Construction Contracts

Construction
Contracts
and Project Delivery
Methods
ACT 380
Objective
Exposure to the different types of
construction contracts, the number
of contracts, the method of
contractor selection and the basis for
contractor payment.
Contract Defined
An agreement between two or more
parties representing a promise to be
performed for consideration
Necessary Parts of a Typical

Construction Contract
O Parties identified
O Parties make promises that constitute
an offer
O Both parties sign the contract
O Both parties receive consideration:
O Contractor payment for work done

O Owner use of the completed project
O Parties of the contract must have the
LEGAL AUTHORITY to negotiate a

contract
Contractual
Relationships
O Agreement between the OWNER and
CONTRACTOR is the primary

construction contract
O There are other contractual
relationships which exist
Construction Agreement
Forms
O Agreement legal, binding, written
document signed by owner &

contractor
O Defines the relationships and
obligations that exist
O By reference it incorporates ALL
OTHER CONTRACT DOCUMENTS
Standard Forms
O AIA Document A101
O EJCDC Document 1910-8-A-1
Advantages to Using Standard

Agreement FormsDisadvantages if
Modified Forms Used
O Advantages
O Familiarity of the forms
O Legal precedents interpreting the
documents
O Uniformity of terminology
O Disadvantages
O Modifications warrant care that all
references are coordinated (change in one

part of the form may require changes in
several locations)
O Seek legal counsel
8
Conditions of the
Contract
O Define basic rights, responsibilities,
and relationships of the parties

involved in the construction process
in greater detail than the agreement
Design & Construction

Parties
O Owner may be an individual or an
organization; initiates the project and

secures funding for the design,
construction and operation of the
completed project
O Contractor agrees to build the
project; may enter into sub-contracts
O A/E develops project designs and
prepare construction documents;
consultants may include: structural,
civil, mechanical, electrical,
acoustical, & environmental engineers
and landscape architects, interior
designers, and hardware specialists
10
Methods of Contractor
Selection
O Competitive Bidding
O Direct Selection
11
Competitive Bidding
O Objective is to ensure that the cost of
the project is reasonable and consistent

with existing conditions in industry
O Publicly funded projects owner
required to select lowest bidder
O Private projects owner may also
consider the bidders qualifications,
experience, financial condition, and
performance history
12
Direct Selection
O Owner, with advice from the A/E
selects contractor total price and

method of payment is then
negotiated
O This method is generally NOT
allowed for public projects
13
3 Decisions Made in
Determining Kind of Contract
O Number of contracts
O Contract type
O Basis of payment
14
Number of Contracts
O Single Prime Contract most common,
uses competitive bidding (pg 3.12; fig 3.3C) owner has contract w/ A/E & contractor;
but A/E & contractor do NOT have contract
O Multiple Prime Contract Owner
divides the work among several contractors
& has separate contract w/ each of them.
(pg 3.13; fig 3.3-D) [e.g. paving, site work,
foundations, landscaping, painting] Often
used in FAST TRACK projects when
construction on parts of the project is
started prior to all of the design elements of
the project being completed
15
Project Delivery Method

O Design-Bid-Build
O Design-Negotiate-Build
O Construction Management
O Design-Build
O Owner-Build
O Construction Subcontracts
O Total Project Commissioning
16
Design-Bid-Build
O Traditional method of project delivery
O Typically uses competitive bidding
O Considerations
O Project funding
O Owners capacity
O Cost
O Extent of work
O Time priorities
O See Figure 3.4-A on page 3.16

17
Design-Negotiate-Build
O Similar to the Design-Bid-Build contract
but only ONE contractor involved in

developing costs and negotiating a
contract to construct the project
O Primary considerations are
construction excellence and time
(project costs not subject to
competitive bidding process)
O See figure 3.4-B on page 3.19
18
Construction
Management
O May have either single or multiple
prime contracts
O Construction manager is employed
by the owner to oversee and
administer the project (may or may
not actually perform any of the
construction work)
O See pg 3.24; figs. 3.4-C & 3.4-D
19
Project Management
O Similar to construction management but
also includes coordination of the design

& planning stages of the project
O Large projects overseas have been
successful using this
O Projects involving multiple structures &
extensive site improvements often
require this type of supervision; complex
projects such as industrial & process
engineering plants use this type of
contract
20
Design-Build
O Owner contracts w/ a single entity to
design as well as build the project

O Turnkey an extended design-build
contract in which the selection,
procurement, and installation of all
furnishings, furniture, and equipment
is also included
O See pg 3.30; fig 3.4-E
21
Owner-Build
O This type of contract is usually seen
with large-scale developers

O Only construction contracts needed
are between the owner and various
subcontractors
O See pg 3.34; fig. 3.4-F
22
Construction
Subcontracts
O Usually involves a contract between
the contractor and subcontractors

and material suppliers
O May be verbalbest if written
23
Total Project Commissioning

O Defined by ASHRAE as a method to
improve the delivery of a process.

O Focus is on QUALITY
O Makes sure that all components of a
building are planned, installed, and
maintained according to an owners
requirements
24
3 Types of Basis of
Payment
O Stipulated (Lump) Sum
O Unit Price
O Cost-Plus Fee
25
Stipulated Sum
O Simplest method used
O States that the contract
requirements will be completed for a

given amount of money
26
Unit Price
O Used when the extent of work or
actual quantities can not be

determined when bids are made
(earthwork is such an example)
O Many civil engineering projects use
unit price type of payment
O With unit price, the owner pays for
exactly what is documented as done
after the work has been completed
27
Cost-Plus Fee
O Contractor paid for actual cost of labor
PLUS a fee for overhead and profit

O Fee may be a percentage of the labor &
material cost or a fixed amount
O Cost-Plus Fee agreements may also
include incentives for early completion
O It is reasonable for the owner to require
a guaranteed maximum price to
ensure that the total project cost will not
exceed a given amount
28

Construction Contracts

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What are the different types of construction contracts discussed?

What are the different types of construction contracts discussed?

What are the necessary parts of a typical construction contract?

What are the necessary parts of a typical construction contract?

Construction

Necessary Parts of a Typical

O Contractor payment for work done

O Parties of the contract must have the

LEGAL AUTHORITY to negotiate a

CONTRACTOR is the primary

document signed by owner &

Advantages to Using Standard

O Modifications warrant care that all

references are coordinated (change in one

and relationships of the parties

Design & Construction

organization; initiates the project and

the project is reasonable and consistent

selects contractor total price and

Project Delivery Method

O See Figure 3.4-A on page 3.16

but only ONE contractor involved in

also includes coordination of the design

design as well as build the project

with large-scale developers

the contractor and subcontractors

Total Project Commissioning

improve the delivery of a process.

requirements will be completed for a

actual quantities can not be

PLUS a fee for overhead and profit

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