CONSTRUCTION CONSTRUCTION CONTRACTS CONTRACTS

DOCUEMENTSDOCUEMENTS

APPLIED CIVIL ENGINEERING DEPTAPPLIED CIVIL ENGINEERING DEPT

BY

LECTURERMaha Muhaisen

ResourcesResources Construction Documents and Contracting, Joseph D.

Coleman , 2004, Prentice Hall Construction Contracts, Keith Collier, 1987, Prentice

Hall “Construction Management”, by Daniel W. Halpin and

Ronald W. Woodhead, 2nd Edition , John Wiley & Sons Fidic Conditions of Contract for Construction, FOR

BUILDING AND ENGINEERING WORKS DESIGNED BY THE EMPLOYER, 2005

Fidic Tendering Procedures, prequalification, tendering and award the contract, 1994.

Handouts and lecture notes

Grades

Research Projects & homework 30 % Midterm Exam. 30% Final Exam. 40%

Course OutlineCourse Outline1. Introduction to construction project stages, overview of the

construction contracting methods, and contracts types.2. Bidding document Invitation to bid Instruction to bidders Information to bidders & bid data Biding Forms General conditions of contract Specific condition of contract Specification BOQ Drawings Contract forms3. Methods of Tendering, Bidding and Awarding 4. Contract Documents and Conditions5. FIDIC Form of Contracts

Introduction to Construction Project Stages

Lecture (1)

Major Project PhasesMajor Project Phases The major phases in the project cycle that are common

to most design and construction projects are : Project Planning Design

Schematic Design Design Development Contract Documents

Construction Procurement (Bidding Phase) Construction Post Construction

Construction Project Construction Project CharacteristicsCharacteristicsConstruction projects are different than other types of

projects due to the following characteristics;

Construction projects are complex undertaking.

Every construction project is unique.

Construction projects involve a lot of uncertainties, lack of information and variables.

Project Life CycleMost of Construction projects life-cycle have common characteristics, Construction projects start with low cost and resources, high risk and uncertainty. The life-cycle of a typical construction project could be summarized as following :

Stage I : represents the project formulation, feasibility studies, and the strategic decisions needed for project continue.

Stage II : represents planning, basic design, budgeting, tendering and placing the project major contracts. Stage III : involves the construction phase of the project, equipment installation and testing.Stage IV : represents the final phase in the project which includes the project turnover, final testing and start-up.

Project Life Cycle

Perc

ent C

ompl

ete

Stage I Stage II Stage III Stage IV

Project "GO" Decision

Major Contracts Let

Installation Substantially Complete

Full Operations

Feasability- P roject Formulation - Feasabiltiy Studies- Strategies Design & Approval

Planning & Design - Base Design - Cost & Schedule- Contract Terms & Conditions. - Detailed P lanning

Turnover & Start Up- Final Testing - Maintenance

Construction - Manufacturing - Delivery - Civil Work - Installation - Testing

Figure 1.1 : Construction Projects Life-Cycle (Ref: PMBK, 2000)

Construction Contracting Method Construction Contracting Method (delivery methods)(delivery methods)

Traditional Approach (D-B-B):The most common delivery system is called “the traditional or standard approach” or “design-bid-build”, in which the employer assigns the design and construction phases to two different firms (consultant/designer and contractor).

ConstructingDesigning

Appointing Consultant

Appointing Main Contractor

Traditional Approach (D-B-B):

For many years, DBB has been the most common method of project delivery for public projects, and for many private projects as well.

Design Bid-Build is effective on projects where the owner needs both professional design services and

construction services where the designer does not require detailed knowledge of the

means and methods of construction. DBB provides the owner with a high degree of control. That’s why

it is the preferred project delivery system for owners who:

Traditional Approach (D-B-B)Traditional Approach (D-B-B)::

The owner defines project goals and objectives, secures the financing, and specifies the standards and contract terms.

The owner may perform planning, conceptual design and full design, or may engage an outside design professional (designer) for some or all of these tasks.

During this planning and preliminary stage, owner and designer work as a team to obtain required permits and conduct necessary site investigations.

The designer prepares the construction bid documents to reflect the owner’s project goals and objectives, the project’s site conditions, and sound engineering practices.

Prospective contractors prepare their bids from these complete and specific bid documents.

The bidders submit their proposals to the owner, who determines the most responsive (typically the lowest) bid meeting project requirements.

In certain circumstances, owner may be justified in selecting a contractor outright and negotiating contract terms directly.

Advantages of D-B-B ApproachAdvantages of D-B-B Approach

Applicable to a wide range of projects. Well established and easily understood. Clearly defined roles for all parties. Provides the lowest initial price that competitive

bidders can offer. Extensive litigation has resulted in well established

legal precedents. Insurance and bonding are well defined.

Disadvantages of D-B-B ApproachDisadvantages of D-B-B Approach

Least-cost approach requires higher level of inspection.

Initial low bid might not result in ultimate lowest cost or final best value.

Designers may have limited knowledge of the true cost and scheduling implication of design decisions.

Design-Build ApproachDesign-Build Approach

Design-build approach is a project delivery system involving a single contract between the project employer and a design-build contractor covering both the design and construction of a project.

The design-builder performs design, construction engineering, and construction according to design parameters, performance criteria and other requirements established by the employer or his representative.

ConstructingDesigning

Appointing design & construction contractor

Tendering

Design-Build ApproachDesign-Build Approach The owner contracts with a single entity to provide the design

and to construct the project according to that design. The contract might be negotiated with a single design-builder

or result from competitive proposals. The selection can be based on low price or on a set of value

criteria (experience, staff, bonding capacity, etc.). Design-build provides the owner with a single point of contact

for project responsibilities, eliminating the need to assist in resolving designer-contractor disputes.

With the contractor playing a major role in design, costs are typically defined and maintained to a greater degree, and the coordination of fast-track management to achieve early completion is greatly simplified.

The design-builder makes many decisions that owner would make under DBB, due to delegation of greatly increased authority.

Design-Build ApproachDesign-Build Approach

For many owners, delegation of responsibilities leads to satisfactory projects. However, if the parties are inexperienced and do not cooperate, the transfer of control and risk can be disappointing.

The owner may need to restructure his/her internal procedures to accommodate design-build approach.

Compared to DBB, this involves a significantly different set of requirements and expectations for process, timelines and communications.

A clear understanding and documentation of design-build processes enhances the quality of design-build projects

Advantage of Design-Build ApproachAdvantage of Design-Build Approach

Innovation and quality improvements through: - Alternative designs and construction methods

suited to the contractor’s capabilities - Flexibility in the selection of design, materials, and

construction methods.• Earlier schedule and cost certainty

Disadvantage of Design-Build Disadvantage of Design-Build ApproachApproach Reduced opportunities for smaller, local construction firms. Fewer competitors and increased risk may result in higher

initial costs. Elimination of traditional checks and balances. Quality may

be subordinated by cost or schedule considerations. Less Engineer control over final design. Higher procurement costs. Traditional funding may not support fast-tracking

construction or may require accelerated cash flow. Accelerated construction can potentially overextend the

workforce.

Others TurnkeyTurnkey Turnkey VariationsTurnkey Variations Direct Labor Approach.Direct Labor Approach. Construction managementConstruction management

Turnkey Turnkey adds to the design-builder’s

responsibilities the operation and/or maintenance of the completed project.

Turnkey delivery has the potential for bringing a new project on line more quickly.

Three forms of turnkey project delivery: Design-build-operate-transfer Design-build-operate-maintain Design-build-own-operate-transfer

Turnkey Variation Variations on turnkey add financing as a key

component. While financing arrangements are unique for each project, developer financed projects generally resemble one of the turnkey delivery methods: FDBT (Finance, design, build, transfer) FDBOT (Finance, design, build, operate, transfer) FDBOOT (Finance, design, build ,own, operate, transfer)

In each case, the transfer of the project occurs only after the developer’s interests and financial obligations have been satisfied.

Assignment (1)Assignment (1) Describe the turnkey methods, turnkey

variation methods, direct labor approach, and construction management method, highlighting on advantage and disadvantage of each one.

2nd lecture The contract, and contract types,

overview of the construction documents.

Contract DefinitionContract Definition

Agreement of at least two parties with purpose of creating legal obligation between the parties and capable of being enforced by the court of law.

Contract = offer + acceptance + consideration

Introduction to contractsIntroduction to contracts

Why Use contract in construction: Describe scope of work Establish time frame Establish cost and payment provision Set fourth obligations and relationship Minimize disputes Improve economic return of investment

Content of the contractContent of the contracto Identify the partieso Promises and responsibilitieso Scope of worko Price and payment termso Commercial terms and conditionso Project execution plan.

Major Contract Types (traditional)

Lump Sum Contract One price for the whole contract Lump sum includes costs plus overheads and profits Higher risk to contractor Price quoted is a guaranteed price as per contract

documents. Payment based on a scheduled percentage scheme

(monthly progress claims) The contractor is free to use means and methods to

complete the work and responsible for proper performance Work must be well defined at bid time. Fully developed plans and specifications

Lump Sum Contract/ advantage Low risk on the owner, Higher risk to

the contractor Cost known at outset Contractor will assign best personnel Contractor selection is easy.

Lump Sum Contract/disadvantage

Changes is difficult and costly. Contractor is free to use the lowest cost of

material equipment, methods.

Unit Price Quote Rates / Prices by units No total final price Re-negotiate for rates if the quantity or work

considerably exceeds the initial target Payment to contractor is based on the measure. Unbalanced bids Higher risk to owner Ideal for work where quantities can not be accurately

established before construction starts.

Unit Price contract Require sufficient design definition to estimate

quantities of units Contractors bid based on units of works Time & cost risk (shared)

Owner : at risk for total quantities Contractor : at risk for fixed unit price.

Large quantities changes (>15-25%) can lead to increase or decrease of unit price.

Unit Price / Requirement Adequate breakdown and definition of work units Good quantity surveying and reporting system. Adequate drawings. Experience in developing BOQ Payment based on the measurement of the finished

works. Quantity sensitive analysis of unit prices to evaluate

total bid price for potential quantity variation.

Unit Price / advantagesUnit Price / advantages Suitable for competitive bid Easy for contract selection Early start is possible Flexibility : quantities and scope can be easily

adjusted

Unit Price / Unit Price / disadvantagesdisadvantages Final cost not known from the beginning (BOQ

only is estimated) Staff needed to measure the finished quantities

and report on the units not completed. Unit price sometime tend to draw unbalanced bid.

(For Unit-Price Contracts, a balanced bid is one in which each bid is priced to carry its share of the cost of the work and also its share of the contractor’s profit.Contractors raise prices on certain items and make corresponding reductions of the prices on other items ,without changing the total amount of the bid)

Cost Plus1. Actual cost plus a negotiated reimbursement to

cover overheads and profit.2. different methods of reimbursement :

Cost + percentageCost + fixed feeCost + fixed fee + profit-sharing clause.

3. Higher risk to owner4. Compromise : guaranteed maximum price (GMP)

reduces risk to owner while maintain advantage of cost plus contract.

5. By using this type of contract the contractor can start work without a clearly defined project scope, since all costs will be reimbursed and a profit guaranteed.

Cost + Percent of CostFee = percentage of the total project cost

(Cost = $500.000,Fee = 2%)

AdvantagesAdvantagesDisadvantagesDisadvantages

profitable for profitable for the contractorthe contractor

No incentive No incentive to finish jobto finish jobquicklyquicklyOwner does Owner does not know totalnot know totalpricepriceLarger the Larger the cost of the cost of the job, thejob, thehigher the fee higher the fee the owner the owner payspays

Cost + Fixed Fee

Fee = percentage of the original estimated total figure Utilized on large multi-

year jobs Ex: WW treatment plant

Facility (Cost = $20 million, Fee = 1%)

$20 Million 1% fee = $200,000 Million

AdvantagesAdvantagesDisadvantagesDisadvantagesFee amount is Fee amount is fixed fixed regardlessregardlessof price of price fluctuationfluctuation

Expensive Expensive materials andmaterials andconstruction construction techniques techniques maymaybe used to be used to expediteexpediteconstructionconstruction

Provides Provides incentive to incentive to completecompletethe project the project quicklyquickly

Cost Plus Fixed Fee Most common form of negotiated contracts COST = expenses incurred by the contractor

for the construction of the facility Includes: Labor, equipment, materials, and

administrative costs FEE = compensation for expertise

Includes: profit

Cost + Fixed Fee +Profit-Sharing Clause

Rewards contractors who minimize cost

Percentage of cost under GMP is considered profit

and shared with the contractor

Guaranteed Maximum Price (GMP)

% of profit sharing is specified in contract

AdvantagAdvantageses

DisadvantagesDisadvantages

Provides Provides incentive incentive to theto thecontractocontractor to save r to save moneymoney

Contractor Contractor must absorb must absorb anyanyamount over amount over the GMPthe GMP

Plans & specs. Plans & specs. need to need to detaileddetailed

Cost + Fixed Fee +Profit-Sharing Clausevariation of this type of contract is called variation of this type of contract is called a guaranteed a guaranteed

maximum price (GMP).maximum price (GMP). In this type of contract the contractor is reimbursed at cost In this type of contract the contractor is reimbursed at cost

with an agreed-upon fee up to the GMP, which is essentially with an agreed-upon fee up to the GMP, which is essentially a cap; beyond this point the contractor is responsible for a cap; beyond this point the contractor is responsible for covering any additional costs within the original project covering any additional costs within the original project scopescope

An An incentive clause, incentive clause, which specifies that the contractor which specifies that the contractor will receive additional profit for bringing the project in will receive additional profit for bringing the project in under the GMP. under the GMP.

Construction Documents Bidding requirements

Notice to Bidders Instruction to Bidders Proposal Form

Contract Documents Contract Forms Conditions of the Contract Specifications Drawings Addenda Change Orders Agreement.

Construction Documents Construction Documents are defined as the written and

graphic documents prepared or assembled by the A/E for communicating the design of the project and administering the contract for its construction.

2 major groups

1.Bidding Requirements

Used to attract bidders & explains bidding process

2.Contract Documents

Legally enforceable requirements that become part of the contract

Include all construction documents except bidding forms

CONSTRUCTION DOCUMENTS

CONSTRUCTION DOCUMENTSBIDDING REQUIREMENTS

BIDDING REQUIREMENTS

Bidding Requirements are used to attract bidders and explain the procedures to be followed in preparing and submitting bids .

Bidding requirements help bidders follow established procedures and submit bids that will not be disqualified because of technicalities. They do not become part of the contract documents

Bidding documents

All of the construction documents issued to bidders before the signing of an owner-contractor agreement.

Bid Package Documents available to the contractor and on which he must make a decision to bid or not

A set of plans and technical specifications, Proposal form, general conditions, special conditions,

Description of the project to be constructed

Bid Package is prepared by: