Basis of Contracts

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 Basis of Contracts:

Under a lump sum contract, the contractor agrees to perform the work described in the bidding documents for an exchange of a fixed sum of money which covers cost of construction including labour cost, material, equipment cost and overhead and profit. That is assuming no appreciable changes, the owner will pay no more than the contractor’s bid price. This leaves most of the financial risks to the contractor.

a)       Basis – JCT Contract 2008

Where the contract sum is determined before construction work is started. The contractor undertakes a defined amount of work in return for an agreed sum. “Contracts with quantities” and priced on the basis of drawings and firm bill of quantities. “Contracts without quantities” are priced on the basis of drawings and another document- usually a specifications or work schedule.

b)       Basis – FIDIC 1987  

52.1 - All the variation referred to in Clause 51 and any addition to the Contract Price which are required to be determined in accordance with the Clause 52 (for the purposes of this Clause referred to as “varied work”), shall be valued at the rates and prices set out in the contract if, in the opinion of the Engineer, the same shall be applicable. If the Contract does not contain any rates or prices applicable to the varied work, the rates and prices in the Contract shall be used as the basis for valuation so far as may be reasonable, failing which, after due consultation by the Engineer with Employer and the Contractor, suitable rates or prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such rates or prices as are, in his opinion, appropriate and shall notify the Contractor accordingly, with copy to the Employer. Until such time as rates or prices are agreed or fixed, the Engineer shall determine provisional rates or prices to enable on-account payments to be included in certificates issued in accordance with Clause 60.        

55.1 – The quantities set out in the Bill of Quantities are the estimated quantities for the works, and they are not to be taken as the actual and correct quantities of the works to be executed by the Contractor in fulfilment of his obligations under the Contract.

3)       Specific Point of Clause:

The tender papers contained a schedule of rates ostensibly for working out plus/minus variations.

Lump sum contract (meaning):

Lump sum contract when one party carries out work for a stated and fixed amount of money payable by other. Almost without exception, all of the main forms of building contract are considered to be lump sum contracts even though they contain provisions for variations. The important point is that the original contract sum is stated for a given amount of work. Some contracts are expressly not lump sum contracts. e.g. JCT 98 Private Edition, with approximate quantities. If the contract expressly provides for re-measurement, it is not a lump sum contract. 

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