Lecture 2A: Project Delivery methods and contracts

Question 1

Traditional delivery method

Answer 1

Design activities are completed, only then can the building start.

Question 2

Phased devliry method

Answer 2

Each design activity is completed, and thier respective build activities can start.

Question 3

Fast track delivery method.

Answer 3

Part of the design activity is completed, and the respective build activities start.

Question 4

Main points of traditional delivery method

Answer 4

• Longest duration
• Suitable for using a single contractor.

Question 5

main points of phased delivery method

Answer 5

• Shorter overall duration
• Multiple contractors; requires project management.

Question 6

main points of fast track

Answer 6

• Build starts before design is finalized.
• shortest overall duration.
• Difficult to manage, requires PM and multiple contractors.

Question 7

Why do we use contracts?

Answer 7

• Describe scope of work
• specify duration
• specify the amount and method of payment.
• Control mechanisms
• manager/allocate risks
• Assign responsibilities and obligations

Question 8

What is a contract?

Answer 8

Agreement between onwer and performing organization to execute a defined scope of work.

Question 9

Things specified in a contract:

Answer 9

• NAMES of parties involved
• SCOPE OF WORK covered by contract.
• PERIOD of the contract
• Contract PRICE and METHOD TERMS OF PAYMENT
• The LANGUAGE and SOURCE OF LAW governing the cotract
• LISTING OF DOCUMENTS that are part of the contract.

Question 10

6 Different types of contracts

Answer 10

1. Lump sum
2. Unit price
3. Cost + fixed percentage
4. Cost + fixed fee
5. Cost + fixed fee + profit sharing
6. Cost + fixed fee + sliding fees

Question 11

Lump sum contract?

Answer 11

Used where it’s possible to compute accurate quantities of work prior to construction.

• single quoted price for
  the entire job based on a complete set of plans and specifications

Question 12

What is Lump sum equal to?

Answer 12

= Direct cost + indirect cost + Markup

Direct = labor + equipment
Indirect = project + home office overheads
Markup = profit

Question 13

What is the markup based on and how is the payment made?

Answer 13

The markup is usually higher to account for risk, and the payment is made based on % work complete. ALl risk is on the contractor/seller.

Question 14

What is the major advantage of the Lump Sum contract?

Answer 14

• Major advantage is that the price quoted is generally assumed to be the guaranteed price for the work.
  -Therefore you know how much to budget.

Question 15

Disadvantges of lump sum

Answer 15

• Ownver must complete plans and specifications before bidding and contructions (traditional delivery)
• Little to no flexibility to make design changes,
• Any deviation from original plans/specs must be handles as a change order -> costs for contract change.

Question 16

What are unit price contracts

Answer 16

Used when it’s not possible to calculate exact quantity of materials needed. (highways, etc.)

-Broken down into work items based on units (m^3, etc.)
- An estimate on how much of each unit is baesd, and there is a price per unit that is set.

Question 17

Disadvantage of unit price contract:

Answer 17

True price is not known until the project is completed (owner needs more budget)
- Uni prices are susceptible to being manupulated via unbalanced bidding for profit.

Question 18

Responsiblity and risk with unit price contracts with owner and contractor

Answer 18

Best used when the the responsibility remains with the owner or the design is completed during construction.
Lower risk than lump sump for contractor.

Question 19

Cost + fixed percentage contract.

Answer 19

• Contractor is reimbursed for all direct expenses for labour, materials and equipment, as well as indirect expenses (Reimbursable cost).
• Also paid a percentage of reimbursable cost as their “fee”

Example, reimbursable cost is 1M, percentage fee is 7%. If the project ends up costing 2M, the contractor will get 140K

Question 20

When is the cost + fixed percentage contract best used?

Answer 20

• For projects with new technology
• Not recommended for time limited projects.
• More risk for the owner

Question 21

Cost + fixed fee contract

Answer 21

• COntractor is reimbursed for al direct expenses for labour, materials and equipment, and indirect overhead.
• Contractor receives fixed fee.
• This fixed fee is paid regardless of fluctuation of reimbursable cost components, and is usually a percent of an originally estimated total cost figure.

Example: if the project is estimated to be 77M, and agreed upon 1% fee (770k), even if the project ends up costing more or less than 77M, the fee still is 770K

Question 22

What are the benefits of cost + fixed fee

Answer 22

Gives incentive to contractor to finish the job as quickly as possible.

Question 23

What is the risk in cost + fixed fee

Answer 23

Contractor can lose profit if project is delayed.

Question 24

What is cost + fixed fee + profit sharing

Answer 24

• The contractor aims for a target price, and if the project ends up under target costs, savings are shared on an agreed percentage.
  Example:
  Fixed fee is 1.7M, sharing is 25%.
• Target price is 17M.
• If total price was 16M, contractor gets 1.7M + 25% of (17M - 16M)

Question 25

What is cost + fixed fee + sliding fee

Answer 25

• Rewards contractor when underbudget, and punishes when overbudget of target price.
  Sliding fee = %agreed x ( target price - actual cost of construction)

The target price for a project is set as $17,000,000 (i.e. T)
* The contractor’s fixed fee is agreed as being $1,700,000.
* In addition, the base percent value for profit sharing is 5%
(i.e. R).
* If the contractor completes the project at an actual cost of
$15,000,000 (i.e. A), the sliding fee will be:
* Sliding fee = 0.05($17,000,000 – $15,000,000) = $100,000
* The contractor’s total fee will be: $1,700,000 + $100,000 =
$1,800,000

If the contractor completes the project at an actual cost
of $19,000,000, the sliding fee will be:
Sliding fee = 0.05($17,000,000 – $19,000,000)
= –$100,000
– This means the contractor will be penalized an amount of
$100,000)
– Note: The penalization is for +$100,000
* The contractor’s total payment will be: $1,700,000 –
$100,000 = $1,600,000

Question 26

What are some types of risks?

Answer 26

– Force majeure: “acts of God” like war, earth-quake, etc.
– Indemnification (Insurance)
– Occupational safety and health of workers
– Suspension of work
– Liquidated damages