introduction to project delivery and contracts

8/15/2019 Introduction to Project Delivery and Contracts

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Laws

• Legal – Operation or existence of law

• Law includes – central or state enacted laws or statutes,

– Rules of central and state regulatory bodiespromulgated to give practical effect to enactedstatutes

– Common Law• Body of past court decisions

• Serves as authority or precedent governing future decisions.

• Judges are influenced by the customs and practices of theconstruction industry


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TYPICAL PARTIES In Constrcution

• Owners

– Public Owner

– Private Owner

• Architect/Engineers (A/E)

• Construction Contractors and

Subcontractors


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Owner – A/E Contract

for

Professional Services

(Design and Bid Plans and Specifications)

Advertisement for Bids

Contractor

Joint Venture Agreements

Bids

Owner-Contractor Construction

Contracts (Prime Contracts)

Surety

Bonds

Insurance

Contracts

Subcontractor

Agreements

Labour

Agreements

Purchase Order

Agreements

Typical Construction Industry Contract Documents

Bartholomew, S. H., Construction Contracting: Business and Legal Principles, Prentice Hall, Inc., 1998


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RULES FOR PARTICIPANTS

• Contracts

• Laws, Statutes, and Regulations ofGovernment Agencies

• Tort Law – A tort is a civil wrong.

– Central Concept: in living our daily lives, we

cannot, with impunity, either intentionally orunintentionally conduct our affairs in a mannerthat will injure or damage others.


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Thread of Liability in the Construction Process

• Contract Liability – Results when a party to the contract breaches the contract byfailing to conform to one or more of its provisions

– Express Contract Provisions• Plainly written in the text of the contract document itself

– Implied Contract Provisions

• Flows from the contract but is not in the form of explicit statement• Come from long-standing, commonly held understandings that are

implied by the contract

• Tort Liability – Based on tort law

– Does not depend on the existence of a contract


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Thread of Liability in the Construction Process

• Statutory Liability – is that imposed by law or statute

– Can be express or implied

• Strict Liability – It is not necessary to prove fault or negligence to

establish that a person or entity is liable for some actor failure of an act

– The mere fact that the act or failure to act occurred isall that is necessary to establish the liability

– Usually associated with tort liability situations

– Also express warranties


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What Constitutes a Contract?

• Offer

• Acceptance

• Consideration


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Parties to Construction Related Prime

Contracts

• Owners, A/E, construction managers, and

construction contractors

• Owner-Architect Contracts and Owner-

Engineer Contracts

• Owner-Construction Manager Contracts

• Owner-Contractor Contracts


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Nature of Contractual Services Provided

• Design Only Services

• Construct Only Services

• Design-Construct Services• Turnkey and Fast-Track Design-Construct

Services

• Construction Management Services – Agency relationship is created between the

CM and owner


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General terms used in Contract….

1. Contract Value : The sum named in the Letter of Acceptance.

2. Contract Price : The contract value subjected to such addition

/deductions under the provision of the contract.3. Specification: means the specification referred to in the tender documentand any modification thereof subjected to the approval by the Engineer.

4. Site: Means the land and other places on, into or through which all worksand other related facilities including all structures to be constructed. Alsoincludes the path, street and land occupied by any other belongings to theowner.

5. Inspector: Means the owner or any person nominated by the owner fromtime to time to inspect the entities (equipment, stores or work) mentioned inthe contract.

6. Notice of award of Contract : Means the official notice issued by the

owner notifying the contractor that his proposal has been accepted and thatcontractor is required to sign the contract agreement.

7. Date of Contract: Means the date on which both the parties havesigned the contract agreement.

8. Final Acceptance: Means the owner’s written acceptance of the works

performed under the contract, after successful completion of performance.


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General terms used in Contract….

9. Warrant/ Guarantee / Maintenance Period: Means theperiod during which the contractor shall remain for replacement

of any defective part of the works performs under the contract.

10. Liquated Damage: Damage suffered by the owner due tonon-performance of work by the contractor.

11. Performance Guarantee Test: means all operation checks

and tests required to determine and demonstrate capacity,efficiency and operating characteristics.

12. Force Majeure: Means any cause which is beyond thecontrol of the contractor or the owner as the case may be which

they could not freeze of a reasonable amount of diligence couldnot have foreseen and which substantially affects the

performance of the contracts (Ex. Natural phenomenon-

earthquake, floods, droughts or Acts any by government).


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Typical Documents Comprising the Contract

• Bidding documents consisting of the Invitation to Bid, theInstruction to Bidders, and the Bid Form

• General Conditions of Contract

• Special Conditions of Contract

• Specifications

• Drawings

• Reports of investigations of physical conditions


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Bidding Documents

• Normally begins with an advertisement

– Identifies the project for which bids are desired

– The owner

– Time and place of bid opening

– Instructions to potential bidders on how to obtain a fullset of contract documents

• Invitation for Bids (IFB) or Request for Proposals (RFP)

– IFB used when bidders must strictly confirm todrawing and specs.

– RFP when bidders may propose variations for theproject


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– A description of the contract work

– The identity of the owner

– The place, date, and precise time of the bid opening – The penal sum of the required bonds (bid bond, performance

bond etc.)

– A description of the drawings and specs, their cost, and where

they may be obtained

– The length of time after the bid opening that bids will be deemedgood

– Rules regarding the withdrawal or modification of bids and latebids

– Information regarding any planned pre-bid conferences and pre-

bid site inspections – Particular requirements of law which the owner wants bidders to

be aware

– Other instructions or information that the owner wants to pointout to bidders

IFB or RFP typically include:


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Bidding Documents

• Instructions to Bidders

• Bid Form

– Bidders complete this document, sign, seal and turn it in

– Constitutes the “offer”

– To constitute a responsive bid, the bid form must be completely

filled, signed and sealed in accordance with the IFB or RFP and

Instructions to Bidders

It Contains ….

– A definitive statement of the general terms and conditions of the

offer

– The format of the commercial terms applying to the offer

– Supplementary information that the owner may want to knowabout the bidder

– Requirement for public projects

– Bid security


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General Conditions of Contract

• Very definitive statements, clause by clause, of all

general terms and conditions that will govern theperformance of the contract work

• The general concept of this section is to include all

clauses that will remain the same, contract after contract,

changing very infrequently

–Special Conditions of Contract


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Specifications

• The Document which precisely confirms what one party

agrees to provide to the other in respect of scope andquality.

Hence the technical requirements for each division of work

in the contract will be completely detailed

• Can be voluminous and must be properly organised

– Uniform Construction Index or Master specification

format• Should be carefully drafted so that both parties to the

contract have a mutual understanding of the precise

technical requirements

S ifi ti


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Specifications

Modern day’s……

• Drawings – are using CAD, BIM Models, BOQ – are replaced by Pricing

Schedule

Modern Day’s Specification acts as the link between the matrices of the

contract documentation.

It covers not only Scope, Materials and Workmanship but also Visual,

Procedural, Design, Testing, Quality Control and Responsibility issues.

Three Basic types of Specifications

1. Prescriptive Specifications

2. Performance Specifications

3. Descriptive Specifications

Specification Writing Steps

1. Decide on format

2. Collect information

3. Input information

4. Check and test

5. Deliver

T f S ifi ti


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Types of Specifications1. Prescriptive Specifications

– Known as detailed materials and workmanship specification

– It is something like “Do precisely as I say”

– Design team taking full responsibility on the end product’s performance – Traditional design solutions requires Prescriptive Specification

2. Performance Specifications

– Used on circumstances where the design team doesn't know the

requirements but wish the contractor’s to select suitable materials and

methods to meet the criteria. – Doesn’t confirm what will be provided, only what has to be achieved.

– It is something like “Give me something that works”

– Good relationships between Owner and Contractor/ Reputed contractors

gets Performance

3. Descriptive Specifications – Developed to make best use of the varying skills

– Main functions are to define scope, design intend, procedures for completing

detailed design, quality control etc.

– Provide the contractor with fair indication of the solutions that are

acceptable. Design Team and the Contractors needs to work Harmony

– Large complex buildings requires Descriptive Specification


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Drawings

• Drawings are the means by which the designer’s convey their

intention to the rest of the building team and to statutory authorities.

• Becomes the designer’s representative in site.

• The drawings should be Clear, Concise, well-planned, co-ordinated.

Factors need to be considered while preparing any drawing

1. Types

2. Sizes and Layout

• Be on standard sized sheets laid out in such a manner that the

source and the purpose of the drawings can be readily identified.

• Contained all necessary information in a form that can be readilychecked

• Be kept in comprehensive sets and stored easily.


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Drawings1. Types

1. Location plans

2. Site and development plans

3. General arrangement drawings4. Component drawings

5. Details

6. Assembly drawings

2. Sizes and Layout A0, A1, A2, A3 and A4.

Scales typically used for some of the common drawing types

1. Location plans - 1:2500, 1:1250, 1:500

2. Site and development plans – 1:500, 1:200

3. General arrangement drawings – 1:100, 1:50

4. Component drawings – 1:50, 1: 20

5. Details – 1:5, 1:1

6. Assembly drawings – 1: 20, 1:10.

S f


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Sequence of Drawing Production

Type of contract and Method of selecting the contractor decides the

nature and sequence of drawing production.

A preliminary list of drawings by the Architects / Designers and otherService engineers are prepared initially.

A drawing production sequence in traditional procurement system

1. Layout and site plans.

2. General Arrangement Drawings

3. Services Drawings by the architects (plumbing and drainage)

4. Construction details by the architects and specialists subg-

contractors5. Assembly details

6. Final Co-ordination drawings

7. Final layout and site plans.

Sequence of Drawing Production


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Sequence of Drawing Production A drawing production sequence in Design-build and Management

contract

1. General arrangement drawings

2. Leveling and general site works3. Structural frame

4. Drainage

5. Foundations (including piling)

6. Lifts and escalators

7. Proprietary walling8. Roofing systems

9. Windows and doors

10. Brickwork details

11. Mechanical and electrical engineering services

12. Plant and machinery details13. Partitions

14. Staircases and other secondary elements

15. Ceilings

16. Fixtures and fittings

17. External works.


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Drawings

• Complement the specifications

• Should be sufficiently clear to adequately show exactly

what is to be built

• Certain features may be shown in fairly general terms,

requiring the contractor to prepare the detailed drawings

• In fixed-priced bids should be adequately sufficient and

clear

–Reports of Investigations of Physical Conditions

• Often concern the geotechnical aspects of subsurfaceconditions. Often written evaluations and soil boring logs.

• Also weather records, stream flow hydrographs etc.

• Disclaimers

TYPICAL JOB RECORDS


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TYPICAL JOB RECORDSFollowing list gives 20 typical construction job record documents. Each

document serves specific purpose1. Letters of Transmittal2. Letters of Submittal3. Notice of claim for constructive change4. Notice of claim for constructive suspension5. Notice of claimed delay6. Request for time extension7. Notice of acceleration8. Notice of differing site conditions

9. Letter requesting information/interpretations10. Letter disputing instructions/interpretations11. Letter advising proceeding under protest12. Confirmations of instructions or agreements13. Minutes of meetings14. Project daily reports

15. Force account time and materials records16. Cross-sections and other records of work performed17. Foremen’s daily time cards 18. Material delivery tickets19. Contractual notices-NTPs, correct deficiencies, suspension, termination and

so on

20. Personal diaries


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COMMERCIAL TERMS-

Pricing Strategy

• Fixed-Price Contracts

– Lump sum

– Item Rate

• Cost-Reimbursable Contracts – Cost plus percentage fee (CPPF)

– Cost plus fixed-fee (CPFF)

– Cost plus incentive fee (CPIF)• Target Estimate

– Guaranteed Maximum Terms (GMP)


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Comparative Effect of Contract Commercial

Terms

• Financial outcomes for a common

construction project, with and estimated

cost of Rs.15,000,000 contracted for the

Owner on the basis of the five differentforms of commercial terms are show.


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CommercialTerms

Cost Outcomeat Completion

Contractor’s

ProfitTotal Cost to

Owner

CPPF @ 5% Agreed Profit

13,500,000

(13,500,000)(0.05) =

675,000

13,500,000 + 675,000

= 14,175,000

16,500,000(16,500,000)(0.05) =

825,000

16,500,000 + 825,000

= 17,325,000

CPFF @ 5%

Profit onEstimated Cost

13,500,000(15,000,000)(0.05) =

750,000

13,500,000 + 750,000

= 14,250,000

16,500,000(15,000,000)(0.05) =

750,000

16,500,000 + 750,000

= 17,250,000

CPIF @ 5%

Profit. 50-50Split on

Underruns and

Overruns

13,500,000

(15,000,000)(0.05) +

(0.5)(15,000,000 –

13,500,000) = 750,000+ 750,000 =

1,500,000

13,500,000 +

1,500,000 =

15,000,000

16,500,000

(15,000,000)(0.05) -

(0.5)(16,500,000 –

15,000,000) = 750,000

- 750,000 = 0

16,500,000 + 0 =

16,500,000


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CommercialTerms

Cost Outcomeat Completion

Contractor’s

ProfitTotal Cost to

Owner

GMP 5% Profiton Estimated

CostGMP = (15,000,000)

(1.05) = 15,750,000

13,500,000(15,000,000)(0.05) =750,000

13,500,000 + 750,000

= 14,250,000

16,500,000

15,750,000 -

16,500,000 =

-750,000

15,750,000

Fixed Price

Competitively

Bid @ 5%

Profit on

Estimate

Bid = (15,000,000)(1.05) = 15,750,000

13,500,000

15,750,000 -

13,500,000 =

2,250,000

15,750,000

16,500,000

15,750,000 –

16,500,000 =

-750,000

15,750,000


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Standard Forms-of-Contract

• American Institute of Architects (AIA)

Contracts

– Standard form of Agreement Between Owner

and Contractor

– Most widely used form for fixed-price building

construction works in USA.

• FIDIC - International Federation of Consulting Engineers – Which contract should I use?

http://www1.fidic.org/resources/contracts/which_contract.asp

These Conditions of Contract are recommended for


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Conditions of Contract for Construction, which are

recommended for building or engineering works designed

by the Employer or by his representative, the Engineer .

Under the usual arrangements for this type of contract, the

Contractor constructs the works in accordance with a

design provided by the Employer. However, the works may

include some elements of Contractor-designed civil,

mechanical, electrical and/or construction works.

These Conditions of Contract are recommended for

engineering and building work of relatively small capital

value. However, depending on the type of work and the

circumstances, the Conditions may be suitable for contracts

of considerably greater value.

They are considered most likely to be suitable for fairlysimple or repetitive work or work of short duration without

the need for specialist sub-contracts. This form may also be

suitable for contracts which include, or wholly comprise,

contractor-designed civil engineering, building, mechanical

and/or electrical works.


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Conditions of Contract for Plant and Design-Build, which

are recommended for the provision of electrical and/or

mechanical plant, and for the design and execution of

building or engineering works. Under the usual

arrangements for this type of contract, the Contractordesigns and provides, in accordance with the Employer’s

requirements, plant and/or other works; which may include

any combination of civil, mechanical, electrical and/or

construction works

Conditions of Contract for EPC Turnkey Projects, which are

recommended where one entity takes total responsibility for

the design and execution of an engineering project. Under

the usual arrangements for this type of contract, the entitycarries out all the Engineering, Procurement and

Construction: providing a fully-equipped facility, ready for

operation (at the "turn of the key"). This type of contract is

usually negotiated between the parties.


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The purpose of these guidelines is to present the commonly

used methods of consultant selection, to explain the respective

procedures and to combine them all in one compact document,

as well as to emphasize and explain FIDIC's policies on the

subject of selection.

The terms of the Client Consultant Model Services

agreement (The White Book) have been prepared by FIDIC

and are recommended for general use for the purposes of

pre-investment and feasability studies, designs and

administration of construction and project management,

where proposals for such services are invited on an

international basis: They are equally adaptable for domestic

agreements.


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Most Common Delivery Methods

• Design / Bid / Build

• Design-Build

• Construction Manager – Agency (CMa)

– At Risk (CMAR)


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Design - Bid – Build(competitive bidding)

Process

• Owner hires architect to design project andprepare construction documents

– (plans & specs)

• Construction documents used for bidding

• Owner selects and hires Contractor

– Lump sum

– Cost plus (with or without GMP)


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DESIGN/BID/BUILD – Each step of the design, construction

must be completed before beginning the next step. Easy to

manage, but time consuming. Does not allow for contractor

input early project design

–MOTIVATION

–$ MONEY $


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DESIGN / BID / BUILD

PARTNERING

MECH.

ENGINEER

CIVIL

ENGINEER

STRUC.

ENGINEER

ELEC.

ENGINEER

ARCHITECT

SUBCONTRACTORS

CONTRACTOR

OWNER

–“ Potential for communication breakdown &

–misinterpretation of plans.”


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Design - Bid - Build

Most Common Form

of Project Delivery

• Three phases, three prime players

• Independent contracts between architect/ownerand contractor/owner

• Linear sequence of work

• Common with public owners with requirements toselect low bid


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Advantages

• Common and familiar

• Linear process

• Design complete prior to construction

– i.e., fully-defined scope

• Clear roles assigned to each party

• Competition leads to lowest price• Both design and construction teams

accountable to Owner


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Disadvantages

• Relatively lengthy process – longer schedule

• Price not known until bids received – may lead toredesign and rebidding if budget exceeded

• Lowest price ("first cost") does not necessarilyproduce lowest final cost or best quality

• Change orders and delay claims are more likely

• No design phase input from Contractor


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Design - Build

Process

• One entity hired by Owner to complete

design and construction

• May all be Contractor's in-house design

expertise or Contractor may engage outside

Architect

• Early cost commitment is made (GMP) by

Contractor based upon preliminary design


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DESIGN / BUILD

MECH.

ENGINEER

CIVIL

ENGINEER

STRUC.

ENGINEER

ELECTRICAL

ENGINEER

DESIGN/BUILD

ARCHITECT

SUBCONTRACTORS

DESIGN/BUILDER

OWNER

–“ Direct communication minimizes potential for

– performance errors.”


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DEFINITION

–DESIGN / BUILD – Allows construction to begin before the

final design is complete. Expedites delivery by allowing

Design and construction to overlap and increases designer

Contractor relationship.

–MOTIVATION

–TIME –$ MONEY $

–QUALITY


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Design - Build

Advantages

• Single point of accountability for design and

construction

• Selection flexibility – qualifications based

• Team Concept – contractor assists with

planning and budget during design phase

• Enables fast-track delivery— constructionbegins before design is complete

• Early GMP reduces Owner concern with cost

overruns


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Design - Build

Disadvantages

• Architect is not under separate contract

w/Owner. Who is watching out for Owner?• Owner selects a team rather than the best

architect and best builder

• Design is completed after GMP is given,

making change more difficult and costly• Potential for compromises in quality to meet

budget

• Faster schedule can produce more errors


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Design - Build

D – B as Developer

• Also known as turn-key or build to suit

• DB entity maintains and operates building

to ensure all systems

• DB entity takes on responsibility for real estate

development

• Characterized by legal transfer of title to real property•


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Construction Management

Process (General)• CM is hired by owner

• Architect is hired for construction documents

• CM oversees (or assists with) design

(cost, schedule and constructability)

• Construction documents are used to bid or negotiate

the work

• Contractor is selected

• CM is on board through construction


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DEFINITION

CONSTRUCTION MANAGEMENT – Centers on utilization of a

Construction manager who utilizes his skills and

Knowledge of general construction to coordinate and

Manage the building process and is a member of the

Construction team along with the owner, architect/

Engineer & general contractor.

–MOTIVATION

–QUALITY


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MECH.

ENGINEER

CIVIL

ENGINEER

STRUC.

ENGINEER

ELECTRICAL

ENGINEER

ARCHITECT

SUBCONTRACTORS

GENERAL CONTRACTOR

PROJECT MANAGER

OWNER


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Appropriate for large, complex projects

• Used by owners without

the time or in-house expertiseto oversee the process


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CM as constructor

• Also known as CM At Risk (CMAR)

• Acts as project coordinator and general contractor

• Includes early cost commitment

• CM assumes all liability as the contractor


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CM At Risk Advantages• Team Concept

• CM firm selected by interview based on quality rather thanlow cost

• Hired pre-design allows design assist and

CM involvement in estimating and constructability

• Competitive pricing for subcontractor work (and self-performed if Owner requires)

• Single point of accountability: CM At Risk signs contractswith all subcontractors

• Guaranteed maximum price

• Enables fast-track delivery – time savings

• Good for large complex projects and multi-phase projectsthat are time critical


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CM At Risk Disadvantages

• Difficult for Owner to evaluate validity of GMP andvalue of contract

• Typically less competition in bidding (especially forself-performed work)

• Additional pre-construction fees and CM fee mayincrease "first cost" (but may result in lower finalcost)

• Not legal for public projects in many states


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CM as advisor

• Acts as advisor to the owner• Architect and Contractor maintain

conventional roles

•


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Selection of Right Method

•Owners Desired methods for: – Faster time – Less Cost, and earlier confirmation of cost – Improved quality – Less Conflicts/Litigation

•Major variables in delivery selection include:

– Time sensitivity – Cost – Quality – Allocation of Risk

No single “best” method for all projects

Impact of each variable is different depending on themethod and NO Method delivers fastest, cheapest, &highest quality always.

Selection of Delivery Method should occur before A/E selection

–Project Execution Strategies


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–a) Traditional Method

–b) Phased Construction

–c) Fast Track Construction

–d) Concurrent Engineering

–e) Concurrent Construction

–Project duration

–Design phases

–Construction phases

– Legend

–Time Gain


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