School of Community Government

Works and Works Management




Project and Contract Management 2006
TABLE of CONTENTS


PREAMBLE – COMMUNITY SCHOOL OF GOVERNMENT................................................................
4 THE TENDERING PROCESS - CONSTRUCTION............................................................................36

   4...
7.12 DISCUSSION          AND   REFLECTIVE QUESTIONS .........................................................................
11.6 REVIEW      AND   RESEARCH QUESTIONS....................................................................................
Preamble – Community School of Government

       COMMUNITY SCHOOL OF GOVERNMENT

The School of Community Government is a ...
Course Description and Purpose

       COURSE DESCRIPTION

This course will give you understanding and help you in project...
1     Introduction to Project and Contract Management

Abbott: Who's on first?
Costello: I don't know.
Abbott: He's on thi...
   Free up your own and other people’s time to solve problems before they happen

          Reduce frustration

       ...
Project                                               Not a Project

                                                     ...
Figure 1.1



Projects are often completed by in-house staff. For instance the Works Department may
complete a project suc...
Figure 1.2




Chapter One – Introduction to Project and Contract Management   12
Prospective on Objectives and Methods of Construction Project Management

      The "life cycle" of costs and benefits fr...
COMMUNITY PROJECT MANAGEMENT
  The Design and Construction Team
(The following chart demonstrates how a large construction...
Construction

Usually the Architectural Firm also manages the construction project which the
Contractor completes. Through...
Owner                 Designer           Project Manager      Construction


                 Community
                  ...
1.5   THE PROJECT LIFE CYCLE

All projects have a similar life cycle which can be broken into four phases:

          Def...
PHASE 1: DEFINING & STRATEGIZING THE PROJECT

In this phase, the Community Government determines the objectives and strate...
Figure 1.5


                                                  Project
       PHASE 3: IMPLEMENTING THE PLAN – EXECUTING T...
1.6   DISCUSSION AND REFLECTIVE QUESTIONS

       1. Discuss some of the projects that have been completed in your communi...
2 Phase 1: Definition of a Contract




            Chapter Two – Phase One: Definition of a Contract   21
Figure 2.6




2.1   INTRODUCTION

As a member of the community, you and others may be aware of a need in the community.
P...
2.3     WHAT IS A CONTRACT?

A contract is a legal definition. It is an agreement between persons which obliges each party...
Figure 2.8



There are many different types of contracts. An employment contract is very different than a
service or cons...
The Design and Construction Team

2.4   DISCUSSION AND REFLECTIVE QUESTIONS

       1. Which is more difficult: managing a...
3 Purchasing Methods
˜When the Government knows what it wants done and how it should be done (such as a
construction proje...
3.2   GOALS AND OBJECTIVES

After studying this chapter you will be able to explain

          Methods of purchasing good...
obliged to follow through by providing the goods and/or services or completing a project, for
the agreed upon fee or price...
7. Proposal format and quality

       8. Cost

Some of these factors are given more weight in the final decision. A commi...
The GNWT applies the BIP as follows.




                 Category                                       Incentive

      ...
3.5     DISCUSSION AND REFLECTIVE QUESTIONS

         1. Could your community government save time or improve service by t...
2. For the following examples, what tender would be considered the lowest price
        after BIP was applied?




       ...
3.7   CASE STUDY

David Smith, senior purchasing agent for Lynx River Junior High School, has been instructed
by the local...
David refuses to pay ABC Construction any money claiming they have not lived up to the
contract.

ABC Construction insists...
Chapter Two – Phase One: Definition of a Contract   35
4 The Tendering Process - Construction


4.1   INTRODUCTION AND SCOPE

The largest and most costly projects completed in c...
4.2   GOALS AND OBJECTIVES

After studying this Chapter you will be able to explain

          Three types of Constructio...
Figure 4.10


In a Traditional, Fixed Price Contract, the design of the building is completed before the
tender is adverti...
Figure 4.11




Chapter Four – The Tendering Process – Construction   39
4.4   THE TENDERING PROCESS




                                                 Figure 4.12



A fundamental rule of tend...
   Is the bidder capable in all respects of being able to perform the contract
             requirements? (This may have ...
used for sub-contract purposes. Following the submission of General Contractor tenders,
substitution or replacement of suc...
5 New Deal for Communties


5.1   INTRODUCTION

Municipal and Community Affairs (MACA) through its New Deal initiative wil...
5.2   GOALS AND OBJECTIVES

After studying this chapter you will be able to explain

          The key components of Muni...
Initial implementation of the ‘New Deal for Communities’ will focus on Hamlets and Charter
 Communities. Phase 2 of the im...
5.5   RESOURCES

          New Deal for Community Governments

          Municipal and Community Affairs

          Gov...
6 Phase 2 Planning
~ Quality should be designed into the product and not inspected into it. – Dr. Genichi
Taguchi.




   ...
Figure 6.13




6.1   INTRODUCTION

Planning is important in Community Governments. CG’s do various kinds of planning. The...
   Ownership employees feel about their work and community residents feel about
           community activities and proje...
Figure 6.14




6.3     CONFLICTS AREN’T NECESSARILY BAD

Underneath a conflict situation might be a discussion of a bette...
6.4.2        PURCHASING SERVICES

 When you write a contract for the provision of a service, the specifications are a desc...
6.5   PURCHASING CONSTRUCTION

Construction projects can be very complicate and preparing specifications for large and
com...
When the Owner or Consultants prepares the estimate for the work to be tendered the
consistent numbering helps simplify th...
7 Planning – Estimating
~As the owner of a completed construction project, you are concerned with the project from
“cradle...
7.2   GOALS AND OBJECTIVES

In this chapter you will learn

          Why estimating is necessary

          Estimating ...
The capital cost for a construction project includes the following expenses:

          Land

          Permitting

    ...
7.5   WHY ESTIMATE?

If you are completing a project in-house, you need to know how much it will cost. If it is a
small pr...
7.7   NORTHERN ESTIMATING:

In the past, contractors and owners relied on historical information for construction material...
7.9   THE GENERAL CONTRACTOR’S RESPONSE

As mentioned earlier construction tenders, follow the order of The National Maste...
7.10 ESTIMATING - SMALLER PROJECT

If you are planning a relatively straight-forward project like painting some houses you...
7.11 OVERHEAD, CONTINGENCIES AND PROFIT

7.11.1 OVERHEAD

Overhead is costs needed to support and administer the project b...
7.12 DISCUSSION AND REFLECTIVE QUESTIONS

      1. What are the consequences of too high or too low a bid?

      2. When ...
7.14 RESOURCES

National Master Specifications (NMS):

www.raic.org/practice/specifications/index_e.htm




Information on...
8 Planning - Scheduling
~There cannot be a crisis next week. My schedule is already full. Henry Kissinger.


8.1   INTRODU...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
School of Community Governments' Project and Contract ...
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  1. 1. School of Community Government Works and Works Management Project and Contract Management 2006
  2. 2. TABLE of CONTENTS PREAMBLE – COMMUNITY SCHOOL OF GOVERNMENT.................................................................6 COURSE DESCRIPTION AND PURPOSE............................................................................................7 1 INTRODUCTION TO PROJECT AND CONTRACT MANAGEMENT.................................................8 1.1 INTRODUCTION AND SCOPE................................................................................................................8 1.2 GOALS AND OBJECTIVES ...................................................................................................................9 1.3 WHAT IS A PROJECT?......................................................................................................................9 1.4 WHAT IS PROJECT MANAGEMENT?....................................................................................................10 1.5 THE PROJECT LIFE CYCLE..............................................................................................................17 1.6 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................20 1.7 REVIEW AND RESEARCH QUESTIONS...................................................................................................20 1.8 RESOURCES................................................................................................................................20 2 PHASE 1: DEFINITION OF A CONTRACT ......................................................................................21 2.1 INTRODUCTION..............................................................................................................................22 2.2 GOALS AND OBJECTIVES .................................................................................................................22 2.3 WHAT IS A CONTRACT?..................................................................................................................23 2.4 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................25 2.5 REVIEW AND RESEARCH QUESTIONS..................................................................................................25 3 PURCHASING METHODS.................................................................................................................26 3.1 INTRODUCTION..............................................................................................................................26 3.2 GOALS AND OBJECTIVES .................................................................................................................27 3.3 METHODS OF PUBLIC PURCHASING....................................................................................................27 3.4 BUSINESS INCENTIVE POLICY (BIP)..................................................................................................29 3.5 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................31 3.6 REVIEW AND RESEARCH QUESTIONS...................................................................................................31 3.7 CASE STUDY...............................................................................................................................33 3.8 RESOURCES ...............................................................................................................................34
  3. 3. 4 THE TENDERING PROCESS - CONSTRUCTION............................................................................36 4.1 INTRODUCTION AND SCOPE..............................................................................................................36 4.2 GOALS AND OBJECTIVES ................................................................................................................37 4.3 TYPES OF CONSTRUCTION PRICE AND PAYMENT METHODS......................................................................37 4.4 THE TENDERING PROCESS ..............................................................................................................40 4.5 BID SECURITY..............................................................................................................................41 4.6 BID DEPOSITORY ..........................................................................................................................41 4.7 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................42 4.8 REVIEW AND RESEARCH QUESTIONS..................................................................................................42 5 NEW DEAL FOR COMMUNTIES.......................................................................................................43 5.1 INTRODUCTION..............................................................................................................................43 5.2 GOALS AND OBJECTIVES .................................................................................................................44 5.3 A NEW DEAL FOR COMMUNITY GOVERNMENT .....................................................................................44 5.4 DISCUSSION REFLECTIVE QUESTIONS.................................................................................................45 5.5 RESOURCES................................................................................................................................46 6 PHASE 2 PLANNING.........................................................................................................................47 6.1 INTRODUCTION..............................................................................................................................48 6.2 PLANNING IS NOT FOR THE FAINT-HEARTED..........................................................................................49 6.3 CONFLICTS AREN ’T NECESSARILY BAD.................................................................................................50 6.4 SPECIFICATIONS ............................................................................................................................50 6.5 PURCHASING CONSTRUCTION ..........................................................................................................52 6.6 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................53 6.7 REVIEW AND RESEARCH QUESTIONS..................................................................................................53 6.8 RESOURCES................................................................................................................................53 7 PLANNING – ESTIMATING...............................................................................................................54 7.1 INTRODUCTION ............................................................................................................................54 7.2 GOALS AND OBJECTIVES .................................................................................................................55 7.3 WHAT IS ESTIMATING ?...................................................................................................................55 7.4 CONSIDERING CRADLE TO GRAVE COSTS ...........................................................................................55 7.5 WHY ESTIMATE ?..........................................................................................................................57 7.6 HOW IS ESTIMATING DONE ?............................................................................................................57 7.7 NORTHERN ESTIMATING:.................................................................................................................58 7.8 PREPARING THE ESTIMATE ...............................................................................................................58 7.9 THE GENERAL CONTRACTOR ’S RESPONSE ..........................................................................................59 7.10 ESTIMATING - SMALLER PROJECT....................................................................................................60 7.11 OVERHEAD , CONTINGENCIES AND PROFIT ........................................................................................61
  4. 4. 7.12 DISCUSSION AND REFLECTIVE QUESTIONS .........................................................................................62 7.13 REVIEW AND RESEARCH QUESTIONS................................................................................................62 7.14 RESOURCES...............................................................................................................................63 8 PLANNING - SCHEDULING ..............................................................................................................64 8.1 INTRODUCTION .............................................................................................................................64 8.2 GOALS AND OBJECTIVES .................................................................................................................65 8.3 WHAT IS SCHEDULING ?..................................................................................................................65 8.4 BAR CHART.................................................................................................................................66 8.5 PERT DIAGRAM / CRITICAL PATH ANALYSIS .........................................................................................67 8.6 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................69 8.7 REVIEW AND RESEARCH QUESTIONS..................................................................................................69 8.8 RESOURCES ...............................................................................................................................69 9 SIMPLIFY WITH SOFTWARE............................................................................................................70 9.1 INTRODUCTION .............................................................................................................................70 9.2 GOALS AND OBJECTIVES .................................................................................................................71 9.3 COMPUTERS DON ’T MAKE MISTAKES BUT THEY AREN ’T SMART....................................................................71 9.4 SOFTWARE CAN ….......................................................................................................................71 9.5 CHOOSING PROJECT SCHEDULING SOFTWARE......................................................................................72 9.6 CHOOSING PROJECT ESTIMATING SOFTWARE.......................................................................................72 9.7 DISCUSSION AND REFLECTIVE QUESTIONS ...........................................................................................73 9.8 REVIEW AND RESEARCH QUESTIONS..................................................................................................73 9.9 RESOURCES ...............................................................................................................................73 10 PHASE 3 MONITORING & CONTROLLING – IN HOUSE.............................................................74 10.1 INTRODUCTION ...........................................................................................................................75 10.2 GOALS AND OBJECTIVES ..............................................................................................................75 10.3 MONITORING THE PROJECT............................................................................................................75 10.4 CONTROL IS A GOOD THING..........................................................................................................76 10.5 DISCUSSION AND REFLECTIVE QUESTIONS .........................................................................................77 10.6 REVIEW AND RESEARCH QUESTIONS................................................................................................77 11 MONITORING THE TRADITIONAL CONTRACT............................................................................78 11.1 INTRODUCTION ...........................................................................................................................78 11.2 GOALS AND OBJECTIVES ...............................................................................................................80 11.3 THE PROCESS ............................................................................................................................80 11.4 IMPORTANCE OF RECORD KEEPING..................................................................................................82 11.5 DISCUSSION AND REFLECTIVE QUESTIONS .........................................................................................84
  5. 5. 11.6 REVIEW AND RESEARCH QUESTIONS................................................................................................84 12 HOW TO CONTRIBUTE TO SUCCESSFUL PROJECT COMPLETION......................................85 12.1 INTRODUCTION ...........................................................................................................................85 12.2 GOALS AND OBJECTIVES ...............................................................................................................86 12.3 THE PROJECT TEAM....................................................................................................................86 12.4 CONFLICT RESOLUTION.................................................................................................................87 12.5 DISCUSSION AND REFLECTIVE QUESTIONS .........................................................................................89 13 PHASE 4: WRAPPING UP THE PROJECT..................................................................................91 13.1 INTRODUCTION............................................................................................................................92 13.2 GOALS AND OBJECTIVES ...............................................................................................................92 13.3 WHY EVALUATE THE PROJECT?......................................................................................................92 13.4 IDENTIFY WHAT YOU DID RIGHT AND WHAT COULD HAVE BEEN DONE BETTER.........................................92 13.5 THE FINAL REPORT.....................................................................................................................93 13.6 DISCUSSION AND REFLECTIVE QUESTIONS .........................................................................................94 13.7 REVIEW AND RESEARCH QUESTIONS................................................................................................94 WEBSITES & RESOURCES................................................................................................................95 APPENDIX A: PROJECT MANAGEMENT. A CRISP FIFTY- MINUTE BOOK.................................96
  6. 6. Preamble – Community School of Government COMMUNITY SCHOOL OF GOVERNMENT The School of Community Government is a division within the Department of Municipal and Community Affairs, Government of the Northwest Territories. The School of Community Government (S of CG) assists community governments by providing training and development opportunities to community governments, their staff and other community organizations. Training is based on assessed community needs, delivered to a recognized standard and upon successful completion provides certification. WORKS AND WORKS MANAGEMENT Works and Works Management is one of the programs offered by the School of Community Government. Community Works comprises more than half of a community’s budget and includes mobile equipment, buildings, roads, water and sanitation and work place safety. The School of Community Government recognizes the importance of Community Works and offers a number of programs to help meet the training needs of community works foremen, facility maintainers and many other employees involved in community works.
  7. 7. Course Description and Purpose COURSE DESCRIPTION This course will give you understanding and help you in project and contract management. It includes information on the administration of projects, the tendering process and estimating and scheduling with emphasis on construction. This course has been developed to address the learning needs of Community Works Foremen. PURPOSE This course has been developed to meet learning needs identified in the NWT Occupations Community Works Foreman DACUM Chart (January, 2002) that was developed by the Departments of Municipal and Community Affairs and Education Culture and Employment. The DACUM process is a way to “Develop A Curriculum”. It is a competency analysis that gives employers, employees, educators and learners a say in developing the curriculum for an occupation. This course may also be of value to other community people who are involved in projects, construction and/or contracting who may be employed by Aboriginal or Community Development Corporations or their subsidiaries. This course was made in the North and is based on needs specific to the Northwest Territories. If you are attending a course delivery you will have the opportunity to hear presentations made from experts in the area and be able to ask them for general advice as well. The course manual includes many additional sources of information that you can access through the internet or, in some cases, by phone. This manual was developed by Red Willow Consulting Ltd. with technical assistance from FSC Architects and Engineers and materials developed by Professor Tamer E. El-Diraby of University of Toronto (given with permission), Government of the Northwest Territories, Department of Public Works and other sources. A text called, Project Management by Marion E. Haynes (Crisp Publications) is also used. The project leader was Mike Yakabuski, Senior Researcher, School of Community Government, Municipal and Community Affairs, Government of the Northwest Territories.
  8. 8. 1 Introduction to Project and Contract Management Abbott: Who's on first? Costello: I don't know. Abbott: He's on third, we're not talking about him. Costello: Now how did I get on third base? Abbott: Why you mentioned his name. Costello: If I mentioned the third baseman's name, who did I say is playing third? Abbott: No. Who's playing first. Costello: What's on first? Abbott: What's on second. Costello: I don't know. Abbott: He's on third. Costello: There I go, back on third again! 1.1 INTRODUCTION AND SCOPE When a Community Works Foreman completes a project it almost always involves other people. It can involve working with staff, council and/or contractors. It helps to know who is responsible for what. A Community Government (CG) can play many roles in projects and the number of roles seems to be increasing. This affects your job. Regardless of the CG’s role and your responsibility the more you know about project management, the better. If you are working on a project another thing you can be sure of is that the project will have problems. Taking this course and studying project and contract management won’t prevent all of the problems from happening but it will help. By learning project management skills, you will be able to
  9. 9.  Free up your own and other people’s time to solve problems before they happen  Reduce frustration  Improve the quality of the completed project  Save money in time and in material costs In this course we will be studying project and contract management, with emphasis on the specific areas of tendering and construction management including estimating and scheduling. 1.2 GOALS AND OBJECTIVES After studying this Chapter you will be able to  Define a project  Describe the various roles that Community Governments have in projects  Describe the project life cycle and the four project phases  Explain project management 1.3 WHAT IS A PROJECT? A project is an undertaking that has a beginning and an end, and is carried out to meet established goals within cost, schedule and quality objectives. The successfully managed project is one that is completed as it was intended, on/or before the deadline and within budget. Planning combined with quick on the feet (or telephone) response to problems, gives you your best chance for success. It would be hard to say whether projects or on-going maintenance and program activities are more important: they’re different. If you are constructing a building, you will finish it, but the building’s maintenance is ongoing. The following chart gives some examples of what is a project and what is not a project. 9
  10. 10. Project Not a Project Program Maintenance Regular Work Catering for a BBQ for the whole community Making coffee for the office Installing a water treatment facility Delivering water weekly Building roads for a new housing area Clearing snow from the streets Installing a new boiler Inspecting equipment regularly 1.4 WHAT IS PROJECT MANAGEMENT? Project management is the art of directing and coordinating people and material resources throughout the life of a project by using management techniques to achieve a set of objectives including scope, cost, time, quality and participation satisfaction. To be a project manager you need to  Use general management skills. You will need to build morale and support staff, direct and organize tasks and motivate people. You will need to review and approve decisions made by others and monitor people’s work and take corrective action when necessary.  Be knowledgeable of the technical aspects of the project, be it the design of a training module (curriculum development), a software program (computer programming) or the construction of a facility. What you need to know about a construction project will depend on its size and complexity but could include engineering, architecture and the trades. A project manager does not necessarily know the details of every area but individuals who manage major projects have made project management their career.  Use project management skills like planning and estimating and scheduling.  Continually strive to improve the process Chapter Two – Phase One: Definition of a Contract 10
  11. 11. Figure 1.1 Projects are often completed by in-house staff. For instance the Works Department may complete a project such as painting the exterior of the community school building over the summer. This same project could, however, be completed by selecting and entering into a contract with a business that paints buildings. Whether a project is completed in-house or contracted out, it takes many of the same skills as managing a department. The difference is that in managing the Works department, it is important to ensure that a service will be provided, and staff will be available to complete work, on an on-going basis. With projects, there is always a deadline and the objective is to make sure that specified work is completed. Chapter One – Introduction to Project and Contract Management 11
  12. 12. Figure 1.2 Chapter One – Introduction to Project and Contract Management 12
  13. 13. Prospective on Objectives and Methods of Construction Project Management  The "life cycle" of costs and benefits from initial planning through operation and disposal of a facility are relevant to decision making. An owner is concerned with a project from the cradle to the grave. Construction costs represent only one portion of the overall life cycle costs.  Optimizing performance at one stage of the process may not be beneficial overall if additional costs or delays occur elsewhere. For example, saving money on the design process will be a false economy if the result is excess construction costs.  Fragmentation of project management among different specialists may be necessary, but good communication and coordination among the participants is essential to accomplish the overall goals of the project. New information technologies can be instrumental in this process, especially the Internet and specialized Extranets.  Productivity improvements are always of importance and value. As a result, introducing new materials and automated construction processes is always desirable as long as they are less expensive and are consistent with desired performance.  Quality of work and performance are critically important to the success of a project since it is the owner who will have to live with the results. From Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders. 2003. Chapter One – Introduction to Project and Contract Management 13
  14. 14. COMMUNITY PROJECT MANAGEMENT The Design and Construction Team (The following chart demonstrates how a large construction project is typically completed in a Community.) Figure 1.3 Community Planning and Design Usually communities identify the sites for future building in the community plan which is prepared by the municipality and community residents and revised every five years. The community plan is developed with the assistance of professional planners and technical staff. Where community plans are not in place, there is a land use plan. When the time comes for the construction of the facility the Community Organization, (and in this example, the Hamlet will be the owner of the new building) seeks professional help from as Architect. The Architect and the Hamlet Council and staff will discuss the needs of the community and the Architect will prepare an outline of what will meet these needs. Before any building design is completed the Hamlet will need to complete a number of surveys and studies of the site so that the building structure will work on the site. Once there is a clear description of the site, the Architect, with assistance from Engineers will design the building. Chapter One – Introduction to Project and Contract Management 14
  15. 15. Construction Usually the Architectural Firm also manages the construction project which the Contractor completes. Throughout the process the project drawings are used for communication among the team. During the design phase, these drawings will likely be revised as the Hamlet and the Architect discuss various ideas and architectural details. The Drawings and Specifications, when finalized, will explain how and what materials will be used. The Construction Contractor builds based on the Drawings and Specifications. Building Occupancy When the Hamlet takes up occupancy in the building, there will be a warranty period of about one year when the Contractor will be responsible for nearly all problems that might occur in the building. Different Schemes for Different Teams Throughout this course, we will be looking at the different roles that a Community Government (CG) Works Foreman may play in projects or contracts. For instance, if a community-owned facility is being built, 1. The Works Foreman, on behalf of the CG may manage a project with staff completing the work (in-house). This might occur when a new road is constructed 2. The CG may tender a project to build a water treatment facility, receiving bids and selecting a construction firm. The Works Foreman may be the Project Manager. 3. The CG may tender a contract such as building an office building. An architectural and/or engineering firm may design and manage the contract. The Works Foreman may be one of the representatives of the CG on a committee that leads the project. 4. The project may be supervised by the Government of the Northwest Territories (GNWT) and the Works Foreman may have a very limited role. 5. A Community Government can be bid on a contract such as a Department of Transportation road maintenance project and may be awarded the contract. In this situation the Works Foreman may be the project manager. The following chart shows many of these different roles. Chapter One – Introduction to Project and Contract Management 15
  16. 16. Owner Designer Project Manager Construction Community CG Works 1. In-house Government CG or consultant CG Works Foreman (CG) 2. CG prepares CG Works CG CG or consultant Contractor tender Foreman Consultant (SAO 3. Consultant or Works Manager prepares CG Consultant Contractor on behalf of the tender owner) Consultant 4. Government (GNWT of the NWT CG Consultant representative on Contractor prepares behalf of the tender owner) Works Manager 5 CG bids on Government Government staff (GNWT on behalf CW tender (Federal or NT) or in-house staff of the owner) Chapter One – Introduction to Project and Contract Management 16
  17. 17. 1.5 THE PROJECT LIFE CYCLE All projects have a similar life cycle which can be broken into four phases:  Defining the project  Planning the project  Implementing the plan  Completing and evaluating the project Figure 1.4 Chapter One – Introduction to Project and Contract Management 17
  18. 18. PHASE 1: DEFINING & STRATEGIZING THE PROJECT In this phase, the Community Government determines the objectives and strategizes on how to go about the project. It recognizes a need for something such as a building or a wharf, a celebration or a new accounting system. It decides on the project and the purposes of the final completed facility or event or system. Chapter 2 is about defining the project. The community must then work on a strategy as to how it will go about completing the work on the project. Often the process chosen includes contracting. In this manual, in Chapter 2, 3 and 4 we will discuss approaches to contracting for the completion of a project. PHASE 2: PLANNING THE PROJECT In this phase  Write specifications  Develop budget  Develop schedule Three items define a project: Quality, Cost and Time. The following chart shows how these items connect with project tasks. Webster’s Dictionary defines the noun, quality as “any of the features that make something what it is”, “basic nature; character; kind” and “the degree of excellence which a thing possesses. Similarly quality, in projects, refers to the type and grade of materials used and the method of workmanship. These are identified in the specifications. Project costs include every cost of the project. Project costs include materials, supplies, labour and other expenses all of which are included in the budget. Project costs don’t include the ongoing costs that a project might create, for instance, the fuel costs to operate a building. Project time refers to the hours required to complete a project. It also includes the timing of a project; the sequence of project activities and how the project can be fit into the calendar. For instance, painting a school needs to be completed between the end of June and the middle of August and materials, in some communities, must be ordered for barge delivery. Chapter One – Introduction to Project and Contract Management 18
  19. 19. Figure 1.5 Project PHASE 3: IMPLEMENTING THE PLAN – EXECUTING THE PROJECT This phase is when the action starts, when site Cost begins, materials are delivered and Quality work Time construction follows. The project manager’s role, although (s)he does not act alone, is to Specifications Budget Schedule  Monitor performance  Take corrective action  Provide feedback  Resolve differences In management jargon, these activities are called controlling. The project manager ensures that the plan is followed. Each of these four activities is done in order to stick with the plan. Of course sometimes changes to the plan are necessary and this is why communication is so important. PHASE 4: COMPLETING AND EVALUATING THE PLAN This phase is the completion of the implementation of the plan. It includes  Deliver output  Wrap up administrative details  Evaluate the experience All the items in the plan are completed, files are updated and manuals completed. Finally the project is reviewed to see what has been learned. Chapter One – Introduction to Project and Contract Management 19
  20. 20. 1.6 DISCUSSION AND REFLECTIVE QUESTIONS 1. Discuss some of the projects that have been completed in your community and identify who was the owner, the designer, the project manager and who completed the construction. 2. Take a recent project and describe the steps taken to complete it. 3. Review “Community Construction Management” and cross-reference with “The Project Life Cycle”, where applicable. 1.7 REVIEW AND RESEARCH QUESTIONS 1. Of the following list, which items are projects?  Building a shed  Building a new school  Replacing all incandescent lights in a facility in August as part of preventive maintenance  Contracted janitorial services  Using Municipal Maintenance Operations System 2. Define a project and give examples from your work. 3. Explain project management. 1.8 RESOURCES Crisp Publication, Project Management, pages 1-12. Chapter One – Introduction to Project and Contract Management 20
  21. 21. 2 Phase 1: Definition of a Contract Chapter Two – Phase One: Definition of a Contract 21
  22. 22. Figure 2.6 2.1 INTRODUCTION As a member of the community, you and others may be aware of a need in the community. Perhaps people are talking about the need for sidewalks or more playgrounds for children. It may be that it is already in your community plan. Seeing a need is often the first step towards a project. Phase 1 of a project is developing a clear description of what is required by determining the project objectives and selecting a strategy to complete it. The Crisp Publication, Project Management, Part 2, on pages 15 -22 details this general process. One of the strategies that must be decided is the way that the project will be completed. If it is to be completed by a contract, the way it is obtained or procured has to be determined. But first we will look at what a contract is. Figure 2.7 2.2 GOALS AND OBJECTIVES After studying this Chapter you will be able to explain  What a contract is  Differences between hiring and contracting 22
  23. 23. 2.3 WHAT IS A CONTRACT? A contract is a legal definition. It is an agreement between persons which obliges each party to do or not to do a certain thing. Technically, a valid contract requires an offer and an acceptance of that offer, and, consideration. “I will sell you my motor for $500.00” “I accept.” Offer An offer is a promise made by one party to another to perform or give property, goods or services. “I will sell you my motor for $500.00” Acceptance An acceptance is the agreement of one party to the offer made by another. “I accept.” Consideration A consideration is a benefit gained by the person who makes the offer. $500 .00 Capacity Capacity means that both parties in an agreement must be legally able to enter into an agreement. For example, a minor (a person under 19 years of age) cannot legally enter into an agreement. Both persons are over 19 years of age. Intention Intention means that both parties to an agreement must mean to enter into the agreement. For example, a person is inebriated and does not intend to enter into an agreement. Both persons are sober and of sound mind A contract need not be in writing, unless it is with regard to the sale of property, of land. A practical definition of a contract is an agreement that will stand up in court. Given this definition, a written contract has much to be said for it. 23
  24. 24. Figure 2.8 There are many different types of contracts. An employment contract is very different than a service or construction contract. For instance, if you hire an employee to paint the garage, the employee will be paid a wage, very likely by the hour, and will have the protection of Labour Standards laws and possibly a union contract. The person will be paid overtime for hours worked over forty hours per week. Your Council will be responsible for Workers Compensation for the employee. You will be able to tell the employee what hours to work, exactly how to do the work and the employee will not be able to get someone else to help him or her. The employees will be paid for the hours they came to work, whether they were able to complete the work (for instance, if it rained) or not. If you contract with a business, the business will be paid upon completion of work, regardless of the time it takes, and the company will be responsible for its Workers Compensation and other insurance. The company, unless specified otherwise in the contract will be able to work whenever they want, i.e. into the evening, on the weekend, and can send various people to do the work. They will be paid the same amount regardless of how long it takes them to complete the work (unless there is a penalty clause for late delivery of a product or service. In this course we will look primarily at contracts for sale of services and construction. 24
  25. 25. The Design and Construction Team 2.4 DISCUSSION AND REFLECTIVE QUESTIONS 1. Which is more difficult: managing a project in-house or being responsible for the completion of a project by a contractor? 2. What are the similarities and differences between contracting and hiring as a means to complete a project? Hiring employees Contracting Completing the project in- Contractor completing the house project Payment based on? Who is responsible for insurance? Reasons for hiring or contracting 2.5 REVIEW AND RESEARCH QUESTIONS Match the following Offer Both parties are of legal age Are you interested in installing the Acceptance equipment? Consideration I agree to install the equipment Capacity The cost is $500. Intention Both parties are sober and of right mind Chapter Two – Phase One: Definition of a Contract 25
  26. 26. 3 Purchasing Methods ˜When the Government knows what it wants done and how it should be done (such as a construction project), it will already have its plans and specifications and is looking simply for the best price. On the other hand, when the Government knows what it wants done, but not how to go about doing it, it seeks proposals on methods, ability, and price. Then it can negotiate on the best method to achieve the best value.” (1) Socanav Inc and the GNWT et al., SCNT, Vertes, Aug 5, 1993. 3.1 INTRODUCTION There are many different kinds of contracts such as contracts for goods and services and construction projects. When public organizations purchase goods, services or projects of significant value they are required to use a public process, either public tender or proposal. In communities, in some cases, construction and other large contracts may be put out to tender by the Government of the Northwest Territories or some other body outside the community. When the community government is involved, construction contracts, and other service contracts will typically be tendered by the Senior Administrative Officer (SAO). However, the Works Foreman can offer support and assistance on site and building projects, mobile equipment, water delivery, sewage pickup and other matters. In some cases, you may manage the contract once it has been awarded. As well you and your community may be on the other side of the table. For instance, if you have the mobile equipment necessary for road work that the government or some other agency wants to complete, you may decide to bid on their tender. In this chapter, we will look at the tender processes that the Government of the Northwest Territories uses. We will review these processes for the following reasons.  The GNWT is the largest public purchasing and contracting agency in the NWT and has an established tendering method that follows accepted practices.  In some cases, community organizations are required to follow some of the GNWT’s tendering practices. Community organizations may be bidding on GNWT tenders. Chapter Two – Phase One: Definition of a Contract 26
  27. 27. 3.2 GOALS AND OBJECTIVES After studying this chapter you will be able to explain  Methods of purchasing goods and services: Request for Proposals, Standing Offers, and Negotiated Contracts.  Tendering and the tendering process  Business Incentive Policy (BIP) 3.3 METHODS OF PUBLIC PURCHASING Public purchasing or procurement, as it is sometimes called, is different than purchasing in personal or private sector purchasing. Because the money being spent is public money, raised by taxes, the government seeks the best price but there should be no favouritism to one firm or another. The following methods of procurement are used by public organizations. Tendering is a method of purchasing goods or services used by government and other organizations in an effort to get a good price and at the same time give all competent suppliers, service providers or contractors an opportunity to bid for the work. 3.3.1 TENDERING Tenders are used when it is clear what is to be done and how to go about doing it. The purchaser knows exactly what goods or service they want and is looking for the best price to deliver it. As with other types of tenders, construction tenders have detailed material and performance specifications. The lowest qualified bidder wins the tender. When public and other organizations purchase goods, services or construction work, they use a process called tendering. They invite businesses to submit a tender on the goods, service or project. In this way they make an effort to get a good price and at the same time give all competent suppliers, service providers or contractors an opportunity to bid for the work. The bidders make an offer to do the work for a fixed price and if they are the successful bidder they are obliged to follow through with providing the service or completing the work. Tendering is used to mean a number of related things. Tendering means  Calling for tenders  Submitting a tender bid  The process of calling for tenders. The tendering organization accepts one of the bidders’ offers to do the work outlined in the tender for a fixed (set) price. The bidder with the best bid wins the contract and they are 27
  28. 28. obliged to follow through by providing the goods and/or services or completing a project, for the agreed upon fee or price. 3.3.2 THE TENDERING PROCESS The Government of the Northwest Territories places advertisements in northern newspapers and posts announcements on its web site for tenders (http://www.contractregistry.nt.ca) that are expected to be above $100,000 in value. Before a tender can be advertised, detailed specifications must be completed. Although GNWT tenders use standard terms and conditions, these specifications vary in respect to different goods and services tendered. Bids are invited on all contracts that are expected to be above $5000. These bids may be requested orally but records must be kept. 3.3.3 REQUEST FOR PROPOSALS A proposal is different from a tender. A Request for Proposal (RFP) is used when the purchaser is looking for the best value solution to resolve a problem or to deliver a good or service, but is not exactly sure how to achieve it. Detailed specifications are not provided. An RFP is used when  You know what you want done  You may not be clear as to how it should be done  The project (or goods or services) are not specifically defined  There is no detailed material or performance specification  You are looking for a general solution (GNWT PWS Procurement Guidelines). Unlike a tender, an RFP does not include project specifications but instead includes a Scope of Work or Terms of Reference. In order to decide which bidder is awarded the work for an RFP the proposals received must be evaluated. Usually they are evaluated based on the following factors 1. Project team – who are the people who are going to complete the work 2. Methodology – how is the bidder is going to go about completing the work 3. The Company’s past relevant experience 4. The Project Schedule 5. Past Performance Appraisals 6. Location of the Company and team relative to the site 28
  29. 29. 7. Proposal format and quality 8. Cost Some of these factors are given more weight in the final decision. A committee reviews the proposals. These factors are weighted and rated by a committee to decide the best proposal. 3.3.1 STANDING OFFER AGREEMENTS (SOA) Standing Offer Agreements (SOA) are put out to bid like other tenders. The GNWT defines a Standing Offer Agreement as A price agreement between the Government and a supplier, wherein the supplier agrees to provide, on demand, specified goods or services under specified conditions during a set period at a defined price or discount. The purchasing process is by public tender. Standing Offer Agreements are intended to increase the  Cost-effectiveness and service to users, by:  Reducing the time required to acquire standard goods and services  Reducing the overall administrative costs of acquiring frequently required goods and services  Maintaining competitive, best price expenditures. You would not likely use a Standing Offer to complete a project. 3.4 BUSINESS INCENTIVE POLICY (BIP) The Business Incentive Policy (BIP) gives registered northern businesses a preference in tender and RFP awards. As a general rule, if a purchase or a project is funded by the Government of the NWT, in the amount of 51% or more, BIP will apply. The GNWT’s Business Incentive Policy (BIP) provides an incentive to northern business to  Offset the higher cost of operating a business in the NWT and to make them able to compete with southern firms.  Enable them to develop necessary experience and business skills The GNWT also agrees to develop policies which are easily understood by the business community and which are easy to administer. 29
  30. 30. The GNWT applies the BIP as follows. Category Incentive 20% discount applied to northern content For contracts valued at over $1,000 and (No additional tender adjustment for local less than $5,000 content.) For Construction, Service and Maintenance 15% discount applied to northern content Contracts and an additional 5% discount for local content. Contracts valued at over $5,000 15% discount will be applied to northern content on all contracts and an additional 5 For contracts for goods, contracts valued at per cent discount will be applied to any local over $5,000 content unless otherwise specified in the contract documents. 30
  31. 31. 3.5 DISCUSSION AND REFLECTIVE QUESTIONS 1. Could your community government save time or improve service by tendering out and entering into Standing Offer Agreements with any trade or service companies? 3.6 REVIEW AND RESEARCH QUESTIONS 1. Describe the differences between Request for Proposals and Tenders. Tender RFP Product Price selected Description of Work Other Chapter Two – Phase One: Definition of a Contract 31
  32. 32. 2. For the following examples, what tender would be considered the lowest price after BIP was applied? Total Fixed BIP Local Adjusted Amount Cost 1. Number One yes No $39,000 2. Second to None yes yes $42,000 3. Tri- Corporation No No $43,000 4. Quartet yes no $38,000 Chapter Three – Purchasing Methods 32
  33. 33. 3.7 CASE STUDY David Smith, senior purchasing agent for Lynx River Junior High School, has been instructed by the local school board to make the school wheelchair accessible by the first day of school. After contacting the Disabled Association in Lynx River as to what would be required, David drafts an Invitation to Tender with detailed specifications as to the work to be done, the angle of the wheelchair ramps for children being one of the specifications. When the Invitation and specifications are typed, David gives them a cursory glance and sends them off for photocopying and publishing in the local newspaper. Unknown to David, during typing, a paragraph in the specifications has been deleted from the final copy, which details the angle and location of the wheelchair ramps. Further, the number of wheelchair ramps has been mistyped as “ten” rather than “two”. In due course, three contractors express an interest in the Tender and obtain copies of the Invitation and detailed specifications. Two submit bids forthwith. The third telephones David several times seeking more information and generally becoming a nuisance. After the sixth phone call, David instructs his assistant, Bruce Ward to field any further questions. The next day the third contractor calls David and is transferred to Bruce Ward, who assures the contractor he is fully qualified to answer any questions the contractor may have. The contractor then asks Bruce whether something might be missing or in error in the Invitation or specifications as they appear incomplete. Bruce responds, “Absolutely not! I can assure you all the information is in the specifications. That is exactly what is required. No more, no less.” The third contractor then advises Bruce they will not be submitting a bid as the job is “obviously too large for us to complete in the time frame specified.” After Tender closing, David and Bruce sit down to decide who will be awarded the Tender contract. Both Tender bidders have submitted bids which describe construction of the wheelchair ramps as unit priced. One is slightly lower and from a reputable contractor, ABC Construction, who David and Bruce decide is the successful contractor. After notifying the unsuccessful and the successful bidder, David discovers the numerical error. He decides that time is too short to re-tender so he simply instructs ABC Construction to only build two, not ten, wheelchair ramps. He does not notice the missing paragraph however. The contract is drawn up in a rush and simply states ABC Construction is to “complete the work described in the Invitation to Tender as per the specifications attached thereto on or before September 2nd, David then goes on holidays. ABC Construction does complete the work by September 2nd, but the two wheelchair ramps are located at the wrong doors. In addition, the angles of the wheelchair ramps while appropriate for adults are too steep for children. Chapter Three – Purchasing Methods 33
  34. 34. David refuses to pay ABC Construction any money claiming they have not lived up to the contract. ABC Construction insists they did not know the wheelchair ramps were too steep nor did they know the locations were wrong. They claim they built “standard wheelchair ramps at appropriate and reasonable locations”. They further claim they have performed the contract as described and should be paid in full. The dispute is reported in the local newspaper. The third contractor who chose not to bid discovers David only wanted two ramps, not ten. The third contractor also discovers that had they bid on the contract, their bid would have been substantially lower than the successful tender bid. REQUIRED: Discuss this case. Identify what was done incorrectly. Suggest means of correcting. Identify possible lawsuits. 3.8 RESOURCES CIV320 H1 S Management of Construction. Module 2: Contracting. Tamer E. El-Diraby, PhD. University of Toronto. GNWT Public Works and Services Web site – Publications – Procurement Guidelines GNWT Public Works and Services Web site – http://www.pws.gov.nt.ca/pdf/publications/Proj_Mgmt_Manual/PM- %20Introduction/0.2contents.pdf Chapter Three – Purchasing Methods 34
  35. 35. Chapter Two – Phase One: Definition of a Contract 35
  36. 36. 4 The Tendering Process - Construction 4.1 INTRODUCTION AND SCOPE The largest and most costly projects completed in communities are construction projects. Community projects are funded with tax payer’s dollars. The tendering process is a way to assure the fair, impartial awarding of contracts while at the same time achieving value for tax payer’s dollars. Although tendering is a straight-forward process, it has its complications. Figure 4.9 36
  37. 37. 4.2 GOALS AND OBJECTIVES After studying this Chapter you will be able to explain  Three types of Construction Price and Payment Methods  The tendering process for Fixed Price Contracts  The purpose of Bid Bonds and Performance Bonds. 4.3 TYPES OF CONSTRUCTION PRICE AND PAYMENT METHODS Contractors use a number of methods to set the cost of a project. Each one is suited to a particular type of work. On larger projects, there may be one contract between the owner and the person who is doing the construction (the contractor), and a second (separate) contract between the owner and the person who is doing the design work (an architect or designer). 4.3.1 TYPES OF CONTRACT A Fixed-Price Contract also called a Lump Sum Contract or Stipulated Price Contract sets out the total price for the work, including all labour, materials, sub trades, equipment rentals and so forth. Fixed-price contracts are suited to small repair or renovation jobs, or those projects that are relatively straightforward and easy to plan. Any changes or adjustments to a fixed-price contract require a written Change Order signed by both parties. A Cost-Plus Contract is based on the cost actually paid for labour, subcontracted services, materials and other direct expenses, plus a fee to cover the contractor's time managing and coordinating the sub-trades, materials and inspections needed to complete the project. The fee can be either a fixed amount or a percentage of the costs. A cost-plus contract is often used in larger renovation projects when the exact extent of the work to be done cannot be accurately determined in advance. The project budget set out in the contract should provide estimated costs for major elements of the work. To ensure that the project costs are kept under control, a maximum budget is usually set out in the contract. Design-Build Contracts are a variation on either fixed price contracts or cost-plus contracts. The distinguishing feature of a design-build contract is that instead of the owner signing one contract to design the home, and a separate contract to build it, the whole project is covered in a single document: one firm undertakes to do both design and construction. This approach is more common with custom new construction and large-scale renovation projects. For instance, architects often provide overall management for a custom project, doing the design work themselves and then hiring contractors to carry out the construction. Most often, design-build management fees are calculated as a percentage of all costs and billed separately. However, even if the design-build contract is presented as a "single package deal", the owner should make absolutely sure that they are able to approve the design before work begins on construction. Chapter Two – Phase One: Definition of a Contract 37
  38. 38. Figure 4.10 In a Traditional, Fixed Price Contract, the design of the building is completed before the tender is advertised. As contractors pick up tender documents their company name is recorded. As the following illustration indicates, after the tender is advertised, there is usually a pre-bid meeting where interested contractors can ask the owner questions. The answers to any questions will be circulated to all bidders. The contractors need to have sufficient time after the tender is advertised to review the documents and prepare their tender. This is called the tender period. During the tender period, there may be modifications made. If this is the case, these amendments are circulated to every contractor who has picked up tender documents. In Traditional, Fixed Price Contracts there are three parties involved in the contract, the owner, the consultant (architects and/or engineers) and the construction contractor. The consultant acts on behalf of the owner to manage the project. Chapter Four – The Tendering Process – Construction 38
  39. 39. Figure 4.11 Chapter Four – The Tendering Process – Construction 39
  40. 40. 4.4 THE TENDERING PROCESS Figure 4.12 A fundamental rule of tendering is that bids must be received by a certain time and date. You cannot accept a bid that is received after the closing time and date. As well, the bidder must advise that he or she has received the amendments, if there were any. Tender openings are public. They are held in a board room or place with an official clock as soon as practical after the tender has closed. The person receiving the tenders writes down  The name of the firm who submitted the tender  The $ amount of the tender  Whether or not security was given (if required) It can take up to thirty days for tenders to be awarded. The tenders are reviewed to confirm the following points.  Are mandatory elements of the tender met?  Is the bid qualified?  Is the bid complete?  Are there inconsistencies between owner’s price estimates and the tender?  Are there technical inconsistencies in the tender? Chapter Four – The Tendering Process – Construction 40
  41. 41.  Is the bidder capable in all respects of being able to perform the contract requirements? (This may have been confirmed prior to the tender closing if Pre- Qualification was completed.) After these points are clarified, the contract signing authority is advised, the contract award is approved and the successful contractor is advised and in some cases, letters of regret are sent to the unsuccessful ones. 4.5 BID SECURITY For large tenders contractors may be required to provide a bid security in order to demonstrate good faith that they will follow through with the work. A bid security is 4.5.1 BID BOND A Bid Bond is purchased by the contractor when he submits a bid on a tender that requires a Bid Bond. The purpose of the Bid Bond is to guarantee to the Owner the good faith of the contractor. If the contractor’s tender is accepted he will enter into a formal contract with the Owner. If the contractor does not sign a contract then he is obliged to pay the Owner the difference in money between the amount of his tender and the amount it costs the Owner to get someone else to complete the work. If he fails to come up with this money the Surety Company that sold the Bid Bond is obliged to do so. If the Surety is called upon to pay under the terms of the Bid Bond, it will expect to recover such payment from the Principal. 4.5.2 PERFORMANCE BOND The basic function of a Performance Bond is to protect the Owner up to the amount of the Bond in the event that the Contractor does not go through with the work. Provided the Owner has met his obligations under the Performance Bond and the contract, he will claim against the Surety and will expect to be covered for any loss suffered, up to the total amount of the bond. A Performance Bond is not intended to cover payment of labour and materials claims. Owners and Contractors should not depend on the Performance Bond for payment of such claims. Basically, the function of a Labour and Material Payment Bond is to guarantee that all claimants, likely sub-contractors or suppliers, will be paid for labour and materials furnished to the Principal for use of the project described in the bond. 4.6 BID DEPOSITORY The Bid Depository is a system for the reception of sealed bids from Trade Contractors to enable those receiving the bids to obtain firm quotations in writing and adequate time to compile their tenders completely and accurately. This fair and equitable process is in the best interests of Owners, Tender Calling Authorities and General and Trade Contractors. Flowing from this stated purpose is the requirement that General Contractors enter into contract with selected Bidders whose bids have been properly deposited and which will be Chapter Four – The Tendering Process – Construction 41
  42. 42. used for sub-contract purposes. Following the submission of General Contractor tenders, substitution or replacement of such selected Bidders is subject to specific approval of the Tender Calling Authority and/or Owner, based upon valid reason or circumstances which were not reasonable evident or assessable prior to the close of General Contractor tenders. 4.7 DISCUSSION AND REFLECTIVE QUESTIONS 1. Discuss the advantages and disadvantages of the three main types of construction contracts from the Owner’s point of view. 2. Is it worthwhile to send letters of regret to the unsuccessful bidders? Explain. 4.8 REVIEW AND RESEARCH QUESTIONS 1. What are the three main types of construction contracts? Give examples for when you might choose to use each of them. 2. What is the difference between a Bid Bond and a Performance Bond? Chapter Four – The Tendering Process – Construction 42
  43. 43. 5 New Deal for Communties 5.1 INTRODUCTION Municipal and Community Affairs (MACA) through its New Deal initiative will give community governments more control of community infrastructure planning. Community governments will assume more responsibility for capital projects and project management as a result of this. Chapter Five – Community Capital Authority Arrangements 43
  44. 44. 5.2 GOALS AND OBJECTIVES After studying this chapter you will be able to explain  The key components of Municipal and Community Affairs’ New Deal for Community Governments as this relates to capital projects. 5.3 A NEW DEAL FOR COMMUNITY GOVERNMENT The Government of the Northwest Territories continues to ensure that the move to community empowerment is complete by establishing community governments as a fully autonomous third levels of government. In recent years there has been a gradual increase in community governments’ abilities to manage community affairs. This change is reflected in the way capital construction projects have been managed. Before 2000 many projects (eg. arenas, fire halls) were funded by the GNWT through MACA, managed by Public Works (PW&S) and the community provided a contribution (often labour). Through the Municipal Capital Assistance Policy, MACA provided arrangements whereby Community Governments could assume more responsibility in the management of projects. Depending on the capabilities of the community, these arrangements included; 1. Full Project Authority The project was funded by MACA but the community government had full authority over all phases of project management. 2. Partial Project Authority The project was funded by MACA. The community government participated in project planning and had some project management responsibility. If a full or partial authority agreement was entered into by the GNWT/MACA and the community government, a contribution agreement was set-up between the two parties. The practice of allowing for full and partial authority agreements has been discontinued. The Municipal Statutes Replacement Act approved in Oct 2003 by the legislative assembly sets the stage for community governments to assume more authority and autonomy. As of 2007/08 the New Deal for Community Governments will give Hamlets and Charter Communities complete control over the community infrastructure planning process. MACA will provide advisory support and also assist communities in gaining the capacity to raise or borrow the necessary funds for projects, but essentially these community governments will be responsible for all aspects of community infrastructure planning and project management. Chapter Five – Community Capital Authority Arrangements 44
  45. 45. Initial implementation of the ‘New Deal for Communities’ will focus on Hamlets and Charter Communities. Phase 2 of the implementation will consider how best to build capacity in Band and Settlement communities. Should the council of band or settlement communities wish to assume some of the same authority as Hamlets and Charter Communities, it is possible for these communities to become Charter Communities. This chart illustrates the fundamental change to community infrastructure planning and project management as a result of the New Deal. Typical Project (Fire Hall Construction) Pre 2007/08 As of 2007/08 Planning · GNWT identified need for · Community Identifies need Community with · Community sets priorities for community consultation projects · GNWT sets priorities for projects Funding/Financing · Funded by GNWT · Community Government secures funding through borrowing, financing, leveraging of funds. · MACA supplies some funds through block capital funding Project Management · GNWT hires consultant · Community hires consultant (inc. planning, · GNWT approves design, · Community approves design design, tendering, community has some · Community manages construction, input warranty) · GNWT manages · Community manages with support of MACA/PW&S 5.4 DISCUSSION REFLECTIVE QUESTIONS 1. How can Community Governments gain the capacity to effectively manage capital projects? 2. Will having communities assume more responsibility for capital projects mean less or more capital projects being planned and completed? 3. Will the community government staff workload increase when the community government assumes full responsibility for community infrastructure planning? Chapter Five – Community Capital Authority Arrangements 45
  46. 46. 5.5 RESOURCES  New Deal for Community Governments  Municipal and Community Affairs  Government of the North West Territories Chapter Five – Community Capital Authority Arrangements 46
  47. 47. 6 Phase 2 Planning ~ Quality should be designed into the product and not inspected into it. – Dr. Genichi Taguchi. Chapter Six – Phase 2: Planning 47
  48. 48. Figure 6.13 6.1 INTRODUCTION Planning is important in Community Governments. CG’s do various kinds of planning. They make business plans to ensure they provide the best services they can to residents. They schedule their annual activities and then prepare their annual budgets. They make plans for community growth, site and building development in their community plan that is revised every five years. Planning improves the  Efficiency and effectiveness of the organization  Quality of decisions made  Ability of groups to work as a team Chapter Six – Phase 2: Planning 48
  49. 49.  Ownership employees feel about their work and community residents feel about community activities and projects, especially when they are involved in the planning. The CG’s business plan, budget and community plan include projects. Each of these projects requires planning. Planning saves time, effort and money and is the most important part of a project. It lets the CG make mistakes on paper. In this chapter we will discuss project planning in CG. Goals and Objectives In this chapter you will learn about  The challenges of planning  The function of planning  Specifications 6.2 PLANNING IS NOT FOR THE FAINT-HEARTED It’s all very well to say that planning includes preparing specifications, a budget and a schedule. However the nature of people is to want more so it’s not surprising that governments of all kinds can never satisfy people. We all have to juggle quality, cost and schedule. People want all the bells and whistles, the budget is never enough and desired completion is next week. Priorities must be decided and tradeoffs made. However, the better the plan, the closer you can come to pleasing people. You can be more efficient in ordering materials, arranging equipment and getting people working on the project. This is equally important whether your complete the project in-house or contract out the work. The contractor will face similar issues and problems as you face when you complete a project. Chapter Six – Phase 2: Planning 49
  50. 50. Figure 6.14 6.3 CONFLICTS AREN’T NECESSARILY BAD Underneath a conflict situation might be a discussion of a better way to do things. Once the work has started a conflict can slow it down, increase the budget and make the project manager look bad. That’s not good but it may be worthwhile because it may contribute to improving the final product. Even better is to sort out the problem and make a change in the defining or planning phase, when you are just dealing with words and numbers rather than later when it can mean costly change orders to cover the cost of replacement materials and additional labour. 6.4 SPECIFICATIONS Specifications are a list of requirements for a project. Specifications identify the quality, the type and grade of materials used and the method of workmanship. 6.4.1 PURCHASING GOODS In a contract to purchase a product the specifications are a description of the item to be purchased. For instance: 40 boxes (10 packages to a box) of white 8 ½ x 11” paper, standard grade, Delivered by truck. Chapter Six – Phase 2: Planning 50
  51. 51. 6.4.2 PURCHASING SERVICES When you write a contract for the provision of a service, the specifications are a description of the service to be provided. For instance: Janitorial Services This school is attended by children from Kindergarten to Grade 10 and consists of 20,000 square feet. Specifications 1. The Contractor will supply all equipment necessary including all supplies including garbage bags, germicides, disinfectants, detergents and other cleaning supplies as necessary; and washroom supplies including washroom soap, two-ply toilet paper, high quality paper towels and any other supplies not mentioned here but assumed to be necessary in providing a clean and sanitary school. 2. Janitor Supervisor The Contractor must identify a janitor supervisor in each school and the contractor must supply a list of employees who will be performing the work to the Board Superintendent and must assure that only these employees are granted access to the schools. This listing of employees shall be provided monthly. 3. Insurance Provide the Board with evidence of compliance with the following: a) Workers' Compensation Coverage b) Northwest Territories Business license c) Liability Insurance in the amount of one million dollars ($1,000,000) d) Proof of bonding of all employees that will be working in the school. 4. Security All safety measures respecting personnel and fire hazards recommended by National and Territorial codes. 5. Special Equipment Word processing equipment and computers and terminals and telephone answering/message devices will have only the floor, chair and desk cleaned. The glass viewing screen and the equipment itself will be cleaned by the operators and is not included in this contract. These machines may be left on to process work automatically, in which case NO cleaning is to be carried out in the surrounding floor or furniture at the machine to avoid possible static discharge. Power plugs at these machines must NOT be unplugged regardless of whether the machine has been left "on" or "off". Adequate power outlets are located nearby for vacuum cleaners or other similar use. Chapter Six – Phase 2: Planning 51
  52. 52. 6.5 PURCHASING CONSTRUCTION Construction projects can be very complicate and preparing specifications for large and complicated projects requires a team of people with great deal of knowledge and skill. Fortunately there are standardized, established methods of preparing these specifications. When an engineering and architecture firm plans a construction project, it must first complete the breakdown of the work that must be done and this is how the specifications are determined. The specifications follow a standard numbering system. The National Master Specifications (NMS) is a large text that gives every procedure, product or method a number. The numbers are grouped •Divisions • Sections o Procedure, product or method. Some of the divisions are listed in the following chart. National Master Specifications (NMS) Selected Divisions Division 00 – Procurement and Contracting Requirements Division 1 – General Requirement Division 2 – Existing Conditions Division 3 – Concrete Division 4 – Masonry Division 5 – Metals Division 6 – Wood and Plastics and Composites Division 7 – Thermal and Moisture Protection Division 8 – Openings Division 9 - Finishes Division 10 – Specialties Division 11 – Equipment Division 12 – Furnishings Division 13 – Special Construction Division 14 – Conveying Systems Division 21, 22, 23, 25 – Mechanical Division 26 – Electrical Division 31 – Earthwork Division 32 – Exterior Improvements Chapter Six – Phase 2: Planning 52
  53. 53. When the Owner or Consultants prepares the estimate for the work to be tendered the consistent numbering helps simplify the process. The General Contractors who bid are familiar with the system as are the sub-trades who will submit estimates to the General Contractor. Using the NMS system helps to clarify what items each trade will be responsible for and this helps to eliminate gaps or overlaps in the cost estimates and in the division of work between the sub-contractors and contractor. 6.6 DISCUSSION AND REFLECTIVE QUESTIONS 1. Review specifications for a current government tender call or call for proposal. List all the steps required to respond to the call. 2. What project do you have in mind to complete? Brainstorm. List all the necessary steps to complete the project. Arrange them in the order that they will need to be done. 6.7 REVIEW AND RESEARCH QUESTIONS 1. Refer to Crisp Publication, Project Management. Pages 25-27. 6.8 RESOURCES An example of Specifications and Drawings from a Call for Proposals and/or Tender. Chapter Six – Phase 2: Planning 53
  54. 54. 7 Planning – Estimating ~As the owner of a completed construction project, you are concerned with the project from “cradle to grave.” The total "life cycle" costs and benefits are important to you right from the costs of initial planning through to its use and even to its final demolition. Construction costs represent only one portion of the overall life cycle costs. Christ Hendrickson (summary) 7.1 INTRODUCTION The word, estimating, in general conversation means guessing the measure of something, but in the business of preparing tender documents and submitting bids estimating is just the opposite. It is a careful, precise method whereby an organization figures out what the budget will be for a project. It is also the method a general contractor uses to come up with its bid on a tender. The contractor figures out the price that will provide an opportunity to win the contract and make a profit. Figure 7.1
  55. 55. 7.2 GOALS AND OBJECTIVES In this chapter you will learn  Why estimating is necessary  Estimating methods 7.3 WHAT IS ESTIMATING? After a Community Government, or its consultant, has drafted project specifications, estimates of all costs associated with the project are prepared. If the total of estimated costs is over budget, then the specifications must be reviewed and either quality factors changed or more money found. Estimating is the process of carefully figuring out project costs. The goal of estimating is to be as realistic as possible and include all the necessary costs. It includes determining what is necessary to complete the work and costing this out. It can include:  Labour  Materials such as cement and wood  Supplies such as fuel  Rental equipment such as a back-hoe  Freight The bid that a contracting company submits on a tender or call for proposal, is based on its estimate. Sub-contractors prepare prices in this way as well. 7.4 CONSIDERING CRADLE TO GRAVE COSTS As you know, Community Government’s are responsible for the cost of the maintenance of their facilities. Thus the forecasted operation and maintenance costs are very important when considering how a facility is designed. You are in a good position to review the design of the project to ensure ongoing maintenance costs are considered when specifications are developed. Sometimes cost-saving measures in construction will lead to very expensive maintenance cost over the lifetime of the building.
  56. 56. The capital cost for a construction project includes the following expenses:  Land  Permitting  Planning and feasibility studies  Architectural and engineering design  Construction, including materials, equipment and labour  Field supervision of construction  Construction financing  Insurance and taxes during construction  Owner's general office overhead  Equipment and furnishings not included in construction  Inspection and testing  Disposal of scrap materials from construction project. The operation and maintenance cost in subsequent years over the project life cycle includes the following expenses:  Community Works staff hours  Labour and material for maintenance and repairs  Periodic renovations  Insurance and taxes  Financing costs  Utilities  Owner's other expenses Chapter Seven – Planning – Estimating 56
  57. 57. 7.5 WHY ESTIMATE? If you are completing a project in-house, you need to know how much it will cost. If it is a small project the money may come from within your operating budget. If it is larger, you may be required to identify the cost to include in the budget for the next year. The same applies for projects that the Community Government put out to tender or Call for Proposal. As well, in the case when you contract a project out, you will want to know what price you can anticipate. A price that is very high or very low is cause for careful review to ensure that the bidder is capable of performing fully the contract requirements. Although a tender is awarded to the lowest price, a Call for Proposal, is awarded based on how it measures up to the Scope of Work. When you receive a price that is much lower than the estimate, it must be reviewed carefully as it possible that the proponent has underestimated the work and will not complete it fully. 7.6 HOW IS ESTIMATING DONE? When a project is completed in-house you may be responsible for estimating its cost. In other projects the consultants, engineers and architects, will complete the cost estimates. In order to estimate construction costs you must review many areas to  Determine the user's requirements  Identify building code, fire code, electrical plumbing code and Workers Compensation Board (WCB) requirements/  Develop the concept which will meet the user's requirements, and all applicable Codes. You must  Use standard construction cost estimating procedures, define cost per unit extending to basic cost to construct (take-off sheets).  Review the completeness of the specifications and include a suitable contingency amount (varies from 5% to 25%)  Establish other costs associated with the project (project management fee, consultants, decorators, and so on)  Provide estimate reflecting total project cost and items not included in the project Chapter Seven – Planning – Estimating 57
  58. 58. 7.7 NORTHERN ESTIMATING: In the past, contractors and owners relied on historical information for construction material costs. Today, with variable prices, such as the increase in the price of steel, you need to check prices for every new project. There are catalogues of data available, such as Sweets’ Catalogue and Dodge Manual for Building Construction, published by McGraw-Hill but they become outdated as soon as they are published. This information is also based on Southern Canadian or American costs, and is often not applicable to the north. Labour costs and freight and delivery are also typically higher in the north than in the south. When you are estimating the price of materials you need to consider freight. When you order materials from the south, shipping costs must be added. Usually northern suppliers include shipping to the location of the supplier in the price. However, always confirm whether freight is included or not. If you are estimating projects you should keep a file of costs and expenses on each project. Of course, the prices will change but your files can be a starting point. Keeping a record of supplier names and address will also be helpful. (If you have not kept these addresses you should be able to get them from your Finance Officer.) 7.8 PREPARING THE ESTIMATE Whether you are the Contractor and you are preparing a tender or responding to a tender there is always a deadline that must be met. It’s important to  Treat developing the estimate as a project and make up a schedule for the completion of the tender estimate or submission  Complete the various parts of the estimate as soon as possible.  Keep careful records of your prices and calculations Figure 7.15 Chapter Seven – Planning – Estimating 58
  59. 59. 7.9 THE GENERAL CONTRACTOR’S RESPONSE As mentioned earlier construction tenders, follow the order of The National Master Specifications numbering system. The General Contractor will collect quotations and bids from materials, supplies and equipment suppliers and from sub-contractors. The sub-trades prepare estimates which they give the General Contractor or in the case of a bid depository system the sub trades provide sealed bids to a central location advising what contractor(s) they are willing to work for and contractors pick up these bids. As well, the General Contractor will complete its own estimates. Some of these estimates will be for comparison to what the sub contractors submit and others will be for parts of the contract for which it is completing the work. For the contractor preparing a bid, it is important to allow time in the tender preparation schedule for final adjustments. The General Contractor must be very organized to estimate the project and  Reviews documents before the decision is made to bid. The first decision is whether to bid on the tender and if it is decided to go ahead more detailed review will be necessary. When preparing bids contractors use the Construction Documents - the working drawings and job specifications - to determine what must be estimated. Plans normally show the scope of work but the specifications tell how the work is to be done. For example, the plans may call for “paint”. The specifications may call for “one coat of primer, one coat of finish paint”.  Makes a site visit early in the process, preferably prior to estimating on excavation costs to get a picture of the project and what it will require.  Maintains a complete copy of the tender package adding in any addenda as soon as received  Complete and enter sub-bids and sub-trade sheets the day before the tender closes. Figure 7.16 Chapter Seven – Planning – Estimating 59
  60. 60. 7.10 ESTIMATING - SMALLER PROJECT If you are planning a relatively straight-forward project like painting some houses you could use the following forms, either by hand or using spread-sheet software, to calculate your needs. 7.10.1 PRICING OF MATERIALS Material Quantity Cost per Sub Total Discount Total 7.10.2 COST OF LABOUR Rate UIC CPP Sub Vacation Name Per Hours Employers Employers Other Total Total Pay Hour Share Share Grand Total Chapter Seven – Planning – Estimating 60
  61. 61. 7.11 OVERHEAD, CONTINGENCIES AND PROFIT 7.11.1 OVERHEAD Overhead is costs needed to support and administer the project but which are not used directly in its production. When you complete a project there are always expenses over and above those directly related to the project itself. For instance, when a Community Government is tendering for a new garage to be built, there will be additional work and material costs such as  Arranging advertising for the tender  Accounting for the funding as it is received and expended  Costs for newspaper advertisements, paper, courier and photocopying  Costs for legal or survey costs. 7.11.2 CONTINGENCIES In most construction budgets, there is an allowance for contingencies or unexpected costs occurring during construction. This contingency amount may be included within each cost item or be included in a single category of construction contingency. The amount of contingency is based on historical experience and the expected difficulty of a particular construction project. Contingent amounts not spent for construction can be released near the end of construction. 7.11.3 PROFIT In order for a corporation such as a construction company to survive, the company must make something more than covering its costs. Profit is the sum left after all expenses are paid. In order to keep in business, a construction firm must not only budget for a profit, but make one. It isn’t normal for Community Governments to budget to make a profit but if they are bidding on completion of tendered work they must ensure all their administrative work, overhead, additional staff and overtime is covered. Chapter Seven – Planning – Estimating 61
  62. 62. 7.12 DISCUSSION AND REFLECTIVE QUESTIONS 1. What are the consequences of too high or too low a bid? 2. When the Community Government has tendered for a Traditional, Fixed Price Contract to complete a facility in the community, what is the CG’s role, if any, in estimating costs? 3. What reasons might lead the General Contractor to making final adjustments to a tender bid? 7.13 REVIEW AND RESEARCH QUESTIONS Exercises and Questions 1. Determine how much blue paint is required for two coats on the exterior of a 25 metre by 15 metre by 4 metre high shop that has a 3 metre by 3 metre overhead door? (ONE gallon COVERS 75 square meters). 2. Estimate the cost for materials required completing the painting project. 3. For this painting project, determine the cost of labour. Chapter Seven – Planning – Estimating 62
  63. 63. 7.14 RESOURCES National Master Specifications (NMS): www.raic.org/practice/specifications/index_e.htm Information on National Master Standards: http://www.pwgsc.gc.ca/nms/content/user_guide_sect1-e.html#1.5 For a simple calculator to determine the amount of paint you require go to http://www.behr.com and click “Expert Advice.” Chapter Seven – Planning – Estimating 63
  64. 64. 8 Planning - Scheduling ~There cannot be a crisis next week. My schedule is already full. Henry Kissinger. 8.1 INTRODUCTION Would that project scheduling be as simple as assigning work over the project time span? Alas, there are other matters to schedule of equal importance. You must have equipment available and on site at the precise time is required and you must have construction materials on site when they are needed. Northern scheduling is complicated by transportation methods. Ice roads, ferries, barges are all seasonal and their access is not entirely predictable. Still, you can’t blame all scheduling problems on the weather. Scheduling comes in many varieties, from the critical path method of scheduling which has been taught in universities for over two decades but is often thought of as impractical to "seat-of-the-pants" scheduling that can be good or can be very bad. Formal scheduling is needed whenever work tasks are complex and whenever workers with different trades or skills must be coordinated. Figure 8.1

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