRACT

COST PLUSVARIABLE FEE

COST PLUS FIXEDFEE


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Contractor is paid actual cost of the work

incurred plus a percentage of the actual cost, tocover his overhead & profit.

May provide schedules to determine the prime

cos .

No incentive to contractor to make good

progress or to save money because his fee rise

with the total cost of the job.

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The contractor is paid a fee equal to an agreed

% of the prime costs.

The fee paid to the contractor is a fixed sumwhich normally vary with the total prime cost.

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Due to uneconomic organization of the contract,

inefficiency & excessive waste, the total prime

cost was RM55,000.00.

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The contractors overhead still RM7,500 but theprofit would be RM3,500 [RM11,000 RM7,500]

More inefficient contractors operations, thegreater waste of resources, the higher fee paid

to the contractor.


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The fee is a fixed lump sum.

The fee remains constant even when cost vary.The contractor does not profit by increased

expenditure unless the nature of the work is

su s an a y a ere .

The contractor has more incentive to finish

quickly & minimize his profit as percentage

turnovers.

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The fee paid to the contractor is a fixed sum

which normally does not vary with the total

prime cost.

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Due uneconomic organization of the contract,

inefficiency & excessive waste, the total Prime

Cost RM60,000 (excess RM10,000), then thetotal cost would be:-

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Similar to fixed fee. An estimate is made of the

total cost. The amount of the fee received by the

contractor varies inversely to the costs actually

ac eve a s ng sca e.

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Microsoft PowerPoint - Chapter 5a - CONTRACTUAL ARRANGEMENT - Contract Price