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 dont
  know how to quit.
• Robert Schuller

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Con 371 Project Management and Safety

• Contracts, Bid, and Award
• 29 August, 2001

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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
Contract Types

• 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

5
Contracting Strategy

• Degree of Definition
• Economic Conditions
• Competitive Situation
• Anticipated Changes to Scope

• Schedule Importance
• Total Cost Importance
• Quality Importance

6
Contracting Approach

• General Contractor
• Negotiated
• Lump Sum/Fixed Price
• Construction Manager
• CM as Advisor
• CM/GC
• CM as Agent

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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

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Project Fee

• Fee is the contractors 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

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Contracting ApproachType of Contract

• Hard Bid - Fixed Price
• Exposes contractor to most risk
• Fee and contingency usually high

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Contracting ApproachType of Contracts

• Fee Basis
• Percent of Cost
• Fixed Fee
• Risk - Fee Relationship
• G M P
• Cost Plus Fixed Fee
• Cost Fee Target Price
• Incentives

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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

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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 Maximum Price
  for the project
• Also known as Not To Exceed price
• Exposes contractor to risk of exceeding GMP

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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

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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

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Contract are used to assign risk

• What kinds of risks are in a project?

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What are the project risks for the Washington
Monument refacing?

• Safety
• Completion
• Material acceptance
• Labor Productivity
• Weather

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Areas of Contract Risk

• 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?

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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

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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

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Project Phases

• Preconstruction
• Contract Award
• Contract Administration

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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

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Construction ProposalsTime Contractor
Qualifications

• Stated in Proposal
• Calendar Days
• Periods of Non-Work
• Liquidated Damages
• Administrative Costs
• Actual Damages
• Qualifications
• Responsive
• Responsible

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Construction Contracts

• Contract Technical Terms
• Contract Commercial Terms

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Construction ContractsTechnical Terms

• 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

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Construction ContractsCommercial Terms

• Suspension and termination of work
• Force majeure
• Insurance and risk management
• Applicable law
• Arbitration

• Type of contract
• Fee structure
• Payment terms
• Limits of liability
• Project change notices
• Cost-escalation clauses
• Subcontracts

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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

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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

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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

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Contract AdministrationChanges/Claims

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

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Thoughts for the Day

• Present choices determine future consequences
• You manage things You lead people
• Grace Murray Hopper
• Admiral, U.S. Navy (retired)

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

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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

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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.

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Project Responsibilities

• Planning and Scheduling
• Estimating
• Engineering
• Change Orders
• Administration
• Materials
• Procurement
• Cost Control

• Safety
• Supervision
• Labor
• Quality Control
• Accounting
• Payroll
• Security
• Subcontractors

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Traditional Project Structure
Contract Strategy Major Players Scope of
Work Task Financial Timing
What types of organizational designs are used to
support the project?
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Functional Organization
President Owner
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Functional Organization

• 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

45
Task Force Organization
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Task Force Organization

• 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

47
Matrix Organization
48
Matrix Organization

• 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
• Whos the boss?

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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?

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The Players and their Corporate Organizations
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Complexities to Project Organization

• How will the complexity of the project impact the
  size and nature of the organization?

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A List of Complexities

• Project Work Tasks
• Project Delivery Method
• Contract Strategy
• Owners Resources
• Local Labor Market
• Governmental Authorities

• Scope Areas
• Technical Level
• Quality
• Project cost
• Functional Expectations
• Project Schedule
• Size of Project

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Typical Field Organization