Module 2 - Law On Contracts

CE Laws,
Ethics and
Contracts
LAW ON CONTRACTS
BRIEF BACKGROUND
A contract protects both the builder and the owner by establishing clear
expectations from the start and preventing any difficulties caused by overages and
other unanticipated complications. Understanding the various forms of
construction contracts is critical since they affect how much you pay, what you're
responsible for, and many other parts of the work. For this module, we will discuss
the different types of construction contract as well as its payment systems and
also have an insight for Procurement Law.
OBJECTIVE OF THE TOPIC
At the end of this Topic, students will be able to:
Explain the concept of construction contract
Identify the different types of construction contact
Provide insight to the Procurement Law
TOPIC OUTLINE
For this topic, It will discuss the following:
Part 1: Contract
Contracts and Definition
Types of Contract
Obligation
Payments and Compensation
Part 2: Contract Regulations
RA 9184 - Procurement Law
PD 1954 - Fiscal Incentive
CIAP Document 102 - Contract for Private Construction
CONSTRUCTION CONTRACT
A construction contract is an assurance that guarantees that the completed
project receives the specified amount of money or how compensation will be
dispersed. Furthermore, a construction contract is expressly negotiated for
building an asset or a collection of interconnected assets.
CONSTRUCTION CONTRACT
A construction contract, according to IAS 11 "Construction contract," is a contract
expressly negotiated for the construction of an asset or a group of assets that are
closely connected or interdependent in terms of their design, technology, and
function, or its final purpose or use.
TYPES OF CONTRACT
Lump Sum Contract
A lump sum contract establishes a single fixed fee for all project work. These
building contracts are often known as "fixed price" or "stipulated amount"
contracts.
These contracts may include incentives to compensate the builder if the project is
finished ahead of schedule. These agreements may also include fines, known as
"liquidated damages," for late completion of work. Owners usually utilize these
contracts to avoid change orders for any additional or otherwise unspecified work.
TYPES OF CONTRACT
Lump Sum Contract
Pros of Lump Sum Contracts
Owners avoid paying unexpected project costs

Builders have a clear expectation of the scope
TYPES OF CONTRACT
Lump Sum Contract
Cons of Lump Sum Contracts
Can result in a lost profit if the project goes over the scope
Budget constraints may limit project outcomes
TYPES OF CONTRACT
Lump Sum Contract
Cons of Lump Sum Contracts
Can result in a lost profit if the project goes over the scope
Budget constraints may limit project outcomes
TYPES OF CONTRACT
Lump Sum Contract
Lump-sum contracts are excellent for projects with a specified schedule and scope
of work. If these are not explicitly agreed upon, builders may find it difficult to
predict costs ahead of time and avoid overscopes.
TYPES OF CONTRACT
Unit Price Contract
Unit pricing contracts generally stress the sorts of activities performed and the
resources spent on those tasks. This type of segmented pricing makes it easy for
owners to analyze each expense and helps builders charge more appropriately for
each category.
TYPES OF CONTRACT
Unit Price Contract
Pros of Unit Price Contracts
Easy to evaluate costs of different categories

Easy to adjust prices when scoping changes
TYPES OF CONTRACT
Unit Price Contract
Cons of Unit Price Contracts
Difficult to estimate costs for large projects

The final cost isn't defined in the beginning
TYPES OF CONTRACT
Unit Price Contract
Unit pricing contracts are more frequent in repeated labor and public works
projects. Routine building maintenance, for example, might be more readily
invoiced through a unit price contract since it defines the values of various
maintenance activities necessary (e.g. painting, testing insulation, etc.).
TYPES OF CONTRACT
Cost Plus Contract
Cost-plus contracts typically require the owner to pay for all project expenses, like
materials, labor, and other project costs. Additionally, these contracts will also
include an agreed-upon amount or percentage that covers the builder's overhead
costs and profit that the owner also pays.
TYPES OF CONTRACT
Different Types of Cost-Plus Contracts
Cost-plus fixed percentage: Payment covers both the associated project costs and
the builder’s profit and overhead. The amount paid for the builder’s profit and
overhead is dependent on a fixed percentage of the project cost.
Cost-plus fixed fee: Payment includes coverage of the associated project’s costs as
well as a fixed fee that covers the builder’s profit and overhead.
Cost-plus with guaranteed maximum price (GMP) contract: Payment includes the
coverage of the associated project costs and a fixed fee paid up to a maximum
cost.
TYPES OF CONTRACT
Cost-Plus Contract
Pros of Cost Plus Contracts
Project is more likely to be completed as planned

Reduces risk for builders
TYPES OF CONTRACT
Cost-Plus Contract
Cons of Cost Plus Contracts
Project can go over scope if caps aren’t applied

Difficult to manage and track
TYPES OF CONTRACT
Cost-Plus Contract
Cost-plus contracts are typically used when the scope of work, materials, labor
and equipment is unclear or difficult to estimate from the beginning. Projects
using this type of Contract are more likely to be completed as envisioned since
builders are not completely limited by cost. However, this contract type is more
complex to manage and requires close tracking.
TYPES OF CONTRACT
Time and Materials Contract
Time and materials contracts define an hourly or daily rate for builders. In
addition to paying this rate, owners also agree to pay any related project costs,
which are noted in the Contract as direct, indirect, markup and overhead costs.
TYPES OF CONTRACT
Pros of Time and Materials Contracts
Builders are not completely limited by budget

Easy to use for small projects
TYPES OF CONTRACT
Cons of Time and Materials Contracts
Project can go over scope if caps aren’t applied

Difficult to estimate final cost
TYPES OF CONTRACT
Time and materials contracts are also typically used when the scope of work is
unclear and carry less risk when used for small projects where owners can better
estimate the project’s scope to anticipate the final cost. Price or project duration
caps are also standard for this Contract to mitigate the owner’s risk.
TYPES OF CONTRACT
Time and materials contracts are also typically used when the scope of work is
unclear and carry less risk when used for small projects where owners can better
estimate the project’s scope to anticipate the final cost. Price or project duration
caps are also standard for this Contract to mitigate the owner’s risk.
OBLIGATION
term obligation referred to the obligation to pay money owing on certain written
documents that were performed under seal. Currently, the term obligation refers
to anything that a person is obligated to do as a result of a promise, vow, oath,
contract, or legislation. It refers to a legal or moral obligation that a person can be
forced to fulfill or punished for failing to execute.
COMPENSATION
Compensation is the extinguishment of the concurrent amount of the obligations
of two people who are debtors and creditors to each other in their own right.
Compensation Types
By the magnitude of its impact.

When both commitments are the same amount, the total is used.
When the two responsibilities are of different amounts, the term "partial" is used.
As a result of its cause or origin:
Legal- when it occurs by operation of law, even if the parties are unaware of it.
Voluntary- when it occurs as a result of the parties' consent.
Judicial- when it occurs as a result of a court of litigation's order.
Facultative- when just one of the parties can set it up.
PAYMENT
Payment in the construction business may be a cause of significant contention.
Not only are the quantities involved quite enormous, and the project durations
very long, but the overall amount due varies over time. Furthermore, when
pricing construction projects, contractors, subcontractors, and suppliers incur
significant risk, and optimistic pricing or late payments can quickly generate cash
flow issues. Payments are frequently late or the subject of disagreements, which
can lead to a breakdown in relationships and even project or business failure.
RA 9184
It is also known as the "Government Procurement Reform Act." R.A. No. 9184 was
approved on January 10, 2003, and took effect fifteen (15) days after its
publication in the Official Gazette or two (2) newspapers of general circulation. It
applies to the Procurement of Infrastructure Projects, Goods and Consulting
Services, regardless of the source of funds, whether local or foreign, by all
branches and instrumentalities of government, its departments, offices, and
agencies, including government-owned and controlled corporations and local
government units, subject to the provisions of Commonwealth Act No. 138.
Section 1. Policy Objectives. It is the policy of the government to adopt a set rules
and
regulations covering government contracts for infrastructure and other
construction projects which
shall:
(a) bring about maximum efficiency in project implementation and minimize
project costs and contract variations through sound practices in contract
management;
(b) promote a healthy partnership between the government and the private
sector in furthering national development; and
(c) enhance the growth of the local construction industry and optimize the
use of indigenous manpower, materials and other sources.
Section 2. Detailed Engineering. No bidding and/or award of contract for a
construction project shall be made unless the detailed engineering investigations,
surveys, and designs for the project have been sufficiently carried out. This is so as
to minimize quantity and cost overruns and underruns, change orders and extra
work orders, and to ensure that the project meets the standards and regulations
to be promulgated.
The Government shall promote maximum participation of eligible Filipino
contractors in all construction projects. The prospective contractor may be
allowed to cover the deficiency in the required net worth through a line of credit
fully committed to the subject project. The net worth and liquid assets of the
prospective contractor must meet the requirements, to be established in
accordance with the rules and regulations to be promulgated pursuant to this
Decree.
Section 4. Construction projects shall generally be undertaken by contract after
competitive public bidding, except in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors. A bidder's
bond, in an amount to be established in accordance with the rules and regulations
to be promulgated, shall accompany the bid to guarantee that the successful
bidder shall enter into account and furnish the required performance bond for the
faithful and complete prosecution of the work..
CIAP Document 102 - Contract for
Private Construction
CIAP Document 102 or the “Uniform General Conditions of Contract for Private
Construction” contains terms and conditions ordinarily established in construction
contracts. It is intended for use in contracts for private construction in the
Philippines.
CIAP Document 102 was formulated to provide the procedures, guidelines, and
criteria to be used by parties in a construction Contract, or reference to the
Contract to address deficiencies and/or any ambiguity.
The CIAP Document 102 will contribute to the enhancement of fair contractual
relationships in the construction industry.
CIAP
Document 102
- Contract for
Private
Construction
Many disputes in construction arise from inconsistent and ambiguous contract
terms and conditions which lead to varied interpretations and conflict between
the contracting parties. To avoid disputes that may affect the completion of the
Work and strain the relationship of the parties, it is important that contract
documents objectively reflect the agreement and true intent of the parties.
SUMMARY
A construction contract is an assurance that guarantees that the completed
project receives the specified amount of money or how compensation will be
dispersed.
There are 4 types of Construction Contract
obligation refers to anything that a person is obligated to do as a result of a

promise, vow, oath, contract, or legislation..
Compensation is the extinguishment of the concurrent amount of the obligations

of two people who are debtors and creditors to each other in their own right.
DISCUSSION
REFERENCE
Sears, S. K., Sears, G. A. Clough, R. H. (2008). Construction project management A
practical guide to field construction management (5th ed.) (Links to an external
site.)
Construction Contracts
Construction Contracts its Types

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CE Laws,

Pros of Lump Sum Contracts

Owners avoid paying unexpected project costs

Cons of Lump Sum Contracts

Cons of Lump Sum Contracts

Pros of Unit Price Contracts

Easy to evaluate costs of different categories

Cons of Unit Price Contracts

Difficult to estimate costs for large projects

Pros of Cost Plus Contracts

Project is more likely to be completed as planned

Cons of Cost Plus Contracts

Project can go over scope if caps aren’t applied

Pros of Time and Materials Contracts

Builders are not completely limited by budget

Cons of Time and Materials Contracts

Project can go over scope if caps aren’t applied

By the magnitude of its impact.

There are 4 types of Construction Contract

obligation refers to anything that a person is obligated to do as a result of a

Compensation is the extinguishment of the concurrent amount of the obligations

Construction Contracts its Types

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