CEE 266 Construction Management Lecture 2b&c PDF

Outline  Contract components  Contract components CEE 266  Project Delivery Method  Contracts...

Outline  Contract components  Contract components CEE 266  Project Delivery Method  Contracts Traditional Prequalification & RFPs CONSTRUCTION Pure Construction Management Key elements MANAGEMENT Construction Management At Risk Design/Build Standard contract forms AIA, IPD, CMAA, AGC, DBIA, Lean and EJCDC  Payment Scheme Administrating Contracts Lecture 2b&c. Payment and General points Lump sum Pay Estimates & Payments Claims Awarding Methods Unit prices Cost plus percentage fee Remedies Bonds Cost plus fixed fee Insurances Prof. Pervizpour Guaranteed maximum price x8-2137 Incentive [email protected]  Award Mechanism Bidding August 30, 2015 Negotiation Best value Risk and Risk Allocation Addenda and Change Orders  Risks that owner can handle should be kept by the  Addenda owner (ex: Geotechnical site condition …)  Any changes that arise before bid opening and during the  Risks that contractor can handle better are bidding period become part of the bid package imposed on him (material, equipment, labor, …)  Change Orders  Impose high enough risk incentive to get  Any changes that arise after the contract is signed due to: contractor to do the job efficiently (incentive to Different site conditions finish on time, to stay within budget) Errors / Omissions in the Contract Documents Owner’s Requirement Others  Requires adjustments in scope, time, and cost. Change Orders …. Payment Schemes  Changes contract (cost/schedule/scope/etc.)  Payment Scheme  Can lead to costs beyond contract specification  General points  Anticipated costs may be incorporated in  Lump sum “contingency” (typically 1‐10% on top of agreed upon  Unit prices price)  Cost plus percentage fee  Often only paid for additional direct costs (big  Cost plus fixed fee problem if disruption in work)  Guaranteed maximum price  Incentive  Source of very large risk Lump Sum or “Fixed Price” Unit Price Contract  Actual cost is known by owner before the project  Agreement on the price charged per unit by the Contractor begins to the Owner  Contractor overhead must be integrated in the Unit’s Prices  Contactor required to achieve the project at the  The lowest bidder is normally selected Bid/Negotiated Contract Value  Owner to be present on site to measure the actual quantities  Minimizes the risk for the Owner if the project is well  Highly dependent on the accuracy of the estimation of the estimated, contractual documents accurate, and project quantities given by the Owner/Designer clearly defined  Difficult to accurately quantify work required  High Risk for the Contractor in case of many unforeseen  Contractor can make higher profit since payment based on actual quantities (may lose money in the same manner) problems  Total cost for the Owner can be greater than planned  Generally utilized with the Traditional Method (DBB) &  Typically renegotiate if quantity 20% off (quantity influences price due to economies of scale) usually not possible with Fast Track  Risk sharing, Owner carries risk of uncertainty in quantity, Contractor the  Usually a high incentive to finish early at low cost risk of unit price (efficiency, etc) Cost plus percentage fee Cost Plus Fixed Fee  Owner is paying the actual cost plus a fixed percentage fee  Cost may vary but the fee remains firm  High risk for the Owner, Contractor very little risk  The fee is independent of the duration of the project  Maximum flexibility for the Owner (no fighting over  Used only if the pricing could not be determined in an change orders‐ contractor gets paid for any extra work alternative manner required)  No financial insurance of ultimate cost  Used only if the pricing could not be calculated in any  Little incentive to reduce costs but high incentive to other way and if it is urgent or confidential (civil, military) finish early  No financial insurance of ultimate cost  The Contractor agrees to make best efforts to  Little incentive to reduce costs, cost unknown until complete the work completion  Promotes collaboration at the early stages of the  Contractor agrees to do his best efforts to achieve the project goals Guaranteed Maximum Price (GMP) Conclusion  Variation of the Cost Plus a Fee by having a cap (on  When the market is not very good, clients insist on direct costs) fixed price bids whereas when the project offers  The Contractor assumes any additional costs after the are numerous, it is more difficult to obtain those “Ceiling” point is reached conditions  Similar to CPFF but quality may be sacrificed to avoid  The choice of payment scheme (contract type) increases in cost beyond GMP must depend on:  The accuracy of the estimation  Variation: Usually, GM shared savings – below the  The ultimate cost known since the beginning or at guaranteed maximum, savings are shared between least the maximum Owner and Contractor  The desired risk  Good for turnkey, well‐defined scope  The priority of the goal of quick completion of work  Permits easier financing, and can fast‐track AWARD METHODS Bidding  Award Methods  Variants  Bidding  Low bid  Negotiation  Multi‐parameter bidding  Best Value Low bid plus arithmetic combination of other factors Low bid divided by ranking of other factors  Fixed price low bid is win‐lose  Typically associated with lump‐sum (or unit price) contract  Pre‐qualifications critical Bidding Tradeoffs Bidding Tradeoffs  Time provided to bidders to review documents  Advantages  Too long: Construction delayed  Can get good price  Too short:  Transparency Bidslow‐quality because too little time to review contract  Disadvantages docs (incorporate high risk premium or unrealistically low)  Canset up win‐lose situation Few bidders willing to participate  Competitive pressures can eliminate profit from bid  Bid count Tryto make up with change orders, cutting corners  Too many bidders: Scare away best contractors Can lead to combative relationships  Too few bidders: Bid not competitive  Insufficient consideration of design before pricing Bidding Process Public vs. Private Bidding  A/E oversight typical  Public Bidding  Publicity (specifies qualification requirements)  Must be publicly advertised (posting in newspapers, public building, etc.)  Provide bid documents  Qualification occurs after submission of bids  Typically include fair cost estimate, sample contract  Typically 60 day period in which can submit bids  Answer RFIs  Private Bidding  Pre‐bid conference  May be by invitation only  Explain scope, working conditions, answer questions,  Qualification occurs before submission of bids documented in writing Qualifications Negotiation  Common items for qualifications  Typically selected based on reputation,  Bonds/Insurance (bid, performance, payment) qualifications  Safety record  Typically used for two cases  Reputation  Very simple: use trusted, familiar party  Financial strength  Very complex/big: get contractor involved in design,  Total/Spare capacity start work early  Licensing  Requires relatively savvy owner  Background in type of work  Evaluate proposals, monitor performance  Experience in local area/Labor market  Management system (QA, planning, estimation, control)  Important even for DBB for post‐bid changes  Interest, adaptability shown Negotiation Considerations Negotiation Tips  Can get win‐win because of differences in  Try to maintain clear sense of reservation price  Riskpreferences  Price or conditions under which will accept offer  Relative preferences for different attributes  Want to adopt some objective basis for position  Goal is to find a pareto optimal agreement  Without this impersonal criteria, other party can take  Key skill in negotiation: Ability to find win‐win disagreements personally as arbitrarily demands options  Discuss multiple issues at once  Permits trading off issues flexibly  Formal exposure good‐but experience give edge Some Details on Contracting, Bonds, Best Value Insurance and Bid Packages  Used by the Federal Government  Provides a uniform set of procurement regulations  Request for Proposal (RFP) states:  Relativeimportance of price  Technical merit  Technical evaluation criteria and their weights  Selection of Contractor is based on the best value of the proposed work  Price  Technical Factors