Construction Contracts

and Project Delivery

Methods

1
 Objective
Exposure to the different types of
construction contracts, the number of
contracts, the method of contractor
selection and the basis for contractor
payment.

2
 Contract Defined
An agreement between two or more parties
representing a promise to be performed for
consideration

3
 Necessary Parts of a Typical
Construction Contract
O Parties identified
O Parties make promises that constitute an
offer
O Both parties sign the contract
O Both parties receive consideration:
O Contractor – payment for work done
O Owner – use of the completed project
O Parties of the contract must have the LEGAL
AUTHORITY to negotiate a contract

4
Contractual Relationships
O Agreement between the OWNER and
CONTRACTOR is the primary construction
contract
O There are other contractual relationships
which exist

5
 Construction Agreement
Forms
O Agreement – legal, binding, written
document signed by owner & contractor
O Defines the relationships and obligations
that exist
O By reference it incorporates ALL OTHER
CONTRACT DOCUMENTS

6
 Standard Forms
O AIA Document A101
O EJCDC Document 1910-8-A-1

7
Advantages to Using Standard Agreement
Forms—Disadvantages if Modified Forms
Used
O Advantages
O Familiarity of the forms
O Legal precedents interpreting the documents
O Uniformity of terminology
O Disadvantages
O Modifications warrant care that all references
are coordinated (change in one part of the
form may require changes in several
locations)
O Seek legal counsel

8
Conditions of the Contract
O Define basic rights, responsibilities, and
relationships of the parties involved in the
construction process in greater detail than
the agreement

9
Design & Construction Parties
O Owner – may be an individual or an
organization; initiates the project and
secures funding for the design,
construction and operation of the
completed project
O Contractor – agrees to build the project;
may enter into sub-contracts
O A/E – develops project designs and
prepare construction documents;
consultants may include: structural, civil,
mechanical, electrical, acoustical, &
environmental engineers and landscape
architects, interior designers, and
hardware specialists
10
 Methods of Contractor
Selection
O Competitive Bidding
O Direct Selection

11
 Competitive Bidding
O Objective is to ensure that the cost of the
project is reasonable and consistent with
existing conditions in industry
O Publicly funded projects – owner required to
select lowest bidder
O Private projects – owner may also consider
the bidders’ qualifications, experience,
financial condition, and performance history

12
 Direct Selection
O Owner, with advice from the A/E selects
contractor – total price and method of
payment is then negotiated
O This method is generally NOT allowed for
public projects

13
3 Decisions Made in Determining
Kind of Contract
O Number of contracts
O Contract type
O Basis of payment

14
 Number of Contracts
O Single Prime Contract – most common,
uses competitive bidding (pg 3.12; fig 3.3-C)
owner has contract w/ A/E & contractor; but
A/E & contractor do NOT have contract
O Multiple Prime Contract – Owner divides
the work among several contractors & has
separate contract w/ each of them. (pg
3.13; fig 3.3-D) [e.g. paving, site work,
foundations, landscaping, painting] Often
used in FAST TRACK projects when
construction on parts of the project is
started prior to all of the design elements of
the project being completed
15
 Project Delivery Method
O Design-Bid-Build
O Design-Negotiate-Build
O Construction Management
O Design-Build
O Owner-Build
O Construction Subcontracts
O Total Project Commissioning

16
 Design-Bid-Build
O Traditional method of project delivery
O Typically uses competitive bidding
O Considerations
O Project funding
O Owner’s capacity
O Cost
O Extent of work
O Time priorities
O See Figure 3.4-A on page 3.16

17
 Design-Negotiate-Build

O Similar to the Design-Bid-Build contract but

only ONE contractor involved in developing
costs and negotiating a contract to construct
the project
O Primary considerations are construction
excellence and time (project costs not
subject to competitive bidding process)
O See figure 3.4-B on page 3.19

18
Construction Management
O May have either single or multiple prime
contracts
O Construction manager is employed by the
owner to oversee and administer the project
(may or may not actually perform any of the
construction work)
O See pg 3.24; figs. 3.4-C & 3.4-D

19
 Project Management
O Similar to construction management but
also includes coordination of the design &
planning stages of the project
O Large projects overseas have been
successful using this
O Projects involving multiple structures &
extensive site improvements often require
this type of supervision; complex projects
such as industrial & process engineering
plants use this type of contract
20
 Design-Build
O Owner contracts w/ a single entity to design
as well as build the project
O Turnkey – an extended design-build contract
in which the selection, procurement, and
installation of all furnishings, furniture, and
equipment is also included
O See pg 3.30; fig 3.4-E

21
 Owner-Build
O This type of contract is usually seen with
large-scale developers
O Only construction contracts needed are
between the owner and various
subcontractors
O See pg 3.34; fig. 3.4-F

22
Construction Subcontracts
O Usually involves a contract between the
contractor and subcontractors and material
suppliers
O May be verbal…best if written

23
 Total Project Commissioning
O Defined by ASHRAE as a method to improve
the delivery of a process.
O Focus is on QUALITY
O Makes sure that all components of a
building are planned, installed, and
maintained according to an owner’s
requirements

24
3 Types of Basis of Payment
O Stipulated (Lump) Sum
O Unit Price
O Cost-Plus Fee

25
 Stipulated Sum
O Simplest method used
O States that the contract requirements will be
completed for a given amount of money

26
 Unit Price
O Used when the extent of work or actual
quantities can not be determined when bids
are made (earthwork is such an example)
O Many civil engineering projects use unit
price type of payment
O With unit price, the owner pays for exactly
what is documented as done after the work
has been completed

27
 Cost-Plus Fee
O Contractor paid for actual cost of labor
PLUS a fee for overhead and profit
O Fee may be a percentage of the labor &
material cost or a fixed amount
O Cost-Plus Fee agreements may also
include incentives for early completion
O It is reasonable for the owner to require a
guaranteed maximum price to ensure
that the total project cost will not exceed
a given amount
28