CONSTRUCTION CONTRACTS DOCUEMENTS

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CONSTRUCTION CONTRACTS DOCUEMENTS
BYLECTURERMaha Muhaisen

• APPLIED CIVIL ENGINEERING DEPT

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Resources

• Construction Documents and Contracting, Joseph D.
  Coleman , 2004, Prentice Hall
• Construction Contracts, Keith Collier, 1987,
  Prentice Hall
• Construction Management, by Daniel W. Halpin
  and Ronald W. Woodhead, 2nd Edition , John Wiley
  Sons
• Fidic Conditions of Contract for Construction,
  FOR BUILDING AND ENGINEERING WORKS DESIGNED BY
  THE EMPLOYER, 2005
• Fidic Tendering Procedures, prequalification,
  tendering and award the contract, 1994.
• Handouts and lecture notes

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Grades

• Research Projects homework 30
• Midterm Exam. 30
• Final Exam. 40

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Course Outline

• Introduction to construction project stages,
  overview of the construction contracting methods,
  and contracts types.
• Bidding document
• Invitation to bid
• Instruction to bidders
• Information to bidders bid data
• Biding Forms
• General conditions of contract
• Specific condition of contract
• Specification
• BOQ
• Drawings
• Contract forms
• Methods of Tendering, Bidding and Awarding
• Contract Documents and Conditions
• FIDIC Form of Contracts

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• Introduction to Construction Project Stages
• Lecture (1)

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Major Project Phases

• The major phases in the project cycle that are
  common to most design and construction projects
  are
• Project Planning
• Design
• Schematic Design
• Design Development
• Contract Documents
• Construction Procurement (Bidding Phase)
• Construction
• Post Construction

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Construction Project Characteristics

• Construction projects are different than other
  types of projects due to the following
  characteristics
• Construction projects are complex undertaking.
• Every construction project is unique.
• Construction projects involve a lot of
  uncertainties, lack of information and variables.

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Project Life Cycle

• Most of Construction projects life-cycle have
  common characteristics, Construction projects
  start with low cost and resources, high risk and
  uncertainty.
• The life-cycle of a typical construction project
  could be summarized as following
• Stage I represents the project formulation,
  feasibility studies, and the strategic decisions
  needed for project continue.
• Stage II represents planning, basic design,
  budgeting, tendering and placing the project
  major contracts.
• Stage III involves the construction phase of
  the project, equipment installation and testing.
• Stage IV represents the final phase in the
  project which includes the project turnover,
  final testing and start-up.

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Project Life Cycle
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• Lecture (2)

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Construction Contracting Method (delivery
methods)

• Traditional Approach (D-B-B)
• The most common delivery system is called the
  traditional or standard approach or
  design-bid-build, in which the employer assigns
  the design and construction phases to two
  different firms (consultant/designer and
  contractor).

Appointing Main Contractor
Appointing Consultant
Constructing
Designing
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Traditional Approach (D-B-B)

• For many years, DBB has been the most common
  method of project delivery for public projects,
  and for many private projects as well.
• Design Bid-Build is effective on projects
• where the owner needs both professional design
  services and construction services
• where the designer does not require detailed
  knowledge of the means and methods of
  construction.
• DBB provides the owner with a high degree of
  control. Thats why it is the preferred project
  delivery system for owners who

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Traditional Approach (D-B-B)

• The owner defines project goals and objectives,
  secures the financing, and specifies the
  standards and contract terms.
• The owner may perform planning, conceptual design
  and full design, or may engage an outside design
  professional (designer) for some or all of these
  tasks.
• During this planning and preliminary stage, owner
  and designer work as a team to obtain required
  permits and conduct necessary site
  investigations.
• The designer prepares the construction bid
  documents to reflect the owners project goals
  and objectives, the projects site conditions,
  and sound engineering practices.
• Prospective contractors prepare their bids from
  these complete and specific bid documents.
• The bidders submit their proposals to the owner,
  who determines the most responsive (typically the
  lowest) bid meeting project requirements.
• In certain circumstances, owner may be justified
  in selecting a contractor outright and
  negotiating contract terms directly.

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Advantages of D-B-B Approach

• Applicable to a wide range of projects.
• Well established and easily understood.
• Clearly defined roles for all parties.
• Provides the lowest initial price that
  competitive bidders can offer.
• Extensive litigation has resulted in well
  established legal precedents.
• Insurance and bonding are well defined.

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Disadvantages of D-B-B Approach

• Least-cost approach requires higher level of
  inspection.
• Initial low bid might not result in ultimate
  lowest cost or final best value.
• Designers may have limited knowledge of the true
  cost and scheduling implication of design
  decisions.

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Design-Build Approach

• Design-build approach is a project delivery
  system involving a single contract between the
  project employer and a design-build contractor
  covering both the design and construction of a
  project.
• The design-builder performs design, construction
  engineering, and construction according to design
  parameters, performance criteria and other
  requirements established by the employer or his
  representative.

Appointing design construction contractor
Constructing
Designing
Tendering
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Design-Build Approach

• The owner contracts with a single entity to
  provide the design and to construct the project
  according to that design.
• The contract might be negotiated with a single
  design-builder or result from competitive
  proposals.
• The selection can be based on low price or on a
  set of value criteria (experience, staff, bonding
  capacity, etc.).
• Design-build provides the owner with a single
  point of contact for project responsibilities,
  eliminating the need to assist in resolving
  designer-contractor disputes.
• With the contractor playing a major role in
  design, costs are typically defined and
  maintained to a greater degree, and the
  coordination of fast-track management to achieve
  early completion is greatly simplified.
• The design-builder makes many decisions that
  owner would make under DBB, due to delegation of
  greatly increased authority.

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Design-Build Approach

• For many owners, delegation of responsibilities
  leads to satisfactory projects. However, if the
  parties are inexperienced and do not cooperate,
  the transfer of control and risk can be
  disappointing.
• The owner may need to restructure his/her
  internal procedures to accommodate design-build
  approach.
• Compared to DBB, this involves a significantly
  different set of requirements and expectations
  for process, timelines and communications.
• A clear understanding and documentation of
  design-build processes enhances the quality of
  design-build projects

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Advantage of Design-Build Approach

• Innovation and quality improvements through
• - Alternative designs and construction
  methods
• suited to the contractors capabilities
• - Flexibility in the selection of design,
  materials, and
• construction methods.
• Earlier schedule and cost certainty

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Disadvantage of Design-Build Approach

• Reduced opportunities for smaller, local
  construction firms.
• Fewer competitors and increased risk may result
  in higher initial costs.
• Elimination of traditional checks and balances.
  Quality may be subordinated by cost or schedule
  considerations.
• Less Engineer control over final design.
• Higher procurement costs.
• Traditional funding may not support fast-tracking
  construction or may require accelerated cash
  flow.
• Accelerated construction can potentially
  overextend the workforce.

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Others

• Turnkey
• Turnkey Variations
• Direct Labor Approach.
• Construction management

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Turnkey

• Turnkey adds to the design-builders
  responsibilities the operation and/or maintenance
  of the completed project.
• Turnkey delivery has the potential for bringing a
  new project on line more quickly.
• Three forms of turnkey project delivery
• Design-build-operate-transfer
• Design-build-operate-maintain
• Design-build-own-operate-transfer

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Turnkey Variation

• Variations on turnkey add financing as a key
  component. While financing arrangements are
  unique for each project, developer financed
  projects generally resemble one of the turnkey
  delivery methods
• FDBT (Finance, design, build, transfer)
• FDBOT (Finance, design, build, operate, transfer)
• FDBOOT (Finance, design, build ,own, operate,
  transfer)
• In each case, the transfer of the project occurs
  only after the developers interests and
  financial obligations have been satisfied.

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Assignment (1)

• Describe the turnkey methods, turnkey variation
  methods, direct labor approach, and construction
  management method, highlighting on advantage and
  disadvantage of each one.

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Lecture (3)

• The contract, and contract types, overview of
  the construction documents.

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Contract Definition

• Agreement of at least two parties with purpose of
  creating legal obligation between the parties and
  capable of being enforced by the court of law.
• Contract offer acceptance consideration

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Introduction to contracts

• Why Use contract in construction
• Describe scope of work
• Establish time frame
• Establish cost and payment provision
• Set fourth obligations and relationship
• Minimize disputes
• Improve economic return of investment

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Content of the contract

• Identify the parties
• Promises and responsibilities
• Scope of work
• Price and payment terms
• Commercial terms and conditions
• Project execution plan.

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Major Contract Types (traditional)
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Lump Sum Contract

• One price for the whole contract
• Lump sum includes costs plus overheads and
  profits
• Higher risk to contractor
• Price quoted is a guaranteed price as per
  contract documents.
• Payment based on a scheduled percentage scheme
  (monthly progress claims)
• The contractor is free to use means and methods
  to complete the work and responsible for proper
  performance
• Work must be well defined at bid time.
• Fully developed plans and specifications

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Lump Sum Contract/ advantage

• Low risk on the owner, Higher risk to the
  contractor
• Cost known at outset
• Contractor will assign best personnel
• Contractor selection is easy.

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Lump Sum Contract/disadvantage

• Changes is difficult and costly.
• Contractor is free to use the lowest cost of
  material equipment, methods.

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Unit Price

• Quote Rates / Prices by units
• No total final price
• Re-negotiate for rates if the quantity or work
  considerably exceeds the initial target
• Payment to contractor is based on the measure.
• Unbalanced bids
• Higher risk to owner
• Ideal for work where quantities can not be
  accurately established before construction starts.

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Unit Price contract

• Require sufficient design definition to estimate
  quantities of units
• Contractors bid based on units of works
• Time cost risk (shared)
• Owner at risk for total quantities
• Contractor at risk for fixed unit price.
• Large quantities changes (gt15-25) can lead to
  increase or decrease of unit price.

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Unit Price / Requirement

• Adequate breakdown and definition of work units
• Good quantity surveying and reporting system.
• Adequate drawings.
• Experience in developing BOQ
• Payment based on the measurement of the finished
  works.
• Quantity sensitive analysis of unit prices to
  evaluate total bid price for potential quantity
  variation.

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Unit Price / advantages

• Suitable for competitive bid
• Easy for contract selection
• Early start is possible
• Flexibility quantities and scope can be easily
  adjusted

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Unit Price / disadvantages

• Final cost not known from the beginning (BOQ only
  is estimated)
• Staff needed to measure the finished quantities
  and report on the units not completed.
• Unit price sometime tend to draw unbalanced bid.
  (For Unit-Price Contracts, a balanced bid is one
  in which each bid is priced to carry its share of
  the cost of the work and also its share of the
  contractors profit.
• Contractors raise prices on certain items and
  make corresponding reductions of the prices on
  other items ,without changing the total amount of
  the bid)

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Cost Plus

• Actual cost plus a negotiated reimbursement to
  cover overheads and profit.
• different methods of reimbursement
• Cost percentage
• Cost fixed fee
• Cost fixed fee profit-sharing clause.
• Higher risk to owner
• Compromise guaranteed maximum price (GMP)
  reduces risk to owner while maintain advantage of
  cost plus contract.
• By using this type of contract the contractor can
  start work without a clearly defined project
  scope, since all costs will be reimbursed and a
  profit guaranteed.

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Cost Percent of Cost

• Fee percentage of the total project cost
• (Cost 500.000,Fee 2)

Advantages Disadvantages
profitable for the contractor No incentive to finish job quickly
Owner does not know total price
Larger the cost of the job, the higher the fee the owner pays
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Cost Fixed Fee

• Fee percentage of the original estimated total
  figure
• Utilized on large multi-year jobs
• Ex WW treatment plant Facility (Cost 20
  million, Fee 1)
• 20 Million 1 fee 200,000 Million

Advantages Disadvantages
Fee amount is fixed regardless of price fluctuation Expensive materials and construction techniques may be used to expedite construction
Provides incentive to complete the project quickly
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Cost Plus Fixed Fee

• Most common form of negotiated contracts
• COST expenses incurred by the contractor for
  the construction of the facility
• Includes Labor, equipment, materials, and
  administrative costs
• FEE compensation for expertise
• Includes profit

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Cost Fixed Fee Profit-Sharing Clause

• Rewards contractors who minimize cost
• Percentage of cost under GMP is considered profit
• and shared with the contractor
• Guaranteed Maximum Price (GMP)
• of profit sharing is specified in contract

Advantages Disadvantages
Provides incentive to the contractor to save money Contractor must absorb any amount over the GMP
Plans specs. need to detailed
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Cost Fixed Fee Profit-Sharing Clause

• variation of this type of contract is called a
  guaranteed maximum price (GMP).
• In this type of contract the contractor is
  reimbursed at cost with an agreed-upon fee up to
  the GMP, which is essentially a cap beyond this
  point the contractor is responsible for covering
  any additional costs within the original project
  scope
• An incentive clause, which specifies that the
  contractor will receive additional profit for
  bringing the project in under the GMP.

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Construction Documents

• Bidding requirements
• Notice to Bidders
• Instruction to Bidders
• Proposal Form
• Contract Documents
• Contract Forms
• Conditions of the Contract
• Specifications
• Drawings
• Addenda
• Change Orders
• Agreement.

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Construction Documents

• Construction Documents are defined as the written
  and graphic documents prepared or assembled by
  the A/E for communicating the design of the
  project and administering the contract for its
  construction.
• 2 major groups
• 1.Bidding Requirements
• Used to attract bidders explains bidding
  process
• 2.Contract Documents
• Legally enforceable requirements that become
  part of the contract
• Include all construction documents except
  bidding forms

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CONSTRUCTION DOCUMENTS
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CONSTRUCTION DOCUMENTSBIDDING REQUIREMENTS

• BIDDING REQUIREMENTS
• Bidding Requirements are used to attract bidders
  and explain the procedures to be followed in
  preparing and submitting bids .
• Bidding requirements help bidders follow
  established procedures and submit bids that will
  not be disqualified because of technicalities.
  They do not become part of the contract documents
• Bidding documents
• All of the construction documents issued to
  bidders before the signing of an owner-contractor
  agreement.

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Bid Package

• Documents available to the contractor and on
  which he must make a decision to bid or not
• A set of plans and technical specifications,
  Proposal form, general conditions, special
  conditions,
• Description of the project to be constructed
• Bid Package is prepared by

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2-1 Instruction to bidders

• It describe the scope of the bid, source of fund
  (if it is financed from other agency), fraudulent
  and fraud practices, eligible bidders, Eligible
  Materials, Equipment and Services, Clarification
  of Bidding Document, Site Visit, Pre-Bid Meeting,
  Amendment of Bidding Document

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2-1 Instruction to bidders (contd)

• See attached example for ITB.

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2-2 Bid Data Sheet (BDS)

• Definitions, Engineers Authority to Issue
  Variations, Performance Security, Inspection of
  Site, Program to Be Submitted, Cash Flow Estimate
• Bid Security, Minimum Amount of Third Party
  Insurance
• Time for Issue of the Notice to Commence, Time
  for Completion
• Amount of Liquidated Damages, Limit of Liquidated
  Damages
• Amount of Bonus for Early Completion, Limit of
  Bonus
• Defects Liability Period, Amount of Interim
  Payment Certificates
• Percentage of Retention, Limit of Retention
  Money, Amount of Advance Payment
• Start Repayment of Advance Payment, Monthly
  Recovery of Advance Payment
• Number of Copies of Statement of Completion and
  Final Statement
• Procedure for Settlement of Disputes
• Notice to Employer and Engineer
• Origin of Materials and Plant

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2-3Evaluation and qualification

• This section contains all the criteria that the
  Employer shall use to evaluate bids and qualify
  Bidders if the bidding was not preceded by a
  prequalification exercise and post qualification
  is applied.
• In accordance with items specified in ITB, no
  other methods, criteria and factors shall be
  used. The Bidder shall provide all the
  information requested in the forms included in
  (Bidding Forms) section..

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2-3Evaluation and qualification (cond)

• 1- evaluation describe the Adequacy of
  Technical Proposal, in case of Multiple
  Contracts, the conditions governs, Completion
  Time,
• 2- Qualification describe the Eligibility,
  financial situation, staff, experience ,
  equipments.

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2-4 Bidding forms

• letter of bid (bid form)
• Form of bid security
• Technical proposal forms (personnel, equipment)
• Bidders qualification forms as bidders data, JV
  information, Historical Contract Non-Performance,
  Current Contract Commitments , Historical
  Financial Performance, Average Annual Turnover,
  General and specific Experience,

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• See attached file

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CONSTRUCTION DOCUMENTS
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CONSTRUCTION DOCUMENTS

• Contract documents (graphic and written) describe
  the proposed construction (the Work) that
  results from performing services, furnishing
  labor, and supplying and incorporating materials
  and equipment into the construction
• Contract Forms
• Conditions of the Contract
• Specifications BOQ
• Drawings
• Addenda
• Change Orders

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A. CONTRACT FORMS

• CONTRACT FORMS
• Agreement
• Performance Bond
• Payment Bond
• Certificates

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B.CONDITIONS OF CONTRACT

• CONDITIONS OF CONTRACT
• Define basic rights, responsibilities, and
  relationships of the parties involved in the
  construction project.
• 2 types General Conditions and Supplementary
  Conditions
• GENERAL CONDITIONS
• General clauses that establish how the project
  is to be administered.
• Contain basic expressions of rights, duties, and
  limitations of the entities involved.
• Usually in the form of published standard
  documents that include principles common to most
  construction Contracts.
• SUPPLEMENTARY CONDITIONS
• Modify or supplement general conditions as need
  to provide for requirements specific to a
  project. They are not standardized documents and
  are prepared for specific project needs.

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A.1 Agreement

• The written document signed by the owner and the
  contractor that is the legal instrument binding
  the parties to the contract.
• Defines the relationship and obligations
  between owner and contractor.
• The agreement is quite brief and appears to
  consist mostly of statements of fact, whereas the
  general conditions section deals primarily with
  matters that pertain generally to be construction
  work and the persons involved.
• In other words, the agreement appears to consist
  of statements and the general conditions appear
  to be terms, or conditions.

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Agreement (contd)

• The agreement should contain
• The names of contracting parties
• A brief description of the work
• A list of contract documents, including
  agreement, general conditions, drawings, and
  specifications.
• The contract sum, or amount (lump-sum contract)
• The procedures for payment
• The contract time, or dates for start and
  completion
• The signatures of contracting parties and
  witnesses
• International construction documents are also
  often based on industry-prepared standard forms.

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AGREEMENT FORM

• A number of organizations prepare recommended
  standard general conditions and associated forms.
  Such as
• ENAA (Engineering Advancement Association of
  Japan)
• FIDIC (International Federation of Consulting
  Engineers)
• ICE (Institute of Civil Engineers, United
  Kingdom)
• JCT (Joint Contracts Tribunal)
• SEE ATTACHED WORD FILE FOR EXAMPLES

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A.2 .Bonds / Guarantees FORMS

• 1- PERFORMANCE BOND / security
• The Contractor, upon receiving the Letter of
  Acceptance, shall obtain and provide to the
  Employer before signing the Contract, the
  Performance Guarantee in the value of ten percent
  of the Contract Sum, as a guarantee of the proper
  execution of the Works in accordance with the
  Contract. This guarantee shall be issued by a
  licensed bank or financial institution acceptable
  to the Employer. The guarantee shall be prepared
  in the form included in part B of these
  conditions. The obtaining of such guarantee
  shall in all respects be at the expense of the
  Contractor.The Performance Security shall be
  provided to the Employer no later than the date
  specified in the Letter of Acceptance and shall
  be issued in an amount specified in the PCC
  (particular conditions of contract), by a bank or
  surety acceptable to the Employer, and
  denominated in the types and proportions of the
  currencies in which the Contract Price is
  payable.
• The Performance Security shall be valid until a
  date 28 days from the date of issue of the
  Certificate of Completion in the case of a Bank
  Guarantee, and until one year from the date of
  issue of the Completion Certificate in the case
  of a Performance Bond.
• In general , it is 10 of contract value
• Defect liability
• CERTIFICATES
• Includes certificates of insurance, certificates
  of compliance with applicable laws and
  regulations.

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Advanced payment bond

• Provide a guarantee that subcontractor, material
  suppliers, and others providing labor, material
  goods, and services to the project will be paid.
• The Employer shall make advance payment to the
  Contractor of the amounts stated in the PCC by
  the date stated in the PCC, against provision by
  the Contractor of an Unconditional Bank Guarantee
  in a form and by a bank acceptable to the
  Employer in amounts and currencies equal to the
  advance payment. The Guarantee shall remain
  effective until the advance payment has been
  repaid, but the amount of the Guarantee shall be
  progressively reduced by the amounts repaid by
  the Contractor. Interest shall not be charged on
  the advance payment.

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Advanced payment bond (contd)

• The Contractor is to use the advance payment only
  to pay for Equipment, Plant, Materials, and
  mobilization expenses required specifically for
  execution of the Contract. The Contractor shall
  demonstrate that advance payment has been used in
  this way by supplying copies of invoices or other
  documents to the Project Manager.
• The advance payment shall be repaid by deducting
  proportionate amounts from payments otherwise due
  to the Contractor, following the schedule of
  completed percentages of the Works on a payment
  basis. No account shall be taken of the advance
  payment or its repayment in assessing valuations
  of work done, Variations, price adjustments,
  Compensation Events, Bonuses, or Liquidated
  Damages.

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Defect liability Security

• After primary taking over, 5 guarantee is
  submitted to employer for defect liability, valid
  for 365 days or as stipulated in PCC.

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INSURANCE Certificates

• Insurance for Works and Contractors Equipment,
• Insurance against Injury to Persons and Damage to
  Property ,
• Insurance for Contractors Personnel

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General Conditions of contract

• The conditions are intended to govern and
  regulate the obligation of formal contract.
• Although the headings and topics included within
  different sets of GCC vary, there is a certain
  similarity of subject matter

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Contents of GCC

• Definitions
• Contract documents
• Rights and responsibilities of owner
• Duties and authorities of engineer
• Rights and responsibilities of contractor
• Sub-contractor, Separate contractors
• Time
• Payments and completions
• Changes in the work
• Protection of persons and property
• Insurance and bond
• Disputes
• Termination of contract
• Miscellaneous provisions