QUIZ 1

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QUIZ 1

• 10 Minutes

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Construction Engineering 221

• Construction Contracts

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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
• Contractors field labor, material and equipment
  costs
• Definitions of what types of cost that will NOT
  be reimbursed
• Contractors main office overhead and staff
• Salaries of contractors officers

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Contractors 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

• CostPlus-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 lt50,000
• Fee of 5 for contract values 50,000 to 500,000
• Fee of 3 for contract values gt500,000

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Cost Reimbursable Contracts (cont.)

• Cost-Plus-Fixed-Fee Contracts
• 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
• 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