Hinze Flashcards
Notice to Bidders
Includes …
- nature or type of project
- location of project
- type of contract for construction
- bonding requirements
- dates in which to perform work
- terms of payment
- estimated construction cost (some specially exclude this)
- time, manner, and place to submit bids
- location to obtain bid documents
- deposit required on bid documents
- owners right to reject any and all bids
- requirements regarding wage rates
Advertisements for Bids - Public Sector
- Notice given
- Invitation for bids posted
- All bidders must be treated alike and be afforded an opportunity to bid under the same terms and conditions
- Prequalification may be required
Advertisements for Bids - Private Sector
- The owner may select a contractor by any means.
- Public advertising is frequently used to obtain the advantages of open and free competition.
- The owner may elect to negotiate a contract with a particular contractor. This is most common in residential construction and in industrial construction involving highly technical work. The contractor would be selected early in the life of the project and then work constructively with the owner, architect, and other design professionals throughout the design phase of the project.
- The most common approach is for the owner to select a few prime contractors who are reputable and capable of doing a good job. This list of contractors is called a select bidders list. These contractors are asked to bid in a process called invitational bidding. This process has the advantage of the competitive market while restricting bids to a select group of contractors.
Advantages of design-bid-build process
- Owner benefits from competitive marketplace
- Owner has appearance of being impartial
- Process fully embraces the fundamentals of the free market system
- May be only viable method available for some governmental agencies
Disadvantages of design-bid-build process
- Accurate costs cannot be known until the design is completed
- Bids that exceed the owner’s budget cannot be readily accommodated without jeopardizing the project
- The various parties tend to be adversarial under this process
- Errors or omissions in the design may lead to costly change orders and the opportunity for the contractor to bolster profits after contract award
Prequalification
- not a common practice
- employed public and private
results in a select bidders list, or short list, which identifies firms that have demonstrated to the owner that they have the necessary abilities to perform the required work
Prequalification submittals include:
- types of projects successfully completed by the firm
- current work load
- personnel employed by the firm
- experience of the personnel to be assigned to the proposed project
- financial stability of the firm
- other information that the owner may deem germane to the successful completion of the project
Plan service centers
Source of bidding information that publishes and distributes bulletins on regular basis that describe all projects to be bid on in near future in locality
Provides services during bidding stage - keep copies of bidding documents on file
Can answer: should general contractor bid on project? Which subcontractors and suppliers are bidding?
Value Engineering
Specific procedure carried out to critically analyze the various aspects of contract documents in relation to the owner’s objectives, to determine if alternative methods or materials might be more appropriate
reviewing the contract documents with the owner’s best interest in mind
A value engineering review on a project may result in a variety of changes in the contract documents that may:
- reduce costs
- improve or maintain project quality
- decrease duration of construction
Value includes elements of
- delivered cost of project
- costs of maintaining a completed project
- ease and duration of construction
- probability of disputes or litigation
- various other factors of interest to the owner
Value engineering review can be conducted at two phases
Design Phase - designer or third party review
Construction Phase - contractor
Constructability Review
An assessment of the contract documents, prior to the bidding phase, to identify problem areas and suggest improvements
Addenda
Formal changes or clarifications issued by the owner or owner’s representative to all identified bidders during the bidding period
Issued during the bidding or estimating period
Exculpatory provision
One party, typically the contractor, is asked to assume liability that would not otherwise be assumed
Typically provisions in which the owner contractually shifts liability or responsibility to the contractor
Valid but often under scrutiny
Courts interpret very narrowly or literally
Strict interpretation can render them ineffective
Strict interpretation
The court tries to interpret the provision, as much as it can within reason, against the party that seeks protection under the provision or against the party which drafted the provision
Torts
Disputes that relate to matters not addressed by statutory law or contract obligations
Wrongs committed against others that do not involve contracts
Common-law interpretation is often required
Wrongs of breaches of duty may stem from injuries or damages incurred by one party as a result of the action or inaction of another party who had a duty to prevent the injury or damage
A tortuous act is often one that violates the social norm
Can result from a specific action or can be caused by failure to act
For a tort to occur, the following conditions must be met:
- One party owes a duty to another party
- That party does not conform (breach in the performance of that party) to the standard.
- The second party is harmed by the act or failure to act.
- There is a clear casual relationship between the act and the harm that results.
Breach of duty. result from failure to act properly in the performance of a specific duty, or failure to act when there is a duty to act. The party to whom a duty is owed must be damaged. Damages may include physical injury, destruction of property, and defamation of character. It just be shown that the damage is a direct consequence of the breach of duty
Examples of torts
- defamation of character through libel or slander
- unlawful entry onto another’s premises
- unwarranted seizure, alteration, or destruction of another’s property
- unauthorized use of another’s patents, trademarks, or copyrights
- violation of another’s freedoms through nuisance and negligence
- failure to exercise care in the exercise of one’s duty to another
Torts can arise from damage or injury caused by failure to act with the proper standard of care
Standard of care
Broadly interpreted as conduct that is expected of someone acting in a given capacity
Negligence
Arises when a legally protected interest is overtly invaded or violated in some way.
The definition of tort is often applied to negligence suits.
Attractive nuisance
Generally defined as applying when
1. The party controlling a piece of property should know that children are likely to trespass
2. The party should realize that there is an unreasonable risk of death or serious injury on the site
3. The children, because of their age, will probably not recognize the risk involved
4. The party could reduce the risk with a small effort by keeping the children out or by reducing the dangerous condition
General Contract Method
Design-Bid-Build
Contract drawn up between the owner and a general contractor.
- Owner represented by firm that was responsible for drawing up the contract documents.
- Architectural design firm/engineering firm
- Owner will enter into two separate contracts, one with designer and one with constructor
- Only method that gives the owner a firm idea of the final cost of the total project prior to the construction phase
- Clearly defined roles for each of the contracting parties.
- Owner minimizes the contractual liability for cost overruns and late project delivery.
Brokerage
When general contractor subcontracts all the work on a project.
Generally not regarded as being beneficial to the owner.
- Many owners place contractual limits on amount of work that can be subcontracted (ex.15-20% must be performed by general contractor’s own workers)
When is the general contract form advisable?
- general contractor has unique skills that should reduce the costs of construction to the owner
- only method that gives owner a firm idea of the final cost of the total project prior to the construction phase
- Results in clearly defined roles for each of the contracting parties
- Owner minimizes the contractual liability for cost overruns and late project delivery
Contractor skills for general contract method include:
- administration of construction operations
- efficient procurement of materials
- effective management of the workforce
- thorough planning and coordination of the construction process
Disadvantages of General Contract Approach
- Owner must be aware that the design-bid-build approach often extends the project duration.
- Owner does not have an agent or “friendly” party involved in the contractual arrangements.
- Can lead to tight bids and small profit margins, create an incentive for general contractors to “beat up” on their subcontractors, cut corners on performance, and look for loopholes in contract that might bolster profits
- nature of contract creates inherent adversarial relationships between different parties
- inherent inflexibility of approach also exposes owner to a greater probability of claims
Separate Contracts Method
(Owner as General Contractor)
Multiple Prime Contracts Method
- Arrangement by which the owner lets contracts directly to specialty contractors for the various portions of the work
- individual contractor may subcontract portions of their work
- Owner takes charge of management of project, assuming managerial functions ordinarily performed by general contractor
Separate Contracts Method appropriate if:
- Owner has the necessary in-house capabilities to manage a construction project.
- Profit that would have been earned by general contractor is kept by owner
- Option to let a separate contract to a firm to perform the management functions but advisable for owner to retain managerial control or award a general contract.
Disadvantages of Separate Contracts Method
- common requirement when permitting is party obtaining permits to have general contractor’s license
- Not advisable when many work items are involved
- This method forces the owner to assume a greater risk than is assumed with the general contract method.
- Essentially eliminates the general contractor’s profit from the cost of construction to the owner. (Profit earned by general contractor is generally very small - less than 3% - this must be weighed by the owner and one of the reasons why this contracting procedure is not widely used.)
When is separate contracts method advisable?
- Availability of a competent construction manager or construction engineer to administer the various contracts.
- If personnel are employed by owner, this method is particularly appropriate on projects where the required specialty work is restricted to a few types of construction.
Self-Performance Method
Force Account Work
- no contracts are written for a construction project. The owner’s own workers or employees are solely assigned the task of performing the construction work.
- Owner provides necessary materials, labor, equipment, and supervision.
- Owner plays role of manager.
- Designer plays a minor role, with the design function also often being performed in-house.
Benefits of Self-Performance Method
- Owner benefits by eliminating the expense of following through with formal contracting procedures
- Time is saved
- Eliminates the profit that would be earned by the general contractor and subcontractors
- a cost reduction can be realized in regard to engineering and inspection
When is it advisable for an owner to self-perform work?
When the project is small in scope, simple in character, and ongoing in nature.
- essential owner have within the organization a trained and skilled construction force
- common on maintenance projects
Design-Build Method
Design-Construct/Turnkey Construction
Owner lets a single contract for both the design and the construction of a project.
- Utilizes the construction firm’s experience in the design phase. As a result, the final project should have a higher degree of constructability
Awarding of contracts for Design-Build Method
If scope is reasonably well defined, a competitive approach can be utilized, but the contract is generally then established as a target cost or guaranteed maximum price (GMP) that is not to be exceeded.
Common to be written as a cost plus fixed fee with a GMP
Advantages of Design-Build Method
- Since design evolves with constructor input, fewer changes arise during construction due to designer error
- benefits owner in that the potential for the owner being embroiled in disputes arising between the design firm and construction firm are essentially eliminated.
- Can be delivered at the lowest cost
- Can deliver projects in the shortest time (claim 20-30% faster)
When is the design-build method advisable?
- Since design and construction functions within one firm, possible for construction to begin before completion of the design for the project (fast-tracking)
- In periods of high inflation, this approach has increased viability
- Particularly attractive when projects are large and technically complex
Fast-Tracking
When design and construction overlaps
- Meant to deliver project to owner earlier than would occur if the design had to be complete before the start of construction
- In periods of high inflation, this approach has increased viability
Owner’s best contribution to the success of a design-build project is to
clearly define the scope of the project prior to entering into a formal design-build contract.
Disadvantages of design-build contract
- Fewer checks and balances built into the process
- Less control by the owner
- On public projects, there are laws and regulations that may place serious restrictions on the process
Professional Construction Management Method
The owner hires a firm with construction expertise to perform construction management services on the owner’s behalf.
The professional construction management firm (CM) is generally hired by the owner before any substantial design work is done and before any construction work has begun. CM may even be instrumental in selecting the design firm.
While design is being developed, CM periodically reviews the project design to see how the cost and time of completion for the project can be reduced.
Payment of CM
compensation of CM is arranged between owner and CM.
May be based on flat fee, incentive payment method in which cost savings are shared by owner and CM, or cost plus a percentage fee
CM is working for owner’s benefit, representing owner during design and construction phase.
CM hired in part to see that owner actually receives the most economical project that satisfies the owner’s needs.
CM often gives owner GMP that project cost will not exceed. An arrangement may be made by which owner and CM share (at predetermined rate) any savings below the stated maximum price
Role of CM as owner’s agent
- ensure project is delivered to owner according to the plans and specifications.
- CM is not responsible for means and methods of construction
- Does not guarantee construction cost, time, or quality of completed facility
- can let contracts for fast-tracking
- Does not perform any of the construction work with its own forces
- Only a CM that is well trusted should be allowed to self-perform significant portions of the work.
When is the construction management method advisable?
- On large or complex projects when construction expertise is needed during the design phase.
- Permits considerable flexibility for changing the project as the design evolves.
- Hospitals often constructed by this method.
- Owner must have confidence in ability and integrity of CM.
- Projects to be delivered quickly (fast-tracking) are good candidates
- Owner must be able to specify and identify the professional qualifications of the ideal party to serve as CM
Profession Construction Management Method Fee
Common to be cost plus a fixed fee
- the costs are usually the actual costs of personnel to perform the CM services with a stated multiplier to cover other items such as travel expenses, training, inspections, and so forth
Construction Management At Risk (CM at risk)
- establishes CM as independent contractor
- popular in public sector
- as independent, “at-risk”
- responsible to the owner to complete the project by the established substantial completion date and within the agreed budget
- CM must compensate owner when the construction put in place does not satisfy the established standards of performance for the project.
- GC/CM or CM/GC approach
- honesty, integrity, and character are important attributes to communicate to owner
CM at risk firm will be responsible for
- hiring all the subcontractors (perhaps prequalified in order to guarantee quality of performance to the owner)
- coordinating all activities involved with completing the project
- CM enters contract prior to design completion
CM At Risk fee
- common to be cost plus a fixed fee with a GMP
- fee could also be established as being a stated percentage of the construction costs
- Under this agreement, it is generally assumed that the actual costs will be less than under the GMP
- If the price exceeds the GMP, the CM at risk firm will be required to absorb those costs, unless the scope of the project can be shown to have been changed such that the GMP should be modified.
- Conversely, if actual costs of construction are less than GMP, owner is inclined to keep savings and not share funds with CM (particularly public works projects)
- In private sector, many variations of these arrangements can be found
- Some CM at risk firms give all savings to owner to ensure that the interests of the owner are kept in focus
- accounting books may be given to owner to give assurances
Payments
Unit Price Contracts
Payments based on unit prices as bid and the precise measurements of in-place field quantities
Architect/engineer reviews app and verifies measurement of quantities before certificate of payment is issued to owner
Payments
Cost-Plus Contracts
Based on actual expenditures made in a project by the contractor
Fully documented expenditures
Contractor reimbursed for direct expenditures plus allowance for profit and overhead
Contract must state the specific nature of all expenditures for which contractor will be reimbursed
Common expenditures
- materials costs (both temporary and permanent)
- subcontractor costs
- field labor costs
- owning and operating costs of plant and equipment
- field overhead (project superintendent, field supervisors, clerks, inspectors)
- transportation costs for workers, materials, and equipment
- small tools, fuel, and utilities
- consultants
- miscellaneous expenditures (surety bonds, insurance premiums, taxes, permits, vacation and sick leave allowances, travel to project for home office personnel, pension and retirement allowance)
- excluded: reimbursement for home office personnel
Payment
Lump sum
Common for contract to stipulate that before performing the work, the contractor submit a schedule of values or cost breakdown of all work items for which payments will be requested
Schedule of values evaluated for reasonableness
Once negotiated, basis for payment
So only verification needed on each payment is proof work has been performed
Project closeout
Contractor must show that the completed project meets the terms of the agreement between the owner and the contractor, demonstrated to the owner as a project nears completion
Primarily focused on ensuring the quality of the completed project
Preparations for closeout should begin at start of construction and continue until project is finally accepted by owner. Advisable for contractor to perform self-inspections of work throughout construction phase
Punch list
A list of items that must be corrected before the project is acceptable to the owner
Final punch list is normally developed on a joint job visit conducted by the contractor and the architect/engineer
Items are often of a minor nature
Separates the last periodic payment from the release of the retainage
Closeout procedure includes:
- providing the owner with the permanent keys for the locks
- warranty for project
- affidavits that workers, subcontractors, and suppliers have been paid
- lien releases
- prevailing wage certificates
- as-built drawings
- complete submittal file for project
Substantial completion
Still some small items of work that require the contractor’s attention
Final play meant excluding retainage may be paid after substantial completion
Prompt Pay Act
Requires government make payment to contractor within 30 days of the date of submission of a properly prepared invoice
Federal projects
When not paid, govt obligated to pay interest in amount at rate established by secretary of treasury
Contractor to pay suppliers and subcontractors within 15 days of receiving payment from govt, less allowable retainage
Obligates contractor to pay subcontractors who have satisfactory performances not later than seven days after receipt of payment from govt
Retainage
Amount owner typically holds back or retains a portion of the money earned by the contractor as an incentive for the contractor to complete the project properly and promptly
May range from 5-20% (5-10% typical)
Contractor’s net profit is generally 2%
Retainage amounts of 2-3x the estimated cost of addressing the punch list items are considered adequate
When is retainage released?
After final acceptance
Typical subcontract agreements have provisions that state subcontractors will be paid after
- Completion of the work
- Acceptance by the architect/engineer
- Full payment for the work by the owner
Pay-when-paid versus Pay-if-paid
Pay-when-paid provision is intended to delay payments until the owner has paid the general contractor
Pay-if-paid provision is a means by which the general contractor can avoid making any payments to the subcontracts in an owner default
Construction contract documents
- construction agreement
- drawings
- general conditions
- supplementary provisions
- technical specifications
- addenda
Design ownership
Public - design belongs to owner, as dictated by law
Private - design ownership is established by the contract between the owner and the designer. Usually architects retain work ownership rights if the owner-designer contract does not address this issue.
