An activity based contract facilitates the inclusion of multiple activities (various engineering disciplines) within the boundaries of a structured cost management system. This approach can be taken irrespective of the number of activities, where the value per activity does not exceed R500 000 (R7=$1).
The inclusion of 80% of preliminary and general costs into measured rates forces the contractor to actively participate in a contract where no complete scope definition exist (shared risk principle). This also prevents the cumbersome process of re-negotiating indirect costs associated with the contract at each extension of time and/or inclusion of additional scope.
Effort must however be made to timeously identify works of mechanical, electrical or specialist nature to allow for alternative procurement arrangements or re-negotiation of costs. A minimum of two weeks is required to procure and agree complex installations that falls beyond the expertise of the civil contractor. Civil contractors tend to place premiums on work outside their field of expertise as it forces them to employ a suitable subcontractor (without maintaining effective cost control).
Also to be noted is that cost effective alternatives are not always beneficial to the client (time constraints, site or procurement conditions) and differ from contract to contract, but the following guidelines could be considered when compiling future contract documentation for contracts of fragmented nature (activity driven):
The disadvantages of a schedule of rates are:
Activity driven contracts could lead to fragmentation and disruptive execution, thus adding a premium on construction costs, although the benefits obtained outweighs regrets if viewed against the cost savings of procuring multiple contracts and/or orders. From a project managerial perspective, future cost planning for fast-track projects could incorporate a 5% allowance (on the main civil or other activities) as part of the pre-contract estimates to allow for miscellaneous plant commissioning requirements.
Contract administration can be done with desktop database applications without additional programming requirements. Its is also helpful if assisted by a pro-active contractor with the capability to organize and prioritize according to project and client requirements. Activity driven contracts could serve as an effective vehicle to execute miscellaneous works within a structured, uniform cost environment.
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