ACH 216 Lecture 04c (Project Award)


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ACH 216 Lecture 04c (Project Award)

  1. 1. Estimating Bidding and Project Award Cost Estimating Construction Documents The Bid Package Types of Contracts
  2. 2. Project Award Letter of Intent The Good and the Bad of Contracts Project Delivery Methods Types of Contracts Contract Forms & Conditions
  3. 3. What is a contract?? <ul><li>A contract is a mutual agreement, which requires two or more parties and a matter or consideration to which the parties must agree upon. </li></ul>
  4. 4. Letter on Intent <ul><li>A letter sent to the winning contractor from the owner stating that the owner intends to award the contract to the contractor </li></ul><ul><ul><li>Formal start of contract negotiations </li></ul></ul><ul><ul><li>“ Interim Contract” is before contract is finalized, but allows construction to begin </li></ul></ul>
  5. 5. Letter on Intent <ul><li>Included items: </li></ul><ul><ul><li>Order to proceed with certain work; this sets limits on items which may be performed under letter of intent </li></ul></ul><ul><ul><li>Clear statement that no contract has been agreed to </li></ul></ul><ul><ul><li>Clear statement of how letter of intent may be terminated by either party </li></ul></ul><ul><ul><li>Clear statement of determining amount of money to be paid to contractor shall the relationship between contractor and owner be terminated </li></ul></ul><ul><ul><li>Requirement for using ADR processes for resolving disputes </li></ul></ul>
  6. 6. The GOOD and BAD of Contracts ADR for Dispute Resolution Specific Provisions & Statute Law Typewritten/Handwritten Corrections in Contracts Hold Harmless Clauses Review in your Lecture Notes
  7. 7. Requirements of a Good Contract <ul><li>Clear understanding of the contract by the parties </li></ul><ul><ul><li>Avoid “legalese”, most people can not understand it and people will interpret it in different ways </li></ul></ul><ul><ul><li>Legalese is difficult to apply to construction </li></ul></ul>
  8. 8. Requirements of a Good Contract <ul><li>Written contract with Alternative Dispute Resolution (ADR) processes </li></ul><ul><ul><li>Avoid written contracts that have litigation as a process of settlement if there are disputes </li></ul></ul><ul><ul><li>ADR is less expensive and quicker then the courts </li></ul></ul><ul><ul><li>ADR permits judgment by people who are experiences in construction </li></ul></ul>
  9. 9. Requirements of a Good Contract <ul><li>Avoid clauses which do not honestly and equally treat each party and their agents </li></ul><ul><li>Participants are licensed contractors </li></ul><ul><ul><li>Protects contractor form not being paid when an owner refuses to pay; licensed contractors have more rights than unlicensed contractors. </li></ul></ul><ul><ul><li>Protects owner since licensed contractor can be held responsible for construction while unlicensed contractor cannot. </li></ul></ul>
  10. 10. Ambiguous Contract Conditions <ul><li>Specific provisions of Contract, or statute law, will preside over general contract provisions </li></ul><ul><li>Typewritten or handwritten additions will prevail over pre-printed words on standard pre-printed contract forms </li></ul><ul><li>Party who wrote contract will be held liable for ambiguities </li></ul>
  11. 11. Ambiguous Contract Conditions <ul><li>Hold Harmless Clauses </li></ul><ul><ul><li>Clauses which exempts a party from responsibility caused by that party </li></ul></ul><ul><ul><li>Hold harmless clauses are usually not upheld. </li></ul></ul><ul><ul><li>Since intent is to limit financial liability, best solution is to have a clause which limits dollar value for claims </li></ul></ul><ul><li>One party cannot be held at mercy of another </li></ul>
  12. 12. Project Delivery Methods Design-Bid-Build Design/Build Fast Track Construction Project Management
  13. 13. Project Delivery Methods <ul><li>Owner’s approach to organizing the project team </li></ul><ul><ul><li>Manage the entire design and construction process </li></ul></ul><ul><ul><li>Owner’s desire to deliver the project ON TIME, WITHIN BUDGET and will meet the owner’s needs most effectively </li></ul></ul>
  14. 14. Project Delivery Methods DESIGN-BID-BUILD <ul><li>Owner hires A/E </li></ul><ul><ul><li>A/E prepares design and con. docs. </li></ul></ul><ul><ul><li>Paid a lump sum (hourly rate) or percentage of construction cost </li></ul></ul><ul><li>Project is solicited for competitive bid </li></ul><ul><ul><li>Owner looks for lowest reasonable price or </li></ul></ul><ul><ul><li>Owner negotiates with pre-selected contractor </li></ul></ul><ul><li>Project is AWARDED </li></ul>
  15. 15. Project Delivery Methods DESIGN-BID-BUILD <ul><li>Contractor is solely responsible for delivering the completed project </li></ul><ul><ul><li>Must comply with contract documents </li></ul></ul><ul><ul><li>GC may subcontract much of the work (TYPICAL) </li></ul></ul><ul><li>Owner has A/E administer the contract </li></ul><ul><ul><li>or can have in-house people administer contract </li></ul></ul><ul><li>Still the most popular method of delivery but not predominant method. </li></ul>
  16. 16. Project Delivery Methods DESIGN-BID-BUILD $ Bid Price $ Owner Architect Contractor $ Design Fee $ Contract Documents Engineers/ Consultants Informal relationship Subcontractors/ Suppliers
  17. 17. Project Delivery Methods DESIGN-BID-BUILD <ul><li>ADVANTAGES </li></ul><ul><ul><li>Well-defined relationship </li></ul></ul><ul><ul><li>Procedures and contractual rules have been worked out; well understood </li></ul></ul><ul><ul><li>Reduces risk, no uncertainty </li></ul></ul><ul><ul><li>Considerable contractual protection for owner </li></ul></ul><ul><ul><li>Owner benefits from open market competition </li></ul></ul><ul><ul><li>Owner not heavily involved in construction process </li></ul></ul><ul><li>DISADVANTAGES </li></ul><ul><ul><li>Contractor does not start construction process until design is complete </li></ul></ul><ul><ul><ul><li>Design features that could be built more economically often result in higher costs </li></ul></ul></ul><ul><ul><li>Timeline is linear & sequential; no way to overlap tasks </li></ul></ul><ul><ul><ul><li>May raise interest expenses and be subject to inflation </li></ul></ul></ul><ul><ul><li>All parties are self-governed </li></ul></ul><ul><ul><ul><li>Provides little opportunity for interaction and team building </li></ul></ul></ul>
  18. 18. Project Delivery Methods DESIGN/BUILD <ul><li>Single point of contact for Owner through entire project (design to construction) </li></ul><ul><li>Firm hired will complete both design and construction </li></ul><ul><ul><li>Design/Build Firms with in-house design and construction services </li></ul></ul><ul><ul><li>Joint venture Firms that contractually come together </li></ul></ul><ul><ul><li>Both entities can hire subcontractors to complete the work </li></ul></ul><ul><li>Used extensively in Industrial construction </li></ul>
  19. 19. Project Delivery Methods DESIGN/BUILD Project team is established at start of design Contract Award Completed Project Owner Design/Build Firm Engineers/ Consultants Subcontractors/ Suppliers
  20. 20. Project Delivery Methods DESIGN/BUILD <ul><li>ADVANTAGES </li></ul><ul><ul><li>Good communication between design team and construction team </li></ul></ul><ul><ul><ul><li>Tasks can overlap; project can be fast-tracked </li></ul></ul></ul><ul><ul><ul><li>Construction input early in design phase </li></ul></ul></ul><ul><ul><ul><ul><li>Constructability analyses </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Value engineering </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Subcontractor pricing </li></ul></ul></ul></ul><ul><ul><li>Easy incorporation of changes </li></ul></ul><ul><ul><li>Owner involvement minimal in day-today communication between A/E and contractor </li></ul></ul><ul><li>DISADVANTAGES </li></ul><ul><ul><li>Owner can not obtain “real” pricing; design and construction costs can not be determined until later </li></ul></ul><ul><ul><ul><li>Firming up costs too soon puts constraints on scope of work; could effect quality to protect profit </li></ul></ul></ul><ul><ul><li>D/B works very fast, Owner needs to stay involved </li></ul></ul><ul><ul><ul><li>Owner could make decisions without fully understanding the issues </li></ul></ul></ul><ul><ul><li>No checks and balances </li></ul></ul>
  21. 21. Project Delivery Methods FAST TRACK <ul><li>Process of administering multiple construction contracts for the same project </li></ul><ul><li>Construction phases are staggered </li></ul><ul><ul><li>Portions of work are started as soon as design is completed </li></ul></ul><ul><ul><li>Shortens construction timeline considerably </li></ul></ul><ul><li>Construction cost management is RISKY </li></ul><ul><ul><li>If project runs late, project will incur huge cost overruns </li></ul></ul>
  22. 22. Project Delivery Methods FAST TRACK Design Fast-tracked Phased Construction Project Complete Project Complete Contract Package 1 2 3 4 -Bid -Build Design Procurement Construction Design Procurement Construction Design Procurement Construction Design Procurement Construction Design Procurement Construction Time Saved
  23. 23. Project Delivery Methods CONSTRUCTION PROJECT MANAGEMENT <ul><li>Owner hires design firm and construction firm early in the preconstruction phase </li></ul><ul><li>This method has a number of variations </li></ul><ul><ul><li>Program management </li></ul></ul><ul><ul><li>Professional management </li></ul></ul><ul><ul><li>Construction management </li></ul></ul><ul><ul><li>Professional Construction Management </li></ul></ul><ul><li>Differences among these arrangements reflect: </li></ul><ul><ul><li>the expertise of the management team </li></ul></ul><ul><ul><li>when the team is hired </li></ul></ul><ul><ul><li>particular needs of the owner </li></ul></ul>
  24. 24. Project Delivery Methods CONSTRUCTION PROJECT MANAGEMENT <ul><li>ADVANTAGES </li></ul><ul><ul><li>Good communication between owner, design team and constructor </li></ul></ul><ul><ul><ul><li>Encourages collaboration and allows construction people to critique and influence the design before it’s bid </li></ul></ul></ul><ul><ul><li>Allows for good value-engineering </li></ul></ul><ul><ul><li>Allows for fast-tracking </li></ul></ul><ul><ul><li>Owners receives cost benefit of competitive bid from subcontractors </li></ul></ul><ul><ul><li>Changes are worked out more easily </li></ul></ul><ul><li>DISADVANTAGES </li></ul><ul><ul><li>Everyone has to remain amicable throughout project </li></ul></ul><ul><ul><li>Owner has to be involved; requires a knowledgeable owner </li></ul></ul><ul><ul><li>Fast-tracking is usually required, but can be risky if the firm does not have the organizational sophistication to handle it. </li></ul></ul>
  25. 25. Project Delivery Methods This model is CM-At Risk $ Bid Price $ Completed Project Contract Award Contractor Fee Owner Architect Contractor $ Design Fee $ Contract Docs Engineers/ Consultants Subcontractors/ Suppliers Contracting Services
  26. 26. Project Delivery Methods Project team is established at start of design This model is CM-Advisor $ Design Fee $ Contract Award Completed Project Owner Architect Contract Documents Engineers/ Consultants Subcontractors/ Suppliers Management Services
  27. 27. Types of Contracts <ul><ul><ul><ul><li>Lump Sum </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cost-Plus-Fee </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Guaranteed Maximum Price (GMP) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unit Price </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Turnkey </li></ul></ul></ul></ul>
  28. 28. Types of Contracts LUMP SUM <ul><li>Contractor agrees to complete Work for one fixed price </li></ul><ul><ul><li>Contractor enters a bid that would encompass: </li></ul></ul><ul><ul><ul><li>All material and labor required to complete the WORK </li></ul></ul></ul><ul><ul><ul><li>Sales tax </li></ul></ul></ul><ul><ul><ul><li>Overhead and profit </li></ul></ul></ul><ul><li>Most used type of contract-work with Traditional Delivery </li></ul><ul><li>ADVANTAGE: Owner knows costs upfront, no hidden issues later on </li></ul><ul><li>DISADVANTAGE: The contract is only as good as the contract documents. Could result in change orders </li></ul>
  29. 29. Types of Contracts COST-PLUS-FEE <ul><li>AKA “time and material” contract </li></ul><ul><li>Owner agrees to pay contractor actual cost to complete work PLUS an agreed-upon fee </li></ul><ul><ul><li>Usually percentage of costs (10-15%) </li></ul></ul><ul><li>Owner needs to be very specific with scope of work </li></ul><ul><ul><li>What will be reimbursed and what is covered by the fee </li></ul></ul><ul><li>ADVANTAGE: Works when scope of work is complex or project is fast-track </li></ul><ul><li>DISADVANTAGE: Owner gets “selective memory” when it comes to reimbursing certain items </li></ul><ul><ul><li>MUST DOCUMENT EVERYTHING </li></ul></ul>
  30. 30. Types of Contracts GAURANTEED MAXIMUM PRICE (GMP) <ul><li>Same as Cost + Fee, but with a cap </li></ul><ul><ul><li>Contractor agrees not to exceed targeted costs </li></ul></ul><ul><ul><li>Any overrun of costs is absorbed by contractor </li></ul></ul><ul><li>Incentives are placed in contract stating that if costs come in below GMP, then Contractor and Owner split savings. </li></ul><ul><li>ADVANTAGE: Gives owner assurance that construction costs will not skyrocket </li></ul><ul><li>DISADVANTAGE: Contractor must keep careful watch on costs and Owner may have to sacrifice quality over money. </li></ul>
  31. 31. Types of Contracts UNIT PRICE <ul><li>Owner and Contractor agree on price to be charged per unit for major elements </li></ul><ul><ul><li>Owner or A/E provide estimated quantities for project </li></ul></ul><ul><ul><li>Overhead, profit, labor and material are all included in unit price </li></ul></ul><ul><li>Contractor is paid based on number of units actually installed </li></ul><ul><ul><li>Owner must pay contractor on those units regardless of it is more or less then estimate </li></ul></ul><ul><li>ADVANTAGE: Provides owner with a competitive bid situation that allows for fair price to complete work; eliminates changes </li></ul><ul><li>DISADVANTAGE: Owner is placing huge faith in the A/E for correct estimated quantities </li></ul>
  32. 32. Types of Contracts TURNKEY <ul><li>Same as lump-sum contract, but contractor does not get paid until construction is totally complete </li></ul><ul><ul><li>When the “keys are turned over” </li></ul></ul><ul><ul><li>No monthly requisitions are submitted to Owner, Contractor gets paid at the end </li></ul></ul><ul><li>ADVANTAGE: Owner is not bothered with monthly payouts and A/E does not have to certify payment </li></ul><ul><li>DISADVANTAGE: Contractor is required to finance entire project until it is completed. </li></ul>
  33. 33. Types of Contracts OTHER VARIATIONS <ul><li>JOINT VENTURE: two construction companies come together to complete the Work </li></ul><ul><ul><li>Used in construction where minority participation is required </li></ul></ul><ul><ul><li>Also, where companies want to broaden their market share into other markets </li></ul></ul><ul><li>BOT (Build-Operate-Transfer): one entity is responsible for construction and operation of facility for several years before transfer of ownership </li></ul><ul><ul><li>Project must be revenue generating after completion of construction </li></ul></ul><ul><ul><li>Typical projects include toll roads, bridges and tunnels </li></ul></ul>
  34. 34. Types of Contracts OTHER VARIATIONS <ul><li>COST/TIME INCENTIVE: form of bonus or penalty incentives are applied to keep costs and schedule within project scope </li></ul><ul><ul><li>Early completion bonus or penalty for late completion </li></ul></ul><ul><ul><li>Payment bonus when project comes in under target price. </li></ul></ul><ul><ul><li>Commonly used in cost+fee contracts. </li></ul></ul>
  35. 35. Contract Forms and Conditions <ul><li>AIA Documents </li></ul><ul><ul><li>A101 Standard Form of Agreement Between Owner and Contractor-Lump Sum </li></ul></ul><ul><ul><li>A111 Standard Form of Agreement Between Owner and Contractor-Cost-Plus-Fee (w/ GMP) </li></ul></ul><ul><ul><li>A131 Standard Form of Agreement Between Owner and Contractor-Cost-Plus-Fee (no GMP) </li></ul></ul><ul><ul><li>A401- Standard Form of Agreement Between Contractor and Subcontractor </li></ul></ul>
  36. 36. Contract Forms and Conditions <ul><li>AIA Documents </li></ul><ul><ul><li>A201 General Conditions of the Contract for Construction </li></ul></ul><ul><ul><li>A310 Bid Bond </li></ul></ul><ul><ul><li>A312 Performance and Payment Bond </li></ul></ul><ul><ul><li>A511 Guide to Supplementary Conditions </li></ul></ul>
  37. 37. Contract Forms and Conditions <ul><li>EJCDC (Engineers Joint Contract Documents Committee) </li></ul><ul><ul><ul><li>NSPE (National Society of Professional Engineers) </li></ul></ul></ul><ul><ul><li>Suggested Form of Agreement Between Owner and Contractor; Stipulated Price (C-520) </li></ul></ul><ul><ul><li>Suggested Form of Agreement between Owner & Contractor for Construction Contract; Stipulated Price (Funding Agency Edition) (C-521) </li></ul></ul><ul><ul><li>Suggested Form of Agreement Between Owner and Contractor; Cost-Plus (C-525) </li></ul></ul>
  38. 38. Contract Forms & Conditions Breech of Contract Concealed Conditions Alternations/Changes and Additions/Deductions Change Orders and Construction Change Directives Liquidated Damages Review in your Lecture Notes
  39. 39. Contract Forms and Conditions <ul><li>Breech of Contract: </li></ul><ul><ul><li>When one party does not act as required by the agreement in the contract </li></ul></ul><ul><li>Owners are usually not Liable for Damages caused by Construction, unless: </li></ul><ul><ul><li>Owner interfered with construction execution </li></ul></ul><ul><ul><li>Owner knew resulting work was improper </li></ul></ul><ul><ul><li>Improper Work caused injury or damage </li></ul></ul>
  40. 40. Contract Forms and Conditions <ul><li>Concealed Conditions: </li></ul><ul><ul><li>When existing condition is covered and must be uncovered to perform construction </li></ul></ul><ul><ul><li>Usually occurs during excavation, demolition and renovation work </li></ul></ul><ul><ul><li>Contractor’s responsibility to perform “reasonable” levels of investigation to determine existing conditions, but they cannot be exhaustive </li></ul></ul><ul><ul><li>Creates a higher level of construction costs because of higher risks </li></ul></ul><ul><ul><li>Owners should be aware of and understand that certain types of construction activities may result in additional costs caused by concealed conditions </li></ul></ul>
  41. 41. Contract Forms and Conditions <ul><li>Alterations/Changes and Additions/Deductions </li></ul><ul><ul><li>After the contract is signed, its terms and requirements can and may need to be altered. Alteration (“change”) is accomplished by a Contract Modification , which can be executed by: </li></ul></ul><ul><ul><ul><li>CHANGE ORDER </li></ul></ul></ul><ul><ul><ul><li>CONSTRUCTION CHANGE DIRECTIVE </li></ul></ul></ul>
  42. 42. Contract Forms and Conditions <ul><li>Contract Modifications have TWO CAUSES: </li></ul><ul><ul><li>Additional work </li></ul></ul><ul><ul><ul><li>Work added to contract by change in design program </li></ul></ul></ul><ul><ul><ul><li>Often a design afterthought or design change by owner </li></ul></ul></ul><ul><ul><li>Extra Work </li></ul></ul><ul><ul><ul><li>Work not included in contract, which must be added to contract to complete work. </li></ul></ul></ul>
  43. 43. Contract Forms and Conditions <ul><li>CHANGE ORDER </li></ul><ul><ul><li>An agreement through which the parties to a construction contract change the contract scope of work in some manner. </li></ul></ul><ul><ul><li>May entail a change in: </li></ul></ul><ul><ul><ul><li>Materials </li></ul></ul></ul><ul><ul><ul><li>Project Design </li></ul></ul></ul><ul><ul><ul><li>Construction method </li></ul></ul></ul><ul><ul><ul><li>Project schedule </li></ul></ul></ul><ul><ul><ul><li>Other deviations from contract terms & specifications </li></ul></ul></ul>
  44. 44. Contract Forms and Conditions <ul><li>CHANGE ORDER </li></ul><ul><ul><li>Must be agreed upon and signed by owner, contractor and architect </li></ul></ul><ul><ul><li>Requires adjustment of: </li></ul></ul><ul><ul><ul><li>Contract sum </li></ul></ul></ul><ul><ul><ul><li>Contract time </li></ul></ul></ul>
  45. 45. Contract Forms and Conditions <ul><li>CONSTRUCTION CHANGE DIRECTIVE </li></ul><ul><ul><li>An order given by the owner or architect demanding that certain changes are implemented during the construction process when complete agreement on change to contract sum and/or time as cannot be totally determined. </li></ul></ul><ul><ul><li>Owner takes position that the change may or may not impose any additional costs on the contractor performing the work. </li></ul></ul>
  46. 46. Contract Forms and Conditions <ul><li>CONSTRUCTION CHANGE DIRECTIVE </li></ul><ul><ul><li>Must be signed by owner and architect, does not require contractor to sign </li></ul></ul><ul><ul><li>Paperwork to justify and permit change to contract sum and/or time to be performed at a later date </li></ul></ul><ul><ul><li>Must eventually be converted into a change order </li></ul></ul>
  47. 47. Contract Forms and Conditions <ul><li>Liquidated Damages </li></ul><ul><ul><li>Stated amount of money paid to owner by contractor for failure to complete project by stated completion date </li></ul></ul><ul><ul><li>Amount must be stated in Contract </li></ul></ul><ul><ul><li>Liquidated damage must be less than actual damage </li></ul></ul><ul><ul><ul><li>If liquidated damage is close to or equal to actual damage, it is considered a penalty </li></ul></ul></ul><ul><ul><ul><li>When a penalty is stated in a contract, a bonus for early completion is usually stated in contract </li></ul></ul></ul>
  48. 48. Contract Forms and Conditions <ul><li>Liquidated Damages </li></ul><ul><ul><li>Contractor guidelines to liquidated damages: </li></ul></ul><ul><ul><ul><li>GC is safer when contract states a deadline with liquidated damages </li></ul></ul></ul><ul><ul><ul><ul><li>Clause eliminates possibility of being sued for losses caused by late completion </li></ul></ul></ul></ul><ul><ul><ul><li>Time is critical when a liquidated damage or penalty-bonus clause is in effect: </li></ul></ul></ul><ul><ul><ul><ul><li>Owner and Architect must ensure they are not source of delay claim </li></ul></ul></ul></ul><ul><ul><ul><ul><li>If they are source of delay, clause is not enforceable </li></ul></ul></ul></ul>
  49. 49. Contract Forms and Conditions <ul><li>Liquidated Damages </li></ul><ul><ul><li>Contractor guidelines to liquidated damages: </li></ul></ul><ul><ul><ul><li>Time is critical when a liquidated damage or penalty-bonus clause is in effect: </li></ul></ul></ul><ul><ul><ul><ul><li>Requires contractor to be very careful in making claims for delays and documents every potential cause for delay </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Contractor must ensure that causes for delay are not their responsibility </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Contractor must promptly report causes for delay to owner </li></ul></ul></ul></ul><ul><ul><ul><ul><li>If GC waits, their right to claim delay may be forfeited </li></ul></ul></ul></ul>
  50. 50. NEXT CLASS Insurance and Bonds Pre-Construction Planning