Projects Delivery and Contracts Types – Part 1: All are Listed

Introduction

When starting a construction project, two big decisions can really shape how everything goes: picking how you’re going to get the project done (that’s your project delivery method) and deciding on the kind of agreement or contract you’ll use with the people doing the work. These choices are super important – they’re like setting the rules for a game. They decide who does what, who takes which risks, how money is handled, and what happens if things change or go wrong.

In this guide, we’re going to keep things simple and clear. We’ll walk through the different ways construction projects can be managed. We’ll also talk about different contract types.

This article will be divided to several parts where each method will be explained in detail

Project Delivery Methods

Project Delivery Method refers to the overall process used to allocate design and construction responsibilities and to execute a construction project. It defines the project team’s structure and outlines how the project will be designed, constructed, and legally bound.

Common Project Delivery Methods:

1- Design-Bid-Build (DBB)

• The traditional method where the project is designed, then put out for bid, and then built.
• Clear separation of design and construction responsibilities.

2- Design-Build (DB)

• Design and construction are contracted with a single entity.
• Streamlines project delivery by overlapping design and construction phases.

3- Construction Manager at Risk (CM@R)

• The owner engages a construction manager to provide input during the design phase and then manage construction.
• CM acts as a consultant during the design phase and as a contractor during construction.

4- Integrated Project Delivery (IPD)

• All key stakeholders (owner, architect, contractor) work collaboratively from the project’s inception through completion.
• Emphasizes joint risk and reward sharing and collaborative decision-making.

5- Public-Private Partnership (PPP or P3)

• A contractual arrangement between public and private entities, where the private sector provides a public service or project and assumes substantial financial, technical, and operational risk.

6- Early Contractor Involvement (ECI)

• Improve project outcomes with contractor’s early input.
• Contractor involved during design phase, advising and planning.

7- Progressive Design-Build

• Increase owner’s control and flexibility in design and construction.
• Design and construction services are contracted progressively.

8- Alliance Contracting

• Foster mutual cooperation and goal alignment among parties.
• Joint agreement with shared risks and decision-making.
• Complex projects that require an integrated team effort.

9- Turnkey Projects

• Provide a ready-to-use facility with minimal owner involvement.
• The contractor delivers a complete project, ready for immediate use.
• Owners are seeking full project delivery with minimal involvement.

10- Management Contracting

• Expert management of the construction process.
• Manager oversees projects and coordinates multiple contractors.
• Large, complex projects needing specialized management.

11- Construction Management Multi-Prime (CMMP)

• Specialized management of multiple prime contracts.
• The construction manager coordinates several prime contractors.
• Projects requiring detailed coordination of specialized contractors.

12- Partnering

• Promote collaboration and align goals among stakeholders.
• Formal agreement to work cooperatively on a project.
• Projects benefiting from joint problem-solving and shared objectives.

Contract Types

Contract Type refers to the legal agreement defining the terms and conditions of the relationship between the owner and the contractor. It outlines how payments will be made, risks will be shared, and how various project situations will be addressed.

Common Contract Types:

1. Lump Sum Contract:
   • A fixed total price for all construction-related activities.
   • Most straightforward contract, often used when project details are clear.
2. Cost Plus Contract:
   • Payment covers actual construction costs plus a fee for the contractor’s profit.
   • Used when scope is not well-defined; allows flexibility in changes.
3. Time and Material Contract (T&M):
   • Costs are based on time spent and materials used, plus a markup.
   • Suitable for projects where scope is not clear.
4. Unit Price Contract:
   • Payment based on a set price per unit of work completed.
   • Useful for projects with repeatable, quantifiable tasks.
5. Guaranteed Maximum Price (GMP):
   • Sets a cap on what the owner will pay; contractor covers any excess.
   • Balances flexibility of cost-plus with financial certainty.
6. Target Cost Contract:
   • Establishes a project budget; cost savings or overruns are shared.
   • Encourages efficiency and cost-effectiveness.
7. Fixed Price with Incentive Fee Contract:
   • Fixed price, but includes incentives for meeting or exceeding objectives.
   • Motivates performance and adherence to goals.
8. Cost Plus with Incentive Fee Contract:
   • Costs are covered, but incentive fees are earned for meeting targets.
   • Balances flexibility with performance incentives.
9. Cost Plus Fixed Fee Contract:
   • Reimburses costs plus a predetermined contractor fee.
   • Suitable for projects where costs are unpredictable.
10. Percentage of Construction Fee Contract:

• Contractor’s fee is a percentage of the total construction costs.
• Often used when scope and cost cannot be accurately determined upfront.

Example for Interrelation

• Design-Bid-Build vs Lump Sum Contract: DBB often uses a Lump Sum Contract. The design is completed first, and then contractors bid on the project with a fixed price.
• Design-Build vs GMP/Target Cost Contract: DB projects often use GMP or Target Cost Contracts to align the design-builder’s incentives with the project goals.
• CMAR vs Cost Plus Contract: In CMAR, the Construction Manager is typically paid based on Cost Plus, allowing flexibility in managing the project.
• IPD vs Multiple Contract Types: IPD can use various contract types but is unique in how it integrates the team. The contract can include shared risks and rewards, often aligning more with partnership agreements.
• PPP vs Long-Term Lease or Operation Agreements: PPPs may involve complex contractual arrangements, including construction, operation, and sometimes transfer back to the public entity.

Each project delivery method and contract type has its own advantages and is suitable for different types of projects depending on the project’s complexity, risk profile, and the owner’s experience and preferences. The choice of delivery method and contract type can significantly impact project outcomes, including cost, schedule, and quality.