Construct-only contracts

A construct-only contract is one under which the contractor is engaged to carry out work that has already been designed by others. The other party to the contract controls the design and the scope of work.

Schedule of rates contracts

A schedule of rates contract is one under which the amount that is payable to the contractor is calculated by applying an agreed schedule of rates to the quantity of work that is actually performed.

Broadly, schedule of rates contracts tend to be used in two quite different situations:

• first, where the precise quantity of work cannot be adequately assessed up front in order to allow a lump sum price to be determined even though there is a specification and a design (often the case with complex civil works); and
• second, where there is simply a standing order that entitles the owner, during the term of the arrangement, to “order” work periodically which is then paid for at the pre-agreed rates.

In the first of those two situations, there is a pre-agreed scope of work – namely, the work described in the specification and the drawings – and no further “order” or “direction” is required from the owner in order to define the scope of work or before the contractor is obliged to carry out the work. In this situation, a mere difference between the estimated quantity of work shown in the priced schedule of rates and the quantity of work that is actually required will not necessarily amount to a “variation” or require a “variation” direction. In the second of the two situations mentioned, the type of work required is pre agreed, but the scope of work required will depend upon the discrete “orders” placed by the owner during the term of the arrangement.

Standard forms such as AS4000-1997 and AS2124-1992 can accommodate lump sum arrangements as well as schedule of rates arrangements, and in the latter case, the schedule of rates arrangement will usually be of the first type mentioned above although these contracts do sometimes also have some rates for “if ordered” items.

Design and construct contracts

As the name suggests, design and construct (D&C) contracts are contracts under which the contractor is engaged both to design the works and to build the works. In the engineering area, it is common to see D&C contracts referred to as EPC (engineer, procure, construct) contracts or LSTK (lump sum turn key) contracts. EPC and LSTK contracts are essentially D&C contracts that have considerable detail about commissioning and the performance requirements that the contractor must meet.

Design, construct and maintain (DCM) contracts

Essentially design, construct and maintain (DCM) contracts are D&C contracts with long-term defect correction and maintenance obligations following practical completion (often 10 years). The Roads and Traffic Authority (RTA) in New South Wales has used this form of contract on many projects and the Gateway Upgrade Project in Queensland is being delivered under a form of DCM contract.

By giving the contractor a long-term responsibility for defects correction and maintenance, it is likely that the contractor will be less inclined to design down to a price in order to save construction costs. The DCM approach requires the contractor to assume long-term “defects” risks that it may find difficult to support with back-to-back warranties from subcontractors and suppliers.

There is no industry-wide “standard” form of DCM contract in Australia, although the RTA document has achieved quite some penetration especially in New South Wales. DCM contracts are usually lump sum contracts, but with rise and fall provisions and a schedule of rates component for “force majeure” maintenance applicable in the maintenance period.