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Introduction to Procurement #4

  • Writer: Fran Butterworth
    Fran Butterworth
  • Jun 7, 2024
  • 3 min read

Exploring Contract Types in Construction Projects

 


There are several options of contract types, working out which contract is right for a certain project can be challenging. Choosing the best one to use will vary, depending on project size, complexity, risk appetite, and budget. Identifying the right contract requirements sets the tone for the contract and ultimately the projects outcome. Here, we explore the different contract types in construction projects and their advantages and when each contract would be used.


NEC Contracts

The New Engineering Contract (NEC) is a formalised system endorsed by the UK Institute of Civil Engineers. An NEC contract guides the drafting of documents on Civil Engineering, construction and maintenance projects for the purpose of obtaining tenders, awarding, and administering contracts. NEC contracts can used from high profile and complex construction projects to lower value or simpler projects. NEC contracts are endorsed by both governments and industry bodies, which is a great advantage for public procurement projects. NEC contracts have a strong track-record for helping to deliver large-scale projects successfully, such as the UK Environment Agency’s flood and coastal erosion risk management capital programme (value £1.2 billion) or Newmarket House waste depot (value £8 million).

There are different NEC contracts to fit the required project:


Engineering and Construction Contract (ECC)

The ECC is flexible, collaborative, and clearly written, and it can include any level of design.

The ECC has six main payment options:

·       Option A: Priced contract with activity schedule.

·       Option B: Priced contract with bill of quantities.

·       Option C: Target contract with activity schedule.

·       Option D: Target contract with bill of quantities.

·       Option E: Cost reimbursable contract.

·       Option F: Management contract.

These options allow for a full range of financial risk allocation, from placing most risk with the contractor (options A and B), to risk sharing (options C and D), and placing most risk with the client (options E and F).


Professional Services Contract (PSC)

A Professional Services Contract (PSC) is an agreement used when appointing a consultant to perform a specialised, project-based service.

The PSC offers three main payment options:

·       Option A: Priced contract with activity schedule

·       Option C: Target contract

·       Option E: Cost-reimbursable contract

In Option A, most of the risk is placed with the consultant, while in Option C, it is shared between the client and consultant. In Option E, the risk rests mostly with the client.


JCT Contracts

A Joint Contracts Tribunal (JCT) is a suite of building contracts that are available as off-the-shelf products for use in forming formal and legally binding contracts on construction projects. The JCT is one of the most commonly used contracts in the UK. This can be attributed to the JCT having designed standardised forms to suit a wide range of projects. There are different types of JCT contracts to fit the required project:


Standard JCT Contract

The Standard JCT Contract is drafted to suit larger works, or works of a complex nature that involve a high degree of building services allowing:

·       the contractor to design discrete parts of the works;

·       works to be carried out in sections; and/or

·       for specialists to be named in the contract.


The JCT Minor Works Contract

The JCT Minor Works Contract is drafted to suit projects where:

·       the work involved is simple;

·       designed by or on behalf of the Employer;

·       the Employer is to provide drawings and/or a specification to define the quantity and quality of the work; and/or

·       an Architect/Contract Administrator is to administer the conditions.


Which contract should be chosen?

A key question that is often asked is which form contract should be chosen to achieve the client’s requirements. The answer as to which is most appropriate will depend upon the nature of the project, considering project targets around time, cost and quality. By understanding the differences and various contracts discussed throughout this report, clients can make an informed decision which will help maximise project outcomes.


 

Fran Butterworth is a Senior Procurement Consultant at Arup, experienced in delivering expert procurement and commercial advice, especially in relation to public procurement.


If you have any questions on this topic, or would like support, please contact your Delivery Associate, or email DeliveryAssociatesNetwork@Arup.com

 


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