Civil Engineering Contracts
Why should we know types of contract?
• Whether you’re managing a small project or a large
complex program you need a basic understanding of
the different types of contract you’re likely to
encounter when buying from external organizations
and 3rd parties.
What is a Contract?
• The word “Contract” is derived from the latin
word “Contractum” meaning drawn together.
• A legally binding agreement. In other words…
“A promise or set of promises which the law will
enforce”.
• A simple contract consists of an agreement between
two or more parties under certain terms and conditions
whereby one party undertakes to execute works or to
supply materials at specified rates and the other party
undertakes to make necessary payments for the work
completed by the first party.
What is a Contract?
• In the project context, contracts typically involve the
exchange of money in return of goods or services.
• The parties must have entered into the agreement
freely.
• The agreement will create rights and obligations that
may be enforced in the courts.
• If the contract terms are set out in writing in proper
documents, which the parties subsequently sign, then,
both parties are bound by these terms.
• The normal method of enforcement is an action for
damages for breach of contract, though in some cases
the court may order performance by the party in
default.
Defining Contract:
• It is an agreement or an understanding between
two parties such that it is enforceable by law and
must be agreed upon.
Criteria Of Contract:
1. There must be mutual agreement or meeting or
understanding of minds.
2. There must be an offer.
3. The offer must be acceptable.
4. There must be consideration for the service
performed.
5. The subject matter of the contract must be lawful.
6. The contracting parties must have the legal capacity to
enter a contract.
Purpose Of A Contract:
• A quality construction.
• Construction on time.
• Construction within budget.
• Safe construction.
Why Use contract in construction?
• To set fourth obligations and relationship
• To describe scope of work
• To establish time frame
• To establish cost and payment provision
• To minimize disputes
• To improve economic return of investment
Essential elements of a Contract:
1) Agreement
One party make the offer, another party accepts the offer and
both achieve consensus ad idem (meeting of the minds)
2) Consideration
Both parties must have provided consideration, ie, each side
must promise to give or do something for the other.
3) Intention to create legal relations
The parties must have intended their agreement to have legal
consequences.
4) Capacity
The parties must be legally capable of entering into a contract.
5) Absence of Vitiating factors
Absence of factors that are going to invalidate a contract, i.e.
duress or undue influence, mistake, misrepresentation, illegality
Factors Influencing the Choice of the Type of Contract
• The appropriateness for providing an adequate
incentive for efficient performance by the
contractor
• The ability to introduce changes
• The allocation of risks
• The start and completion date of the project
TWO BROAD CATEGORIES :
1. Price Given in Advance Contracts
(Price-based Contracts)
a) Lump Sum Contract
b) Measurement or Unit Price Contract
c) Schedule of rates term contract
2. Cost Reimbursement Contracts
(Cost-based Contracts)
a) Cost + percentage
b) Cost + fixed fee
c) Cost + fixed fee + profit-sharing clause
Lump Sum Contract:
• A lump sum contract is the most common form
of construction contract.
• Involves a single total fixed or ‘lump sum’ price for all
construction related activities.
• It is generally appropriate where the project is already
well defined when tenders are sought and changes are
unlikely. This means that the contractor is able to
accurately price the risk they are being asked to accept.
• It is typically used in building construction projects in
which quantities are accurately measured.
• Lump sum contracts apportion more risk to the contractor
than some other forms of contract and give
the client some certainty about the likely cost of the
