What Is a Package Deal Contract in Construction

Another example of a global agreement is a recent agreement in the technology industry. In 2017, TechCrunch reported that Uber had agreed to make an investment by SoftBank Group, stating that they had “entered into an agreement with a consortium led by Softbank and Dragoneer on a potential investment.” Under a lump sum contract, an owner agrees to pay a certain lump sum to a contractor after the completion of the work without a breakdown of costs. [8] [9] Once the work is completed, no detailed action is required. The types of construction contracts are usually defined by the type of payment made and other specific conditions such as duration, quality, specifications and certain other elements are indicated. These main types of contracts can have many variations and can be tailored to the specific requirements of the product or project. Duke and Carmen explained: “The higher cost with GMP provides a cap on total construction costs and fees for which an owner is responsible. If the party providing the work under this pricing method exceeds GMP, it is responsible for those overruns. The GMP-plus cost and a cost-sharing agreement can encourage both parties to a construction contract to work together as efficiently as possible. [14] Understanding the different types of construction contracts can help you decide which type is best for you and your project.

In addition to the contract, there are many other moving parts to consider, such as the amount of work you need, the design technology you should consider, and the most important machines you need for the job. Consider implementing value engineering in your next project to weigh cost and material options and ensure you get the best value for money. Take a look at our heavy equipment catalog to see through your rental options. The difference between this type of contract, which is a cost-based contract with a lump sum contract, is that in the maximum guaranteed price (GMP), if there are savings resulting from the under-execution of costs, it would be a contract at an agreed price, and the contractors keep the savings they receive costs for themselves and there is no obligation for them, return them to the owners. However, this economy can be shared by both the entrepreneur and the owner. [12] Another difference concerns the state of the plans. The lump sum contract can be used if the owner has a complete set of plans, specifications, etc., otherwise the maximum guaranteed price (GMP) will be preferred to compensate for this shortcoming. Where the increased cost is used, it is preferable for the owner to determine the maximum guaranteed price to avoid further costs and contractors required to provide the owner with the main input on the project cost. [13] Unit price contracts generally highlight the types of tasks performed in addition to the materials used for those tasks.

This style of categorized pricing makes it easier for owners to evaluate each price and allows builders to calculate more accurately for each category. This type of contract includes a total fixed price for all construction-related activities. Lump sum contracts may contain incentives or benefits in the event of early termination or may also contain penalties, called lump sum damages, in the event of late termination. Flat-rate contracts are preferred when a clear scope and a defined timetable have been reviewed and agreed. As a percentage of costs, the owner pays more than 100% of the documented costs, which usually requires detailed cost accounting. [15] In this type of contract, actual labour costs plus a certain percentage are paid to the contractor as a profit. Various contractual documents, drawings, specifications are not required at the time of signing the contract. The Contractor must keep all records of material and labour costs, and the Contractor will be paid accordingly to the responsible engineer. This type of contract is suitable for emergency work such as difficulties related to the conditions of incorporation, the construction of expensive structures, etc. The U.S.

Federal Acquisition Regulations explicitly prohibit the use of this type for U.S. federal government procurement. [16] For this reason, lump-sum contracts are more suitable for small projects with a predictable scope of work. Unit price contracts divide the collective work required to carry out a project into separate units. They are also called measurement contracts, measurement and salary contracts or post-measure contracts. The contractor provides the owner with price estimates for each unit of work, rather than an estimate for the project as a whole. This type of construction contract is generally not used for large construction projects and is more commonly used for small jobs such as repair or maintenance work. With unit price contracts, it is easier to adjust prices when the scope of work changes.

If the project is divided into too many packages, it becomes confusing and unmanageable. Generally, the following provisions may apply: In cost-plus contracts, also known as reimbursement contracts, the owner pays the contractor the costs incurred during the project plus a fixed amount for profit, which can be determined by a percentage of the total project price. Guaranteed maximum prices are a common feature in construction contracts and are best suited for projects with few unknowns. For example, building a retail chain with plans that have been used over and over again. When signing a lump sum contract, the builder takes an additional risk because the owner is not obliged to pay more than the initial price if the project goes out of scope, if problems arise or if other changes occur during the project. .