Contract
The Obayashi Group is ready to support client's needs through a number of contract types.
While "Lump Sum" contracting is common practice in Japan, we understand that "Cost + Fee with Open Book method" contracting is common practice in overseas countries. The Obayashi Group has made the best effort to support our Client with the most suitable contract type regardless of whether the project is based in Japan or overseas. The Obayashi Group would like to introduce the three types of contract options: (i) "Lump Sum" contract, (ii) "Cost + Fee" contract, (iii) "Cost-On" contract.
"Lump Sum" contract
This is a common contract type in Japan which Contractor is responsible to complete the work within the contracted time period and hand it over to the Client. The Contractor estimates the construction price based on the business plan, including designs, terms and conditions, etc, provided by the Client so that the Client can grasp the overall project cost at the initial stage. There are two main types of "Lump Sum" contract.
(i) Construction contract
Based on the design such as contract drawings, specifications and terms and conditions provided by the Client, the Obayashi Group is responsible for construction works.
(ii) Design-Build contract
Based on the Client's basic requirements and/or conditions, the Obayashi Group is responsible for consecutive project phases from design to construction. Leveraging our strengths which we are recognized as a general contractor equipped with an in-house design department and holding a first-class architectural license, we are able to provide the one-stop service from the schematic design stage.
"Cost + Fee" contract (Actual Cost Basis)
"Cost + Fee" contract
This is a contract type in which the final contract amount consists of actual cost (see below, hereinafter referred to as "the Cost.") and Contractor's Fee. While the specific cost range and Contractor's Fee determination method are typically negotiated with the Client on a project-by-project basis, the Obayashi Group generally follows the examples outlined below.
- Range of the Cost (actual cost)
Only direct cost is considered as "the Cost", and indirect cost, personnel cost and other preliminaries expenses are considered fixed cost. - Determination method of Contractor's Fee
Contractor's Fee is calculated by multiplying the incurred "the Cost" and pre-agreed fixed rate.
"Open Book method" (see below) is generally adopted for this contract type in order to ensure the transparency of the contract amount.
"Open Book method"
"Open Book method" is the way to disclose all incurred "the Cost" to the Client. The appropriate selection, contract conditions and payment process for the specialized contractors to be employed are disclosed to Client, so that "the Cost" reasonableness is verified. Although the total cost projected by Client at the initial stage may be subject to fluctuation, the Guaranteed Maximum Price (see below) as a countermeasure may be agreed in order to put a ceiling.
As this method is an actual cost basis, labor, material, and subcontract cost are disclosed to the Client. As well as direct cost, temporary material, site management cost, and general administrative cost may also be included, although specific items are subject to negotiations, depending on a project.
GMP (Guaranteed-Maximum Price)
When "Cost + Fee" contract is selected, GMP (Guaranteed-Maximum Price) may be agreed in order to avoid an unlimited increase in "the Cost". GMP is generally calculated with contingency (*1) on top of the Cost and fee. The Works are basically completed within GMP provided specifications, etc are not instructed to change by Client. By setting GMP, Client can ascertain, in advance, the maximum amount of "the Cost". (GMP will be subject to change if the specifications are changed with any reason attributable to the Client.)
*1 Contingencies Contingencies may be required to be budgeted in order to cover the additional cost in the event of design changes and/or additional works due to unforeseen circumstances that may arise during the construction stage. However, as the usage of contingencies are not finalized, therefore, it is not practical standard to include them in the contract amount.
Incentive/Bonus
If the Cost is reduced compared to when GMP was agreed, incentive generally calculated with the certain percentage against the reduced cost may be shared with the Contractor, which is agreed through the negotiation with the Client on a project-by-project basis.
"Cost-On" contract
"Cost-On" contract is a contract that is often applied for M&E work and different from the previously said "Cost + Fee" Contract. It is a relatively common contract type adopted in Japan, however, we recognize that overseas projects do not generally use it.
The contract amount is determined through an agreement between the Client and each appointed specialized contractor. It involves the addition of a pre-determined "Cost-on" fee to the agreed - upon cost.
In this approach, the Client can grasp the overall project cost at the initial stage for signing the "Cost-on" contract with the Obayashi Group by directly negotiating and deciding cost with their specialized contractor.
Based on the "Cost-on" contract, the Obayashi Group enters into subcontracts with each specialized contractor and is responsible for general management operations such as safety management, schedule coordination, etc. On the other hand, each specialized contractor is directly responsible to the Client for the cost and quality control including the change order.
| Summary of contract type | |||||
|---|---|---|---|---|---|
| Contract | Safety | Quality | Cost | Schedule | Contract amount |
"Lump Sum" |
The Obayashi Group |
The Obayashi Group |
The Obayashi Group |
The Obayashi Group |
|
"Cost + Fee" |
The Obayashi Group |
The Obayashi Group |
The Obayashi Group |
The Obayashi Group |
|
"Cost-On" |
The Obayashi Group |
Specialized Contractor |
Specialized Contractor |
Depending on terms and conditions |
|