Chapter 2 - Project Delivery Methods

Question 1

What are the critical roles of the owner in a construction project?

Answer 1

1. Defining the scope of the project
2. Ensuring the entire project team understands the project’s goals
3. Planning the project
4. Financing the project

Question 2

When do you start repaying the principal of a construction mortgage?

Answer 2

Once the building / Project has been completed

Question 3

What are Bonds?

Answer 3

Issued by a Surety (typically insurance companies)
▪ Bonds cannot be issued by bankers
▪ Like a loan waiting to happen (but hopefully not)
▪ Unlike an insurance policy, no losses are expected, and if there are losses, they are expected to be repaid

Question 4

What is an indemnity agreement?

Answer 4

Mechanism for repayment of bonds. Contractors sign indemnity agreements agreeing to reimburse the bond company if the bond company must use its funds to complete a construction project

Question 5

What are the major types of Bonds?

Answer 5

1. Bid Bond
2. Performance Bond
   3.Payment Bonds

Question 6

How do Bid bonds work?

Answer 6

Ensures the low bidder will accept the contract if offered and will submit the required payment and performance bonds

Question 7

What are performance bonds?

Answer 7

Guarantees the contractor will complete the work in accordance with the plans and specifications.
▪ On government projects over $200,000, the contractor must furnish payment bonds.

Question 8

If a contractor defaults on performance of the contract, what are the options of the surety?

Answer 8

1) Buy back the bond
▪ Giving the owner a cheque for the amount of the penal value of the bonds.
2) Replace the contractor
▪ Negotiate or advertise for bids for retaining another contractor to finish the work.
3) Finance the contractor
▪ In essence, spending more than the value of the bond
▪ Still a common option because the contractor is familiar with the project

Question 9

Four main Project Delivery Methods

Answer 9

1. Design-bid-build
2. Design-build
3. Design-build-operate
4. Construction management at risk

Question 10

What is the most commonly used delivery method for government construction process?

Answer 10

Design-bid-build

• Assumes any qualified contractor will produce the same product from the plans & specifications
• Once the design is completed, the owner publicly advertises the project and awards it to the lowest responsive and responsible bidder

Question 11

In DBB, the GC is contractually obligated to the Architect/Designer

Answer 11

False

Question 12

Design-build

Answer 12

The designer and the builder are hired as a team under a single contract.
▪ Provides distinct advantages to the owner
▪ No need to referee disagreements between the designer and the contractor
▪ Allows owners to downsize internal engineering resources, and retain only enough staff to supervise outsourced functions
▪ Enables construction expertise to play a role during design, and gives the designer an opportunity to be more involved during construction

Question 13

What are the disadvantages of design build

Answer 13

▪ Loss of checks and balances between the architect and the GC
▪ A dominant contractor may overrule the designer’s recommendations which can impact quality in the interest of cost

Question 14

Design-Build-Operate or Build-Operate-Transfer (BOT)

Answer 14

The GC retains some percentage of ownership in the facility:
▪ Mainly used for large infrastructure projects to facilitate financing
▪ The period of ownership may vary from a few years to permanent
▪ During this period, the contractor is responsible for all costs of ownership and all profits resulting from the ownership
▪ There is typically a revenue- or profit-sharing agreement with the owner

Question 15

Define what is Construction Management at Risk (CM @ Risk)

Answer 15

1) The CM works with the designer during the design phase of the project and acts as a GC during the construction phase.
2) The CM prepares a cost estimate for the total project, including work that has not yet been bid.
▪ Based on the above information and the predefined scope of work, the CM submits a final guaranteed maximum price (GMP)
▪ The GMP can be increased only if the architect or the owner changes the scope of work.
▪ Unused contingency funds at the end of the job are either returned to the owner or split between the owner and the CM

Question 16

What are the advantages of CM @ Risk

Answer 16

1) Risk is reduced for the owner
2) Centralizes responsibilities
3) Benefits from the CM’s experience during both design and construction
4) Allows for a possible early start to construction by phasing the work
5) Creates a collaborative and non-adversarial environment that uses the experience, and creativity of the architect and the CM

Question 17

What are the disadvantages of CM @ Risk

Answer 17

1) May diminish the role of the architect and engineer (A/E) on the design team.
▪ This could be problematic if the A/E does not approve.
2) The CM must rely on their own estimates because of incomplete design documents
▪ A higher level of experience is needed

Question 18

What are the 4 contract types?

Answer 18

1- Lump Sum
2- Unit Price
3- Cost Plus
4- Incentive Contracts (A + B)

Question 19

What needs to be done for a contract to be valid?

Answer 19

1. There must be a mutual agreement
2. There must be an offer
   ▪ An offer could be withdrawn before it’s accepted (except for Bids)
3. The offer must be accepted
4. There must be a consideration
5. The subject matter of the contract must be lawful
6. The contracting parties must have the legal capacity to enter a contract

Question 20

Describe what are lump sum contracts.

Answer 20

Most common approach, typically used for buildings since a clear definition of the quantities and quality of work required is provided by the contract documents
▪ Quantities of materials and items such as door frames, electrical conduits, roof tiles…etc. can be calculated accurately from the plans.
▪ Submitting a single lump sum bid is fair to the contractors

Question 21

Describe what is unit price contract

Answer 21

▪ The owner estimates quantities, then pays the contractor for the exact measured amounts (after the work is complete)
▪ Commonly used if it’s not possible to calculate the exact quantity of materials required (e.g., heavy/highway work)
▪ Contractors submit a price for each item on a unit-price contract.
▪ Unit prices are multiplied by the engineer’s estimated quantities
▪ The lowest bidder is the one with the lowest total/sum of all items.
▪ Items whose actual quantity varies by more than 15%- 20%, are sometimes subject to renegotiation of the unit price.
▪ The goal is to ensure fairness to both parties

Question 22

Describe what cost plus contract is

Answer 22

They take many forms, the most common being cost plus a fixed fee and cost plus a percentage
▪ If it’s difficult or impossible for both the owner and GC to estimate costs (e.g., remote areas, extreme weather, areas of conflict)
▪ Most owners prefer cost plus fixed fee – why?
To remove any incentive for the GC to increase project costs
▪ Why cost-plus percentage is used then?
If the project is very difficult or the duration cannot be estimated with any certainty
▪ A profit that can be earned in six months may not be attractive if there is a possibility that the work may require a year or two

Question 23

Describe what is incentive contract (A+B)

Answer 23

Incentive contracts (A + B)
▪ Most common types of incentive contracts are those that offer a bonus for early completion.
▪ Contracts that require a penalty for late completion are required by law to offer a bonus for an early finish.
▪ “A + B” contracts provide a way to compensate the GC for their expertise to complete the work quickly and efficiently
▪ a value is placed on each day of construction, and that amount becomes the B component of the bid
▪ Lowest bidder is the one with the lowest total cost + time.

Question 24

Subcontracts

Answer 24

Subcontractors can generally provide a better-trained and properly equipped workforce in their area of specialization

Question 25

Subs usually do not have any contractual relationship with the owner

Answer 25

True

Question 26

Submittals

Answer 26

Submittals contain information about products to be included in a project
▪ Shop drawings, diagrams, catalog cuts, data sheets, and other data prepared by the GC, Sub, manufacturer, or supplier
The owner or designer must approve submittals before products are ordered or used in the work.

Question 27

Requests for information (RFIs)

Answer 27

To document questions and record the resulting answers
▪ May or may not be urgent

Question 28

Change order

Answer 28

if the response to the RFI results in extra work or cost change, the designer must issue the appropriate pricing documentation

Question 29

Pay estimates

Answer 29

On a monthly basis
▪ The GC estimates the % completion of each activity, calculates the
amount due for each of those activities, and subtracts the retainage
▪ A portion of the monthly pay estimate belongs to the GC and another portion belongs to the subs
▪ Determined by the type of contract with subs
▪ Payment clauses are either “pay when paid” or “pay if paid” ▪ Subs prefer “pay when paid”

Question 30

Change orders result in changing the scope of work
A- True
B- False

Answer 30

False, changes outside the scope of work require a supplemental agreement
GC are not entitled to refuse a change order, but are entitled to additional time and compensation

Question 31

Claims

Answer 31

Change orders that cannot be resolved
▪ Result from a disagreement on the meaning of contract terms
▪ Example reasons include late progress payments, delays caused by the owner, or rejection by the designer of “or equal” substitutes.
▪ Contracts require that a contractor notify the owner of claims within a specified number of days and then proceed with the work

Question 32

What is the predominant method in dispute resolution?

Answer 32

litigation

Question 33

Construction disputes are typically caused by illegal actions
A –True
B – False

Answer 33

False

Question 34

Arbitration

Answer 34

Closer to actual litigation than mediation since their resolutions will be binding to both parties (only if prior agreement on arbitration exists)
▪ Arbitrator is selected by mutual agreement
▪ A favored mechanism for several reasons in construction
▪ A higher degree of privacy since records are not public (as opposed to court transcripts)
▪ Faster and less costly than actual litigation
▪ Arbitrators are usually experts in the field they’re in, thus their decision
are likely better informed than the courts

Question 35

Liquidated Damages and Substantial Completion

Answer 35

▪ Paid by the GC to the owner if the project exceeds the allowed time
▪ The amount is specified in the contract (based on the actual costs the
owner or the public would incur due to late completion of the work)

Question 36

Difference between penalties and liquidated damages

Answer 36

▪ Penalties VS Liquidated Damages
▪ Change orders must include additional time to avoid LDs
▪ Most contracts require liquidated damages for failure to reach “substantial completion” by the specified time

Question 37

Final Inspection

Answer 37

▪ Final inspection is a formal contract requirement
▪ The owner’s last formal opportunity to identify remaining work items or to
formally accept ownership of the facility.
▪ If applicable, the owner and GC should agree on final punch list items.
▪ Once that’s done, the contract requirements are legally fulfilled.
▪ The GC is still required to return to the site only for possible corrective
work covered in the warranty

Question 38

The four essential documents that make up a construction contract are

Answer 38

1.
The Agreement
The General Conditions
▪ Standard documents, are intended to be used in their entirety
▪ Changes to the General Conditions are made by writing the change into the Supplementary Conditions
The Special / Supplementary Conditions
▪ Amendments or augmentation to the general conditions.
The Drawings and Specifications
▪ Performance vs. design specifications

Question 39

Addenda

Answer 39

Any changes to contract documents should be issued as addenda

Question 40

Bid & Award Process

Answer 40

▪ A bid depository provides a service to general contractors and subcontractors by receiving subcontractor bids and distributing them to general contractors.
▪ The main objective is to prevent bid shopping, which can occur after contract award when a general contractor requests that a specialty contractor lower a bid. The practice is not ethical, but it does happen.

Question 41

Bids are sometimes advertised with a base bid + alternates

Answer 41

▪ Needed if the full amount of project funding is not confirmed
▪ They can be additive or deductive.
▪ Additive: added to the base bid, at an additional cost for each alternate ▪ Deductive: a cost reduction from the base bid for each alternate.
▪ Alternates must be accepted in numerical order, without skipping