Civil Engineering Project Management (4th Edition)

30 Civil Engineering Project Management
Table 3.1
Comparison of different methods of payment
Advantages to employer Disadvantages to employer
– Re-measurement –
Greater certainty in pricing Detailed bills of quantities needed
Project cost known with reasonable Employer must meet extra costs due to
certainty changes
Facilitates valuation of variations Work done has to be measured
– Lump sum –
Firm price known early Bid risks high hence tendered prices
Financial bids easily evaluated may be high
Payment terms simple Long tender time required
Variations difficult to value and agree
– Reimbursable with fixed fee –
Reduced documentation for tender Bid evaluation difficult
Short tender time Price competition minimal
Variations easily evaluated Checking and auditing contractor’s
Cost of project can be controlled costs necessary
Methods of construction can be No firm final cost
controlled by designer Contractor has no financial incentive
Design can be altered during to minimize costs
construction Risk of inefficient contractor
– Reimbursable with target cost –
(as for reimbursable with fixed fee with following changes)
Contractor has financial motive Target difficult to define initially
to be efficient Target may need changing owing to
Contractor shoulders some proportion of changes in work required
cost exceeding target Disputes possible about fair target
Section 1.2. Where additional work is required, the contractor is paid for it at
‘bill rates’ or, if different work is required, this is paid at similar or agreed
rates. Table 3.1 compares this method with the methods which follow.
The advantages are that the contractor can be paid fairly for the amount
of work he has to do, and the employer only has to pay for work actually
required, without having to pay a premium to the contractor for the risk of
undertaking, at his own cost, extra work due to quantity changes. Thus if no
major unforeseen conditions are encountered and the employer orders no
extra work, the cost of the job to the employer will come very near the original
sum tendered.
The use of bills of quantities has been the normal method of payment in
standard forms of contract for many years. This method is particularly effective
where the employer wishes to control the design, or has the works largely
designed before going out to tender. With the works clearly defined, and
a fair system of measurement, the contractor’s risks are reduced and pricing
may be keen.