Percentage Rate Contract- Advantages, Disadvantages, And When To Use?
In construction management, a contract is an agreement created between two parties that are enforceable by law. An agreement like to do construction work, maintenance, repairs, supply of materials, supply of labour, materials transport, etc.
According to contract law, the contract must be signed by authorized persons of both parties.
Percentage Rate Contract
The percentage rate contract is almost similar to the Item Rate contract or Schedule Contract or Unit Price Contract except for the method of tendering the unites rate.
In the percentage rate contract, a department prepares a plan according to the description of items with the quantity, rate, amount, and total amount.
And the contractor performs the work as per or some percentage above or below the rate specified by the department.
Let’s dive into the advantages and disadvantages of the Percentage Rate Contract-
Advantages Of Percentage Rate Contract
The main advantage of the percentage rate contract is the ranking of the contractor is easily known at the time of opening of the tender because the contractor work according to the description of items with the quantity, rate, amount, and total amount.
The benefit due to the increase in the number of items by the contractor is not available because they’re in the percentage rate contract, the contractor is not allowed to quote their own rate for the individual item.
The chance of unbalanced tender by the contractors is eliminated in the percentage rate contract.
More Read- Item Rate Contract- Advantages & Disadvantages, Suitability
More Read- Labour Contract-Advantages, Disadvantages, And When To Use?
Disadvantages Of Percentage Rate Contract
The main disadvantage of the percentage rate contract is there in this type of contract may be difficult to divide the work at an equal amount among the contractors.
In the percentage rate contract two or more contractors negotiate with each other and quote the same rate in order to get a part of the work at a high rate.
More Read- Advantages And Disadvantages Of Cost Plus Percentage Rate Contract
When Would You Use The Percentage Rate Contract?
The Percentage rate contract is used in various filed of public work when the owner does not want to unbalanced the tender by the contractor side and the owner also wants the contractor to do work according to the description of items with the quantity, rate, amount, and total amount.
More Read- Advantages And Disadvantages Of Lump-Sum Contract & When To Use
Frequently Asked Questions(FAQ)
It is similar to a scheduled contract except for the method of tendering the unites rate.
The advantage of the percentage rate contract is there is no chance of unbalancing the tender by the contractors. And the disadvantage of a percentage rate contract is it is difficult to divide the work at an equal amount among the contractors.