Type of contract - Price structure

The following are three most common types of price structure adopted in a main contract:

• Fixed price contract:  The contractor undertakes all the work specified in the contract for a fixed price.
• Remeasurement contract: The contractor undertake specified types of work at fixed unit rates, as specified in the contract bill of quantities (see later page on “bill of quantities”).  The final price will be calculated based on the actual quantities of each type of work undertaken multiplied by the relevant unit rates.
• Cost plus contract: The contractor charges for all the work undertaken at its actual cost plus an agreed percentage mark up to cover its overhead and profits.  Sometimes called “open book”.

The total price for a fixed price contract, and the unit rates in a remeasurement contract, will normally only change in certain specified circumstances.  For example:

• If the project owner or project engineer varies the contract obligations, in which case the price will increase or decrease according to the extent of work added or removed from the contract (see later page on “variations”).
• In the case of a remeasurement contract, if the actual quantities are greater or lower than the contract estimated quantities by more than a specified percentage (normally 10% to 20%) (see later page on “bill of quantities”).
• If there is a delay to the project, in which case the price will increase if the contractor is entitled to charge for the costs of the delay, and decrease if the project owner is entitled to deduct delay damages (see later page on “delay”).