ACH 216 Lecture 04c (Project Award)

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