CONTRACTUAL ARRANGEMENTS FOR CONSTRUCTION PROJECTS

1. Objectives
After studying this topic, students are expected to understand be able to explain
about:
The different contractual arrangements for a construction project.
2. Introduction
Construction projects can be organized according to the conventional sequential
arrangement or fast-track / phased construction (refer to Figure 1). Figure 2
illustrates the possible contracting arrangements for a project: 1) Design/bid/build
contract, 2) Design/build contract, 3) Construction management (CM) contract and 4)
Owner/agent contract.
3. Design/bid/build contract
Refer to Figure 2(a). This type of contract is also known as the general contract
agreement (refer Figure 3) or traditional approach (refer Figure 4). It involves the
owner, designer and contractor for a project of a well-defined scope and having no
unusual features. The construction contract would normally be based on a lump sum,
fixed price bid before construction.
It involves three steps:
1. Preparation of a complete design before construction.
2. Competitive bidding from contractors.
a. The owner awards a contract to the designer and another separate
contract to the construction contractor to build the project.
b. The owner is usually represented by the firm that prepared the
contract documents. The owners representative would usually be an
architect firm for building projects and an engineering firm for other
projects.
3. Construction of the project.
Each step above must be completed before starting the next step. Considerable time
would normally be required.

Mohd Sufian Abdul Karim

Contractual arrangements

Lecture Notes

4. Design/build contract
Refer to Figure 2(b), 5 and 6). It is also known as the turnkey contract that involves a
two party arrangement between the owner and the design/build contractor. It could
shorten the project duration and provide flexibility for the owner to make changes in
the project during construction. The single contract between the owner and the
design/build contractor is awarded before starting any design or construction work.
Usually the contract arrangement would therefore be cost-reimbursable instead of a
lump-sum, fixed-cost arrangement.
5. Construction management (CM) contract
Refer to Figure 2(c), 7 and 8). The owner assigns a contract to a construction
management (CM) company to perform construction management services of the
project on the owners behalf. The CM company is generally hired by the owner
before any substantial design work is done. It involves a four-party arrangement: the
owner, designer, CM company and contractor.
6. Owner/agent contract
The owner performs part of the design with in-house personnel and contract out the
balance of design to external design consulting engineering firms (refer to Figure
2(d)). Construction contracts may be given to one or more contractors. Alternatively,
the owners in-house personnel may perform all design and construction activities.

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Mohd Sufian Abdul Karim

Contractual arrangements

Lecture Notes

Tables and Figures

Figure 1: Comparison between the conventional sequential arrangement

and fast-track / phased construction
Source: Gould and Joyce (2003)

Figure 2: Contracting arrangements

Source: Figure 3-1, p. 34, Oberlender (2000)
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Mohd Sufian Abdul Karim

Contractual arrangements

Lecture Notes

Figure 3: Typical organization for a general contract agreement

Source: Hinze (2001)

Figure 4: Information exchanged between the designer and the contractor formally
flows through the owner
Source: Gould and Joyce (2003)

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Mohd Sufian Abdul Karim

Contractual arrangements

Lecture Notes

Figure 5: Typical organization of design-build projects

Source: Hinze (2001)

Figure 6: Information exchanged by the designer and the constructor flow directly
between them
Source: Gould and Joyce (2003)

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Mohd Sufian Abdul Karim

Contractual arrangements

Lecture Notes

Figure 7: Typical organization for the professional construction management method

Source: Hinze (2001)

Figure 8: Construction management approach

Source: Gould and Joyce (2003)

Latest update: 6th December 2012

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