CEE%2B3014_07_Contracting_S26mb

CEE 3014: Construction Management

Planning Module: Session #7 - Contracting Methods (Project Delivery Continued)

Delivery Methods - Owner’s Perspective
  • Potential for various delivery methods:
    • Design-Bid-Build (DBB):
    • Design influence: High
    • Competitive pricing: High
    • Schedule acceleration: Low
    • Lifecycle activities integration: Low
    • Industry experience required: High
    • Design-Build (DB):
    • Design influence: Low
    • Competitive pricing: Medium
    • Schedule acceleration: High
    • Lifecycle activities integration: Medium
    • Industry experience required: Medium
    • Construction Management at Risk (CM@R):
    • Design influence: High
    • Competitive pricing: Low
    • Schedule acceleration: High
    • Lifecycle activities integration: Medium
    • Industry experience required: High
    • Design-Build-Operate (DBO):
    • Design influence: Low
    • Competitive pricing: Medium
    • Schedule acceleration: High
    • Lifecycle activities integration: High
    • Industry experience required: Low
    • Design-Build-Finance-Operate-Maintain (DBFOM):
    • Design influence: Low
    • Competitive pricing: Medium
    • Schedule acceleration: High
    • Lifecycle activities integration: High
    • Industry experience required: Low
Delivery Methods - Decision Factors
  • Factors influencing the choice of delivery method:
    • Project Size
    • Type and Complexity of Project
    • Legislative and Regulatory Requirements
    • Tolerance for Risk
    • Schedule
    • Local Market Knowledge and Experience
    • Owner’s Desired Level of Involvement
    • Owner’s Resources and Capabilities
    • Pricing Competition
Contracting Process Overview
  • Stages of the contracting process:
    • Owner + Design Team: Need and Programming
    • Schematic to Detailed Design
    • Construction Management: Builder Team oversight, construction, and commissioning
    • Ongoing Operations and Maintenance
    • Disposal or Reconstitution
Understanding Contracts
  • Definition of a Contract:
    • A contract is an agreement between two or more parties in which one party agrees to perform a specific task or provide goods or services to another in exchange for something of value.
Contract Requirements
  • A contract must be:
    • Legally Enforceable Promise: A set of promises that are enforceable by law.
    • Mutual Assent: All parties must agree (meeting of the minds).
    • Consideration: Exchange of value (price of the promise).
    • Capacity of the Parties: All parties must be legally capable of entering the contract.
    • Legality of the Subject: The subject of the contract must be legal.
Purposes of Construction Contracts
  1. Specify Roles and Responsibilities:
    • Define how the project will be run:
      • Scope: What products and services are included.
      • Participants: Organizations and individuals involved.
      • Processes: The procedures to be followed.
  2. Motivate Parties:
    • Incentivizing behavior aligned with contract goals.
  3. Allocate Risk and Reward:
    • Outlining who takes responsibility for which risks and what rewards they receive for taking those risks.
Importance of Contracting in the Construction Industry
  • Nearly all services within the industry are governed by a contract. It is critical to find the right fit for both the project and the contract.
Procurement Process
  • Procurement: The process of selecting service providers. Procurement can be:
    • Competitive: Based on qualifications, price, quality, or combinations.
    • Sole-sourced: Direct negotiations for specific items or services.
  • Designers and consultants typically selected based on qualifications; builders selected based on price and other factors.
Types of Contracts
  • Fixed Price Contracts (Flat Rate): Include Lump Sum and Unit Price contracts.
  • Reimbursable Contracts: Include Cost-Plus and Guaranteed Maximum Price (GMP) contracts.
Contract Types and Risk Allocation
  • Risk Allocation Overview:
    • The owner holds all risks and potential rewards initially but may shift risks to other project participants.
    • Participants require compensation for accepting project risks.
  • Key Questions:
    1. What risks are shifted to whom for what reward?
    2. Is this risk allocation optimal for the specific project?
Fixed Price Contracts

  • Lump Sum Contracts:

    • The service provider agrees to deliver construction at a fixed contract value.
    • Reduces risk for the owner if the project is well-defined.

  • Unit Price Contracts:

    • Work is broken down into items with specified units and prices per unit.
    • Requires accurate quantity estimation from the owner.

  • Example Calculation:

    • Unit Price: $200 per CY.
    • Quantity implications: Changing quantities affect total cost and contractor profit.
Reimb