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Contract and Procurement Management

Evaluate the possibility of target price contracts under different contract options and discuss their effects on the role of parties and contract administrators.

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Added on  2023-04-21

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This document discusses the evaluation of target price contracts under NEC ECC and the lack of possibility under JCT SBC or FIDIC Red Book contract. It also explores the role of insurance in construction contracts and the procedure of anticipating and managing potential disputes between parties under standard contract forms.

Contract and Procurement Management

Evaluate the possibility of target price contracts under different contract options and discuss their effects on the role of parties and contract administrators.

   Added on 2023-04-21

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Running head: CONTRACT AND PROCUREMENT MANAGEMENT
Contract and Procurement Management
Name of the Student
Name of the University
Author’s Note:
Contract and Procurement Management_1
1
CONTRACT AND PROCUREMENT MANAGEMENT
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................4
Question 3..................................................................................................................................7
Question 4..................................................................................................................................9
Question 5................................................................................................................................12
References................................................................................................................................14
Contract and Procurement Management_2
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CONTRACT AND PROCUREMENT MANAGEMENT
Question 1
Evaluation of Possibility of Having Target Price Contract under Options of NEC ECC and
lack of Possibility of Target Price Contracts under JCT SBC or FIDIC Red Book Contract
with Major Effects
There are six major options under NEC ECC and for every option the respective
contractor of a construction project, there could be various risks either high or low (Baily
2017). The first and these significant options are lump sum priced contract with activity
schedule, re-measurement priced contract with bill of quantities, target priced contract with
activity schedule, target price contract with bill of quantities, cost reimbursable contract and
management contract. Hence, it is possible to have target price contract under the options of
NEC ECC (Masterman and Masterman 2013). There are two options of this particular aspect.
They are as follows:
i) Target Price Contract with Activity Schedule: In this particular option, the
contractor negotiates or tenders a target price with the help of activity schedule. Every
activity is being priced as the lump sum and a specific fee is tendered as the percentage for
the direct work of contractor and sub-contractor work (Nojavan et al. 2015). The starting
target price can be referred to as the sum of the various activity prices as well as fees
incurred.
ii) Target Price Contract with Bill of Quantities: The second option under NEC ECC
for the possibility of having target price contract is with BOQ or bill of quantities. This
particular option is quite similar to the option of activity schedule; however with the core
difference of target price getting established with the help of bill of quantities and not with
activity schedule (Turner 2017). Here, the target price is eventually adjusted for allowing for
Contract and Procurement Management_3
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CONTRACT AND PROCUREMENT MANAGEMENT
quantities’ changes and compensation events. Hence, there is always a high risk than activity
schedule.
However, it is not possible under the option of JCT SBC or FIDIC Red Book contract
since the main options are standard building contract, design and build, immediate contract,
immediate contract with design, minor work, minor work with design, major project and
framework, binding or non-binding.
This is mainly because NEC ECC is a formalized system that helps to obtain tenders
and administer contract and hence it is required to check the target price contract in every
aspect (Hughes, Champion and Murdoch 2015). On the other hand, JCT SBC or FIDIC Red
Book Contract is majorly responsible for producing several standard contract forms, standard
documentations for utilization within industry and guidance notes for the construction
projects. Hence, the contracts that are being generated by them eventually represent a
balanced risk allocation within parties.
The target price contract have a significant effect on the role of parties and contract
administrator (Warner 2017). While completion of the contract, this target price is being
adjusted for catering the subsequent compensation events, which are set out within the
contract. The respective payment is then made based on the actual prices with incentive
mechanisms for contractor for the core purpose of minimizing costs. The over runs as well as
savings are being shared amongst the parties and the risk sharing within this target price
approach reduces dispute occurrence (Phillips 2013). However, when this compared to the
contract based on lump sum price or BOQ, there are higher risks since the employer would be
carrying them while occurrence of compensation events.
Contract and Procurement Management_4

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