Contract Price;5 Facts You Must Know

The contract price is the value of the work carried out by the contractor based on a letter of agreement, a work order within a certain period of time and a certain amount of costs.

What is Contract Price?

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The contract price is the value of the work carried out by the contractor based on a letter of agreement, a work order within a certain period of time and a certain amount of costs.

When conducting a tender or procurement of goods or services, the parties involved must pay attention to two important aspects related to the contract price, namely the technical aspect and the cost aspect (price).

Technically, the price of this contract can be broad if it is associated with value for money (VFM). It consists of quality, quantity, time and location. Meanwhile, the cost aspect is only a matter of the agreed price estimated and determined within certain limits.

The terms of this contract price treatment have been agreed upon and must be adhered to by all parties. If one of them reneges, then it is included in the act of breaking a promise or default.

Contract Pricing Function 

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Since the drafting of the contract, which is then outlined in the contract document, the Commitment Making Officer (PPK) is required to transparently explain all behaviors that will be implemented in the contract price structure later.

The goal is that the bidding provider, appointed in signing the contract, understands the advantages and risks faced in carrying out the work.

When there are parties who deny the value of this contract, it has reduced the value of the procurement and Pins must be prepared with the legal consequences that follow.

Price Structure in the contract 

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When determining the contract price of a project, it must consider from various sides, including the unit price of work (HPS), from the provider side and from the contract side.

From all these sides, the contract price must consist of:

Total price 

The total price or total cost is the total cost used by the construction company when carrying out the project. According to the rules, the Election Working Group is required to evaluate the fairness of prices for bids that bid below 80 percent of the HPS.

Work Unit Price

In the Minister of Public Works Regulation Number 07/PRT/M/2011 it is stated that the total value of HPS is the result of calculating the entire volume of work multiplied by the unit price plus all tax burdens and profits.

The unit price of work consists of:

Direct costs, namely the calculation of wages, materials and tools

Indirect costs consist of general costs or overheads and profits.

Work Unit Price Analysis

The unit price analysis establishes a calculation of the unit price of labor wages, the unit price of materials or materials and the cost of equipment, as well as the work which is technically detailed in detail.

The analysis of the unit price of this work becomes the basis for the collection which is the unit price of the contract or budget plan (RAB). Later, the results of the analysis will be used to determine the contract value or budget plan in accordance with the list of quantities and prices (bill of quantity, BOQ).

Types of Construction Contracts

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In construction projects, there are different types of contracts based on several things such as the method of payment. The following types of construction work contracts are in accordance with Indonesian regulations.

Unit Price Construction Contract

The type of cooperation agreement is based on the calculation of the unit price. The calculation method is quite complicated because it requires detailed information. Expenses are based on the volume of work completed by the contractor.

For example, Pins will renovate a home garage by enlisting the help of a contractor. Pins agreed to work on cast concrete at a price of Rp. 1 million per cubic meter with an estimated total volume of 10 cubic meters.

Through the agreement, the renovation cost for 10 meters is Rp. 10 million. However, if in the middle of the renovation process it turns out that the volume of cast concrete needed increases by 17 cubic meters, Pins also has to increase the cost to Rp. 17 million.

Lump Sum Contract

If you want a simpler calculation, a lump sum contract is the solution. This cooperation agreement has been made at the beginning to work on a project within a certain period of time.

In this contract, Pins and the contractor must agree on the duration of the contract and the stage of construction. A house can be built in three stages and for each stage a new work agreement is required.

As long as the agreement is valid, the construction of the house is the responsibility and risk of the contractor. If in the middle of building a house, there is an adjustment in the price of materials, then Pins does not have to worry about incurring additional costs because the construction has become a contractor’s risk.

Joint Contract  

Furthermore, using a combined lump sum agreement and unit price, the initial agreed construction cost will not change. However, if there are additional requirements during the construction process, it will be at the contractor’s risk.

Percentage Contract

With a percentage contract, the costs that Pins must incur are in accordance with the contractor’s total expenses plus a percentage of the construction costs.

For example, in the contract, Pins and the contractor agreed that the contractor’s profit would be 40 percent of the construction of the house.

At the end of the construction the contractor will provide a detailed list of developments. For example, if the cost of renovating a house is Rp. 80 million, then the costs to be incurred for contractor costs are Rp. 32 million.

Judging from the system of agreements made, this type of contract is more profitable for home contractors.

Construction Contract Accepted

This type of construction contract is almost similar to a lump sum. The difference is, in this type of contract, all costs until the end of the construction are agreed at the beginning.

The amount of the fee is also based on a joint assessment between the homeowner and the contractor.

by Abdullah Sam
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