Types of Contracts in Construction

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Question One
Types of contacts
Lump sum Contract
This is a kind of contract that has a fixed price for all the activities that are related to the construction. The contact is normally known
to include the penalties for the late termination or the incentives for the early termination. The application of the Lump sum contract
can be done in the cases where the project of the construction has a clear scope, a drawing of the construction and a proper outlined
schedule. This is common in the case of small and simple projects. In some cases, the owner could possibly have the orders changed
for work that is unspecified while at the same time take very high risks for taking back the credit for the work that is not completed.
Lump sum subject to rise and fall specifications.
A contract of the lump sum that has a rise and fall clause is that type of contact in which the risk of varying the cost can be possibly
shared with the client as opposed to being borne solely by the construction team who is the builder. This is different from the cases of
the industrial practices whereby the changes in the cost of the building cannot be passed to the buyer of the home (Sullivan 2016). It
is, however, important to note that under S13(1) of the contracts of home building Act, the clauses of rise and fall are outlawed for

those specific contracts that are valued at less than a set amount. The present value of this figure is roughly $500000.The liability of
tye builder who enters into such an agreement is equivalent to $ 10000 as a fine. The clauses of rise and fall can be used for those
contracts that are over the threshold (Corbin 2018).
Cost plus percentage
The actual purchases, costs and other expenses that are known to be part of the construction operations should be incorporated into
this particular type of the contract. The contract is known to have very clear information about a specific percentage of the labor as
well as the material costs. This can be treated both as direct and indirect to cover the profits and the overheads of the contractor. This
particular type of contract is known to be very popular in the cases where the definition of the scope is not clear. The attention of the
owner should, therefore, be focused on how much the owner will be billed in order to have the interest of the owner protected. This
will also help to avoid other charges that are unnecessary. Meanwhile, the owner should take a lot of risk on the supervision and
tracking of the process of construction. The contractor however takes less risk.
Project management
The management of the project is all about using the skills and tools to meet the quality costs, specific time and the objectives of the
resources for a particular project. The builder is more likely to succeed by planning, defining, monitoring, executing the whole
program of building as a strategy.

Schedule of rates
This is actually a self-explanatory term in which there is a provision of the hourly rates for every discipline. The billing of the client is
as per the hours worked. This can be for every week, month, year etc. This can be one of the best options as a contract where the scope
has not been understood fully or there has been no finalized program on the same. There is no risk involved from a contractor's point
of view when working on rates that have been scheduled. All the hours are fully paid, in some cases, the final costs of the projects are
cheaper upon completion while using the rates that have been scheduled.
Sub-contract
A sub-contractor: A business or a person who has a contract not as an employer but as an independent contractor may decide to
dedicate part of the work of the services to another contractor to be performed. This kind of the individual who takes a portion of the
work is called sub-contractor. The participation or the involvement of sub-contractor is common for the case of the bigger projects.
The type of contract that is signed by the sub-contractor is called a sub-contract. Some of the activities that are involved in the sub-
contracting include plumbing work, painting, electrical roofing, cement work etc. (Lando 2013).
In the case of project 1, if I were to act as a builder, I would prefer the use of Lump sum contract with the subject of rise and fall as
specifications. Considering it is just a single house dwelling that has 2 levels of dwellings, it will basically take a period of less than 2
years to have it completed. The project, however, has very detailed specifications and drawings which make the estimation of the cost

to be quite easy. Also in the clauses of the fall and rise contract in project 1 are already outlawed for such contracts that are less than
$500000.This particular value meets the requirements that have a connection with the law itself.
Question Two
Variation: This term is sometimes referred to as change order or variation order or variation instruction. It refers to the alteration in
the scope of the construction contracts that may take place in the form of addition, omission, and substitution from the original outline.
It is advisable to note that all the projects of construction vary from scope, origin design and definition. Such variation is as a result of
the factors such as statutory, prospects and geology.
Prime cost item:
A prime cost item refers to the amount of money which is normally included in the contract sum to be used in purchasing a specific
item like tiles, taps, and fittings of the bathroom and even handle. The accepted amount which should be included at the point of
signing the contract is normally agreed. The selection of the specific items to be purchased is normally done in the later stage. As per
the provisions of the home buildings contract Acts of 1991, the estimation of such items costs should be reasonable by the builders
and they should never be understated.
Provisional sum:

A provisional sum refers to that amount of money which is normally included in the contract sum. This money is meant to cover the
materials and work. The extent of this coverage cannot be determined at the point of entry into the contract. In a practical aspect, the
builders will include a PS for the costs of the work. An accurate cost of the work is estimated by the builder. Because of the
unforeseen events which may take provisional sum; the amount must be added to the contract sum.
Extension of time:
In case delay of the work is not the fault of the contractor. the law of construction allows for the extension of the period of
construction. The contractor should respond through a written notice to the administrator of the contract describing the events that are
responsible for the same changes. These may include variations, adverse weather, and statutory changes. The extension time will be
granted in case the administrator of the contract accepts the events covered in the letter notice.
Liquidated damages
In the case of the contracts of the building, the liquidated damages usually result from the failure of the contractor to achieve practical
completion by the set date as illustrated in the contract. The provision of the contractor to pay the client is within the law as this will
be considered as the breach of the contract. This particular provision should not be mistaken for penalties but rather predetermined
damages that are normally set when the contract is being signed. The basis is usually drawn from the calculations of the possible
losses that the client may incur in the event that the contractor fails to meet the demands of the construction.