Before getting into contractor selection process, lets have a look at different kinds of contracts and its features.
LUMP SUM CONTRACT
The contractor agrees to execute the scope within a stipulated time for a fixed price, in such condition contractor is at higher risk, in such condition markup by contractor will be higher for over heads and profit as the risk involved is high.
Advantage is, customer don't have to worry about variation of material, labour etc. under any circumstance.
Disadvantage of contract is customer has to pay more for the same work which can be done at a lesser cost.
UNIT RATE CONTRACT
The contractor agrees to execute the work by mutually agreeing specification of materials and quality for rate per square feet/meter depending. And conditions are agreed attending all aspects of the contract like price variation, schedule, quality and so.
Advantage of the contract is you have a clear picture of what to be done and how, if the contract is drafted clearly.
Disadvantage is most of the time the rates are quoted by the contractor before getting complete information from client, in such circumstance the possibility of underestimation is more and will end up in dispute or additional claim.
But this is the most common type of contract prevailing today.
ITEM RATE CONTRACT
This is the best practice of all contracts and used world wide for all major contracts due to its accuracy.
However, for getting quote for this kind of contract you have to hire a Architect and do all the ground works for drawing, finishes and prepare Bill Of Quantities (BOQ). In this kind of contract there is no confusion of extra claims or in any matter, as each and every item are categorized its easy to trace and quantify the bills and payments are released based upon the progress.
Advantage and Disadvantage of this contract is, preparing the BOQ is key, any error in BOQ might lead to misguided rate proposal at times advantageous to Client or Contractor.
COST + FIXED PERCENTAGE / FIXED FEE
This contract name explains it, yes the contractor fixes a particular % of the total cost in his scope or a fixed fee for the particular project. Except this change nothing else changes, all the responsibility holds Contractor responsible like other contracts.
Advantage is you can choose the exact material to use and at any point of time you would have not paid the contractor more money.
Disadvantage is contractor gets better benefited when higher end products are chosen.
In my view this is better and easy to manage when compared to other kinds and when managed properly Clients can get advantage of the excess margin paid in other contracts. Fundamental is contractor don't have a financial stress.
Based on your requirement, the contract can be chosen.
SELECTING A CONTRACTOR
I have big complaint on both parties here, lets look in detail.
CONTRACTOR : Out of my short experience i have worked with International contractors from Asia pacific and Europe, big and small. What i found is, they have a well qualified and professional team and they are paid good for that, please note this. In INDIA public have a very common opinion that contractors especially local residential contractors are robbers, and its true to certain extent. Has anyone worried to know why, its very simple, lack of knowledge.
Let us make it easier with an example of ABC Client & XYZ Contractor (Un skilled contractor). ABC has asked for a quote to execute a residential project and the least has been quoted by XYZ, XYZ is good at execution but poor at understanding the work involved, calculating material quantity, manpower required etc.. but due to his low quote he is awarded the job most of the time. Don't say no it is happening every day. And end of the day dispute shoots when XYZ realizes that he has underestimated the work, slowly he starts to raise extras for all small works to complete the project or he drops and runs. And then it becomes the most worst thing to complete with available resources.
CLIENT: In INDIA its very common to expect everything at least cost, its time for a wake-up call. General mistake done by clients is looking for a cheap quote as criteria, i hope that's a very bad sign. In any major tender comparison least quotes who are below the market standards would be rejected.
When ABC starts the home building process, he/she frames a budget, gets quote and checks for the least who is within their budget. What ABC has to do is to check for the quality assured and compare with the price quoted. Further, ABC has to analyze the quotes in comparison with their budget too. I have experienced personally clients running out of money and the project gets dragged off.
To avoid such CHAOS be sure Clients & Contractors discuss all the aspects point by point for a better understanding. And as a result of the understanding the requirements has to be adjusted to fit within the budget or rework the budget for your dream. Please don't go behind LOW QUOTES.
