Construction Engineering Exam 1

G.D.P: Gross Domestic Products

• Sum of all goods and services produced in a country 

  • Measured on a monthly, quarterly, or annual basis 

• In construction the government tracks this through all the permits pulled 

• U.S. GDP is approximately $21 trillion 

• U.S. Federal Debt ~ $40 trillion 

• U.S. construction market ~5% of G.D.P -> $1 Trillion 

Types of Construction Projects

1. Residential

2. General Building

3. Infrastructure

4. Industrial

Residential

• Project where people reside 

• Generally Privately funded and owned

• 40-50% of construction markets 

  • Supply and demand 

  • Consumer confidence: whether or not we can purchase 

  • Interest rates ~6%

Examples of residential construction projects

Houses, apartments, condominiums, duplex, town homes, trailer/trailer parks

Two Types of General Building Construction Projects

1. Institutional

2. Commercial

General Building: Institutional

Has a specific charter or purpose

• Generally publicly owned 

• Generally not for profit 

Examples of Institutional Construction Projects

Library, school buildings, residence halls, court house, prisons, police stations

General Building: Commercial

• For commerce 

• Generally for profit 

• Generally privately owned 

Examples of a Commercial Construction Project

Hotels, Stores, stadiums

Infrastructure Construction Projects

• 20% of construction markets 

• Can be private or public 

• Examples: Fiber optic, underground utilities, roads 

Industrial Construction Projects

• 5-10% of construction markets 

• Can be public or private 

• Process, convert, or manufacture 

• Examples: windmills, solar farms, nuclear power, data centers, wastewater treatment plant, factories 

Three Primary Participants in a Construction Project

1. Owner

2. Designer

3. General Contractor

Owner

• Take possession of the project 

• Fund the project

Designer

• Create plans and design work 

• Architect and/or engineer (A/E) 

  • Architects: Create layouts (rooms), aesthetics, mood/environment, safety, egress, people conveyance, etc. 

General Contractor

direct contract with owner

4 Primary Org Structures

1. Traditional

2. Turnkey

3. Owner-Builder

4. Professional Construction Manager

Traditional

• 3 separate primary positions 

  • Owner hires a separate A/E and G.C

  • Owner can hire multiple prime contractors 

Turnkey

• Single firm hired by the owner responsible for design and construction 

• Single firm can be: 

  • Single, full service firm providing design and construction services

    • Seen a lot in home building 

      • Overlap of design and construction process 

      • Which can 

        • Reduce overall project time, save money by modifying design, provide better communication between D&C, easier on owner

        • Fast paced: which can cause opportunity for errors or rework 

        • Risk of all responsibility on one firm 

  • Two separate firms (or more) combine for the project duration to fulfill design and construction 

    • Joint Venture (J.V.)

    • Bridgeway Commons (D.F.D)

Owner Builder

• Owner responsible for design and construction

• Examples: DOT, Counties, Cities, etc

Professional Construction Manager

• 2 approaches

  • 1) G.C. - C.M Builds 

    • C.M. is responsible for cost and schedule 

    • Often called “C.M. at risk” 

    • Often the A/E is hired before the G.C./C.M

    • Example: U.S. Bank Stadium 

  • 2) Construction Manager

    • C.M. is not responsible for cost and schedule 

    • Advise the owner

    • C.M. is a 4th party entity 

    • Example: Marquette Interchange (WI DOT) 

Bidding Requirements

• Invitation + Instructions

• Information

• Bid Form

• Bid Bond

Invitation + Instructions

• Who: Owner 

• What: Type of project 

• When: Bid date 

• Where: Submit bid, project location 

• How: Submit the bid 

Information

Ex: soil boring logs, wage rates, etc.

Bid form

• G.C. provides their affiliation and price 

• Owner can reject any and all bids 

• Base bid with option for alternates 

• Purpose of alternates: Bid evaluation 

Bid Bond

• Owner requires G.C. to post a bond to bid the project 

• Bid bond amount can be: 

  • A stated (flat) amount $ (sometimes called a guarantee) 

    • Ex. $75,000

  • % of Bid Price 

    • Ex. 5%

• Surety companies sell bonds 

  • Ex. capital identity, west bend 

• Ex. SQH $40,000,000 Bid 

  • (10% -> $4,000,000 Bid Bond) 

• If a G.C. is selected by the owner and fails to enter/sign the construct, the owner can “cash” the bond

  • The G.C. forfeits the contract 

• Owner can apply the cashed bond to cover the difference with the selected 2nd lowest bidder

Contract Forms

• Agreement

• Performance Bond

• Payment Bond

• Certificates

Agreement

• Signed document between owner and contractor 

• A/E has a separate contract with owner (Professional Services Contract) 

• Witness sometimes notary of the public 

Performance Bond

• Protects owner if signed contractor defaults and does not perform or complete the project 

• Amount 

  • Public: 100% of Bid Price

  • Private: 0-100% of bid price value 

Payment Bond

• File a lien for unpaid work 

• Owner can require a lien waiver to make payment

Certificates

• Examples:

  • Insurance

  • License

  • Affiliation 

  • DBE: Disadvantage Business Enterprise

DBE

• Types: 

  • Military owned business (51% ownership atleast) 

  • Woman owned business

  • Veteran owned 

  • Disabled veteran owned business

  • Small business in HUD (Housing Urban Development Enterprise Zone) 

    • High unemployment rates 

    • High poverty 

    • Low economic output 

• Stated % of the contract must go to the DBE firm (0-45%) 

Contract Conditions

• General conditions

• Supplemental conditions

• Addenda and contract modifications

General Conditions

• Brood definitions and processes 

• Appendix D

• Ex

  • Time, 100% complete

  • Changes in work 

Supplemental Conditions

• Modifies general conditions

• Ex. SQH, Deadline July 1 (2022) 

Addenda & Contract Modifications

• Both modify the construction dates 

• When? 

  • Addenda

    • Competitive $

    • Before Bid Date

  • Change Order 

    • Negotiated 

    • After Bid Date 

Commercial Contract Terms

• Terms of monetary contract value between owner and G.C.

• Terms also apply to “Professional Services Contracts” 

  • Owner and A/E

• Also apples to G.C. and Subs, material suppliers, equipment rentals

4 Primary Commercial Contract Terms

1. Lump Sum 

2. Unit Price 

3. Guaranteed Maximum Price (G.M.P.)

4. Cost Plus 

• Project May have multiple terms 

• Competitive -> price (and also proposal, approach) 

• Negotiated -> less competitive 

Lump Sum

• Owner requests a single bid price for all work 

• Owner can request a base bid (Lump Sum + Alternates) 

• Used on building construction, but also other types of construction 

• Any significant changes in project scope are processed with a Change Order 

  • Not competitive 

• Pre bid scope changes are processed with an addendum 

  • Competitive 

• Scope change must be “significant” in magnitude 

  • Ex. of not significant: change in paint color, patterns, ect. 

  • Ex. of significant: change in light fixtures 

Lump Sum: Owner Risks

• Changes in design -> drive up costs “Negotiated”

• G.C. can cut corners

Lump Sum: Contractor Risks

• Constructions schedule changes and equipment/material deliveries

• Actual costs > estimated cost

  • Mistakes during installation 

  • Increase in quantities

  • Miscalculations 

  • Fuel prices 

  • Weather 

• Owner changes and time of change 

Unit Price

• Owner provides a list of work items and estimated quantities, then bidder(s) provide unit price and total amount for each 

• Typically, lowest grand total amount is awarded to that bidder 

• Contracted G.C. is paid for actual quantities furnished and installed 

• Common on Infrastructure 

• Any significant changes require a change order 

Unit Price: Owner Risks

• Actual quantity > estimated quantity, exceeds contract amount 

• Owner changes impacting the contract amount

  • Missing items 

• G.C. cuts corners 

Unit Price: Contractor Risks

• Actual costs > unit bid price + amount 

  • Fuel prices 

  • Material supplier prices 

• Owner changes impacting production and schedule 

  • Timing of the change 

Guaranteed Max Price

• Owner sets a ceiling or maximum predict to build, and selected G.C. builds at or below the maximum 

• Any savings can be shared 

• Very common in Turnkey or C.M. organization structures 

• Savings can be shared 

Guaranteed Max Price: Owner Risks

• G.M.P is set too low 

• G.C. cuts corners to enhance the savings 

• Owner changes exceed G.M.P 

Guaranteed Max Price: Contractor Risks

• Must build at or below G.M.P

  • Wage rates, fuel costs,ect. 

• Owner changes reducing savings and sharing amount 

Cost-Plus

• Owner pay G.C. for their time and materials then add: 

  • Flat fee amount- Ex. $10,000

  • Percent Fee - Default 3.25%

• Generally little design, no G.M.P.  at start, high risk, emergency repairs 

• Sometimes called I.D.I.Q: Indefinite Delivery/Indefinite Quantity 

  • Examples: International Projects, water main breaks 

Cost-Plus: Owner Risks

• Unknow final const at start of construction 

• Unknow completion 

• Contractor resource load (people, equipment) and production 

Cost-Plus: Contractor Risks

• Safety 

• Unknown completion 

• Profit

Contractor Cash Flow

• Working capital = short term assets - short term liabilities 

  • Assets: cash on hand, accounts receivable, land, office, equipment 

  • Liabilities: accounts payable, debt, mortgage, claims 

  • Ratio = (short term assets/short term liabilities) > 1.2

Techniques to Achieve a Positive Cash Flow

• Reduce costs

• Bank-Line-Of-Credit

• “Borrow” cash from another project 

• Add on hand material invoices to pay requests 

• Mobilization bid item 

• Unbalance the bid -> artificially inflate the early work items the deflate the later