A construction project can be executed in various ways depending on the scope and quality of the project. In construction contracts, the contractor is responsible for both the actual construction work and, in part or in full, the design.
Turnkey contract, also known as design-build (DB), means that the contractor takes care of the entire construction project, including overall coordination and design. In this case, the client has a contractual relationship with the contractor, and the contractor is responsible for the designer and subcontractors.
Design-Bid-Build (DBB) differs from turnkey construction in that the client orders the designs separately, and the contractor acts as the main contractor, with subcontractors working under them. IN design-bid-build, the main contractor is responsible for the performance of subcontractors’ work as if it were their own.
Split contract means that the project is divided into parts and assigned to multiple contractors. In a split contract, the client enters into different contracts with multiple contractors for various parts of the project. In a split contract, there is usually a main contractor responsible for construction-related work, while specialized tasks are assigned to subcontractors. The contractor carries the risk that the activities of different contractors may cause harm to each other in a split contract.
In project management contracting (PMC), a separate project management organization replaces the main contractor. This organization may include individuals from both the client’s and the project management contractor’s teams. In a PMC, the contractor takes care of client and construction tasks, as well as the main contractor’s work.
In fixed price contracting, the contractor commits to completing the construction work at a fixed total price. The key aspect of fixed price contract is that, at the time of contracting, the scope of the construction work, i.e., the plans for the construction project, are precisely defined. Incomplete plans often result in increased construction costs due to extensive additional work and changes.
In cost and fee contracting the contractor’s hourly rates, the use of the contractor’s equipment, and billing rates for other cost items are agreed upon. In a cost and fee, the overall construction cost remains the client’s risk.
Job Order Contracting (JOC) is a time and materials-based contract. In a JOC, the contractor provides the client with supervision and, possibly, separately agreed equipment for compensation.
Target Price Contracting is a hybrid between Fixed Price and Cost and Fee Contract. It is a cost and fee contract where the contractor’s profit share increases when the total construction project costs are below the target price. This contract type can reduce the risk of cost increases associated with Cost and Fee Contracts. It is a useful contracting option when there are uncertainties in project plans.