Construction Contract

Topics: Construction, Contract, Project management Pages: 11 (3895 words) Published: April 10, 2013
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1.0| Is it possible for one standard form of construction contract to meet the need of every project? Discuss by reference to at least two forms in common use in industry.| 2| 1.0| What is a Construction Contract?| 2|

1.1| Why use a standard form of contract?| 3|
2.0| Different forms of contract| 3|
| 2.1 PWD (Public Works Department) FORM OF AGREEMENT| 4| | 2.2 FIDIC| 4|
3.0| Main differences between both forms of contract| 6| | 3.1 Payments | 7|
| 3.2 Variation| 8|
| 3.3 Extension of time| 9|
| 3.4 Unforeseen ground conditions| 9|
| 3.5 Delays and costs| 10|
4.0| The construction industry| 10|
5.0| Conclusion| 11|
6.0| Reference| 12|

Is it possible for one standard form of construction contract to meet the need of every project? Discuss by reference to at least two forms in common use in industry.

1. What is a Construction Contract?
A construction contract is a legally binding agreement between two parties under the terms of which one party agrees to perform a specific job for which the other party agrees to pay. This type of contract covers very expensive and complex as well as simple projects. There are two types of clients that use construction contracts namely residential and commercial. A residential construction contract includes three basic elements. They are project scope, schedule of work and payment details. This type of contract takes place between the property owner who has requested the work and the project manager for the construction company. The project scope is a statement showing all the details of the construction work included in the contract. A schedule of work specifies the start date, milestones, and project completion date. Finally, the payment details section includes the total project cost and payment dates. The basis of payment of all construction projects is based on percentage of completion. At the beginning of a project, a deposit of no more than five percent of the total costs is provided and the subsequent payments are made with the completion of the predefined section of work. On the contrary, commercial construction contracts vary slightly from residential contract format, as more details are required in this type of contracts. In addition to the standard items mentioned above, a commercial construction contract has procurement process details, specifications about legislative coverage, contingency plans, and dispute resolution instructions. The principle signatory document lists all the people who are involved in the project, their role, and reporting structure. This document is especially important on a large project, as it ensures that all parties have agreed to the authorization for changes, payment, and design elements.

2.1 Why use a standard form of contract?
The use of standard form construction contracts has a number of advantages for the various parties that participate in the construction process, including the speed at which tender documents can be produced and familiarity for contract administrators and tendering contractors. Most construction professionals are familiar with their operations, limitations and drawbacks thus leading to administrative ease and cost efficiency. According to Nayagam and Pathmavathy (2005), “Standard Form construction contracts provide a basic legal framework identifying the rights, obligations and duties of the parties; establish the ambit of the powers and duties of the contract administrator”. Moreover, standard form contracting reduces transaction costs substantially by precluding the need for the parties involved to negotiate the many details of a contract each time a fresh project is started. This saves a lot of time and costs as well. Further to this, tender comparisons are made easier since the risk allocation is same for each renderer. So parties are assumed to appreciate that risk allocation and...
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