CON 2001 & CVE 4070 Construction Methods & Engineering L-3 Construction Contracts & Controls Prof. Ralph V. Locurcio, PE.

CON 2001 & CVE 4070

Construction Methods & Engineering

L-3 Construction Contracts & Controls

Prof. Ralph V. Locurcio, PE

Outline for today…

Contract Types & Controls Work Breakdown Structure Homework due Sept 11

Project Delivery Process…

Need for a projectIs recognized

Owner appointsProject Manager

Project Manager develops project

program: scope & cost parameters

Project is entered into an annual

capital program

Designer prepares concept design & preliminary cost

estimate

Designer completes plans &

specifications

Owner orders bid documents

Project Manager advertises for

construction bids

Contractors assemble team,

prepare & submit bid

Bids reviewed by owner

(with designer)

Builder’s credentials &

bonding approved

Owner approves program

Project Manager advertises for

designer

Owner hires designer

Owner authorizes final

design

Owner selectsbuilder

Notice to Proceed

Constructionbegins

Resident Engineeroversees

construction

Project phase(s)completed

All work completed final inspection

made

Progresspayment

Final paymentOwner accepts

facility

NextStep

Const Contract =3 Documents

1. The “Legal” document

2. The Plans or Drawings

3. The Specifications

The Project as a System…

Project

Site

Complex

Community

StateFederalGovernment

Key steps in planning… Review the contract: look for critical dates,

deliverables, products, inspections & reviews & reports.

Consider the project environment and potential constraints.

Talk to the owner: be sure you understand the desired outcome, timing, cost and quality parameters.

Review the successful bid: to understand the nature of the contract, the approach, teaming, management and logistics.

Construction Contracts

• Types of contracts used in construction

• What are the differences

• How & why they are used

Contracts…

Essential to construction operations

What is a contract? Basically… it’s an offer and an acceptance between

two parties. In construction… it’s a promise made by the owner

and a reciprocal promise by the builder. Essentially a business tool to control risk. In our culture, it is a legal document that is

enforceable by law.

The Agreement or Contract… Outlines: the terms under which the project will be built.

Includes: items such as cost, time, management,reports,

quality, penalties and all such details that define the owner’s “intent”.

Contract Documents…

1. The Agreement or Legal document The Scope of Work Agreement to Pay The Terms & Conditions

2. The Specifications3. The Drawings

Important Note: Unless otherwise specified this list is the

“order of precedence” of the contract documents

Two general types…

Fixed price contracts… Scope is known Price is fixed by competition Changes only by contract modification Easiest to award and administer

Cost-reimbursable contracts… Scope is variable or unknown Price varies with work accomplished Changes are frequent Difficult to award and administer

Construction contracts… Fixed price or lump-sum Fixed-price with incentives Unit-price Indefinite quantity

Cost-reimbursable Time & materials (T&M) Cost-plus-fixed-fee (CPFF) Cost-plus-incentive fee Letter contract

Guaranteed Maximum Price (GMP) Design Build

Fixed Price

Cost Plus

Fixed-price contracts…

=

Fixed price or Lump-sum contract…

Most common… “low bidder” contract Price is “fixed” by the contractor’s bid A set scope of work for a set price Only changes are via change order Requires complete set of plans & specifications

… the “scope of work” Selection via competitive bidding Easiest to administer Final price is known at time of award A home run for the owner

Fixed-price incentive contract… Same as fixed-price But… profit is based on performance Incentive formula must be clearly specified in

contract documents Requires a performance “rating” Requires close supervision to ensure

contractor hits performance target

Unit-price contract… Modified form of “fixed-price” contract. Based on “measurable” construction units. Unit prices for tasks are fixed. Used when total scope is unknown. Contract scope is the total list of tasks. Specifications govern quality of items or materials. Unspecified tasks must be negotiated. Used for pipelines, roadways, tunneling, etc. Quantities purchased may be not be limited. Called “Indefinite Quantity” or IDQ contracts

Cost-reimbursable contracts…

Cost Plus contracts…

Used when scope is unknown or owner does not have plans & specs.

Contractor is paid his actual costs for labor & materials plus a mark-up for overhead (+15%)

Profit is specified +10% mark-up of actual costs Contractor must supply invoices for all expenses

and certified time sheets for labor; audit of costs & invoices is essential

Contract documents define eligible costs such as labor categories, travel, rentals, permits, fees, other expenses…

+

Time & materials contracts… Used when scope is completely unknown and

there is no time to design

Owner assumes all of the risk

Easy to write; difficult to administer

End price is unknown

Sometimes includes “upset” amount

Contractor can make substantial profit

Home run for the contractor!

Example of T&M contract…

Materials cost $40,000*Labor cost $60,000*

Sub-total $100,000Overhead 15% $15,000*Sub-total $115,000Profit 10% $11,500*Grand total $126,500

* These costs are VARIABLE!

Cost-plus-fixed-fee…

Actual costs paid for labor & materials

Overhead rate generally fixed

Fee is a “fixed” dollar amount that is specified in contract documents

Generally used when scope of work is known but no time to design

Contractor shares some risk

Provides owner some control

Cost-plus-incentive-fee…

Similar to cost-plus-fixed-fee Contractor is paid an additional fee or bonus if

certain specified conditions are met, such as time, cost or satisfaction of user

No bonus if conditions are not met

Incentive minimizes risk to owner

Intent is to “motivate” the contractor

Guaranteed maximum price…

Generally used in design-build work

Contractor agrees to a fixed maximum price Contractor assumes all the risk

and keeps all the savings

Owner provides “performance” spec

Contractor has maximum flexibility

Good for known standards, industrial or commercial work

Construction Controls

• Controls are used to keep project on track

• A set of tools… several are automated

• Essential to good Project Management

• Control Time, Cost, Quality

Construction Planning Checklist…

1. Long-lead items 9. Interdependent tasks

2. Utility interruptions 10. Environmental controls

3. Temporary utilities11. Special regulations

4. Labor 12. Const equipment

5. Work/storage areas 13. Construction timing

6. Traffic 14. Owner’s operations

7. Temporary access 15. Building codes

8. Other contracts 16. Permits required

How do you eat an elephant?

One bite at a time!!!

You break the total project down into measurable tasks…

Time Phased Budget Control

Construction Scheduling…

Common methods:

1. Bar Charts

2. Velocity Charts

3. Network Diagrams: CPM/PERT

4. Line-of-Balance Charts

Bar Chart Schedule…

Task Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9

Excavate xxxxxFoundation xxx xxxxx

Slab xxxxxStructure xxxxxxx

Roof xxxxxx Walls xxxxxxxxxxDoors xxxx

Windows xx xx xx xxInterior Walls xxxxxxxxx

Ceilings xxxxxxxxPaint xxxxx

Floor Tile xxxxxxPlumbing xxx xxx xxxx

Mechanical xxx xxxx xxxElectrical xxx xxxx xxxFurniture xxxxx

Punch List xxClose out xxxx

Simple Bar Chart Schedule

Velocity Chart…

Excav Found Slab Struct Walls Roof Int Part Ceilings Paint FloorsSchedule 100 350 400 750 1200 1325 1775 1875 2275 2675Cum Hrs 88 337 337 637 837 837 837 837 837 837Plan Hrs 100 250 50 350 450 125 450 100 100 200Act Hrs 88 249 0 300 200

Simple Velocity Chart

0

500

1000

1500

2000

2500

3000Schedule

Cum Hours

Plan Hours

Act Hours

CPM Chart…

Management of Quality…

Definition of Quality Control

Definition of Quality Assurance

Designer’s responsibility

Contractor’s responsibility

Use of submittals to check quality

Submittal Process…Inspecton

Work & Materials

Visual Or

Lab Test

Lab TestVisual Test

Compare w Plans & Specifications

Samples to lab

Lab Results

Conform? Test OK?Yes

No

Issue Non-Comp

Defective Mat Report

No Payment till corrected

Follow-upRecord in log

Reinspect When Corrected

No

Issue Non-Comp

Defective Mat Report

No Payment till corrected

Follow-upRecord in log

Resample When Corrected

Make FinalInspection

Work AcceptedPayment Authorized

Shop Drawing?

AE Review

Key Estimating Activities

Read the Plans, Specs & Contract

Conduct Site Visit

Decide Construction

MethodPrepare Schedule

Plan for Subcontracts

Plan for EquipmentMaterial Take-Offs

Estimate costs

Determine contingency

Analyze Risk Factors

Finalize Bid

That’s all for today…

Class homework exercise: Do research in your text, on the internet or in the library

to describe these attributes for each of the 7 types of construction contracts:

a. Advantagesb. Disadvantagesc. Risks taken by the ownerd. Risks taken by the contractore. When should this contract be used

Looking ahead…8/181 Introduction, course requirements; Pyramid Handout

8/202 Project Delivery System

8/253 Stakeholders & Construction Organizations

8/274 Contract Types & Construction Planning

9/1 5 Construction Contract Documents Pyramid Plan Pyramid Plan duedue

9/3 6 Preconstruction & Bidding Processes; Write Resume

9/8 7 Shop Drawings & Inspection Processes

9/108 Project Organization & Responsibilities Resume dueResume due

9/159 Tour Construction Project Site; Construction Handout

9/1710 Disaster Recovery Construction Construction Report dueConstruction Report due

9/2211 Test #1 & Critique

Note: all PPT are on http://my.fit.edu/~locurcio/