Contract | Types of Contract

Contract

Define

As per Indian contract act 1872, contract is defined as “an agreement enforced by law.” An engineering contract is defined as an agreement entered into by two competent parties, under certain terms and condition, of which one party agrees to perform a given job and for which the other party agrees to pay.

Types of contracts

1. Item rate contract

2. Lump sum contract

3. Percentage rate contract

4. Cost plus percentage rate contract

5. Cost plus fixed fee contract

6. Target contract

7. Negotiated contract

8. Labour contract

9. Rate contract

Item rate contract

An item rate contract contract is a type of contract which is undertaken on per piece or item basis. Simply, it is a type of contract where the contractor works and gets paid on 'per item basis'.

The contractor quotes the rate for each individual items of the work, on the basis of schedule of quantities supplied by the department.

Lump sum contract

A lump sum contract is the traditional means of procuring construction, and still the most common form of construction contract. Under a lump sum contract, a single 'lump sum' price for all the works is agreed before the works begin.

The complete work as per plans and specification is carried out by contractor for a definite amount of money.

Percentage rate contract

In this form of the contract, the department draws up the schedule of items according to the description of items sanctioned in the estimate with the quantities, units, rates, and amounts shown therein.

The contractors are required to offer to carry out the work at par with the rates shown in the bill of quantities or percentage above or below the rates indicated the bill of quantities of the tender.

Cost plus percentage rate contract

In this system contractor is paid the actual cost of the work, plus an agreed % also, to allow for profit. Contractor arranges materials and labor at his cost and keeps proper account and he is paid by the department or owner the whole cost together with a certain percentage, say 10% as his profit as agreed upon beforehand, An agreement is prepared with all conditions of contract in advance.

Cost plus fixed fee contract

In Cost plus fixed fee types of Engineering Contracts, the owner pays to the contractor, an agreed fixed lump sum amount over and above the actual cost of the work. This fixed amount shall include overhead charges and profit to the contractor. The fee does not vary with the actual cost of the work as in the case of cost plus percentage rate contract.

Target contract

It Types of Engineering Contracts in which contractor is paid on a cost-plus percent basis of work performed under this contract. In addition, the contractor receives per increase or decrease of rate amount or it affects either a prior agreed of total cost or target value is paid by measuring the actual work and billed as per the agreed rate of the item.

Negotiated contract

A negotiated contract is one where a specific firm is targeted, for a variety of reasons, to perform the contract, even though there is more than one firm that can perform the contract. Under usual circumstances, a competitive tender or proposal would be issued

Labour contract

Sometimes, the owner is in a position to purchase the required materials himself In such cases, he invites tenders only for the labor work. In These Types of Engineering Contracts, the contractors put up their rates for the labor per unit execution of each item. It is necessary to state that these rates include:

a) Use of contractor’s plant and equipment

b) All necessary false work

c) Contractor’s supervision

d) Contractor’s profit