Question

Since the preliminary estimate and further investigations indicated that Claire's project is feasible, it is now time to move from the initial concept to final design. In order to do so, Claire will need to consult an architect and an engineer. Thankfully, Claire had an old friend, Tony Tect, who owned a local architecture firm and was willing to help. Claire explained her ideas to Tony and he said he would be happy to produce some drawings for Claire within a few weeks.

Meanwhile, Claire asked Bob Builder if he could advise her about the selection of a design engineer. Bob recommended she talk to Angie Neer from Eager Engineers & Partners. The engineering firm was in Charleston, WV, as was Tony’s office. Tony and Angie had completed several projects together before and knew the value of working hand in hand during the design phase.

Two weeks passed before Claire, Tony, and Angie met to discuss Tony's drawings. After Tony presented his design, Claire made some minor suggestions, but in general was very pleased. Angie then commented on the design, which started a discussion that went on for another hour. Claire wasn't initially comfortable, but later she realized that such discussion is necessary in order to increase the constructability of a structure. Thus, it was advantageous to have structural decisions made early in the design phase and not when the building was already under construction.

After the meeting, Tony sat down on his desk and began to incorporate all the changes into the design. Angie returned to her office to get started on the design for the site preparation. Since Tony agreed to arrange the necessary permitting, Claire had the chance to concentrate fully on preparing the marketing information for the project. However, she realized that she needed to know more about construction project delivery. She had no idea what type of Construction Firm she should utilize for this project. She decided to get some advice from the developer, Bob Builder.

Bob replied to her with the following memo:

In construction Claire, you have several options for your delivery strategy, including: Design-Bid-Build (DBB), Design-Build (DB), and Construction Management (CM). DBB is a very common way to deliver a construction project using a traditional organization. DBB calls for a complete design before site work begins and then a single general contractor assumes all the responsibility for constructing the entire project usually on the terms of a lump-sum contract.

This answer did not really help Claire to understand which type of project delivery method would be most appropriate for her situation. Also, the methods of awarding a contract and the type of contract were confusing to Claire, as she has no prior experience being an owner. Before she could consider making a final decision, she needed more information and recommendations. Claire sent Bob an e-mail asking for a more detailed analysis. This is where you come in to help Claire make an informed decision.

Questions

• Which project delivery method do you recommend to Claire? Why?
• Based on the delivery method you recommended, should Claire use a contract that is awarded competitively or a contract that is awarded by negotiation? Why?

In addition to the main contract for the entire project, Bob informs you, the intern, that there will definitely be a sub-contract with a specialty contractor for the site-work on the project.

• Should the agreement with the site sub-contractor be a lump sum or a unit-price contract? Why?
• Should this contract with the site sub-contractor be awarded competitively or negotiated?

Answer 1

Solution -

Question - Which project delivery method do you recommend to Claire? Why?

Answer –

First let’s walk through the major type of project deliveries methods is–

• Design-Bid-Build (DBB) or Design-Award-Build (DAB) – the owner with an architect or an engineer develops a detail set of drawings and specifications and the contract is awarded to the lowest bidder.
• Design-Build (DB) – The owner is only responsible for the development of drawings and then bids are invited.
• Build-Operate-Transfer (BOT) – The same contractor is responsible for design, building, and maintaining the project and after a certain period the project is transferred back to the owner.
• General Contractor/Construction manager (GC/CM or GCCM) – owner will hire a contractor to act as a combined agent or general contractor. A substantial portion of documents are completed and bids are invited and awarded as per merits.
• Public Private Partnership (PPP) – a partnership between two or more public entities and two or more private entities to design, build, maintain the project on the behalf of the owner.

Now as we are now having a rough idea of what each type is, we will look to our project.

In our project, the Claire (owner) hires Tony (architect) and Angie (engineer) to make the initial set of specifications after which further contractors will be hired to finish the job.

So, we should go with Design-Bid-Build Type of project delivery system.

Question - Based on the delivery method you recommended, should Claire use a contract that is awarded competitively or a contract that is awarded by negotiation? Why?

Answer –

Negotiations are good but they have some level of compromise from both the sides, be it owner or be it contractor both negotiate somewhat to come to a common ground.

Competitively on the other hand is purely based on merits, in all fair and square all the parties are asked to submit their bids and the most desirable one is selected.

There is no fixed rule whether to go for negotiations or competitive attitude to choose but competitive approach is much more preferable.

Question - Should the agreement with the site sub-contractor be a lump sum or a unit-price contract? Why?

Answer –

The major types of contracts are-

• Lump sum or fixed price contracts – a detailed budget is already made before the start of the project and total price for all the construction related activities.

They can have additional benefits for early termination of projects and also penalties for late termination etc.

• Cost plus contracts – it involves payments of actual cost of materials, labour and equipments etc. they must contain the information about overhead costs and profits etc.
• Time and material contracts – If the objective or scope of project is not cleared or in absence of any fixed specifications or drawings they can be adopted. The rates as per hour or days are decided before hands and material cost are taken as it is. They can include additional expenses too.
• Unit pricing contracts – the price for each unit is decided before hand and the owner can decide which sort of units they want. They can be decided during the biddings processes.

Now we are having an idea of what major contract types are.

If we have a fixed set of specifications like drawings, units, rates etc. which will not change through the project then we should go with Lump-Sum contracts.

But if there is project is divided into fixed units then we can go with unit pricing contracts.

Question - Should this contract with the site sub-contractor be awarded competitively or negotiated?

Answer –

As explained above, there is no fixed rule whether to go for negotiations or competitive attitude to choose but competitive approach is much more preferable.