Impact of Contract Types on Project Management: A Comparative Study

This report provides a comparative analysis of various contract types, including lump sum, time and material, cost plus, unit price, and GMP contracts, and their impact on project management. It examines the general features, benefits, and drawbacks of each contract type, along with the responsibility of bearing risk and their suitability in different project scenarios. The research methodology employs qualitative research approaches, including data collection through questionnaires and interviews, and data analysis using thematic analysis. The report also addresses ethical considerations, reliability, validity, and limitations of the research, ultimately providing recommendations and reflections on the findings, highlighting how engineering labor contracts influence project management activities and decision-making.

PROJECT
MANAGEMENT

Table of Contents
TOPIC..............................................................................................................................................3
INTRODUCTION...........................................................................................................................3
Aims and Objectives...................................................................................................................4
Rationale.....................................................................................................................................4
LITERATURE REVIEW................................................................................................................5
Theme 1: General features of each contract type along with their benefits and drawbacks......5
Theme 2: Responsibility of bearing risk in each contract..........................................................7
Theme 3: Kinds of projects in which each contract is being used most commonly..................9
RESEARCH METHODOLOGY...................................................................................................12
Research approaches.................................................................................................................12
Research strategy......................................................................................................................12
Research philosophy:................................................................................................................13
Data collection..........................................................................................................................14
Sampling...................................................................................................................................15
Data analysis.............................................................................................................................16
Ethical consideration.................................................................................................................17
Reliability and validity..............................................................................................................17
Limitation..................................................................................................................................17
DATA INTERPRETATION.........................................................................................................19
DISCUSSION................................................................................................................................31
CONCLUSION..............................................................................................................................32
RECOMMENDATION.................................................................................................................33
REFLECTION...............................................................................................................................33
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................2

TOPIC
Comparison between the most important types of contracts and the extent of the impact
of each type on project management.
INTRODUCTION
Engineering contract refers to legal agreements among the businesses and an engineering
company detailing service promised and payment with regard to those services. The labour
contract illustrates as the kind of agreement which have shared specific terms and conditions
between two or more persons or entities or among the owner or contractor under which a
promise persists according to which the work has been done in pre determined goals and the
materials required for the construction are supplied by the owner itself (Habibi, Kermanshachi
and Safapour, 2018). This study will describe the importance of qualitative research study and
ways in which it will help the scholar to accomplish research aim.
It mainly refers to include concepts which provide idea to manage activities of labour
contract which develop before management decide to develop new project. Labour contract
includes activities like written documentation about financial requirement, structure; require
resources analysis, distribution of work and many more terms includes within in practices of
engineer labour contract. In this study make better sense that labour contact activities influence
activities of project development and management. They two parties decision-making activity
get complicated when they have not mutual understating. It will be clarify from this research that
worker experience about two parties that project management activities influence by engineer
labour contact they have higher authority or not. Workers have idea because they performing
task everyday within different project so knowledge about different activities are useful for
provide idea to which things they have to removes within contact documents and which things
they have to add on in contact for expansion of impressive project management and decision-
making approaches. This study will give information about how project management uses new
techniques by evaluation and identification of data analysis approach which has power to provide
idea from workers and because individual has different opinion on the basis of data interpretation
activity its easier to know about engineer labour contact activities.

Aims and Objectives
Aim
The aim of the current research is to evaluate the comparison among the most important
types of contracts and the extent to which it impacts over each type of project management.
Objectives
 To identify general features of each contract type along with their benefits and
drawbacks.
 To evaluate the responsibility of bearing risk in each contract.
 To discuss suitability of each contract within the projects in highly common manner.
Rationale
The main reason for selecting this topic is to create an understanding with the help of
comparing different types of contracts along with the extent to which it impacts over the project
management. This in turn recognized as research issue because nowadays in order to
appropriately complete the project, knowledge about diversified contracts are greatly significant
to make sure about the breaches of agreements among employees. It is important to discuss this
topic as it helps to clearly lays out the actual expectations of the contracted engineers. This study
will help engineers in knowing their roles and responsibility towards effective project
management.

LITERATURE REVIEW
This section is about the literature revaluation in which available study or information are
search and examined in relevance to specific topic or appropriate subject area. In other words, it
has also been identified that it refers to the survey of scholarly resources that are related to
particular topic which helps in collection of complete overview related to the current knowledge
by identifying relevant theories, methods and existing gaps within the examination. Moreover, it
also involves findings related to relevant publication that are greatly related to recent years such
as articles and books, journals, etc. by critically evaluating or analysing them (Hugo, 2019). It
also includes the identification of certain things that has been found while conducting this
research. Therefore, this chapter has included literature review which is related to the effectively
identifying and evaluating significant information that is related to the impacts of engineering
labour contract over project management.
Theme 1: General features of each contract type along with their benefits and drawbacks
The main aim of conducting this research is to identify the most suitable type of contract that can
help engineers in making project successful. There are 5 main types of projects such as: lump
sum, time and material, cost plus, unit price and GMP products. In regard to Lump sum type of
contract Zawistowski and Kulejewski, (2018) stated that it is a fixed price contract, most basic
type of construction contract. As per this type of contract, fixed price for all type of work is
being mentioned or done under them. In this regard, authors have discussed some advantages
that include: effectiveness and cost effective type. It is stated that this type of contract can enable
engineers in simplifying bidding as well as completing projects under budget. Profit margin can
also be increased with this type of budget. Lubelli and et.al., (2018) argued and said that there
are number of limitations of this type of contract on engineering projects. One of the main
limitations is: it is not suitable for big projects as there are chances of loss to the great extent.
Other limitation is loss of profit margin because of miscalculations. Unexpected setbacks and
environmental factor changes may affect this. In addition, they stated that time and material
contracts is one of the better type of engineering contract as compared to lump sum. Time and
material contracts reimburse contractors for the cost of all materials and pay rate is being decided
on daily and hourly based. There are number of advantages of this type of contract as compared
to Lump sum contract. Some main advantages of this type of contract include: project manager

can cover environmental changes, unexpected delay and other changes and in lump sum type, it
does not happen. Simple negotiation can also be done because prices are being set on each
variable. So, on the basis of this review, it can clearly be said that this type of engineering
contract is better than lump sum contract because in this type, project manager can protect
against schedule challenge and cost problem.
Love and Ahiaga-Dagbui, (2018) contradicted and said that cost plus type of contract is better
than lump sum and time and material contract. They said that there are number of loop holes and
limitations in time and materials contract and one of the main limitations is: time consuming
process in time tracking and materials. So, in this regard, they also said that cost plus contracts in
which the owner is responsible for paying the contractor for the cost incurred at the time of
project plus set of money for profit, can make project manager beneficial. This type of contract
can protect project manager against cost challenge. Flexibility of this contract is main feature
that can allow owners to make design changes. Miscalculations cannot affect overall project and
as like lump sum type of contract, this contract does not affect project because of inaccuracy. But
Du and et.al., (2017) argued this contract and said that as like others contracts, this contract also
has some problems and limitations that cannot be ignored by project manager while preparing
engineering projects. Some limitations of cost plus contract include: difficult process of
justifying cost. Contractors may find difficulties in explaining and justifying cost that they have
accounted for as owners can be resistant to reimbursing indirect costs. so, accordingly, they
stated that unit price is contract is the best type of engineering contract. In this type, project
manager needs to divide the total work for completing project into separate units. Contractors
need to provide estimation of cost to owner for completion of each unit of work in an effective
manner rather estimating cost for the whole project. There are number of advantages for which
this contract is being suggested by authors. Main feature that makes this type of contract
effective include: suitable for projects where work is repetitive. It simplifies invoice and profit
margin cannot be changed.
Raouf and Al-Ghamdi, (2019) opposed above view and said there are some disadvantages of unit
price contracts as prediction of final value can be difficult. Reimbursements for the whole project
on the basis of estimation for separate unit price can delay in submission of project. As owner
become responsible for risks that occur in this contract. They are the only one responsible person
who can reimburse the cost of unexpected units, added additionally. So, on the basis of these

disadvantages, authors stated effectiveness of GMP contracts. This guaranteed maximum price
contract establish a cap on the contract price. As per this type of contract, owner of property
cannot exceed contract price in the future and they need to cover cost of labour and materials.
This type of contract can be implied in other above discussed different types of contracts such as:
cost plus. Property owner may add a clause that limits total cost and by doing so, GMP can be
used or added in other type of contracts. There are number of advantages of this contract type
such as: it is suitable for projects that need to be completed within short period of time. It can
incentivise savings. But along with advantages, there are some limitations such as: this type of
contract may take long time to review and it can create some risks related to over budget.
Theme 2: Responsibility of bearing risk in each contract
As per the view of Myshyakov, (2019), Lump sum contract refers that the project owner
provides expressed specifications for the work or project and the contractor provides a fixed and
determined price for the project. This contract requires the owner to finish the task, designing,
specialization and schedule even before the contract can establish its prices. The contractor is
then accountable to estimate the cost including overhead and profit margin. If the project's final
cost are lower than the contractor's estimate, then the profit margin are higher than expected.
Vice a versa, if the estimate is too low then the bottom line suffers drastically. This is a standard
method in most of the construction projects. These contracts work best for projects who are with
finalized plans, defines scope in clear and definite manner, schedule and do proper
documentation of overall assessments along with pre-construction activities. These agreements
are the best suitable for simple projects with subcontractors, specified parameters and a low risk
of unforeseen issues. This method has certain advantages which includes their predictability,
requirement of less paper work while doing the project, do not require contractors to disclose the
calculations along with their material and labour costs, allow contractors to provide estimates
with sufficient buffer to avoid going over budget, etc.
On the other hand Tutar, (2018) contradicts that lump sum contracts include certain
drawbacks which involve owners must have to submit and adhere complete designs or finalized
plans thus makes the project inflexible. Apart from this, a risk have been raises related to higher
amount might be charged to cover contractors cost for unforeseen situations. Hence, the another
contract i.e. cost plus contract does not require project owner to have finalized plans for the

betterment of the project. This means that the cost and scope are subject to change. Owners are
able to take more risks an will benefit as they are directly reimbursing the contractor's expenses.
It can be contrasted with fixed cost contracts under which two parties agree upon a specific cost
regardless of the actual expenses incurred by the contractor. This also known as the cost
reimbursement contracts. It is of several types such as cost plus award fee contract, fixed fee
contract, incentive fee contract and percentage of cost contract. The benefits of this contract
involves the elimination of risks for the contractor, they allow focus to shift from the complete
cost to the quality of work being done, cover all the expenses related to the project, etc.
On a contrary note Lam, (2020) states that this method may leave the final costing of the
project high, may lead to longer timeline for the project, might lead to disputes when trying to
recover construction related expenses, requires additional resources and justify related costs.
Hence, according to this, time and material cost method or contract is better as it reimburses one
party for the price of suppliers used to complete the tasks as well as specified hourly rate along
with additional fees to connect to the services offered. With the time and material contract,
instead of quoting a fixed price for the complete project, a contract will describe the rough scope
of the job along with a quote for a fixed hourly wage plus the cost of materials. In this method,
the contractor and client agrees over the final goal of the project and specify the finished product.
Within this structure, they agree over the hourly wages for the contractors employees as well as
for subcontractors. It is best utilized when the scope of the job or its duration cannot be
determined before beginning of the work and at the time of renovating an old building. It is
beneficial when it assures that all costs will be covered, materials and time contracts are simple
to implement and a low risk for the contractor. Profit margins are predictable, adjustments are
easy and resource need changes.
Lupton and Stellakis, (2019) contradicts that within the time and material contracts, the
client often prefer fixed price contract because their risk is lower and budgeting is easier.
Tracking material cost and labour hours is extra work for the contractor. With open-ended labour
hours, the contractors labourers may not feel motivated to work productively. Thus, they support
unit price contract as it helps the construction project to provide individual portions or units of
work to estimate total project cost. Each unit is based upon diversified variables in combination
or on their own such as labour, material and overhead. It is also known as measurement or
remeasurement contract based upon project costs over the number of units necessary for

completion. Costs are accrued in nature incrementally as the project progresses. It has several
advantages which includes making estimation, tracking costs and make the billing option easier
along with more transparent after the upfront work of creating the unit prices is done. It also
provides unit price contract's more flexibility and transparency. This also allows the sooner
starting of the project with the involvement of changes all the way.
However, on the other hand, Zhang, Fu and Lu, (2021) illustrates that this might not be
the best choice as the work and materials cannot easily be quantified in discrete units. Some
companies may vary as the total cost of the project is not established at the onset. Moreover, it is
difficult when different components of a unit might vary. Hence, the GMP i.e. the guaranteed
maximum price agreement with a contractor is better suitable as in this method, the contract sum
will never exceed a specified maximum. This is a type of mechanism that used over the design
and built contracts with the responsibility for completing client's designing along with carrying
out construction works. Thus, they are in good position to control costs. If the actual cost is
higher, then the contractor must bear the additional cost. It includes certain benefits such as it
accelerate the schedule and save incentives.
Theme 3: Kinds of projects in which each contract is being used most commonly
On the basis of above discussed contracts types, it can be said that all 5 types of
construction contracts play a vital role but these selection depends on the nature of project. In
regard to lump sum contract Glasson, (2017) stated that this type of contract is being used in
those projects that are well-defined, when tender is sought and significant changes are not most
likely to occur. The reason of using this type of contract in such type of projects is to protect
against failure and financial challenges that may occur because of undefined project scope.
Whereas, on this basis, it can clearly be said that lump sum contract is not being used in projects
where the nature of work is not defined to contractors and owner. Zhang and et.al., (2018)
supported this view and said that for protecting against financial challenges, this contract type
can be used only those projects where scope is well-defined. They also stated that as like lump
sum contract, time and material contracts are also being used in construction project
management. It can also be used in other types of projects like product development. In addition,
it can be said that all those type of construction and product development projects that are open

ended. But projects in which scope is undefined, project manager cannot calculate estimate
material and time. Overall, it can be said that time and material contract is ideal for projects
without a clear or accurate estimate of time and cost involved. When duration of completing
project is not known but there is fixed hourly rate for labours, involved in project management,
this type of contract is suitable and preferable.
Flammer, (2018) contradicted and said that time and material would be an option when
dealing with unpredictable scenarios. It is also important for both of the parties of contract to
agree on all conditions. When there is requirement of flexibility, then it can be used. People who
are new in this sector cannot estimate time and cost in an accurate manner so, they cannot use
this type of contract. As per this, they said that cost plus contract have clarity as contractors
know as when this contract can be used. Those construction projects where budget for overall
project is restricted and when there is high probability as actual cost might be less than
anticipated. It is important for contractors to give detailed information of both direct and indirect
cost to owner. Government and architects’ sectors can also use this type of contracts. There is
requirement to have proper communication channel and defining terms and conditions to
contractors. Records also need to be maintained otherwise, it may create problems for
contractors.
In accordance with the Gajaman and et.al., (2019) it has been stated that unit price
contract is a type of agreement that is based upon the estimated quantities of items and unit
prices. Basically, the contractors overhead and profit are involved within the rate. This contract
has been utilized mostly into the public works projects. It can also be utilized in order to
determine costs for only certain or specific portions of the project that can be easily quantified.
The upfront work of detailing units and their costs takes time but provide a level of transparency
that makes for easier invoicing specifically if the project grows in scope. It also makes sure that
the contractor gains profits margin as it captures following expenses such as labour cost, material
cost, partner cost, overhead cost, permit and inspection cost, taxes, profit margin, etc.
On the other hand, Abu Helw and Ezeldin, (2020) guaranteed maximum price used into
construction or remodelling projects because their prices can able to fluctuate depending on over
the necessary materials and labour costs. Depending on over the stipulation of the GMP contracts
most often the contractor pays for any expenses that exceed the set price limit. With this contract,
the customers agrees to reimburse the contractor for labour, material as well as the contractors

fees that utilizes the profit. The contractors are highly responsible for any kind of costs overruns
beyond the maximum price unless there are certain changes to the project design and scope of
the assignment. It is one of the most common pricing structures that is utilized by constructions
contractors as under this contract, the contractor is compensated for actual costs incurred along
with the fixed fees which completely covers risk. However, sometimes it may miscalculate the
costs and may have to bear losses in the event of costs overruns. Due to the possibility of losses,
the contractor may quote the higher price for the job and may lose the contract in competitive
command. Therefore, the GMP contract has been used when the owner needs upfront input from
the contractor. They are involved from very beginning in order to look out the budget that is
supposed to be and look at the primary set of conceptual drawings and then ultimately it has been
identified that whether it is going in correct direction or not.

RESEARCH METHODOLOGY
Research approaches
It mainly divided into two major parts like inductive and deductive research approaches. Both
are useful or provide result from effective terms and both the approaches have different style to
find results. Inductive research summarizes and identified with evaluation of interview and
hypothetical way and its easier to evaluate and find best solution because of observation
techniques (James, Adone and Maypilama, 2020)
. Application of this approach is impressive term because it found better result for managing and
creating better idea and result creation.
And deductive research approach is all above refers to evaluate by formulation, analysis
of data with calculating and graphical activities so its little complex approach. Application of
research approach provide idea to sustainable idea and information, research mainly uses
research approaches because of right result from employee which provide idea that engineers
provide most sustainability in project management and they provide new idea and efficiency in
project or not. Research approach has been evaluating that which major resources influence
activities of current situational aspects for formation activities will applies for making different
things to engage valuable resources throughout the essential variation require in working
activities. It has been providing idea to engage new activities for making and developing higher
efficiency in project decision.
For this research Inductive research is effective approach because it’s easier to identified the
solution and information with interview and questioner activity that for effective project
management development require engineer or not and engineer labour has potential to found
better result and they develop proper structure for find best solutions. So for the current
investigation, inductive approach will be selected because it provides suitable and sustainable
information for new decision-making. And labours contract is written document so its essential
to applies their activities in project management so this research provide information about hwo
management can applies and develop process for found best and sustainable result with
application of inductive research process (Gunduz, Naji and Al-Salahi, 2020).
Research strategy
There are two type of research strategy which useful for give information about new things
engagement is suitable or not it includes like Qualitative and Quantitative research strategy.