2.8.2 What type of contract should be issued?

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Contract types are likely to vary according to:

the degree and timing of the costs of performance; and
The amount and nature of achieving specified standards or objectives.

There are a few commonly used contracts that may be issued by contracting authorities. The following table may be used by contracting authorities when deciding which contract to put in place.


Table 2-29: Key considerations when deciding on which contract to use

Type of Contract

When to Use

Some Examples

Lump Sum Contracts or Fixed Price

Used mainly in projects in which the content and the duration of the required outputs are clearly defined. Payments are linked to outputs (deliverables), such as reports, drawings, and bills of quantities, bidding documents, and software programs. Lump sum contracts are easy to administer because payments are due on clearly specified outputs.

They are widely used for services and works based contracts e.g. simple planning and feasibility studies, environmental studies, detailed design of standard or common structures, preparation of data processing systems, construction contracts.

Time Based Contracts or Fee Based Contracts

This type of contract is appropriate when it is difficult to define the scope and the length of services, either because the services are related to activities by others for which the completion period may vary, or because the input of the consultants required to attain the objectives of the assignment is difficult to assess. Payments are based on agreed hourly, daily, weekly, or monthly rates for staff (who are normally named in the contract) and on reimbursable items using actual expenses and/or agreed unit prices.

This type of contract is widely used for complex studies, supervision of construction, advisory services, and most training assignments.

Price Based Contracts

These contracts are used when contracting authorities need to have "on call" specialised services to provide advice on a particular activity, the extent and timing of which cannot be defined in advance. The unit rates to be paid for the experts are agreed and payments are made on the basis of the time actually used.

These are commonly used to retain "advisers" for implementation of complex projects, expert adjudicators for dispute resolution panels, ongoing procurement advice, technical troubleshooting etc.

Percentage Contracts

Percentage contracts directly relate the fees paid to the Consultant on the estimated or actual project construction cost. The contracts are negotiated on the basis of market norms for the services and/or estimated staff-month costs for the services, or competitively bid.

These contracts are commonly used for architectural services.

Performance Based Contracts

The contracts focus on the purpose of the work as opposed to how the work is done. The focus is on the overall cost for a particular service or works while complying with quality standards. The contract sets out the price and the required outcomes, outputs and targets.

Examples of service contracts include landscape maintenance for public parks, recruitment services, ICT solutions. Examples of works contracts include the fast track construction of a public golf course.

Service Level Agreements

These are used when contracting authorities wish to outsource a service to a supplier and are usually drawn up for a one year (maximum) period. It is important with these contracts in particular to spell out the terms of service that and supplier will provide and how the agreement will be monitored.

Particularly common for ICT services such as ongoing website management or operational support on ICT projects.

Design and Build Contracts

In this contract one supplier performs both design and construction under a single contract. The contracting authority has less risk in the construction of a large contract.

These are used for the construction of capital infrastructure and are normally awarded to construction companies.

Turnkey Contracts

In this contract one supplier is the single point of contact for all facets of the project, from design through to commissioning and the start up of the facility/installation of the product.

One example is the design, development and implementation of a major software solution. These contracts can often awarded through public private partnerships and can include large construction works such as the design, build and operation of health care facilities.

The implementation MUST NOT commence until the contract has been awarded and it has been signed by all counterparties.


© 2007 Republic of Cyprus, Treasury of the Republic, Public Procurement Directorate
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