contract Management cchapter 1-6 of fourth year

Dire Dawa
Institute
of Technology
School of civil engineering and
Architecture
BY: Mohammednur H.

Chapter …
Procurement
◼ To procure 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

Chapter …
◼ The procurement 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.

Chapter …
◼ On the 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.

Chapter …
◼ Either way, 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.

Chapter …
◼ An effective 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)

Chapter …
◼ Physical infrastructures 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.

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.

Chapter …
Tender documents include:
✓ 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.

Chapter …
Invitation:
Normally open tenders 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.

Bid Qualification Procedure
Competitive Bid
Short-Listed Bid Open Bid
Two-Stage Procedure
Pre-Qualification Post Qualification
One-Stage Procedure
Negotiative Bid
Chapter …
• Financial Proposal
• Technical Proposal
• Technical Proposal
Bidders qualification method

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.

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.

Chapter …
◼ As civil 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.

Chapter …
▪ The basic 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.

Chapter …
◼ Every statement 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.

Chapter …
◼ The contract 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.

Chapter …
◼ It is 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).

Chapter …
Types of contract
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.

Chapter …
ii. The Lump-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

Chapter …
❑ Types of 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

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.

Chapter …
iv. Labor Contract: 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.

Chapter …
Project Delivery Systems
◼ 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.

Chapter …
◼ A project 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

Chapter …
◼ Procurement and 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.

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

Chapter …
◼ Most of 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.

Chapter …
Design-Bid-Build
◼ After Project 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.

Chapter …
Advantages
 Contractors bid 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.

Chapter …
Disadvantages
◼ Fragmented contract 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.

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)

Chapter …
Advantage
◼ Reducing fragmentation 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

Chapter …
◼ the client 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

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

Chapter …
Advantages
◼ It minimizes 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

Chapter …
Disadvantage
◼ Cost more 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

Chapter …
Construction/Facility Management Consultancy
◼ 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

Chapter …
❑ Construction Management 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

Chapter …
◼ The general 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.

Chapter …
◼ The construction 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.

Chapter …
❑ Advantages of 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

Chapter …
◼ In CM-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

Chapter …
❑ Advantages of 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

Chapter …
Partnering, Alliances
This is 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

Chapter …
❑ The advantages 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.

Chapter …
Considerations while choosing 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.

Chapter …
❑ If the 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.

Chapter …
◼ If the goal is to seek external financing (indirect
funding), then the client would consider the build-
operate-transfer (BOT ).

contract Management cchapter 1-6 of fourth year

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contract Management cchapter 1-6 of fourth year