lecture 12 Flashcards
Since the only ________ is with the GC,Performance is expected only from the latter.
construction contract
GC is an independent contractor hired by the ____ He must communicate any subcontractor concerns to the Owner as if they were the GC’s.
Owner
Third tier subs generally do not have the right to file __________when working as a sub to a subcontractor
Mechanic’s lien
Sub-subcontractors, suppliers, and/or manufacturers are independently hired by the subcontractors. They have no direct contractual obligation or relationship with the ____.
GC
is an agent of the GC that does not have a direct contractual relationship with the Owner.
A subcontractor (second tier)
_________ might be an agent of the subcontractor (supplier or manufacturer)
A third tier subcontractor
Subcontractors are essential to the construction process, as ______ of the works are usually subcontracted.
20-80%
- Partial source of project financing for the GC.
- Might be indirectly linked to the owner through liens.
- Used primarily for their skill, and to offset some of the risk from the GC. (Though the GC is still liable for their work).
subcontractors
________ helps improve efficiency, quality, and productivity.
Specialization
The owner might limit the amount ($ value) or percentage of works to be subcontracted
(GC is not a CM).
is charged for risk reallocation.
Markup
Contract with GC might use ______ from the prime contract.
flow-down language
Owner might determine a percentage of works for “set-asides” [Usually
SBE, MBE, and WBE]
What Work is Subcontracted?
- GC will subcontract portions of work for which no in-house capabilities exist.
- GC may subcontract works with in-house capabilities if beyond in-house capacity. (Large volume)
- GC might subcontract work in foreign or unfamiliar markets.
- Equipment warranty validity may be tied to installation by vendor.
- Proprietary types of work or works with high levels of specialization have to be subcontracted.
GC’s responsibilities to Subs.
- Award subcontract to lowest responsible bidder, or following pre-set, pre-announced criteria for selection.
- Provide competent and responsible coordination and supervision.
- Pay approved statements under subcontract in a timely manner.
- Serve as advocate of the subcontractor in disputes with other contract parties (Owner, A/E, and other subs).
- Establish mechanism for information exchange between different parties.
Sub’s responsibility to GC
- Perform in a timely manner.
- Follow GC’s instructions within contract.Offer best competitive price.
- Fulfill oral agreements (Promissory Estoppel)
- May be required to present a performance bond to GC.
- Indemnify GC against sub’s own faults. (Limited form)
- Resolve disputes in a timely manner.
also known as bid chiseling, is usually regarded as unethical, and it squeezes the subcontractor’s price to get a better deal.
Pre-bid bid shopping
is illegal, and occurs when the GC intentionally divulges the bid of a sub to another sub to get a better deal.
Bid rigging
occurs when a group of specialty subs conspire to fix prices to distribute work among a limited pool.
Bid fixing or collusion
GC has the right of postbidbid shopping, whereas sub is bound by_______.
promissory estoppel
secure the same information for all GCs.
Bid repositories
__________ have exactly the same significance as they do for prime contracts and purchase orders.
The payment and retention provisions
________ issue arises in the same way as for purchase orders and is generally treated by the courts similarly.
The “no pay until paid”
The clause will hold up except in cases where the owner never pays the prime contractor. Then, the prime will normally have to pay the subcontractor even though payment has not been received from the owner.
The “no paid till paid”
The specific control provisions are the”______“and “_____“clauses,presentinmostsubcontractagreements.
48 hour, 72 hour
pertains to the contractor’s right, after directing the subcontractor to remedy some default (such as failing to pick up their construction debris from the work site), to perform the necessary work with the contractor’s forces for the account of the subcontractor if the subcontractor fails to remedy the default within 48 hours of receipt of the contractor’s directive.
The 48-hourclause
clause permits the contractor to terminate the subcontract agreement for default, after furnishing notice that the subcontractor is in default, the particulars of the default, and the corrective action required to remedy the default.
The 72-hour
When the prime contract contains an_______ , all subcontracts should contain a similar clause, so that the prime’s liability to the owner and architect/engineer for acts committed by the subcontractor is passed through to the subcontractor.
indemnification clause
Even when the prime contract does not require indemnification because the owner is protected by sovereign immunity or otherwise does not require indemnification, many subcontracts will still contain a comprehensive indemnification clause requiring the subcontractor to _______.
indemnify the prime
Although the owner may be protected by _____ , the prime contractor is not and thus may require protection from the consequences of the subcontractor’s acts or failures to act that is afforded by the indemnification clause.
sovereign immunity
There are two main categories for subcontractor / supplier evaluation:
- Process based evaluations
2. Performance based evaluations
which is an assessment of the supplier production or service process. It is based on providing flowcharts, manuals, and procedures (e.g. supplier has to be ISO certified)
Process-based evaluations:
which is an assessment of the supplier’s actual performance according to a variety of criteria. This is an “after the fact” or historical evaluation based on documented past performance with the same client or with other clients.
Performance-based evaluations:
- Involves categorizing suppliers’ performance in specific areas (% on time, % of work redone, # of claims, etc.)
- It is a simple and informal systems as a grade (e.g. Good, Neutral, Above average, Unsatisfactory) is assigned without going into deep details.
- More suitable for private projects where the client has more leeway in the decisions leading to the selection of the supplier.
- Fast and inexpensive
Categorical Method
Cost-Ratio Method
- A-Determine the internal cost associated with quality, delivery, and service
- B-Convert each element to a cost ratio, expressing cost as a percentage of the value of the purchase
- C-Add the three cost ratios (quality, delivery, and service) to obtain an overall cost ratio
- D-The overall cost ratio is applied to the supplier’s quoted unit price to obtain the net adjusted cost figures
•This is the most commonly used evaluation method•It is based on a cumulative point system corresponding to weights given to specific criteria (Time, Cost, Quality, Service, etc.)
Linear Averaging:
The sequential steps for using linear averaging are
- 1 -Assign appropriate weights to each performance criterion or factor (e.g. cost 40%, time 25%, quality 35%)
- 2 -Use these weights as multipliers for individual ratings
- 3 –Add the scores for each factor and multiply by the sum by the respective weight
- 4 -Select the supplier with the highest performance rating.
Single sourcing allows:
- Better prices due to large volume (economy of scale)
- Reduction in paperwork due to long term contracts
- Better cooperation and communication
- Expedited decision making
Multiple sourcing allows
- Higher competition leading to better prices
- Risk distribution in case of default
- Improved innovation and market intelligence
- Re-evaluation of the contractual relationships
Dual sourcing
- This is a mix between single and multiple sourcing allowing for the benefits from both approaches to be achieved.
- By servicing several projects, two different suppliers (single source for each project) may be able to achieve the economy of scale and the contractual stability, while still allowing for competition and best price guarantees.
- Limiting the overall contracts to a certain ceiling allows for diversifying the sources of materials or services.
