Q18.

Discuss the factors which a civil engineer should take into account when
advising a client as to which type of contract would be appropriate for a
particular project.
The power to influence the course of a project diminishes as the project progresses. Early
decisions, such as the choice of a type of contract for a particular project, have far reaching
effects. The selection of contract type is possibly the most important decision in any project and,
as a result, clients seek the advice of a civil engineer to assist them in making the right choice. In
this essay, I discuss the factors which the civil engineer should take into account.
The key to choosing the right type of contract lies in successfully matching the clients objectives
for the project with the contract most likely to deliver these objectives. This task is not
straightforward however due to the many different types of contract available and because a
clients objectives can be difficult to define. The civil engineer must therefore ensure that the
client is certain of his objectives and that these are clearly defined and understood. The civil
engineer must then make use of his detailed knowledge of the various contract options to advise
how the projects objectives can be met.
The first factor to be considered by the civil engineer is that of the clients project objectives.
These objectives must be identified so that their significance and order of priority can be
established. What are they?
The client wants a degree of certainty when dealing with the events likely to occur during the
running of the project. There are effectively three variables that the client will wish to control to
a greater or lesser degree. He wants the works to be completed ahead of programme, within
budget and to a specified standard. A realistic price, not necessarily the lowest tender price, is
always important. Price certainty and the avoidance of cost escalation can be a priority and the
client may also have special requirements with regards to terms of payment. The client may be
anxious to control the time of a contract, in order to provide a revenue stream by a particular
deadline date. The completed works will also need to be to a specified acceptable level of quality.
In addition to the three variables of cost, time and quality, the allocation of risk must be
considered to manage the many uncertainties associated with construction projects. Client
involvement may be a priority, particularly if the design is likely to change and the contract will
need to be particularly flexible to accommodate this. Client involvement also necessitates that the
contractor is co-operative and willing to work in partnership.
As well as considering the clients objectives, another factor to be considered by the civil engineer
are the contractors objectives. These are to make a profit and to please the client in order to win
repeat business. It is easily forgotten that contractors really do need to make a profit, it is their
raison dtre. Profit is only a few percent of the contract value and is not the reason for major
variances in out turn price. To achieve this profit, the contractor must understand the clients
objectives and have access to the client at a high level. Key to a successful relationship is good
communication and the correct channels must be open to the contractor. Understanding the
contractors objectives and possibly even negotiating which type of contract to select with the
contractor could lead to both parties meeting their objectives and projects being successfully
completed.
Another significant factor will be the state of the construction market at the time of choosing a
type of contract. If tendering is to take place during a low period in construction activity,
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competition to win the work will be fierce and contract terms more favourable to the client will be
possible. It is worth noting however that a contractor who subsequently runs into difficulties
during a project is not best placed to help the client satisfy his objectives.
The civil engineer must then weigh up the various types of contract available and choose the right
one for the factors previously discussed. The types available include the traditional contract, allin contracts and package deals. The traditional arrangement separates the design and the
implementation processes. All-in contracts include packages such as the design-build-operatetransfer (DBOT) schemes under which an organisation undertakes a project beyond the traditional
construction phase. Design and build contracts are package deals and the Contractor hands over
the completed works upon completion of design and construction. Management contracting and
direct labour are further options.
There are in addition numerous options with regards to terms of payment. Lump sum and
admeasurement contracts are both price based with prices or rates submitted at tender. Cost
reimbursable and target cost contracts are cost based, the actual costs for work undertaken are
reimbursed to the contractor including profit.
The various types of contract and terms of payment have their own particular strengths and
weaknesses and these factors can be used to achieve the project objectives.
Lump sum contracts are often used on design and build jobs. These can be used if the client
requires a firm price early during the contract and a high degree of certainty about the final price.
In admeasurement contracts, the tender total gives a good indication of price on condition that
the degree of change is low. The final price may not be known however until long after completion
of the works. There is no estimate of final price at tender stage on a cost reimbursable contract,
however the available knowledge of actual costs may be of benefit to the client when evaluating
proposed changes. Cost reimbursable contracts give less incentive to the Contractor to work
efficiently. This situation is rectified however on a Target cost contract by introducing incentives
to motivate the Contractor.

A client priority may be for the speedy and timely completion of the works. Design and build
contracts benefit from the overlap between the design and the construction. The design is also
tailored for the most efficient method of construction and the need for contractor redesign is
eliminated.
Risk should be allocated to the party best able to manage it. Different types of risk exist ranging
from fundamental risk such as war damage to pure risks such as freak storms and fire damage.
Collapse and subsidence are particular risks, and finally ground conditions and inclement weather
are speculative risks.
The fundamental risks are generally taken more by the client and at the other end of the range,
the speculative risks tend to be taken more by the contractor. The choice of type of contract
dictates to what extent this remains the case. Package deal contracts tend to allocate most of
the risk with the contractor and the cost of uncertain risks will be reflected in the price. Under
cost reimbursable contracts, the client retains more responsibility for and greater control of the
risk.

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Cost based contracts are more flexible and allow a high degree of client involvement. This may be
important to the Client if the design remains incomplete and much change is still expected. Design
changes can be accommodated by admeasurement contracts but will have a negative influence on
cost and time that the client will have to accept. Under a design and build contract, the client is
in a poor position to negotiate change and his requirements should be clearly defined from the
beginning.
Trends in choosing the right contract are a further factor to be considered by the civil engineer.
The present trend is away from contracts that are seen to encourage adversarial relationships,
something the traditional forms such as the ICE 6 th are often accused of. The Engineering and
Construction Contract (ECC) promotes the development of solutions beneficial to both the client
and contractor and its selection sends out the right signals that this is the desired relationship
the client seeks.

1300 words approx.

Not a timed essay

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Q18. Discuss the factors which a civil engineer should take into account when
advising a client as to which type of contract would be appropriate for a
particular project.
Essay Plan.

Introduction
Influence of early decisions
Importance of choice of type of contract
Introduction to essay
Main Body
Match type of contract with client s project objectives
Describe objectives
Time, Cost, Quality
Risk, client involvement, flexibility, co-operation
Contractors objectives
Profit, repeat business
Communication channels, negotiation of contract
State of the market
Introduce types of contract
Traditional, all-in, package deals
Introduce terms of payment
Price based (lump sum, admeasurement)
Cost based (target cost, cost reimbursable)
Examples matching requirements of cost, time and risk with types of contract
Expand on risk
Flexibility
Trends
Conclusion

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