THE PARTIES TO CONSTRUCTION-RELATED PRIME CONTRACTS

1. THE PARTIES TO CONSTRUCTION-RELATED PRIME CONTRACTS Construction-related prime contracts involve owners, architect/engineers, construction managers, and construction contractors. The owner typicallycontracts with one of the others, depending on the particular purpose to be accomplished by thecontract. • Owner-Architect Contracts and Owner-Engineer Contracts Architect/engineers (A/Es) are entities that typicallydesign projects, prepare drawings and specifications for the construction contract,and in some instances perform field inspection services and administration of theconstruction contract. Architectural Firms and engineering firms provide similartypes of services. The difference between them is that architects deal with residential,commercial, and institutional buildings, whereas engineering companies dealwith engineered structures such as highways, dams, bridges, tunnels, and heavyindustrial buildings and structures. Prime contracts between owners and architectsare called owner-architect contracts, whereas such contracts with engineers arecalledowner-engineercontracts. .

2. Owner-ConstructionManagerContracts Construction managers (CMs) are distinctly different entities from A/Es, theirrole is to manage the construction aspects of a project on behalf of the owner, usually as the owner's agent. A prime contract between an owner and a construction manager is called an Owner-CM contract. Owner-ContractorContracts Thefourth and final construction-related prime contract party is the construction contractor, the actual builder who determines the means, methods, techniques, sequence, and procedures and directs the actual construction operations. Contracts between owners and construction contractors are called owner-contractor contracts.

3. THE NATURE OF THE CONTRACTUAL SERVICES PROVIDED Design OnlyServices • One obvious category of services is design only, which pertain to owner-A/E contracts.The "only" distinguishes this category of contract service from another called design-construct (design-build). The creation of drawings andspecificationsis a necessary part of the design process. Designonly is normalyunderstood to include the preparation of a complete set of drawings and specificationsused to secure bids and to construct the project. • Design only contracts may alsoinclude assisting the owner in obtaining and evaluating bids for the purpose ofawarding a construction contract, providing general inspection services during constructionand providing monthly certified estimates of construction work satisfactorilyperformed.These estimates are the basis of monthly progress payments and finalpayment to the construction contractor. • Such contracts seldom require continuouson-site presence of the designer during construction or exhaustive site inspections toensure compliance with the drawings and specifications. Only such inspection servicesnecessary to reasonably assure general compliance are normally requiredunder a design only contract.

4. CONSTRUCT ONLY SERVICES • The second obvious kind of contractual service is construct only, pertaining toowner-contractor contracts. Thisis the typical service provided by construction contractors. • It includes assuming full contractual responsibility to perform the work according to the requirements of the drawings and specifications. Again,"only" is used to distinguish pure construction contracts from design-constructcontracts.

5. DESIGN-CONSTRUCT SERVICES - D/C or D/B Hybridform of contract has become prominent, where the contractualservices of design only and construct only contracts areincorporated into design/construct ordesign-build contracts. In this form of contract,the architectural or engineering design work, creation of the drawings andspecifications, and actual construction work are all performed by a single entity. • therefore, the owner enjoys the advantage of dealing throughout with only one party that has complete responsibility. A number of companies furnish complete design-construct services using their own forces. Other companies market design/constructservices as joint ventures or by using a subcontract to provide part of therequired services. • An AlEmay form a joint venture with a construction contractoror enter into a subcontract with construction contractor for the construction portionof the overall project. More commonly reciprocal arrangements are made withthe construction contractor in the lead role

7. TURNKEY AND FAST-TRACK DESIGN-CONSTRUCT SERVICES • Turnkey refers to a type of design-construct contract in which the contractor performs virtually every task required to produce a finished, functioning facility. • This includes, in addition to the normal design-construct duties, procuring all permits and licenses and procuring and delivering all permanent machinery or equipment that may be involved. It would not be unusual for an owner who had contracted on a design-construct basis for a complete hydroelectric power station to furnish the turbines, generators. transformers, and switchgear, requiring the contractor to design and construct the balance of the facility (including furnishing all other necessary equipment and materials) around this owner-procured permanent equipment. • Such a contract would be a design-construct contract, butit would not be a turnkey contract. If the contractor also furnished the equipmentitems just listedthe design-construct contract would also be a turnkey contract.All turnkey contracts are necessarily design-construct, but many design-construct

8. FAST TRACK CONTRACTS • A fast-track project is one in which the construction phase is started at apoint when only limited design work has been completed. For example, site gradingand structure excavation begin when foundation design work is complete, butdesign work for all subsequent elementsof the project, although in progress, isincomplete. This approach has the obvious advantage-on paper, at leastshortening the overall delivery period for the completed facility (Concurrent design and works). • Since "time is money," fast-track project delivery offers considerable potentialsavings to an owner. However, several severe risks accompany the fast-trackthefast-track approach that can erode the potential savings. Theforemost risk is that after constructionis in place a problem may develop with subsequent design that requirescostly and time-consuming changes to work already completed. • At the very least,the owner loses the flexibility to make relatively inexpensive changes reflectingnew and unexpected requirements, an advantage enjoyed throughout the designphase of a non-fast-track project. • Sometimes the fast-track approach is used when the design and constructionentities are not the same. each operating under separate contracts with the owner.Itcreates even greater risk for the owner, particularly if the design phase is notcarefully managed. Errors, changes, or delays in design that impact construction arealmost certain to result in claims from the construction contractor for additionalcompensation and time for contract performance.

9. CONSTRUCTION MANAGEMENT SERVICES • The final type of contract service involved in construction-related contracts is constructionmanagement, pertaining to owner-constructionmanager contracts. A distinctionshould be made between this use of the term construction managementasan administrative service performed for an owner and the meaning of that term as itrelates to the direct management of construction operations by a construction contractor'sorganization. • Although many of the same professional qualifications arerequired, the two activities are distinctly different. When services are being furnished on a construction management contract, theconstructionmanager (CM) normally furnishes purely professional services as an agent of the owner and doesnot perform significant actual construction work-that is, an agency relationship iscreated between the CM and the owner.

10. CM CONTINUED • Although performing no actual construction,theCM may provide such "general conditions" items as utilities, sanitary services,trashremoval, and general elevator or hoisting services for the benefit of theconstruction contractor or contractors. TheCM's role as a provider of professionalservices is not unlike that of the AlE, who also provides professional services withthe aim of serving the owner's interest. • CMs may be involved in the very early stages of a project, even the predesignphase, to assist the owner in planning the project and in preparing a predesign conceptualestimate of the probable project cost. • This involvement may continuethrough the design and preparation of the contract documents phase, where the CMwill provide constructability advice, evaluations of alternate designs, and assistancein obtaining and evaluating bids for the construction of the project.During construction,the CM provides general administration authority, performs inspectionservices to ensure compliance with the plans and specifications, and assists in closingoutthecontract.

11. CM CONTINUED • A CM acting as the owner's agent is normally precluded from performing anyactual construction work. However, in one form of CM contract, the agency relationshipis partly replaced by the more normal owner-construction contractor relationship,wherethe CM's interest is separate from the owner's. Under this form ofCM contract, the CM is part general contractor and does perform part of the constructionwork in addition to previously described CM services. • Although both entities are agents of the owner, CM and AlEservices areessentially different. • Figure 3-2 compares typical AlEand CM services. An AlEwhohas designed the project may also serve the owner as a CM. The same AlEentitymay have two separate contracts with the owner, one for design services andanother for CM services, or a single contract that provides for both.

13. COMMERCIAL TERMS • Another major difference in construction-related prime contracts centers on commercialterms, This part of the contract establishes the method of payment to theparty providing the services and defines where the financial risk of performance lies. • The two broad classes of commercial terms for construction-related contracts arecost-reimbursable terms (cost-reimbursable contracts) and fixed-price terms (fixedpricecontracts). • A cost-reimbursable contract is one performed almost entirely onthe owner's funds. As the provider of the contract services incurs costs in providingthe services, the owner periodically reimburses the provider for these incurred costs,usuallyon a monthly basis. The provider thus has little or no funds tied up in thecontract and the payments received from the owner are directly dependent on thecosts of the services provided. In contrast, there is no relation between the costs thatthe provider of services may be incurring and paymentreceived from the owner onfixed-price contracts.

14. The owner pays the fixed price stipulated in the contract regardless of what costs the provider is incurring. The fixed price is normally paid ina series of progress payments, usually monthly, as the services are provided.Although there is basically only one form of fixed-price commercial terms,there are a number of different forms of cost-reimbursable terms.

16. TYPICAL DOCUMENTS COMPRISING THE CONTRACT Fixed-price, competitively bid contracts are comprised of certain, fairly typical documents Themajor categories of mostcontracts of this type consist of the following list: • Bidding documents, consisting of the "Invitation to Bid," the "Instructions to Bidders," and the "Bid Form" • General Conditions of Contract • SupplementaryConditionsofContract • Specifications • Drawings • Reports of investigations of physical conditions Some contracts may not contain allof these categories but, with the exception ofone-of-a-kind contracts, none is likely to contain material that won't logically fit intooneoranother.

17. BiddingDocuments • The first category, bidding documents, normally begins with an u£ivertisenzent, originally • discussed in Chapter 1. The back section of contemporary industry periodicals, • such as the Engineering NelVs Record, contains a plethora of bid advertisements • with every new issue. The advertisement identifies the project for which bids are • desired, the owner, the time and place of the bid opening, and instructions to potential • bidders on how to obtain a full set of contract documents. • 111e second document in the bidding group is usually the Ill viialioll for Bids • (IFB) or, sometimes, a Reqaesl for Proposals (RFP). 11,e federal government and • some other owners use the IFB when bidders must strictly conform to the drawings • and specifications and the RFP when bidders may propose variations for the project. • Both typically include the following: • • A description of the contract work • • 111e identity of the owner • • The place, date. and precise time of the bid opening • • 11,e penal sum of the required bonds (bid bond, performance bond, and