PROJECT ORGANIZATION

INTRODUCTION

On the construction projects that supervisors manage they will encounter different types of contracts, and those contracts will have been formed through various types of project procurement methods. Because of these facts, and because supervisors are likely to hear the names of a variety of different contracting systems in use by those around them, a number of different terms for types of construction projects and project procurement methods, as well as various contracting methods and various different forms of contracts, will be discussed. Supervisors will do well to understand this terminology, so that they will be more conversant with the language employed in this aspect of the construction industry. In addition, supervisors should realize that they may be involved firsthand with any of the systems discussed here on the construction projects that they manage.

TYPES OF PROJECTS

Construction projects can be classified in a number of different ways. One method of classification is to define projects as being either public projects (or contracts), or private projects (or contracts). Public projects are those where the owner is some level of government, or an agency of government, whether national or state government, or school district, and so forth. Public projects may also be defined as those where the dollars that are utilized to pay for the project are tax dollars or public funds. Public construction projects usually are closely regulated by legislation and/or by public policy. This is done in order to a void favoritism or nepotism, and to provide

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everyone in the contracting community an equal opportunity to participate. For example, legislation typically requires that public construction projects be announced to all interested and qualified parties through an advertisement for bids or public notice to bidders. Similarly, statutes typically require that when bids or proposals have been received on bid day, they must be opened and read publicly. In addition, the contracts for such projects usually must be awarded by competitive bidding, and the lowest valid bidder usually must be awarded the construction contract.

Construction projects that are classified as private projects are those where the owner is an individual or a business entity, whether a sole proprietorship, a partnership, or a corporation. Usually on private construction projects no tax dollars or public funds are involved in paying for the project. Private construction projects may be announced to contractors, and contracts for these projects may be awarded by any method that the private owner may elect to utilize.

OTHER CLASSIFICATIONS—TYPES OF CONTRACTORS

Construction projects, and the construction contractors who perform these projects, may also be categorized in terms of the type of work that is being performed. While a variety of different categories may be used, and while the differentiation between these categories of types of contractors is not always precise, the following are names for types of construction contractors that are commonly used.

It should be noted that these are names and classifications that construction contractors have chosen to identify themselves. There is neither a taxonomy nor a set of rules that determines the classification for a construction contractor other than the names by which contractors choose to identify themselves.

Residential Contractor

Residential contractors are those who construct residences of different types. Single-family residences, duplexes, apartments, and condominiums may be included in this classification.

Within this category, some residential contractors are speculative builders, while others are custom builders. Some residential builders construct both speculative and custom building projects.

Speculative builders are those who construct a residential building in the role of owner-builder. They acquire real estate, and a design for the residence, and then they build the facility and offer it for sale. Their hope is to sell the property to a new owner during, or soon after the completion of, the construction.

Custom residential builders are those who construct a residence for an owner by the terms of a contract between the owner and the builder. The owner will typically own the real estate on which the residence will be built, and the owner will have obtained a design for the facility to be constructed, either from the builder, from an architect, or from another source.

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Commercial Construction Contractor

Commercial contractors are those who build facilities, generally buildings, for businesses and also for other entities and owners. For example, contractors who refer to themselves as commercial contractors may build offices and other buildings for commerce, and may also build schools, government buildings, and churches. Some utilize the category “institutional construction” to refer to the construction of churches and school buildings. Commercial construction contractors also frequently refer to themselves as “general contractors.”

Industrial Contractor

Industrial contractors are those who build facilities for industry. Often, these facilities are highly specialized, and frequently the construction is decidedly different from other types of construction. Examples of industrial construction include petrochemical refineries, paper mills, manufacturing plants, chemical process facilities, and so on.

Heavy/Civil/Highway Construction Contractor

Some construction contractors refer to themselves as heavy construction contractors or as civil construction contractors. These contractors build facilities such as power plants, fresh water treatment plants, and wastewater treatment plants, as well as dams, aqueducts, storm drains, and the like. These facilities are typically designed by an engineer, rather than by an architect. Consequently, projects of this type are frequently referred to as “engineered construction.”

Highway contractors are builders of roads of all kinds. Usually these contractors also construct the bridges, culverts, storm drains, inlets, and so forth, which are accompaniments to highway construction.

However, as noted earlier in the discussion regarding contractors developing specialties, some contractors have developed a specialty of constructing bridges. These contractors do not perform the other elements of highway construction, only bridges.

Construction contractors make business decisions with regard to the type of construction projects they choose to perform. They acquire the skilled people, and the tools and equipment that are needed to become proficient and competitive and profitable in the segment of the business where they have chosen to operate.

PROJECT DELIVERY METHODS Design-Bid-Build

The design-bid-build project delivery method has, for many years, been the most commonplace method of project delivery for construction projects of all kinds. The process derives its name from the sequence in which the design and construction

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functions are performed. This project delivery method is also referred to as linear construction.

In the design-bid-build project delivery method, the process begins with the owner’s perceiving a need for the construction of a facility. Typically, the owner considers financing and budget for satisfying the need he has recognized. The owner subsequently enters a contract with an architect or engineer who will provide complete design services. The designer’s basic responsibility, as typically defined by the owner, is the creation of an original design for a construction project that will satisfy the needs of the owner, within the owner’s budget.

The owner’s contract with the designer usually includes responsibility for production of a complete set of drawings and specifications, which will communicate the design to the owner as well as to the contractor and which will define the deliverables in the construction contract. Additionally, complete design services usually include the designer’s authorship of all of the bid documents and contract documents for the project. The typical content of the set of bid documents and contract documents for a project is depicted in Figure 16.1.

In addition to providing the services noted above, the designer will typically provide contract administration services during construction and representation of the owner’s interests through observation of the work during construction, as well as closeout of the project, and administration of any warranty issues after construction is complete. As noted above, the exact nature of the services to be provided is set forth in the contract between the owner and the architect.

When all of the bid documents and contract documents have been produced and have been approved by the owner, the designer assists in announcing the project to construction contractors by means of an advertisement for bids, an invitation to bid, or a notice to bidders. Through these documents, contractors are made aware of the existence of the project, and they are provided a brief description of the project and the form of contract to be employed. Additionally, the contractors are provided information with regard to how to obtain bid documents and contract documents, and they are informed with regard to the date, time, and place where contractors’ proposals are to be submitted.

The designer administers the process of making bid documents and contract documents available to the contractors. In addition, the designer will answer contractors’ questions, and will provide interpretations and clarifications regarding the information in the contract and bid documents as requested, during the time when contractors are preparing their estimates, a time known as the bid period. Additionally the architect will respond to written requests for information (RFIs) from the contractors during this period.

In addition, the designer will issue addenda as he or she deems necessary during the bidding period. An addendum (the plural form of the word is addenda) is any modification to any provision of the contract documents or the bid documents for the project, issued by the designer during the bidding period. Addenda are issued in consecutively numbered sequence, and the designer will ensure that he or she sends each new addendum to all of the contractors who have received bid documents and contract documents. Usually when addenda are issued during the

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BID DOCUMENTS AND CONTRACT DOCUMENTS

FOR A TYPICAL

BUILDING CONSTRUCTION PROJECT

BID DOCUMENTS

1. ADVERTISEMENT FOR BIDS, NOTICE TO BIDDERS, INVITATION TO BID INSTRUCTIONS TO BIDDERS PROPOSAL FORM

CONTRACT DOCUMENTS

1. CONDITIONS OF CONTRACT

GENERAL CONDITIONS

MODIFICATIONS TO THE GENERAL CONDITIONS SUPPLEMENTARY GENERAL CONDITIONS SPECIAL CONDITIONS

2. DRAWINGS

3. SPECIFICATIONS

4. ADDENDA

5. ALTERNATES

6. AGREEMENT

7. MODIFICATIONS

AMENDMENT

CHANGE ORDER

CONSTRUCTION CHANGE DIRECTIVE

WRITTEN ORDER FOR A MINOR CHANGE

Figure 16.1 Bid Documents and Contract Documents for a Construction Project

bidding period, the architect will require written and signed acknowledgment from each contractor on their proposal submitted on bid day, that they have received and considered all of the addenda, identified by number, which were issued.

The designer will usually administer the process of receiving the contractors’ proposals on bid day and will conduct the bid opening process. The architect or engineer will then assist the owner with selection of the contract recipient, and with execution of the agreement between the owner and the contractor.

After the contract has been signed between the owner and the contractor, the contractor will proceed to performance of the contract requirements. Throughout this time, the architect or engineer will provide contract administration services for the owner as defined in the owner-architect contract.

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Design-Build

The design-build method of project delivery has been rapidly gaining in popularity as well as in commonness of use in recent years. Most professional practitioners believe that this project delivery method will soon become the most prevalent method for delivery of design and construction services. In fact, there are many who believe that the use of the design-build method has already surpassed the use of the design-bid-build method of project delivery.

The design-build method may also be referred to as the turnkey process or as the turnkey project delivery method. In the design-build system, the owner enters one contract with a single professional entity, and that firm has the responsibility for providing both design and construction services for the owner.

The design-build method of project delivery hearkens back to the time many years ago when there was a master builder who provided both design and construction services to the owner. Today, the design-build firm may be an architecture or engineering firm that is collaborating with, or that has entered a partnership arrangement or a joint venture arrangement with, a contracting firm to provide design-build services. Or, it may be a construction firm that has a collaboration agreement with a design firm, or it may be a construction company that has in-house design capability. Additionally, construction management firms (to be discussed in the next section) sometimes offer both design and construction capability.

The frequency of use of the design-build method is explained by the fact that there are numerous benefits to be derived by the owner through the use of this method of project delivery. Perhaps the most important of these benefits is the inherent communication and collaboration that are central to this process, between those who will produce the design for the project and those who will perform the construction, from the inception of the project to final completion. The contractor’s understanding of all aspects of the construction process and knowledge of construction materials, methods, connections, and details, as well as the contractor’s understanding of costs, estimating, and scheduling, are important assets that the contractor can bring to the project and that can be provided as input to the design process, from the time the project is first conceived.

Additionally, when owners utilize the design-build method of project delivery, they derive the benefit of one firm having singular responsibility to the owner, for all aspects of both the design and the construction. By contrast, in the design-bid-build system, designers usually produce the design, as well as authoring the bid documents and contract documents for the project, without any assistance or input from a contractor. Sometimes, after the construction contract is formed, there are miscommunications and misunderstandings, and at times there are disputes between the designer and the constructor regarding various elements of the project design, or with regard to a variety different contract issues. This may lead to delays, and additional costs, and perhaps claims. Additionally, these occurrences leave the owner, who simultaneously has a contract with the designer and the constructor, in the uncomfortable position of not knowing which of the professionals whose services it has engaged is correct. Owners who have endured such an experience

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are quick to say that the design-build method, with its single-point responsibility for all design and construction issues residing in one firm, can provide a significant benefit to the owner.

Many owners are electing to utilize the design-build method of project delivery today, because of the numerous benefits that this method provides for the owner. The use of design-build is now well established and is predicted to continue to grow.

Construction Manager

The construction manager is a professional who enters a contract with the owner to provide a variety of different services to the owner, as defined by the contract between the two parties. The concept of construction management became part of the design and construction process some years ago when design-bid-build was the predominant project delivery method, as owners sought the services of a third party to represent their interests in the owner’s contract with the architect and in the contract with the construction contractor. Construction management contracts were utilized when the concept originated, and they continue to be used today, in both the single contract system and in the separate contracts system.

The single contract and separate contracts systems are discussed in a subsequent section of this chapter. Figure 16.2 and Figure 16.3 provide a schematic indication of where the construction manager functions in each of these systems.

The construction manager as agent is graphically depicted below in Figure 16.2 and is further discussed in the paragraphs that follow.

The construction manager at risk is graphically depicted below in Figure 16.3 and is further discussed in the paragraphs that follow.

As the use of construction management contracts has continued and evolved, a variety of different services have come to be included in these contracts. The exact nature of the services provided by construction managers varies considerably; these services are, however, fully defined in the owner-construction manager contract. The fact that the concept has endured and has evolved into several variations is indicative of the fact that owners have recognized, and are willing to pay for, a series of services beyond those defined in traditional historical design contracts and construction contracts.

As the concept has evolved, construction management has come to be defined in two basic variations: construction management agency, which is often referred to as CMA, and construction management at risk, frequently referred to by the acronym CMAR. In the construction manager as agent arrangement, the construction manager enters a contract with the owner and by the terms of that contract, he represents the owner’s interests in the owner’s contracts with the architect and with the prime contractor(s). The construction manager has no contractual relationship with the architect, nor with the general contractor(s); he provides his counsel and assistance to the owner, and the owner then decides whether to take action or not.

In the construction management at risk (CMAR) contract form, the construction manager enters a contract with the owner whereby he has the responsibility for completing the construction project on time, at or under the stipulated price or the

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CONSTRUCTION

MANAGER -

ADVICE TO

OWNER

OWNER
ARCHITECT
PRIME CONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER
SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER
OWNER

CONSTRUCTION

MANAGER

ADVICE TO

OWNER

ARCHITECT
PRIME CONTRACTOR PRIME CONTRACTOR PRIME CONTRACTOR PRIME CONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER
SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER
Figure 16.2 Construction Manager as Agent
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OWNER
ARCHITECT

CONSTRUCTION

MANAGER AT RISK

(CMAR)

SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER

CONSTRUCTION

MANAGER –

ADVICE TO

OWNER

OWNER
ARCHITECT
PRIME CONTRACTOR PRIME CONTRACTOR PRIME CONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER
SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR
z
MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER
Figure 16.3 Construction Manager at Risk
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guaranteed maximum price. Often, this form of construction management contract is written by the owner in such a way that the construction manager can provide consulting services to the owner during design, and the construction manager may actually assist the owner in the selection of the design firm.

In construction management at risk, the construction manager acts as the general contractor during construction. The construction manager at risk contract form may be utilized in both the single and separate contracts systems, as noted in Figure 16.3, and may also be used in the design-build method of project delivery. Thus, the construction management firm frequently has responsibility for delivery of the project to the owner, from the onset of design through final completion of the construction of the project.

Fast Track

Fast track is a method of project delivery that is sometimes employed when the objective is to reduce to a minimum the time required for design and construction of a project. This method is also referred to as phased construction. Fast track involves the assumption of considerable risk on the part of the owner, with the objective of reaping a return in dollars and/or time sufficient to justify the exposure or risk.

In fast track construction, the design and construction functions for parts or phases of the project are “leapfrogged” with one another. Instead of waiting to start construction until a completed design for the entire building has been produced, those using the fast track approach design one part or phase of the work, and as soon as that design is complete, award a construction contract and begin construction on that phase.

While that construction is underway, design proceeds on the next phase of the project, with the objective of having that portion of the design completed by the time construction is complete on the preceding phase, or by the time the project is ready for construction on that phase to begin. A construction contract is then awarded for the most recently designed segment, while design proceeds on the next phase, and so on. This process continues until the project is complete.

For example, with some basic information in hand, and with some assumptions made with regard to other aspects of the design of the building and the complete facility, site work and utility design can be completed and a construction contract can be awarded for this phase. While that work is underway, design of the foundation for the building commences. Again, some basic determinations will have been made regarding building’s size and footprint, structural loads, and so forth, sufficient to allow a proper foundation design. As soon as that design is complete, and as soon as there will be no interference with site work and utility operations that may still be underway, a foundation construction contract is awarded. While foundation construction is underway, design work continues for the building’s structural system. In this fashion, the design and construction functions are “leapfrogged” with one another throughout the project.

The advantage of the fast track method is that construction of the project can begin at the earliest possible time, and the construction of each phase of the building

PROJECT ORGANIZATION 313

can begin without the need to wait for a complete design of the entire facility. This can significantly reduce the overall time required for design and construction.

The disadvantage, of course, is that when there is not a complete and integrated design for the building before construction commences, some retrofitting may be necessary, and some work may have to be removed and replaced or some parts of the project may be overdesigned because of the assumptions that needed to be made early, in order to allow construction to commence at the earliest time. The objective of fast track is to have the overall time and dollar savings that result from having the design and construction completed at the earliest possible time, be sufficient to compensate for the errors and the retrofitting and the “tear out and redo” that may result from not having a complete and integrated set of design documents in hand prior to the onset of construction, so that in the end there is a net gain for the owner.

Fast track is most commonly employed with the separate contracts system in use. Construction management services are also frequently used by the owner in the fast track method.

Value Engineering

Value engineering is not as much a project delivery system as it is an accompaniment to many of the project delivery systems in use today. Value engineering may or may not be utilized on a project at the discretion of the owner.

Conceptually, value engineering involves the owner and the architect seeking the input of the contractor with regard to his recommendations for alternative materials or systems that could be used on the project. The objective may be to reduce construction cost or to seek better value for the owner.

The circumstances in which value engineering is employed may vary considerably. Sometimes in competitive bid contracting, especially when the bids that are received from contractors exceed the owner’s budget, the contractor who submitted the lowest proposal price will be asked to “value engineer” the project. This endeavor will be focused upon the contractor putting forth alternative materials or systems that he may recommend, which could be delivered at a lower cost than what was designed and specified in the contract documents prepared by the architect that the contractor used to prepare his original proposal. The architect and the owner will assess the contractor’s recommendations and will decide whether to accept or to reject any or all. For those accepted, the contract documents and the contract price will be modified accordingly.

At other times in competitive bid contracting, the contractor may be asked to submit “value engineering” proposals as an accompaniment to the bid. These take the form of proposed alternates to the original contract documents and, again, usually include the contractor’s recommendations as to alternative materials or systems being proposed in lieu of what the original contract documents set forth, along with the change in price that would result from acceptance by the owner and architect.

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In like fashion, sometimes in negotiated contracting and in the competitive sealed proposals method of contract formation (to be discussed later in this chapter) the contractor will submit value engineering proposals for consideration. In each case, the contractor recommends alternative materials or systems that could reduce the contract price or that will provide better value for the owner. If the contractor’s recommendations are accepted by the architect and the owner, they are written into the contract agreement and are reflected in the contract price.

TYPES OF CONSTRUCTION CONTRACTS

Construction projects may be built by means of a single contract system or a separate contracts system. Various specific forms of contract may be utilized within the single contract system and the separate contracts system.

Single Contract System

In the single contract system, there is one prime contractor who has a contract with the owner. This contractor is responsible to the owner for the construction of the entire project, and for fulfilling all of the requirements set forth in the contract documents. The single contract system, illustrated in Figure 16.4, is the most common type of contract system in use today.

CONSTRUCTION

MANAGER -

ADVICE TO

OWNER

(SOMETIMES)

OWNER
ARCHITECT
PRIME CONTRACTOR
MATERIALS MATERIALS SUPPLIER SUPPLIER
SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR
MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER MATERIALS SUPPLIER
Figure 16.4 Single Contract System
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OWNER

CONSTRUCTION MANAGER -(SOMETIMES)

ARCHITECT

PRIME CONTRACTOR PRIME CONTRACTOR PRIME CONTRACTOR PRIME CONTRACTOR

^^v~~~~~~—

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MATERIALS \ MATERIALS SUPPLIER \ SUPPLIER MATERIALS \ MATERIALS \ MATERIALS SUPPLIER \ SUPPLIER I SUPPLIER

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SUBCONTRACTOR

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Figure 16.5 Separate Contracts System
Separate Contracts System

In the separate contracts system, depicted in Figure 16.5, there is more than one prime contractor who has a contract with the owner. Each separate prime contractor is responsible for the performance of a scope of work as defined in his or her contract, but that scope of work includes only a specific defined portion of the overall project.

When the separate contracts system is employed, the owner will subdivide the project into well-defined segments or phases, and will define a work package for each of the various parts. This will in turn define the scope of work for each of the separate prime contracts. A separate prime contract will then be awarded for each of the work packages. Sometimes the owner performs the function of subdividing the overall work to be done and defining the various work packages and the contents of the several separate prime contracts, if the owner has the experience and the expertise that are necessary to do so. At other times, the owner will utilize the services of a construction manager, in either a CM agency or a CM at-risk capacity, to perform this function.

When the separate contracts system is employed, it is imperative that there be some method in use for providing coordination among the various separate prime contractors. Again, the owner may sometimes perform this function, provided the owner has the experience and the expertise necessary to do so. Alternately, the owner may utilize the services of a construction manager to perform this function in its behalf. Additionally, the owner may structure the separate contracts in such a

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way that one of the separate contractors is designated as the “coordinating prime contractor.”

All of the separate prime contractors will be responsible the completion of their scope of work in accord with the provisions of their contracts. All of the separate contractors may elect to self-perform the work or may award subcontracts for the performance of some of the work in their defined work packages.

FORMS OF CONSTRUCTION CONTRACT AWARD

There are three basic methods by which the contract for construction may be awarded to a construction contractor: competitive bidding, negotiation, and competitive sealed proposals. Within each of these contract award methods, different specific forms of contracts may be utilized, as indicated in Figure 16.6.

Competitive Bid Contracting

Competitive bid contracting has been used historically and continues to be very widely utilized today for contracts for engineered construction, as well as for building

COMPETITIVE BID

NEGOTIATED

COMPETITIVE SEALED PROPOSALS
LUMP SUM LUMP SUM LUMP SUM
UNIT PRICE UNIT PRICE UNIT PRICE
COST PLUS A FIXED FEE COST PLUS A FIXED FEE
COST PLUS A PERCENTAGE OF COST COST PLUS A PERCENTAGE OF COST
COST PLUS A FIXED FEE OR PERCENTAGE OF COST WITH A GUARANTEED MAXIMUM COST PLUS A FIXED FEE OR PERCENTAGE OF COST WITH A GUARANTEED MAXIMUM
COST PLUS A FIXED FEE OR PERCENTAGE OF COST WITH A GUARANTEED MAXIMUM AND A SAVINGS OR INCENTIVE CLAUSE COST PLUS A FIXED FEE OR PERCENTAGE OF COST WITH A GUARANTEED MAXIMUM AND A SAVINGS OR INCENTIVE CLAUSE
Figure 16.6 Project Delivery Methods and Forms of Contracts
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construction. Competitive bid contracting has long been the most prevalent form of contract award.

In this method of contracting, the owner and the designer will prepare complete drawings, specifications, and contract documents, which will describe the project in detail and which will fully define the expectations of the owner in terms of what the contractor is to deliver in performing the project. Bidding documents will also be prepared, which will set forth the procedure by which contractors are made aware of the project and which will define all of the details and stipulations regarding the bidding and contract award procedures to be used.

Contractors, after they have learned of the existence of the contract documents and bid documents, will, if they are interested, obtain a complete set of these documents from the architect or engineer in accord with the procedures defined in the Advertisement for Bids or in the Invitation to Bid. They will examine these documents carefully and will then make a decision as to whether they are interested in proceeding, or not. If they are not interested, the contractors will return the bid and contract documents to the architect or engineer.

If a contractor is interested in proceeding with the effort to secure a contract award for the project, the contractor will embark upon the estimating process. As described in Chapter 12, the contractor will prepare a detailed estimate for the project and will then prepare a proposal for submittal to the architect or engineer on the designated day, which is called bid day, at the designated time and place.

The contractor will independently prepare a proposal and will submit it to the architect and owner on bid day, in competition with the other contractors who have made a decision to submit a proposal for the project. The architect or engineer will receive all of the proposals from all of the bidding contractors and will analyze each proposal as well as the credentials of the contractor who submitted it, and will, within the number of days set forth in the bid documents, decide who the contract recipient will be.

The contractor whose proposal has been accepted will be notified of this fact and will be notified to meet with the architect or the engineer and the owner in order to formalize the contract by signing the agreement. The contractors who were unsuccessful bidders will likewise be notified that their proposals were not accepted and that they will not be receiving the award of the contract.

After the successful contractor has signed the agreement, a letter of intent or notice to proceed will be issued by the designer and the owner to the contractor. This document will authorize the contractor to commence work on the project, and will denote the beginning of contract time. The contractor will then occupy the construction site, and will commence construction operations.

The competitive bid contract award procedure has, as noted above, been in use for many years. It offers the advantage for the owner that, if the contract documents fully describe the project and all of the contractor’s obligations (and all that the owner will receive) under the contract, the owner will then be the beneficiary of competition among the contractors on the basis of which contractor can deliver the work as defined in the contract documents for the lowest price.

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Lump Sum Competitive Bid Contracting

The lump sum competitive bid method of contract award has, for many years, been the most prevalent method of contract award for building construction work. This system is also referred to as “hard money contracting.”

In this system, the contractor’s estimating procedure results in a single lump sum figure, which represents the exact amount of money for which the contractor is willing to enter a contract to fulfill all of the requirements set forth in the contract documents. Each contractor will independently prepare an estimate for the project and will submit his lump sum figure on his proposal form on bid day, in competition with all of the other contractors who are bidding the project. The expectation is that the dollar amount that the contractor has entered on the proposal will become the contract amount if the contractor is selected by the owner to be the contract recipient.

Lump sum competitive bid contracting is possible in building construction projects because when the drawings and specifications and other elements of the contract documents completely and accurately describe the expectations of the designer and the owner, the contractors can accurately determine the quantities and prices for all of the materials and equipment to be provided and for all of the work to be done. Contractors are able to use their estimating process to arrive at a lump sum proposal amount for the project. This method of contract award has served owners well for many years and, thus, remains in common use today.

Unit Price Competitive Bid Contracting

Unit price competitive bid contracts are most commonly used on highway construction projects, as well as on earthwork cut-and-fill projects such as dams and levees. These types of projects are almost always designed by an engineer rather than by an architect and, as noted earlier, are often referred to as “engineered projects.”

This contracting method is often used by owners because it offers the owner the same advantages as competitive bid contracting, as discussed previously. Additionally, because the types of projects where these contracts are employed are often public projects, laws typically require the use of competitive bid contracts.

Unit prices, dollars per unit of quantity, are used as the basis for contractor selection, and after the contract is formalized, these same unit prices are used as the basis for payments made to the contractor by the owner. The reason for the use of the unit price method is that on the types of projects where the use of these contracts is commonplace, actual quantities of materials and actual quantities of the work to be performed cannot be determined in advance with sufficient accuracy to permit lump sum estimating and pricing.

On projects of this kind, the design engineers will derive approximate quantities and will provide them to the bidding contractors for use in preparing their proposals. When the contract recipient has been selected and the work is performed, the actual quantities that are necessary to meet project design requirements are measured and verified, and then paid for by the owner on a unit price basis.

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In the unit price system of contract award, the owner and design engineers will typically provide a listing of the major activities, steps, or operations to be performed in the work. With each activity, the engineer provides an estimated approximate quantity of that material or work activity. The owner will require the contractor to enter a unit price, that is, dollars per unit of quantity, for which the contractor proposes to complete each activity or work item named on the proposal form in such a way as to satisfy the requirements of the contract documents. An example of a typical unit price proposal form is provided in Figure 16.7.

In preparing the estimate, the contractor will analyze each activity that the owner has named and will consult the drawings, specifications, and other contract documents for all of the requirements that pertain, and then will compute a price for performing that activity or work item in such a way as to comply with the requirements of the contract documents. This price will be the sum of the contractor’s anticipated costs for materials, labor, equipment, project overhead, and general overhead, as well as his markup. The contractor will then divide the total estimated cost for each activity by the owner’s estimated quantity (or perhaps by his own determination of estimated quantity) in order to calculate the unit price (dollars per unit of quantity) that will be entered on the proposal form. The contractor will use the same procedure for determining the unit price for each of the activities and work items listed on the proposal form.

The contractor will complete the estimate, prepare the proposal, and will submit the proposal, usually in a sealed envelope, on the designated date and at the designated time and place, in accord with the instructions to bidders in the bid documents that are received from the engineer. The engineer will receive all proposals from all of the contractors who are bidding the project at that time.

After all proposals have been received, each will be analyzed by the engineer and the owner to determine which of the contractors has submitted a valid proposal that will result in the lowest total cost to the owner. That contractor will usually be named the contract recipient.

When the agreement is signed, the unit prices on the contractor’s proposal will become the contract prices for the performance of the work in each named activity or work item. As the work on the project is performed, both the contractor and the engineer will tabulate quantities of each named activity or item of work that is actually performed in fulfilling the requirements of the contract documents.

Prior to each monthly application for payment by the contractor, the engineer and the contractor will review their records regarding actual quantities satisfactorily installed and will reconcile any differences. The engineer will then authorize the owner to make payment to the contractor for the actual quantity of each activity satisfactorily completed, multiplied by the unit price for that activity, less retainage.

This process is continued until the project is complete. It is important to note that the owner will provide, and the contractor will receive, payment for the actual quantity of each activity or work item installed or performed at the contracted-for unit price, without regard to whether this actual quantity is greater than, or is less than, the quantity originally estimated by the engineers during design.

SAMPLE UNIT PRICE PROPOSAL FORM
COURTESY BIG CREEK CONSTRUCTION
PROPOSAL FORM TO BE SUB*

county: brazos project hwy fm 60 engineer’s estimate: $ 1,274,096.98

nSr bid item description

AITTED C UNITS N BID D/ QTYS.

UNIT BID

EXTENSIONS

Current Extension CONTRACTOR’S ESTIMATING WORKSHEET AREA NOT SHOWN ON PROPOSAL FORM TO BE SUBMITTED

Labor Cost Total Material Total Misc Trk Total Sub Cost Total Per Unit Labor Cost/Unit Material Per Unit Misc Trk Per Unit Sub

0.00

0.00

0.00

0.00

0.00

CY

894

0.00

0.00

0.00

0.00

0.00

316

AGGR (TY-PB GR-4 OR TY-PL GR-4 SAC-BI

GAL

43355

0.00

0.00

0.00

0.00

0.00

316

ASPH(AC-15P OR20-5TR OR20XP OR 10-2TRI

TON

282

0.00

0.00

0.00

0.00

0.00

341

D-GR HMA(QCQA) TY-C PG70-22 SY

14177

0.00

0.00

0.00

0.00

0.00

354

PLANE ASPH CONC PAV10″ TO 1 “I SY

11378

0.00

0.00

0.00

0.00

0.00

354

PLANE ASPH CONC PAV10″ TO 2″| SY

3609

0.00

0.00

0.00

0.00

0.00

354

PLANE ASPH CONC PAV (1″) SY

2560

0.00

0.00

0.00

0.00

0.00

354

PLANE ASPH CONC PAV (2″| LS

1

0.00

0.00

0.00

0.00

0.00

500

MOBILIZATION

MO

3

0.00

0.00

0.00

0.00

0.00

502

BARRICADES, SIGNS AND TRAFFIC HANDLING

EA

5076

0.00

0.00

0.00

0.00

0.00

662

WK ZN PAV MRK SHT TERM (TAB| TY W EA

3978

0.00

0.00

0.00

0.00

0.00

662

WK ZN PAV MRK SHT TERM (TAB) TY Y-2 LF

7435

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (W) 4″ (BRK)HOOMIL) LF

236

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (W) 8″ (DOT)HOOMIL) LF

13937

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (W) 8″ (SLD)(100MIL) LF

2691

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (W) 12″|SLD||100MIL| LF

1264

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (W| 24″(SLD)(100MIL) LF

1755

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (Y) 4″ (BRK)(100MIL) LF

29280

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (Y) 4″ (SLD)H 00MIL) LF

676

0.00

0.00

0.00

0.00

0.00

666

REFL PAV MRK TY 1 (Y) 24″(SLD|( 100MILI EA

44

0.00

0.00

0.00

0.00

0.00

668

PREFAB PAV MRK TY C (W) (ARROW) EA

1

0.00

0.00

0.00

0.00

0.00

668

PREFAB PAV MRK TY C (W) (DBL ARROW) EA

2

0.00

0.00

0.00

0.00

0.00

668

PREFAB PAV MRK TY C (W) (RR XING) EA

27

0.00

0.00

0.00

0.00

0.00

668

PREFAB PAV MRK TY C (W) (WORD) EA

36

0.00

0.00

0.00

0.00

0.00

668

PREFAB PAV MRK TY C (W) (BIKE ARROW) EA

36

0.00

0.00

0.00

0.00

0.00

668

PREFAB PAV MRK TY C (W) (BIKE SYMBOL) EA

606

0.00

0.00

0.00

0.00

0.00

672

REFL PAV MRKR TY l-C

EA

672

0.00

0.00

0.00

0.00

0.00

672

REFL PAV MRKR TY ll-A-A LF

1512

0.00

0.00

0.00

0.00

0.00

688

VEH LP DETECT (SAWCUT)

TON

459

0.00

0.00

0.00

0.00

0.00

3131

CAM ASPHALT (PG 70-22)

TON

5678

0.00

0.00

0.00

0.00

0.00

3131

CAM AGGREGATE SY

31724

3173

SALVAGED RAP (CREDIT ITEM)(0″-3″)
Figure 16.7 Unit Price Proposal Form
PROJECT ORGANIZATION 321
Negotiated Contracting

Construction contracts can also be, and frequently are, formed through negotiation rather than through competitive bidding. While negotiations can take many forms and can be performed in numerous different ways, the underlying concept is that the owner and the prime contractor will negotiate, or bargain for, the terms and provisions of their contract. Whatever the two parties can bargain for and decide, absent fraud or any other kind of criminal activity, becomes the contract.

Negotiated contracts are almost never used for public construction projects because the laws that regulate contract formation on these projects require the use of open competitive bidding. On private construction projects of all kinds, however, negotiated contracts are commonly employed.

Forms of Negotiated Contracts

Lump Sum

Lump sum contracts for construction projects can be, and sometimes are, negotiated. The contractor and the owner negotiate for the conditions of the contract, and oftentimes may include discussions regarding alternate materials for use on the project on the basis of value engineering. The negotiations culminate in the contractor providing a lump sum dollar amount for which the contractor is willing to complete all requirements of the contract as negotiated and agreed to.

It is important to note that if a lump sum negotiated contract is to be agreed to, the owner must be able to provide the exact scope of work, and the exact specifications for the materials and building systems to be employed, as well as definitive standards for the quality of work to be performed. Only when these conditions are in place can the contractor determine a lump sum amount for performing the requirements of the contract.

Unit Price

The terms of unit price contracts for construction projects can also be negotiated between the owner and the prime contractor. The parties can negotiate for the conditions of the contract, and they can also negotiate the activities or work items to be defined in the work, as well as the unit prices for the performance of each of these work items. This can be especially useful on engineered projects, where exact quantities of the materials required and/or of the work to be performed cannot be determined in advance of construction. Additionally, this method can be useful on restoration, renovation, and remodeling projects, where exact quantities cannot be determined in advance of performing the work.

Cost Plus or Cost Reimbursable

Cost plus contracts, also known as cost reimbursable contracts, are very frequently negotiated and are utilized for a variety of construction projects. While they may contain many different provisions, and may take a number of different forms, the basic provisions of cost plus contracts are that the owner will pay or will reimburse

322 PROJECT SUPERVISION
the contractor’s costs of construction, and in addition will pay the contractor an agreed-upon fee for his services.

Cost plus contracts are commonly employed for any of the following reasons:

1. When the work to be done does not lend itself well to the preparation of complete drawings and specifications in advance of construction

2. When the exact scope of work is unknown at the time construction commences

3. When the nature of the work does not lend itself to exact quantity determinations and/or price determinations before construction is to get underway

4. When speed in commencing construction is an objective

5. When one of the objectives is to remove or minimize risk in the project for the contractor, thereby making the project more attractive and/or resulting in a better price

When cost-plus contracts are negotiated, there are several considerations that should always be included as part of the negotiation and contract formation. Among these are the following:

1. Mutual understanding and firm definition of costs that are reimbursable to the contractor and costs that are nonreimbursable.

2. Whose accounting person or department will be used for project accounting.

3. Generally an “open books” accounting method is employed, whereby all accounting documents for the project are available and transparent to both the owner and the contractor.

4. Regular audits of the contractor’s payroll records and/or materials invoices on the part of the owner.

5. Clear understanding must be derived regarding contractor’s general overhead and project overhead costs that are to be allocated to the particular project.

6. The subcontract award and subcontract payment procedures to be employed.

7. Responsibility for errors in the work, and for rework.

8. Provisions regarding the requisite quality in the workmanship and for rejection and replacement of nonconforming work.

9. When the contractor’s fees are payable.

10. Termination of the contract.

11. Warranty provisions.

Basic Forms of Cost Plus Contracts Cost Plus a Fixed Fee

The owner will reimburse the contractor’s costs of constructing the project as the costs have been defined and agreed upon, as discussed previously.

PROJECT ORGANIZATION 323

Over and above those costs, the owner will pay the contractor an agreed-upon lump sum fee.

In order for this variation of cost plus to be workable for the contractor, a relatively firm definition of scope of work is required. A significant drawback of this form of contract, which is often troublesome for owners and for the financial institutions that provide construction financing and permanent financing for the project, is the fact that the contract form places no upper limit on what the total cost of construction will be. This form of contract is referred to as an open-ended contract.

Cost Plus a Percentage of Cost

The owner will reimburse the contractor’s costs of construction and in addition will pay a negotiated agreed-upon percentage of all of the project costs to the contractor, as a fee for performing the work on the project.

This form of contract is very useful when the scope of work cannot be accurately defined in advance or when the intent is to get the work underway at the soonest possible time without awaiting complete definition and determination of scope of work. This contract form is also very widely used in restoration, renovation, remodeling, and adaptive reuse projects, where the variables that will be encountered in the performance of the work cannot be defined and predicted in advance. This is also a form of open-ended contract.

Cost Plus a Fixed Fee or Percentage of Cost with a Guaranteed Maximum

The owner will reimburse the contractor’s costs of construction, and over and above those costs will pay either an agreed-upon lump sum fee or an agreed-upon percentage of those costs to the contractor as a fee for performing the work on the project. The contract also contains an additional provision for a guaranteed maximum on the part of the contractor. This means that the contractor guarantees to the owner that the total cost of the construction project will not exceed the guaranteed maximum amount.

If the contractor’s costs for performing the agreed-upon scope of work to the agreed-upon level of quality exceed the guaranteed maximum amount, the contractor still must complete the project and must fulfill all of the requirements set forth in the contract documents. However, the contractor will pay for all additional costs beyond the guaranteed maximum amount. This places the contractor at risk for completing the project for a price at or less than the guaranteed amount. This contract form also avoids the difficulties associated with open-ended contracts. Complete definitions of the scope of work, and of the quality of materials and workmanship to be provided, are required in order to make this contract form workable.

In this form of contract the contractor is in a risk-taking position, and the owner has a guarantee of the upper limit of the cost of construction. Sometimes the point has been offered for applying, however, that there is little incentive for the contractor to complete the work at a price less than the guaranteed maximum, and that there is no reward for the contractor for

324 PROJECT SUPERVISION

applying skill and good management in such a way as to complete all project requirements for an amount less than the guaranteed maximum.

Cost Plus a Fixed Fee or Percentage of Cost with a Guaranteed Maximum and a Savings or Incentive Clause

The owner will reimburse the contractor’s costs of construction, and over and above those costs will pay either an agreed-upon lump sum fee or an agreed-upon percentage of those costs to the contractor as his fee for performing the work on the project. Additionally, a guaranteed maximum amount is negotiated, so that the contractor must complete the work to satisfy contract requirements for an amount not greater than the guaranteed maximum amount. If the contractor cannot complete the project for the guaranteed maximum amount or less, the contractor still must complete the defined work and must fulfill all contract requirements; however, all additional costs to complete, beyond the guaranteed maximum amount, must be borne by the contractor.

In addition, in this form of contract, the contractor and the owner will negotiate a number, called a target figure, also referred to as an upset figure, which is equal to or less than the agreed-upon guaranteed maximum amount. The owner and the contractor agree (and write into the contract) that for each dollar less than the target figure for which the contractor can satisfactorily complete all of the requirements of the contract, there will be some split of those dollars between the owner and the contractor. The amount of the split payable to the owner and to the contractor is negotiated and agreed-upon, and is written into the contract.

There are advantages as well as disadvantages for the parties to the contract associated with each of these variations of cost plus contracts. A basic summary of these considerations is provided in Figure 16.8.

Competitive Sealed Proposals

Competitive sealed proposals is a relatively new method of contract award that is, however, widely used today and that is growing in popularity. When this method is used, the owner invites contractors to prepare proposals for a project for the owner. Each contractor will independently prepare a proposal in accord with instructions and guidelines that the owner has provided, and will submit that proposal to the owner at the time specified by the owner.

These proposals may include construction services, construction management services, or design-build services. They may include value engineering of a design that the owner has furnished. These competitive sealed proposals also will commonly include the contractor’s proposed time schedule for the performance of the work. The price that the contractor submits may be a lump sum, a series of unit prices, or one of the variations of cost plus.

In addition to describing the professional services that the contractor will provide, the competitive sealed proposal will contain a great deal of additional

PROJECT ORGANIZATION 325

VARIATIONS IN FORMS OF COST PLUS CONTRACTS,

AND ADVANTAGES AND DISADVANTAGES

INHERENT IN EACH FORM

ADVANTAGES

DISADVANTAGES

-

COST PLUS A FIXED FEE

Some flexibility for the owner to make changes. Open-ended contract for owner. Owner does not know what the final cost of the construction will be, nor what the maximum cost of the construction will be.
Some flexibility for the contractor to accommodate changes by the owner. Open-ended contract form is very troublesome for lenders who provide construction and permanent financing for construction projects.
Open-ended contracts are also very troublesome for those who provide insurance and bonds for construction projects.
Since his fee is predetermined and is written into the contract, the contractor will require relatively firm definition regarding the scope and duration of the work, as well as the quality of materials and workmanship to be provided.

-

COST PLUS A PERCENTAGE OF COST Maximum flexibility for the owner to make changes in the work, including making changes in the scope of the work. Open-ended contract for the owner. No definition of what the final cost of the project will be.
Maximum flexibility for the contractor in accommodating changes made by the owner. Open-ended contract form is very troublesome for lenders who provide construction and permanent financing for construction projects.
Minimum risk for the contractor. Open-ended contracts are also very troublesome for those who provide insurance and bonds for construction projects.
No incentive, at least by the terms of the contract, for the contractor to be efficient, or effective, or cost-conscious.

-

COST PLUS A FIXED FEE OR PERCENTAGE, WITH A GUARANTEED

MAXIMUM

Provides definition for the owner, and for those financing the project, for what the maximum cost of the project will be. Requires the owner to provide firm definition of project scope and duration. Owner also must provide complete definition of materials quality and standards of workmanship in the form of specifications.
Provides definition for the owner, and for those financing and insuring and bonding the project, for what the maximum cost of the project will be. Places the contractor at risk for completing the project requirements for a sum not to exceed the guaranteed maximum amount.
No reward for the contractor, if he exercises his skill and good judgment, and thereby completes the project for significantly less than the guaranteed maximum amount.
Requires the owner to provide firm definition of project scope and duration, as well as for quality levels of materials and workmanship to be provided.

-

COST PLUS A FIXED FEE OR

PERCENTAGE, WITH A GUARANTEED

MAXIMUM AND A SAVINGS OR

INCENTIVE CLAUSE

Provides definition for the owner, and for those financing and bonding the project, for what the maximum cost of the project will be. Places the contractor at risk for completing the project requirements for a sum not to exceed the guaranteed maximum amount.
Provides an incentive for the contractor to complete the project with maximum efficiency and cost consciousness, while satisfying scope and quality requirements as established by the owner. Requires the owner to provide firm definition of project scope and duration, as well as for quality levels of materials and workmanship to be provided.
Provides the owner an opportunity to share in the savings resulting from the contractor’s efficiencies.
Figure 16.8 Advantages and Disadvantages of Various Cost Plus Contracts
326 PROJECT SUPERVISION

information about the contractor’s background and experience, portfolio of projects completed, and the history of owners the contractor has contracted with and performed work for, along with those owners’ contact information. The credentials of the contractor’s estimating and scheduling and management personnel will be provided, often including the resumes of the project manager as well as the superintendent or foremen who will manage the owner’s project.

Contractors will typically be required to submit information regarding their safety policies, as well as their accident history, and their Experience Modifier Rating. Additionally, the owner will usually request a copy of a contractor’s quality assurance policy or total quality management (TQM) program.

In addition, owners commonly require the prime contractors to include in their submittal, the names and credentials of the major subcontractors whom they will plan to use on the project. Lists of projects completed, including projects of the size and type the owner envisions, are commonly required for the key subcontractors. Additionally, lists of references from owners, general contractors, construction managers, and others must commonly be furnished, as well as copies of the subcontractors’ written quality management and quality assurance programs. In addition, usually the subcontractors’ key management and craft labor personnel and their credentials must be provided, including the names and qualifications of the subcontractors’ project manager and supervisor who will be assigned to this project. This allows the owner to evaluate all subcontractors before the project is awarded, including their financial capability to handle a project of the size and type the owner is planning to construct.

The owner will receive this comprehensive package of information in the form of competitive sealed proposals from each of the contractors that it has invited to submit on the project. The owner, frequently with the assistance of an architect, engineer, or construction manager, will review each competitive sealed proposal in detail, in order to determine who the contract recipient will be, who will be selected to enter a contract to perform the owner’s project. Sometimes a point system is established by the owner, in order to provide the owner a means of quantitatively assessing various components of each contractor’s submittal.

Sometimes the owner will make a preliminary assessment of all of the submittals, and then will invite some of the contractors who have received good evaluations on their submittals, and who are now finalists to receive the contract award, to prepare verbal presentations for the owner and its design team or management staff. At the conclusion of this process, the owner will make the selection of the contract recipient who will perform his project.

The intent of competitive sealed proposals is to provide the owner with a great deal of information with regard to each of the contractors who is submitting a proposal, to assist it in making the best choice regarding the contract recipient. Owners frequently use the expression “best value” in describing their process of evaluating competitive sealed proposals and determining who the contract recipient will be. Contractors are afforded the opportunity to provide not only their price but also information regarding their experience and their qualifications. Additionally, this method of contract award allows contractors to input their expertise regarding materials and systems for use in the project.

PROJECT ORGANIZATION 327
OTHER FORMS OF CONTRACTS Time and Materials Contracts

Owners and contractors sometimes enter contractual arrangements wherein construction work is to be done on a “time and materials” basis. These arrangements are essentially the same as cost-plus contracts.

The owner agrees to reimburse the contractor for the cost of materials, and beyond those costs, agrees to pay the contractor an agreed-upon number of dollars per hour, per day, per week, per month, and so on for the work. The dollars per unit of time agreed upon will compensate the contractor for labor costs, as well as equipment costs and overhead costs, and will include markup.

Job Order Contracting

This contracting arrangement is often used for building maintenance or for facilities management contracts but is applicable to other forms of construction work as well. In this form of contract, the owner will compile a list or a schedule of operations or items of work that it has need for, or that it anticipates it may have need for, during a defined period of time, such as one year. The description of each item of work will include a complete definition of the scope of work, as well as specifications for the level of quality of materials and workmanship to be provided in performing this work package.

The owner will then enter into an agreement with a contractor, often after receiving proposals or price quotations from several different contractors, on a dollar figure for the performance of each work package, in compliance with the specifications. Response times and durations of work for each of the activities are also typically included in the agreement.

Subsequently, when the owner finds itself in need of one of the services described in the job order contract, it will contact the contractor, who will then respond and will perform the work as described and specified. Following completion of the work, the contractor will invoice the owner for the work at the agreed-upon rate, and the owner will make payment to the contractor.

PROJECT ORGANIZATION AND RELATIONSHIPS

In addition to understanding the project procurement and project delivery methods, and the forms of contract that were discussed in the preceding section, the supervisor should also be familiar with the organizational relationships that exist among the people who are involved on a construction project. Chapter 1 defined the typical roles of the owner, architect, engineer, consultant, construction manager, prime contractor, subcontractor, sub-subcontractor, and vendor. The contractual relationships among these people who are the typical participants on a construction project were also depicted visually. For reference, that representation is again depicted in Figure 16.9.

328 PROJECT SUPERVISION
Figure 16.9 Contractual Connections and Hierarchy of Contracts on a Building Construction Project

Additionally, Chapter 2 discussed and depicted the typical functional organization of a construction company home office as well as the typical functions of the people who work there. For reference, those functions and relationships are again shown in Figure 16.10.

Prime Contractor’s Project Organization

The prime contractor on a project, who is often referred to as the general contractor, will typically have a project superintendent as his chief management person on the construction site. The superintendent is the person responsible for the day-to-day on-site management of all aspects of the construction project. He has the responsibility of managing all of the other people and firms who are performing work on the site. The superintendent will typically interact with the project manager for his company as he performs his work, and often may interact with the contractor’s home office as well.

PROJECT ORGANIZATION 329

PRESIDENT

OR

CEO

VICE PRESIDENT

OR

CHIEF OPERATING

OFFICER

STAFF

BUSINESS DEVELOPMENT AND

RECEPTION

PROJECT CONTROL

BILLINGS AND DISBURSEMENTS

SALES AND MARKETING

PAYROLL

SAFETY PROGRAM MANAGER

COMPANY ACCOUNTING

INSURANCE AND BONDING

AND RECORDKEEPING

PURCHASING

HUMAN RESOURCES/PERSONNEL

EXPEDITING

CLERICAL

COST ESTIMATING HISTORICAL COST INFORMATION

DATABASE

SCHEDULING AND SCHEDULE

UPDATES

PROJECT COST CONTROL

OFFICE ENGINEER/PROJECT

ADMINISTRATON

CHANGE ORDERS

RFIS
SUBMITTALS
Figure 16.10 Typical Construction Company Home Office Organization
330 PROJECT SUPERVISION

The superintendent for the general contractor will manage, schedule, and coordinate the work of all of the subcontractors who are performing work on the project. To accomplish this function, the superintendent usually works with the supervisor for each subcontractor’s workforce at the site. At times, the superintendent may interact with the project manager for the subcontractors’ companies in managing the work of the subcontractors.

Additionally, if the general contractor is self-performing some of the work on the project, the superintendent will manage and coordinate the supervisor or foreman of the general contractor’s crew(s) of craft workers, as well. These relationships are illustrated in Figure 16.11.

PRIME CONTRACTOR HOME OFFICE
PROJECT MANAGER
PROJECT SUPERINTENDENT

PRIME

CONTRACTOR’S

CRAFT LABOR

SUPERVISOR

OR FOREMAN

SUBCONTRACTOR’S CRAFT LABOR SUPERVISOR OR FOREMAN SUBCONTRACTOR’S CRAFT LABOR SUPERVISOR OR FOREMAN

SUBCONTRACTOR’S

PROJECT

MANAGER

CRAFT WORKER CREW CRAFT WORKER CREW CRAFT WORKER CREW SUBCONTRACTOR’S CRAFT LABOR SUPERVISOR OR FOREMAN
CRAFT WORKER CREW
Figure 16.11 Prime Contractor’s Project Organization
PROJECT ORGANIZATION 331

SUBCONTRACTOR

COMPANY

HOME OFFICE

SUBCONTRACTOR’S PROJECT MANAGER
SUPERVISOR SUPERVISOR SUPERVISOR
CRAFT WORKER

OR CRAFT WORKER CREW

CRAFT WORKER

OR CRAFT WORKER CREW

CRAFT WORKER

OR CRAFT WORKER CREW

CRAFT WORKER

OR CRAFT WORKER CREW

CRAFT WORKER

OR CRAFT WORKER CREW

Figure 16.12 Subcontractor’s Project Organization

Subcontractor’s Project Organization

Each of the subcontractors on a construction project will typically employ a management structure similar to that depicted in Figure 16.12. A project manager will interface between the home office of the subcontracting company and the people who perform the work at the construction site. These people will be the supervisor or foreman and the craft workers who compose the crew(s) who perform the work. Depending upon company policy and the size of the individual construction projects, a subcontractor’s project manager may manage and coordinate a single project, or more typically, may be coordinating a number of different projects.

For each of the construction projects that the subcontracting company performs, there will typically be a supervisor who is responsible for all aspects of the subcontractor’s work on the construction site. This person may be referred to as a supervisor, a foreman, or perhaps a site superintendent or superintendent. Depending on company policies, this supervisor may be responsible for performing management duties exclusively, or he or she may perform some craft labor work along with performing management functions at the job site. Depending on the size of the project, the supervisor may manage one crew of craft workers, or he or she may manage several crews on the construction site.

SUMMARY

Numerous project procurement and delivery methods and numerous different forms of contracts are employed in the construction industry. The supervisor may be involved with any one of them, or any number of them, during his or her management career. It is, therefore, important that he or she be conversant with the terminology

332 PROJECT SUPERVISION

and the basic working of the various methods and systems that have been discussed in this chapter.

In addition, the typical organizational structure that prime contractors and subcontractors utilize for their businesses and in the performance of their contracts were discussed. This provides supervisors with a context for knowing where they and their work fit into the larger picture of the business enterprises that perform construction work.

The types of projects, types of contractors, forms of contract, and methods of project delivery discussed in this chapter include the following:

Public and Private Projects

Types of Contractors

Residential Contractors Speculative Builders Custom Builders

Commercial Construction Contractors

Industrial Contractors

Heavy/Civil/Highway Construction Contractors

Project Delivery Methods

Design-Bid-Build

Design-Build

Construction Manager Construction Manager as Agent Construction Manager at Risk

Fast Track

Value Engineering


Types of Construction Contracts

Single Contract System

Separate Contracts System


Forms of Construction Contract Award

Competitive Bidding Lump Sum Competitive Bid Unit Price Competitive Bid

Negotiated Contracting Lump Sum Unit Price Cost Plus

◦ Cost Plus a Fixed Fee

◦ Cost Plus a Percentage of Cost

PROJECT ORGANIZATION 333

◦ Cost Plus a Fixed Fee or Percentage with a Guaranteed Maximum

◦ Cost Plus a Fixed Fee or Percentage with a Guaranteed Maximum and a Savings Clause

Other Forms of Contracts

Time and Materials Contracts

Job Order Contracting

Learning Activities

1. Find out the specific form of contract that is in effect on the project where you are currently supervising and see how it fits into the context of various contract forms discussed in this chapter.

If your firm is a subcontractor on this project, find out the form of contract used for the prime contract. If your firm is the prime contractor on your project, find out the contract form used for the subcontracts.

2. Understanding more about risk analysis.

Look again at the various forms of contract methods that are employed in the construction industry. They are recapitulated in the end-of-chapter summary above.

Think of each of them now in terms risk analysis, a concept that is discussed in several sections of this book.

Think about where risk resides for the parties involved in the various forms of contracts that are used, and think about how that risk changes as the forms of contracts change.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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