Construction stages, contract

documents

CE 321 Construction engineering

Chapter 2

Resources

Construction Documents and Contracting, Joseph D. Coleman , 2004, Prentice Hall

Construction Contracts, Keith Collier, 1987, Prentice Hall

“Construction Management”, by Daniel W. Halpin and Ronald W. Woodhead, 2nd Edition , John Wiley & Sons

Fidic Conditions of Contract for Construction, FOR BUILDING AND ENGINEERING WORKS DESIGNED BY THE EMPLOYER, 2005

Fidic Tendering Procedures, prequalification, tendering and award the contract, 1994.

Handouts and lecture notes

Course Outline

1. Introduction to construction project stages, overview of the construction contracting methods, and contracts types.

2. Bidding document

3. Methods of Tendering, Bidding and Awarding

4. Contract Documents and Conditions

5. FIDIC Form of Contracts

Introduction to Construction Project Stages

Lecture (1)

Major Project Phases

The major phases in the project cycle that are common to most design and construction projects are :

Project Planning

Design

Schematic Design

Design Development

Contract Documents

Construction Procurement (Bidding Phase)

Construction

Post Construction

Construction Project Characteristics

Construction projects are different than other types of projects due to the following characteristics;

Construction projects are complex undertaking.

Every construction project is unique.

Construction projects involve a lot of uncertainties, lack of information and variables.

Project Life Cycle

Most of Construction projects life-cycle have common characteristics, Construction projects start with low cost and resources, high risk and uncertainty.

The life-cycle of a typical construction project could be summarized as following :

Stage I : represents the project formulation, feasibility studies, and the strategic decisions needed for project continue.

Stage II : represents planning, basic design, budgeting, tendering and placing the project major contracts.

Stage III : involves the construction phase of the project, equipment installation and testing.

Stage IV : represents the final phase in the project which includes the project turnover, final testing and start-up.

Project Life Cycle

Per

cen

t C

om

ple

te

Stage IStage II Stage III Stage IV

Project "GO"

Decision

Major Contracts

Let

Installation Substantially

Complete

Full

Operations

F easability

- Pro ject Formulation

- Feasabiltiy Studies

- Strategies Design &

Approval

P lanning & D esign

- Base Design

- Cost & Schedule

- Contract Terms &

Conditions.

- Detailed Planning

T urno ver

& Start Up

- Final Testing

- M aintenance

C o nstruct io n

- M anufacturing

- Delivery

- Civil Work

- Installation

- Testing

Figure 1.1 : Construction Projects Life-Cycle (Ref: PMBK, 2000)

Lecture (2)

Construction Contracting Method

(delivery methods)

Traditional Approach (D-B-B):

The most common delivery system is called “the traditional or standard approach” or “design-bid-build”, in which the employer assigns the design and

construction phases to two different firms (consultant/designer and contractor).

ConstructingDesigning

Appointing Consultant

Appointing Main Contractor

Traditional Approach (D-B-B):

For many years, DBB has been the most common method of project delivery for public projects, and for many private projects as well.

Design Bid-Build is effective on projects

where the owner needs both professional design services and construction services

where the designer does not require detailed knowledge of the means and methods of construction.

DBB provides the owner with a high degree of control. That’s why

it is the preferred project delivery system for owners who:

Traditional Approach (D-B-B):

The owner defines project goals and objectives, secures the financing, and specifies the standards and contract terms.

The owner may perform planning, conceptual design and full design, or may engage an outside design professional (designer) for some or all of these tasks.

During this planning and preliminary stage, owner and designer work as a team to obtain required permits and conduct necessary site investigations.

The designer prepares the construction bid documents to reflect the owner’s project goals and objectives, the project’s site conditions, and sound engineering practices.

Prospective contractors prepare their bids from these complete and specific bid documents.

The bidders submit their proposals to the owner, who determines the most responsive (typically the lowest) bid meeting project requirements.

In certain circumstances, owner may be justified in selecting a contractor outright and negotiating contract terms directly.

Advantages of D-B-B Approach

Applicable to a wide range of projects.

Well established and easily understood.

Clearly defined roles for all parties.

Provides the lowest initial price that competitive bidders can offer.

Extensive litigation has resulted in well established legal precedents.

Insurance and bonding are well defined.

Disadvantages of D-B-B Approach

Least-cost approach requires higher level of inspection.

Initial low bid might not result in ultimate lowest cost or final best value.

Designers may have limited knowledge of the true cost and scheduling implication of design decisions.

Design-Build Approach

Design-build approach is a project delivery system involving a single contract between the project employer and a design-build contractor covering both the design and construction of a project.

The design-builder performs design, construction engineering, and construction according to design parameters, performance criteria and other requirements

established by the employer or his representative.

ConstructingDesigning

Appointing design & construction

contractor

Tendering

Design-Build Approach

The owner contracts with a single entity to provide the design and to construct the project according to that design.

The contract might be negotiated with a single design-builder or result from competitive proposals.

The selection can be based on low price or on a set of value criteria (experience, staff, bonding capacity, etc.).

Design-build provides the owner with a single point of contact for project responsibilities, eliminating the need to assist in resolving designer-contractor disputes.

With the contractor playing a major role in design, costs are typically defined and maintained to a greater degree, and the coordination of fast-track management to achieve early completion is greatly simplified.

The design-builder makes many decisions that owner would make under DBB, due to delegation of greatly increased authority.

Design-Build Approach

For many owners, delegation of responsibilities leads to satisfactory projects. However, if the parties are inexperienced and do not cooperate, the transfer of control and risk can be disappointing.

The owner may need to restructure his/her internal procedures to accommodate design-build approach.

Compared to DBB, this involves a significantly different set of requirements and expectations for process, timelines and communications.

A clear understanding and documentation of design-build processes enhances the quality of design-build projects

Advantage of Design-Build Approach

Innovation and quality improvements through:

- Alternative designs and construction methods

suited to the contractor’s capabilities

- Flexibility in the selection of design, materials, and

construction methods.

• Earlier schedule and cost certainty

Disadvantage of Design-Build Approach

Reduced opportunities for smaller, local construction firms. Fewer competitors and increased risk may result in higher

initial costs. Elimination of traditional checks and balances. Quality may

be subordinated by cost or schedule considerations. Less Engineer control over final design. Higher procurement costs. Traditional funding may not support fast-tracking

construction or may require accelerated cash flow. Accelerated construction can potentially overextend the

workforce.

Others

Turnkey

Turnkey Variations

Direct Labor Approach.

Construction management

Turnkey

Turnkey adds to the design-builder’s responsibilities the operation and/or maintenance of the completed project.

Turnkey delivery has the potential for bringing a new project on line more quickly.

Three forms of turnkey project delivery: Design-build-operate-transfer

Design-build-operate-maintain

Design-build-own-operate-transfer

Turnkey Variation

Variations on turnkey add financing as a key component. While financing arrangements are unique for each project, developer financed projects generally resemble one of the turnkey delivery methods: FDBT (Finance, design, build, transfer)

FDBOT (Finance, design, build, operate, transfer)

FDBOOT (Finance, design, build ,own, operate, transfer)

In each case, the transfer of the project occurs only after the developer’s interests and financial obligations have been satisfied.

Assignment (1)

Describe the turnkey methods, turnkey variation methods, direct labor approach, and construction management method, highlighting on advantage and disadvantage of each one.

Lecture (3)

The contract, and contract types, overview of the construction documents.

Contract Definition

Agreement of at least two parties with purpose of creating legal obligation between the parties and capable of being enforced by the court of law.

Contract = offer + acceptance + consideration

Introduction to contracts

Why Use contract in construction:

Describe scope of work

Establish time frame

Establish cost and payment provision

Set fourth obligations and relationship

Minimize disputes

Improve economic return of investment

Content of the contract

o Identify the parties

o Promises and responsibilities

o Scope of work

o Price and payment terms

o Commercial terms and conditions

o Project execution plan.

Major Contract Types (traditional)

Lump Sum Contract

One price for the whole contract

Lump sum includes costs plus overheads and profits

Higher risk to contractor

Price quoted is a guaranteed price as per contract documents.

Payment based on a scheduled percentage scheme (monthly progress claims)

The contractor is free to use means and methods to complete the work and responsible for proper performance

Work must be well defined at bid time.

Fully developed plans and specifications

Lump Sum Contract/ advantage

Low risk on the owner, Higher risk to the contractor

Cost known at outset

Contractor will assign best personnel

Contractor selection is easy.

Lump Sum Contract/disadvantage

Changes is difficult and costly.

Contractor is free to use the lowest cost of material equipment, methods.

Unit Price

Quote Rates / Prices by units

No total final price

Re-negotiate for rates if the quantity or work considerably exceeds the initial target

Payment to contractor is based on the measure.

Unbalanced bids

Higher risk to owner

Ideal for work where quantities can not be accurately established before construction starts.

Unit Price contract

Require sufficient design definition to estimate quantities of units

Contractors bid based on units of works

Time & cost risk (shared)

Owner : at risk for total quantities

Contractor : at risk for fixed unit price.

Large quantities changes (>15-25%) can lead to increase or decrease of unit price.

Unit Price / Requirement

Adequate breakdown and definition of work units

Good quantity surveying and reporting system.

Adequate drawings.

Experience in developing BOQ

Payment based on the measurement of the finished works.

Quantity sensitive analysis of unit prices to evaluate total bid price for potential quantity variation.

Unit Price / advantages

Suitable for competitive bid

Easy for contract selection

Early start is possible

Flexibility : quantities and scope can be easily adjusted

Unit Price / disadvantages

Final cost not known from the beginning (BOQ only is estimated)

Staff needed to measure the finished quantities and report on the units not completed.

Unit price sometime tend to draw unbalanced bid. (For Unit-Price Contracts, a balanced bid is one in which each bid

is priced to carry its share of the cost of the work and also its share of the contractor’s profit.

Contractors raise prices on certain items and make corresponding reductions of the prices on other items ,without changing the total

amount of the bid)

Cost Plus

1. Actual cost plus a negotiated reimbursement to cover overheads and profit.

2. different methods of reimbursement :Cost + percentage

Cost + fixed fee

Cost + fixed fee + profit-sharing clause.

3. Higher risk to owner

4. Compromise : guaranteed maximum price (GMP) reduces risk to owner while maintain advantage of cost plus contract.

5. By using this type of contract the contractor can start work without a clearly defined project scope, since all costs will be reimbursed and a profit guaranteed.

Cost + Percent of Cost

Fee = percentage of the total project cost

(Cost = $500.000,Fee = 2%)

Advantages Disadvantages

profitable for the contractor

No incentive to finish job

quickly

Owner does not know total

price

Larger the cost of the job, the

higher the fee the owner pays

Cost + Fixed Fee

Fee = percentage of the original estimated total figure

Utilized on large multi-year jobs

Ex: WW treatment plant Facility (Cost = $20 million, Fee = 1%)

$20 Million 1% fee = $200,000 Million

Advantages Disadvantages

Fee amount is fixed regardless

of price fluctuation

Expensive materials and

construction techniques may

be used to expedite

construction

Provides incentive to complete

the project quickly

Cost Plus Fixed Fee

Most common form of negotiated contracts

COST = expenses incurred by the contractor for the construction of the facility

Includes: Labor, equipment, materials, and administrative costs

FEE = compensation for expertise

Includes: profit

Cost + Fixed Fee +

Profit-Sharing Clause

Rewards contractors who minimize cost

Percentage of cost under GMP is considered profit

and shared with the contractor

Guaranteed Maximum Price (GMP)

% of profit sharing is specified in contract

Advantages

Disadvantages

Provides incentive to the

contractor to save money

Contractor must absorb any

amount over the GMP

Plans & specs. need to detailed

Cost + Fixed Fee +

Profit-Sharing Clause

variation of this type of contract is called a guaranteed maximum price (GMP).

In this type of contract the contractor is reimbursed at cost with an agreed-upon fee up to the GMP, which is essentially a cap; beyond this point the contractor is responsible for covering any additional costs within the original project scope

An incentive clause, which specifies that the contractor will receive additional profit for bringing the project in under the GMP.

Construction Documents

Bidding requirements

Notice to Bidders

Instruction to Bidders

Proposal Form

Contract Documents

Contract Forms

Conditions of the Contract

Specifications

Drawings

Addenda

Change Orders

Agreement.

Construction Documents

Construction Documents are defined as the written and graphic documents

prepared or assembled by the A/E for communicating the design of the

project and administering the contract for its construction.

2 major groups

1.Bidding Requirements

Used to attract bidders & explains bidding process

2.Contract Documents

Legally enforceable requirements that become part of the contract

Include all construction documents except bidding forms

CONSTRUCTION DOCUMENTS

CONSTRUCTION DOCUMENTS

BIDDING REQUIREMENTS

BIDDING REQUIREMENTS

Bidding Requirements are used to attract bidders and explain the procedures to be followed

in preparing and submitting bids .

Bidding requirements help bidders follow established procedures and submit bids that will

not be disqualified because of technicalities. They do not become part of the contract

documents

Bidding documents

All of the construction documents issued to bidders before the signing of an owner-

contractor agreement.

Bid Package

Documents available to the contractor and on which he must make a decision to bid

or not

A set of plans and technical specifications, Proposal form, general conditions,

special conditions,

Description of the project to be constructed

Bid Package is prepared by:

It describe the scope of the bid, source of fund (if it is financed from other agency), fraudulent and fraud practices, eligible bidders, Eligible Materials, Equipment and Services, Clarification of Bidding Document, Site Visit, Pre-Bid Meeting, Amendment of Bidding Document

2-1 Instruction to bidders

See attached example for ITB.

2-1 Instruction to bidders (cont’d)

2-2 Bid Data Sheet (BDS) Definitions, Engineer’s Authority to Issue Variations, Performance

Security, Inspection of Site, Program to Be Submitted, Cash FlowEstimate

Bid Security, Minimum Amount of Third Party Insurance

Time for Issue of the Notice to Commence, Time for Completion

Amount of Liquidated Damages, Limit of Liquidated Damages

Amount of Bonus for Early Completion, Limit of Bonus

Defects Liability Period, Amount of Interim Payment Certificates

Percentage of Retention, Limit of Retention Money, Amount ofAdvance Payment

Start Repayment of Advance Payment, Monthly Recovery of AdvancePayment

Number of Copies of Statement of Completion and Final Statement

Procedure for Settlement of Disputes

Notice to Employer and Engineer

Origin of Materials and Plant

2-3Evaluation and qualification

This section contains all the criteria that the Employer shall use to evaluate bids and qualify Bidders if the bidding was not preceded by a prequalification exercise and post qualification is applied.

In accordance with items specified in ITB, no other methods, criteria and factors shall be used. The Bidder shall provide all the information requested in the forms included in (Bidding Forms) section..

1- evaluation : describe the Adequacy of Technical Proposal, in case of Multiple Contracts, the conditions governs, Completion Time,

2- Qualification : describe the Eligibility, financial situation, staff, experience , equipments.

2-3Evaluation and qualification (con’d)

2-4 Bidding forms

letter of bid (bid form)

Form of bid security

Technical proposal forms (personnel, equipment)

Bidders qualification forms as bidders data, JV information, Historical Contract Non-Performance, Current Contract Commitments , Historical Financial Performance, Average Annual Turnover, General and specific Experience,

See attached file

CONSTRUCTION DOCUMENTS

Contract documents (graphic and written) describe the proposed construction (the

‘Work’) that results from performing services, furnishing labor, and supplying and

incorporating materials and equipment into the construction

A. Contract Forms

B. Conditions of the Contract

C. Specifications & BOQ

D. Drawings

E. Addenda

F. Change Orders

CONSTRUCTION DOCUMENTS

A. CONTRACT FORMS

CONTRACT FORMS

Agreement

Performance Bond

Payment Bond

Certificates

B.CONDITIONS OF CONTRACT

CONDITIONS OF CONTRACT

Define basic rights, responsibilities, and relationships of the parties involved in the

construction project.

2 types: General Conditions and Supplementary Conditions

GENERAL CONDITIONS

General clauses that establish how the project is to be administered.

Contain basic expressions of rights, duties, and limitations of the entities involved.

Usually in the form of published standard documents that include principles common

to most construction Contracts.

SUPPLEMENTARY CONDITIONS

Modify or supplement general conditions as need to provide for requirements specific

to a project. They are not standardized documents and are prepared for specific project

needs.

A.1 Agreement

The written document signed by the owner and the

contractor that is the legal instrument binding the parties to

the contract.

Defines the relationship and obligations between owner

and contractor.

The agreement is quite brief and appears to consist mostly of statements of fact, whereas the general conditions section deals primarily with matters that pertain generally to be construction work and the persons involved.

In other words, the agreement appears to consist of statements and the general conditions appear to be terms, or conditions.

Agreement (cont’d)

The agreement should contain:

The names of contracting parties

A brief description of the work

A list of contract documents, including agreement, general conditions, drawings, and specifications.

The contract sum, or amount (lump-sum contract)

The procedures for payment

The contract time, or dates for start and completion

The signatures of contracting parties and witnesses

International construction documents are also often based on industry-prepared standard forms.

AGREEMENT FORM

A number of organizations prepare recommended standard general conditions and associated forms. Such as:

ENAA (Engineering Advancement Association of Japan)

FIDIC (International Federation of Consulting Engineers)

ICE (Institute of Civil Engineers, United Kingdom)

JCT (Joint Contracts Tribunal)

SEE ATTACHED WORD FILE FOR EXAMPLES

A.2 .Bonds / Guarantees FORMS

1- PERFORMANCE BOND / security

The Contractor, upon receiving the Letter of Acceptance, shall obtain and provide to the

Employer before signing the Contract, the Performance Guarantee in the value of

ten percent of the Contract Sum, as a guarantee of the proper execution of the

Works in accordance with the Contract. This guarantee shall be issued by a

licensed bank or financial institution acceptable to the Employer. The guarantee

shall be prepared in the form included in part B of these conditions. The obtaining

of such guarantee shall in all respects be at the expense of the Contractor.The

Performance Security shall be provided to the Employer no later than the date

specified in the Letter of Acceptance and shall be issued in an amount specified in

the PCC (particular conditions of contract), by a bank or surety acceptable to the

Employer, and denominated in the types and proportions of the currencies in which

the Contract Price is payable.

The Performance Security shall be valid until a date 28 days from the date of issue of

the Certificate of Completion in the case of a Bank Guarantee, and until one year

from the date of issue of the Completion Certificate in the case of a Performance

Bond.

In general , it is 10% of contract value

Advanced payment bond

Provide a guarantee that subcontractor, material suppliers, and others providing labor, material goods, and services to the project will be paid.

The Employer shall make advance payment to the Contractor of the amounts stated in the PCC by the date stated in the PCC, against provision by the Contractor of an Unconditional Bank Guarantee in a form and by a bank acceptable to the Employer in amounts and currencies equal to the advance payment. The Guarantee shall remain effective until the advance payment has been repaid, but the amount of the Guarantee shall be progressively reduced by the amounts repaid by the Contractor. Interest shall not be charged on the advance payment.

Advanced payment bond (cont’d)

The Contractor is to use the advance payment only to pay for Equipment, Plant, Materials, and mobilization expenses required specifically for execution of the Contract. The Contractor shall demonstrate that advance payment has been used in this way by supplying copies of invoices or other documents to the Project Manager.

The advance payment shall be repaid by deducting proportionate amounts from payments otherwise due to the Contractor, following the schedule of completed percentages of the Works on a payment basis. No account shall be taken of the advance payment or its repayment in assessing valuations of work done, Variations, price adjustments, Compensation Events, Bonuses, or Liquidated Damages.

Defect liability Security

After primary taking over, 5% guarantee is submitted to employer for defect liability, valid for 365 days or as stipulated in PCC.

INSURANCE Certificates

Insurance for Works and Contractor’s Equipment,

Insurance against Injury to Persons and Damage to Property ,

Insurance for Contractor’s Personnel

General Conditions of contract

The conditions are intended to govern and regulate the obligation of formal contract.

Although the headings and topics included within different sets of GCC vary, there is a certain similarity of subject matter

Contents of GCC

Definitions

Contract documents

Rights and responsibilities of owner

Duties and authorities of engineer

Rights and responsibilities of contractor

Sub-contractor, Separate contractors

Time

Payments and completions

Changes in the work

Protection of persons and property

Insurance and bond

Disputes

Termination of contract

Miscellaneous provisions