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Lump Sum contract

Discuss about the Lump Sum Contract and Acceptance Strategy.

A contract can be termed as the lump sum contract in case the contract agrees to sign an agreement with the building owner to undertake a particular work for a fixed amount of money. In case of the lump sum contract a single price is provided in the tender by the owner of the building with respect to the amount and the type of work that has to be carried out by a contractor (Wren and Davidson, 2011). A particular time frame is also provided by the client to complete the task. The payment is done by the client after the completion of the task or after the different phases of the construction is completed.

  • Lump sum subject to rise and fall

A contract can be termed as the lump sum contract subjected to rise and fall, if the payment that is associated with the project is subjected to rise and fall as per the risk that are related to the different stages of construction (Chan and Park, 2005).

  • Cost plus a percentage

A contract can be termed as the cost plus a percentage contract if the contractor associated with the construction of the project gets a certain percentage of the total cost of the project over the total cost of the project (Oulahen, 2014). The payment that has been made to the contractor over the total cost of the project can be taken as a pure profit by the contractor and are basically used to meet the other expenses like the overhead charges, phone bills, payments made to the clerical staffs and other administrative staffs or for paying premium of the insurance.

  • Project management

In the project management the client seeks to utilize the services of the professional project managers so that the professional contract managers can look after the various processes related to the contract and give them advice to select the most appropriate contract that will be suitable to achieve their goals.

  • Schedule of rates

In case of the schedule of rate contract the client produces the schedule of the work that has to be carried out without taking into consideration the quantities. The contractor rates the different tasks and the contractor the freedom to quote different prices that are related to the different price for the labour, different prices for the materials and the separate costs for the equipments which are associated with the project (Ishii, Takano and Muraki, 2014).

  • Sub-contract

Variation

The contract that takes place between the main contractor and the sub-contractor is called the sub-contract (Li, 2009). A sub-contract comprise of the agreement between the main contractor and the sub-contractor, order for the purchase and/or a legal document which explains the type of work that has to be carried out by the contractor.

One of the best contract systems that will be suitable for the completion of the project 1 will be the lump sum contract system. The main benefit of the lump sum contract system is that the prices of the contract are known to the owner of the building beforehand. This contract also provides an opportunity to the contractor to find out ways to reduce the cost associated with the contract (Oulahen, 2014). Further the contract will provide a timeline to the contractor to complete the task and within a fixed budget.

The term variation can be explained as the various changes or alterations or modifications that are made in the scope of the work that is mentioned in the contract of a particular construction project.

  • Prime cost items

The prime cost item may be explained as the allowance that is associated with the contract so that the other important items which are not added into the contract like the taps, door knobs, parts of the windows etc.

  • Provisional sum

A provisional sum can be explained as the additional sum of money whose provision is made in the contract such that it covers the cost of the additional work that is needed to be carried out in the project but whose details are not included into the actual contract, like the work related to the joining the parts and the connections (Ogbu, Asuquo and Oyoh, 2012).

  • Extension of time

In certain contracts there are provisions for the extension in the time for the completion of the project tasks in certain conditions and only is the extension in the time of the project is not caused due to the fault of the contractor (Nyce and Maroney, 2011). The time period for which the project is extended is called as the extension of time (EOT) as per the contract.

  • Liquidated damages

The liquidity damages may be termed as the amount of money that is mentioned in writing in the contract and has to be paid by the party breaching the terms and condition of the contract, to the other party which has suffered losses due to the breach in the contract.

  • Possession of the site

Retention

The words” Possession of the site” is generally written in the contract to point out the right of the contractor to enter the site of construction so that he is able to carry out the activities related to the construction of the project 1.

  • Cooling off period

The cooling of period can be explained as the time period which are generally explained in the contract and points out the duration within which the client has the right to cancel the contract.

  • Defects liability period

The defects liability period may be explained as the time that is mentioned as per the contract, in which the client has the right to report about any defects in the work that is associated with the contractor (Oladapo, 2007). In the general practices the issues related to the defects in the work done by the contractor is raised in front of the contract administrator, who in turn takes a decision that whether a particular defect has been caused due to the negligence of the contractor or the defect is caused due to the improper use or lack of maintenance of the house. In general practice the defects liability period is generally spanned from six to twelve months.

The retention time period may be expressed as the time period which has been prescribed as per the law, that the owner of the project has to retain the documents that are related to the project before the files are disposed (Nyce and Maroney, 2011). In general there are several documents that are retained by the owner of the building, which are illustrated as follows:

1. Various legal documents such as the estate titles and the documents related to the contract of the project and the documents related to the land surrounding the project area.

2. Different policy records like the records related to the survey of the land, reports related to the evaluation of the building etc.

3. Different administrative records that is associated with the maintenance, repair and the reconstruction of the various parts of project.

  • Progress claims

The progress claim can be defined as the amount of the money that is claimed by the contractor for the owner of the project after a certain amount of task is completed. In the documents that are related to the progress claim the various works for which the claims are generally made is mentioned (Ranasinghe, 2000). Along with this the claim documents also covers the information related to the time duration in which claimed money has to be recovered, the due payment, the date of payment of the claimed amount and the process that has been adopted by the contractor to calculate the amount claimed.

The five essential features of building contract are illustrated as follows:

Progress Claim

Payment: One of the main features of a building contract is the terms of payment associated with the project. The payments comprise of the accurate estimation of the overall cost of the building construction and the mode which will be adopted for the payment related to a specific project.

Scope of the services: It is important that the scope of the services that are associated with the project is properly mentioned in the contract. The scope of the services forms the basis for the formation of the terms and conditions that are associated with the project. A the scope of the work that has to be performed by the building contractor has to be clearly mentioned in the contract.

Guarantee of Workmanship: The guarantee of the workmanship refers to the guarantee of the work that is provided by the contractor in writing and is mentioned in the contract properly (Wren and Davidson, 2011). The guarantee of the work can be related to both the services and the equipments that are supplied by the contractor and the guarantee of the workmanship is applicable only for a fixed time period which is also mentioned in the contract.

Liquidity Damage clause: The liquidity damage clause is a very important feature of the building contract. The liquidity damages may be termed as the amount of money that is mentioned in writing in the contract and has to be paid by the party breaching the terms and condition of the contract, to the other party which has suffered losses due to the breach in the contract (Kumar and Mishra, 2015).

Site location: The location of the site along with the overall description of the site is very much essential for the formation of the contract and deciding the terms and conditions of the contract formation. This information is important to collect before the starting of the construction begins at the site.a) The three most possible causes which caused the breach of the contract by the client that could lead to the termination of the contract are as follows:

1. In ability to make the payment by the client for the work done.

2. Giving contract to another contractor to perform the task without taking the consent of the main contractor.

3. Failure to provide access to the contractor at the work site (Zhang et al., 2012).

Payment

The three most possible causes which has resulted in the breach of the contract by the me, the builder, that could lead to the possible termination of the contract are as follows:

  • Not carrying out the work as per the scope of the work mentioned in the contract.
  • Not rectifying the defects even after repeated notices by the client.
  • Not being able to adhere to the deadline and huge delays due to which losses are suffered by the client, than the client has the right to cancel the contract.
The different documents that form an important part of the contract are illustrated as follows:

1. Drawings: Drawings related to the building construction can be described as the graphical representation of the various building structures that will constructed under the contract. The drawings of the building structures also points towards the location of a particular building structure in the overall building.

2. Specifications: The documents describing the various details of the scope of work that is to carried out by the contract is termed as the specifications. The specification documents comprise of the details of the codes and the standards that has top followed during the construction of the building structures.

3. Agreement: The documents which is identified by all the stakeholders as part of the agreement is very important for the construction of the building contract (Zima, 2015). The documents related to the agreement describe the timeline of the construction of the building and the schedule of payments of the construction work carried out by the contractor (Kumar and Mishra, 2015).

4. Conditions: The conditions are that document that contains the legal rights of both the client and the contractor. These documents give the different methods that have to be followed in case any dispute arises between the client and the contractor. The condition documents also comprise of the different clauses that are related to the insurance, safety, rules of termination and the jurisdiction area.

The contract that has been selected for the construction of the Project 1 will be the cost plus percentage contract system

The XYZ developers, Elizabeth road, NSW and the Tony Johnson, Lenin street, NSW have come together hereby to agree that a house will be constructed at the property that is situated as 14, Lenin street and are legally defined as the lots 6,7 and the south1/2 Lot 3, West 60 feet, south ½ of lot 4, west 50 foot of lot 5 and lot 8, block no. 31, 14 Lenin street, NSW.

Contract documents:

The contract terms and condition comprise of the various documents that are illustrated below  and comprise of the complete terms of the agreement that is made between both the parties (Chan and Park, 2005). The terms and condition will be prevailing over any conflicting provision in the documents which are incorporated as a reference:

Scope of Services

The plans and the architectural drawings which are dated 7/ July/2016 with a total of 25 pages are hereby incorporated into this document.

The documents related to specifications that are dated 7/July/2016 with a total of 15 pages are hereby incorporated into this document.

The schedule of the items allowed with date 7/July/2016 with 13 number of pages are hereby incorporated into this document.

The contractor has agreed to construct that the building will be constructed in accordance with the specifications and the designs which have to be supplied by the client and are added as a reference in the paragraph III ‘Contract documents’. The sole owner of the plans and the designs of the building is the buyer and only he has the legal right to use the plans and designs (Ishii, Takano and Muraki, 2014). Hereby the owner of the building declares that the builder is harmless to the any copyright issues which might crop up die to the application of the building plans.

After taking into consideration the different conditions and factors, it has been agreed upon by both the parties that is the weather conditions permits than the building shall be constructed completely a time period of no less than 200 days. After the possession of all the permits that are required to start the construction activity, the process of construction has to begin within thirty days.

This contract is contingent upon the buyer obtaining a construction loan in the amount of $ 275,000. The total fees and the expenses that are related to obtaining the loan has to borne by the owner of the building (Li, 2009) . There is no requirement for the builder to start the construction activity is there is no proper confirmation in writing provided by the owner about the confirmation of the loan from the lender.

Hereby the owner of the project declares to pay a total of $ 275,000 to the builder on the successful of the building as per the terms and the conditions that has been mentioned in the contract and the builder agrees to provide all the labor, materials, equipment, tools, and other services necessary to construct the house (Ogbu, Asuquo and Oyoh, 2012). After the successful completion of the project 65% of the total cost of the project will be paid while remaining will be paid after the final inspection and acceptance.

It is the responsibility of the owner of the property to provide safe access to the builder to the site.

After the final inspection the owner will provide the builder the deficiencies if there are any, in the building. the final occupation will provided to the owner only after the final inspection is over and the final payment is completed.

Effective Date and Signature:

This contract shall become effective on the date it is signed by both parties.

We, the undersigned, have read, understood, and agree to each of the provisions of this contract and hereby acknowledge receipt of a copy of this contract.

By:  _ on behalf of_

Title:_ Date : _

By:_  Date : _

By: _   Date :_

Final Contract

1. Plans and Specifications

2. Allowance Schedule

The value of margin= 12% and GST = 10%. Total= 22%

TRADE AREA

GROSS VALUE

($)

VALUE OF MARGIN AND GST ($)

NET VALUE ($)

% OF NET CONTRACT

Preliminaries

25000

5500

30500

11.09%

Excavator

5000

1100

6100

2.21%

Concreter

19000

4180

23180

8.42%

Bricklayer

24000

5280

29280

10.64%

Carpenter

43000

9460

52460

19.076%

Joiner

15000

3300

18300

6.65%

Doors and Windows

26000

5720

31720

11.534%

Roofer

16000

3520

19520

7.09%

Linings/Insulation

20000

4400

24400

8.872%

Electrician (Provisional Sum)

24000

5280

29280

10.64%

Plumber and Drainer (Provisional sum)

24000

5280

29280

10.64%

Tiler

12000

2640

14640

5.32%

Painter

10000

2200

12200

4.436%

Landscaper (Provisional sum)

12000

2640

14640

5.323%

CONTRACT SUM

275000


TRADE

VALUE

($)

Month 1, % Complete

Claim For Month 1

Month 2, % Complete

Claim For Month 2

Month 3, % Complete

Claim For Month 3

Month 4, % Complete

Claim For Month 4

Month 5, % Complete

Claim For Month 5

Month 6, % Complete

Claim For Month 6

Month 7, % Complete

Claim For Month 7

Preliminaries

25000

35

8750

45

11250

60

15000

75

18750

90

22500

95

23750

100

25000

Excavator

5000

100

5000

100

5000

100

5000

100

5000

100

5000

100

5000

100

5000

Concreter

19000

60

11400

100

19000

100

19000

100

19000

100

19000

100

19000

100

19000

Bricklayer

24000

20

4800

70

16800

100

24000

100

24000

100

24000

100

24000

100

24000

Carpenter

43000

0

0

30

12900

75

32250

100

43000

100

43000

100

43000

100

43000

Joiner

15000

0

0

0

0

0

0

20

3000

50

7500

95

14250

100

15000

Doors and Windows

26000

10

2600

60

15600

80

20800

100

26000

100

26000

100

26000

100

26000

Roofer

16000

0

0

0

0

70

11200

95

15200

100

16000

100

16000

100

16000

Linings/Insulation

20000

5

1000

5

1000

10

2000

60

12000

100

20000

100

20000

100

20000

Electrician (Provisional Sum)

24000

10

2400

18

4320

18

4320

60

14400

75

18000

85

20400

100

24000

Plumber and Drainer (Provisional sum)

24000

0

0

18

4320

18

4320

60

14400

75

18000

85

20400

100

24000

Tiler

12000

0

0

0

0

0

0

15

1800

60

7200

100

12000

100

12000

Painter

10000

0

0

0

0

0

0

0

0

30

3000

75

7500

100

10000

Landscaper (Provisional sum)

12000

0

0

0

0

0

0

0

0

0

0

10

1200

100

12000

Contract Sum

275000

35950

90190

137890

196550

229200

252500

275000

Money paid After Completion = 50% of contract sum= $137500

Total Money Paid after DLP = $137500.

References

Chan, S. and Park, M. (2005). Project cost estimation using principal component regression. Construction Management and Economics, 23(3), pp.295-304.

Ishii, N., Takano, Y. and Muraki, M. (2014). An order acceptance strategy under limited engineering man-hours for cost estimation in Engineering–Procurement–Construction projects. International Journal of Project Management, 32(3), pp.519-528.

Kumar, S. and Mishra, A. (2015). Critical Erosion Area Identification Based on Hydrological Response Unit Level for Effective Sedimentation Control in a River Basin. Water Resour Manage, 29(6), pp.1749-1765.

Li, H. (2009). Study on Construction Cost of Construction Projects. Asian Social Science, 5(8).

Nyce, C. and Maroney, P. (2011). Are Territorial Rating Models Outdated in Residential Property Insurance Markets? Evidence From the Florida Property Insurance Market. Risk Management and Insurance Review, 14(2), pp.201-232.

Ogbu, C., Asuquo, C. and Oyoh, A. (2012). Factors Affecting the Pre-Contract use of the Bill of Quantities. FJOTE, 7(1).

OHTSU, H., MIKAKE, S., IJIRI, Y. and SAKAI, K. (2006). A Study On Estimation Of Cost Variation On Tunnel Construction Projects. Journal of Construction Management, JSCE, 13, pp.101-114.

Oladapo, A. (2007). A quantitative assessment of the cost and time impact of variation orders on construction projects. Journal of Engineering, Design and Technology, 5(1), pp.35-48.

Oulahen, G. (2014). Flood Insurance in Canada: Implications for Flood Management and Residential Vulnerability to Flood Hazards. Environmental Management, 55(3), pp.603-615.

Ranasinghe, M. (2000). Impact of correlation and induced correlation on the estimation of project cost of buildings. Construction Management and Economics, 18(4), pp.395-406.

Wren, D. and Davidson, G. (2011). Using lake sedimentation rates to quantify the effectiveness of erosion control in watersheds. Journal of Soil and Water Conservation, 66(5), pp.313-322.

Zhang, L., Luo, T., Liu, X. and Wang, Y. (2012). Altitudinal variation in leaf construction cost and energy content of Bergenia purpurascens. Acta Oecologica, 43, pp.72-79.

Zima, K. (2015). The Case-based Reasoning Model of Cost Estimation at the Preliminary Stage of a Construction Project. Procedia Engineering, 122, pp.57-64.

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