Understanding the Two Basic Types of Competitively Bid Construction Contracts
Table of Contents
Introduction
In the construction industry, competitively bid contracts are a common method for selecting a contractor to undertake a project. These contracts are typically categorized into two basic types: lump sum contracts and unit price contracts. Each type has its own characteristics and is suited to different types of projects. This article explores these two types of contracts and evaluates which would be most suitable for building the piers to support a large suspension bridge.
Lump Sum Contracts
Definition and Characteristics
A lump sum contract, also known as a fixed-price contract, is an agreement where the contractor agrees to complete the project for a predetermined, fixed price. This type of contract is often used when the scope of work is well-defined, and the project risks are predictable. The contractor assumes the risk for cost overruns, which provides an incentive for efficient project management.
Advantages and Disadvantages
The primary advantage of a lump sum contract is that it provides certainty for the project owner regarding the total cost of the project. However, this type of contract may lead to disputes if there are significant changes to the project scope or unforeseen challenges, as the contractor may seek additional compensation.
Unit Price Contracts
Definition and Characteristics
A unit price contract, on the other hand, is based on estimated quantities of items and their unit prices. The final cost of the project is determined by the actual quantities of work performed. This type of contract is commonly used for projects where the scope is not clearly defined or is expected to change, such as in civil engineering works.
Advantages and Disadvantages
Unit price contracts offer flexibility to adjust the scope of work and accommodate changes without the need for extensive renegotiations. However, they can result in higher costs for the project owner if the actual quantities of work exceed the initial estimates.
Application to Suspension Bridge Piers
Choosing the Appropriate Contract Type
For the construction of piers to support a large suspension bridge, a unit price contract would likely be more suitable. This is because the construction of bridge piers involves complex engineering work, and the exact quantities of materials and labor may be difficult to estimate accurately at the outset.
Rationale for the Choice
The unit price contract allows for adjustments to the scope and quantities as the project progresses, providing the flexibility needed to address the challenges and uncertainties inherent in such a large-scale engineering project. This flexibility can help ensure that the construction of the piers is completed efficiently and to the required specifications.
Conclusion
When selecting a competitively bid construction contract, it is crucial to consider the nature of the project and the associated risks. For well-defined projects with predictable risks, a lump sum contract may be appropriate. However, for complex projects like the construction of piers for a large suspension bridge, a unit price contract offers the flexibility needed to manage uncertainties and changes in scope, making it the more suitable choice.
