ECM366 Chapter 2

EECCMM336666

CHAPTER 2

MUHAMMAD RIDZWAN BIN SHAARANI

2019419856

PAGE 30

Cost plus Cost Plus Fixed fee
Percentage fee contract

contract The sum paid to
the contractor
Charges an agreed will be the actual
fee in terms of a cost incured in the
percentage of the execution of works
actual cost work plus a fixed fee

Advantages of Cost plus percentage
fee contract

The contractors can be confident of the
equitable payment for changes and
unforeseen events.
Allows contractor to involve on the design
stages.
Higher work quality as the contractors has
the incentive to use quality materials and
the best labor workers.

Basic Principles
Required in
Forming a
Contract

Intention
Acceptance
Flawless Record
Response
Bound Contract Executed
Legal Agreement Bound By Law

Define Lump Sum Contract
& List 2 Advantages and

Disadvantages

DEFINE ADVANTAGES

The contract No physical
price is a fixed measurements
sum quoted by shall be
the contractor for ordered out
the project as Simple and
specified in the quick form of
payments
contract
documents

DISADVANTAGES

The client will
only pay the
agreed fixed
sum
regardless of
their actual
cost
No provision
of payment for
materials at
site

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DISADVANTAGES

A higher cost is assumed due to the higher risk that comes with total
responsibility and therefore bidders assume more risks. The typical
way to counter the increased risk is by increasing the price.
Competition is restricted because typically only “the biggest
competitors” are the ones that are able to assume the highest risks
and the full responsibility of the project which implies, in general,
the highest bidding offer (the biggest companies usually require
bigger margins).
There is a greater disparity when comparing offers, both
economically, because each provider has different criteria for
assessing the risk, as technically, because of the different
assumptions and varied criteria when presenting solutions.