A Simple Guide to Key Types of Contracts - Dhruv Consultancy Limited

Contracts are legally binding agreements between two or more parties. They can be written, oral, or implied, though written contracts are the most common form due to their clarity and enforceability.
Based on the modes of Execution of the Construction Projects the Contracts can be classified into the following types with their peculiar characteristics:

A. PERCENTAGE RATE TENDERS [B1]:

Features of Percentage Rate Tenders – B1:

This is one of the most famous types of tenders used by the State PWDs all over India.
The cost estimate is prepared by the department and the Contractor quotes on what percentage above or below the Contractor is willing to undertake the assignment.
Evaluation of the tenders is comparatively easy and takes less time resulting in a faster bidding process.
Payment is made as per the executed quantities using tendered rates and percentages quoted by the contractor.
Generally, the cement and steel are supplied by the department in these types of tenders.
Extra items important for the completion of the assignment are paid as paid extra as per the actual measurement.

B. ITEM RATE TENDER [B2]:

Features of Item Rate Tenders – B2:

The department prepares a detailed BOQ and measurement sheet.
Based on the BOQ and measurement sheet the contractor quotes his item rates for execution of the line items.
Payment is made as per the executed quantities using tendered rates and percentages quoted by the contractor.
Extra items important for the completion of the assignment are paid as paid extra as per the actual measurement.

C. LUMP SUM TENDER [FORM C]:

Features of Lump Sum Tenders:

When a client intends to undertake small-scale projects requiring a lesser time and involving the contractor’s own design the
Client mostly relies on Lump Sum Tenders.
In these types of tenders, the Contractor quotes a fixed lump sum amount which would be charged by them for a particular work.
On completion of the assignment the completed work is checked for specifications and design drawings instead of detailed measurements of each item.
As only specifications and general drawings are used for the tendering process, the risk of hidden items is to be accounted for by the contractors.

D. PPP MODE – DBFOT:

Features of DBFOT projects:

The land acquisition is done by the client.
The client provides the proposed development plan and the specifications and guidelines to be followed. Also, a financial feasibility analysis is done to establish the viability of the project.
The designing of the project as per the laid-out development plan, specifications and guidelines is the responsibility of the Contractor.
The project work is also funded completely by the Contractor.
The Contractor is granted a concession period for operating the project and recovering the invested amount in the project through collection of User Fee. Thus, they are called the Concessionaires.
Once the Concession period is complete the project is handed over to the Client for further operations.
The risk of traffic forecasting, revenue projections and revenue leakages are completely on the Concessionaire

E. PPP MODE – BOT ANNUITY:

Features of DBFOT projects:

Essentially it is the same as the DBFOT/BOT (Toll Model).
The responsibilities of the client at the project perception and execution stages are similar.
The Contractor/Concessionaire is entrusted with the maintenance of the Project Highway.
The mode of recovery of the Contractor’s expense is the difference between them.
In the DBFOT/BOT (Toll) model the expenses are recovered in the form of Toll receipts from the operations of the project highway.
While in the Bot (Annuity) model, the Government pays budgetary allocations in the form of Annuity post Commercial Operation of the project (mostly on a half-yearly frequency) spread throughout the concession agreement.

F. PPP MODE – HYBRID ANNUITY MODE:

Features of HAM projects:

Hybrid annuity projects are a modification over the DBFOT – -annuity model and EPC mode projects.
40% – Milestone Based Payments | 60% – Concessionaires Component – Annuity Based Payment
Generally, the Concessionaire funds 20-25% of the project with their funds and the rest of the remaining 60% is raised as Debt.
Milestone-based payments are made in HAM mode during the construction period thereby hedging partial construction cost. This is borne by the Government and is a feature which has been taken from the EPC mode of contract packaging.
During the Operation and Maintenance period Annuity payments are made to the Concessionaire. This is a feature which has been taken from the DBFOT – Annuity Model mode of contract packaging. In HAM mode there is indexation of the annuity payments to reduce the risk of Private Partners by accounting for inflation.

G. ENGINEERING PROCUREMENT CONSTRUCTION MODE:

Features of EPC projects:

The land acquisition is done by the client.
The client provides the proposed development plan and the specifications and guidelines to be followed.
The contractor is responsible for the Design of the Project and owns all risks associated with it.
The project has an Output-Based Payment System. The mode of measurement is generally linear, or the number of items completed instead of detailed measurement of each item.
The contractor does not have the risk of traffic forecasting, revenue projections or revenue leakages. The contractor hands over the project to the Client in a ready-to-go state and is only concerned with the project for the construction and maintenance period as mentioned in his contract.
6. It is essentially an item rate/percentage rate contract with additional risk on the contractor for omissions or inconsistencies of the data provided by the client and a different mode of measurement.