The Contract Act of 1872 governs construction contracts in India. Section 10 of the act establishes the essential requirements for all contracts. With this, any agreement with an unlawful purpose is null and void. These contracts cover construction on immovable land and are primarily related to civil engineering activities. Contracts are especially important in urban projects with a high investment cost and are obligated to unlock land value.
Keep reading for,
Need for construction contract structures
-What are the structure types of construction contracts?
-What is a construction contract?
Need for construction contracts
Construction industry is heavily regulated, multiple stakeholders, including contractors and construction companies. Many professionals and experts have expressed concerns about time overruns . Several factors such as delays in obtaining clearances and licenses from numerous regulatory authorities cause the delays. The current state makes it critical to understand the various common contractual structures for urban projects involving public-private partnerships (PPPs).
A construction contract is negotiated for constructing a project or a group of interdependent structures closely related in design, technology, function, or their ultimate purpose or use. Construction contracts include providing services directly related to the project’s construction, such as those for project managers and architects.
What are the structure types of construction contracts?
The most common contractual structures for urban projects involving public-private partnerships (PPPs) are as follows:
a. Build-own-operate
b. Build-operate-transfer
c. Build-own-operate-transfer
d. Build-lease-transfer
e. Build-transfer-operate
f. Design-build-finance-operate-transfer
Types of construction contracts
Build-own-operate (BOO)
A BOO agreement allows a project owner to finance, build, own, operate, and maintain development facilities. Collecting tolls, fees, rent, or other charges from facility users also comes under the developers purview. Operating, and maintenance costs ensures a recoup of the total investment plus a reasonable return. Under the terms of the project, the contractor-owner of the facility can delegate management and maintenance to a facility operator.
Build-operate-transfer
A BOT contract makes the contractor responsible for the construction, financing and the operation and maintenance of the facility. The contractor operates the facility for a set period. During this time, the contractor can charge the facility users with reasonable tolls, fees, rent, and charges. The imposed charges cannot exceed those proposed in its bid or as negotiated and incorporated into the contract. This approach secures a pathway to recoup the investment as well as operating and maintenance costs. After a defined period, the contractor can turn over the facility to the client with a supply-and-operate scenario.
Build-own-operate-transfer (BOOT)
A BOOT agreement contracts a private organisation to carry out a large project. The organisation gives authority to own, maintain, and run the project for a set period. During this time, it may charge users fees. When the agreed-upon period expires, control of the project is transferred to the public sector partner. The transfer can happen for free or for a fee specified in the original contract. The timeframe for large projects that involve significant construction and operating risk is frequently many decades.
Build-lease-transfer (BLT)
A BLT agreement is a commercial contract that enables a project contractor to finance and construct development facilities. Following completion, the contractor leases the facility to the promotor for a set time. After the time lapses, ownership is automatically transferred to the owner.
Build-transfer-operate (BTO)
A BTO agreement is a contract in which the promotor outsources the construction of an urban project to a contractor, with the contractor being responsible for cost overruns, delays, and defined performance risks. Once the facility has been successfully commissioned, the implementing agency earns the title. The private company manages the facility on behalf of the implementing agency.
Design-build-finance-operate-transfer (DBFOT)
In a DBFOT arrangement, the owner enters into a contract with a contractor and delegates all project responsibilities to that contractor (design, construction, financing, operation, and maintenance). In exchange for taking on these responsibilities, the contractor is eligible to receive fees from project end users in the form of availability payments for a set times. Operating control is returns to the owner at the end of the term,
In conclusion, each contract structure has its own set of advantages and disadvantages. Before signing, both parties should carefully review and comprehend the terms of the construction contract.The choice of a specific contract structure defines management process. Therefore, a through evaluation of all detail features is the best course of action.
