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

6

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

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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

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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

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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

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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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