Construction Contracts & Dispute Resolution Management in England

This report provides an analysis of construction contracts and dispute resolution management, focusing on a construction project of a local government authority in England. It primarily discusses two types of contracts: cost-plus contracts and guaranteed maximum price contracts. The report details the components, advantages, and disadvantages of cost-plus contracts, highlighting scenarios where they are most suitable and potential issues such as cost overruns and disputes. Additionally, it explores guaranteed maximum price contracts, explaining their general conditions and suitability for projects like schools, where setting a contract cap is essential. The report also touches upon payment terms and the importance of clearly defined terms and conditions to avoid future disputes. This analysis aims to provide a comprehensive understanding of these contract types and their implications for construction projects.

CONSTRUCTION CONTRACTS &
DISPUTE RESOLUTION
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Cost plus contract........................................................................................................................3
Guarantee maximum price contract.............................................................................................6
Recommendation.......................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Construction contracts are the mutual and legal bindings of agreement between the two
parties. This is based on the policies and conditions recorded in the document form. These
parties involved include one or more property owners with the one or more contractors.
Construction contract agreements are the documents that are defined as the set of scope and
terms of work related with the construction project. It is the agreement that is done between the
contractor that is working on construction and the individuals that will hire them. Such contracts
will include the agreements to design and survey the work along with provide with some advice
on the building, exterior as well as lays out the landscapes in relations with the operations
involved in the construction (Sinitsyna and et.al., 2021). A dispute resolution management
process deals with the businesses and collectors handling past- due recoveries as well as
managing disputes in order to cash. This process includes the collection and analysis of records
of customer initiated disputes along with validating them to accelerate the resolution. Dispute
resolution helps in making the dispute come to an end or attain an outcome where the court will
decide to solve the dispute as well as make the binding decisions in order to that effect. This
report deals with the construction project of local government authority based in England and the
development of its construction contract.
MAIN BODY
Cost plus contract
This contract is related with the cost that is involved for completing the contract of the
construction project. The word cost is associated with all types of costs that is direct, indirect,
overhead and so on that incurred while performing certain tasks and activities. This cost is added
with the profit in a specific part of the income generated over and above the total costs present in
the contract and that is agreed by the parties connected. It is an agreement that reimburse the
expenses of the company along with specific amount of profit that is generated as per stated in
the contract's full price. Contracts are usually used mainly in construction where the buyer party
will have to assume some set of risks while also providing the degree of flexibility presented to
the contractor (Cronk and et.al., 2021). In the case where the party will draw up the contracts and
anticipated the same such that the contractor will make good and deliver the project as per the
promises made while also agreeing to pay extra because the contractor will make additional

profits upon its completion. The cost plus profit types of contracts are allowed to be constructed
having fixed costs contracts , where both the parties involved will agree to a specific costs
regardless of what the actual expenses are incurred by the contractor. Such contracts for
construction purpose are also known as cost- reimbursement contracts.
Cost- plus contracts will agree for one party to agree to reimburse to the contracted party
to cover the expenses as well as have specified profit proportion to complete value of the
contract. Cost- plus contracts are usually the most optimum to be used in construction project
when the budget is limited as well as there is high probability that actual cost come out to be less
than anticipated. In this contract, the contractor is supposed to provide proof that is associated
with the expenses such as direct or indirect costs (Menkel-Meadow and et.al., 2018). These types
of contracts are generally used for the purpose of party drawing as well as have budgetary
restrictions. It is used when the overall scope of the project and the work done is not properly
estimated in advance duration of time. This contract will allow the contractor to collect some
certain amount that is above the level of reimbursed amount, this will help in making a profit
from the cost plus profit contracts.
However, in some cases, the contracts can have a limit to the amount of reimbursement
such that expenses will not be covered. This happens when there are contractors that will male
some error present during the course of the project or even can be negligent as part of the
construction. The cost plus profit contracts includes various components including:
Direct costs: This is the cost subjective by the specific needs of the contractors and
contract including labour costs, material costs, hiring charges, along with consultancy charges
for the professional work.
Overhead costs: It is the allocable cost related with the contract such as rent of the
office, expenses in travelling, supplies required in office contexts and others.
Profits: this is the fix percentage of the amount that is calculated along with the overall
cost of the project.
Contract can vary with respect to the profits and fees required for the component of the
contractor. Cost plus fixed percentage fees is where the contractor will receive some income with
the help of percentage on cost of contract that is pre decided (Ashworth, and Perera, 2018). Cost
plus the fixed free contract includes the amount that is paid to the contractor and is fixed as well
as independent in against to the cost of contract. Lastly, there is cost plus fixed percent or fee and

incentives. These certain contracts includes some additional incentive covenant that is present in
the early completion stage and levels as per the agreement. These contracts are eligible to receive
the incentive as per mentioned in the terms and conditions of the agreement.
Cost plus profits will lead to attain many advantages such as the contractor is paid as per
the fixed percentage of the fees so it will not overrun the cost and therefore, will not burden the
contractors. Thus, it will help in eliminating the risk that is transferred to the contractee. The
quality of the product will not be compromised as there is no scope for having budget constraints
for the contractors. This will lead to have a better quality for the project. Moreover, in the cost
plus profit contract, the contractee will have an entire knowledge related with expenses that are
subjected to the project when the contractor is supposed to provide every detail regarding the
expenses while reimbursing the costs from the contractee (Banerjee, 2021). This contract option
will lead the final cost of project to be less than the estimated cost and this in turn will benefit the
contractee. The decrease in the cost for the material and labour will provide benefits in
transferring to the contractee while they are paying for the associated costs.
On the other hand, in context to LGA company cost plus profit contract leads to
many cons such as in the case of an overrun, contractor will require to depict a lot of additional
evidence that will justify the increase in the cost of the project. There is a scope of rising disputes
that can occur between the contractor and the contractee along with reimbursement of the
expense. In the process of avoiding the disagreement during the time of settlement of the contract
cost, more expenses will be incurred in accounting and making reports on monthly basis. With
this contract, the project might take longer time that it is expected as well as it possess the scope
of uncertainty for the contractee when the final cost of the project is not always set to be easily
determined. Another disadvantage from the cost plus profit contract in construction project is
that the contractors are not eligible for any kind of incentives even if the project is not completed
within the desired time frame. It leads to some penalties that are build on the contractor for the
delay caused in the completion of the project. The cost plus contracts are generally used in the
construction industry as it includes the contractor to reimburse the amount of expenditure that is
made by them and in association with the agreed contract. It includes a fix percentage of fees
present in the contract cost related with the profits that are made based on the contract.
Cost plus profits contracts can be used in successful way in some situations were the
systems are in place before the execution of the contract. It is important to have a proper system

that will check the expenses that occurs during the time of construction of the contract. There is a
proper form of communication channels present in between the contractor and contractee while
keeping up with the knowledge present in the progress of the contract (Alavipour, and Arditi,
2019). All the terms and conditions that must be mentioned in contract in proper way such that it
will avoid from having any disputes in the future. Contractor must have some sufficient funds to
execute the contracts as the cost of the contract is not supposed to be paid immediately to the
contractor. Adequate amount of financing arrangements must be there with the contractor.
Moreover, the working team must be sure about proper accounting, auditing and other records
that re to be maintained in the contract and under consideration.
Guarantee maximum price contract
Local Government Authority (LGA) can further access to the guarantee maximum price
contract for its new project. This contract is about to ensure the grantee value against the contract
is conducting. Guarantee maximum price is a type of contract in which a limit is set against the
contract is obtain. This is a contact type which allow the customer to pay a certain price against
the contract is established. Irrespective to the cost of the contract or the total expense that is
incurred in against to the contract is deliver the limit is set to deliver the entire project. This is a
type of contract which allow the stakeholder to set a cap that would allow the stakeholder to
launch the entire contract at a certain price. Customers only need to pay the limit set in cap of the
contract. Project that is like school and such kind of project this is a suitable contract which can
allocate the following features.
General conditions
In refers to LGA the guarantee maximum price is a contract type which will allow the
stakeholder group to set a contract cap that will demonstrate the price customer will be requiring
to pay against the contract is incurred. This contract type allow the stakeholder to set the
maximum limit for the contract o deliver the entire contract. This is a contract type that would
ensure the setting up to the maximum value to the contract. The major condition under this type
of contract involve setting the prices that will be require to the customer to pay against the
contract is established. This is a basic condition or general term of the contract is made. This is
the general condition involve in the contract that would ensure to the business venture for
attracting to the contract that would contain the good and quality contract option against the
contract is delivered. Setting up the maximum value to contract is the prime condition that

require the customer to pay the set price cap against entering into the contract option (Benhmad
and Percebois, 2018). Henceforth, it can state as a fact that the business venture is involved in
this type of contract that would ensure conducting all the operation of contract based on this set
price. Irrespective to the expenses that is incurred by the service provider in this customer will
only be needed to pay the price that is set against the contract is made. This is the general
condition associated with contract option. The contract can allow the customer and the service
provider to pay the entire value in different instalments. This is another condition that may attach
to the contract type which will allow the contractor and contractee to set the time duration in
which the instalment will be paid against the contract is established. Payment in the contract is
usually influenced with the scale of payment. IN case the payment or the service fees in contract
is huge than this is not feasible fro the customer to pay the entire value in one single time which
will further require the customer and the client to pay the entire value in different instalments
(Arouna, Michler and Lokossou, 2021). This is a key practice associated with the contract.
Guarantee maximum price the name itself demonstrate the feature that this will only delegate the
maximum value of the contract that may incorporate against the contract is made.
The guarantee maximum price contract may be designed based on the convenience of the
party involve in the contract. Terms of delivering services may change on the basis of
convenience of the parties involve in the contract. The payment is certain in this where the
customer get to know at the initial phase of the contract or at rthe time of initiating or formation
of the contract the price of the contract. This only require the customer to pay the set value of cap
against the contract is established by the parties involve in the contract (Dunantand et.al., 2017).
Along with the payment option this contract provide the convinced to the parties involve in
contract to pay the value as p[er the individual or own convenience. The other condition may
also attach in this contract. The Local Government Authority may enter into this contract which
would require the organisation to identify the total cost of the contract even at the time of
entering into the agreement. The total value of contract is certain in this contract which is a core
advantage associated with the contract. Further, the fluctuation is also granted regarding the
condition of the contract as on the basis of convenience of the parties involve in contract
conditions may attach to this contract type.
Special condition

The special condition are the one that is not usually a part of the contract but due to the
convenience of the contractor and contractee this condition include in the contract. These are the
special terms and condition that are attached with the contract. These conditions are related to the
documentation of the contract, total number of parties involve in contract, terms of the project
and such other conditions (Alsaediand et.al., 2019). These are the condition that made the entire
contract specific and would support the organisation to mitigate the requirement of the contract.
Special condition are generally not associated with the contract but become a part of the contract
due to the need and requirement of contract. Special condition may attach with the contract that
is all based on the contractor and contractee. The condition may be related to the documentation
process, payment terms, percentage of completion for the contract and such other. Nominee may
also introduce in the contract that will further make the contract more clear for the parties
involve with the contract. The role of the special condition is to improve the feasibility of the
contract and further to improve the feasibility related to the contract. This condition make the
contract more clear and more feasible so that both the parties associated with the contract can
get the advantage associated with the contract.
Scope of work
I context to LGA Scope of work is associated with the grantee price contract. This is
about to make the work more specific. Usually the contract involve the scope of work that is
about to specify at what stage of the contract what portion must be completed. This is a very
basic condition associated with the contract in which contractor and contractee may involve the
fact that deadlines must also be associated with the contract terms (Al-Khazalehand Eldeen, ,
2019). This involve the quarterly or monthly deadline in respect to percentage of completion in
the contract. This is a very basic structure of the contract that will require the contactor and
contractee that the overall completion of contract divided into the different instalments and on
every instalment the price will be liable by the customer to pay. This is further involve the scope
of work. This include specifying the scale of work that will be undertaken against the contract is
incurred by the stakeholders involve in the contract.
Drawings
Drawing is a pictorial representation of the contract. This is a graphical or pictorial form
of presentation against the contract is made between the parties. This is the process that is very
feasible and practical in nature as it disclose the entire structure. Local Government Authority is

trying to construct against the contract option and this practice would allow the company to
identify the entire structure that will be established in the end of contract get completed (Ranjbar,
2019). Drawing is a very important feature of contract as it disclose the entire structure and the
possible outcome of the contract get completed. This is also about to assure the contractee the net
outcome or the structure that will come out of the construction in the end of the contract.
Specifications
Specification is a section involve in the grantee price contract in which the contactor and
contractee may attach the specific condition associated with the contract. This condition is other
that the general condition or the special condition associated with the contract. Specification is
initiated to respect the personal interest of the parties involve in contract. Specification play a
crucial role in such a time any party associated with the contract fail to meet a certain condition
to the contract. This is generally related to the payment (Haidar,2021). Many time the customer
or the contractee fail to make the payment on time and in such a time this condition support the
interest of contractor to recover the value of contract.
Bill of quantities
Bill of quantities is also associated with this contract type. This involve collecting all the
bills of all different cost that is incurred over the contract. This is a very important factor and
aspect associated with the contract that allow the contractor to identify the total profit earned
aginst the contract is completed.
Construction Schedule
Construction schedule disclosed the completion of contract partly as well completely.
This is like of time frame which will disclose at what point in time the percentage of the contract
work would have completed. This is very important part of the contract specially for the contract
that sustain for longer run.
Schedule of Values
Schedule of values is a term of contract that disclose that at what part of the contract
tenure customer would be liable to make what percentage of total value of contract. This is about
to sustain the payment flow in contract on the basis of the percentage of completion of the whole
contract. Schedule of work is usually influence with the construction schedule of the contract. On
the basis of the percentage of completion conducted by contractor the payment require to be
made by customer.

Advantage of contract:
 This allow acceleration in schedule.
 This further sup[port saving the incentives included in the contract.
 This contract clear all the aspects of the contract.
 This is a secure contact option for both the parties involve in contract.
Risk factor of contract:
 Inaccurate cost reporting in the contract.
 This contract option increases the risk of contract as customer will pay after the
completion of work.
 The construction contract is usually sustain long tenure which further involve increased
price of material, labour and other aspect of the contract that further reduce the loss of
contractor.
 This contract do not able to meet the contingency risk involve in the contract that further
increases the risk factor involve with the contract.
 This contract usually the customer friendly rather than the contractor friendly by nature.
Recommendation
 It is to be recommended to the LGA company to select an appropriate
contract that will help the organization to build the new school in a very cost
effective manner. However, it has been suggested to the organization to
make use of Cost plus construction contract in order to complete the work on
time. The cost plus profit contract include all types of cost such as direct, indirect,
overhead that will be required in order to perform the activity (Vogel., Lind.
and Holm., 2019). However, there will be specific percentage of the profit
will be agreed between the parties. Moreover, if LGA company will
provide certain amount to the contractor it will complete the work in more
effective way. Along with this, the cost plus profit contract will cover the
overall cost such as in direct cost it will cover the charges that need to be given
to the labour and material cost as well as hiring charges. Furthermore, it will
also cover the overhead cost that include all the travelling expenses, issuance
and office rent. Thus, it help the company in maintain their overall operational

cost and provide the organization with details of all the expenses that will
be required (Calimon. and Balisong, 2018). In addition to this, firm should make use
of the cost + fixed percentage fee in the contractor will receive the income
on the decided percentage on the cost of the contract.
It is to be suggested to the firm to make use of cost plus fixed contract as it has
various advantage such as if the contractor is paid a fixed amount of the fees.
Then there will be no burden of cost overrun and the risk will be transfer to the
contracted. For not completing the project on n time and it will be held liable for
the compensation of the loss (Najafizadaand Vahid., 2018). Along with this, there will be
no compromise in the quality of the project as the budget of the construction
will already be set and the certain amount of percentage will be given to the
constructer. In addition to this, both the parties of the contract will be aware about
the budget of the project and it will be as an evidence regarding the overall expense
that has been spend on the work. Furthermore, the final cost of the project will
be less than it was decided in the contract. As in this contract the amount of
expenses are set on the average that will be required and the constructor is
allowed to do the project in the limited budget that has been decide (Brunet and
César, 2021). Thus, if LGA company use this contract it will save the
organization form extra expenses. However, if any mischief is done by the
contractor the in this contract the terms are solving by an adductor. It will be on the
educator discretion to award the claim according to the loss and damage. In
addition, to this, the another advantage is if in case of any loss in the decrease of
the cost material and labour the amount of damage will be transfer to the
contracted as the overall expenses has been bear by it. Along with this, the
company can easily face the issues relating to the tender as this contract will
attract more and more tender because it will provide them with fixed
percentage of work.
CONCLUSION
The contract may be classify into different type such as cost plus contract, guarantee
price contract and such other. The cost plus contract decide the price of contract based on the
total cost and inclusion of the profit percentage to the contract. In case of guarantee price

contract customer only need to pay a certain price irrespective of the value find against the
contract. LGA Company may adopt the cost plus contract in order to develop the new school.