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Types of Contracts, Ownership, etc.

Types of Contracts, Ownership, etc. Module 05-03 Follows Halpin Chapter 5 Updated: March 11, 2003. RAT #05-03-1. Take out a sheet of paper, put you name on it, and … … List the three types of ownership and 1 advantage of each. Purpose:.

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Types of Contracts, Ownership, etc.

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  1. Types of Contracts, Ownership, etc. Module 05-03 Follows Halpin Chapter 5 Updated: March 11, 2003 CVEN 349 - Maxwell

  2. RAT #05-03-1 • Take out a sheet of paper, put you name on it, and … … • List the three types of ownership and 1 advantage of each. CVEN 349 - Maxwell

  3. Purpose: • To introduce students to the various types of construction and consulting contracts. CVEN 349 - Maxwell

  4. Learning Objectives: • Students should be able to list, briefly describe, and state the advantages and disadvantages of each of the various types of construction and consulting contracts. CVEN 349 - Maxwell

  5. Contract Environment • Contract: A set of legally binding promises. • Contract Law: What are the promises? Who made them? Are they fair to all parties? Are they Legal? CVEN 349 - Maxwell

  6. Contracting/Purchasing Strategy Increasing Dollar Cost -- >>> CVEN 349 - Maxwell

  7. Basic Types of Construction or Consulting Contracts • Lump Sum or Fixed Pricehigh reward, high risk • Time and Materials (T&M)high reward, low risk, low volume • CPFF with Unit Prices (cost plus fixed fee) low reward, low risk (unbalanced bids) • CPFF with Labor Rates (lots of variations) low reward, low risk CVEN 349 - Maxwell

  8. Lump Sum or Fixed Price • A fixed reward for a well specified object or product. (40%-100% profit is common) • Used to contract for cars, existing houses, equipment, etc. • Risk is based upon the variation in specificity of the object or product. • A monopoly business can be a “license to print money.” (Microsoft, for example) CVEN 349 - Maxwell

  9. Time and Materials • Fixed rates for an unspecified amount of labor and materials. • Used for consulting, expert witnesses, etc. • Low volume, low risk, high profit % CVEN 349 - Maxwell

  10. CPFF with Unit Prices for Physical Objects. • Most construction contracts are this type. • Cost plus fixed (or % fee) based upon unit prices for a specified quantity of units. • Low risk, low reward, high volume. • Risk is based upon variation in quantities, design errors, and construction sequence. • Unbalanced bids can lead to increased profits. CVEN 349 - Maxwell

  11. CPFF with Unit Rates for Labor and Other Direct Costs • Most consulting and or research contracts are this type. • Cost plus fixed (or percentage fee) based upon unit prices for a specified quantity of units. • Most non-construction, government contracting falls into this pattern. CVEN 349 - Maxwell

  12. Types of Purchase Arrangements in Texas • Negotiated Contracts – TXDoT Design and Other Consultants • Open Bidding – Best of Responsible – TXDoT construction, TAMU buildings • Restricted Bidding – Best of Pre-qualified – Federal $$’s pass-through contracts. • DIR Cooperative Contract – One contract, multiple buyers (agencies), single product. • GSC Catalog – Multiple contracts, multiple products, single source, multiple buyers. CVEN 349 - Maxwell

  13. Negotiated Contracts, In General • May be any of the 4-basic types. • Negotiated Design-Build contracts are common practice in the Private Sector. • Negotiated Partnering is common in Private Sector “fast track” work. TXU Mining, Mobile/Oceaneering Project • Difficult in the Public Sector because of perceived conflicts of interest. CVEN 349 - Maxwell

  14. Construction Management (CM) Contracts • Used to insulate Owner from “hassle” and risk. • If the Owner lacks construction experience and / or this is a 1-time venture, or there are multiple Owners, this is the preferred method. • They are normally, negotiated CPFF or restricted (short list) bid CPFF with a time limit of (normally) 6 to 8 years. • If products are fixed and $$’s are limited, this can be risky for the CM and Owner alike. CVEN 349 - Maxwell

  15. PAT #5.3.2 • Take out a sheet of paper, write your name and team #. • As individuals, list the basic contract types as described above. CVEN 349 - Maxwell

  16. Summary of Contracting Issues(from the Owner’s Perspective) • Take the work to be done and the general situation: construction, consulting … • Determine ownership structure: proprietorship, partnership, or corporation or public sector. • Determine appropriate type of contract: CPFF, Fixed Price, T & M. • Determine contracting process: negotiated, open bid, or restricted bid. (Reduce Risk and Cost to the extent possible.) CVEN 349 - Maxwell

  17. Summary of Contracting Issues(from the Other Perspective) • You generally have to deal with what is offered you but you can make counter offers. Offer a Fixed Price in lieu of CPFF. • You can restructure your organization to meet the challenge: A partnership of corporations? • You can structure your bid to your advantage. (Reduce risk and increase Profit to the extent possible.) CVEN 349 - Maxwell

  18. Assessment • Take out a sheet of paper and indicate the “muddiest” topic. CVEN 349 - Maxwell

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