Project Delivery Systems

Lecture 2
Learning Objectives

• Understanding how a designed project is built by looking at the

available options for contractor compensation and delivery method.
• Exploring how an owner’s choice for a compensation mechanism and
delivery method involves allocating risks between the parties and
possible tradeoffs between cost, timing, and quality.

© 2015 Cengage Learning Engineering. All Rights Reserved. 2

Compensating Contractor Work
• Fixed-price contracts.
• Cost Plus contracts.
• Cost plus fee contracts.
• Guaranteed maximum
price.
• Unit Pricing.
• Construction Management
(Agency & At Risk)
• Design/Build

© 2015 Cengage Learning Engineering. All Rights Reserved. 3

Fixed-Price Contracts
• Almost all risks that make • Potential advantages for owners:
performance more costly than • Higher budget certainty, as long as
planned fall on the contractor. complete and clear plans are available.
• Owner does not need to monitor
• But, some clauses may shift some of contractor cost records as closely.
that risk from the contractor: • Potential disadvantages for owners:
• Price escalation clauses. • Adversarial system where contractors
• Differing site conditions clauses. have incentives to seek profits at the
• Clauses that consider design changes. expense of quality.
• Incentive clauses. • Higher price as contractors take into
account risks that fall on them.

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 Fixed-Price Contracts
• CCDC 2 – 2008 Stipulated Price Contract
• Standard prime contract between Owner and prime
Contractor to perform the required work for a single, pre
determined fixed price or lump sum, regardless of the
Contractor’s actual costs.
• CCDC 2MA – 2016 Master Agreement and Work Authorization
• CCDC 2MA is developed to meet the needs of Owners with an
on-going construction or maintenance program: to enter into
specific work arrangements quickly and easily, without having
to review and re-negotiate general terms and conditions for
each work order.
• The Master Agreement is a contract form between Owner and
Contractor that is applicable for a defined period of time and
is intended to establish contractual terms and conditions
(excluding scope, time and cost) for multiple projects during
that time period.
• Each project will be ordered by means of Work
Authorizations, that define the project specific requirements
like scope, price, time.

© 2015 Cengage Learning Engineering. All Rights Reserved. 5

Cost Plus Fee
• Contractor is paid costs plus an additional amount for
overhead and profit.
• Additional amount could be a percentage of construction
costs or a fixed fee.
• Possible negotiation if a substantial change in the scope
of work occurs.
• Typically for experimental designs, new materials,
unusual sites, unfinished designs.
CCDC 3 – 2016 Cost Plus Contract
• Standard prime contract between Owner and prime
Contractor to perform the required work on an actual-
cost basis, plus a percentage or fixed fee which is
applied to actual costs.

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Cost Plus Fee: Advantage/DisAdvantages
• Potential advantages for owners:
• Costs may be lower than fixed price because of favorable risk allocation on
contractors.
• Protections under best efforts/fiduciary duties, as well as contractor duties of
good faith and fair dealings.
• Potential disadvantages for owners:
• Uncertain final project cost.
• Insufficient incentives for the contractor to control or reduce costs.
• Higher administrative costs on owner.

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 Cost Plus w/Guaranteed Maximum Price

• Combines advantages of cost contracts

and fixed price contracts.
• Improved total cost certainty.
• Common with Construction Managers
and when the design is nearly
completed.
• If design is far from complete at the time
of contracting, design or scope changes
may make it hard to enforce the GMP.

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 Unit Pricing
• Work divided into units and the
contractor is paid a designated
amount for each unit.
• Unit work should be clearly
described and capable of accurate
estimation because far-off
estimations are multiplied by the
number of units. • CCDC 4 – 2011 Unit Price Contract
• Standard prime contract between Owner and
• Must clearly specify if unit prices prime Contractor to perform the required work
include preparatory work for the for a predetermined, fixed amount for each
specified unit of work performed.
entire job. • The total price is determined by multiplying the unit
price by the actual, measured quantity of work
• Issue of inaccurate estimates for performed for each specified unit.
total number of units.
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Construction Management
• This agreement is between the owner and construction
manager.
• The construction manager (CM) provides site management,
administrative and technical services for a contract fee.
• This can be in the form of construction management for
a fee or construction management at a risk.
• The following forms the construction management team:
• Owner
• Construction Manager
• Consultants (Architect, Engineer, estimator)
• Another specialist(s)
• The team works together in order to complete the work
on time and within the budget.
• This method allows the work to start before completion
of the design. Trade contractors are contracted in
sequence of the scheduled works.
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Construction Management
• CCDC 5A – 2010 Construction Management Contract – For
Services
• Standard contract between Owner and Construction Manager for which the Work is to
be performed by Trade Contractors.
• The Construction Manager acts as a limited agent of the Owner providing advisory
services and administering and overseeing the contracts between the Owner and
Trade Contractors.
• CCDC 5B – 2010 Construction Management Contract – For
Services and Construction
• Standard contract between Owner and Construction Manager to provide advisory
services during the pre-construction phase and perform the required work during the
construction phase.
• At the outset, the Work is performed on an actual-cost basis, plus a percentage or
fixed fee which is applied to actual costs.
• The parties may agree to exercise the following options:
• Guaranteed Maximum Price (GMP)
• GMP Plus Percentage Cost Savings,
© 2015 and conversion
Cengage Learning Engineering. All into
RightsaReserved.
Stipulated Price Contract. 11
 Project Delivery:
Project Delivery
Available Methods
• Project delivery methods vary • Design-Bid- • Lean Project
based on how much control is Build. Delivery.
left with the owner, and how • Phased • Project
much of the specification Construction. Alliance.
development is completed • Multiple • Program
before bringing on a Primes. Management.
contractor. • Design-Build. • Public-Private
• Partnering. Collaboration.
• Design specifications. • Building
• Teaming
• Performance specifications. Agreements. Information
Modeling.
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Design-Bid-Build
• Traditional project delivery method.
• Design-bid-build and design-award-
build.
• The winning/awarded contractor is
referred to as the prime contractor,
and typically performs some of the
work itself and manages the rest of
the work done by subcontractors.
• The design professional may still have
site responsibilities.

© 2015 Cengage Learning Engineering. All Rights Reserved. 13

 Design-Bid-Build, Advantage/Disadvantages

• Possible advantages for owners: • Potential weaknesses:

• Selection from a wide range of design • Lack of contractor skill/input during design
professionals; stage.
• The assistance of a monitoring design • Subcontractor disputes.
professional can help to protect the • Adversarial incentives between owner and
owner’s interests, especially contractor.
inexperienced owners. • Linked set of contracts does not foster
• Completing the design before bidding project team benefits.
allows for lower risks on contractors • Managerial shortcomings of some prime
and thus lower prices. contractors.
• Subcontracting raises skill levels on
the project.

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 Project Delivery: Phased Construction
• With “fast-tracking,” construction begins
before design is completed.
• Contractor can plan for later purchases
during the design phase and lower costs.
• Earlier disbursement of construction
loans.
• Usually cost plus fee and GMP.
• Uncertainty from incomplete design.
• Possible later claims and complaints as
design is finalized.
• Greater chance of design omissions.
• Many moving parts and many chances for
delays.
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 Multiple Primes
• Owner contracts directly with
multiple specialized contractors
(subcontractors).
• Greater control for owner.
• Potentially lower prices because
more contractors can bid on
smaller parts.
• Management responsibility falls to
the owner, the CM, or the design
professional.

© 2015 Cengage Learning Engineering. All Rights Reserved. 16

Design-Build

Figure 14.3

17
Design-Build vs. Fixed Priced

Figure 14.3

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Project Delivery: Design-Build
• Increasingly popular delivery method.
• Owner provides performance specifications to Design-
Builder.
• Different relationship between owner and designer.
• Owner’s interests and “bridging.”
• Actual delivery method versus labeled delivery
method.

© 2015 Cengage Learning Engineering. All Rights Reserved. 19

Project Delivery: Design-Build
• This is an agreement in which the contractor is responsible for both
the design and construction of the project.
• The owner establishes the basic functional requirements of the project.
• This “Package Deal” has the advantage that allows the owner to enter
a single contract that, may include everything from the sale of the
land for the building site to the construction of the building complete
ready for occupancy.
• The main drawback of this “Package Deal” is that owner deals with
single entity who may not have the expert advise he needs for
guidance with respect to quality and costs.

© 2015 Cengage Learning Engineering. All Rights Reserved. 20

Design-Build
• CCDC 14 – 2013 Design-Build Stipulated Price Contract
• Standard prime contract between Owner and Design-Builder where the
Design-Builder performs Design Services and Construction under one
agreement, for a single, pre-determined stipulated or fixed price.
• CCDC 15 – 2013 Design Services Contract between Design-Builder
and Consultant
• Standard contract between Design-Builder and Consultant to perform the
design services required under a design-build contract between Owner and
Design-Builder.

© 2015 Cengage Learning Engineering. All Rights Reserved. 21

Project Delivery: Design-Build
• Potential advantages:
• Time savings through coordination between DB.
• Consolidated responsibility, particularly important for inexperienced owners.
• Potential weaknesses:
• Owner doesn’t have the support of a design professional to watch over
construction.
• Pricing risks.
• Difficulties in evaluating work and progress payments.
• Intersection with design contracts and construction contracts.

© 2015 Cengage Learning Engineering. All Rights Reserved. 22

 Project Delivery: Partnering
• Team approach in which owners,
contractors, architects, and
engineers form a relationship to
complete a single project or
group of projects.
• Based on informal or formal
agreements.
• Benefits of professional
partnering.

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Project Delivery:
Teaming Agreements
• Contract between a prime and another firm that agrees to act as a
potential subcontractor for the purposes of a bid on a federal
contract.
• Context: Primarily, federal government contracts.
• Issue: Agreements to agree versus agreements to negotiate in good
faith.

© 2015 Cengage Learning Engineering. All Rights Reserved. 24

Project Delivery:
Lean Project Delivery
• “Toyota Way” principles:
• Anyone, including lower level workers, can stop production in the face of a
defect;
• Just-in-time delivery of materials’
• Subsuming individual production units within the output of the entire project.
• Project team of owner, architect and CM or prime sign an integrated
agreement, whereby decisions are made by consensus.
• Target value design and shared risks.

© 2015 Cengage Learning Engineering. All Rights Reserved. 25

Project Delivery:
Project Alliance

• Similar to partnering and lean project delivery, but different

underlying basis.

• Also known as Integrated Project Delivery.

• Used for particularly difficult, large-scale projects.

© 2015 Cengage Learning Engineering. All Rights Reserved. 26

Project Delivery:
Program Management

• Similar to CMa, the PM performs organizational and administrative

functions for the owner.
• No responsibility for actual construction work.
• Services provided by both contractors and design professionals.
• New trend.

© 2015 Cengage Learning Engineering. All Rights Reserved. 27

 Project Delivery: Public-Private Collaboration
• Alternative project delivery methods
for public entities in response to
project financing challenges.
• Usually for very large projects.
• Public-Private Partnerships (PPPs).
• Build-Operate-Transfer (BOT).

© 2015 Cengage Learning Engineering. All Rights Reserved. 28

 Project Delivery:
Building Information Modeling
• Technology-driven organizational
model.
• Creation of comprehensive integrated
computer models of the project to aid
in oversight, planning, and design.
• Improved collaboration between
project participants.
• Seamless communication and
integration of project changes.

© 2015 Cengage Learning Engineering. All Rights Reserved. 29

Summary
• Mechanisms to compensate the contractor are underpinned by an
allocation of risks related to final project cost.
• A range of new project delivery variations have developed recently in
response to perceived problems in traditional delivery: performance
delays, divided responsibility, and complaints from subcontractors.
• However, methods continue to evolve and time will tell whether
these new delivery methods have other pitfalls or disadvantages.

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Claims and Disputes
Lecture 2B
 Claims and Disputes
• Construction projects are increasingly competitive and
complex, and delivered in a risky and sometimes
adversarial environment.
• Many construction projects face considerable claims and
disputes, along with increasing difficulty in resolving such
disputes in an effective, timely and economic manner.
• Valuable resources are diverted towards the preparation
of claims, settlement of disputes and participation in
arbitration or litigation.
• The net result is time wasted in a non-value-added effort.
 Claims and Disputes
• A claim can be defined as a request for additional
financial compensation and/or a request for a time
extension.
• Most claims are resolved at the project level by negotiation
between the parties themselves.
• A claim that cannot, or is not, resolved by negotiation at
the project level becomes a dispute.
• Unresolved claims can be adjudicated through adversarial
techniques such as arbitration or litigation, or by using less
adversarial methods such as mediation.
Typical Causes of Claims and Disputes
• The first major contributor to claims and disputes is the hesitancy to
spend effort clarifying the scope and terms of work during initial
project phases resulting in changes to design, scope, and schedule
during construction.
• The second major contributor is the unclear communication of
contract intentions causing misunderstandings regarding the risks and
responsibilities assigned to the contracting parties.
 Typical Causes of Claims and Disputes
• Typical causes of claims and disputes
that counsel and clients need to
consider include:
• Lack of project planning and
inadequate design;
• Design changes, errors, omissions,
and extras;
• Lack of coordination between project
teams/contractors;
• Changed soil/site conditions /ground
conditions;
• The combination of a fixed-price
contract and fast-tracking;
• Insufficient bid preparation time;
• Inadequate bid information;
• Underestimation, mismanagement
and/or bad workmanship by
contractors;
• Misunderstanding of contract
intentions, terms, and conditions or
contract interpretation;
• Various kinds of project delays some
of which are compensable, some of
which are non-compensable;
• Late permits;
• Weather conditions; and
• Unforeseen events such as the
current Covid-19 pandemic.
Claims and Disputes
• A good understanding of contract and negligence law helps
professionals not only in analyzing and resolving disputes but also in
avoiding disputes in the first place.
• In some situations, claims and disputes are unavoidable.
• A party can become insolvent or bankrupt and be unable to pay.
• The professions of architecture and engineering, are by their very
nature risky.
• The risks of accident, failure, financial loss, and unforeseen results
are always present.
Tort Claims in Construction
• Common tort claims in construction include:
• Negligence
• Misrepresentation
• Interference with contract or prospective advantage
• Premises liability
• Liability for hirer of independent contractor;
• Products liability

© 2015 Cengage Learning Engineering. All Rights Reserved. 38

Negligence: 4 Required Elements
• D owes a duty to P to conform to a certain standard of
conduct in order to protect P from an unreasonable
risk of harm.
• D did not conform to this standard of conduct.
• Reasonably close causal connection exists between
the conduct of D and the injury to P.
• D invaded a legally protected interest of P.

D = Defendant; P = Plaintiff.
© 2015 Cengage Learning Engineering. All Rights Reserved. 39
Elements of Negligence: Standard of Conduct
• Is a defined set of rules, principles, values, employee expectations,
behaviors, and relationships that a business considers important and
believes necessary for its success.
• Architects and engineers are held to standards for their profession, higher
than for society as a whole.
• In determining the standard of conduct, balance the magnitude of the
risk with the utility of the conduct and the burden of eliminating the
risk.
• In comparison; A code of ethics is broader, providing a set of
principles that affect employee mindset and decision-making.
• A code of conduct offers principles defining the ethics of a business,
but it also contains specific rules for employee actions and behavior.

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Elements of Negligence: Duty
• A tort can occur when, under the law, one person owes another a
duty of care but fails to fulfill that duty.
• Every person owes a duty to all other persons to use reasonable care to avoid
causing injury to them or their property.
• Intent or Negligence
• A defendant may be found liable to a plaintiff for committing a tort if the
action was (a) intentional, as in the case of a crime; or (b) unintentional but
negligent, because the defendant did not fulfill his duty of care to the plaintiff.

© 2015 Cengage Learning Engineering. All Rights Reserved. 41

This exercise is about duty and breach.
• Jane is shopping in a supermarket. She turns suddenly to say
hello to a neighbor, loses her balance and falls down,
breaking her ankle.
• Can Jane recover her medical bills, lost wages, and pain and
suffering costs from the supermarket?
• A. Yes, because the supermarket is responsible for everything
that happens in its aisles.
• Sorry, but that's not the correct answer. Please select another.
• B. No, because the supermarket didn’t do or fail to do anything
that resulted in Jane’s fall.
• B is correct. While the supermarket owes a duty of care to its customers, it
did nothing to violate that duty in this case.
This exercise is about duty and breach 2
• Jane is shopping in the supermarket. She turns the corner of the aisle
and slips on some milk that has been spilled on the floor by a
customer. A customer had reported the spill to an employee five
minutes earlier, but the manager had decided he needed all his staff
on the checkout lines and hadn’t gotten around to assigning anyone
to clean it up before Jane fell.
• Can Jane recover her medical bills, lost wages, and pain and suffering
costs from the supermarket?
• Yes, because the supermarket owes a duty of care to its customers, and it
breached that duty when its staff failed to remove a known hazard.
• Correct. The supermarket has a duty of care to act reasonably to protect its customers
from injury. Spilt milk may be unavoidable, but the supermarket is responsible for
cleaning it up promptly to avoid injuries to its customers.
Elements of Elements of Negligence:
Negligence: Causation Protected Interests

• The conduct at issue must be a • Most legal protection for physical

substantial cause of the injury. harms and harms to property.

• “Conduct is a factual cause of harm • Less protection for economic

when the harm would not have harms.
occurred absent the conduct.”
• Least protection for emotional
• Also known as “but-for” causation, distress and psychic harms
“cause in fact,” and “factual cause.” (noneconomic losses).

© 2015 Cengage Learning Engineering. All Rights Reserved. 44

Defenses to a Misrepresentation
Negligence Claim • Is a false or misleading statement or
• Assumption of the Risk a material omission which renders
• Express other statements misleading, with
• Implied intent to deceive.
• Contributory Negligence
• Common law tort rule which bars
• Key concepts:
plaintiffs from recovering for the • Intentional vs. negligent conduct;
negligence of others if they too were • Opinions vs. representations;
negligent in causing the harm
• Reasonable reliance;
• Comparative Negligence
• A principle of tort law commonly
• Material or substantial representations;
used to assign blame and award • Complicated issues in third-party
monetary damages to injured liability for misrepresentation.
parties in auto accidents.

© 2015 Cengage Learning Engineering. All Rights Reserved. 45

Interference with Contract Premises Liability: Duty
or Prospective Advantage of the Possessor of Land
• Example: a claim may arise if the • Traditional rule varied the duty
based on who comes onto land:
owner terminates a contract • Passersby
with a contractor upon the • Trespassing adults
advice of the architect. • Trespassing children
• Licensees
• Invitees
• Claim: contractor claims that the • Modern rule: possessor of land must
avoid unreasonable risk of harm to
architect interferes with the all who enter on land.
contract between the owner and • Defenses: Patent defects, scope of
the contractor. invitation, recreational use, superior
knowledge.

© 2015 Cengage Learning Engineering. All Rights Reserved. 46

Employment of Products Liability
Independent Contractors
• Defective equipment or materials.
• The general rule is that an individual is • Strict liability versus liability for
an independent contractor if the payer
has the right to control or direct only negligence.
the result of the work and not what • Modern (Third Restatement)
will be done and how it will be done.
• Generally owners are not vicariously approach.
liable for the acts of independent
contractors. • Defenses: reasonable
• “The general rule at common law is foreseeability of the harm,
that a person who employs an sophisticated users, economic loss
independent contractor will not be
liable for loss flowing from the rule.
contractor's negligence”: Lewis v.
British Columbia, [1997] 3 S.C.R. 1145
at para. 49 (Lewis).

© 2015 Cengage Learning Engineering. All Rights Reserved. 47

 Tort Remedies The Economic Loss
• Compensatory damages: Rule
• Economic and some • Concerns about
noneconomic losses; consequences of allowing
• Pain and suffering versus liability for all claims for
emotional distress. purely economic loss.
• Punitive damages: • Rule bars recovery of solely
• For intentional, deliberate, economic losses under a
almost criminal conduct; theory of non-intentional
• Deterrence function; tort.
• Judicial limits on excessiveness of • Application of the rule
punitive damages. varies by jurisdiction.

© 2015 Cengage Learning Engineering. All Rights Reserved. 48

QUESTIONS?