1. Construction Contracts and Project Delivery Methods

2. Objective
Exposure to the different types of construction contracts, the number of contracts, the method of contractor selection and the basis for contractor payment.

3. Contract Defined
An agreement between two or more parties representing a promise to be performed for consideration

4. Necessary Parts of a Typical Construction Contract
Parties identified
Parties make promises that constitute an offer
Both parties sign the contract
Both parties receive consideration:
Contractor – payment for work done
Owner – use of the completed project
Parties of the contract must have the LEGAL AUTHORITY to negotiate a contract

5. Contractual Relationships
Agreement between the OWNER and CONTRACTOR is the primary construction contract
There are other contractual relationships which exist

6. Construction Agreement Forms
Agreement – legal, binding, written document signed by owner & contractor
Defines the relationships and obligations that exist
By reference it incorporates ALL OTHER CONTRACT DOCUMENTS

7. Standard Forms
AIA Document A101
EJCDC Document A-1

8. Advantages to Using Standard Agreement Forms—Disadvantages if Modified Forms Used
Familiarity of the forms
Legal precedents interpreting the documents
Uniformity of terminology
Disadvantages
Modifications warrant care that all references are coordinated (change in one part of the form may require changes in several locations)
Seek legal counsel

9. Conditions of the Contract
Define basic rights, responsibilities, and relationships of the parties involved in the construction process in greater detail than the agreement

10. Design & Construction Parties
Owner – may be an individual or an organization; initiates the project and secures funding for the design, construction and operation of the completed project
Contractor – agrees to build the project; may enter into sub-contracts
A/E – develops project designs and prepare construction documents; consultants may include: structural, civil, mechanical, electrical, acoustical, & environmental engineers and landscape architects, interior designers, and hardware specialists

11. Methods of Contractor Selection
Competitive Bidding
Direct Selection

12. Competitive Bidding
Objective is to ensure that the cost of the project is reasonable and consistent with existing conditions in industry
Publicly funded projects – owner required to select lowest bidder
Private projects – owner may also consider the bidders’ qualifications, experience, financial condition, and performance history

13. Direct Selection
Owner, with advice from the A/E selects contractor – total price and method of payment is then negotiated
This method is generally NOT allowed for public projects

14. 3 Decisions Made in Determining Kind of Contract
Number of contracts
Contract type
Basis of payment

15. Number of Contracts
Single Prime Contract – most common, uses competitive bidding (pg 3.12; fig 3.3-C) owner has contract w/ A/E & contractor; but A/E & contractor do NOT have contract
Multiple Prime Contract – Owner divides the work among several contractors & has separate contract w/ each of them. (pg 3.13; fig 3.3-D) [e.g. paving, site work, foundations, landscaping, painting] Often used in FAST TRACK projects when construction on parts of the project is started prior to all of the design elements of the project being completed

16. Project Delivery Method
Design-Bid-Build
Design-Negotiate-Build
Construction Management
Design-Build
Owner-Build
Construction Subcontracts
Total Project Commissioning

17. Design-Bid-Build Traditional method of project delivery
Typically uses competitive bidding
Considerations
Project funding
Owner’s capacity
Cost
Extent of work
Time priorities
See Figure 3.4-A on page 3.16

18. Design-Negotiate-Build
Similar to the Design-Bid-Build contract but only ONE contractor involved in developing costs and negotiating a contract to construct the project
Primary considerations are construction excellence and time (project costs not subject to competitive bidding process)
See figure 3.4-B on page 3.19

19. Construction Management
May have either single or multiple prime contracts
Construction manager is employed by the owner to oversee and administer the project (may or may not actually perform any of the construction work)
See pg 3.24; figs. 3.4-C & 3.4-D

20. Project Management
Similar to construction management but also includes coordination of the design & planning stages of the project
Large projects overseas have been successful using this
Projects involving multiple structures & extensive site improvements often require this type of supervision; complex projects such as industrial & process engineering plants use this type of contract

21. Design-Build
Owner contracts w/ a single entity to design as well as build the project
Turnkey – an extended design-build contract in which the selection, procurement, and installation of all furnishings, furniture, and equipment is also included
See pg 3.30; fig 3.4-E

22. Owner-Build
This type of contract is usually seen with large-scale developers
Only construction contracts needed are between the owner and various subcontractors
See pg 3.34; fig. 3.4-F

23. Construction Subcontracts
Usually involves a contract between the contractor and subcontractors and material suppliers
May be verbal…best if written

24. Total Project Commissioning
Defined by ASHRAE as a method to improve the delivery of a process.
Focus is on QUALITY
Makes sure that all components of a building are planned, installed, and maintained according to an owner’s requirements

25. 3 Types of Basis of Payment
Stipulated (Lump) Sum
Unit Price
Cost-Plus Fee

26. Stipulated Sum Simplest method used
States that the contract requirements will be completed for a given amount of money

27. Unit Price
Used when the extent of work or actual quantities can not be determined when bids are made (earthwork is such an example)
Many civil engineering projects use unit price type of payment
With unit price, the owner pays for exactly what is documented as done after the work has been completed

28. Cost-Plus Fee
Contractor paid for actual cost of labor PLUS a fee for overhead and profit
Fee may be a percentage of the labor & material cost or a fixed amount
Cost-Plus Fee agreements may also include incentives for early completion
It is reasonable for the owner to require a guaranteed maximum price to ensure that the total project cost will not exceed a given amount