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THE PARTIES TO CONSTRUCTION-RELATED PRIME CONTRACTS Construction-related prime contracts involve owners, architect/engineers, construction managers, and.

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Presentation on theme: "THE PARTIES TO CONSTRUCTION-RELATED PRIME CONTRACTS Construction-related prime contracts involve owners, architect/engineers, construction managers, and."— Presentation transcript:

1 THE PARTIES TO CONSTRUCTION-RELATED PRIME CONTRACTS Construction-related prime contracts involve owners, architect/engineers, construction managers, and construction contractors. The owner typically contracts with one of the others, depending on the particular purpose to be accomplished by the contract. Owner-Architect Contracts and Owner-Engineer Contracts Architect/engineers (A/Es) are entities that typically design projects, prepare drawings and specifications for the construction contract, and in some instances perform field inspection services and administration of the construction contract. Architectural Firms and engineering firms provide similar types of services. The difference between them is that architects deal with residential,commercial, and institutional buildings, whereas engineering companies deal with engineered structures such as highways, dams, bridges, tunnels, and heavy industrial buildings and structures. Prime contracts between owners and architects are called owner-architect contracts, whereas such contracts with engineers are called owner-engineer contracts..

2 Owner-Construction Manager Contracts Construction managers (CMs) are distinctly different entities from A/Es, their role is to manage the construction aspects of a project on behalf of the owner, usually as the owner's agent. A prime contract between an owner and a construction manager is called an Owner-CM contract. Owner-Contractor Contracts The fourth and final construction-related prime contract party is the construction contractor, the actual builder who determines the means, methods, techniques, sequence, and procedures and directs the actual construction operations. Contracts between owners and construction contractors are called owner-contractor contracts.

3 THE NATURE OF THE CONTRACTUAL SERVICES PROVIDED Design Only Services One obvious category of services is design only, which pertain to owner-A/E contracts. The "only" distinguishes this category of contract service from another called design-construct (design-build). The creation of drawings andspecifications is a necessary part of the design process. Design only is normaly understood to include the preparation of a complete set of drawings and specifications used to secure bids and to construct the project. Design only contracts may also include assisting the owner in obtaining and evaluating bids for the purpose of awarding a construction contract, providing general inspection services during construction and providing monthly certified estimates of construction work satisfactorily performed.These estimates are the basis of monthly progress payments and final payment to the construction contractor. Such contracts seldom require continuous on-site presence of the designer during construction or exhaustive site inspections to ensure compliance with the drawings and specifications. Only such inspection services necessary to reasonably assure general compliance are normally required under a design only contract.

4 CONSTRUCT ONLY SERVICES The second obvious kind of contractual service is construct only, pertaining to owner-contractor contracts. This is the typical service provided by construction contractors. It includes assuming full contractual responsibility to perform the work according to the requirements of the drawings and specifications. Again, "only" is used to distinguish pure construction contracts from design-construct contracts.

5 DESIGN-CONSTRUCT SERVICES - D/C or D/B Hybrid form of contract has become prominent, where the contractual services of design only and construct only contracts are incorporated into design/construct or design-build contracts. In this form of contract, the architectural or engineering design work, creation of the drawings and specifications, and actual construction work are all performed by a single entity. therefore, the owner enjoys the advantage of dealing throughout with only one party that has complete responsibility. A number of companies furnish complete design-construct services using their own forces. Other companies market design/construct services as joint ventures or by using a subcontract to provide part of the required services. An AlE may form a joint venture with a construction contractor or enter into a subcontract with construction contractor for the construction portion of the overall project. More commonly reciprocal arrangements are made with the construction contractor in the lead role


7 TURNKEY AND FAST-TRACK DESIGN-CONSTRUCT SERVICES Turnkey refers to a type of design-construct contract in which the contractor performs virtually every task required to produce a finished, functioning facility. This includes, in addition to the normal design-construct duties, procuring all permits and licenses and procuring and delivering all permanent machinery or equipment that may be involved. It would not be unusual for an owner who had contracted on a design-construct basis for a complete hydroelectric power station to furnish the turbines, generators. transformers, and switchgear, requiring the contractor to design and construct the balance of the facility (including furnishing all other necessary equipment and materials) around this owner-procured permanent equipment. Such a contract would be a design-construct contract, but it would not be a turnkey contract. If the contractor also furnished the equipment items just listed the design- construct contract would also be a turnkey contract. All turnkey contracts are necessarily design-construct, but many design-construct

8 FAST TRACK CONTRACTS A fast-track project is one in which the construction phase is started at a point when only limited design work has been completed. For example, site grading and structure excavation begin when foundation design work is complete, but design work for all subsequent elements of the project, although in progress, is incomplete. This approach has the obvious advantage-on paper, at least shortening the overall delivery period for the completed facility (Concurrent design and works). Since "time is money," fast-track project delivery offers considerable potential savings to an owner. However, several severe risks accompany the fast-track the fast-track approach that can erode the potential savings. The foremost risk is that after construction is in place a problem may develop with subsequent design that requires costly and time-consuming changes to work already completed. At the very least, the owner loses the flexibility to make relatively inexpensive changes reflecting new and unexpected requirements, an advantage enjoyed throughout the design phase of a non- fast-track project. Sometimes the fast-track approach is used when the design and construction entities are not the same. each operating under separate contracts with the owner. It creates even greater risk for the owner, particularly if the design phase is not carefully managed. Errors, changes, or delays in design that impact construction are almost certain to result in claims from the construction contractor for additional compensation and time for contract performance.

9 CONSTRUCTION MANAGEMENT SERVICES The final type of contract service involved in construction-related contracts is construction management, pertaining to owner-construction manager contracts. A distinction should be made between this use of the term construction management as an administrative service performed for an owner and the meaning of that term as it relates to the direct management of construction operations by a construction contractor's organization. Although many of the same professional qualifications are required, the two activities are distinctly different. When services are being furnished on a construction management contract, the construction manager (CM) normally furnishes purely professional services as an agent of the owner and does not perform significant actual construction work-that is, an agency relationship is created between the CM and the owner.

10 Although performing no actual construction,the CM may provide such "general conditions" items as utilities, sanitary services,trash removal, and general elevator or hoisting services for the benefit of the construction contractor or contractors. The CM's role as a provider of professional services is not unlike that of the AlE, who also provides professional services with the aim of serving the owner's interest. CMs may be involved in the very early stages of a project, even the predesign phase, to assist the owner in planning the project and in preparing a predesign conceptual estimate of the probable project cost. This involvement may continue through the design and preparation of the contract documents phase, where the CM will provide constructability advice, evaluations of alternate designs, and assistance in obtaining and evaluating bids for the construction of the project. During construction, the CM provides general administration authority, performs inspection services to ensure compliance with the plans and specifications, and assists in closing out the contract. CM CONTINUED

11 A CM acting as the owner's agent is normally precluded from performing any actual construction work. However, in one form of CM contract, the agency relationship is partly replaced by the more normal owner-construction contractor relationship,where the CM's interest is separate from the owner's. Under this form of CM contract, the CM is part general contractor and does perform part of the construction work in addition to previously described CM services. Although both entities are agents of the owner, CM and AlE services are essentially different. Figure 3-2 compares typical AlE and CM services. An AlE who has designed the project may also serve the owner as a CM. The same AlE entity may have two separate contracts with the owner, one for design services and another for CM services, or a single contract that provides for both.


13 COMMERCIAL TERMS Another major difference in construction-related prime contracts centers on commercial terms, This part of the contract establishes the method of payment to the party providing the services and defines where the financial risk of performance lies. The two broad classes of commercial terms for construction-related contracts are cost-reimbursable terms (cost-reimbursable contracts) and fixed-price terms (fixed price contracts). A cost-reimbursable contract is one performed almost entirely on the owner's funds. As the provider of the contract services incurs costs in providing the services, the owner periodically reimburses the provider for these incurred costs,usually on a monthly basis. The provider thus has little or no funds tied up in the contract and the payments received from the owner are directly dependent on the costs of the services provided. In contrast, there is no relation between the costs that the provider of services may be incurring and payment received from the owner on fixed- price contracts.

14 The owner pays the fixed price stipulated in the contract regardless of what costs the provider is incurring. The fixed price is normally paid in a series of progress payments, usually monthly, as the services are provided. Although there is basically only one form of fixed-price commercial terms, there are a number of different forms of cost- reimbursable terms.


16 TYPICAL DOCUMENTS COMPRISING THE CONTRACT Fixed-price, competitively bid contracts are comprised of certain, fairly typical documents The major categories of most contracts of this type consist of the following list: Bidding documents, consisting of the "Invitation to Bid," the "Instructions to Bidders," and the "Bid Form" General Conditions of Contract Supplementary Conditions of Contract Specifications Drawings Reports of investigations of physical conditions Some contracts may not contain all of these categories but, with the exception of one-of-a-kind contracts, none is likely to contain material that won't logically fit into one or another.

17 Bidding Documents The first category, bidding documents, normally begins with an u£ivertisenzent, originally discussed in Chapter 1. The back section of contemporary industry periodicals, such as the Engineering NelVs Record, contains a plethora of bid advertisements with every new issue. The advertisement identifies the project for which bids are desired, the owner, the time and place of the bid opening, and instructions to potential bidders on how to obtain a full set of contract documents. 111e second document in the bidding group is usually the Ill viialioll for Bids (IFB) or, sometimes, a Reqaesl for Proposals (RFP). 11,e federal government and some other owners use the IFB when bidders must strictly conform to the drawings and specifications and the RFP when bidders may propose variations for the project. Both typically include the following: A description of the contract work 111e identity of the owner The place, date. and precise time of the bid opening 11,e penal sum of the required bonds (bid bond, performance bond, and






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