4.3. CONTRACT DOCUMENTS Many industries, government departments and agencies have devel- oped their own approach to the form and nature of typical contracts and contract documentation. As a result, experienced contractors, who are used to bidding on the general format of the contract documents, do not read every word about every condition/informa- tion. Contract documents for a construction project is to be developed based on a joint effort by the designer, owner and manager: Bid package make-ups will vary depending on owner requirements and on designer and management procedures. A typical contract package might consist of ‘the items as given below: (a) Invitation to bid. Generally, the invitation to bid gives, the ‘requirements and procedures for a responsive bid and gives additional information: pertaining to the contract itself. / (Bid orm. The bid form.is completed and signed. by the bidderSTRUCTION ENGINEERING AND MANAGEMENT 26 CONS and states the terms of his offer. Information commonly submit- ted in the bid form may include : ined plans, specifica- at the Bidder has exam! tions and the job-site location. The amount of comps to be received for the work performed or offered by the bidder. The amount of liquidated damages if applicable. A statement that the bidder agrees to execute a contract if his bid is accepted. (i) An agreement to submit a performan if required. (iii) Overhead and profit percentages applicable to extra work. - Bid alternates, if applicable. ments for the completion of the contract or the of the work. There could (i) A statement thi ee ce and payment bond, (iv) Requires duration required for the completion be some special provisions applicable,. (c) Bid breakdown. The bid breakdown is filled in by the bidder, and it gives the individual price components that will add up to the total contract price. This breakdown may later guide progress payments. (d) Construction contract. A sample contract is included to inform Prospective bidder of the type of the contract each will be expected to sign if his executed proposal form i expect props rm is accepted by the (©) General conditions. The general conditions u: eral c ; sually are part of the specifications; they stat iti i specification y state conditions applicable to all contracts to (f) Special conditions. The special conditi fal c¢ a Hons are a part specifications and they set forth specific conditions a Hea o the particular contract or group of contracts to be awarded. ° (g) Work included in contract. This secti contract, ction may designat. i of a standard specification applicable to the particular cocnnens be anontel. ‘cular contract to (h) Work not included in con k tract. Certain provisios t ; ns specification may not be applicable to the contract t re coer These provisions are included in this section.” "4°¢- (i) Specifications, addenda and drawi 7 . lrawings. . and quality of the work. e the scope, extent (j) Supplemental isi i provisions. They may includ iti : le addi i sulted or incision inthe special conditions, such ae dentin f ngiatatus of the professional, construction maser P’ ‘8 wage rates, if applicable. ere meneCONSTRUCTION CONTRACTS AND SPECIFICATIONS 27 (k) Owner furnished, items. Certain items are to be furnished to the contractor by the owner/others. These are included in this section. It may include varied items such as materials and equipment, temporary utilities, storage areas, water and sanitation facilities and survey controls. ()) Construction schedule. This section shows scheduled milestones and overall completion requirements for the particular contract being bid and provides an overall schedule showing general relationships between work packages and design activities. 4.4, TYPES OF CONTRACT Various methods on alternatives that are used in the construction industry either in part or in whole consist of different approaches to contracting for services or production or different set-ups created. This is due to different relationships existing between the owner, ultimate user, or occupant and contractor. Depending upon the size’ and complex nature of the job, these methods may be modified to suit the requirements. A summary of different methods for implementing construction would include the following basic approaches and contracting procedures. (2) Lump-sum Contract : This is a traditional method in which a construction project is implemented. The owner, having retairied an Architect/Engineer, has a set of definitive documents consisting of design plans and specifications prepared, defining the scope of work required. It is the Architect/Engineers (A/E) function and profes- sional responsibility to define such requirements in the documents prepared by him. It is necessary that these documents must be complete in all detail and project definition, to make it possible for the owner to seek lump-sum bids and also for the contractor to know the situation. This procedure has several advantages. They are : (i) Before the start of construction, the total construction cost is defined and a definite contractual commitment between the owner and the contractor is established. (i) Contractual relations between all parties, owner and A/E; owner and contractor are clearly defined. (iii) Project scope and limits are defined prior to the start of construc- tion. (it) Best price for work obtained through competitive process with cost of work established and agreed upon. The definitiveness of lump-sum contract makes it the established ™ethod of contracting and in many instances the only method Utilised, because of the statutory requirements, There are however, distinct disadvantages which cannot be ignored. They are () The lack of time flexil ity in this method may result in delayedUCTION ENGINEERING AND MANAGEMENT may further lead to increase in cost 1 ands proficiency and competence of the ap- her methods because all decisions relating to Pe terial and systems are made and fixed during the design stage. With other methods allowing more flexibility, it 1S easier to implement changes or revisions to effect cost reduction or nec- essary modifications to the initial design concept during later stages of work, whether design or construction. (b) Cost Plus Fixed Fee Contract : All costs within predetermined yardsticks or in accordance with specific regulations are Yeimbursed by the owner to the contractor; apart from this, the contractor is paid a fixed sum which represents profit (his fee). of contract award. The This sum is established at the time variation on the lump sum fee is the percentage fee wherein the fees is established as a percentage of the total cost incurred by the contractor to create the facility. Although, the initial scheme may be arrived at by using percentage calculation, it is normally 28 CONSTRI project implementation which due to escalation. (ii) This method dem: pointed A/E than ot set as a fixed sum. (c) Cost Plus Bid fee Contract : In this method also, the costs of construction are to be reimbursed as incurred within predeter- mined yardsticks. In this method, however, in lieu of negotiating the fee or profit with one contractor, an owner will issue a request for proposals to a select number of contractors, all of whom he believes are in an equal or at least similar position to build the required facility; or possibly he may include the fee to be charged among several factors including capability, past experience and performance in the evaluation of the contractors from whom the successful one is selected. The bid fee then is established prior to contractor selection and is incorporated in the cont Pe tween the parties. Naturally, in order to quote a fe it i calculated on the basis of what is established at the reoknv evyre whether from a complete set of bidding documents, aeaith lamp sum, or from a general description of project arnt nd scope if design parameters remain to be fixed. sehen (d) Guaranteed Maximum Contract : Thi 3 ; a : This method is ofte either a direct substitute for a lump-sum or cost-plus or oa : fication of either contracting system. No owner wishes or is ‘i fl eae to issue a blank check for building a new facility; all Re ildings, improvements, maintenance or repairs are , , in s, epairs are " a within epee ee budgets. If the budget is eeasied propriations must be sought. In mi i t budgets are final cost ceilings and if cost increaves dish ett n igs and if cost increases duri i and construction are identified, the scope must be crate Sie teduced to effect cost sharings. ieCONSTRUCTION CONTRACTS AND SPECIFICATIONS (e) 29 Prior to the start of construction, the con pr em cotati he ener att maximum or guaranteed price agreed upon. If the ceiling is exceeded, the excess cost is borne by the contractor unless there has been an increase in the scope of the project, in which instance, a change order would be issued reflecting the cost adjustment, as it would under the lump-sum form of contract. Conversely, if the work is accomplished below the ceiling, the owner pays no more than actual costs incurred. Many times, this method is utilised to provide an incentive; if the costs are less than the agreed upon ceiling, the savings are shared by owner and contractor 2” a predetermined ratio. This method of contracting usually gives the owner greater flexibility. The need for flexibility is usually twofold, for purpose of time and lack of definition of project requirements. Negotiated Contract (Competitive and Noncompetitive) : There are many elements common to cost plus method and this tradi- tional method of contracting, but the negotiated contract is often classified separately. The end result of the negotiated contract can be any form of contracting previously described, lump-sum or cost-plus. It is however, dependent: upon plan development status or specific owner or project requirements. A typical situation might encompass.a preselected list of contractors being invited to submit proposals describing : * Capability of past experience in specific area (similar to qualifications considered in selection of design professional) * Availability of personnel to accomplish work within required time frame. * Estimate (or bid) price. * Proposed method of compensation including amount of fee. The above factors would form the basis of selection of one contractor, leading to negotiation of the contract including method of payment for the work. Again, depending upon the circum- stances, the option exists for selection on a competitive basis from a limited and preselected group of contractors or negotiation on a noncompetitive basis. Unit-price Contract : This type of contract is based on estimated quantities of the items involved in the work. The cost per unit of each item is bid by the contractor and the estimated quantities of these items-aré given by the owner. The works are carried out in accordance with the contract documents. The total sum of monéy paid to the contractor for each item of work cannot be determined until completion of the contract, because payment is ydde only on the basis of the units of the work actually done andao CONSTRUCTION ENGINEERING AND MANAGEMENT measured in the field. As a result, the total cost of construction can be determined by the owner only after the comp Buon the project. The contractor is obligated to perform the ties of the work actually required in the field at his quoted Wi Prices, whether they are greater or less than the owner's estimates. This method is also called K-2 form of contract. “Ih unit price contract, there is a disadvantage. The tendancy among the contractors is the request for a clause, wherein, if the quantities of any item exceed the estimated one, then there should be a percentage increase in the unit price of that particular item. This clause, if introduced, will to some extent, aid the contractor whereas, it will make it more difficult to forecast the project cost. (g) Design Build : As the term implies, this approach establishes a single administrative, management and professional responsibil. ity for the two separate functions of design and construction. The owner enters into one agreement for both. The method of con- tracting can be any of the traditional methods or modifications previously described. A very simple form and example of this approach is the purchase of a new residence. The owner knows his basic require- ments and types of finishes. His requirements are tailored to his budget and then he enters the market-place to seek his product. The market is able to respond by offering a predesigned and standard facility which a contractor can utilise and modify to meet the prospective owner’s requirements. If a predesigned or standard structure does not meet the requirement, the contractor may modify the plans during construction based upon his know- how and experience or may retain a professional Architect/ Engineer to prepare the design and incorporate the revisions in the plan. This method can also be used to obtain comparative designs and construction approaches from separate teams or groups. This method can be utilised by seeking competitive proposals to meet an owner's pre-established criteria within the pre-established budget. Such proposals will be utilised to establish final design criteria and total project requirements, a (h) Turn-key contracts : As with the design-bui : ac ; ign-build method, turn-k construction utilises a single contract for all fanetinns, There is one administrative, management and ;CONSTRUCTION CONTRACTS AND SPECIFICATIONS 31 required to enable an owner to turn the key (open the door) and start operating his newly developed and acquired facility. The term ‘turn key’, although, broadly and variedly used within the industry, specifically encompasses the single-contractor respon- sibility to render and perform all services to bring a plant on line or facility ready for production. The turn-key contractor, however, has a direct financial interest in the work and final product. He is in the business to build the facility. The cost of construction is the largest single cost incurred in the development of a facility from time of inception to start the operation. The capability of a company in this type of contract is not only technical but also includes financial resources that enable a single company to assume multi-million dollar commitments. Although the owner or ultimate consumer, as the beneficiary of the work to be accomplished, will eventually pay for all costs, interim financing or even arranging financing can be part of the turn-key function and service.