Lecture 4- Prime Contracts: Parties and Contractual Services

Question 1

Contract with the owner as a party

Answer 1

Prime Contract

Question 2

How do prime contracts differ?

Answer 2

Who the parties are, What services are being provided, and What commercial terms are used to operate the contract

Question 3

Who are the principal four entities (parties) to a construction related prime contract?

Answer 3

1. Owner
2. Prime Contractors
3. A/E’s
4. Construction Managers

Question 4

The contractor who contracts directly with the owner

Answer 4

Prime Contractor

Question 5

What is the prime contractor responsible for?

Answer 5

Actual Construction of the project, determines the procedures of the construction, and the entity that directs construction operations

Question 6

Mostly Designers and will represent the owner during construction.

Answer 6

A/E’s

Question 7

Lead designers on buildings, both residential and commercial. (Can work on industrial and heavy civil projects if there are buildings)

Answer 7

Architects

Question 8

Lead designers on industrial and heavy civil projects. (work on commercial building designs for the site work (civil engineers), mechanical work, including plumbing, HVAC (heating, ventilation, air
conditioning), and sprinkler systems (mechanical engineers), and electrical and control systems
(electrical engineers).

Answer 8

Engineers

Question 9

Provides a number of services for the owner of a construction project

Answer 9

Construction Managers

Question 10

T/F: A owner can have multiple prime contracts with other parties (ex. prime bank: bank dealing directly with the owner)

Answer 10

True

Question 11

Party that deals directly with the owner and provides construction financing

Answer 11

prime bank

Question 12

Party that deals directly with the owner and provides insurance coverage for the project.

Answer 12

Prime Insurer

Question 13

Services Provided of interest involving contractors (bid services [7]) :

Answer 13

1. Design Only Services
2. Construct (build) only services:
3. Design-bid-build delivery method (DBB)
4. Design-Build delivery method (DB)
5. Turnkey DB services:
6. Fast-Track DB services
7. Construction management services

Question 14

Contract with owner and designer as the parties. A/E would provide the plans and specifications for the project. A/E represents itself during the design phase, but the owner during the construction phase.

Answer 14

Design Only Services

Question 15

Contract with owner and prime contractor as the parties. “Traditional Approach”: A/E designs the project and a contractor builds the project.

Answer 15

Construct (build) only services:

Question 16

Also known as traditional approach. Two distinctly separate contracts: one design only and one construct only. Two different entities.

Answer 16

Design-bid-build delivery method (DBB)

Question 17

Advantages of Design-bid-build delivery method (DBB)

Answer 17

1. Familiarity: parties are familiar with the way things go.
2. Problems are fairly predictable and can be solved easily
3. There are standard procedures in place regarding insurance and bonding, dealing with unexpected conditions, making changes, and generally resolving unforeseen contingences

Question 18

Disadvantages of Design-bid-build delivery method (DBB)

Answer 18

1. Completing design before construction is arguably not the best way to do things
2. Inability of the owner to react quickly to changing market conditions
3. exposes the owner to inflation
4. Encourages contractors to use lowest acceptable standards and generate disputes as to what is acceptable under the plans and specifications
5. Presumes great expertise in the owner than he/she probably has

Question 19

Owner has only one contract for both design and construction phases. Owner is dealing with one entity (DB entity) and not two entities (designer and prime contractor)

Answer 19

Design-Build delivery method (DB)

Question 20

How can the DB entity go about the contract in the DB process?

Answer 20

1. may be a contractor with in house design capabilities or
2. Contractor that will hire a design entity, subcontract to a design entity, or enter a joint venture with a design entity.
   Vice Versa:
3. may be a design entity that has in house construction capabilities
4. designer that will hire a construction entity, subcontract to a construction entity, or enter into a joint venture with a construction entity

Question 21

Why is the DB delivery method becoming popular?

Answer 21

Allows fast-tracking of the project and reduces overall costs.

Question 22

Why is the DB delivery method the best method to the owner?

Answer 22

avoids disputes involving the owner, and freedom from the Spearin Doctrine

Question 23

Who is the delivery method determined by?

Answer 23

The owner

Question 24

Delivery method where the DB completes the project to a stage where all that is needed for the contractor to turn over the key to the owner. Laboratories are common in this delivery method.

Answer 24

Turnkey DB services

Question 25

One entity is being used for both design and construct. the DB entity may be able to start building a phase of the project while other phases are still being designed

Answer 25

Fast-Tracking DB services

Question 26

Why does a fast track have to be done by DB and not by DBB?

Answer 26

Differing opinions between the designer and prime contractor may cause problems

Question 27

Why does multi-prime contracts save the owner money?

Answer 27

Single prime contractors usually have a markup price for dealing with one entity.

Question 28

CM working for the owner during both the design phase and construction phase

Answer 28

Agency CM

Question 29

CM that an help the owner flesh out what is desired and then help the owner select the proper designer for the project.

Answer 29

CM hired at conception of the project

Question 30

CM offering constructability ideas and by value of engineering and can help the owner with the selection of the best contractor for the job

Answer 30

CM working with the designer

Question 31

Many conflicts b/w designer and prime contractor can be avoided. CM is not protecting the design like an A/E would even when the problem is a design mistake

Answer 31

CM representing owner

Question 32

How can an Agency CM become an at-Risk CM?

Answer 32

By taking the place of a prime contractor during construction

Question 33

Establish the payment method and risk of performance

Answer 33

Commercial Terms

Question 34

Two Broad classes of Commercial Terms

Answer 34

Cost-Reimbursable and Fixed Price

Question 35

What is important to know on a cost-reimbursable contract?

Answer 35

What costs are allowable

Question 36

Often used in an owner-A/E contract and in an owner-CM contract. Also used on small construction contracts. The owner reimburses the COSTS on the reimbursement, then pays the contractor a FEE based on a percentage of the amount of the reimbursement. Riskiest contract to an owner. Contractor cannot lose money. Plans and specs do not have to be accurate.

Answer 36

Cost Plus a Percentage Fee (CPPF)

Question 37

Often used in an owner-A/E contract and in an owner-CM contract. Also used in construction contracts when plans specs are not definitive enough to permit firm pricing. FEE is fixed unless the scope of services is expanded by change order. FEE is usually based on an estimate of the final cost. Contractor’s incentive is to finish in a short a time as possible. Contract is safer to the owner, but still risky. Contractor cannot lose money. Plans and specs do not have to be accurate.

Answer 37

Cost Plus a Fixed Fee (CPFF)

Question 38

Often used because it is considered to be a win/win: the less it costs to the owner, the greater the fee (money) to the contractor. The FEE is agreed upon based on the magnitude of the project. Parties will share in overrun cost and under run savings. Contractor’s INCENTIVE is to hold down costs because he receives a share of saved money. Contract is risky to the contractor because he can lose money in overruns. Plans and specs need to be reasonably accurate.

Answer 38

Cost Plus an Incentive Fee (CPIF)

Question 39

A variation of the CPIF contract. Often used by armed services that have a fixed amount of money that the owner will pay. Difference is that contractor guarantees a maximum number the owner will have to pay. Still an incentive for the contractor to hold down costs and share in savings. Contract is less risky to the owner and more risky to the contractor. Plans and Specs need to be quite accurate.

Answer 39

Guaranteed Maximum Price (GMP)

Question 40

Two types of fixed contracts:

Answer 40

1. Lump-sum (firm-price or hard money)

2. Unit-Price (schedule-of-bid-items)

Question 41

No relationship between costs incurred and payment received by the contractor. Risk is all on the contractor. Greater the risk, greater reward. Contract requires a definitive understanding of the scope of work and accurate plans and specs

Answer 41

Fixed-Price Contract

Question 42

Type of fixed contract where the sum amount is it, unless there are change orders.

Answer 42

Lump-Sum Contract

Question 43

Type of fixed contract where there is a breakdown of the elements of work with each becoming a bid item. Used when number of units for each bid is unknown but the work itself is defined. (Ex. On a heavy civil project, it is known that concrete will be used, but unknown how much concrete. Contractor bids a fixed-price on the concrete and the amount to be paid is based on the final measured quantity in place.)

Answer 43

Unit-Price Contract