5 - Contracting

• delivery system

• payment scheme

• award method

• Defines the nature and number of the portions of project scope (design, construction, and finance) that are contracted to each business entity and the organizational relationships between the parties

• A contractor may be responsible for part of one, two or all three of the scope components

• Defines how the owner will pay the contractor.

• Aim - Selecting the contracting parties

• Establishes the rules for assigning the contract

• Traditional

  • Design-Bid_bui,d

  • General Constructor / Multiple prime

  • Construction Management

• Integrated Design-Build

• Trun-Key

• Build Operate and Transfer

• In these cases, the owner engages the professional services of an architect/

  engineer to develop all stages of design and to control construction performed by a

  general contractor (GC), which in turn may subcontract part of the scope of contract

  to selected specialist traders

• Advanteges

  • Well known mechanism that has long been used by owners, contractors, designers, and courts.

  • It is of practical value if project uncertainty exists primarily in design: no construction is developed before a slow-paced and flexible design process is completed

• Disadvanteges

  • Constructability. Design constructability is traditionally not thoroughly reviewed before actual construction, resulting in design and construction changes, in minimization of contractor’s knowledge and capabilities, and in the loss of opportunities for time and cost savings.

  • Fast-tracking schedule. With DBB, there is no way to expedite the project by overlapping design and construction.

  • Changes and budget. After the contract has been awarded, any changes to the original contract detailed design impose heavy additional cost for the owner

  • activities unfold: general contractors often seek changes to make extra profit, which in turn leads to extra time and cost for resolving disputes.

• business entity acting as a project manager and as a construction consultant to the owner

• A Construction Manager professional staff is early hired:

• to support the designer with planning and pre-construction tasks, such as constructability review of design, value engineering, estimation, alternative selection, schedule, financing, management of the design team, and early procurement of long lead-time items;

• to break down the scope of work into a number of elements contracted to specialist trades;

• to manage the competitive selection processes of specialist contractors on behalf of the owner;

• to accelerate the project through the use of fast-tracking, in which construction is commenced before design is complete;

• to be a common reference point and to act as a facilitator in conflicts between owner and contractors;

• to provide quality assurance, coordinate work of sub/contractors, manage change orders and claims, perform inspections, and assure safety conditions on the construction site;

If the Construction manager service is executed directly by the owner with no use of a construction consultant, the delivery mechanism is called “Multiple Primes”.

• This mechanism also puts little incentive on the CM to reduce price and completion time, because the owner alone takes the risk of the cost of the project without guarantees from the CM

• Solution => Construction Manager at risk

• Purpose => reducing the owner’s financial exposure, the “CM at risk” entity is given responsibility of all contractual relationships with subcontractor

• Most times, an agreed-upon-the-contract Guaranteed Maximum Price (GMP) gives the owner assurance that the project will not overcome the budget because all cost overruns out of the ceiling GMP will be paid solely by the CM.

• owner develops feasibility studies and design concepts to define needs and functional requirements, and then makes the deal with a sole entity with both design and construction skills.

• The company that will undertake the project can be either a Design-Build (BD) firm or a joint venture formed for this specific purpose, such as a consortium.

• works very well for complex and sophisticated projects, but requires phased design to protect all parties from extreme risks.

• Advanteges

  • allows fast tracking

  • a single point for accountability and coordination

  • handing of complex technology.

• Disadvanteges

  • contract price is difficult to formulate and enforce before design is developed.

  • owner lacks a fiduciary relationship with the A/E, which may in turn lead to low-quality design to shield the contractor’s profit

  • In very complex projects, the method can end up without the desired result if the owner is not closely involved

  • problems may be hidden until late (no A/E or CM supervising)

• In a Turnkey process the contractor executes the whole design and build work and also short-term finances the project during the construction period

• The method is very common in residential housing and plant construction (e.g. power and oil plants).

• the contractor is often responsible for financing the project through a special purpose vehicle company (SPV)

• The client owns the property, but provides the contractor with concession rights on long term operations (usually from 20 to 60 years). After that period, the owner gets back the facility for its own O&M and usage, typically with no extra cost.