CON 2001 & CVE 4070 Construction Methods & Engineering L-3 Construction Contracts & Controls Prof. Ralph V. Locurcio, PE

Outline for today…  Contract Types & Controls  Work Breakdown Structure  Homework due Sept 11

Project Delivery Process… Next Step

Const Contract =3 Documents 1.The “Legal” document 2.The Plans or Drawings 3.The Specifications

The Project as a System…

Key steps in planning…  Review the contract: look for critical dates, deliverables, products, inspections & reviews & reports.  Consider the project environment and potential constraints.  Talk to the owner: be sure you understand the desired outcome, timing, cost and quality parameters.  Review the successful bid: to understand the nature of the contract, the approach, teaming, management and logistics.

Construction Contracts Types of contracts used in construction What are the differences How & why they are used

Contracts…  Essential to construction operations  What is a contract? Basically… it’s an offer and an acceptance between two parties. In construction… it’s a promise made by the owner and a reciprocal promise by the builder. Essentially a business tool to control risk. In our culture, it is a legal document that is enforceable by law.

The Agreement or Contract…  Outlines: the terms under which the project will be built.  Includes: items such as cost, time, management,reports, quality, penalties and all such details that define the owner’s “intent”.

Contract Documents… 1.The Agreement or Legal document The Scope of Work Agreement to Pay The Terms & Conditions 2.The Specifications 3.The Drawings Important Note: Unless otherwise specified this list is the “order of precedence” of the contract documents

Two general types…  Fixed price contracts… Scope is known Price is fixed by competition Changes only by contract modification Easiest to award and administer  Cost-reimbursable contracts… Scope is variable or unknown Price varies with work accomplished Changes are frequent Difficult to award and administer

Construction contracts…  Fixed price or lump-sum  Fixed-price with incentives  Unit-price  Indefinite quantity  Cost-reimbursable  Time & materials (T&M)  Cost-plus-fixed-fee (CPFF)  Cost-plus-incentive fee  Letter contract  Guaranteed Maximum Price (GMP) Design Build Fixed Price Cost Plus

Fixed-price contracts… =

Fixed price or Lump-sum contract…  Most common… “low bidder” contract  Price is “fixed” by the contractor’s bid  A set scope of work for a set price  Only changes are via change order  Requires complete set of plans & specifications … the “scope of work”  Selection via competitive bidding  Easiest to administer  Final price is known at time of award  A home run for the owner

Fixed-price incentive contract…  Same as fixed-price  But… profit is based on performance  Incentive formula must be clearly specified in contract documents  Requires a performance “rating”  Requires close supervision to ensure contractor hits performance target

Unit-price contract…  Modified form of “fixed-price” contract.  Based on “measurable” construction units.  Unit prices for tasks are fixed.  Used when total scope is unknown.  Contract scope is the total list of tasks.  Specifications govern quality of items or materials.  Unspecified tasks must be negotiated.  Used for pipelines, roadways, tunneling, etc.  Quantities purchased may be not be limited.  Called “Indefinite Quantity” or IDQ contracts

Cost-reimbursable contracts…

Cost Plus contracts…  Used when scope is unknown or owner does not have plans & specs.  Contractor is paid his actual costs for labor & materials plus a mark-up for overhead (+15%)  Profit is specified +10% mark-up of actual costs  Contractor must supply invoices for all expenses and certified time sheets for labor; audit of costs & invoices is essential  Contract documents define eligible costs such as labor categories, travel, rentals, permits, fees, other expenses… +

Time & materials contracts…  Used when scope is completely unknown and there is no time to design  Owner assumes all of the risk  Easy to write; difficult to administer  End price is unknown  Sometimes includes “upset” amount  Contractor can make substantial profit  Home run for the contractor!

Example of T&M contract… Materials cost$40,000* Labor cost $60,000* Sub-total $100,000 Overhead 15% $15,000* Sub-total $115,000 Profit 10%$11,500* Grand total $126,500 * These costs are VARIABLE!

Cost-plus-fixed-fee…  Actual costs paid for labor & materials  Overhead rate generally fixed  Fee is a “fixed” dollar amount that is specified in contract documents  Generally used when scope of work is known but no time to design  Contractor shares some risk  Provides owner some control

Cost-plus-incentive-fee…  Similar to cost-plus-fixed-fee  Contractor is paid an additional fee or bonus if certain specified conditions are met, such as time, cost or satisfaction of user  No bonus if conditions are not met  Incentive minimizes risk to owner  Intent is to “motivate” the contractor

Guaranteed maximum price…  Generally used in design-build work  Contractor agrees to a fixed maximum price  Contractor assumes all the risk and keeps all the savings  Owner provides “performance” spec  Contractor has maximum flexibility  Good for known standards, industrial or commercial work

Construction Controls Controls are used to keep project on track A set of tools… several are automated Essential to good Project Management Control Time, Cost, Quality

Construction Planning Checklist… 1. Long-lead items9. Interdependent tasks 2. Utility interruptions10. Environmental controls 3. Temporary utilities11. Special regulations 4. Labor12. Const equipment 5. Work/storage areas13. Construction timing 6. Traffic14. Owner’s operations 7. Temporary access15. Building codes 8. Other contracts16. Permits required

How do you eat an elephant?

One bite at a time!!! You break the total project down into measurable tasks…

Time Phased Budget Control

Construction Scheduling…  Common methods: 1.Bar Charts 2.Velocity Charts 3.Network Diagrams: CPM/PERT 4.Line-of-Balance Charts

Bar Chart Schedule…

Velocity Chart…

CPM Chart…

Management of Quality…  Definition of Quality Control  Definition of Quality Assurance  Designer’s responsibility  Contractor’s responsibility  Use of submittals to check quality

Submittal Process…

Key Estimating Activities

That’s all for today…

Class homework exercise:  Do research in your text, on the internet or in the library to describe these attributes for each of the 7 types of construction contracts: a.Advantages b.Disadvantages c.Risks taken by the owner d.Risks taken by the contractor e.When should this contract be used

Looking ahead… 8/181 Introduction, course requirements; Pyramid Handout 8/202Project Delivery System 8/253Stakeholders & Construction Organizations 8/274Contract Types & Construction Planning Pyramid Plan due 9/15Construction Contract Documents Pyramid Plan due 9/36Preconstruction & Bidding Processes; Write Resume 9/87Shop Drawings & Inspection Processes Resume due 9/108Project Organization & Responsibilities Resume due 9/159Tour Construction Project Site; Construction Handout Construction Report due 9/1710Disaster Recovery Construction Construction Report due 9/2211Test #1 & Critique Note: all PPT are on