(a) Design and build or ‘turn-key’ contracts
Contracts of this type are often for a lump sum which can suit a promoter who wants certainty of price, and who can be given a clear idea of what he is being offered. For instance, the contractor may be able to offer an ‘off the shelf’ design for a type of structure he has previously built and can show the promoter.
Where this is not the case, the promoter may provide a drawing of what he requires and stipulate design requirements, for example, design processes and parameters to be used.
• The promoter does not have to employ a separate designer.
• Construction can start before designs are complete and any consequent changes found necessary are the contractor’s responsibility.
• Control of the design process permits the contractor to keep costs as low as possible by such measures as – using parts of previous designs, minimizing the need for complicated formwork, and tailoring dimensions to suit the contractor’s equipment.
• For uncomplicated or traditional civil engineering work, or repeat structures of a kind the contractor has done before, a turn-key contract can give a promoter a satisfactory job at lowest price.
• There is also a possible advantage that collaboration between design and construction staffs can foster innovative design which reduces costs. But if the tender period gives insufficient time for an innovative design to be fully worked out, the contractor may think it too risky to allow for it in his tender. If later, the innovation proves possible, the contractor benefits and not the promoter.
• If the design has yet to be formulated, the promoter has to leave most details in the contractor’s hands.
• If the promoter employs a consultant to check the contractor’s design, he will only be able to insist on compliance with matters specified in the contract.
• The promoter may need to employ an inspector to watch the contractor’s
• Bidding costs for other than simple structures are expensive, so contractors may refuse to bid if more than three or four are invited to tender.
If the promoter does not employ a consultant or inspector to check the contractor’s
work, his only real control over its quality and the end result is his checking of the packages offered by tenderers before awarding the contract.
This is not necessarily sufficient because, in the limited time available for tendering,
the contractor cannot work out all the details of his design nor specify the exact nature of everything he will supply. Thus the promoter can suffer disappointment at what he receives; and if he then wishes to make any changes these may be very costly or even impracticable.
(b) Design, build and operate contracts
Under this type of contract the contractor is required to operate and maintain the works for a period of perhaps 3–5 years after he has completed their construction.
The contract may be for a lump sum, a proportion of which is payable in stages during the operating period, or income may be derived from sales or charges – bridge tolls for example.
• The contractor is given an incentive to design and construct well, in order
to ensure low maintenance and repair costs during the operating period. This is useful to a promoter who, for instance, wants a road built, because problems arising from faulty design or construction tend not to be revealed except under two or three years’ trafficking.
• The operation provision reduces the promoter’s need to check the contractor’s work.
• The maintenance provision keeps the contractor available to undertake repairs during the operating period, though the promoter must have powers to act if the contractor does not undertake repairs and maintenance properly.
• The same as those listed for design and build contracts under (a) above.
• The contractor has to shoulder added risks so his price can be high.
• The contractor’s costs of bidding are higher than for a D&B contract.
Aproblem is that repairs or excessive maintenance could arise from unforeseeable ground conditions or, in the case of a road for instance, from traffic loading exceeding that specified in the contract, so occasions for dispute could arise. The promoter will also be responsible for any repairs due to an inadequacy in his specifications for design and construction. Where design, build and operate (DBO) contracts are for provision of buildings and process plant, such as for water or wastewater treatment, it is the quality of the equipment and consequent output which is principally tested by the period of operation. Thus problems can occur if faulty performance is partly due to conditions arising which are not covered by the promoter’s specification. Where a DBO contract is let on the basis that the contractor also finances the project, associating with a bank for the provision of the necessary funds, the operating period may then be long term, for 15–20 years or more. This is typically a Private Finance Initiative (PFI) project, described in Section 1.7. The risks on the contractor are then increased since they include a substantial dependency on the terms of the income he is to receive. The promoter has the cost of setting up a long-term supervisory system to cover the operation period and may face the risk of circumstances arising which are not covered in the original contract.
(c) Engineer, procure and construct contracts
An engineer, procure and construct (EPC) contract is a form of D&B contract under which a design engineer or firm of design consultants heads a team which includes an experienced contractor and perhaps a plant supplier. The promoter specifies his project requirements in outline which the team designs in detail in continued liaison with him. The EPC organization arranges and manages construction, letting specialist work packages out as necessary to suitable sub-contractors. The promoter pays the actual cost of the work plus a fee, subject to a guaranteed maximum price, or to a target cost with an arrangement for the sharing of savings or excess costs on the target.
Details of partnering are given in Section 1.9. There are two types: ‘term (or full)partnering’ which covers an intention to carry out a series of projects together or for a given period; and ‘project-specific partnering’, i.e. co-operation for one job at a time. Normally a promoter negotiates a partnering agreement with his consultant (if he employs one) and a contractor of his own choosing, usually because of past satisfactory experience of working with him. If competitive tendering is required, then a selected list of contractors may be invited to bid – on the basis of experience, quality of staff available, and costs plus charges for overheads and profit, etc. (similar to cost reimbursement contracts outlined in Section 1.3).
But if open competitive tendering is used, the advantage of basing a partnering agreement on past successful working with a contractor may be lost.
(e) ‘Term’ or ‘Serial’ contracting
This comprises letting an ordinary construction contract for carrying out a series of works of an identical nature – re-surfacing roads, for example – for a