Construction proposal
Download
1 / 85

Construction Proposal - PowerPoint PPT Presentation


  • 186 Views
  • Uploaded on

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

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Construction Proposal' - maj


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

Features
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


Features cont
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


Features cont1
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


Proposal details
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


Proposal details1
Proposal Details

  • Prequalification certificate

  • List of Subcontractors

    • Qualifications

    • Bonded and insured

  • Certifications

    • DBE, MBE, PA or US suppliers……

    • Specialty requirements…..

CE 332






Bid components
Bid Components

Bid Price

Markup

Home Office

Job Site

Direct Job Cost

Indirect Job Cost

CE 332


Bid components cont
Bid Components (cont.)

Direct Job Cost

Labor

Materials

Equipment

Subcontracts

CE 332


Bid components cont1
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


Bid components cont2
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


Risks
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


Risks cont
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


Risks cont1
Risks (cont.)

  • Markup

    • incorrectly assess contingencies

    • desired profit is too great or too little

CE 332



Terms
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


Features1
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



Background
Background

  • Construction services are procured by negotiation or competitive bid

  • For competitive bid projects, the d.p. usually prepares the proposal form

CE 332


Background cont
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


Private sector
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


Public sector
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


Contractor qualification
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



Pricing arrangements
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


Lump sum fixed price contracts
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


Advantages of lump sum
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


Advantages of lump sum cont
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


Disadvantages of lump sum
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



Unit price contracts cont
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


Unit price contracts cont1
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


Unit price example

Prices include layout, excavation, bedding, materials, placement, sealing, testing, compaction, backfill, overhead, profit, etc.

Unit Price Example

CE 332


Advantages of unit price
Advantages of Unit Price placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Disadvantages of unit price
Disadvantages of Unit Price placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Cost reimbursable contracts
Cost Reimbursable Contracts placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Advantages of cost reimbursable
Advantages of Cost Reimbursable placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • Can accelerate the schedule because the design need not be complete

  • Can make changes easily

CE 332


Disadvantages of cost reimbursable
Disadvantages of Cost Reimbursable placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Variations in fee arrangements
Variations in Fee Arrangements placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Delivery system
Delivery System placement, sealing, testing, compaction, backfill, overhead, profit, etc.

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


Subcontracts

Subcontracts placement, sealing, testing, compaction, backfill, overhead, profit, etc.

CE 332


Contractual obligations
Contractual Obligations placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Contractual obligations cont
Contractual Obligations (cont.) placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Potential problems
Potential Problems placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Relationship with subcontractors
Relationship with Subcontractors placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • 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


Relationship with subcontractors cont
Relationship with Subcontractors (cont.) placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • Contractual and legal considerations:

    • sub should be given all the contract provisions to use in preparing the sub’s bid

CE 332


Contract bonds

Contract Bonds placement, sealing, testing, compaction, backfill, overhead, profit, etc.

CE 332


Background1
Background placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • A surety is a party that assumes a liability for the debt, default, or failure of another

  • A bond is not insurance, but rather an extension of credit in the form of an endorsement

  • A bond is a three party instrument where the surety promises the owner (obligee) that the contractor will perform in accordance with the contract documents

CE 332


Background cont1
Background (cont.) placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • If there is a default, the surety will step in and see that the project is finished

  • The extent of the surety’s obligation is defined by the contract documents

  • The face value of the bond is the value of the bond and is expressed as a percentage of the contract amount, i.e., 100% bond

CE 332


Contractor risks
Contractor Risks placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • A surety will investigate contractors to evaluate their financial capacity and available capital

  • Bonding capacity is the maximum value of uncompleted work the surety will allow the contractor to have on hand at any one time

CE 332


Types of bonds
Types of Bonds placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • Bid bond

    • protect the owner against a contractor that submits the lowest bid but refuses to sign a contract

  • Performance bond

    • protects the owner against default and assures that the owner will get the facility without undue delay

CE 332


Types of bonds cont
Types of Bonds (cont.) placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • Payment bond

    • protects third parties like suppliers, vendors, craft labor against not being paid

    • protects the owner from liens being attached to the project

CE 332


Bond premiums
Bond Premiums placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • Premium amounts are a function of risk to the surety

  • Premiums are based on two risk factors:

    • project risks

    • contractor risks

CE 332


Project risks
Project Risks placement, sealing, testing, compaction, backfill, overhead, profit, etc.

  • Project risks are related to the type of project and time of performance

  • Assume we have a commercial project (use the Walker Building on campus as an example) that is estimated to cost $4.0 million and as a project schedule of 30 months. Calculate the bond premium using the information in the following Tables

CE 332


Construction classification for bonds
Construction Classification for Bonds placement, sealing, testing, compaction, backfill, overhead, profit, etc.

CE 332


Bond premium determination
Bond Premium Determination placement, sealing, testing, compaction, backfill, overhead, profit, etc.

CE 332


Bond premium calculation

Classification: placement, sealing, testing, compaction, backfill, overhead, profit, etc.B

Base rate:

Bond Premium Calculation

CE 332


Bond premium calculation cont

Adjustment for time of performance placement, sealing, testing, compaction, backfill, overhead, profit, etc.

Bond premiums usually range around 0.75 - 1.50% of the bid

Bond Premium Calculation (cont.)

CE 332


Contractor default options

When the contractor defaults, the surety has two options placement, sealing, testing, compaction, backfill, overhead, profit, etc.

assume charge of and complete the contract. Surety may be able to get a lower price or be able to limit its exposure if the surety is in control. The surety is responsible for the total cost of completing the work, less the contract amount, even if the difference is higher than the face amount of the bond

Contractor Default Options

CE 332


Contractor default options cont

make available to the owner sufficient funds to complete the work. Owner secures a new contractor. The liability of the surety is limited to the face value of the bond

The purpose of the bond is not to allow the owner to make a profit

Contractor Default Options (cont.)

CE 332


Default liability example
Default Liability Example work. Owner secures a new contractor. The liability of the surety is limited to the face value of the bond

  • Suppose a 100% bond was issued on a $4,000,000 project. Shortly after the work began, the contractor went bankrupt and the owner called on the surety to complete the work. The following conditions existed:

    • initial contract value $4,000,000

    • face value of the bond $4,000,000

    • value of work performed $450,000

    • retainage $45,000

    • amount paid to contractor $405,000

CE 332


Default liability example cont

The surety elects to let the owner secure another contractor, thus limiting its liability to the face value of the bond

If the owner pays the new contractor $4,250,000, what is the extent of obligation of the surety?

Default Liability Example (cont.)

CE 332


Default liability example cont1
Default Liability Example (cont.) contractor, thus limiting its liability to the face value of the bond

CE 332


Cash flow and bonding capacity

Cash Flow and Bonding Capacity contractor, thus limiting its liability to the face value of the bond

CE 332


Topics
Topics contractor, thus limiting its liability to the face value of the bond

  • Cash flow

    • normal project

    • impacted project

  • Bond capacity calculations

  • Effect of cash flow on bond capacity

CE 332


Cash flow normal project
Cash Flow - Normal Project contractor, thus limiting its liability to the face value of the bond

  • Cash flow is the difference between project receipts and expenditures

  • It is usually expressed graphically

  • Since expenditures exceed receipts part of the time, the contractor is a short term investor in the project

  • Contractor must have cash reserves to pay for labor and materials

  • Consider the New Jersey contractor PHA

CE 332


Cash flow diagram normal project
Cash Flow Diagram - Normal Project contractor, thus limiting its liability to the face value of the bond

Investment in Project

60 – 90 days

Positive Cash Flow

Negative Cash Flow

CE 332


Cash flow
Cash Flow contractor, thus limiting its liability to the face value of the bond

  • Where the expenditures greatly exceed receipts, the contractor’s financial position is seriously compromised--perhaps leading to bankruptcy

  • On impacted projects, owners often stop paying which makes matters worse

CE 332


Cash flow diagram impacted project
Cash Flow Diagram – Impacted Project contractor, thus limiting its liability to the face value of the bond

Investment in Project

Positive Cash Flow never occurs!

Negative Cash Flow entire project

CE 332


Bond capacity
Bond Capacity contractor, thus limiting its liability to the face value of the bond

  • There are two types of capacities

    • project capacity

    • aggregate capacity

  • Project capacity is the maximum size single project that the surety will allow the contractor to undertake

  • Aggregate capacity is the total amount of uncompleted work that the surety will bond

CE 332


Bond capacity equations project capacity

Project capacity contractor, thus limiting its liability to the face value of the bond

Bond Capacity Equations - Project Capacity

CE 332


Bond capacity equations aggregate capacity

Aggregate capacity (Worth of Firm) contractor, thus limiting its liability to the face value of the bond

Bond Capacity Equations - Aggregate Capacity

CE 332


Risk management

Risk Management contractor, thus limiting its liability to the face value of the bond

CE 332


Owner strategy
Owner Strategy contractor, thus limiting its liability to the face value of the bond

  • Recognize and identify risks

  • Measure the degree of exposure

  • Decide how to protect against those risks

  • Develop a company-wide program of loss control and prevention

CE 332


Categories of risk
Categories of Risk contractor, thus limiting its liability to the face value of the bond

  • Project risks

  • Legal and contractual risks

  • Business risks

CE 332


Insurance policy
Insurance Policy contractor, thus limiting its liability to the face value of the bond

  • A contract where an insurer assumes financial responsibility for a specific loss

CE 332


Differences with bonds
Differences With Bonds contractor, thus limiting its liability to the face value of the bond

  • Insurance covers specific known losses or risks, bonds cover a failure to perform

  • In a bond, the owner is covered over and above initial contract amounts, insurance may have fixed limits

  • In bond defaults, the surety seeks to recover losses from the contractor

CE 332


Insurance checklist
Insurance Checklist contractor, thus limiting its liability to the face value of the bond

  • Property insurance on project

  • Property insurance on contractor’s property

  • Liability insurance

  • Employee insurance

  • Automobile insurance

CE 332


Types of policies
Types of Policies contractor, thus limiting its liability to the face value of the bond

  • Property insurance

    • covers the project from damages or loss

    • also covers subcontractors

  • Builders risk insurance

    • normally the basic policy on buildings

    • two types are all-risk and named risk; the latter is seldom used

CE 332


Types of policies cont
Types of Policies (cont.) contractor, thus limiting its liability to the face value of the bond

  • Builders risk (cont.)

    • policies are flexible and can include many coverages

    • covers direct losses, temporary structures, materials, etc.

    • may not cover labor losses

  • Contractor’s equipment floater

    • covers construction equipment, but not liability

CE 332


Types of policies cont1
Types of Policies (cont.) contractor, thus limiting its liability to the face value of the bond

  • Liability insurance

    • imposed by law

  • Public liability and property damage

    • covers liability to third persons

  • Workman’s compensation

    • is a legal requirement

    • covers injuries to employees

CE 332


Types of policies cont2
Types of Policies (cont.) contractor, thus limiting its liability to the face value of the bond

  • Wrap-up insurance

    • owner provides certain coverages

  • Owners liability insurance

  • Social security

    • employers and employees share the cost

CE 332