A contract is a legal agreement between an investor and a contractor, showing the responsibilities and powers of each party when embarking on a project. In the field of construction, there are many ways to classify types of contracts, depending on the characteristics of the project, the form of pricing or the relationship between the contracting parties as general contractor, main contractor or subcontractor…. This article analyzes the types of general construction contracts in depth.
According to characteristic of project
General contractor contracts classified by project characteristic include three most common forms:
- – Design – Build General Contractor Contract: The general construction contractor is responsible from the design stage to the construction stage of the project.
- – EPC General Contractor Contract (Engineering, Procurement and Construction General Contractor Contract):The general contractor is responsible for designing, providing technological equipment and constructing works.
- – Lump Sum Turnkey Contract: The general construction contractor participates in the project from the actual survey stage to the basic design, detailed design, construction, M&E construction, even providing smart factory solutions, if investor require.
Lump Sum Turnkey contract is a form of contract for investors who do not have much experience or are entering the construction field for the first time. This contract helps reduce project management pressure for the Investor, saving a lot of management costs and time, but still has an overview from the design solution to the construction method, the overall cost of the project.
According to form of contract price
- – Package contract: fixed contract value, unchanged throughout the process from bidding, contract performance to handing over the volume of work within the scope of the signed contract.
- – Fixed unit price contract: is applied in the case that at the time of signing, due to many reasons, it is difficult for the two parties to determine the exact workload of the contract. Each work item will be agreed on a fixed price. The investor must pay the cost equal to the volume multiplied by the agreed unit price, accepting the risk of incurring costs due to the adjustment of the workload during the construction process.
- – Adjusting unit price contract: In case it is difficult to determine specific costs due to volatile market factors, etc., an adjusting unit price contract is the most appropriate choice. The contract value will be equal to the adjusted unit price according to the signed contract, multiplied by the corresponding work volume.
With a package contract, the investor assigns all costs to the contractor, regardless of the market price fluctuations or the shortage/excess of materials. The general construction contractor must carefully balance all costs, estimate all risks, ensure the implementation of the project as committed without any additional costs compared with the agreed contract and design.