Civil Engineering Reference
In-Depth Information
1.4.4 Cost reimbursement and prime cost contracts
There are different types of such contracts such as cost contracts, cost plus contracts
and prime cost contracts, but the common feature is that the sum which the employer
pays the contractor is not a pre-agreed sum but a sum calculated by reference to the
actual cost of the works carried out, generally with the addition of an amount to cover
profit and a management fee. This may be a predetermined percentage of the costs,
a predetermined fixed fee or a variable fee calculated according to a predetermined
formula. An example of this type of contract is the NEC3 Option E (see Section 1.6).
It is also common to combine the principles of a cost reimbursable contract with a
'target price' contract (e.g. the NEC3 Options C and D) under which costs will be
reimbursableuptothelevelofatargetigureIftheinalactualcostsarelessthanthe
target, the contractor is entitled to a share of the savings calculated under a pre-agreed
pain/gain share mechanism, whereas if the final actual costs exceed the target, that
same pain/gain share mechanism will require the contractor to bear a share (which
may be 100% if the contract so provides) of the excess.
1.4.5 Turnkey contracts
This term is sometimes used for certain types of design and build contracts, usually
wherecertaintyofinalpriceandcompletiondateareofparticularimportance,for
example, where such certainty is demanded by private finance providers. Under this
type of contract, the contractor undertakes a more onerous risk profile than under
a standard design and build contract (though that does not mean that the contrac-
tor assumes all risk; risks such as force majeure will normally at least be shared).
histypeofcontractisalsocommonlycalledanEPCcontract(engineer,procure
and construct). In the case of a process plant, power plant, or wind turbine project
or the like, the contract will normally require the completion of commissioning and
the achievement of performance tests to demonstrate compliance with the stipulated
performance criteria in order to allow the operational phase to commence, backed
up by performance liquidated damages in the event of failure. The European Inter-
national Contractors (EIC) published the EIC Turnkey Contract in May 1994. FIDIC
has also published turnkey contracts, beginning in 1995 with its 'Orange Book' enti-
tled
Conditions of Contract for Design-Build and Turnkey
. This was replaced in 1999
by the
Conditions of Contract for Plant and Design-Build
(the 'Yellow Book') and the
Conditions of Contract for EPC/Turnkey Projects
(the 'Silver Book').
1.4.6 Two-stage tendering
This method of procurement is becoming more prevalent and its key characteristic
is to involve the contractor at an early stage before completion of the design and
before fully priced tenders have been obtained. The intention is to allow the con-
tractor to collaborate with the employer and their consultants in the design and pro-
curement process. This procurement method is normally only used with design and
