Thoughts for the Day

1. Thoughts for the Day • A great leader comes along about once in a generation and great problems come along about three times a week • Most people who succeed in the face of seemingly impossible conditions are people who simply don’t know how to quit. • Robert Schuller

2. Con 371 Project Management and Safety Contracts, Bid, and Award 29 August, 2001

3. Project Execution • Type of Project Delivery helps determine contract approach • Amount of information • Type of Proposal • Type of Contract • Development of project documents • Design Drawings • Proposal • Contract

4. Fixed Price Lump Sum Bid Negotiated Multiple Fixed Price Unit Price Cost Type Reimbursable Cost Plus Percent Cost Plus Fee Guaranteed Maximum Price Target Price Contract Types

5. Degree of Definition Economic Conditions Competitive Situation Anticipated Changes to Scope Schedule Importance Total Cost Importance Quality Importance Contracting Strategy

6. General Contractor Negotiated Lump Sum/Fixed Price Construction Manager CM as Advisor CM/GC CM as Agent Contracting Approach

7. General Contractor • Usually self-performs work • Holds subcontracts • Assumes risk/reward of buyout • Performs minimal management services

8. General Contractor • Lump Sum - Fixed Price • holds subcontracts • assumes risk/reward of buyout • requires fully developed documents • Negotiated • holds subcontracts • owner usually assumes risk/reward of buyout • common for fast track • usually open-book

9. Construction Manager • Performs Extensive Management Functions • May/may not hold subcontracts • Owner Assumes Risk/Reward of Buyout • Usually open book • May/may not self-perform (CM/GC)

10. Construction Manager Usually Negotiated Contract • Guaranteed Maximum Price • Cost Plus Fixed Fee • Cost Plus Fee with a Target Price

11. Project Fee • Fee is the contractor’s return on his/her investment and his/her reward for assuming risk • Although attractive, low fees can endanger project success: • attract lower caliber firms • less contractor commitment to success of project • less experienced personnel assigned to project

12. Project Fee • Most effective way to reduce fee is to reduce risk • Contingency built into all estimates based upon adequacy of documents • Often performance incentives based on project goals are used

13. Contracting ApproachType of Contract Hard Bid - Fixed Price • Exposes contractor to most risk • Fee and contingency usually high

14. Fee Basis Percent of Cost Fixed Fee Risk - Fee Relationship G M P Cost Plus Fixed Fee Cost + Fee +Target Price Incentives Contracting ApproachType of Contracts

15. Fee Basis Percent of Cost • fee is expressed as simple percent of total construction cost Disadvantage: • fee varies directly with cost of the work = little incentive for contractor to control cost

16. Fee basis Fixed Fee • fee is expressed as a fixed dollar amount Disadvantage: • If final cost of work is substantially higher than the original it could be detrimental to the contractor • if substantially lower detrimental to the owner

17. GMP • Contractor prepares an estimate based on documents and issues a Guaranteed MaximumPrice for the project • Also known as Not To Exceed price • Exposes contractor to risk of exceeding GMP

18. Cost Plus Fixed or Percentage Fee • Contract based upon final cost of work as determined at completion plus fee • Contractor does not offer cost guarantee = reduced risk

19. Cost + Fee +Target Price • Contractor fixes cost of project as in GMP and makes good faith effort to meet price • Works well when contractor and owner have existing relationship • Reduces risk to contractor = reduces fee

20. Contract are used to assign risk What kinds of risks are in a project?

21. Safety Completion Material acceptance Labor Productivity Weather What are the project risks for the Washington Monument refacing?

22. Degree of project definition Design changes Escalation of labor and material costs Labor productivity Climatic conditions Labor supply Bids over estimate Loss not covered by insurance Natural disasters Labor strikes Who assumes the risk and how? Areas of Contract Risk

23. Risk/Fee Relationship • Hard Bid • Guaranteed Maximum Price • Cost Plus Fee with a Target Price • Cost Plus Fixed Fee • Cost Plus Percent Fee • CM as Advisor

24. Owner Contractor Lump Sum Unit Price Negotiated Cost Plus Fee Guaranteed Maximum Cost Plus % Fee Degree of Risk inConstruction Contracts Assumes Most Shared Shared Shared Shared Assumes Most

25. Construction ContractsElements • Offer • Invitation for Bid • Bid Forms • Acceptance • Notice of Award • Notice to Proceed • Consideration • Money • Time

26. Project Phases • Preconstruction • Contract Award • Contract Administration

27. Preconstruction Phase • Determine Price and Construction Methods • View Site for Information • Pre-bid Site Visits • Obtain Clarifications • Addendums • Verify Labor, Material, Equipment • Subcontractor Quotes • Vendor Quotes

28. Construction ProposalsTime Contractor Qualifications • Stated in Proposal • Calendar Days • Periods of Non-Work • Liquidated Damages • Administrative Costs • Actual Damages • Qualifications • Responsive • Responsible

29. Construction Contracts • Contract Technical Terms • Contract Commercial Terms

30. The scope of work Scope Price Conditions of Contract General Site safety and security Special Plans Construction drawings by design agents Shop drawings by contractors Specifications Performance Method Responsibilities of Owner and Contractor Guarantees/ Warranties Performance Equipment Schedule Engineering Construction ContractsTechnical Terms

31. Type of contract Fee structure Payment terms Limits of liability Project change notices Cost-escalation clauses Subcontracts Suspension and termination of work Force majeure Insurance and risk management Applicable law Arbitration Construction ContractsCommercial Terms

32. Construction ContractsContract Bonds • During Bidding • Bid Bond • Contractor will provide Contract Bonds and do work • During Performance • Performance Bond • Completion of Project • Payment Bond • Payment of Subcontractors, Workers, Suppliers

33. Contract Administration • Construction - accomplished by contract • Understand terms • Ensure compliance • Contract requirements • Notice to Proceed • Authority of project personnel • Submittal requirements • Progress schedules/payments • Change order procedures • Disputes • Quality control

34. Contract AdministrationProgress Payments • Unit Price • Quantities in place • Retention • Lump sum • Schedule of values • Percentage of work accomplished • Difficult to estimate accurately • Cost plus contracts • Accounting system to collect costs incurred • Submittal of payrolls, invoices, delivery tickets

35. Contract AdministrationChanges/Claims • Changes • Formal request - owner initiated • Constructive changes • Differing site conditions • Claims • Delay • Acceleration • Performance quality • Contract related

36. Thoughts for the Day • Present choices determine future consequences • You manage things: You lead people Grace Murray Hopper Admiral, U.S. Navy (retired)

37. CON 371 - Project Management and Safety Project Organization 29 August 2001

38. Project Organization • The function of creating in advance of execution the basic conditions that are required for successful achievement of the project objectives. • Objectives - project goals

39. Project Organization Concept • Define Project Organization Principles • Establish the proper relationship among the work to be done, the people doing the work, and the workplace • Present the Complex Issues • Elements that impact the size and nature of the organization

40. Traditional Project Delivery Life Cycle Steps in the project: • Owner contracts with Architect • Architect hires Engineering Consultants • Construction Drawings Completed • Architect sends out for bid on behalf of Owner • Architect receives bids and assists Owner in selection of Contractor. • Contractor Contracts with Owner. • Construction. • Contractor turns over to Owner • Owner hires his Operations staff.

41. Planning and Scheduling Estimating Engineering Change Orders Administration Materials Procurement Cost Control Safety Supervision Labor Quality Control Accounting Payroll Security Subcontractors Project Responsibilities

42. Owner Designer Constructor designer builder $ Project Construction Construction Bids Definition Documents Traditional Project Structure Contract Strategy Major Players Scope of Work Task & Financial Timing What types of organizational designs are used to support the project?

43. Accounting Equipment Estimating Project Management Project Superintendent Project Superintendent Functional Organization President Owner

44. Advantages Stability Excellent Corporate Memory Latest Technology Understanding of tasks Tight Control Disadvantages Low adaptability Minimum appreciation of project objectives rigid operating rules resistance to change Functional Organization

45. President Owner Heavy and Highway Staff Vertical Construction Project Manager Project Manager Project Manager Project Manager Estimator Estimator Estimator Estimator Accounting Accounting Accounting Accounting Equipment Equipment Equipment Equipment Task Force Organization

46. Advantages Team Spirit Responsive to new ideas and methods Self sufficient High adaptability Understanding of task Disadvantages Poor stability No corporate memory No functional checks and balances Reinventing the wheel Task Force Organization

47. Accounts Estimating Equipment Personnel Project Manager Project Manager Project Manager Matrix Organization

48. Advantages Strengths of functional team Strengths of project-oriented team Access to corporate memory Control of project objectives Disadvantages Defining accountability to functional and project managers Who’s the boss? Matrix Organization

49. Thoughts on Organizational Design • Vertical vs Horizontal • How many communication layers? • Span of Control • How many people can one supervise? • Line and Staff Functions • At what level do we want the functions to exist? • Corporate Organizational Structure • How does the Corporate Organization look?

50. Owner Owner Executive Operations Constructor Designer Proj. Manager Architect General Mech. Elect. Subs Civil Mech. Elect. Superintendent Foreman Jobsite Labor The “Players” and their Corporate Organizations