Chapter 2 - Project Delivery Methods Flashcards
What are the critical roles of the owner in a construction project?
- Defining the scope of the project
- Ensuring the entire project team understands the project’s goals
- Planning the project
- Financing the project
When do you start repaying the principal of a construction mortgage?
Once the building / Project has been completed
What are Bonds?
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
What is an indemnity agreement?
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
What are the major types of Bonds?
- Bid Bond
- Performance Bond
3.Payment Bonds
How do Bid bonds work?
Ensures the low bidder will accept the contract if offered and will submit the required payment and performance bonds
What are performance bonds?
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.
If a contractor defaults on performance of the contract, what are the options of the surety?
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
Four main Project Delivery Methods
- Design-bid-build
- Design-build
- Design-build-operate
- Construction management at risk
What is the most commonly used delivery method for government construction process?
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
In DBB, the GC is contractually obligated to the Architect/Designer
False
Design-build
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
What are the disadvantages of design build
▪ 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
Design-Build-Operate or Build-Operate-Transfer (BOT)
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
Define what is Construction Management at Risk (CM @ Risk)
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
What are the advantages of CM @ Risk
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
What are the disadvantages of CM @ Risk
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
What are the 4 contract types?
1- Lump Sum
2- Unit Price
3- Cost Plus
4- Incentive Contracts (A + B)
What needs to be done for a contract to be valid?
- There must be a mutual agreement
- There must be an offer
▪ An offer could be withdrawn before it’s accepted (except for Bids) - The offer must be accepted
- There must be a consideration
- The subject matter of the contract must be lawful
- The contracting parties must have the legal capacity to enter a contract
Describe what are lump sum contracts.
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
Describe what is unit price contract
▪ 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
Describe what cost plus contract is
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
Describe what is incentive contract (A+B)
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.
Subcontracts
Subcontractors can generally provide a better-trained and properly equipped workforce in their area of specialization
