Contracts and Costing
What the domain tests
Contracts and Costing tests procurement routes, contract risk, measurement, payment and claims. The examiner wants to see that you can administer a contract and calculate a payment correctly.
Core rules
- Contract types: lump sum, item rate or BOQ, cost plus, EPC/turnkey and design-build allocate risk differently. A BOQ contract pays measured quantities at stated rates; a lump sum pays a fixed price for defined scope.
- Tender: prequalification, bid bond, performance bond, retention of about 5-10% and an advance payment guarantee protect the employer. Public procurement in Pakistan is governed by PPRA Rules 2004; PWD and MES forms are common for public works, while FIDIC is used on larger or international projects.
- Measurement and costing: BOQ quantities are estimated, not final. Rate analysis includes labour, material, plant, overhead and profit. CSR and MRS schedules are common reference rates.
- Payment: interim certificates follow measurement, less retention. Variations, escalation, dayworks, claims, liquidated damages, final account and defect liability must follow the contract.
- Disputes: follow the engineer's decision, mediation or arbitration clause before litigation.
Worked example
An interim certificate is PKR 12 million and retention is 5%. Retention = 0.05 x 12 = PKR 0.6 million; net payment = 12 - 0.6 = PKR 11.4 million. If the contract also allows a 10% advance, the advance recovery schedule must be applied separately. Do not deduct retention twice.
Traps that cost marks
Treating BOQ quantities as guaranteed. Ignoring the variation clause. Certifying without measurement. Releasing retention before the defect liability period ends. Accepting an unsecured advance.