TYPES OF CONTRACT
Generally, the contracts under which ARCADIS provides services to clients can be placed in the following categories. In practice, there are also combinations of these categories.
Fixed price contracts. This type of contract provides for the payment of a negotiated fee that is fixed at the inception of the contract (also called a lump sum). The risk is that more time and costs are involved with the activities than were first estimated. Setbacks can also occur because certain information is not available or is not available when it should be. Conversely, if the work is performed efficiently, the earning capacity can be increased. With a welldefined scope of work and schedule, additional services can be identified and compensated for, thus limiting risks.
Cost-plus contracts. This type of contract provides for payment
based on time spent, applying stipulated rates for different
(categories of) employees, and out-of-pocket expenses. Risk arising from this type of project is usually limited. This type of contract is chosen when it is difficult to estimate in advance how much time will be spent or when a client wishes to bring in additional capacity (secondment) to conduct certain activities (under his management).
Cost-plus contracts with a cap. This contract is similar to the
previous type, but a maximum project cost is stipulated that cannot be exceeded (without previous agreement of the client). In principle, the work is ceased when the cap has been reached, unless a performance agreement has also been negotiated. In that case, it may be necessary to complete the additional work, for which the risk rests with ARCADIS.
Contracts with a building sum-related fee. This type of contract can be used when activities are directly related to the completion of a construction project (roads, buildings, civil engineering works etc.).
This type of project involves producing the design, engineering,
dealing with procurement, and supervision during construction.
With this type of contract, the total fee for the various activities is determined by a percentage of the sum of the total construction costs. The activities are budgeted on the basis of an estimate of the construction costs. The risk is that the actual construction costs, because of overcapacity in the market, are lower than the estimate. Conversely, with efficient project management, the margin can be influenced positively.
Turnkey contracts. This type of contract is similar to the fixed price contracts described above; however, this contract also includes the engineering and construction components of the work (design/build contract). These types of contracts require additional preparation for producing specifications and determining price. The advantages for the client are price certainty at an early stage, efficiency in the preparation and quicker deliverability. Because ARCADIS does not usually perform the construction (building) component of the work, the implementation risk is usually covered by a back-to-back
contract with a contractor. In part due to size, this type of contract has a higher risk profile. Risks arise from design and engineering miscalculations, unclear specifications of the product, or contractors not meeting their obligations. Conversely, providing added value results in a greater profit potential.
GRiP™ contracts. (GRiP stands for Guaranteed Remediation and Insurance Program). This is a special type of turnkey contract used in the environmental market for the remediation of contaminated property. A remediation plan is prepared, and remediation costs are estimated based on an environmental study and a determination of the extent of contamination. The performance of the remediation plan is offered (under certain conditions) to the client for a fixed price (turnkey). The risks of cost overruns are largely covered by an insurance policy. ARCADIS has very rigorous procedures and policies for project estimation and determination of insurance levels and works closely with our insurers to minimize the total risk. However,
there are always some inherent project estimation risks. Remaining risks can arise as a result of disputed settlements with the insurer and associated litigation.
Framework contracts or Master Service Agreements. These contracts are service agreements that are negotiated for a specified period. In a framework contract, projects may sometimes be put out to bid to a number of providers. Returned bids include estimates by project or project components, or maximum amounts are set. The risk arises when, under the pressure of competition, unfavorable terms are agreed upon for the framework contract, thereby producing a negative effect on the business result for a long time. Conversely, this type of contract provides a solid basis for continuity.
Design, Build, Finance and Operate contracts (DBFO). These projects deliver a total product (Design and Build), including arranging financing (Finance) and operating the built product for a certain period (Operate). This type of project is normally conducted as part of a consortium, with an SPC (Special Purpose Company) set up specifically for the project, acting as the contract party. ARCADIS' participation depends on the project type, its scope, and the risk profile. Our participation is often related to the capitalized development effort provided by ARCADIS employees. Risks arise from the advance investment in the development of the project, any participation in the equity and risks associated with obligations that are entered into for completing or operating the project. In this type of project, the operating companies are assisted by a team at corporate level, who complete the risk analysis.
Contracts with a success fee. This contract stipulates that ARCADIS is eligible for an agreed payment that is linked to achieving previously agreed results, whether or not within a fixed time period. In theory, this can occur in each type of contract described above.
