owning up to your major construction...

Owning Up to Your Major

Construction Projects

PaulEmanuelliGeneralCounselandManagingDirector

[email protected]

416-700-8528

www.procurementoffice.com

mailto:[email protected]

http://www.procurementoffice.com

CopyrightNotice

The following excerpts from GovernmentProcurement (copyright LexisNexis Butterworths2005, 2008, 2012 and 2017), The Laws ofPrecision Drafting (copyright Northern StandardPublishing 2009), Accelerating the Tendering Cycle(copyright Northern Standard Publishing 2012) andthe Procurement Law Update newsletter (copyrightPaul Emanuelli 2006-17) are reproduced withpermission. The further reproduction of thesematerials without the express written permission ofthe author is prohibited.

© Paul Emanuelli, 2017

For further information please contact:[email protected]

AbouttheAuthorPaul Emanuelli is the General Counsel andManaging Director of the Procurement Office. Hewas recognized by Who’s Who Legal as one of thetop ten public procurement lawyers in the world.His portfolio includes advising on strategicgovernance in public purchasing and onnegotiating high-profile major procurementprojects. Paul has an extensive track record ofpublic speaking, publishing and training. He is theauthor of Government Procurement, The Laws ofPrecision Drafting, Accelerating the TenderingCycle and the Procurement Law Updatenewsletter. Paul hosts a monthly webinar seriesand has trained and presented to thousands ofprocurement professionals from hundreds ofinstitutions across North America through theProcurement Office and in collaboration withleading industry organizations including NIGP,SCMA, the University of the West Indies andOsgoode Hall Law School.

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Construction Contract FormatsSelecting the Appropriate Contract Format

When it comes to public procurement, major constructionprojects are one of the highest risk areas for bid disputes,cost overruns and performance delays. This presentation willprovide guidelines to help public sector owners plan theirconstruction projects by considering project complexity,contract management burdens, and incentives for designinnovation, cost savings and timely completion.

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Construction Contract FormatsSelecting the Appropriate Contract Format

This presentation will also highlight the key factors forselecting between the stipulated price, cost-plus, unit price,construction management, design-build and integratedproject delivery models, along with recommendations foraligning those different contract models with the appropriatefront-end tendering format. While focusing on constructionindustry practices, this presentation will offer planningguidelines useful for all major project teams who want tomeet their objectives on time, on budget and by the rules.

6

Construction Contract FormatsPurpose

The purpose of this presentation is to assist project teams inselecting the appropriate construction contract format for aspecific construction project when considering factorsincluding:

1) pricing structures;

2) project complexity and overall design responsibility;

3) the owner’s contract management burden; and

4) contractor incentives for design innovation, cost savingsand timely project completion.

7

Construction Contract FormatsInterpretation - CCDC

Reference in this presentation to contracting documents witha “CCDC” designation means Canadian ConstructionDocuments Committee, the national joint committee that wasformed in 1974 and that creates and maintains the CCDCcontract document structures referred to in this directive. TheCCDC includes representation from across the Canadianconstruction industry, including the Association of ConsultingEngineering Companies - Canada, the CanadianConstruction Association, Construction SpecificationsCanada and the Royal Architectural Institute of Canada.

8

Construction Contract FormatsInterpretation - ACEC

Reference in this presentation to contract documents with an“ACEC” designation refers to documents created by theAssociation of Consulting Engineering Companies - Canadawhich, in addition to participating in the creation of CCDCdocuments for owners, builders and trades, also createsmodel documents for use between owners and consultingengineers.

9

Construction Contract FormatsInterpretation - RAIC

Reference in this presentation to contract documents with the“RAIC” designation refers to documents created by the RoyalArchitectural Institute of Canada which, in addition toparticipating in the creation of the CCDC documents forowners, builders and trades, also creates model documentsfor use between owners and architects.

10

Construction Contract FormatsInterpretation - CCA

Reference in this presentation to documents with a “CCA”designation refers to documents created by the CanadianConstruction Association which, in addition to participating inthe creation of the CCDC documents for owners, buildersand trades, also creates model documents for use betweengeneral contractors and trade subcontractors.

11

Construction Contract FormatsInterpretation - AIA

Reference in this presentation to documents with an “AIA”designation refers to documents created by The AmericanInstitute of Architects, whose Integrated Project Deliverycontract format is referred to in this presentation pending thecreation of Canadian industry standard version of thiscontracting format.

12

Construction Contract FormatsInterpretation – Supplementary Provisions

It should be noted that when owners use any industrystandard contract formats, they should be used inconjunction with specifically tailored supplementary termsand conditions prepared with the advice and assistance ofqualified legal counsel to address the legal and businessrequirements of the specific owner.

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Construction Contract FormatsMenu of Options

This presentation addresses nine broadly recognizedconstruction contract formats that are potentially available toproject teams for use in their specific projects. This sectionsummarizes the main features, along with a summary offactors that can assist project teams in selecting theappropriate construction contract format from the followingoptions:

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Construction Contract FormatsNine Formats

1. Stipulated Price Contract (CCDC 2 - 2008)2. Master Agreement Between Owner and Contractor (CCDC 2MA - 2016)3. Cost-Plus Contract (CCDC 3 - 2016) 4. Unit Price Contract (CCDC 4 - 2011) 5. Construction Management Contract for Services (CCDC 5A - 2010)6. Construction Management Contract for Services and Construction

(CCDC 5B - 2010) 7. Design-Build Stipulated Price Contract (CCDC 14 - 2013) 8. Standard Form Multi-Party Agreement for Integrated Project Delivery

Document (AIA C191 - 2009)9. Public-Private Partnership (“P3”)

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Construction Contract FormatsStipulated Price Contract (CCDC 2 - 2008)

This contract model is the traditional default constructionindustry standard format for typical design-bid-build tenderingand contracting processes. In this format, the owner firstretains the owner’s design consultant (an architect orengineer), who prepares the project specifications for thesubsequent tender call. Construction contractors then bid onthe pre-designed project and the Stipulated Price Contract(CCDC 2 - 2008) contract is typically awarded on a low-bidbasis by the owner.

16


The general contractor who is awarded this contract will inturn award subcontracts to the various trades (using, forexample, the Stipulated Price Subcontract (CCA 1 - 2008)that the general contractor as builder will manage andassume responsibility over during construction.

17


The Stipulated Price Contract (CCDC 2 - 2008) format isused by the owner in conjunction with a separate consultingcontract (either the owner’s standard consulting agreement,or industry standard models such as ACEC 31 - 2010 forengineers or RAIC 6 - 2017 for architects) under which theservices of the owner’s design consultants and sub-consultants are retained to provide project design servicesand contract administration services during the constructionphase to the owner.

18


Those parallel design consulting contracts should clearlyspecify the respective roles of the engineers and architectsretained by the owner to assist with preparing project designsand oversee construction on behalf of the owner.

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Design-Bid-Build

Owner

Owner’sConsultant

PrimeContractor

Trades

BuildStartsAfterDesignFinished

StipulatedPrice(CCDC2- 2008)

StipulatedPriceSub-Contract(CCA1- 2002)

Owner’sStandardConsultingAgreement(orACEC31-2010orRAI6– 2017)

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The owner typically uses the Stipulated Price Contract(CCDC 2 - 2008) format in conjunction with an invitation totender or low-bid request for quotation tendering formatwhere price is the only contract award criterion. Thattendering process may also be combined with a prior pre-qualification process to screen potential bidders who are theninvited to the subsequent bidding process. While lesscommon in construction tendering, the prequalification andinvitational tendering steps can also be combined in a singlehigh-score request for quotation or request for proposalformat that considers both price and non-price criteria in asingle tendering process.

21


The Stipulated Price Contract (CCDC 2 - 2008) format shouldbe used in the following conditions:

• where the construction project is relatively simple;

• where there would be little innovation advantage gained indesign improvements by including the builder in thedesign discussions;

22


• where there is a relatively small risk of dispute betweenthe designer and builder, or related cost overruns ordelays, that could otherwise be mitigated by involving thebuilder in the design discussions;

• where time permits the project design to be completedprior to tendering the construction contract andcommencing construction.

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Construction Contract FormatsMaster Agreement Between Owner and Contractor

(CCDC 2MA - 2016) This contract model was developed for use by owners inongoing construction or maintenance programs. This formatenables parties to enter into specific work arrangementsbased on master standing terms and conditions so that theparties can avoid renegotiating those general terms andconditions for each work order. As with the stipulated summodel discussed above, the owner should retain paralleldesign consulting services to develop specifications for thevarious work assignments.

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(CCDC 2MA - 2016) For trade treaty compliance purposes, the use of this formatis most suitable in conjunction with a prior prequalificationprocess (framework version) that sets out the workassignment process for a roster of multiple contractors whoare then eligible for downstream work orders under themaster agreement. Pricing for these types of contracts canthen be established through downstream invitationaltendering processes on a stipulated price basis.

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(CCDC 2MA - 2016) These master agreement rosters should be established for apre-defined period, or with refresh procedures to allow newcontractors onto the roster, and should be accompanied byprequalification framework rules that set a maximum contractvalue for any specific work assignment so that any workassignments that exceed the ceiling value can be awardedpursuant to a separate publicly posted tendering process.

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(CCDC 2MA - 2016) The Master Agreement Between Owner and Contractor(CCDC 2MA - 2016) format should be used in the followingconditions:

• where the owner anticipates that a high number of similarand relatively low-value construction projects will berequired over a period of multiple years;

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(CCDC 2MA - 2016)

• where the owner wants to avoid the unnecessaryduplication and delay associated with multiple separatetendering processes to award that work; and

• where the owner prefers to administer multiple simplifiedinvitational tendering processes for the award of thoserelatively low-value construction projects.

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Construction Contract FormatsCost-Plus Contract (CCDC 3 - 2016)

This contract model is used where the work will be performedby the contractor on an actual-cost basis, plus a percentageor fixed fee which is applied above the actual costs to pay thecontractor for its work on the project. An acceptable mark-upfor the contractor’s overhead and profit typically rangesbetween 10-25% depending on the size of the project, withsmaller projects attracting a higher percentage than largerprojects. In this model, the contractor is expected to performin an economical manner to keep costs under control andmust maintain auditable records to substantiate projectexpenses.

29


This format is used in situations where the project must beginbefore final designs are completed, which prevents thecontractor from providing an accurate stipulated sum for theproject; however, to safeguard against uncontrolled costoverruns, this format should be used with a guaranteedmaximum price.

30


In these situations, a tendered contract award would morelikely consider non-price factors, such as skill andexperience, since accurate price quotes cannot be obtainedprior to contract award due to incomplete designs. Thiscontract format would most appropriately be tendered usingrequest for proposal format that allows the owner to evaluatethe skill and experience of competing contractors.

31


The Cost-Plus Contract (CCDC 3 - 2016) format should beused in the following conditions:

• where due to timing factors the owner is unable to finishproject designs and obtain accurate stipulated sum pricingprior to the commencement of work; or

• where due to project complexities it is not possible for theowner to obtain sufficiently accurate and precisespecifications for a project, or for certain parts of a project,and construction for that project, or parts of that project,must therefore be administered using a cost-plus pricingarrangement.

32

Construction Contract FormatsUnit Price Contract (CCDC 4 - 2011)

This contract format is used in situations where rates for workor commodities are certain but quantities are uncertain.Under this format, the contractor is required to perform thework for a fixed amount specified for each unit of work. Thetotal contract price is calculated by adding together the unitprices. Fees are charged per unit of work performed forservices, such as the supply or removal of rock or ad-hochourly light repair services.

33


Since volumes may be unknown at the time of contractaward, the parties should include price adjustment formulasto deal with unit price variations in situations where thevolume of work varies significantly from the pre-awardvolume estimates.

34


To comply with open tendering requirements under the tradetreaties and to comply with value for money controls, amaximum ceiling price should also be established at the timeof contract award. Like the Stipulated Sum Contract (CCDC 2- 2008) format, these contracts are typically tendered using alow-bid invitation to tender or request for quotation format,where the low-bid amount is determined by the unit price.However, calculating low-bid amounts can be a complexexercise in these circumstances if the contract contemplatesmultiple categories of unit prices with unknown quantities.

35


The Unit Price Contract (CCDC 4 - 2011) format should beused in the following conditions:

• where the overall project quantities cannot be estimatedwith sufficient accuracy at the time of contract award toobtain contractor quotes on a stipulated sum basis;

• where unit prices can be obtained to form the basis forcalculating total costs;

36


• where clear unit price adjustment formulas can beincorporated to address circumstances where volumes falloutside of the estimated volume range established at theoutset of the contract;

• where the contract requirements are relatively simple sothat a low bid can be established through a tenderingprocess by relying on unit prices rather than a totalstipulated sum;

• where the owner can establish a reasonable maximumceiling price to protect against cost overruns.

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Construction Contract FormatsConstruction Management Contract for Services

(CCDC 5A - 2010)This is a contract format entered into between the owner andconstruction manager and is used in conjunction with theStipulated Price Contract for Trade Contractors onConstruction Management Projects (CCDC 17 - 2010) and inconjunction with a separate, parallel design consultingcontract under which the services of the owner’s consultantare retained to provide project design services and contractadministration services (either the owner’s standardconsulting agreement, or industry standard models such asthe ACEC 31 - 2010 for engineers or RAIC 6 - 2017 forarchitects).

38


(CCDC 5A - 2010)However, under the Construction Management Contract forServices (CCDC 5A - 2010) format, the traditional designservices provided by the consultant to the owner aresupplemented by the construction manager, who alsoprovides input to the owner on the ongoing designdevelopment with a view to then managing the constructionon behalf of the owner during the build stage.

39


(CCDC 5A - 2010)In these contracts, the construction manager acts as a limitedagent for the owner, providing advisory services andadministering and overseeing the contracts between theowner and trade contractors. This model, which is referred toas the “owner at risk” format, requires a careful definition ofthe scope of the construction manager’s specificresponsibilities relative to the traditional design and projectoversight work performed by the design consultant.

40


(CCDC 5A - 2010)This process allows for construction to begin before alldesigns are completed, with work put to tender to commenceconstruction on a phase-by-phase basis using the StipulatedPrice Contract for Trade Contractors on ConstructionManagement Project (CCDC 17 - 2010) format wheremultiple contracts are awarded by the owner to the differenttrades through multiple downstream tendering processes bywhich the overall project is designed, bid and then built instages.


(CCDC 5A - 2010)(OwneratRisk)

Owner

Owner’sConsultant

ConstructionManager

Trades

BuildStartsBeforeDesignFinished

ConstructionManagementContractforServices(CCDC5A- 2010)


StipulatedPriceContractbetweenOwnerandTradeContractor

forConstructionManagementProject(CCDC17- 2010)

171717 17 17 41

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(CCDC 5A - 2010)Like the Cost-Plus Contract (CCDC 3 - 2016), a tenderedcontract award for the Construction Management Contract forServices (CCDC 5A - 2010) would more likely consider non-price factors such as skill and experience since accurateprice quotes cannot be obtained prior to contract award dueto incomplete designs. This contract format would mostappropriately be tendered using a request for proposal formatthat allows the owner to evaluate the skill and experiencefactors before selecting a construction manager. Tosafeguard against uncontrolled cost overruns, this formatshould be used with a guaranteed maximum price.

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(CCDC 5A - 2010)Contracts to the various trades using the Stipulated PriceContract for Trade Contractors on Construction ManagementProjects (CCDC 17 - 2010) format should then be awardedbased on multiple invitation to tender or low-bid request forquotation processes for the various components of theproject, which can then be entered into between the ownerand various trades on a stipulated sum basis (assuming thereis sufficient certainty in the specific design component), whilethe construction manager and design consultant are paideither a fixed amount, a percentage on a cost-plus basis, oran amount based on hourly or per diem rates.

44


(CCDC 5A - 2010)The Construction Management Contract for Services (CCDC5A - 2010) format should be used in the following conditions:

• where due to timing factors the owner is unable to finishproject designs and obtain accurate stipulated sum pricingprior to the commencement of work;

• where there would be an innovation advantage gained indesign improvements by including the builder in thedesign discussions in the role of construction manager;

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(CCDC 5A - 2010)• where due to project complexities there is a greater risk of

dispute between the designer and builder, and relatedcost overruns or delays that could be mitigated byinvolving the builder as contract manager in the designdiscussions;

• where the owner can establish a reasonable maximumceiling price to protect against cost overruns;

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(CCDC 5A - 2010)

• where the owner has in-house expertise, or is prepared toretain external advisors, to assume the additional risk andcontract administration burden that is typically assumedby the general contractor manager, including the directmanagement and oversight of the trades.

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Construction Contract FormatsConstruction Management Contract for Services and

Construction (CCDC 5B - 2010)

This contract is used in similar circumstances as theConstruction Management Contract for Services (CCDC 5A -2010), with the construction manager providing design inputto the owner and design consultant, while the project is builtin stages as the different design components are finalized.

48


Construction (CCDC 5B - 2010) However, unlike the “owner at risk” Construction ManagementContract for Services (CCDC 5A - 2010), which sees theowner directly contracting with the trades using the StipulatedPrice Contract for Trade Contractors on ConstructionManagement Project (CCDC 17 - 2010) format, this model isreferred to as the “construction management at risk” model,since the construction manager assumes a more traditionalrole similar to the general contractor under the StipulatedPrice Contract (CCDC 2 - 2008) model by taking directcontractual responsibility for the performance of the tradesthrough traditional stipulated sum subcontracts (such as theStipulated Price Subcontract CCA 1 - 2008) with the trades.

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Owner

Owner’sConsultant

PrimeContractor

Trades


ConstructionManagementContractforServicesandConstruction

(CCDC5B- 2010)



(CMatRisk)

50



As with the Construction Management Contract for Services(CCDC 5A - 2010), the default pricing structure for theConstruction Management Contract for Services andConstruction (CCDC 5B - 2010) contract format is cost-plus.To protect the owner, the parties should establish aguaranteed maximum price. To incent timely and cost-effective performance, they should also establish a formula todistribute cost-savings across the project team asappropriate.

51



Under this format, the parties can agree to change the pricingstructure to a stipulated price contract during theperformance of the contract; however, in practice, this isunlikely to occur until a sufficient certainty is obtained onoverall project scope and price.

52



Therefore, while the manager is at greater risk contractuallyin assuming direct responsibility for the performance of thesubcontractors when compared to the ConstructionManagement Contract for Services (CCDC 5A - 2010), theowner remains at risk for the inherent cost and timeuncertainties associated with this model while the project isdesigned, tendered and priced in phases.

53



Like the Construction Management Contract for Services(CCDC 5A - 2010), this model enables construction to beginand proceed in stages prior to the completion of all designsas phases are designed, bid and built in stages, but placesless contract administration burden and risk on the owner.

54



The Construction Management Contract for Services andConstruction (CCDC 5B - 2010) format should be used in thefollowing conditions:


• where there would be an innovation advantage gained indesign improvements by including the builder in thedesign discussions in the role of construction manager;

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• where due to project complexities there is a greater risk ofdispute between the designer and builder, and relatedcost overruns or delays that could be mitigated byinvolving the builder as contract manager in the designdiscussions;


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• where the owner is not prepared to assume the additionalrisk and contract administration burden associated withdirectly managing the trades and would prefer to shiftthose contractual obligations through a more traditionalapproach, where the construction manager assumes arole similar to the general contractor and directly contractswith the trades.

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Construction Contract FormatsDesign-Build Stipulated Price Contract (CCDC 14 - 2013)

This format consolidates the traditionally separate roles of thedesign consultant and the builder under a single contract withthe owner who contracts directly with a design-builderresponsible for both project design and construction. Thisformat allows for the commencement of construction beforethe design is completed.

Under this format, a construction firm typically assumes therole of the design-builder and then retains a designconsultant using the Design Services Contract betweenDesign-Builder and Consultant (CCDC 15 - 2013).

58


When compared to the traditional Stipulated Price Contract(CCDC 2 - 2008), which requires the owner to manage bothcontractors separately, the consolidation of the designconsultant and builder role under one design-build contractreduces the risk of dispute and disagreement between thedesign consultant and the builder during construction;however, this approach also removes a level of checks-and-balances between those two roles since the designconsultant no longer contracts independently and directlywith the owner.

59


Owner

DB’sConsultant

DesignBuilder

Trades


DesignServicesContractBetweenDesign-BuilderandConsultant

(CCDC15– 2013)


60


The Design-Build Stipulated Sum Contract (CCDC 14 - 2013)format is therefore only appropriate for more sophisticatedowners who can rely on in-house expertise or can retainseparate external consultants to advise the owner in itsoversight of the design-builder, and who can work with theowner to create the functional, qualitative and other projectrequirements necessary to provide clarity and overall costcertainty for the creation of the design-build contract with thedesign-builder.

61


Having separate qualified advice available to the owner isparticularly important where the owner does not want to relyon the design-builder’s design subcontractor as the paymentcertifier under the contract, and instead performs that roledirectly or through a separately retained contractor.

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Pricing for these contracts is typically stipulated sum, whichmeans that the owner should establish a maximum price forthe work prior as part of the tendering process that selects adesign-builder, to ensure that overall parameters of thecontract requirements are adequately defined. A maximumceiling price should be established as part of the contractaward since the ultimate designs should be engineered to fallwithin those cost constraints. The obligation to stay withinthat overall project budget envelope should be built into thedesign-build contract between the owner and design-builder.

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The Design-Build Stipulated Price Contract (CCDC 14 -2013) format should be used in the following conditions:


• where there would be an innovation advantage gained indesign improvements by including the builder in thedesign discussions in the role of a construction manager;

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• where due to project complexities there is a greater risk ofdispute between the designer and builder, and relatedcost overruns or delays, that could be mitigated byinvolving the builder as design-builder in the designdiscussions;

• where the owner has in-house resources or can retainexternal advisors to assist in defining the overall contractrequirements for the design-build contract and assist inmanaging the design-builder during the project;

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• where the owner is not prepared to assume the additionalrisk and contract administration burden associated withdirectly managing the design consultant and trades, andwould prefer to shift those contractual obligations to adesign-builder under a single contract.

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Construction Contract FormatsStandard Form Multi-Party Agreement for

Integrated Project Delivery Document (AIA C191 - 2009)The Standard Form Multi-Party Agreement for IntegratedProject Delivery Document (AIA C191 - 2009) (“IPD (AIAC191 - 2009)”) consolidates the overall responsibility formanaging the design and build stages of the project with theowner. The owner contracts separately with the designconsultant, builder and trades at the outset of the project sothat they can all participate as an integrated project team inthe design and build stages of the project under a singlemulti-party, multi-staged contract.

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Integrated Project Delivery Document (AIA C191 - 2009)

This format includes the collaborative design element similarto the Construction Management Contract for Services(CCDC 5A - 2010), the Construction Management Contractfor Services and Construction (CCDC 5B - 2010), and theDesign-Build Stipulated Price Contract (CCDC 14 - 2013)formats since the design stage includes input from thebuilder; however, this approach expands that collaborativeelement by also incorporating input from the trades in thosedesign discussions. This format also establishes a directcontractual relationship between the different trades, alongwith all other parties, and the owner.

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Like the other collaborative design formats, a tenderedcontract award under the IPD (AIA C191 - 2009) formatwould consider non-price factors, such as skill andexperience, since accurate price quotes cannot be obtainedprior to contract award due to incomplete designs.Furthermore, this contract model would most appropriately betendered using a request for proposal format that allows theowner to evaluate the skill and experience of the proposedproject consortium, along with their proposed approach tooverall project governance, before selecting the right team.

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To safeguard against cost overruns, this format should beused with a guaranteed maximum price that is establishedthrough the request for proposal process. While the IPD (AIAC191 - 2009) shares certain similarities with the othercollaborative design formats, it also shares similarities withthe Stipulated Price Contract (CCDC 2 - 2008) since itincorporates a clear division between the design and buildstage of the project.

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Integrated Project Delivery Document (AIA C191 - 2009)While one integrated team works with the owner throughoutthe design and build stages, the design must be completedby the team and approved by the owner during a designverification stage prior to the commencement of any work.This provides a more effective off-ramp for the owner, whocan terminate the contract during the design stage, buyoutthe design work by paying the other parties on a time-basedfee-for-services basis, and then seek other options forfinalizing remaining design work and for project construction.

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Integrated Project Delivery Document (AIA C191 - 2009)This aspect of the IPD (AIA C191 - 2009) model provides theowner with greater leverage and control over designdecisions since they must be finalized prior to anycommitment to build.

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Owner

DesignConsultant

MainContractor

Trades


FullProjectTeamInvolvedinDesign

Pre-BuildOff-Ramp

SharedPerformanceIncentives

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Integrated Project Delivery Document (AIA C191 - 2009)Like the other models that include the builder in the designdiscussions, the IPD (AIA C191 - 2009) model reduces therisk of disagreement between the various contractors ondesign details during the build stage; however, it also placesheightened risks and responsibilities on the owner to managethe multiple contracts directly.

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Integrated Project Delivery Document (AIA C191 - 2009)If used properly, this approach provides greater incentives fordesign innovation and greater mitigation against time andcost overruns, since performance incentives are built into thecontract at the outset to keep the overall project teamincented to outperform the mutually agreed-upon time andprice benchmarks that were established as part of the designverification stage.

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Integrated Project Delivery Document (AIA C191 - 2009)Like the Cost-Plus Contract (CCDC 3 - 2016) model, the IPD(AIA C191 - 2009) model also assumes a high level of pricetransparency and owner audit rights to better ensure that theparties are optimizing cost effectiveness during projectconstruction. The IPD (AIA C191 - 2009) format should beused in the following conditions:

• where the construction project is relatively complex whencompared to more typical projects that traditionally use thedesign-bid-build approach and the Stipulated PriceContract (CCDC 2 - 2008) format;

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Integrated Project Delivery Document (AIA C191 - 2009)• where there would be an innovation advantage gained in

project design by including the builder and trades indesign discussions;

• where due to project complexities there is a greater risk ofdispute between the designer and builder, and relatedcost overruns or delays that could be mitigated byinvolving the builder in the design discussions;

• where time permits the project design to be completedprior to commencing construction;

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Integrated Project Delivery Document (AIA C191 - 2009)• where the owner is prepared to assume the additional risk

and contract administration burdens associated withdirectly managing the design consultant, builder andtrades;


• where the owner has sufficient internal resources, or canretain external advisors, to define the overall contractrequirements and manage the project team.

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Construction Contract FormatsPublic-Private Partnership (“P3”)

This contract model builds on the traditional design-buildformat while also introducing a financing element into theproject. In this format, the P3 design-build consortium,instead of the owner, typically provides the constructionfinancing for the project and then recoups its investment andprofit through various payment streams that can includefuture installment payments from the owner, direct user fees,or various combinations thereof.

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This contracting model is typically reserved for the mostcomplex and costly infrastructure projects. While thisapproach includes a design-build-finance format, where theinfrastructure is turned over to the owner at the completion ofconstruction, it can also be used in a more expandedapproach using a design-build-finance-maintain-operatemodel that sees control over ongoing operations remain withthe project consortium, or in an even more expanded design-build-finance-own-maintain-operate-transfer model, whereongoing ownership and control are kept by the projectconsortium for a defined time-period before reverting back tothe original owner or new owner.

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This contracting model can also be narrowed to focus onconstruction projects based on prior designs with build-finance or build-finance-maintain variations. Given thesemultiple variations, the P3 contracting approach includes nosingle industry standard contracting model. Establishing theappropriate project-specific contract format is therefore acostly, labour-intensive and lengthy process.

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The transaction costs for administrating, awarding andmanaging these contracts is cost-prohibitive for all but thelargest construction projects, resulting in well-documentedpublic audit reviews when this approach has been used forpublic sector projects, with significant public criticism raisedfrom a transparency and value-for-money perspective.

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Furthermore, the use of this model also dilutes the owner’scontrol over design and construction decisions and offersfewer practical opportunities for project off-ramps. That said,this model has resulted in fewer cost overruns or projectdelays since greater overall control is placed with the projectconsortium; however, some critics of this approach havemaintained that the avoidance of cost overruns and delayscan also be attributed to the fact that the design consortiumbuilds a greater risk premium into its costing and longertimeframes for project completion before taking responsibilityfor the project.

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This format should therefore only be considered as a lastresort for high-cost major infrastructure projects where theowner cannot self-finance the construction of its project. ThePublic-Private Partnership (“P3”) format should be used inthe following conditions:

• where the construction project is urgently required, highlycomplex and costly, and the owner does not haveavailable funding to self-finance the project using anyother construction contracting model;

84



• where the owner has sufficient internal resources, or canretain external advisors, to define the overall contractrequirements, set value-for-money and transparencystandards, and administer the owner's role vis-à-vis theproject consortium.

Procurement Formats DashboardInvitational RFQ OpenRFQ Invitationto

TenderRFP NRFP BAFONRFP

TraditionalContractLaw


ContractATendering Law

ContractATendering Law



ScreeningTypicallyinPre-

Selection

MandatoryRequirements(Flexible)

MandatoryRequirements(DutytoReject)

MandatoryRequirements(DutytoReject)



TypicallyLowBid Low BidorHighScore

Low Bid HighScore HighScore HighScoreonfinaloffersaftershort-listinganddialoguestage

LowRiskonCancellation

LowRiskonCancellation

HighRiskonCancellation

HighRiskonCancellation

LowerRiskonCancellation

LowerRiskonCancellation

PriceBindingonAward

PriceBindingonAward

Price BindingonBidClose

Price BindingonBidClose

PriceBindingonAward

PriceBindingonAward

NegotiationsTypicallyNotRequired

NegotiationsTypicallyNotRequired

Negotiations NotPermitted

Negotiations NotPermitted

NegotiationswithTop-Ranked

Proponent

NegotiationswithTop-Ranked

Proponent

DQ/Barring ForRescindedOffer


BidSecurityCommon

BidSecurityNotCommon



PaulEmanuelli©2014

Selected Construction Contract FormatsKey Factors Design-Bid-Build

(CCDC-2)ConstructionManagement–OwneratRisk(CCDC-5A+17)

ConstructionManagement–CMatRisk(CCDC-5B)

Design-Build(CCDC-14)

IntegratedProjectDelivery

DesignResponsibility

Owner’sConsultant Owner’sConsultant(Input

fromCM)

Owner’sConsultant(Input

fromCM)

Design-Builder Entire ProjectTeamIncluding

Trades

ContractManagement

Burden

PrimeManagesTrades(OwnerManagesPrimePlusConsultant)

OwnerManagesCM,Trades, and

Consultant

CMManagesTrades(Owner

ManagesCMandConsultant)

DBManagesProjectTeam

(OwnerManagesDB)

OwnerManagesEntire Project

Team

PricingFormat Stipulated SuminAdvanceofProject

Start

Time andMaterialsforCM,StipulatedSumforTradesonRolling

Basis

Time andMaterialsDefault,StipulatedSumLockinOption

Stipulated Sum(BasedonGeneral

StatementofRequirements)

Cost-Plus OpenBookWithFixedPriceandAgreedProfitPercentage

InnovationIncentive

Low(BasedonPre-Design)

Low(WorkStartsBeforeFinalDesign)

Low(WorkStartsBeforeFinalDesign)

Medium(Work Often

StartsBeforeFinalDesign)

High(Pre-BuildOff-RampPlusPerformanceIncentives)

TimingIncentive Medium(No DefaultIncentives)

Low(OwnerCarriesDelay Risk)

Medium(Owner/CM Share

Risk)

Medium(EarlyStartvs.Final

Design)

High(BasedonSharedReward)

CostSavingIncentive

Medium(No Built-InIncentives)

Low(OwnerCarriesCostRisk)

Medium(Owner/CMShare

Risk)

Medium (NoBuilt-InIncentives)

High(BasedonSharedReward)

PaulEmanuelli©2016

Design-Bid-Build ConstructionManagement(OwneratRisk)

Design-BuildIntegrated

ProjectDelivery

Owner

Owner’sConsultant

PrimeContractor

Trades

Owner

Owner’sConsultant

ConstructionManager

Trades

Owner

Owner’sConsultant

ConstructionManager

Trades

ConstructionManagement(CMatRisk)

Owner

DB’sConsultant

DesignBuilder

Trades

Owner

DesignConsultant

MainContractor

Trades


BuildStartsBeforeDesignFinished BuildStartsAfterDesignFinished

FullProjectTeamInvolvedinDesign

Pre-BuildOff-Ramp

SharedPerformanceIncentives

BuildStartsBeforeDesignFinishedBuildStartsBeforeDesignFinished

88

Construction Contract FormatsFuture Considerations

When embarking on a major initiative, project teams shouldcarefully weigh their options with reference to all availablecontracting models. When using industry standard contractformats, project teams should also integrate professionallytailored supplementary provisions into their final contractdocuments to properly address the owner’s interests.

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Formoreinformationpleasecontact:

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416-700-8528

MarilynBrownSeniorCounsel

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416-700-8531

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