Question

Name the four Contract Types and identify which two are suitable for Linear Asset projects.

Answer 1

Solution –

Types of contracts are-

• Lump sum or fixed price contracts – a detailed budget is already made before the start of the project and total price for all the construction related activities.

They can have additional benefits for early termination of projects and also penalties for late termination etc.

• Cost plus contracts – it involves payments of actual cost of materials, labour and equipments etc. they must contain the information about overhead costs and profits etc.
• Time and material contracts – If the objective or scope of project is not cleared or in absence of any fixed specifications or drawings they can be adopted. The rates as per hour or days are decided before hands and material cost are taken as it is. They can include additional expenses too.
• Unit pricing contracts – the price for each unit is decided before hand and the owner can decide which sort of units they want. They can be decided during the biddings processes.

For linear asset projects like railway tracks, pipelines, power lines etc. we can go with either cost plus contracts or time and material contracts. As there is a certain level of uncertainty and these two types of contracts an accommodate it in them.