PM for Construction HW

Bid bond

Protects owner if the low bidder backs out before signing the contract

Performance bond

Guarantees the work gets finished per the specs (surety pays to finish if contractor goes broke)

Payment bond

Guarantees owner's finished project is free of liens (subs and suppliers get paid)

3 factors affecting Bonding capacity

Status of costs, payments, and disputes on incomplete work

Where project duration is specified in a contract

Supplementary (special) conditions

Obligee

Owner — the party protected by the bond

Principal

Contractor — the party whose performance is bonded

Surety

Bonding company — pays if the principal defaults

Bond that pays to finish the job if contractor goes broke

Performance bond

General conditions

Rules for how the contract is administered and the relationships between parties

Special conditions

Items unique to this project

Addenda

Changes/corrections to the bid package issued before bid opening; part of the bidding basis

Technical specifications

Written description of the technical requirements of the work

Why a bid bond is required

Protects the owner from the contractor refusing to sign after winning the award

Notice to bidders

Owner's ad inviting contractors to bid; tells how to submit and where to get plans and specs

Liquidated damages

Owner's estimated daily loss for a late project; contractor pays per day late

Penalty (late completion)

Amount higher than actual loss, not tied to real damages; must be matched by an early-finish bonus

Purpose of retainage

Incentive for the contractor to properly complete the project

When a bid can be withdrawn without penalty

Any time before bid opening

Bid receiving/opening procedure

1 Notice to bidders, 2 Bid opening, 3 Award / notice to proceed, 4 Sign contract

How to claim a time extension

Written request to owner stating the basis (e.g., unusually bad weather)

Documentation for a weather time extension

Daily job logs, photos, video showing conditions that couldn't be anticipated

Lump sum contract

One total fixed price based on complete plans and specs; changes only via change orders

Lump sum — other name

Stipulated sum

Lump sum — owner advantage

Knows total cost before work starts

Lump sum — owner disadvantage

Plans and specs must be 100% complete before picking a contractor

Unit price contract

Contractor quotes a price per unit for each bid item; paid = actual quantities x unit price

Unit price — contractor advantage

Lower risk; paid at quoted price for every unit placed

Unit price — owner disadvantage

Final cost unknown until field quantities are measured

Best contract for bridge piers

Unit price — many unknowns (sub-surface conditions) make quantities vary

Best contract for excavation with limited boring data

Unit price — unknown conditions

Three ways to terminate a contract

Mutual agreement, successful completion, default by either side

Unbalanced bid

Inflating unit prices on early work items to get cash sooner (e.g., $200/cy excavation when real cost is $100/cy)

Contract type implied by unbalancing

Unit price

Why cost + % of cost is rarely used

Contractor is rewarded for running up costs ("gold plating"); no incentive to save

When cost-plus works for both sides

When it creates incentives to cut cost while keeping quality and function

Field staff needed — unit price

Most people; every quantity placed must be precisely measured

Field staff needed — lump sum

Less measuring, but must document contractor actions that could cause cost/time overruns

Field staff needed — cost reimbursable

Least measuring; must verify pay requests match work done and materials installed

Sole proprietorship liability

Owner liable to the extent of personal wealth

Partnership liability

Partners liable to personal wealth (limited partner liable only up to their investment)

Corporation liability

No personal liability; limited to company assets

Hardest legal structure to set up

Corporation — needs stock certificates and registration with the Secretary of State

Corporation advantages vs partnership

Limited liability; easier to raise capital

Corporation disadvantages vs partnership

Complicated/costly to set up (needs lawyers); harder to manage (stockholder approval for borrowing)

Marginal tax rate

Rate at which the last (or next) dollar earned is taxed

MACRS new vs used equipment

Same schedule — used equipment is depreciated the same way

Book value

Initial cost minus accumulated depreciation

Estimated service life (hours)

Total hours / hours per year (10,000 hrs / 2,000 hrs/yr = 5 years)

Who are the three basic parties involved in any construction bonding agreement?

Obligee, principal, surety

Cost + percent of cost

Contractor is paid actual costs plus a fixed % of those costs; higher costs = higher fee, so no incentive to save

Cost + fixed fee

Contractor is paid actual costs plus a set dollar fee that doesn't change with cost; fee is fixed, so contractor wants to finish fast

Cost + fixed fee + profit-sharing clause

Cost + fixed fee, plus contractor gets a share of any savings under the target cost; incentive to cut costs

Cost + sliding fee

Contractor is paid actual costs plus a fee that goes up when costs come in under target and down when costs go over; strongest incentive to control cost