Contract Types

Every construction project has its own unique situation and components. These include: timing, legal matters, ownership definition, cost limitations, financing goals, owner's financial resources and/or needs, and more. Kai Ridge Hawaii is well poised to offer a wide spectrum of contract types to meet every client's special needs.

To assist you in your decision making process regarding which "Delivery Method" suits you, we offer below the "nuts and bolts" of 6 contractual arrangements possible.

1) GUARANTEED MAXIMUM PRICE

This very "client-friendly" model establishes a solid "ceiling," or maximum price, that the client/entity will pay for a specific project. The contractor is compensated for real/verified costs and a fixed "additional fee," which is subject to a maximum amount. The contractor assumes responsibility for all cost overruns and savings. Final tallied under-runs are returned to the client.

2) LUMP SUM

This is also highly "client-friendly." The contractor agrees to construct a project, well-defined in scope and design, for an agreed-upon price. A "lump-sum" contract is appropriate when if the scale and schedule of the project is clearly defined, permitting the contractor to cost-estimate the project accurately.

3) COST PRICE

This model is perfect for situations where there is obvious uncertainty in the labor force available (and their expertise), equipment availability and reliable materials procurement. For these reasons the purchaser agrees to pay the verifiable cost of the work, including and sub-contracted work, materials and equipment, plus an amount for contractor overhead and profit. If monitored by client and contractor, this model is fair and equitable for projects with many uncertainties. Kai Ridge Hawaii will help you understand better what qualifies as legitimate "uncertainties" and the suitability of this model for you.

4) UNIT PRICE

"Unit price" contracts are somewhat unique. The core of the contract is determined by quantities of materials needed for the project. Quantity multiplied by unit price produces the core of the contract. This contract model is best suited for projects in which the types of materials can be pre-determined and clearly identified in document form.

5) "COST-REIMBURSEMENT" ALTERNATIVE

This type is down-to-earth and designed to protect both the client and the client's construction company equally, equitably, fairly so common sense and fairness dictate and guide the contract. Strictly speaking, this contract type is defined as a contract that a) provides for payment to the general contractor for "fixed" allowable incurred costs, to the extent prescribed in the contract; b) establishes an estimate of total cost and c) establishes a "ceiling" that the contractor may not exceed (except at its own risk) unless obtaining the approval of the contracting entity.

"Incentives," costs/or savings factors (such as "completion-on-time" etc.) may affect the net cost. Cost-reimbursable alternative contracts are very useful when the overall scale of the project and its time schedule are well defined. But, there will still exist uncertainties in quantities and/or quality execution. As in any contract type, communication and understanding of the imminent probability of the unexpected is necessary on the part of both client and general contractor. Under cost-reimbursable alternative contracts, uncertainty in project magnitude is primarily (not entirely) borne by the client. Cost-reimbursable alternative contracts offer very useful flexibility when projects foresee calculable uncertainties –fiancé, scheduling, design, environment, social factors etc. There are a multitude of variations on this formula and we Kai Ridge Hawaii can explain these different variations and choose one that best suits your specific project.

6) INTEGRATED PROJECT DELIVERY/ALLIANCE

This is a fancy name for a very innovative, creative, intelligent and practical collaborative alliance of all parties involved in said project to harness the net expertise of all to optimize project results, increase value to the owner AND reduce waste, and maximize efficiency through eco/cost-conscious design, fabrication, and construction.

IPD contracts are unique in welcoming owner's participation with designers, builders, and key stakeholders, especially in the conceptual stage but also progressive stages. This contract type welcomes full transparency (a 180-degree departure from "everyone in the dark" archaic models) among all the parties involved. Additionally, both risk and reward are shared by the parties who enter into the IPD contract, resulting in greater input of creative cost-savings ideas, resources, processes than would be possible under older models.