Types of Contracts in Construction Industry

A contract is an agreement to carry out some work between two firms or persons for some particular duration under certain conditions and terms.

At present there are many types of construction contracts that are legal. Following is a list and description of various types of contracts.

BOT Contract

In this type of contract, the contractor takes responsibility to design, construct, maintain, operate and finance the whole project. In against it, the contractor charges the beneficiaries and gain profit for a certain duration.

BOT is an acronym for “Build Operate and Transfer”. These types of contracts are very popular in the construction of highway work. Usually, the government gives contracts to a company and allow it to collect toll from it. After getting profit, decided in agreement the government takes the ownership of highway.
In BOT contracts, the term or number of years required to recollect the cost of finance together with cost construction is called “Concession Period”.
Turn key contract

Also known as package jobs, turn key contracts are suitable for those builders or developers who desire to give all the responsibilities to only one contractor like construction, material purchasing, etc.
Piece Work Agreement

It is suitable for small work where the only rate is fixed and time, as well as work, is uncertain. Say for petty work up to 10,000 rupees, this type of is desired.

In this type of contract cost is saved as many times tendering is avoided so the cost of tendering is saved.
Also, one more advantage of a piece work agreement is that, if the contractor delays the work or breaches the terms of the contract then another contractor could be engaged.
Labour Contract

This is most popular for building works in India. Wherever the owner is in a position to purchase the construction material himself and only labour work is in the part of contractor it is called the Labour contract.
In labour contract the Contractors ask money by keeping in mind following items.
- Cost of labors
- Contractor agrees to use his tools, equipment and plants.
- Contractor calculates the cost of false work and cost of supervision.
- And finally, Profit of contractor
In labour contract all the material is to be purchased by the owner.
Materials Supply contract

When it is necessary to purchase some material over a longer duration and in the continuous form then this type of contract is useful.

Contract to supply material like bricks, stones, rebars, cement etc fall in this category. The contractor is agreed to supply material at a fixed rate.
Item Rate Contract

This type of contract is also known as Unit Price contract. In the Item rate contract, the price for each different item of the contract is calculated. A bill of quantities of material and labour work.

The basis of the agreement is thus the unit rate of items.
This type of contract is useful when the quantity of work is not previously known.