THE PARTIES TO CONSTRUCTION-RELATED PRIME CONTRACTS. Construction-related prime contracts involve owners, architect/engineers, construction managers, and construction contractors.
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.
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.
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.
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.
according to the requirements of the drawings and specifications.
Again,"only" is used to distinguish pure construction contracts from
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.
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.
performs virtually every task required to produce a finished, functioning facility.
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
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:
Thesimplest form of cost-reimbursable commercial terms is the cost plus percentagefee(CPPF) basis of payment, sometimes referred to as a cost plusor a time and materials basis. Many owners -A/E andand owner-CM contracts operate on this form asdo many small construction contracts. The owner agrees to reimburse the costsincurred by the provider of the services and, in addition, to pay a fee equal to a fixedpercentage of incurred costs that is stipulated in the contract. Aside from the practiceof professionalism and the desire of the provider to protect his or her reputationfor fair dealing in order to secure additional business, there is no incentive forthe provider to control costs. Theoretically, the more money spent, the more earned.In the case of construction contractsthis form of commercial terms has a particularlygreatpotentialfor abuse.
A more sophisticated form of cost-reimbursable commercial terms is the target estimate form, some times called cost plus incentive fee(CPIF) terms.
All of forms of commercial terms apply to cost-reimbursable contractsituations. Otherbroad class of contract is the fixed-price contract, alsocalled a firm-price contract, or sometimes a lump sum, or hardmoney contract.
In any form of contracting, there is a definite relationship of risk to profit.When the commercial terms of any performance contract require that the performeror provider assume the entire financial risk of performance, that performeris taking a far greater risk than under other commercial terms. It follows that theprovider is entitled to greater profit than would be the case if less risk wereassumed. The profit potential in fixed-price contracting is much greaterthan for other forms of contracting, particularly for construction contracts. Thefixed-price or hard money contract is the traditional form around which today'sconstructioncontractingindustryevolved
Fixed-price contracts in construction take one of two different forms:
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
• 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.
• A description of the contract work
• Theidentity of the owner
• The place, date. and precise time of the bid opening
• Thepenal sum of the required bonds (bid bond, performance bond, andlabor
and materiál payment bond