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3 2 CHP6- BIDDING AND PROCUREMENT Introduction Qualification of Bidders Work Packages Construction Documents Bidding Information Invitation to Bidders, Instruction to Bidders, Bid Form, Alternates, Addenda Contractual Information Agreement, General conditions, Special Conditions) Bonds Insurance Technical Information Drawings, specifications) Analysis of Bids Award of Contract Conclusion

4 3 Learning Objectives In this chapter you will learn the following: 1. The process involved in breaking down a project into work packages 2. The issues involved in prequalifying and inviting contractors to bid 3. The specific parts that make up a construction work package 4. The issues involved in analyzing bids and alternates and awarding a contract

5 4 Procedure OwnerTurnoverConstructionAuthorizedConstruct Bid packages Invite Bidders Bid period Select contractorBid Construction Documents Approve Design Conceptual Design Define Scope Design

6 5 Introduction -1 Deciding to bid on a project is not a trivial matter for a construction company. Motivation depends on: Strong economic market…. Contractors choose which projects to bid. Slower economic market….Contractors may bid on less desirable one. Motivations: long-term and short-term goals Short –term goal: profit Long-term goal: community recognition, client relationship. Companies main motivation is to receive a good return on its investment. If project has ingredients necessary to return a good profit, motivation is high. But, ingredients are different for different firms.

7 6 Introduction -2 Depending on expertise in company, one firm can turn a good profit on a project while another less. Factors makes one company succeed over another: Their knowledge of and experience with the specific type of project, Relationship with key subcontractors, Ability to buy out the job, Estimating capability, Project team set up, Safety record, How efficiently they conduct their business, Overhead costs.

8 7 Introduction-3 Companies may bid on projects to: Establish a relationship with a new client, Maintain a relationship with an established client, To an unusual project to add variety to its portfolio, Have high publicity quotient ( benefits to community) When decides to bid it enter into a common process. Estimators solicit prices from subcontractors, Subcontractors do material takeoffs from drawing and specs that results in quantities, then X by unit cost, Unit costs is established by vendors and suppliers. Similar exercise is done for labor and equipment

9 8 Introduction-4 So, direct cost = material +labor + equipment Add administrative costs for running job at site (these are field indirect costs) Add overhead (what it cost the company to run) Profit (how much profit is reasonable for company) Determining for the cost of the work: Direct costs + Indirect costs = Cost of the work Cost of the work + %for overhead and profit = total cost to the owner

10 9 Qualification of bidders-1 Before a company is awarded a job, a qualification process is performed. There are two methods of qualifying bidders: Pre-bid qualification: Contractor submits information about the firm before the bid documents are released. Its advantage is that when the bids are received, the lowest bidder can usually be selected. This saves time and potential disputes. Post-bid qualification: It is submitted with the bid and reviewed by owner during bid opening &analysis

11 10 Qualification of bidders-2 Qualification is determined by: Evidence of capability from previous jobs Financial strength and stability Previous availability Personnel availability Safety record

12 11 Qualification of bidders-3 Advantage of pre-qualifying bidders is that, When the bids are received, the lowest bidder can usually be selected. This saves time and potential disputes with bidders disqualified after the bid on the bases of financial or technical ability. CM keep a list of qualified contractors and subcontractors to produce a list of bidders for the owner. Number of bidders… 5 – 7 for contractors 3 for specialty contractors

13 12 Work Packages-1 A) CM delivery: One of the advantages of construction management delivery method is that it is possible to package the work to the best advantage of the project in terms of both price and efficiency. It allows fast-tracking the work b)DBB delivery: When the project is fully designed before it is bid, there are a number of advantages to breaking the project into various work package, as well First, it allows for the incorporation of local practices. Second, packaging the work reduces overhead: the more packages, the fewer markups.

14 13 Contract Hierarchy $172.24 K 10% markup, Price to owner $158.4 K 10%markup, $144 K 20%markup $120 K 20%markup Direct cost of sheetmetal work=$100 K Generalcontractor Mechanicalsubcontract HVACsubcontractor Sheet metal subconcontractor Work Packages-2

15 14 Work Packages-3 There are disadvantages in splitting the work into separate packages: Omission of responsibilities, Redundancy of work Poor coordinating Improper packing of the work

16 15 Construction documents Translate owner's needs so that contractor can execute them correctly. They are the communication link among all parties. Current practice is to put all narrative pieces into one documents that accompanies the drawings to form complete package. The packages is divided into three general sections: bidding, contractual, technical The bid requirements, the agreement, technical specifications, drawings, addenda and contract modifications all form part of the construction documents.

17 16 Breakdown of documents Bid forms instructions to bidders Contract forms General conditions Supplementary conditions Technical specifications Drawings Addenda Change orders

18 17 Bidding information The bid documents are sent out with the drawings and specifications and are often bound in the specification book. This section of the documents contains the invitation to bid the instructions to the bidder the bid form itself

19 18 Invitation to Bid Invitation to bid is a request for pricing. Owner prepares it with the assistance of designer or CM. It includes information that is relevant to the project: Type of project: road, building, industrial, etc… Size of project Location of project Bid due date Start and completion dates Bonds Document location Legal requirement CM meet with contractors, or a pre-bid conference is held.

20 19 Instruction to bidders Instructions to bidders are usually bound in the specifications. Although they may repeat some of the information in the invitation to bid or on the bid form, the instructions are mostly concerned with the following: Bid due date Instructions about filling out the form Places to indicate fees form additional work Unit prices Location to deliver the bid Method of awarding contracts Expected dates of award and start of project

21 20 The bid form is the document upon which the bidder submits the price. The form is usually prepared bye the designer, with blanks left to be filled out by the bidder. Items may include some of following: Name of contractor, Price both in numbers and in words, which minimizes decimal point mistakes, Price break down for the major trades, which can guide progress payments and assist review of the bid’s accuracy, Amount of the bond, Alternates: that is, the price of other materials or altered scope of work Bid form-1

22 21 Bid form-2 Fees for additional work so the owner can set parameters for any fees allowed within change orders, Unit prices if quantities are unclear and can not be figured accurately until construction, Time required for the job so contractor can decide most efficient way to do the work and set his bid accordingly. Space for the contractor to acknowledge received of all addenda issued after the bids have gone out. Key subcontractors. Legal status, signature, title and date.

23 22 Alternates In certain situations, owner wants to explore the cost for supplying an alternate material or method of construction. Alternate: a request for a price for substituting one material for another, for adding to the scope of work, or for deducting from the scope. Some bid documents contain many alternates to be priced by contractor. There are two ways to present alternates: Additive price: best method for owner to price for new item Deductive price: may leave some of the cost in price. Designer likes deductive price while owner likes additive price Alternates may diminish interest because creates more work to contractor.

24 23 Addenda After the documents are issued but before the bids are due, changes often need to be made. The most common reason is the need to correct simple mistakes in the bidding documents. Contractors dig deeply into documents and can spot things missed by drafter or specification writer. Often contractor may propose a better method or product. Also, owner makes final review during bid period. Addenda are competitively priced by the contractors who are bidding the job and are acknowledged on the bid form in the space provided.

25 24 Contractual information Many contracts are issued during the course of project. First… to architect and CM for preconstruction design and technical services. The contract (issued with construction documents) goes to firm that will perform the work. It includes: An agreement General conditions Special conditions Sample of bond (if required) Insurance requirements Sample of insurance form

26 25 Agreement There are several forms of contracts (see chp3), but general provisions are common to most agreements: Identification of the parties Description of the project and the work Date of start Date of substantial completion Liquidated damages The contract sum Progress payments Interest rates Retainage Final payment Enumeration of contract drawings

27 26 General conditions The purpose of general conditions is to establish; legal responsibilities, obligations, authority, and rights of all parties involve in the project. As name implies, these conditions are general in nature and apply to any construction project. Although owner can devise his own general conditions, most prefer a standard version. AGC, AIA, ASCE, Karayollari, Bayindirlik, DSI, etc.

28 27 Special conditions These are sometimes called supplementary conditions or special provisions of the contract. They are intended to supplement general conditions and are project-specific. Special conditions include additional owner requirement such as provisions for prevailing wages and additional insurance requirements. Parking, use of toilet facilities, working in occupied spaces.

29 28 Bonds If the contractor fails to perform in accordance with the contract, a bond will protect the owner. Owner will pay. If contractor does not complete bonding company pay for it or find different contractor to complete. There are 3 types commonly required in construction: Bid bonds: These are furnished with the bids and basically guarantee that the contractor will enter into a contact with owner for bid price. Performance bonds: These guarantee that a contractor will perform the contract in accordance with the terms of the agreement. Payment bond: Also called labor and material bonds, these assure that the contractor will pay all bills, those leaving the owner unharmed by claims and liens.

30 29 Insurance There are many forms of insurance that a contractor can purchase to protect against risks during a construction project. Three are obligated by contract and law for the life of the project: Worker’s compensation: It is a state law that compensates employees who are injured on the job. This insurance covers disability and medical treatment for injuries resulting from accidents that occur during employment. Comprehensive liability: It protects the contractor against third- party claims. It covers injury to non-workers at site, damage caused by construction vehicles, damage occurring after completion, damage by subcontractors. Builder’s risk: It protects against property damage during construction. It covers losses resulting from fire, smoke, water, explosions, vandalism, theft. A fourth type of insurance often carried out by contractor is Umbrella liability. This works as excess coverage for other 3 in case of a catastrophic incident and also boosts the coverage on all.

31 30 Technical information They are written descriptions of quality of project. They detail the materials, equipment, and workmanship to be incorporated into the project. Types of specifications: How specification is written determines how the contractor will use it. Design specifications: detailed descriptions of materials, workmanship, installation, erection procedures. Performance specifications: lay out expected results of work and leave methods to contractor. Proprietary specifications: states exactly the product or method to be used. Open specifications: non-restrictive and allow many different choices within set criteria.

32 31 Organizations of specifications-1 The most widely used format is the Construction Specifications Institute (CSI) format. CSI Format Division 0 Bidding and contract requirements Division 1 General requirements Division 2 Site work Division 3 Concrete Division 4 Masonry Division 5 Metals Division 6 Wood and plastics Division 7 Thermal and moisture protection Division 8 Doors and windows

33 32 Organizations of specifications-2 CSI Format Division 9 Finishes Division 10 Specialties Division 11 Equipment Division 12 Furnishings Division 13 Special construction Division 14 Conveying systems Division 15 Mechanical Division 16 Electrical

34 33 Organizations of specifications-3 Division o and 1 is non-technical, but other divisions are all technical and relate to work of trades themselves. Break down of division 6: Section number Section titles 06050 Fasteners and supports 06100 Rough carpentry … …. 06600 Plastic fabrications

35 34 Organizations of specifications-4 Each trade section within the division is set up similarly so that bidder can easily find the information important for the bid and field personnel can refer quickly to information as they need it. The format is a general guide and is varied depending on needs of the specification. Not all titles fit all situations. However, here is a general format: Part 1 - General: This addresses the scope of work and explains the rules and conditions under which the work is to be performed. It breaks down into the following paragraphs: Referencesrelated worksystem description SubmittalsQADelivery, storage, and handling Scopesite conditionsSequencing/scheduling AlternatesAllowancesunit price

36 35 Organizations of specifications-5 Part 2 - Products: This describes the material and equipment used to make the products used on the job. MaterialsEquipmentMixes Fabrication Acceptable manufacturers Part 3 - Execution: This details requirements for workmanship, quality, and installation Inspectionpreparationfield quality control Protection Schedulesinstallation/application Adjusting and cleaningExtra stock/spare parts

37 36 Analysis of bids-1 Once all the bids have been received, the construction manager tabulates them in a spreadsheet. Such comparisons may consist of the base bid, alternates, addenda, qualifications, unit prices, exclusions, and value engineering suggestions. If bidders provides pricing that is outside the plans and specifications, the project team needs to decide how to handle this. Generally, the following guidelines are used: 1- If the bidder who is low, even without an alternate, suggest an equal to or better alternate that makes him/her even lower, the owner has the option of accepting this bid

38 37 Analysis of bids-2 2- If the bidder who is not low provides an unequal but acceptable alternates that than makes him/her low, the owner has the option of giving the other bidders in contention the opportunity to bid this alternate as well. 3- If the bidder who is not low and won’t ever be low suggest an acceptable alternate, the owner has the option of having the low bidder price this alternate.

39 38 Award of contract-1 Award of the contract can be as simple as accepting the lowest bidder, and in the end it often is this simple. However many factor come into play when bids are received. The apparent low bidder can turn out not to be lowest after de-scoping session take place. Low bidder may be too far from the other bidders, raising the suspicion that he has missed something. By law, the bidder is required to honor the price, no matter what; but nobody wants a contractor on the job who is not going to do well. In all cases the owner has the right to reject or accept the bids.

40 39 Award of contract-2 The bidding period is a time of anxiety for the owner and the designer. In most cases, the project does not get bid it this estimates come in higher than the money available to complete the job. The normal procedure is to redesign or reduce scope until the project’s budget is on target. However, these are only estimates of the work, not the real pricing. Once the bid is accepted, contract negotiations begin. Once the owner and the contractor sign the contract, the construction phase begins.

41 40 Conclusion-1 During the bidding period design work is launched into the construction arena. Assembling method of bidding documents is normally determined early in design process. Sometimes project is bid out to one prime contractor Sometimes it is broken down into smaller bid packages. How it is handled is determined by the delivery method chosen by the owner. In addition, these bid packages are either fast-tracked or released simultaneously. A fast-track approach leaves option of holding back pieces of project. This reduces bid numbers that must be processed at once.

42 41 Conclusion-2 Pieces such as ROOFING, which occur later in construction process, can be bid later. The disadvantage to the owner is that all the costs are not known when the contract is signed. Owners are concerned about getting the best contractor for the best price. Designers are concerned that their design meet the budget and contractors are concerned about submitting a bid too high and losing the job or submitting too low and losing money on the job. But if the bidding process is handled well, the probability of a successful project is good.

43 Next Chapter Chapter 7 – Construction and closeout


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