Professional Practices          Chapter 2Contracts, Bonds, and Insurance
Contract System               Single contract                     Owner contracts with prime contractor                 ...
Contract System               Separate contracts                     Owner contracts separately for:                    ...
Types of Agreements               Lump sum (stipulated sum, fixed price)                     Fixed price or set price th...
Types of Agreements               Unit-price agreement                     A price is given for each unit of work       ...
Types of Agreements   Cost-plus-fee         Paid for actual construction cost         Plus a fee:                Perce...
Types of Agreements   Cost-plus-fee         Paid for actual construction cost         Plus a fee:                Fixed...
Agreement Provisions               The exact type and form of agreement may vary certain                provisions are in...
Agreement Provisions               Contract sum               Progress payments                     Contractors must re...
Agreement Provisions               Schedule of values                     Contractor provides the architect/engineer wit...
Agreement Provisions               Acceptance and final payment                     It sets the time for final payment t...
Bonds               Surety                     Guarantees payment on another party’s                      obligations   ...
Bonds               Bid                     Submitted with bid                     Guarantees the employer that the    ...
Bonds               Performance bonds                     Guarantees that the contractor will perform                   ...
Bonds               Labor and material bond (payment                bond)                     Guarantees contractor will...
Bonds     Subcontractor bonds            Performance, labor and materials bond             (payment bond) provided by su...
Bonds               License or permit bond                     State law or municipal ordinance requires a              ...
Insurance       Contractor must have insurance for protection of the        assets of their business.       There must n...
Insurance               Workers’ compensation insurance                     Provides benefits to workers or their       ...
Insurance               Workers’ compensation insurance                     Worker’s compensation benefits include:     ...
Insurance               Builder’s risk fire insurance                     Covers loss due to fire                     M...
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Professional practices (lec 02) by k.iqbal

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Professional practices (lec 02) by k.iqbal

  1. 1. Professional Practices Chapter 2Contracts, Bonds, and Insurance
  2. 2. Contract System  Single contract  Owner contracts with prime contractor  Prime contractor hires subcontractors and material suppliers  Subcontractors and suppliers are responsible towards the prime contractor  Prime contractor is responsible directly to the owner.Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 2
  3. 3. Contract System  Separate contracts  Owner contracts separately for:  General construction  Plumbing  Heating  Electrical  Sewage disposal  Specialties (Elevators, Lifts, Air conditioning)  Etc.Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 3
  4. 4. Types of Agreements  Lump sum (stipulated sum, fixed price)  Fixed price or set price through competitive bidding or negotiations.  May include change orders which entitles the contractor to additional monies for actual work and for overhead, as well as additional time.  Majority of the risk is placed upon the general contractor as they have to guarantee a price even though all the costs are estimatedAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 4
  5. 5. Types of Agreements  Unit-price agreement  A price is given for each unit of work  Lower bidder is determined based on the owner-provided quantities.  Paid based on actual quantity of work  Neither the owner nor the contractor will know the exact cost of the project until its completion.Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 5
  6. 6. Types of Agreements Cost-plus-fee  Paid for actual construction cost  Plus a fee:  Percentage fee  It allows the owner to save fees paid to the contractor when construction costs go down  Fixed fee  It removes the temptation for the contractor to increase construction costs to increase his fee  Fixed fee with a guaranteed maximum cost (g-max).  They share any savings.  Sliding scale fee  If the cost of the project increases, the percent fee of the contractor decreases.Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 6
  7. 7. Types of Agreements Cost-plus-fee  Paid for actual construction cost  Plus a fee:  Fixed fee with a bonus and penalty  A target cost estimate is set up; and if the cost is less than the target amount, the contractor receives a bonus in the form of a percentage of the savings. If the cost goes over the target figure, there is a penalty (reduction of percentage).Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 7
  8. 8. Agreement Provisions  The exact type and form of agreement may vary certain provisions are included in all of them. Contractor must check items before signing the agreement  Scope of work  Time of completion  Start time  Completion time  Calendar days  Date  Liquidated damagesAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 8
  9. 9. Agreement Provisions  Contract sum  Progress payments  Contractors must receive payments as work is completed. These payments are based on completed work and stored material  Retained percentage  It is customary for the owner to withhold a certain percentage of the payments, which is referred to as retainage. It is protection for the owner to ensure the completion of the contract and payment of the contractors financial obligationsAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 9
  10. 10. Agreement Provisions  Schedule of values  Contractor provides the architect/engineer with a statement called a schedule of values showing sales prices for specific items within the project  Contractor sometimes overvalue the initial items referred to as front-end loading  Work in place and stored materials  Work in place is usually calculated as the percentage of work that has been completed  Contractor may also receive payment for materials stored on site or some other mutually agreed upon locationAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 10
  11. 11. Agreement Provisions  Acceptance and final payment  It sets the time for final payment to the contractor  The contractor receives final payment when the final inspection, certification of completion, acceptance of work are completed, which is the amount of retainage withheld through out the constructionAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 11
  12. 12. Bonds  Surety  Guarantees payment on another party’s obligations  Bonding limits based upon  Financial reports  Experience  Work in progressAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 12
  13. 13. Bonds  Bid  Submitted with bid  Guarantees the employer that the contractor will enter into the contract and provide all other specified bonds.Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 13
  14. 14. Bonds  Performance bonds  Guarantees that the contractor will perform all the work in accordance with the contract documents  Includes warranty periodAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 14
  15. 15. Bonds  Labor and material bond (payment bond)  Guarantees contractor will pay for:  Labor  Materials  It acts as protection for the third parties and the ownerAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 15
  16. 16. Bonds  Subcontractor bonds  Performance, labor and materials bond (payment bond) provided by subcontractor to general contractor  Protect prime contractor against financial loss and litigation due to default by a subcontractor  Reduces general contractor’s risk  Preserves general contractor’s bonding capacityAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 16
  17. 17. Bonds  License or permit bond  State law or municipal ordinance requires a contractor’s license or permit.  Guarantees compliance with statutes and ordinancesAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 17
  18. 18. Insurance  Contractor must have insurance for protection of the assets of their business.  There must not be gaps in the insurance coverage that might cause the contractor serious financial loss.  Insurance is not same as bond. With an insurance policy, responsibility of loss is with the insurance company. In contrast, with a bond, the bonding companies will fulfill the obligations of the bond and then turn to the contractors to reimburse the money that they expended on their behalf.Asst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 18
  19. 19. Insurance  Workers’ compensation insurance  Provides benefits to workers or their families if they are injured or killed on the job  Rate charged for this insurance are based upon:  Location of work (state)  Type of work  Companys claim historyAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 19
  20. 20. Insurance  Workers’ compensation insurance  Worker’s compensation benefits include:  Lost wages  Economic loss  Medical expenses  Benefits to dependents if someone is killedAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 20
  21. 21. Insurance  Builder’s risk fire insurance  Covers loss due to fire  May be extended to:  Other weather related damage  Explosions  Riots and civil disorder  Vandalism and malicious mischief  TheftAsst. Prof. Khurram IqbalDepartment of Construction Engineering and Management, NIT SCEE, NUST 21
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