construction contracts and project delivery methods act 380 1
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Construction Contracts
and Project Delivery Methods
ACT 380
1
Objective
Exposure to the different types of construction contracts, the number of contracts, the method of contractor selection and the basis for contractor payment.
2
Contract Defined
An agreement between two or more parties representing a promise to be performed for consideration
3
Necessary Parts of a Typical Construction Contract
O Parties identifiedO Parties make promises that constitute
an offerO Both parties sign the contractO Both parties receive consideration:
O Contractor – payment for work doneO Owner – use of the completed project
O Parties of the contract must have the LEGAL AUTHORITY to negotiate a contract
4
Contractual Relationships
O Agreement between the OWNER and CONTRACTOR is the primary construction contract
O There are other contractual relationships which exist
5
Construction Agreement Forms
O Agreement – legal, binding, written document signed by owner & contractor
O Defines the relationships and obligations that exist
O By reference it incorporates ALL OTHER CONTRACT DOCUMENTS
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Standard FormsO AIA Document A101O EJCDC Document 1910-8-A-1
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Advantages to Using Standard Agreement Forms—Disadvantages
if Modified Forms UsedO Advantages
O Familiarity of the formsO Legal precedents interpreting the
documentsO Uniformity of terminology
O DisadvantagesO Modifications warrant care that all
references are coordinated (change in one part of the form may require changes in several locations)
O Seek legal counsel8
Conditions of the Contract
O Define basic rights, responsibilities, and relationships of the parties involved in the construction process in greater detail than the agreement
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Design & Construction Parties
O Owner – may be an individual or an organization; initiates the project and secures funding for the design, construction and operation of the completed project
O Contractor – agrees to build the project; may enter into sub-contracts
O A/E – develops project designs and prepare construction documents; consultants may include: structural, civil, mechanical, electrical, acoustical, & environmental engineers and landscape architects, interior designers, and hardware specialists
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Methods of Contractor Selection
O Competitive BiddingO Direct Selection
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Competitive BiddingO Objective is to ensure that the cost of
the project is reasonable and consistent with existing conditions in industry
O Publicly funded projects – owner required to select lowest bidder
O Private projects – owner may also consider the bidders’ qualifications, experience, financial condition, and performance history
12
Direct SelectionO Owner, with advice from the A/E
selects contractor – total price and method of payment is then negotiated
O This method is generally NOT allowed for public projects
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3 Decisions Made in Determining Kind of
ContractO Number of contractsO Contract typeO Basis of payment
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Number of ContractsO Single Prime Contract – most
common, uses competitive bidding (pg 3.12; fig 3.3-C) owner has contract w/ A/E & contractor; but A/E & contractor do NOT have contract
O Multiple Prime Contract – Owner divides the work among several contractors & has separate contract w/ each of them. (pg 3.13; fig 3.3-D) [e.g. paving, site work, foundations, landscaping, painting] Often used in FAST TRACK projects when construction on parts of the project is started prior to all of the design elements of the project being completed
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Project Delivery Method
O Design-Bid-BuildO Design-Negotiate-BuildO Construction ManagementO Design-BuildO Owner-BuildO Construction SubcontractsO Total Project Commissioning
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Design-Bid-BuildO Traditional method of project deliveryO Typically uses competitive biddingO Considerations
O Project fundingO Owner’s capacityO CostO Extent of workO Time priorities
O See Figure 3.4-A on page 3.16
17
Design-Negotiate-Build
O Similar to the Design-Bid-Build contract but only ONE contractor involved in developing costs and negotiating a contract to construct the project
O Primary considerations are construction excellence and time (project costs not subject to competitive bidding process)
O See figure 3.4-B on page 3.1918
Construction Management
O May have either single or multiple prime contracts
O Construction manager is employed by the owner to oversee and administer the project (may or may not actually perform any of the construction work)
O See pg 3.24; figs. 3.4-C & 3.4-D
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Project ManagementO Similar to construction management
but also includes coordination of the design & planning stages of the project
O Large projects overseas have been successful using this
O Projects involving multiple structures & extensive site improvements often require this type of supervision; complex projects such as industrial & process engineering plants use this type of contract
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Design-BuildO Owner contracts w/ a single entity to
design as well as build the projectO Turnkey – an extended design-build
contract in which the selection, procurement, and installation of all furnishings, furniture, and equipment is also included
O See pg 3.30; fig 3.4-E
21
Owner-BuildO This type of contract is usually seen
with large-scale developers O Only construction contracts needed
are between the owner and various subcontractors
O See pg 3.34; fig. 3.4-F
22
Construction Subcontracts
O Usually involves a contract between the contractor and subcontractors and material suppliers
O May be verbal…best if written
23
Total Project Commissioning
O Defined by ASHRAE as a method to improve the delivery of a process.
O Focus is on QUALITYO Makes sure that all components of a
building are planned, installed, and maintained according to an owner’s requirements
24
3 Types of Basis of Payment
O Stipulated (Lump) SumO Unit PriceO Cost-Plus Fee
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Stipulated SumO Simplest method usedO States that the contract
requirements will be completed for a given amount of money
26
Unit PriceO Used when the extent of work or
actual quantities can not be determined when bids are made (earthwork is such an example)
O Many civil engineering projects use unit price type of payment
O With unit price, the owner pays for exactly what is documented as done after the work has been completed
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Cost-Plus FeeO Contractor paid for actual cost of labor
PLUS a fee for overhead and profitO Fee may be a percentage of the labor &
material cost or a fixed amountO Cost-Plus Fee agreements may also
include incentives for early completionO It is reasonable for the owner to require
a guaranteed maximum price to ensure that the total project cost will not exceed a given amount
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