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Construction Proposal

Construction Proposal. Features. The proposal form is an offer and a promise to enter into a contract if selected A prepared proposal form is included in the bid documents Not using the prepared form results in disqualification. Features (cont.). The proposal form must include: the promise

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Construction Proposal

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  1. Construction Proposal CE 332

  2. Features • The proposal form is an offer and a promise to enter into a contract if selected • A prepared proposal form is included in the bid documents • Not using the prepared form results in disqualification CE 332

  3. Features (cont.) • The proposal form must include: • the promise • list of addenda • base cost and alternatives • accompanied by surety deposit or bid bond • signatures and seal CE 332

  4. Features (cont.) • Examine the proposal form for unit price contracts in Appendix E, p. 483 • Notice the acceptance period of 60 days is cited • Financial responsibility • Competency • Experience • Bonds and insurance CE 332

  5. Proposal Details • Detailed Costs • Item by item • Total Bid • Bidders Statement of Understanding • Sufficient time to examine work • Understanding of General Conditions, supplements, and addendums • Bid Proposal Guaranty Bond CE 332

  6. Proposal Details • Prequalification certificate • List of Subcontractors • Qualifications • Bonded and insured • Certifications • DBE, MBE, PA or US suppliers…… • Specialty requirements….. CE 332

  7. Sample Schedule of Prices CE 332

  8. Penn State’s Bid Form CE 332

  9. Penn State’s Bid Form CE 332

  10. Bid Development CE 332

  11. Bid Components Bid Price Markup Home Office Job Site Direct Job Cost Indirect Job Cost CE 332

  12. Bid Components (cont.) Direct Job Cost Labor Materials Equipment Subcontracts CE 332

  13. Bid Components (cont.) Indirect Job Cost Overhead Support Structures Purchase Orders Salaries Insurance Office equip. Training Safety Utilities Access roads Parking lots Project Office Storage trailers Portable toilets Trash Security Testing CE 332

  14. Bid Components (cont.) Markup Home Office Overhead Contingency Profit Clerks Secretaries Officers Utilities Travel Advertising Bidding Quality of plans Unforeseen cond. Owner and designer Schedule Location Work on hand CE 332

  15. Risks • Quantity takeoff • something will be left out or computed incorrectly • plans are incomplete and the quantities change • owner will delete certain items CE 332

  16. Risks (cont.) • Detail sheets • numbers will be erroneously transferred • subcontractor quotes will be misunderstood • productivity will be overly optimistic or pessimistic • unforeseen conditions will affect productivity • there may be noncompensable fabrication errors • overestimate ability of superintendent to organize and plan the work CE 332

  17. Risks (cont.) • Markup • incorrectly assess contingencies • desired profit is too great or too little CE 332

  18. Form of Agreement CE 332

  19. Terms • Retainage - That portion of each progress payment that is withheld to cover correction of deficiencies and omissions • Liquidated Damages - A damage assessment that is withheld in the event of late completion CE 332

  20. Features • The form of agreement is the contract • PSU’s Construction Contract • On public contracts, statutory requirements must be followed • One doing business with a public entity must be aware of the laws governing its administration and the limitations on the powers of the public officials involved CE 332

  21. Contractor Acceptance CE 332

  22. Background • Construction services are procured by negotiation or competitive bid • For competitive bid projects, the d.p. usually prepares the proposal form CE 332

  23. Background (cont.) • The proposal: • is a legally binding promise to enter into a contract • references the project, requires addenda to be listed, and is accompanied by security deposits or bid bonds • assures everyone is bidding on the same thing CE 332

  24. Private Sector • Owner can do as he or she pleases • negotiate with one or more contractors • receive competitive bids from selected contractors or in an open bidding process • select any bidder he or she wants CE 332

  25. Public Sector • Statutes require competitive bidding • Agency is seeking a fair and reasonable (competitive) price • Process begins with advertisements • Timeliness and other parameters of advertising are governed by regulations • Statutes also govern how bids are received and a contract is awarded CE 332

  26. Contractor Qualification • Is a way to screen who is on the prospective bidders list • The purpose is to assure a reputable contractor • Inquiries ask questions about • financial capability • past experience • managerial expertise • integrity- CE 332

  27. Construction Contracts CE 332

  28. Pricing Arrangements • cost proposal can be lump sum (fixed price), unit price, or cost reimbursable • The choice is a function of the type and size of project and the project risks CE 332

  29. Lump Sum (Fixed Price) Contracts • I propose to be paid $________ to build this project • Used most often on residential, commercial buildings, engineered projects, and most industrial projects • Design must be complete or nearly so • Price will be fair and reasonable only if the contractor can assess and assume the risks CE 332

  30. Advantages of Lump Sum • If properly applied, the owner receives a competitive price • Minimum owner risks for unforeseen conditions • Well-established administrative, legal, and contractual precedents CE 332

  31. Advantages of Lump Sum (cont.) • Owner knows the cost in advance of the work • Minimum owner involvement in construction process • Significant contractor incentive to control costs and meet the schedule CE 332

  32. Disadvantages of Lump Sum • Design-construct time frame takes more time • Adversarial relationships sometimes develop • Changes and unforeseen conditions are more difficult to handle • Contractor has limited input into constructability issues CE 332

  33. I propose to be paid this way to build this project Unit Price Contracts CE 332

  34. Unit Price Contracts (cont.) • Used where quantities are uncertain • Removes some of the contractor’s risk • Unit prices are requested for major or all items in the project • Sum of all unit prices times the quantity yields the bid price • There can be several hundred or more items CE 332

  35. Unit Price Contracts (cont.) • D. p. must provide estimated quantities for each item • Bid equals actual cost only if all quantities are exactly right • In reality, owner knows only the approximate cost prior to the start of the work • Used often on earthwork type projects where quantities are not known CE 332

  36. Prices include layout, excavation, bedding, materials, placement, sealing, testing, compaction, backfill, overhead, profit, etc. Unit Price Example CE 332

  37. Advantages of Unit Price • Risk to the contractor of variations in quantities is minimized • Changes are easier to make • Owner knows the approximate cost in advance • Well established administrative, legal, and contractual precedents CE 332

  38. Disadvantages of Unit Price • Owner has to provide greater contract administrative services • Cost can escalate with significant changes in quantities • Some of the same disadvantages of lump sum CE 332

  39. Cost Reimbursable Contracts • Owner pays contractor expenses plus a fee • Used sometimes on large, industrial type projects where scope cannot be determined • More appropriate where design is incomplete or changes will be common • Can sometimes be used on emergency projects • Reserved for only extreme or highly unusual circumstances CE 332

  40. Advantages of Cost Reimbursable • Can accelerate the schedule because the design need not be complete • Can make changes easily CE 332

  41. Disadvantages of Cost Reimbursable • Owner has no idea of the final cost until the end • There is greatly increased contract administration • There is little incentive for contractors to control cost or meet the schedule CE 332

  42. Variations in Fee Arrangements • Cost plus % of cost--% is fixed or may be a sliding scale • Cost plus fixed fee--provides some incentive to minimize cost and time of performance • Cost plus incentive target--could be fee + bonus/penalty • Guaranteed maximum price (GMP)--cost = fee < max $ CE 332

  43. Delivery System Owner Cost Reimb. Cost Reimb. CM D.P. Lump Sum/ Unit Price/ Cost Reimb. Unit Price/ Cost Reimb. Mech. Fixed Unit Price HVAC Piping Elec. CE 332

  44. Subcontracts CE 332

  45. Contractual Obligations • A subcontract is an agreement between a contractor and a subcontractor where the sub agrees to complete a part of the work • The sub has no contract with the owner • The sub is usually bound by the same obligations as the prime has to the owner (see AIA AS201, Art. 5.3.1) CE 332

  46. Contractual Obligations (cont.) • The owner often has the right to approve subcontractors (AIA A201, Art. 5.2.1 - 5.2.4) • Disapproval of subcontractors is not that common CE 332

  47. Potential Problems • Disagreements often occur when a non standard contract is used • Sub may not be bound to the same obligations as the prime • Sub may not receive all the prime contract provisions to know the full extent of its obligations • Sub may not get paid CE 332

  48. Relationship with Subcontractors • Ethical considerations: • bid shopping or using a sub’s bid as the low bid and shopping for a better bid after the prime contract is awarded is troublesome • trying to get a lower bid from a sub after being awarded the contract is to be frowned on • sub should be offered the same payment provisions as the prime • pay the sub when the sub’s work is complete CE 332

  49. Relationship with Subcontractors (cont.) • Contractual and legal considerations: • sub should be given all the contract provisions to use in preparing the sub’s bid CE 332

  50. Contract Bonds CE 332

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