Building Contracts Assignment

Building Contracts Assignment

Part 1: Cost Reimbursable/Charge up

In cost reimbursement contracts, the sum of contract is determined on the basis of material and labour costs and the additional amounts required for covering the overheads and profits. The contractor, in this type of contract gets a negotiated amount irrespective of incurred expenses.

General

Many models have been incorporated in the construction industry for the allocation and the management of risks and costs associated with the construction between contractors and their clients. Cost reimbursement contract belongs to the traditional procurement model which has separate design and construction phases. In this type of model, documentation process is necessary before the invitation of a contractor to the tender (Gully, 2004).

The contractor's main responsibility

It is a major responsibility of a contractor to ensure the provision of his/her best efforts for the completion of the required contract. Under the cost imbursement contract, the contractor should not exceed the costs defined in the agreement without the consent and approval of contracting officer (Gully, 2004). It is also among the duties of the contractor to cooperate with the owner in the forecasting of out-turn or final costs of the project and avoid the phenomena of cost overrun. This can be achieved by exercising his/her roles as a contractor for controlling of overall cost of the project.

Time

The management of time in cost reimbursement contracts is essential as it creates shared risks for the owner as well as the contractors. The major time delays in a project are usually invoked by exceptional harsh weather or can be caused by the delays by the employers. The delays often cause cost build up which results in higher final cost by the time of the completion of project.

Testing and defects

The project manager is responsible for the testing of the project and any defects if found in the project, it is the duty of the project manager to cope with it. However, the contractor is supposed to cooperate with the project manager.

Payments

In the cost reimbursement contracts, supplied invoices are used for the entire duration of the job which includes the overheads and preliminaries along with percentage or fixed fee. However, this payment mechanism lacks a sufficient definition and is appropriate for the early project durations. In this contract, the identification and estimation of the costs other than those that are covered in the contract is necessary (FRS-14, 1994, pp.196.7).

Risks

In this type of contract, all the major financial risks associated with owners. The critical risks associated with contractors are removed which allows them to operated with decreased margin. The contractors are paid for their expenses as well as their hours. Another associated risk with cost reimbursement contract is the uncertainty involved with respect to the final cost which represents serious concerns of the clients or owners.

Termination resolution options

There are a few ways of the termination of the cost reimbursement contract. The contracts, by law, can be terminated for convenience as well as by mutual agreement of the contractor and the owner. However, in other cases, ...