CIVL202Construction Engineering ITutorial 5

T1 Mon 11:00 – 11:50

T2 Wed 09:00 – 09:50

Tutorial Outline

Contract Environment Major Construction Contract Types Competitive Bid Contracts Lump-Sum Contracts Unit-Price Contracts Unbalancing the Bid Mobilization Bid Item Negotiated Contracts

Contract Environment

Contract: an agreement between two or more parties to do something

Courts are called to determine:

1.parties involved

2.responsibilities of different parties

3.other aspects of contract agreement

Major Construction Contract Types

Competitive Bid Contract

1.Lump-sum contract

2.Unit-price contract Negotiated Contract

Competitive Bid Contracts

Advertisement invitation of bidders selection of bidders award of contract

Contractor’s qualifications reviewed in price-ascending order

Lump-sum Contract

Quotes one price for all work and services (direct cost, indirect cost, profit)

The contractor receives monthly progress payments based on the estimated percent of the total job, so estimated percent of project completed is needed

Unit-price Contract

Progress payments are based on precise measurement of field quantities

More flexible, so contingency may be needed

A guide quantity is given to contractor to quote price, based on this guide quantity of work, the contractor quotes a unit price

If guide quantity is low, the contractor will quote a higher unit price to offset mobilization and demobilization costs

Unbalancing the bid

Income curve lags behind expenditure curve; contractor has to borrow money from the bank to finance the difference

To reduce this financing from the bank, the contractor tends to move income curve to the left

Increase the unit price for items to be consumed earlier and decrease the unit price for items to be consumed later on

Mobilization Bid Item

If owner spots the problem that the contractor tends to move the income curve leftward, the owner may ask the contractor to justify the bid

Mobilization payments: the owner finance the contractor at owner’s interest rate (because the i.r. of contractor is usually higher than the owner)

Negotiated Contracts

Based on available documentation, contractor presents its qualifications, required costs and fee to complete the job

Must clearly define reimbursable items and accounting procedures

Negotiated Contracts

Four types of cost + fee structure1.cost + percent of cost2.cost + fixed fee3.cost + fixed fee + profit-sharing4.cost + sliding fee

Guaranteed maximum priceA price that a contractor guaranteed

will not be exceeded

Sliding Fee

Fee = R (2T-A)Where

• T = target price• R = base percent value• A = actual cost of construction