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ACH 216 Lecture 04c (Project Award)
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ACH 216 Lecture 04c (Project Award)

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    ACH 216 Lecture 04c (Project Award) ACH 216 Lecture 04c (Project Award) Presentation Transcript

    • Estimating Bidding and Project Award Cost Estimating Construction Documents The Bid Package Types of Contracts
    • Project Award Letter of Intent The Good and the Bad of Contracts Project Delivery Methods Types of Contracts Contract Forms & Conditions
    • 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.
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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.
    • 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
    • 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
    • Project Delivery Methods Design-Bid-Build Design/Build Fast Track Construction Project Management
    • 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
    • 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
    • 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.
    • Project Delivery Methods DESIGN-BID-BUILD $ Bid Price $ Owner Architect Contractor $ Design Fee $ Contract Documents Engineers/ Consultants Informal relationship Subcontractors/ Suppliers
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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.
    • 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
    • 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
    • Types of Contracts
            • Lump Sum
            • Cost-Plus-Fee
            • Guaranteed Maximum Price (GMP)
            • Unit Price
            • Turnkey
    • 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
    • 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
    • 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.
    • 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
    • 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.
    • 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
    • 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.
    • 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
    • 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
    • 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)
    • 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
    • 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
    • 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
    • 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
    • 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.
    • 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
    • Contract Forms and Conditions
      • CHANGE ORDER
        • Must be agreed upon and signed by owner, contractor and architect
        • Requires adjustment of:
          • Contract sum
          • Contract time
    • 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.
    • 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
    • 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
    • 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
    • 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
    • NEXT CLASS Insurance and Bonds Pre-Construction Planning