Contract Pricing Methods Ch 2

Lump Sum –Contractor bids 1 price for entire project –Estimate needs to be detailed –Design needs to be finished before bid is finished –Profit or loss based on whether GC comes in under contract price

Unit Price Contracts –Exact quantities are not known Designer provides estimate of quantity Contractor provides a unit price including O+P

Cost Plus –Contractor charges cost plus a fee –Fee = profit and overhead –Used when costs not known (design not completed, soil conditions not known) –Guaranteed Max Price –Cost Plus with a cap

Insurance –Builder’s Risk Insurance Protects against project damage or destruction –General Liability Protects against 3 rd party injury or property damage –Property Damage Protects against damage to contractor’s property –Equipment Floater Protects against losses due to physical damage to equip – not operated on highways

Insurance –Automobile Protects against 3 rd party for bodily injury or property damage by contractor owned autos and equip operating on highways –Umbrella Liability Provides coverage against liability claims over the standard liability or auto insurance –Worker’s Comp Protects contractor from claims by employees from injury or death –Errors and Omissions Provides coverage against claims for defective designs

Selecting a Project Risk Analysis 1.2% of Construction Companies fail each year –Id sources of risk –Id range of possible events –Assess potential impacts of risk events –Id alternatives to mitigate risk impacts –Id consequences of alternatives –Select Risk management strategies

Selecting a Project Risk Analysis Adverse weather, material cost inflation, owners financial condition, limited skilled craftspeople or subs, bankruptcy of subs, incomplete design docs, project size, proj loc, project constructability & complexity –Solutions Avoid risk by walking away, share risk with another GC, purchase insurance, accept risk

Selecting a Project –Internal risks Unrealistic cost estimates, unrealistic schedules, ineffective project management Marketing –Getting customers –What market are you after? –Emphasize the characteristics of firm that are important to that market

Bidding Additive & Deductive alternatives –Fig 3-1 –Allows owner alternatives by adding/ deleting items from bid Negotiated bids –GC chosen based on qualifications –Bid is negotiated between owner and GC HMWK Read 3-6, EX 1,3