8 Questions (cost & estimating 2)

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CSMT 442

Contracts, Bonds, Insurance, and Specifications

Lecture 2

Construction contract

 A written binding agreement between two or more people in a construction venture

 Elements of a valid contract

 Must be in legal language and include:  the date of agreement

 the parties involved and their addresses

 the name of the project and its location

 the name and address of A/E

 a list of contract documents to be attached (Specifications, drawings,..)

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Contract Documents

 1. Agreement

 2. Project Manual

 3. Drawings

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Agreement Provisions

 Scope of work

 Time of completion

 Start time

 Completion time

 Calendar days

 Date

 Liquidated damages

 Damages whose amount the contractual parties designate in the contract for the owner or injured party to collect as compensation of a breach (e.g., poor work or late completion).

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Agreement Provisions  Contract sum

 Progress payments

 Due date

 Retainage

 A portion agreed upon in each payment application or contract price (usually 5- 10%) that is withheld until the work is substantially complete to assure that contractor or subcontractor will satisfy its obligations and complete a construction project as laid out in the contract.

Agreement Provisions

 Schedule of values

 Price for specific items

 Work in place and stored materials

 How is work completed calculated?

 Does the owner pay for stored materials?

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Agreement Provisions

 Acceptance and final payment

 Final inspection

 Certification of completion

 Acceptance of the work

Contract System

 Single contract

 Owner contracts with prime contractor

 Prime contractor hires subcontractors

 A general contractor (GC) is responsible for all of the work required for the completion of a project.

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Contract System

 Separate contracts

 The owner signs separate agreements for the construction of various portions of a project.

 Owner contracts separately for:

 General construction

 Plumbing

 Heating, ventilating, and air-conditioning

 Electrical

 Specialties

 Etc.

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Types of Agreements

 Lump sum (stipulated sum, fixed price)

 The contractor reviews the contract documents and specifies a fixed price (direct costs, indirect costs, overhead, and profit) to finish the project.

 Single price for entire job

 Unit-price agreement

 A price is given for each unit of work

 Paid based on actual quantity of work

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Types of Agreements

 Cost-plus-fee

 It is often used when speed (construction must begin before the drawings and spec. are completed) and high quality have a higher priority than the desire for the lowest possible price.

 Paid for actual construction cost

 Plus a fee:

 Percentage fee

 Fixed fee

 Fixed fee with bonus and penalty

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Bonds

 Bonds are written documents that describe the conditions and obligations relating to the agreement. Under the terms of the bond, the owner is compensated for actual damages sustained from any default of the contractor.

 Surety

 Guarantees payment on another party’s obligations

 Bonding limits based upon

 Experience

 Work in progress

Bonds

 Bid Bond  If the contract is awarded to a bidder, the contractor

should enter a contract. If they fail to do so, the bidder must pay the owner the difference between his/her bid and the next lowest bid that the owner accepts and enters into a contract with. If this bidder does not pay the owner, the surety issuing the bond will pay the owner up to the amount of the bid bond. Then the surety will seek repayment of this amount from the bidder who failed to enter into the contract.

 The issuance of a bid bond does not prevent the bidder from withdrawing their bid before acceptance.

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Bonds

 Bid Bond  Ensures that if a contractor is awarded the bid

within the time specified, the contractor will enter into the contract and provide all other specified bonds.

 Are usually provided by the contractor’s surety free or for a small amount service charge of from $25 to $100.

 Are usually between 5 to 10% of the bid price

 Submitted with bid

 Guarantees the contractor can bond the project

Bid shopping and bid rigging

 Bid Shopping/peddling

 The act of getting a bid price from one vendor and/or subcontractor and sharing the number with another interested subcontractor or vendor in order to get a lower price from this second subcontractor or vendor.

 In general bid shopping (bid peddling) is considered by most in the construction industry to be unethical.

 Bid Rigging or Bid Collusion

 Describes the actions of bidders who get together to control the distribution of work among themselves by sharing their pricing and choosing among themselves who will bid the lowest number.

 This action is not only unethical but by federal and state laws is considered illegal.

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Bid depositories

 Bid depositories are usually established by associations of contractors, subcontractors and suppliers.

 It is a place where subcontractor bids are deposited by bidding subcontractors, according to a set of rules established by the depository founders, for registration and subsequent transmittal to specific bidding general contractors according to a timetable for each project related to the time and date for the latest submission of general contractor bids to the owner.

Bid depositories

 The purpose of bid depositories are:

 Ensure that sub-bids are deposited by a specified time and date to allow bidding general contractors time to review, analyze and select sub-bids prior to submission of the general bids.

 To ensure that all sub-bids are registered and recorded by officials of the depository in the names of the sub-bidders and of the general bidders to who sub-bids will be sent.

 Reduce bid shopping (bid peddling)

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Bonds

 Performance bonds

 Guarantees that the contractor will perform all the work in accordance with the contract documents

 Most commonly these bonds must be made out in the amount of 100% of the contract price.

 The rates vary according to the classification of work being bid on (0.6-2.5%)

 Includes warranty period

Bonds

 Labor and material bond (payment bond)

 Guarantees contractor will pay for:

 Labor

 Materials used or supplied to the project

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Bonds

 Subcontractor bonds

 Labor and materials bond provided by subcontractor to general contractor

 Reduces general contractor’s risk

 Preserves general contractor’s bonding capacity

Insurance

 The contractor must provide the insurance required by the contract. The insurances normally required by the contracts are:  Workmen's/women’s Compensation

 Motor Vehicle

 Builder's Risk Fire Insurance

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Insurance

 Other insurances usually carried by the contractor:

 Health Insurance

 Life Insurance

 Business Interruption

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Project Manual or Specification

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Project Manual

 Accompanies drawings (plans)

 Often referred to as specifications

 Project manual refers to the written document(s) that accompany the plans

 Specification refers to the technical specifications

 Part of project manual

CSI

 Construction Specifications Institute

 Sets standard format for:

 Project specification

 2012 MasterFormatTM

 50 divisions (0 to 49)

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Contents of Project Manual

 Invitation to bid (Advertisement for bids)

 Publicly advertized:

 Newspapers

 Trade journals

 Dodge Reports

 Engineering New Record (ENR)

 Internet

Contents of Project Manual

 Invitation to bid (Advertisement for bids)

 Describes:

 Location, extent, and nature of work

 Bid date and time

 Where to obtain documents

 Bond requirements

 Start and completion dates

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Contents of Project Manual

 Instruction to bidders (Information for bidders)

 Procedures that must be followed by all bidders

 How to submit a proposal (bid)

 Commencement and completion dates

 Bidders responsibilities (i.e. site visit required)

 Award or rejection of bid

INVITATION TO BID

Notice is hereby given that bids will be received by Centex Rooney Construction Co., Inc.

(Lic. No. CG C10034) at 2:00 p.m. on Tuesday, November 13, 2001 at Centex Rooney’s

Jacksonville office at 4651 Salisbury Road, Suite 193, Jacksonville, Florida 32256, Ph.

(904) 281-0120, Fax (904) 281-0747. The bids are for Site and Site Utilities Construction

Documents Package for the University of Florida’s Project BR-191, M.E. Rinker, Sr. Hall,

located in Gainesville, Florida. Refer to the “Instructions To Bidders” and the Project

Manual for additional information on the Bidding Process. The following Contract

Documents will be available on Monday, October 29, 2001 at Centex Rooney’s

Jacksonville office at 4651 Salisbury Road, Suite 193, Jacksonville, Florida, Ph. (904) 281-

0120, Fax (904) 281-0747 :

No. Bid Package Description

1 Demolition/Earthwork/Site Utilities/Paving

2 Site Mechanical

3 Site Electrical

All work shall be in strict accordance with the Contract Documents. Drawings,

Specifications, Instructions to Bidders, and other Contract Documents may be reviewed at

Centex Rooney’s Jacksonville office.

A Pre-Bid Conference will be held at the time and location indicated in the Instructions to

Bidders. 32

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Contents of Project Manual

 Bid (proposal) forms

 Standard form that must be submitted by all bidders

 Includes:

 Price

 Last date the proposal may be accepted

 Addenda received

 Bid security

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Contents of Project Manual

 Form of owner/contractor agreement

 Contract between owner and contractor

 May be:

 Standard AIA contract

 Company form

 Government agency form

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Contents of Project Manual

 General conditions

 Clearly spell out the rights and responsibilities of all parties.

 Conditions that apply to all aspects of the project

 May be:

 Standard AIA general conditions

 Company document

 Government agency document

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Contents of Project Manual

 Supplementary general conditions

 Geared to the specific project

 Modifies the general conditions

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Contents of Project Manual

 Specifications (technical specifications)

 Describes the required materials and equipment , construction systems, and their fabrication, quality, workmanship, and/or installation details.

 Often follows MasterFormatTM

 Division 1 - General Requirements

 Division 2 – Existing Conditions

 Division 3 - Concrete

Contents of Project Manual

 Alternates

 Request prices for alternate methods or materials of construction.

 To allow an owner a choice of what to spend money on.

 Add or deduct pricing for:

 Alternate methods of construction

 Alternate materials

 Can be awarded based upon any combination of:

 Base bid and

 Alternatives

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Contents of Project Manual

 Addenda

 Modifies the contract documents after they have been released and prior to the bid

 Important to make sure that:

 You have seen all the addenda

 Your subcontractors and suppliers have seen all of the addenda (addendum)

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Errors in the Specifications

 Errors should be brought to the attention of the architect or engineer

 Requests for clarifications of the specifications should be submitted to the architect or engineer so that the clarification can be sent to all bidders

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Contract Drawings

 Civil

 Landscaping

 Architectural

 Structural

 Mechanical, electrical, plumbing, fire protection

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