CDS - Construction Cost

Question 1

performance bond

Answer 1

1. guarantees by a bonding company that jobs will be completed per the specifications of the contract
2. if contractor is unable to complete the job, the bonding company may put the job out to bid with select contractors or complete the work themselves
3. requirements are set in place by the Miller Act for all public work contracts $100k+; can also be required for private work by GC requiring it of their subs
4. contractor must pay back the performance surety bond if claims are filed on it
5. 1% (large projects) - 3% (smaller projects); should be included in bid so that the owner pays for it
6. insurance for the owner
7. count against the bond line until the job is successfully completed

Question 2

payment bond

Answer 2

1. a guarantee that the GC will pay all subs, suppliers, and laborers
2. it ensures the job will be completed properly
3. very rare for a payment bond to be required without a performance bond; typically packaged with performance bond and one rate is applied

Question 3

items to submit for application for a performance bond

Answer 3

1. business financials
2. balance sheet
3. income statement
4. cash flow statement
5. complete notes/disclosures
6. work schedules

Question 4

faithful performance

Answer 4

you will complete the job properly

Question 5

if claim is raised against performance surety bond

Answer 5

1. contractor may have to pay the full amount (plus legal fees)
2. indemnification clause - contractor pledges corporate and personal assets in the event of bond claims; rarely waived except for Fortune 500 companies
3. bonding company listens to both contractor and owner/party making the claim and determines who is in the wrong
4. if bonding company agrees with contractor, they will fight for GC
5. if bonding company agrees with party making the claim, they will pay out the bond and seek reimbursement from GC

Question 6

bid bond

Answer 6

1. guarantees a performance bond will be provided if you are awarded the contract
2. the first thing the GC needs to bid on public projects as they guarantee the bids the GC submits are accurate
3. count against the bond line until the GC notifies the bonding agent they were not awarded the job

Question 7

bid spread

Answer 7

1. difference between your bid and the other bidding contracts
2. if it is too large, the bonding company may refuse to write the performance bond which can lead to a claim on the bid bond

Question 8

contract bond line

Answer 8

1. can be thought of as a surety credit line that the GC is pre-approved to use
2. a single bond limit for individual jobs (max. single contract) and an aggregate bond limit which is the total of all active bonds (max. amount of total work)

Question 9

architect’s estimates of construction costs based on final documents should consider

Answer 9

the bidding climate

Question 10

stipulated sum / fixed fee (architect’s fee)

Answer 10

1. fixed sum of money + reimbursable expenses as an additional fee

Question 11

cost plus fee (architect’s fee)

Answer 11

1. architect is compensated for the actual expense to do the job, plus a reasonable fee for profit (hourly basis)
2. is a multiple of direct personnel expense (multiplier considers overhead and profit)
3. is a multiple of direct salary expense (large multiplier to provide for employee benefits)
4. hourly billing rates - client only sees one number for each of the types of people working on the project

Question 12

percentage of construction cost (architect’s fee)

Answer 12

1. architect’s fee calc’d as a % of the cost of construction

Question 13

unit cost method (architect’s fee)

Answer 13

1. fees are based on a definable unit such as square footage, for such work as tenant planning in a leased building or on a per-hour basis in a large residential project

Question 14

compensation methods

Answer 14

1. stipulated sum / fixed fee
2. cost plus fee
3. percentage of construction cost
4. unit cost method

Question 15

cost plus fee (contractor’s fee)

Answer 15

1. compensate contractor for actual expenses plus a fixed fee for overhead and profit
2. more flexibility than fixed fees
3. allow construction to proceed before design is complete
4. disadvantage is cost is not known

Question 16

how to mitigate construction costs not known

Answer 16

1. guaranteed maximums
2. target prices with incentives
3. partial cost guarantees - involves getting fixed prices from certain subcontractors or material suppliers

Question 17

stipulated sum / fixed price (contractor’s fee)

Answer 17

1. fixed price owner agrees to pay contractor for work shown in contract documents
2. simple way to arrange things
3. owners like it because cost is known when the bids are made
4. competitive bidding always uses a stipulated sum method

Question 18

unit price (contractor’s fee)

Answer 18

1. used where it is not possible to firmly establish quantities at the time of bid
2. where changes or additions are anticipated, the contractor can be requested to include unit prices in the bid

Question 19

costs

Answer 19

1. materials, labor, equipment
2. life cycle
3. need balance btw client’s needs, life cycle cost, initial costs

Question 20

construction costs

Answer 20

1. cost to build the project
2. does not include a/e fees, financing costs, etc.
3. architect’s estimate is a best judgement as a design professional
4. no fixed limit of construction cost will be established as a condition of the agreement unless agreed by all parties