CIVL202 Construction Engineering I Tutorial 5 T1Mon11:00 – 11:50 T2Wed09:00 – 09:50

Tutorial Outline Contract Environment Major Construction Contract Types Competitive Bid Contracts Lump-Sum Contracts Unit-Price Contracts Unbalancing the Bid Mobilization Bid Item Negotiated Contracts

Contract Environment Contract: an agreement between two or more parties to do something Courts are called to determine: 1.parties involved 2.responsibilities of different parties 3.other aspects of contract agreement

Major Construction Contract Types Competitive Bid Contract 1.Lump-sum contract 2.Unit-price contract Negotiated Contract

Competitive Bid Contracts Advertisement  invitation of bidders  selection of bidders  award of contract Contractor’s qualifications reviewed in price-ascending order

Lump-sum Contract Quotes one price for all work and services (direct cost, indirect cost, profit) The contractor receives monthly progress payments based on the estimated percent of the total job, so estimated percent of project completed is needed

Unit-price Contract Progress payments are based on precise measurement of field quantities More flexible, so contingency may be needed A guide quantity is given to contractor to quote price, based on this guide quantity of work, the contractor quotes a unit price If guide quantity is low, the contractor will quote a higher unit price to offset mobilization and demobilization costs

Unbalancing the bid Income curve lags behind expenditure curve; contractor has to borrow money from the bank to finance the difference To reduce this financing from the bank, the contractor tends to move income curve to the left Increase the unit price for items to be consumed earlier and decrease the unit price for items to be consumed later on

Mobilization Bid Item If owner spots the problem that the contractor tends to move the income curve leftward, the owner may ask the contractor to justify the bid Mobilization payments: the owner finance the contractor at owner’s interest rate (because the i.r. of contractor is usually higher than the owner)

Negotiated Contracts Based on available documentation, contractor presents its qualifications, required costs and fee to complete the job Must clearly define reimbursable items and accounting procedures

Negotiated Contracts Four types of cost + fee structure 1.cost + percent of cost 2.cost + fixed fee 3.cost + fixed fee + profit-sharing 4.cost + sliding fee Guaranteed maximum price A price that a contractor guaranteed will not be exceeded

Sliding Fee Fee = R (2T-A) Where T = target price R = base percent value A = actual cost of construction