Construction Contract Types

Questions and Answers

What is the primary advantage of a cost-plus-a-fixed fee (CPFF) contract?

The contractor is guaranteed a fixed profit regardless of expenses.

The contract includes a fixed price that doesn't vary with costs.

The contractor takes all the risk for any cost overruns.

The owner pays only for the exact costs incurred plus a predetermined fee. (correct)

In a cost plus a percentage of cost (CPPC) contract, how is the contractor's fee calculated?

A fixed fee is paid regardless of costs incurred.

The fee is based solely on materials and labor costs.

A percentage is taken from the total project cost only.

A percentage is calculated based on the total costs incurred. (correct)

What characterizes an incentive contract?

The contractor is paid a fixed amount regardless of expenses.

The contractor benefits from keeping costs below estimates. (correct)

The owner covers all costs without additional fees.

The contract compensates only for direct labor costs.

What is a significant benefit of negotiated contracts?

They ensure only qualified contractors participate in the bidding process. Signup and view all the answers

What happens in a cost-plus-a-fixed fee contract when the costs exceed what was estimated?

The contractor's fee is adjusted, and the owner covers the excess. Signup and view all the answers

Which statement about advertised contracts is true?

They provide all qualified contractors with a chance to bid. Signup and view all the answers

Which of the following statements best describes the nature of private contracts?

They may sometimes be advertised to encourage competition. Signup and view all the answers

What is true about the single lump sum (fixed price) contract?

It includes all costs and does not change regardless of actual expenses. Signup and view all the answers

What is the first step in selecting a construction contractor?

Advertising Signup and view all the answers

Which of the following is NOT included in the invitation to bid?

The contractor's experience Signup and view all the answers

What are the two major groups of construction documents?

Bidding Requirements and Contract Documents Signup and view all the answers

What does prequalification of contractors determine?

The capability of contractors before bidding Signup and view all the answers

What is the purpose of the bidding requirements?

To attract bidders and explain the bidding process Signup and view all the answers

Which of the following activities occurs after bids are opened?

Post qualification of the low bidder Signup and view all the answers

What are construction documents primarily used for?

Communicating the design of the project Signup and view all the answers

What aspect of contractor evaluation typically falls under post qualification?

Financial resources after bids are opened Signup and view all the answers

What is the purpose of examining bids after they are opened?

To determine the lowest responsive bid Signup and view all the answers

What does a performance bond guarantee?

The contractor will build the project according to the owner's specifications Signup and view all the answers

Which of the following is NOT included in the agreement between the owner and contractor?

The experience of the contractor Signup and view all the answers

What triggers the contractor's permission to begin work?

The notice to proceed Signup and view all the answers

What is the main function of specifications in a construction project?

To give detailed instructions about the construction project Signup and view all the answers

What does a payment bond ensure?

The contractor will pay subcontractors for their work Signup and view all the answers

What does the legal documents section primarily include?

Owner-contractor agreements and bond forms Signup and view all the answers

Which of the following is a key component of the agreement?

Contract sum or amount for the project Signup and view all the answers

Which factor is NOT considered in the selection of materials and equipment?

Popularity Signup and view all the answers

What is a guide specification best described as?

A checklist for writing specifications Signup and view all the answers

What is a responsive bid?

A bid that complies with all stipulated conditions Signup and view all the answers

Which section would contain the methods and materials for plumbing?

Plumbing Section Signup and view all the answers

Which specification is created during the design phase with preliminary drawings?

Outline specification Signup and view all the answers

What consideration deals with the capability of equipment to be repaired?

Service Requirement Signup and view all the answers

Which type of specification combines outline, standard, and guide specifications for a specific project?

Project Specification Signup and view all the answers

What is a common special requirement in technical descriptions?

Unusual work standards Signup and view all the answers

What is the primary purpose of bidding requirements?

To help bidders follow established procedures and avoid disqualification Signup and view all the answers

Which of the following documents is included in the bid package?

Technical specifications and plans Signup and view all the answers

When do bids typically get opened after an invitation to bid is issued?

About 30 days Signup and view all the answers

What does a bid bond guarantee?

That the contractor will enter into the contract if selected Signup and view all the answers

What must bidders do with their bids before the bid opening time?

Submit their bids in sealed envelopes Signup and view all the answers

Which of the following does NOT typically have to be submitted by the contractor during the bidding process?

A full design of the project Signup and view all the answers

What happens to the bid bond if the low bidder refuses to take the contract?

The owner collects the difference between the low bid and the next lowest bid Signup and view all the answers

What is included in the 'Instructions to bidders' document?

Details about fraudulent practices Signup and view all the answers

Study Notes

Types of Contracts

Single Lump Sum Contract: A fixed price agreement where all costs, including labor and materials, are included in a single payment.
Cost-plus-a-Fixed Fee (CPFF): The owner pays actual costs for materials and labor plus a set fee to cover overhead and profit (e.g., P100,000 for ABC Const.Co).
Cost plus a Percentage of Cost (CPPC): Contractor receives a percentage of the project's total cost (e.g., 8% of P1,500,000 equates to P120,000).
Incentive Contract: Allows savings to be shared if the project is completed below the estimated cost, while the fee is reduced if the cost exceeds expectations.

Contracting Processes

Public Contracts: Advertisement for bids ensures fair competition among qualified contractors.
Private Contracts: May also be advertised to encourage lower bids through competitive bidding.
Negotiated Contracts: Involves direct discussions between the owner and contractor to agree on terms.

Selection Steps for Contractors

Advertising: Notifying potential bidders through invitations that detail the work, location, and bidding process.
Qualification of Contractors: Evaluated by experience, financial resources, integrity, personnel, and equipment.
- Prequalification: Contractors vetted before bidding.
- Post Qualification: Low bidder qualifications confirmed after bids are opened.

Bidding Documents

Bidding Requirements: Attract bidders and outline procedures; do not become part of the contract.
Bid Package: Includes plans, specifications, general conditions, and project description.
Instruction to Bidders: Outlines conditions of bidding, eligible bidders, materials, site visits, and amendments.

Bid Opening and Awarding

Bid Opening: Typically occurs 30 days after bid invitations, where proposals are read aloud.
Bid Bond: Guarantees contractor will enter the contract, often 20% of the bid value.
Responsive Bid: A compliant bid matching all conditions in the bidding documents.
Notice of Award: Sent to the lowest responsive bidder along with agreement forms and bond requirements.

Bonds

Performance Bond: Guarantees project completion per the owner's plans; bonded company completes job if contractor defaults.
Payment Bond: Ensures subcontractors and suppliers receive payment for work done, covered by the bonding company.

Agreement and Notice to Proceed

Agreement: Summarizes contract terms, including work scope, price, payment procedures, and completion timelines.
Notice to Proceed: Authorizes the contractor to commence work.

Specifications

Specifications: Detailed written instructions outlining project requirements to protect interest from all parties involved.
Categories of Specifications:
- Legal Documents: Includes advertisements, invitations, agreements, and bond forms.
- Condition Section: Defines rights and responsibilities of all parties.
- Technical Description: Details materials and methods for construction.

Material and Equipment Considerations

Major Selection Factors: Economy, quality, functionality, installation ease, appearance, compliance with codes, service requirements, warranty, and size.

Types of Specifications

Outline Specification: Initial outline based on preliminary designs.
Standard Specification: Set by companies for consistent usage of materials.
Guide Specification: Checklist to assist in specification writing.
Project Specification: Finalized specifications tailored to a specific construction project, incorporating other types as needed.

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Description

Explore the different types of construction contracts including lump sum and cost-plus-a-fixed fee agreements. This quiz will help you understand the financial arrangements between contractors and clients in construction projects.