QUIZ #1 10 Minutes Construction Engineering 221 Construction Engineering 221 Construction Contracts Construction Contract Types What are the two main divisions of construction contracts? Construction Engineering.
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Transcript QUIZ #1 10 Minutes Construction Engineering 221 Construction Engineering 221 Construction Contracts Construction Contract Types What are the two main divisions of construction contracts? Construction Engineering.
QUIZ #1
10 Minutes
Construction Engineering 221
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Construction Engineering 221
Construction Contracts
Construction Contract Types
What are the two main divisions
of construction contracts?
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First Main Division
Competitive bid contracts
Lump-sum
Unit-price
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Second Main Division
Negotiated contracts
Lump-sum
Unit-price
Cost-plus-fee (most common w/ negotiated)
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Award of Competitive-Bid Contract
Award contract to the “lowest
responsible bidder”
What is meant by the term
“lowest responsible bidder”?
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“lowest responsible bidder”
Lowest bidder whose offer best responds in
quality, fitness and capacity to fulfill the
particular requirements of the proposed
work and with the necessary qualifications
to complete the job in accordance with the
terms of the contract. In open competitive
bidding by public and private owners the bid
will go to the lowest responsible bidder.
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COST-PLUS-FEE CONTRACTS
Contract value is NOT guaranteed
Used when design and drawings are NOT
complete
Owner pays “reimbursable costs” plus a
“fee”
“Fee” is usually a percentage of total
reimbursable cost (2% to 6%)
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Reimbursable Costs
Defined by very detailed contract language
Subcontract bidding and letting procedures
Definitions of what types of costs can be reimbursed
Payments to Subcontractor per subcontract
Contractor’s field labor, material and equipment costs
Definitions of what types of cost that will NOT be
reimbursed
Contractor’s main office overhead and staff
Salaries of contractor’s officers
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Contractor’s Fee in Cost-Plus Contract
Determined by taking into account:
Degree of risk
Nature and complexity
Geographical location
Equipment and manpower requirements
Estimated construction time
Final fee usually negotiated to be competitive (what
will the market bear)
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Cost Reimbursable Contracts
1. Cost–Plus-Fee as a Percentage-of-Cost
Fee may be on a sliding scale (smaller percentage as
the cost of the project increases)
Fee of 10% for contract values <$50,000
Fee of 5% for contract values $50,000 to $500,000
Fee of 3% for contract values >$500,000
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Cost Reimbursable Contracts (cont.)
2. Cost-Plus-Fixed-Fee Contracts
3. Incentive contracts (bonus-penalty)
Share of the cost savings up to a maximum
Bonus for each day finished early, or penalty for
each day finished late
4. Guaranteed Maximum Cost (upset price)
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Contact Documents
The construction contract is comprised of a number of
different documents. Most construction documents include:
Invitation to bid
Instructions to bidders
General Conditions
Supplementary Conditions
Technical Specifications
Drawings
Addenda
Proposals
Bid Bond
Agreement
Performance bond
Labor and material payment bond
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Construction Contract Conflicts
What if there is a conflict between the
drawing and the specifications? Which is
considered the governing document?
And what if a construction requirement is
found in only the drawings and not in the
specification? Is it still a requirement?
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Retainage
What is retainage and why is
it necessary?
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Retainage or Retention
A percentage of the payment to the
contractor that is withheld each month
Usually is 10%
Owner may reduce below 10% after
SUBSTANTIAL COMPLETION
Paid by owner to contractor after FINAL
COMPLETION of the project
Serves as an incentive for contractor to
complete ALL work per contract
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Other Contractual Terms
Substantial Completion
“Beneficial Occupancy” of the project
Warranty Period
Contact time
Calendar days vs. working days
“time is of the essence”
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Other Contractual Terms
Liquidated Damages
Used as a PENALTY for late completion
Used in lieu of a determination of actual
damages suffered by the owner
Must be a REASONABLE penalty based on a
forecast of actual damages the owner would
suffer if the contractor is in breach of contract
by finishing late
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