CONS6817_S04'16

Procurement (CONS6817) Lara Tookey
PROCUREMENT – SESSION #4
Evaluation of Management variations.
Contract Types

Procurement (CONS6817) Lara TookeyOur focus for the course

Management Orientated
Systems
Morledge & Smith 2013 describe them as a
separate classification but many consider
them as more complex variants of Separated
Systems

Service offered by Manager
• Based on a fee
• Coordination
• Planning
• Controlling
• Managing design
• Managing construction
• Ensures contractor part of client team from outset
• Maximum construction experience fed into design.

Used when…..
• Project is large & complex
• Fast-track procurement required
• Client wishes to select designer separately
• Often a result of a competition
• Work is not sufficiently designed prior to
construction
• Design and technology designed in tandem

Used when…..
• Project is organisationally complex
• Flexibility is required throughout
• Less adversarial approach is preferred
• Choice of competitive tendering for each element
is preferred
• Target price rather than fixed lump sum accepted.

Using Management
Orientated Systems to get
better integration between
design and construction

Integration of Design &
Construction
Objectives can include:
• Need for contractor input into design phase:
• Build efficiency
• Incorporation of proprietary systems of
contractor or subcontractor
• Construction programming requirements effect
design
• Fast tracking requirements
• Coordination of the design outputs with
overlapping construction programme

Management
Orientated
Procurement
Options
Construction
Management
Management
Contracting
Design &
Manage

Management contracting
• A management contractor undertakes to perform the
works through trade contractors who are
contractually accountable to the management
contractor.
• Does not undertake the work themselves
• Strictly MANAGEMENT
• However, the management contractor is not strictly
liable for the consequences of any default by trade
contractors – as long as the management contractor
has complied with its management obligation
(generally a skill and care obligation) under the
management contract.

The Process
• C employs A/E to produce outline design
• MC companies can bid for work
• Best “overall submission” should win
• Fee, management, programme, track record etc.
• Winning contractor joins team
• Advises designers in completion of design, organises construction
in parallel by employing “works package contractors”
• Contractor appointed at early stage and works for a fee
• Fee can be a %
• Can incorporate a GMP
• Fee can be a bid
• Client pays COST of packages + fee on monthly basis

• Probity issues can be covered
• Sub-contractors normally appointed by an ‘open
book’ bid process

Construction management
• Owners engage construction managers (CMs) to
assist in developing bid documents and overseeing
project construction.
• CM:
• Is a professional or a firm trained in the management of
construction processes.
• Is generally interposed between the owner and some or
all of the other participants.

There are two general types of
CM:
• Agency Construction Managers (ACM)
• Aka Construction Manager as Adviser (CMa)
• Construction managers-at-risk (CMr)
• Aka Construction Manager as Constructor (CMc)

Construction Manager as
Adviser
• CMa acts as an agent of the owner and extends the
owner’s internal capabilities in performing
traditional owner responsibilities.
• The level of service by the CMa can range from on-
call advice to full project management.

Adviser
• In some cases, the owner hires the CMa before
design begins and CMa may participate in the
selection of and contracting with the designer or
might even be the designer.

Adviser
• O retains A and CM who acts as an independent
adviser to the owner.
• Prime contractor(s) responsible for construction,
labour and materials.
• CM gives O construction management advice
through design and construction phase.
• Increases expertise in managing a project from start to
finish.

Construction Manager as Adviser
(CMa)
Contract Relationship
Owner
Consultant
Architect
Const. Manager
Adviser (CMa)
Consultant
Contractor Contractor
Sub-
contractor
Sub-
contractor
Multiple prime contractors

What is Multi-prime CM?
• Several specialty contractors are engaged to do
specific portions of the work
• Each contractor has a direct contract with the
owner
• Breakdown of work may be by phase, by trade, or
both
• Each prime contractor may also have
subcontractors
• Work is managed for the owner by a CMa firm

Constructor (CMc)/(CMr)
• Single party (Construction Manager) provides
construction management services in pre-
construction phase AND then completes
construction.
• Gives CM Constructor responsibility and control
over construction work via direct contracts with
sub-contractors.

Constructor (CMc) aka
Owner
Consultant
Architect
Const. Manager
Constructor (CMc)
Consultant
Sub-
contractor
Sub-
contractor
Construction Manager at Risk (CMr)

CM(r) typically contracts with
the owner in two stages.
• First, CMr manages and undertakes services during
conceptual & preliminary design phases with the
design professional.
• When design is complete, owner and CMr then
agree on a price and schedule for the completion of
the construction work.

Design & Manage
Similar to the previous, except the design consultant manages
the work package contractors.

CONTRACT TYPES
3910 - Conditions of contract for building and civil engineering
3916 - Conditions of contract for building and civil engineering – Design & Construct
3917 – Conditions of contract for building and civil engineering – Fixed Term

The Chosen procurement
arrangement dominates….
• How the project is performed
• Contractual duties of the parties concerned
• Terms and conditions of the contracts to be
executed

Construction contracts
• A construction contract is a mutually legally
binding agreement that gives rights and
places obligations on both parties
• obligates the seller to provide specified products
or services,
• and obligates the buyer to pay for them.

Client
• Rights:
• To receive the work specified at the time and for
the price specified.
• Obligations:
• To hand over the site
• To provide required information
• Not to impede the progress of the work
• To pay as agreed

Contractor
• Rights
• To be given possession of the site
• To control their operations as they see fit
• To receive necessary information in good time
• To be paid as agreed
• Obligations
• To carry out the work as specified
• To take instructions from the client’s
representative
• To deliver at the agreed time

PRICE MECHANISMS IN CONTRACTS

Price Based
Contracts
Lump sum contracts
(Re-) Measurement
contracts
Unit price
Cost Based
Contracts
Cost reimbursement
contracts
• Cost plus percentage fee
• Cost plus fixed fee
• Cost plus fluctuating fee
• Target cost
reimbursement
Guaranteed
Maximum Price

PRICE BASED CONTRACTS

Lump Sum
A price for the complete works by a given date
• Normally provides for progress payments
• May be adjustable for inflation
• Normally provides for client requested variations
• Can include provisional sums for work which has
not yet been specified in detail
• Normally provides for extensions of time for matters
outside of the control of the contractor strikes,
exceptionally inclement weather, discovery of heritage artefacts etc.
• Should provide for variations for client caused
delays and additional costs (otherwise contact is “at large”)

Lump Sum (cont’d)
• Can be used in any situation where the
extent of the work is known:
• Separated construction contracts, normally at
end of construction drawings phase
• Novated design & build at end of concept or
developed design phase
• Design & Build at end of concept drawing phase
(or later)
Contracts for Architectural or Engineering services

A lump sum can be agreed:
1. through a tender process or
2. by negotiation

Lump Sum
• They may also include incentives for meeting
or exceeding project objectives:
• Early opening
• Non- disruption of existing operations
• They may also include liquidated damages
provisions (not penalty clauses)
• Failure to complete on time

Contracting risks
• Quantity takeoff
• Work missed and not included in estimate
• Subsurface conditions missed or improperly
evaluated
• Subcontractors only quoted partial scope of
work

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.
• No total final price.
• Overhead, profit, labour & material are all
included in unit price.
• Contractor is paid based on number of units
actually installed.
• Re-negotiate for rates if the quantity or work
considerably exceeds the initial target.

Unit Price
• Prequalification important.
• Higher risk to owner.
• Ideal for work where quantities can not be
accurately established before construction
starts.
• Time and cost risk (shared)
• Owner: at risk for total quantities
• Contractor: at risk for fixed unit price.

Measure and Value
• Prices for units of quantity of work are agreed
before the contract is signed (by bidding or
negotiation).
• Examples: $200 per m3 of concrete
$23 per m of 100 x 50mm timber framing
$135 each per door.
• As the work proceeds it is measured and the
contractor is paid according to the amount of
work done.
• Common in civil engineering projects (roads,
dams etc) .
• Unusual in building projects

COST BASED CONTRACTS

Cost-Plus Contracts
• Labour
• Materials
• Subcontractors
• On-site overheads
• Off-site overheads
• Profit
Payment based on actual costs
Can be on lump sum or cost plus
contracts
Lump sum or actual cost
Fixed fee or %
Distinguishing between these
can be an issue

Cost-Plus Contracts
• Typically used where extent of work is not
known at the start
• Common in emergency situations

Cost plus contracts with incentives
• Target cost: - painshare and gainshare
provisions whereby savings below and costs
above the target costs are shared between
client and contractor
• Guaranteed Maximum Price(GMP): - savings
below GMP are shared. Contractor pays all
costs above GMP (often used with design & build and
novated design and build contracts)

Cost-Plus Contracts
• Aka “time and material” contract
• Owners agrees to pay contractor actual cost
to complete the Work PLUS and agreed-upon
fee
• Usually percentage of costs (10-15%)
• Owner beware…..
• What will be reimbursed and what is covered by
the fee.
• Used where scope of work is uncertain and
costs can easily become out of control.
• Often utilised in emergency situations.

Cost-Plus
• Do not generally include GC HQ costs.
• Must be clear on what costs should be
considered when computing additional fees.
• Ie contract modifications; change orders could
consume the budget!
• Contract between GC and Subbie to specify
which costs are reimbursable.
• All field and project costs including labour,
materials, equipment, overheads, insurance,
bond premiums.

Cost + Percentage of cost
(CPPC)
• Contractor is paid actual cost plus a % of the
total project costs.
• Fee = percentage of the total project cost
• Cost = $500 000;
• Fee = 2%
• Contract must clearly state what costs are
reimbursable.

Cost + Fixed Fee (CPFF)
• Client agrees to reimburse contractor’s
actual costs, regardless of the amount, and
to pay negotiated fee that is unrelated to the
total cost of the project.
• Fee = percentage of the original estimated
total figure.
• Utilized on large multi-year projects.
• Estimated cost = $ 20 million
• Fee = 1% therefore fee equals $200,000

Other variations
• Cost-Plus Fixed Fee with GMP
• Used when contractor is paid for the total
project cost plus a negotiated fee, but the total
does not exceed an agreed upon upper limit.
• Cost-Plus Fixed Fee with GMP and Bonus
• A bonus can be added to this compensation if
the project finishes below budget, ahead of
schedule etc.
• Cost-Plus Fixed Fee with agreement for
sharing any cost saving.

Guaranteed Maximum Price
(GMP)
• An amount established in an agreement for a
project where the exact costs are not known
at the time of agreement.
• Same as Cost + Fee, but with a cap
• Contractor agrees not to exceed targeted costs
• Incentives are places in contract stating that
if costs come in below GMP, then Contractor
and Owner split savings.
• Contractor absorbs cost if above GMP.

Cost + Fixed fee + profit
sharing clause
• Rewards contractors who minimise cost.
• Percentage of cost under GMP is considered
profit and shared with the contractor.
• Advantages:
• Provides incentives to the contractor to save money
• Disadvantages:
• Contractor must absorb any amount over the GMP.
• Detailed plans and specifications needed.

Negotiated Contracts
• Priced as lump sum or cost-plus based on
complexity of the work items.
• Work items straightforward – lump sum
contract.
• Uncertainty associated with work – cost-plus
contract.

CONS6817_S04'16

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