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Home > Types of Contracts > Measured Work or Measured Term Contracts

Measured Work or Measured Term Contracts

As the name suggests, the Measured Work Contracts do not have a fixed Contract shape or cost, they are based on estimates of work and paid on actual works executed, as measured. The Measured Work or Term Contracts are of two main types:

  1. Bills of Quantities (BOQ)
  2. Schedule of Rates (SOR)

A few basic differences between the BOQ and Schedule of rates are:

BOQ
Schedule of Rates

Quantities in the Contract are fairly accurate and are normally taken off from IFC/AFC drawings by Contractor or provided by Clients

Quantities are only indicative and not possible to estimate due to lack of details.

BOQ form part of the Contract

BOQ does not form part of the Contract

BOQ is almost an indication of a definite requirement and included for work measurement and/or payment

BOQ, if present is a collection of all possible items that may or may not be required (it is more a collection of rates)

Contract normally has a fixed period

Contract normally is for a term of 2-3-4 years and in extended durations prices could come with escalation provisions

Contract price can be estimated to the final/end price with a degree of accuracy

Contract price cannot be estimated


Bills of Quantities (BOQ)

BOQ type of a Contract could commonly be seen in the civil building and construction related industry. FIDIC contains standard forms mainly dealing with such types.

The BOQ is a list of items required under the scope with the technical specifications normally forming an integral part of it. It describes the work to be carried out with units of measurement, quantities, unit rates and total amount for each item, all finally adding up to a lump sum price. This lump sum price is an estimated lump sum based on quantities and Client does not guarantee work upto the quantities stated in the bills. The total Contract price is arrived at only for Clients evaluation and selection of the lowest Tenderer or other reasons and hence not guaranteed.

This type of a Contract is used where the design and specifications are developed to a high degree to enable Tenderer to make a detailed estimation and measurement of the work scope required under the Tender. As part of the ITT, Tenderers are issued IFC (Issued for Construction) or AFC (Approved for Construction) Drawings or other appropriate documents and are required to estimate or “take-off” quantities of work required. Subsequent to thorough examination of such documents, Tenderers are required to submit a BOQ, with unit rates to include for all obligations under the Contract.

Under circumstances, Client could well provide quantities/take-off’s to avoid multiple Tenderers putting in the effort and Client taking responsibility for any errors and omissions, which again would reduce Contractors responsibility to that extent.

Schedule of Rates (SOR)

Schedule of rates Contracts are also called unit price Contracts, item rate Contracts, piece rates, or with such other names. Under this type, the nature and scope of work is known but the extent or its requirement itself are not known and cannot either be estimated. Tenderers are required to quote unit rates in a schedule, for each item of work (potentially) required under the Contract. Schedule of rates Contracts can also have quantities but these are mere estimates and are subject to adjustment as work gets completed. Quantities are included for a Tenderer to make their own assessment of the extent and accordingly take calculated risks in case of early termination. Thus in this type of a Contract, since there is no guarantee that any given quantity of work is executed, each unit rate item could carry a higher overhead cost.

Such Contracts are useful where works are required over a period of 2-3-4 years, or indefinite so to speak and where there is not much need or possibility to define the precise work extent upfront e.g. plant maintenance Contracts.

Since these Contracts require a lot of detailed information to be accurately provided for work items, a lot of time and effort needs to be spent prior to Tendering. By their nature they must attempt to cover all likely requirements, providing full and detailed descriptions.

Contractors could negotiate price/rate escalation provisions in case the Contract is for an extended period.

The main advantages and disadvantages of using measured work Contracts are listed hereunder.

Advantages:

  • A fully detailed design or specification is not essential at Tender stage.
  • Large number of Tenderers could be invited to Tender.
  • Provides a good basis for selection of Contractor when bills of quantities are used.
  • Tendering is relatively quick and therefore cost effective.
  • The evaluation of variations and amendments arising from changes in design/specifications is relatively simple.
  • Client can exercise a greater degree of control and supervision over the Contractor and select specialists to carry out certain elements through use of provisional or prime cost items.
  • Flexible framework permits changes to quantities or scope requirements.
  • Measured Term Contracts provide access to Contract services as and when required without delays of Tendering/Contract award.

Disadvantages:

  • Possibility of front loading of costs.
  • Final cost of the Contract is not known at commencement, though with a fair a degree of accuracy, the estimated final cost could be arrived at based on an estimated usage.
  • Contract administration is often more expensive and labour intensive in agreeing and processing monthly valuations and payments to Contractors.
  • Additional involvement and technical personnel required post-Contract to handle Contractor queries and finalise design/specification requirements.
  • In case of early termination, Clients exposure to liability for payment of certain fixed costs such as mobilisation and demobilisation of costly vehicles and equipment, insurance, bank guarantees, etc.

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