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An official contract is made between the owner/client and the general contractor of choice. The contract outlines the tasks that must be carried out in accordance with the project specifications attached to the agreement's work scope section in exchange for a particular sum of money. This means that as soon as the appointed representatives of the owner and the contractor sign the contract, both parties have formally agreed to fulfil their respective commitments. Depending on how the contractor will be compensated for completing the work, these contracts may take several forms. Following are some of the most typical contract types:
The most typical sort of contract utilised in the construction sector is the lump payment one. In this instance, the contract between the owner and the contractor specifies the overall cost of the construction as a fixed amount. Regardless of the circumstances, the contractor undertakes to finish the project in the allotted amount of time and money.
actual construction's overall cost. If the contractor completes the project for less money than was specified in the contract, the additional funds become their profit. The contractor is liable for paying any additional costs incurred if the project exceeds the predetermined budget.
Before making a proposal for a lump sum contract, the contractor must take great care to ensure that all project-related factors have been thoroughly examined.
project. Once the project has begun, the contractor must maintain strict control over all budgets and timetables to prevent it from exceeding the stipulated lump sum fee, which could reduce the contractor's prospective earnings.
In this kind of agreement, the owner/client consents to pay the contractor a fee in addition to the project's expected construction costs. This charge often consists of a fixed percentage of the project's cost. Another option is a fixed sum that the owner/client and the contractor have agreed upon. The contractor will always make a profit under this sort of contract, regardless of any unanticipated cost variances. The owner/client of this sort of contract may additionally provide supplies and equipment in some variations. If so, any products that the owner will provide for free are not included in the contractor's proposal.
Maximum Guaranteed Price:
The above-discussed cost-plus-fee contract and the guaranteed maximum price contract have a lot in common. The amount of the cost and fee is capped, which is the only distinction. In this case, any additional costs must typically be paid for by the contractor.
When the precise cost of a project cannot be established before it begins or when a subcontractor is hired for some (or all) of the project, unit price contracts can be helpful. In order to create a specific component or module or to complete a specific technical activity, which may be required at several points throughout the project, the owner/client and the contractor come to an agreement on the installation cost. Cost is then applied to the project budget if and when this component or service is required.
The other contract kinds listed below are tailored precisely to the demands of the contractor's work assignment.
Turn-Key Lump Sum
Lump sum-turnkey (LSTK), as the name implies, is an all-inclusive lump-sum contract where the winning bidder acts as the principal contractor. The main contractor is in charge of carrying out the project's A to Z (engineering, procurement, construction, commissioning, and management to completion) within the set budget; however, depending on his or her internal resources, the main contractor may subcontract out some project components, such as engineering and/or procurement. In most LSTK contracts, the principal or general contractor is expected to provide a finished, functional product.
engineering, purchasing, building, and management (EPCM)
When a third party is hired as the construction contractor, engineering, procurement, and construction management (EPCM) contracts are seen to be the best option. In this case, the EPCM contractor effectively oversees the building of what it has engineered. Similar to LSTK contracts, but less comprehensive, are EPCM contracts.
Construction, Engineering, and Procurement (EPC)
A subclass of EPCM contracts known as engineering, procurement, and construction (EPC) contracts entails the contractor being in charge of the engineering, procurement, and construction functions but not the management function. Owners/clients can prevent any potential conflicts of interest brought on by the contractor's self-management by keeping the engineering and construction responsibilities distinct using this sort of contract.
Both the owner and the contractor want to make sure the project is completed on schedule.
done effectively. A project cannot be considered successful until it has fulfilled a set of requirements. A project that is successfully finished must, at the very least, meet the following requirements1:
It complies with the owner's or client's needs as stated in the work scope, specifications, and bid package.
It was finished on time and on budget.
It was finished in the time frame that was allotted for it in the project schedule.
All HS&E protocols were adhered to.
During project execution, there were no safety violations, incidents, or fatalities.
At the beginning of the project, there were very few or no operational issues. Specialized project employees must continuously monitor certain operations, often known as project controls, to make sure that certain requirements are satisfied.
The three main project controls are typically regarded as costs, scheduling, and QA/QC activities. However, over the past three decades, safety (i.e., HSE) has gained in importance. The project timetable and expenses, however, continue to draw the greatest focus.
The other two criteria have the potential to cause major problems for any project because neglecting safety and QA/QC will ultimately result in higher costs and schedule delays.
Cost controls for projects
The project's costs must be kept under control the entire time to stay within the allocated budget. This covers the complete project life cycle, from setup to handover and all in between. The chapters that follow provide more information on project costs and cost control.
Controls for the project schedule
The timeline for all the work that needs to be completed within the time frame set in the contract is known as the project schedule. It is closely related to cost containment, which was previously covered. The cost increases and vice versa if the schedule is extended for whatever reason.
Safety, health, and the environment (HSE)
Every construction project emphasises controls for health, safety, and the environment (HS&E). To protect workers, the environment, and the general public as a whole, all HS&E rules, regulations, and guidelines issued by government organisations must be followed. The HS&E function is typically run by an HS&E manager, whose duty it is to make sure that all pertinent standards and procedures are followed, regardless of how much they will cost or delay things. Significant financial penalties may result from failure to comply with the HS&E regulations.
Quality Control and Assurance (QA/QC)
The processes and requirements for quality assurance (QA) and quality control (QC) are specifically created for each project and authorised by the owner/client and project management team. All project-related operations, such as engineering calculations, equipment fabrication, soil/surface/ground preparation, foundation installation, etc., must be carried out in compliance with the contract's specified project specifications throughout the project's execution.
Each project carries a number of hazards, including errors in calculations and
fabrication, weather effects, material shortages, theft, fabrication and shipping delays, political unrest, etc. If these risks are not properly addressed, they may have a negative effect on a project's budget and schedule.
In order to handle potential risks early in the project execution phase, it is wise to identify and plan for them in advance. To help identify all potential risks, evaluate them according to the importance of their affects, and design pertinent mitigation methods to be applied by the project personnel, a project risk register is frequently maintained.
Owner/Client and Stakeholders
Stakeholders are any people, groups, or organisations who have an interest in the project. The controlling or managing partner, however, is typically the project's owner or client. The main stakeholder in the project, as indicated in the stakeholder agreements and among the management team, typically serves as the managing partner if the project is sponsored and/or funded by a partnership.
Office at home
The majority of projects begin in an office setting remote from the location of physical installation, where the project's actual construction is done. Typically, this is also where all engineering tasks are completed. The home office is therefore the primary office where the decision-making body is located.
The on-site construction management crew is responsible for managing construction activity on a daily basis. The field office refers to the locations in the field where this staff is based. The field office is typically located in a temporary office setting that may include tents, trailers, or other temporary shelters. It has all the equipment, amenities, and staff needed to perform engineering, drafting, accounting, project controls, QA/QC, and change management, among other tasks. Some field offices offer resident staff members meals and accommodation options that are fully equipped.
Infrastructure and Facilities That Are Temporary
Large projects like refineries, power plants, and paper mills are typically constructed on a new piece of land away from existing cities or towns. Temporary roads, water, power, and campsites for workers are necessary before the main construction work can begin. Temporary facilities/infrastructure are those that are only utilised during the construction process. Such features eventually give way to permanent buildings that can house the long-term workers hired to staff the newly built asset.