Why Do We Use Different Types Of Contracts On Projects?

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2.1 CONTRACT ESTABLISHMENT
Why do we use different types of contracts on projects?

2.2 LEARNING OBJECTIVES
At the end of this section you will be able to:
• Describe the typical contract types
• Explain key elements that govern contract type selection
• Explain the key principles of agreement between Reliance and the contractor

2.3 CONTRACTS TYPES
• Lump Sum
– Contractor is required to provide upfront for all risks and costs for performing to contract defined requirements; Contractor is responsible for cost and schedule overruns
– Highly effective where the scope, design and specifications are well defined with a high degree of certainty as a result of which risks are minimum
– Minimizes Reliance financial risk and
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• Scope is evolving, incomplete, poorly defined or undefined
• Clear scope definition has been provided
• Minimal scope changes are expected
• Quantities are uncertain at award

2.7 RISK ASSESSMENT
Are the following characteristics applicable to the project?
• Many risks are unknown or unknowable
• Most ordinary risks can be defined and planned for
• Potential exists for large scope changes and change orders
• Volatile or stable project environment exists
• Volatile or stable financial markets (exchange and interest rates and access to financing)
• Volatile or stable materials market

2.8 PROJECT PROPERTIES
Are the following characteristics applicable to the project?
• Project is very large (cost, man-hours, etc.)
• Project is one-of-a-kind
• Project location is remote, volatile or challenging
• Project involves new technology
• Project is greenfield or brownfield
• Footprint of site increases project complexity

2.9 OWNER INVOLVEMENT AND CULTURE
Are the following characteristics applicable to the
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