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contract Management cchapter 1-6 of fourth year
- 1. Dire Dawa Institute of Technology Schoolof civil engineering and Architecture BY: Mohammednur H.
- 2. Chapter … Procurement ◼ Toprocure means to buy or obtain. The procurement stage of construction management is often referred to as “buying out” the job or purchasing the labor, materials, and equipment needed to complete the project. ◼ Procurement is a process used to select the lowest competitive and qualified bidder for procuring services or works or goods from potential competitors based on reasonable relevant criteria. ◼ It can also be expressed as a method used to employ or buy services or works or goods for the value (in the form of money) which includes reasonable profit
- 3. Chapter … ◼ Theprocurement operation can be a very simple process handled on a local basis by the superintendent, or it can be a major department or division within the construction company whereby purchases are made on a regional or national level. Some projects warrant a combination of both approaches. In the homebuilding business, for example, the very large national companies typically have procurement departments that purchase labor and materials for hundreds of homes at a time, securing the best prices available on a national basis.
- 4. Chapter … ◼ Onthe other hand, on a high-rise office complex or other large commercial project, the superintendent may purchase small quantities of miscellaneous materials, such as lumber for wood blocking from a local building supply, or hire local labor for a small contract item, such as caulking. However, larger material purchases such as steel framing might be made by the estimating, purchasing, or procurement department back at the main office. It depends on the size of the job and the size of the construction organization running the job.
- 5. Chapter … ◼ Eitherway, project procurement constitutes much of the direct cost associated with the construction project. ◼ Physical infrastructures are cost extensive and appropriate savings obtained through competition are the main factor behind the procurement process ◼ The purposes of a Procurement Management System can be summarized into two major points: To satisfy the need for economy and efficiency, To provide equal opportunity to competitive bidders.
- 6. Chapter … ◼ Aneffective and efficient procurement method ensures the following rights called the "Five Rights". These are The Right Quality,(technical expectation and economic consideration) The Right Quantity, (Take-off-Sheet Measurements and Resources Allocations) The Right Cost / Price /,(quality related and the right cost is nearby cost, achieved mainly through competition) The Right Counterpart (to guarantee that the parties shall be fit to the job) and The Right Time. (scheduling with regard to right timing is essential)
- 7. Chapter … ◼ Physicalinfrastructures are cost extensive and appropriate savings obtained through competition are the main factor behind the procurement process ❑ Procurement Management processes Procurement Preparation: Procurement Team, Tender Document, Approval of Tender Docs Tendering: Invitation, Clarification, Submission and Opening Tender Evaluation: Preliminary Evaluation, Detail Evaluation, Award of Contract.
- 8. Chapter … Tender Documents:are prepared to ❑ Instruct bidders on the procedures for the preparation and submissions of bids, ❑ Inform prospective bidders about the nature of things to be procured, ❑ Inform bidders about the criteria for evaluation and selection of the successful bidder, and ❑ lay down the contract conditions, delivery system, procurement methods and contract types of the project.
- 9. Chapter … Tender documentsinclude: ✓ Form of Invitation to Tender or Request for Proposals; ✓ Instruction to bidders (Standard and / or Particular information) or Terms of References; ✓ Prequalification Documents if necessary; ✓ Forms of Tender; ✓ Forms of Contract Agreement; ✓ General and Particular Conditions of Contract; ✓ Bill of Quantities and Drawings ; ✓ Technical Specifications & Methods of Measurement; ✓ Other Forms, Formats and Schedules.
- 10. Chapter … Invitation: Normally opentenders are floated for a period between 30 to 45 days. Limited and Negotiated tenders can be invited between 7 to 15 days. The invitation to tender shall clearly state: the owner and his desirous service or works eligibility requirements, place to get further information, where to purchase & submit tender documents, how long the tender will be floated, how should the tender offer be packed, and when and where submission and opening of tender will take place.
- 11. Bid Qualification Procedure CompetitiveBid Short-Listed Bid Open Bid Two-Stage Procedure Pre-Qualification Post Qualification One-Stage Procedure Negotiative Bid Chapter … • Financial Proposal • Technical Proposal • Financial Proposal • Financial Proposal • Technical Proposal Bidders qualification method
- 12. Chapter … Tender opening ❑The following will be carried out during tender opening:- Tender Attendee members shall take their place, be registered and shall sign to attest their presence during opening Tender box opened and checked for faulty things, Check the tender is the right one, Bids will be opened one after the other, All necessary data which deem useful will be read aloud and recorded at the opening of bids. Tender committee members shall sign on the Tender documents.
- 13. Chapter … Contract administration ◼A contract is an agreement between two parties which they intend to be legally binding with respect to the obligations of each party to the other and their liabilities. ◼ It is a written agreement between or among two or more parties whereby each party promises to do or not to do something and agrees to terms (conditions and Warranties) set out in the contract. ◼ The contract thus binds the contractor to construct the works as defined, and the employer to pay for them in the manner and timing set out.
- 14. Chapter … ◼ Ascivil engineering works are often complex, involving the contractor in many hundreds of different operations using many different materials and manufactured items, including employment of a wide variety of specialists, the documents defining the contract are complex and comprehensive. ◼ The task of preparing them for tendering therefore warrants close attention to detail and uniformity of approach, so as to achieve a coherent set of documents which forms an unambiguous and manageable contract.
- 15. Chapter … ▪ Thebasic purpose of a contract document is to define exactly and explicitly the rights and obligations of each party thereto. ▪ The Contract document comprises the full package tender documents including any addenda issued there to with the technical and financial offer of the successful bidder ◼ Contract administration is all about managing the business details and relationships. When you consider all of the General Conditions, Supplemental Conditions, and specifications associated with the contract, you can understand what a challenge this is.
- 16. Chapter … ◼ Everystatement and every clause in the contract sets forth rules, regulations, and procedures for every aspect of the construction process. Nothing goes forward without some paperwork leading the way: written requests for information, change orders, submittal logs, shop drawings, pay requests, progress reports, and on and on. Staying on top of it all is a huge task and a critical one. ◼ It is virtually impossible for one person to accomplish the job; support from the main office and the job site is required. Although one person may be the contract administrator, it takes the efforts of the entire project team to accomplish the task.
- 17. Chapter … ◼ Thecontract management plan addresses how awarded project contracts are to be administered. Due to a contract’s legal nature it is important that the project team understands the legal implications of their actions relative to project contracts. ◼ The role of the contract administrator is to make certain the contractor meets its contractual obligations, the Agency adheres to its contractual obligations, and the Agency’s legal rights are protected.
- 18. Chapter … ◼ Itis important that the Project Management Plan and the contract management plan clearly identify the roles and procedures to be followed by the project staff responsible for managing the project (delivering the project scope on time and within budget) versus the project staff responsible for administering project contracts (making certain contract parties meet their contractual obligations and protecting the organization’s legal rights).
- 19. Chapter … Types ofcontract i. The Unit-Price Contract: It is based on estimated quantities of certain well defined items of work and costs per unit amount of each of these work items. Advantages: ➢ Promotes open competition involving quantities of work that cannot be accurately forecast at the time of bidding. ➢ More transparent and easier for supervision and control. Disadvantages: ➢ Requires reasonable time and cost for the preparation of specification and detailed bill of quantities.
- 20. Chapter … ii. TheLump-Sum Contract: The lump sum contract is one in which the contractor agrees to carryout a stipulated job of work in exchange for a fixed sum of money. Advantages: ➢ The owner knows the total cost of his project in advance. Disadvantages: ➢ Limited to construction programs that can be accurately and completely described at the time of bidding. iii. Cost-Plus Contract: This designates actual cost plus additions for profit and risks depending on the mutual agreement to be reached between the parties
- 21. Chapter … ❑ Typesof cost-Plus Contract. 1. Cost-Plus Percentage of Cost Contract: This type of contract fixes percentage of the cost of construction for the profits and risks to be due to the contractor. Advantages: ➢ For an emergency nature that time is not available for the advance preparation of contract documents and for the usual bidding routine, ➢ The work entailed may be such that no one can ascertain what difficulties will be encountered. Disadvantages: ➢ It doesn’t urge the contractor to maintain and practice strict economy in the interests of the owners
- 22. Chapter … ◼ 2.Cost-Plus Fixed Fee Contract: A popular type of cost-plus contract is one in which the contractor’s fee is established as a fixed sum of money. Advantages: ➢ Time saving in the preparation of contract and bidding document. ➢ Expedition of work is desirable from the view point of freeing labor and equipment for other contracts. Disadvantages: ➢ The contractor should work in a diligent manner and failure to do so will cause additional office, overhead expense to be incurred for which he is not reimbursed.
- 23. Chapter … iv. LaborContract: When the Project owner is responsible for the provision of major resources such as materials and Equipment other than labor, small tools and equipment and their management, it is called a labor contract. v. Sub Contract: This type of contract is made when specialized works are involved in the project package or if the Project Owner envisaged other tangible as well as intangible benefits by using such a contract type. Competitive and Comparative advantages can be sought using such a contract type and they are forms of outsourcing and alliances delivery systems.
- 24. Chapter … Project DeliverySystems ◼ Contract or Project Delivery System is the way Project Owners together with Project Regulators and Financiers determine the assignment of responsibilities to Project Stakeholders along the Construction Process. It is often determined during the Basic Planning phase of the Construction Project. ◼ Whatever delivery strategy the owners selects, it is important that they , through the project manager, retains the ultimate authority and accountability for the effective management of the project.
- 25. Chapter … ◼ Aproject delivery strategy determines the: ➢ Work done by the Agency and the work that is contracted out to consultant and/or construction contractors ➢ Degree of control the Agency maintains over how the work is done and the control transferred to contractors through contracting out ➢ Assignment of risks associated with the project work undertaken by the Agency and contractors
- 26. Chapter … ◼ Procurementand Contract Delivery system is often determined during the Basic Planning phase of Construction Project. ◼ Project delivery systems are basically classified in to two broad areas: ➢ Force Account; and ➢ Outsourced.
- 27. Chapter … Force account ◼When the project owners engage themselves to undertake the project, it is called a force account delivery system. This system is promoted for • Comparative advantage of cost, quality and time • Scale of projects and technology (large, small) • Remote projects • Scattered and maintenance projects
- 28. Chapter … ◼ Mostof the project delivery methods/systems are found under the category of outsourcing. ◼ The following are some of them: ➢ Design Bid Build (DBB), ➢ Design Build (DB) or Turnkey, ➢ Build Operate transfer System (BOT), ➢ Construction/Facility Management Consultancy ➢ Alliances and Outsourcing.
- 29. Chapter … Design-Bid-Build ◼ AfterProject Owners did prepare the Basic Planning that identifies construction project programs, they call upon the participation of Design and/or Supervision Consultants. ◼ This Consultant will carry out the design together with the necessary tender documents which will be the basis for tendering to select Contractors. ◼ Contractors then participate on the tendering/bidding process and provide bid price.
- 30. Chapter … Advantages Contractorsbid competitively ,based on complete design documents to maximize the built product for the price The owner selects the Designer on the basis of qualifications or ability The Designer is active in construction administration, so design intentions are followed. Design and construction roles are clearly defined, and responsibilities and liabilities clear. Owner is an active participant in design process.
- 31. Chapter … Disadvantages ◼ Fragmentedcontract for the project owner ◼ Project owner responsibility for risks associated with the design and contract administration ◼ Design-Bid-Build construction phases are sequential and may require more time ◼ Disputes between parties ◼ Owner is at risk for final construction cost. Actual construction costs are not known until design and bidding are complete.
- 32. Chapter … Design Build/Turnkey ◼Design Build or Turnkey, in principle, reduces numbers of procurement processes engaged in the fragmented process and employ only one procurement process and a single contractor to provide the entire Construction Implementation Process (Design & Construction Implementations) ◼ In this arrangement both the design & construction liability rests with the Contractor. Single contractor to provide the entire Construction Process (Design and Construction Implementations)
- 33. Chapter … Advantage ◼ Reducingfragmentation and adversarial relations between designers and constructors; ◼ minimizing Project owners’ risk transferable due to Designers’ faults; ◼ accountability and entire responsibility for both design and construction is onto a single contractor; ◼ employers’ responsibility to co-ordinate is avoided; ◼ single point responsibility minimizes the opportunity to claims
- 34. Chapter … ◼ theclient budget or financial requirement is defined early enough ◼ Cost certainty and Accelerated project Disadvantage ◼ Limiting competition; ◼ High tendering costs; ◼ New method & unfamiliarity; ◼ Client needs quicker decision making; ◼ loss of control
- 35. Chapter … Build -Operate – Transfer(BOT) ◼ Build - Operate – Transfer(BOT) is a form of procurement and contract delivery system that promotes Public Private Partnership (PPP) in which a private company is contracted to finance, design, construct, and operate for a certain period (usually 10 years) and transfer. ◼ the project owner is not responsible for any liability other than force majeure and agreed upon claim adjustments. ◼ The Operation period between completion and transfer gives the contractor an opportunity to verify the quality of the output of the services and works
- 36. Chapter … Advantages ◼ Itminimizes owners’ scarcity of financial resources; ◼ It devoid of considerable risks from the project owners ◼ the facility is well operated and transferred with free of charge or minimum compensations to project owners. ◼ Integrates the process of design, construction, operation, and maintenance. ◼ Projects completed faster
- 37. Chapter … Disadvantage ◼ Costmore in the long run ◼ Longer tendering process ◼ Costly tendering ◼ Future political change may disrupt prior agreement ◼ No capable local contractors ◼ Contractors not interested in all works
- 38. Chapter … Construction/Facility ManagementConsultancy ◼ Construction management consultancy firm is used to coordinate all activities from concept inception through acceptance of the facility. ◼ Facility management consultancy adds operation of facility during operation to Construction Management Consultancy. ◼ CM is involved in the whole construction processes where as all the others involve only during the implementation phase after major decisions was made during the Basic planning phase
- 39. Chapter … ❑ ConstructionManagement Consultants then represents Project Owners to carry out the following services: ◼ Feasibility studies of Construction related services ◼ Plan and Monitor the Triple Constraints of Project Performances ◼ Lead and Organize regulatory systems of the Construction Industry ◼ Valuation, Quantity Surveying and Procurement and Contract Management Services
- 40. Chapter … ◼ Thegeneral Construction Management variations are: ➢ Construction Management-at-Fee (CM at-Fee) and ➢ Construction Management-at-Risk (CM-at-Risk), ❑ CM-at-fee is a delivery method similar to the DBB ◼ In CM-at-fee method, the construction manager is responsible for project and site management, but is not involved in actual construction work. ◼ The construction manager monitors cost, time, quality and safety, but does not take responsibility for them.
- 41. Chapter … ◼ Theconstruction manager is paid a fixed or time based for services provided ◼ The construction management organization takes an advisory role or role of an agent to the client ◼ The CM has limited risk because construction contracts are between the owner and individual contractors.
- 42. Chapter … ❑ Advantagesof CM at-Fee: ➢ Managing and administering all phases of a project. ➢ Treats Planning, Construction and Design, as an Integral Task. ➢ Cost and Schedule Control ➢ Constructability input at design stage ❑ Disadvantages of CM at-Fee ➢ No contractual responsibility for outcomes of a project ➢ Client retains the risks ➢ Additional cost for the Construction Manager
- 43. Chapter … ◼ InCM-at-risk, the construction manager, apart from providing constructability inputs at the design stage, is also responsible for construction means and methods and delivery of the completed work, including quality and performance of the asset. ◼ All procurement in the project is done by the construction manager, owner contracts with the designer and the construction manager-at-risk, ◼ construction manager-at-risk contracts with the subcontractors. But, still, the client retains the final decision in project delivery
- 44. Chapter … ❑ Advantagesof CM at- Risk ➢ Good for clients with insufficient staff ➢ Owner flexibility ➢ Responsible for cost and time overruns ➢ Constructability design review ❑ Disadvantages of CM at-Risk: ➢ Lack of capable construction managers ➢ Demanding work organization ➢ Lack of cost certainty for each work packages ➢ Lack project managing/ administration
- 45. Chapter … Partnering, Alliances Thisis a method where an owner/developer and a contractor agree to work together by freely sharing resources, risks and knowledge during the course of the project It mostly focuses on management of relationships and value adding to ensure quicker, cheaper and quality services and products with less disputes are recent developments. These systems require to overcome cultural and behavioral barriers among interest groups and control motivated performance based management
- 46. Chapter … ❑ Theadvantages of partnering are ➢ increased opportunities for cost saving by continual improvement, ➢ lack of an adversarial atmosphere, ➢ cultivation of good public relations and increased prospects of repeat business, ➢ incentives for innovations and improved cost, time and quality outcomes. ❑ However, partnering is not an easy solution. It requires commitment, discipline and trust and can demand significant adjustments in the relative, traditional positions of an owner/developer and a contractor.
- 47. Chapter … Considerations whilechoosing delivery systems ◼ Choice of project delivery methods can be based on different factors. Project Administration method and source of finance mostly affect our selection. ◼ If the goal is to seek traditional or segmented delivery methods, then the client would consider the following delivery methods: ➢ Design-Bid-Build (DBB) ➢ Construction Management (CM) at fee.
- 48. Chapter … ❑ Ifthe goal is to seek integrated delivery methods, then the client would consider the following delivery methods. ➢ Design-Build (DB) ➢ Construction Management (CM at-Risk) ➢ Design-Build-Operate-Transfer (BOT) ❑ And if the intention is to seek direct project funding, the owner may consider the following options: ➢ Design-Bid-Build (DBB) ➢ D-B (Design-Build) ➢ Construction Management (CM) at fee and at risk.
- 49. Chapter … ◼ Ifthe goal is to seek external financing (indirect funding), then the client would consider the build- operate-transfer (BOT ).
- 50.