RIGHT CONSTRUCTION CONTRACT FOR CONSTRUCTING A HOUSE | Types, pros & cons in Pakistan & India

Once you are constructing a house, which is the right construction contract for you. In this video we will be discussing the various types of contracts and we will also tell you pros and cons of each type of contract. This video is a detailed explanation on different types of construction contracts. You need to know these before you start your house construction. You will not only learn about the different types of contracts but also that when you should opt for that specific contract, what are their pros and cons and how to implement them.
The types of contrasts that have discussed are;
1. Lump sum contracts or Turnkey
2. Cost- plus contracts
3. Item rate contract
4. Grey structure contract
5. Labor contract
Lump sum contract: This is the contract where we say that we will get the keys of completed house from the contractor and contractor will quote us the price. Payment is decided before implementing this contract and then advance is deposited. Advance is normally more as compared to other contracts.
Pros and cons of this type of contract are:
Construction price remains fixed
If contractor makes lots of delays, penalties are applied
Contractor has opportunity to earn more as this is a high risk high return project.
You have to stick with the contractor even if you are not getting quality from him or her
More advance goes to contactor which increases his or her bargaining power and negotiation power
Normally these contracts are front loaded by the contractors so they tend not only to get higher advances in the beginning
More detailing is required and 80% of the people don’t have that detailing so they are losers in this type of contracts
Right people who should do Lump Sum Contract
People who focus more on detailing which means that they have all the drawings done, have BOQs with them and do have schedule of payment and schedule of work.
They should also hire a consultant who checks that all the things are rightly done.
Those who can understand that inflation is a factor in Pakistan and India and they should incorporate it when deciding the contract.
People who are 80% sure that they can choose the right contractor
Conclusion
If you are making your first house, you should not do this type of contract. This is a hassle free contract
Cost Plus contracts
The costs are borne by the client and the contractor is paid a fixed percentage on the scope of work and costs in this type of contract.
Positives of this contract
Normally the work is done at the right pace and there is no haste in this type of projects. So, if you don’t find a bit lesser reliable vendor, still you will get the project delivered.
The profits of contractor gets fixed
Negatives of this contract
No risk for the contractor
A dishonest contractor will make money in supplies as well and double his or her profits
Normally the costs of cost plus contracts is higher but quality is better
Even contractor’s mistakes will cost you
Conclusion
You get better quality of construction in cost plus contracts but the costs are generally higher. You are not sure of the costs of the projects in the beginning
Item rate contract
The contract is done on the price of each item
Positives and negatives of this contract
You get more flexibility and you can change the material or material quantities anytime
Cost, quality and time are both pros and cons of this type of contract
Conclusion
This type of contract is generally suitable for those who don’t have clarity of what is to be done. Whether you have less items or more it suits but for lesser items it is better because otherwise you will not find direct manufacturers and middlemen will quote you the rates
Grey structure contract
It is a similar contract as that of a lump sum contract but in houses what we do is that we split it into 2 contracts. One for grey structure and one for finishing. On the other hand, you get much more flexibility as compared to lump sum contract as you have to make lesser payments and you can check the quality of the contractor.
Positives and negatives of this contract are:
Contractors have attraction that if they deliver well, they will get contract of finishing as well
Detailing is required in this type of contract but not that much as you require in lump sum contract
Cash outflows are lesser
Any variation order can be instantly discussed with the contractor
You may find an expert grey structure contractor which you might not find if you are choosing a contractor for grey and finishing
Extra works are bid independently so apple to apple comparison of contractors becomes difficult
Conclusion
It is generally a safe contract and one of the best options of doing a contract
Labor contract
Material purchase is responsibility of client and labor is provided by the contractor.