Contractual uncertainty and risk allocation - Revision history

Tkokotas at 14:04, 19 November 2018

2018-11-19T14:04:23Z

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			''Developed by Alexandru Radulescu''


	In order to be fulfilled, civil engineering projects usually entail allocation of huge resources of different types. But in the same time, financing large resources for a project means assigning of great responsibilities. So it is common that a single contractor will not take the whole responsibilities corresponding for a big project, but these will be shared through an ample selection from the multitude of existing types of contracts nowadays.		In order to be fulfilled, civil engineering projects usually entail allocation of huge resources of different types. But in the same time, financing large resources for a project means assigning of great responsibilities. So it is common that a single contractor will not take the whole responsibilities corresponding for a big project, but these will be shared through an ample selection from the multitude of existing types of contracts nowadays.

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2017-06-22T08:34:25Z

Target Estimate Contract

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	===Target Estimate Contract===		===Target Estimate Contract===

	''Target Estimate'' is also an incentive contract type that introduces bonuses or penalties applied to the contractor function of the final amount of the job actual cost. If the actual final cost is lower than the estimated cost and/or the completion time is reduced, then the contractor will receive a bonus. If the actual final cost is higher than the estimated cost, the contractor will be penalized, for sure. Both savings and overrun percentages are predetermined and stipulated in the contract. Also, some other contractual conditions are stated in the agreement as criteria for bonuses and penalties, . <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>		''Target Estimate'' is also an incentive contract type that introduces bonuses or penalties applied to the contractor function of the final amount of the job actual cost. If the actual final cost is lower than the estimated cost and/or the completion time is reduced, then the contractor will receive a bonus. If the actual final cost is higher than the estimated cost, the contractor will be penalized, for sure. Both savings and overrun percentages are predetermined and stipulated in the contract. Also, some other contractual conditions are stated in the agreement as criteria for bonuses and penalties, all with the same goal: to motivate supplier performance.<ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>

	=='''Conclusion'''==		=='''Conclusion'''==

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2017-06-22T08:33:22Z

Target Estimate Contract

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	===Target Estimate Contract===		===Target Estimate Contract===

	''Target Estimate'' is also an incentive contract type that introduces bonuses or penalties applied to the contractor function of the final amount of the job actual cost. If the actual final cost is lower than the estimated cost and/or the completion time is reduced, then the contractor will receive a bonus. If the actual final cost is higher than the estimated cost, the contractor will be penalized, for sure. Both savings and overrun percentages are predetermined and stipulated in the contract. Also, some other ~~contract~~ conditions~~, like meeting the different project completion deadlines,~~ are stated in the ~~contract~~ as criteria for bonuses and penalties. <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>		''Target Estimate'' is also an incentive contract type that introduces bonuses or penalties applied to the contractor function of the final amount of the job actual cost. If the actual final cost is lower than the estimated cost and/or the completion time is reduced, then the contractor will receive a bonus. If the actual final cost is higher than the estimated cost, the contractor will be penalized, for sure. Both savings and overrun percentages are predetermined and stipulated in the contract. Also, some other contractual conditions are stated in the agreement as criteria for bonuses and penalties, . <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>

	=='''Conclusion'''==		=='''Conclusion'''==

S162291: /* Target Estimate Contract */

2017-06-22T08:31:45Z

Target Estimate Contract

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	===Target Estimate Contract===		===Target Estimate Contract===

	''Target Estimate'' is a contract type that introduces bonuses or penalties applied to the contractor function of the final amount of the job actual cost. If the actual final cost is lower than the estimated cost and/or the completion time is reduced, then the contractor will receive a bonus. If the actual final cost is higher than the estimated cost, the contractor will be penalized, for sure. Both savings and overrun percentages are predetermined and stipulated in the contract. Also, some other contract conditions, like meeting the different project completion deadlines, are stated in the contract as criteria for bonuses and penalties. <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>		''Target Estimate'' is also an incentive contract type that introduces bonuses or penalties applied to the contractor function of the final amount of the job actual cost. If the actual final cost is lower than the estimated cost and/or the completion time is reduced, then the contractor will receive a bonus. If the actual final cost is higher than the estimated cost, the contractor will be penalized, for sure. Both savings and overrun percentages are predetermined and stipulated in the contract. Also, some other contract conditions, like meeting the different project completion deadlines, are stated in the contract as criteria for bonuses and penalties. <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>

	=='''Conclusion'''==		=='''Conclusion'''==

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2017-06-22T08:30:47Z

Guaranteed Maximum Price (Cost) Contract

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	===Guaranteed Maximum Price (Cost) Contract===		===Guaranteed Maximum Price (Cost) Contract===

	~~In certain cases, mainly~~ when the scope of construction is well defined, the owner can ask to the contractor to assume all risks as concerns the actual costs and completion duration. The owner and the contractor agree to a project cost guaranteed as maximum and to the final completion deadline. In this situation the changes asked by the owner during the project completion should be minimum as all performance specifications were provided to the owner at the beginning of the construction. ''Guaranteed maximum price contract'' can also include incentives as bonuses or savings to be shared between the owner and the contractor. <ref name="constructionlawtoday"> "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017</ref>		When it comes to incentive contracts and when the scope of construction is well defined, the owner can ask to the contractor to assume all risks as concerns the actual costs and completion duration. The owner and the contractor agree to a project cost guaranteed as maximum and to the final completion deadline. In this situation the changes asked by the owner during the project completion should be minimum as all performance specifications were provided to the owner at the beginning of the construction. ''Guaranteed maximum price contract'' can also include incentives as bonuses or savings to be shared between the owner and the contractor. <ref name="constructionlawtoday"> "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017</ref>

	Somewhat similar is another type of incentive contract, called the ''Guaranteed maximum liability contract''. The difference is that ''Guaranteed maximum price contract'' mostly transfers the responsibilities to the supplier, whilst in ''Guaranteed maximum liability contract'' cases, the owner is more exposed to risks.<ref name="winch">Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition "</ref>		Somewhat similar, it is another type of incentive contract, called the ''Guaranteed maximum liability contract''. The difference is that ''Guaranteed maximum price contract'' mostly transfers the responsibilities to the supplier, whilst in ''Guaranteed maximum liability contract'' cases, the owner is more exposed to risks.<ref name="winch">Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition "</ref>

	===Target Estimate Contract===		===Target Estimate Contract===

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2017-06-22T08:28:14Z

Annotated bibliography

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	* Project Management Institute, Pennsylvania USA (2000): "A Guide to the Project Management Body of Knowledge" : This reference was used in order to get information about basic types of contracts.		* Project Management Institute, Pennsylvania USA (2000): "A Guide to the Project Management Body of Knowledge" : This reference was used in order to get information about basic types of contracts.

	* Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition " : This reference was highly used in order to knowledge about basic types of contracts.		* Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition " : This reference was highly used in order to gain knowledge about basic types of contracts.

	* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.		* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.

S162291 at 01:04, 22 June 2017

2017-06-22T01:04:16Z

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	Also a fixed price contract, ''Unit Price Contract'' is a type of arrangement that cuts out the risk for inaccurate estimation of key tasks quantities from the contractor. Still, sometimes, when the contractor finds important contradictions between the quantities estimated by himself and the quantities estimated by the owner, he may forward an unbalanced bid. It is depending on the contractor confidence on his estimation correctness and on his susceptibility to risk that the he raises the underestimated tasks unit prices and lowers the overestimated tasks unit prices. The contractors assessments correctness leads to the profit increase for actual bigger quantities of tasks; in the same time, if the contractors assessments are incorrect, the profit resulted will be lower, even loss, for bigger quantities of tasks. Furthermore, an offer which appears to be heavily unbalanced can result in the contractor being disqualified by the owner. Basically, unit prices misestimations caused by work quantities changes will affect the contractor’s profit depending on the markup in the unit prices. <ref name="PMBOK"> Project Management Institute, Pennsylvania USA (2000) "A Guide to the Project Management Body of Knowledge "</ref> Finally, for an accurate unit pricing based on units of completed work, it is most often to meet unit pricing used on public infrastructure projects (e.g., roads, runways), than on private building projects.<ref name="constructionlawtoday"> "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017</ref>		Also a fixed price contract, ''Unit Price Contract'' is a type of arrangement that cuts out the risk for inaccurate estimation of key tasks quantities from the contractor. Still, sometimes, when the contractor finds important contradictions between the quantities estimated by himself and the quantities estimated by the owner, he may forward an unbalanced bid. It is depending on the contractor confidence on his estimation correctness and on his susceptibility to risk that the he raises the underestimated tasks unit prices and lowers the overestimated tasks unit prices. The contractors assessments correctness leads to the profit increase for actual bigger quantities of tasks; in the same time, if the contractors assessments are incorrect, the profit resulted will be lower, even loss, for bigger quantities of tasks. Furthermore, an offer which appears to be heavily unbalanced can result in the contractor being disqualified by the owner. Basically, unit prices misestimations caused by work quantities changes will affect the contractor’s profit depending on the markup in the unit prices. <ref name="PMBOK"> Project Management Institute, Pennsylvania USA (2000) "A Guide to the Project Management Body of Knowledge "</ref> Finally, for an accurate unit pricing based on units of completed work, it is most often to meet unit pricing used on public infrastructure projects (e.g., roads, runways), than on private building projects.<ref name="constructionlawtoday"> "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017</ref>

	===Cost ~~Plus~~ Fixed Fee Contract===		===Cost plus Fixed Fee Contract===

	This is a fee based type of contract that guarantees to the contractor the payment of actual job costs plus a fixed fee.		This is a fee based type of contract that guarantees to the contractor the payment of actual job costs plus a fixed fee.
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	In special situations, such as constructions involving new technologies or urgent needs, the owner may be forced to use a ''cost plus fixed percentage contract''. This implies the owner to take all risks of costs overruns and unless there are compulsory or stringent reasons, it is advisable that he may avoid this type of contract. The contractor obtains the actual work cost and a fixed percentage and he is not highly interested to reduce the total costs. Furthermore, in case of urgent needs or pressing requirements to complete the job, the extra costs for workers overtime payment will increase the job cost.<ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>		In special situations, such as constructions involving new technologies or urgent needs, the owner may be forced to use a ''cost plus fixed percentage contract''. This implies the owner to take all risks of costs overruns and unless there are compulsory or stringent reasons, it is advisable that he may avoid this type of contract. The contractor obtains the actual work cost and a fixed percentage and he is not highly interested to reduce the total costs. Furthermore, in case of urgent needs or pressing requirements to complete the job, the extra costs for workers overtime payment will increase the job cost.<ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>

	===Cost ~~Plus~~ Variable Percentage Contract===		===Cost plus Variable Percentage Contract===

	This type of contract grants to the contractor the cost payment and a reward if the actual job cost is below the estimated cost. Meanwhile, if the actual cost is higher than the estimated cost, the contractor agrees to pay a penalty to the owner. Consequently, the contractor will be highly interested to reduce actual job costs as much as possible. In other words, it can be said that since the contractor takes the risk of cost estimation, he will receive a variable percentage of the direct job cost in return. Incentives may be included in order to make the contractor quite involved in reducing the actual job costs and completion duration. <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>		This type of contract grants to the contractor the cost payment and a reward if the actual job cost is below the estimated cost. Meanwhile, if the actual cost is higher than the estimated cost, the contractor agrees to pay a penalty to the owner. Consequently, the contractor will be highly interested to reduce actual job costs as much as possible. In other words, it can be said that since the contractor takes the risk of cost estimation, he will receive a variable percentage of the direct job cost in return. Incentives may be included in order to make the contractor quite involved in reducing the actual job costs and completion duration. <ref name="ProjectManagement"> Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" </ref>

S162291: /* Annotated bibliography */

2017-06-22T01:00:36Z

Annotated bibliography

← Older revision		Revision as of 01:00, 22 June 2017
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	* Project Management Institute, Pennsylvania USA (2000): "A Guide to the Project Management Body of Knowledge" : This reference was used in order to get information about basic types of contracts.		* Project Management Institute, Pennsylvania USA (2000): "A Guide to the Project Management Body of Knowledge" : This reference was used in order to get information about basic types of contracts.

	* Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition " : This reference was highly used in order to ~~get information~~ about basic types of contracts.		* Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition " : This reference was highly used in order to knowledge about basic types of contracts.

	* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.		* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.
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	* "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017 : This reference was used in order to get additional information about different types of contracts.		* "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017 : This reference was used in order to get additional information about different types of contracts.

	* Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" : This reference was highly used in order to get ~~information~~ about different types of contracts.		* Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" : This reference was highly used in order to get knowledge about different types of contracts.

S162291: /* Annotated bibliography */

2017-06-22T00:56:43Z

Annotated bibliography

← Older revision		Revision as of 00:56, 22 June 2017
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	* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.		* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.

	* "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017 : This reference was used in order to get information ~~additional~~ information about different types of contracts.		* "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017 : This reference was used in order to get additional information about different types of contracts.

			* Chris Hendrickson, Tung Au (1998): "Project Management for Construction - Fundamental Concepts for Owners, Engineers, Architects and Builders" : This reference was highly used in order to get information about different types of contracts.

S162291: /* Annotated bibliography */

2017-06-22T00:55:48Z

Annotated bibliography

← Older revision		Revision as of 00:55, 22 June 2017
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	* Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition " : This reference was highly used in order to get information about basic types of contracts.		* Winch, Graham M., Wiley-Blackwell, (2010) "Managing Construction Projects, 2nd edition " : This reference was highly used in order to get information about basic types of contracts.

			* "What Is a Lump Sum Construction Contract?" -extracted from: https://www.thebalance.com/lump-sum-construction-contract-844915 at 12.07.2017 : This reference was used in order to document about lump sum contract.

	* "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017 : This reference was used in order to get information additional information about different types of contracts.		* "Construction Contracts: The 10 Most Important Terms" -extracted from: http://www.constructionlawtoday.com/2010/01/construction-contracts-the-10-most-important-terms-price/ at 20.07.2017 : This reference was used in order to get information additional information about different types of contracts.