CHAPTER 3

CONSTRUCTION CONTRACTS
AND CONTRACT DOCUMENTS

Assoc. Prof. Dr. TOLGA ÇELİK

CIVIL ENGINEERING DEPARTMENT

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 CONSTRUCTION CONTRACT
Contract is a signed document between two
parties (client & contractor) that binds the
contractor to do the job with the specified
requirements and the client to pay for it.
Contract in Construction industry may be
grouped in two categories:
A. competitive bid contracts
B. Negotiated contracts

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 COMPETITIVE BID CONTRACTS
Competitive Contracts are:
– Unit Price Contracts
– Lump sum contracts
Unit price Contracts
Total cost = estimated quantity X unit price in bid
(Bid is based on the price per unit of work)
Advantages
▪ Payment can be calculated easily
▪ freedom to alter the work of construction
▪ tenderers prices are on exactly the same basis
▪ plans & specifications do not need to be completed
in detail
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 Lump Sum Contract
• Bidding is done on a total amount of the works
specified.
• Drawings and specifications need to be completed in
every detail.
• Bill of quantities is provided not for pricing but to list
the activities to be done.

Advantages
• Avoid a lot of detailed accounting & measurement
• Owner does know the exact cost of the work
• The work is straightforward for the contractor and he
will try to complete it as early as possible to increase
his profit.
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Disadvantages of Lump sum contracts
• alteration of project during construction causes troubles.
• plans & specifications must be comprehensive and
include every detail.
• contractor tends to use cheaper labour and materials.

Lump Sum Contracts are good when:

• the work is not very large
• the work precisely described in all detail
• no risk attached to its construction (unforeseen troubles)
• not many alterations are necessary in construction stage.

However, combination of Lump-sum and unit price

contracts may be used in one work,

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 NEGOTIATED CONTRACT
• It is also known as Cost + Contracts.
• Price = Cost + Profit
• profit is professional fee, subject to bidding and
negotiations.
• These contracts are useful when:
– complete plans & specifications are not available
– there is uncertainty to exact cost of the
construction
– possible wishes to change the work during
construction.
– in the case of emergency or war

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TYPES OF NEGOTIATED CONTRACTS
a) Cost + Percentage of Cost Contracts
(outlawed in some countries)
b) Cost + Fixed Fee Contracts
c) Cost + Fixed Fee + Profit Sharing Contracts
d) Cost + Sliding Scale of Fees Contracts
e) Cost + Guaranteed Ceiling Price Contracts

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a) Cost + percentage of Cost
(outlawed in some countries)

Includes great disadvantages:

• Contractor will tend to pull up the cost of the
work to increase his fee - owner has a great risk.

b) Cost + Fixed Fee Contracts

Disadvantages:
• Owner has risk of increasing construction cost.
• Contract is not incentive for the contractor to reduce
the cost.

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c) Cost + Fixed Fee + Contract with a
Profit Sharing

• An increase in the profit of contractor if he

decreases the estimated cost.
• Contractor may get 25% to 50% of the saving
he makes.
• One of the best negotiated contract

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 d) Cost + Sliding Scale of Fees
• Construction Cost Contractor's fee changes
proportionally to the actual cost of the work with a sliding
scale of fixed fee.
• However, a minimum fee is guaranteed to contractor.
• There is an incentive to the contractor to reduce the cost
of construction.
• It is good and preferable by the clients.

For example,
Construction Cost Contractor Fee
6.0x106 200,000 YTL
5.5x106 220,000 YTL
5.0x106 240,000 YTL

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 e) Cost + Guaranteed Ceiling Price

• Contractor guaranties that the cost of

construction will not exceed a maximum.
• The contractor can not get any
compensation for the exceeding amount.
• The contracts require exact plans and
specifications to fix the ceiling price.

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Sources of controversy in (Cost + Contracts)

The source of controversies in negotiatead

contracts are:
 contractor overhead (expenses)
 depreciation cost of equipment
 Contractors always try to get them counted
as parts of the costs.
 In reality they are to be paid by the
contractor as cost of doing his business
and should be included in contract
document.

New equipment purchasing is under negotiation.

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 DOCUMENTS OF CONTRACT
A construction contract comprises:
a) Contract drawings: Pictorially shows the works, dimensions &
levels.
b) Specifications: work is described in Words . The quality of
materials, workmanship, and testing methods .
c) Bill of quantities; gives the expected measure of each operation
from the drawings. Operations are classified according to trade
or location within the work.
d) General Conditions of Contract; defines the liabilities,
responsibilities, and power of employer, engineer & contractor.
Methods of payment, insurance also mentioned.
e) Tender: Signed financial offer of the contractor to construct the
work.
f) Letters of Explanation; Covers agreed matters between the
parties to elucidate their intentions.
g) Legal Agreements; Signed by both parties, owner & contractor,
confirming their intentions.
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FORMS OF CONSTRUCTION CONTRACTS
1. Competitive Bid Contracts
– No standard type of contract for all phases of
engineering work.
– However, all contracts include:
a) Introduction: date of agreement & parties take place
b) Articles: (could be standardized and printed)
– work to be done and price
– timing (beginning & ending)
– liquidated damages
– required security
– payment to the contractor
– definition of terms
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FORMS OF CONSTRUCTION CONTRACTS (continued)
– responsibility & right of owner
– responsibility & right of contractor
– duties & authority of the Engineer
– progress and control of work
– insurance, safety and security requirements
– provisions relating to subcontractor
– changes in the work
– termination of contract

c) Final concluding paragraph - signature and

witnesses of parties.

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FORMS OF CONSTRUCTION CONTRACTS (continued)

2. Negotiated Contract (selection of contractor)

Selection of contractor is especially important.
He acts as an agent of the client.
Consider those factors in selecting contractor:
• Previous experience in that area
• reputation for fairness and excellence in performance
• quality and experience of personnel
• record in management & co-ordination of
subcontractors.
• available working capital
• available plant & equipments
• normal volume of work per year
• incomplete works in progress
• available work capacity
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FORMS OF CONSTRUCTION CONTRACTS (continued)

Terms of Contract
• definition of work, estimated cost, & the fee of contractor
• time for completion
• responsibilities of owner, engineer & contractor
• definition of reimbursable direct cost & overhead costs
• labour & material
• provisions for plant rental or purchase
• subcontractors
• method of compensation
• Changes
• Termination
• Accounting method and control
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 SPECIFICATIONS

• While the drawings shows the extend of the

quantity of works, specifications define the quality
and standard of it.
• Specifications are prepared by engineers, and
contracts are prepared by lawyers.
• Specifications are supposed to be specific- not
general.
• In specification, the following characteristics should
be covered.

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 SPECIFICATIONS (continued)

a) Balanced composition: all requirements to be

consistent with the results desired.
b) Definite requirements
➢ There must directions not suggestions
➢ no indefinite expressions like "reasonable“ or
"best quality"
➢ define the days as working days or calendar days
c) Accuracy
➢ non-accurate and misleading information will be
avoided.
➢ repetition of text are sources of error.
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 SPECIFICATIONS (continued)

d) Practicability
➢ Use standard sizes and patterns as much as possible.
➢ Un-practicable requirements let the contractor to add
an extra safety factor to protect himself.
e)Preventation of conflicting requirements
➢ they are sources of error.
f) Fairness
➢ don't impose the contractor harsh & unfair conditions
➢ don't cancel difficulties from him.
➢ risk increases the cost of construction.

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 TYPES OF SPECIFICATIONS
1. General Provisions
2. Technical provisions

1. General provisions
➢ related to the whole work, to the standardized
materials.
➢ relate to control of the work & drawing reference.

a) Drawings (If the contractor will prepare)

➢ they must be exact
➢ suitable to drawings techniques
➢ details must be prepared.
b) The sequence of the work:
➢ determined by the contractor
➢ when necessary sequence of operations can be
changed. 21
 TYPE OF SPECIFICATIONS (continued)
c) The progress schedule
➢ Periodical progress reports to the engineer
➢ new schedule when construction time is extended
d) Control of Materials
Contractor is required to provide all sample and
bear all expenses for their sampling, transportation
and testing.
e) Space
The space for construction operations and storage
for materials should be written explicitly.
f) Information
Information on water, light sources and costs should
be given and expenses for their use.

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 TYPE OF SPECIFICATIONS (continued)

g) Facilities to the Engineer

Contractor will be required to furnish at his own
expenses site office for the engineers.
How many weeks after commencing of the work
these facilities will be ready should be mentioned.
h) Warranties
The finished work must be free from defects for a
special period (usually one year from the acceptance
date of work),
i) The owner's right to use
➢ Owner's right to use completed portions of work
should be stated.
➢ Such portions acceptance by owner will be
relieved from contractor's responsibilities.
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 2. Technical Provisions
This part includes quality requirements of the work
and technical requirements for inspection and test
during construction.

Technical provisions divided into three:

➢ Specification for materials
➢ specification for workmanship
➢ specification for performance.

a) Specification for Materials

➢ materials should be specified by their properties
➢ type of the tests on the material must be defined.

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b) Specifications for workmanship
➢ specify the result, not the method
➢ specify tolerances on the results
➢ Define construction methods or procedures when
necessary for particular purposes
➢ limitations or restrictions on the contractor's method
for coordination the work.
➢ precautions to protect the work or adjacent property.
➢ methods of inspection and test

c) Specification for Performance

➢ provisions made for tests
➢ provisions made for inspections
➢ warranties to guarantee durability
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 BILL OF QUANTITIES
• Bill of Quantities (BOQ) is a contract document
to define the quantity of work to done in each
type of activity of the contract.
• quantities are Exact measured from drawings
• Drawings can be architectural; civil
engineering; structural engineering;
geotechnical engineering; electrical;
mechanical, chemical; etc.
• when the work is constructed the quantities are
replaced by the measurement of the actual
quantity of the work.
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 BILL OF QUANTITIES (cont’d)
▪ Drawings must be detailed enough to be able to
produce accurate and thorough Bills of Quantities;
▪ Well prepared and accurate bills of quantities lead
to
▪ well prepared tenders – do not leave the
contractor guessing;
▪ Easy evaluation of tenders;
▪ Smooth administration of the contract.
 Nature of BOQ
• Bills of Quantities comprise a list of items of work
which are briefly described.
• The BOQ also provides a measure of the extent of
work and this allows the work to be priced.
• The work included in the item is defined in detail by
the rules in the Method of Measurement.
• The item descriptions are therefore a shorthand to
allow the relevant rules of the Method to be identified.
• The measure may be a single item or number,
dimension (linear metre, square metre, cubic metre),
time (hrs, weeks) or weight.
 Definition - Bills of Quantities
• Definition:
– Bill of Quantities is a compiled list of items of work
to be performed by the contractor;
– They describe the works giving quantities and
extent of work involved;
– These are referred to as item of work;
– Item of work are generally arranged in the BOQ in
the order of their execution;
– BOQ items are separated to reflect the different
trades that may be involved in the project;
 Function of BOQ
• The Bills of Quantities may serve a number of
functions as:
– A breakdown of the tendered price, with no
contractual status, but providing information for
the selection from tenderers;
– An estimate measure of the work for the tendered
price, to be used to arrive at a revised contract
price once the actual quantities of work carried out
are measured.
– A schedule of rates as the contract basis for
valuing variations in the work.
– A basis for measure of the value of work
completed for interim payments.
– Contractors are asked to insert their prices against
the work items;
 Functions of BOQ (cont’d)
• In BOQ a cost column is also added. This cost column
includes only the direct costs of the work item. When this cost
is summed up, together with a ‘mark up’ they form the tender
sum;
• Mark up: includes, (a) indirect costs, (b) risk costs including
contingency cost, (c) profit
• Indirect cost includes:
– (a) site overheads (sometimes called as ‘project overhead’)
– (b) head-office overhead.
• The preparation of BOQ for building works is normally
prepared by Quantity surveyors while that of civil engineering
works is normally prepared by civil engineers;
• However, in a lot of cases, they work together.
• In some special cases, other branches of engineering are
incorporated such as mechanical engineers, electrical
engineers, service engineers etc.
 Measuring Quantities – Taking-off
• All items are measured as accurately as possible to
enable a fair price to be obtained;
• The BoQ should in principle contain all items
described by drawings (or implied) and all other
possible items that a contractor may have to perform
to complete the works.
• If at the construction stage a contractor is
necessitated to perform work that was not originally in
the BOQ, a variation is normally issued.
• Frequent or excessive variations raise concerns from
the client – either concerns for incompetence of the
engineer or corruption!!
 Sample Items
Items in this class in a BOQ format could be for example:
Unit
Code Description Unit Qty Amount
Price
Provision of ordinary prescribed
concrete mix grade C25, sulphate
F156 m3 50
resistant maximum aggregate size
14mm
Placing of mass concrete for
F413 blinding of thickness not exceeding m3 50
150mm
Reinforced concrete for footings m3
F524 thickness exceeding 500mm 32

Pre-stressed concrete for beams m3

F663 cross-sectional area between 29
0.1 –0.25m2

To be inserted by contractors
 Recommended Method of Preparing BOQ
• Computer aided systems can be based on simple
database software or spreadsheets to sophisticated
softwares.
• Microsoft Excel Templates, Standard software such as
those listed on http://www.bidshop.org/
• Some demo versions of these are freely available from
the web.
• More sophisticated software are available.
 Reasons for Bills of Quantities
• All tendering contractors base their prices on the same
information & therefore tenders are strictly comparable
(even if an error exists in the Bill)
• Contractors are saved the costly exercise of each
having to take off quantities for themselves.
• Bills provide a fair basis for valuing variations and
adjustments for the final account.
• Bills may provide a convenient basis for valuation of
certificated stage payments during the contract, before
the accurate re-measurement figures are available.
• Bills provide an approximate checklist for the
contractor to order materials and other resources.
• Bills can provide data for cost analysis for use in cost
planning of future projects.
 RECOMMENDED ITEMISING METHOD
➢ For large works divide it into separate groups
➢ Each group is subdivided into various trades such as
Demolition work
Excavation & filling
Pipe laying
Roads
Concrete - insitu
reinforcement
shuttering
precast
Brick work
Masonry
Water proofing works
Steelwork and ironwork
Roofing
Carpentry Electrical work
Joinery Plumbing
Flooring Painting & fencing
plastering Glazing 36
 Divide each of them into subdivisions.
For example, a bridge construction may be divided as:

➢ Piers
➢ Abutments
➢ Superstructure
➢ approach roads and surfacings
➢ miscellaneous
• In each item, another grouping is possible for trades
such as:
➢ Excavating
➢ compacting bottom soil
➢ Reinforcement
➢ Shuttering
➢ concreting etc
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• A sense of proportion must be retained when billing.
( for a large work do not divide the activities in very
much details).
• Ex On a very large road construction project there
are some ancillary road side manholes.
• If they are almost similar, do not divide them into
many items to increase the number of items.
Such as
➢ excavations for manholes
➢ concreting manhole base
➢ brickwork to manhole walls
➢ providing and setting covers

• But you can just express them as a single item:

"construct manholes as specified on the drawings."
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RECOMMENDED NUMBERING OF ITEMS
➢ Some items could be missing or amendments are made.
➢ If items are numbered right through it is difficult to add.
➢ All numbers will change.
➢ Late items could be added at the end, but not suitable.
➢ However the best method is to use different letter prefix
for each section of bill. For example,
 Excavations: Al, A2 etc.
 Concreting: Bl, B2 etc.
So if an item is added to any section, it can be added to the
end of correct section.
➢ General summary at the end to summaries the section
of the bill is necessary.

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 COSTING
• Precise costing is almost impossible.
• Cost is just predicted.
• Costing is defined as, finding the cost of
separate classes of work, such as
bricklaying, shuttering etc.
• Costing involves finding charges for
➢ Labour
➢ Material
➢ Plant and
➢ Overhead

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 LABOR COSTING:
• Responsible foremen fills the time sheet showing
hours spent each day by each man on the various
types of work.
• Hours entered for a particular work is priced.
• So the labour cost for a particular work trade is
calculated.

• Difficulties:
• Overhead calculations
• Considering other wage payment, such as
time checker, night watch men, chainman, storekeeper

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MATERIAL COSTING

➢ Difficulties arise from calculating the cost of materials

for a particular work.
➢ Invoice comes for the bulk of materials.
➢ Bill of quantities help in costing separate parts of
work.
➢ Difficulties for timber for shuttering, scaffolding tools
etc.

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 PLANT COSTING

➢Allocation of plant charges is relatively

easy, cost for owning & operating for a
plant can be calculated or rent rates are
used.

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 OVERHEADS

Site on costs

➢ Wages for general foremen, engineers, site clerk,

agent etc. telephone, water, gas expenditure.
➢ Site on costs may change from week to week
depending on the rate of activities.
➢ The costs obtained are entered into bill of quantities
to calculate the total cost. HOW?
➢ The costs should be replaced by the actual cost after
completion of the work for new costing operations .

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THANKS FOR YOUR ATTENTION

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