Escolar Documentos
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Austin Petersen
contracts and how they work. I have done the majority of my research through the school library
where I could find scholarly sources and research that has been peer- reviewed. Through my
research I learned about different techniques to look at the contracts, what makes up a contract,
and the different types of contracts in the industry. Contracts have been around in the
construction world ever since people started to build for others and not just themselves. The
contracts are needed to make certain that the builders get paid, they finish on an appropriate time,
and they are held accountable for the quality of work that is done. These contracts are not always
written down in order to prove what was said, sometimes verbal contracts will worked and have
worked. Construction contracts are a good way to help the building of a project go as smoothly
and efficiently as possible by holding the people involved accountable for what was agreed upon
prior to the building process. Throughout this essay you will find information gathered from
second hand sources found through the library and first-hand sources that will be interviewed
and asked a series of questions related to how they personally use construction contracts in
todays world.
Contracts make the project run more efficiently and smoothly by creating a clear
agreement between the different parties. According to Rodriguez (2018) and Fortney (n.d.), there
are a lot about the different types of construction contracts in which are used for different types
of projects or situations. There are four main written contracts that are the documents that most
project managers go to when they want to make a written agreement between the builder and the
buyer. The first is a lump sum or fixed price contract. These contracts involve the total fixed
price for all construction activities. They are primarily used when a clear scope and a defined
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schedule has been mutually agreed upon. The second type is cost plus contracts. These contracts
are more specific to each payment or expense made when the project occurs. They are used when
the scope is not clear, and it is the owner’s responsibility to establish some limits on how much
the contractor will be billing. The benefit of this contract is that the owner is not paying for any
more than he/she has to, but in return they have to do a lot more supervising due to the difficulty
of tracking the expenses and such. The third type of contract is a time and material contract
which are used when the scope has not been defined. The contract will include a hourly or daily
rate including additional expenses for change orders. The forth contract is a unit pricing contract
which is used for the ease of adjustability during change orders. The contract set a price on the
units such as each piece of wood or cinder block. If the scope changes It becomes very easy for
the owner and builder to reach an agreement for the new price.
Fortney (n.d.) added on to just the different types but a little more about verbal contracts.
The verbal contracts are enforced, but just like you would think, a verbal contract doesn’t present
a clear record of what was agreed upon. When there is a problem the verbal contract is subject to
the party’s recollection of the terms which can be manipulated. Both the sources portray the
Knowing how to negotiate a contract and being prepared will save you headaches and in
the future. Negotiation are aloud due to the fact of most construction being in the private sector.
Some job dealing with the government cannot be negotiable, but rather come down to the
bidding process. The bidding process happens when the buyer wants something down. Let’s use
a road for example, the buyer will say what they want, and it will go to a public bidding in which
many contractors will compete with each other on who can perform the job better. The factors
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that go into who can perform better would include the quality of work which would come from
reputation, who comes out to be the cheapest option, and who can finish the job the fastest.
Rodriguez, J & Surahyo, A both had a lot of information on negotiation. They both talked
about the law behind the negotiation and the main no-no for the contracts is if the job calls for
competitively placed bids, negotiation isn’t permitted. However, if the public sector does not
require a competitive bid than it is open range for the contractors to negotiate with the buyer.
Both authors also gave some insight on how to properly use negotiation skills to get the best deal
possible. This includes setting your goals as to what you want to get out of the contract prior to
the negotiation. This also includes never backing down on past earned rights. By this I am
talking about once you get to a point in the conversation where you are getting what you want
and they try to take back what they have already offered you by saying for example “ If you
bring the concrete slabs back down to one hundred dollars per ton, I while give you an extra
week to finish the project.”. In this case the one negotiator wants to take back what they already
agreed on by giving the contractor something else he wants. This usually will never work in the
contractor’s perspective even though they may be tricked into thinking as such. Overall being
able to negotiate properly in the construction world can be the difference on making millions on
Another big portion of the construction contract world is knowing if it’s a good or bad
time to take a job. Calculating risks in this industry can make all the difference on the success
and the company. Zaghloul, R., & Hartman, F talk about the risk involved in making contracts.
Some of that risk being liability of if something goes wrong, who will that fall upon. To calculate
this problem contractors may use risk allocation through disclaimer clauses to help guide them in
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the right direction as far as what jobs are worth taking and which ones aren’t. Below is a
With risk comes trust and trust is sometimes hard to find in the industry. The reason for
contracts in the first place is because “in the absence of trust in business relationships, there is a
significant need for good and powerful control system to manage and administrate the
contracting process.” Contracts are what takes a lot of the risk out of the deals.
Another part of calculating risk is using graph and data to find the best decisions. I
gathered an example histogram form the article to show what these graphs look like in the real
world. Below is a histogram of magnitude of the real risk in relation to the size of the
contract/cost
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The article splits trust up into three different categories blue, yellow, and red. Blue is
competence or trusting them to do the job. Yellow is integrity or if they can consistently take care
of the interests of the contractor. Red is intuitive or rather how the person feels about the other. If
the relationship doesn’t feel right, there will be no trust. This goes hand in hand with the
construction documents which are pretty much a baseline as to what has to in the contracts. This
take a lot of the trust out of the equation leaving less to chance on whether the general
contractors will do what they agreed upon. The article “Financial Risk estimation in Construction
Contracts” says similar thoughts on the subject. The article talks about the relationship between
the size of the contract to the degree of risk. To sum this up, there will always be risk in
contracting out work, but when the right provisions are put in place risk can be put to a
minimum.
makes the industry a success and plays a part into what makes the jobs run smoothly without
lawsuits or problems. Contracts take the trust between the owners and the contractors carrying
out the work. Calculating the risk involved with a contract can make the world of a difference
and being able to negotiate said contracts can put more money in the pockets of either side. All in
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all, I learned a lot about what makes up a construction type contract and what goes into making
Now after getting a baseline knowledge of what the contracts were and what they were
used for, I went to the real world and found to employees of the construction industry and asked
them what they thought. Getting to listen to what these two people had to say will be very
beneficial as they give a different perspective on the topic than what I can tell you from just my
online research.
Methods:
I interviewed two employees from a company called RACK Transport. They haul liquid
AC around Ohio to help pave and maintain the roads. I was trying to get an opinion of a guy and
girl in order to diversify my report as much as I could. The first interviewee was Holly Steffens
who is the CEO of RACK. The second interviewee being Sean Petersen who president at Ronyak
paving Co. and works on the side at RACK. I began my interview with questions that related to
helping me understanding their positions. They were both asked how often they use or create
contracts for new jobs they are working. I asked them how effective contracts are in aiding the
success of a job. Once I got those answers it raised for questions in my head like how do you
specifically go about negotiating a contract for a new job. How do you know what is a good deal
and what is a bad? Both Holly and Sean were asked the same question together.
I met with the both of them during their lunch break last week to pick their brains a little
bit on what they knew about construction documents, specifically contracts. I knew they would
have had some experience with contracts because Sean was a project manager for many years at
a paving company and then became the president of that same company. Then on top of that,
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both Holly and Sean own Rack together in which they find and bid their own jobs. This is how I
I used an activity triangle to help myself analyze the activity system. In my case the
activity system would be Constructions documents. The triangle can show how a certain system,
in this case being the construction documents, is organized. The reasons why there is a need for
said activity, and the rules and regulations and the people who are affected by the activity. The
triangle connects each of these subjects with arrows to help show the relationship between all of
know what to do with. Once I was able to organize my findings in the triangle, things started to
make more sense. The sample contract I found was a construction contract for Montrose County
in Colorado. The example given has all the dates removed as well as the people involved for the
most part. They are left blank in order to keep the legitimacy and ease of replication of the
contract. The Contract is meant to be a sample to learn off of which I would assume is why they
took the names and dates out. Below I will fill in the activity triangle with my own findings.
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TOOLS: Construction documents, computer software such as word & Excel, verbal
communication
COMMUNITY: the community using the structure that is being built, the construction
OBJECT:
-Objective: To figure out how the contractors well get paid and what limitations
the entire document. The contract is organized by articles which will go into detail about the
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payments, contract documents, royalties and payments, etc. The start and the end of the contract
will leave space for the contractor to date and sign which will put the contract into effect.
Now back to the interview in which I used my previous knowledge that I gained form the
sample contract above to ask the two interviewees questions. From the question I asked Sean and
Holly I got some new information that I didn’t find through my research in the literacy review.
Their answers I got gave me a closer look at a specific type of job which is a trucking company.
We talked about the types of contracts that they use. I could talk with an educated tongue
because I found through my prior research all the different types of contract and which ones
should be used for a certain job. Sean said that he mainly uses unit pricing contracts because they
get paid by the tonnage of material the haul. This led into my next question about negotiation.
Holly said that she rarely will use a lump sum type contract in which she can negotiate the prices
and dates. She usually only uses unit pricing type contracts which are public bid jobs that can’t
be negotiated.
I then went into the topic of breaking the contract. I asked what happens and how often
are the contract broken. Sean said he rarely has to deal with somebody breaking a contract and he
hasn’t broken one himself. He elaborated on the fact that sometimes things happen, and the
contractor can have setbacks. In the case of a contractor not finishing the job on the said date, the
owner will hire another contractor to finish the job and then sue the first contractor for the
When I did my research online I was mostly looking at the bigger picture of construction
as a whole. It was good to get a look at a more specific part of the industry. Within our
conversation a lot of what was said related back to my research such as the types of contracts that
are widely used and what can be negotiated and what cant. My research included little about
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what actually happens if the contract is broken so being able to talk to somebody that has seen
Constructions contracts are all tied together in many ways. Government is tied into
everything buy being the ones bidding the contracts and enforcing them at the same time. The
citizens of the community are involved because they are the ones benefiting from a timely and
efficient job. They are also paying for the job through tax dollars. The owners and the contractors
are tied together by both wanting the same outcome and having the same needs. Everyone is all
in the same boat in the sense that they all want to get things done is the safest and fastest manner
possible.
In conclusion to the first and second-hand research I think it is safe to say that contracts
at least in the construction world do a lot more good than they do harm. Sure, you may find an
outlier case were the contractor may get manipulated into a bad deal, but for the general
populace, contracts make for a reassurance. Reassurance that everybody will act in a safe manner
and will not cut any corners. The contract will make sure that the job in done on time and
workers are getting paid. In short contracts help to assure that everyone involved with the job
Reference Page
system/
https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&ua
ct=8&ved=2ahUKEwj_xYTisObhAhVRaq0KHWT5AIgQjRx6BAgBEAU&url=https%3A%2F
%2Fmindbursts.com%2Ftag%2Factivity-
system%2F&psig=AOvVaw2bZYoKgvZadLQKRj8htkHe&ust=1556114585499173
https://www.montrosecounty.net/DocumentCenter/View/823/Sample-Construction-
Contract
Rodriguez, J. (2018, October 22). Common Construction Contracts for Your Product or Project.
construction-contracts-844483
Rodriguez, J. (2019, March 10). Follow These Rules to Become a Great Contract Negotiator.
successful-contract-negotiator-844810
Fortney, M. L. (n.d.). Construction contract basics. Retrieved March 28, 2019, from
http://www.fortneylawgroup.com/faqs/Components-of-a-Written-Negotiated-
Construction-Contract.html
doi:10.1016/S0263-7863(02)00082-0
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