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QUIZ #1. 10 Minutes. Construction Engineering 221. Construction Contracts. Construction Contract Types. What are the two main divisions of construction contracts?. First Main Division. Competitive bid contracts Lump-sum Unit-price. Second Main Division. Negotiated contracts Lump-sum

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Quiz 1

10 Minutes

Construction Engineering 221

Construction engineering 221

Construction Engineering 221

Construction Contracts

Construction contract types
Construction Contract Types

What are the two main divisions of construction contracts?

Construction Engineering 221

First main division
First Main Division

  • Competitive bid contracts

    • Lump-sum

    • Unit-price

Construction Engineering 221

Second main division
Second Main Division

  • Negotiated contracts

    • Lump-sum

    • Unit-price

    • Cost-plus-fee (most common w/ negotiated)

Construction Engineering 221

Award of competitive bid contract
Award of Competitive-Bid Contract

  • Award contract to the “lowest responsible bidder”

  • What is meant by the term “lowest responsible bidder”?

Construction Engineering 221

Lowest responsible bidder
“lowest responsible bidder”

  • Lowest bidder whose offer best responds in quality, fitness and capacity to fulfill the particular requirements of the proposed work and with the necessary qualifications to complete the job in accordance with the terms of the contract. In open competitive bidding by public and private owners the bid will go to the lowest responsible bidder.

Construction Engineering 221

Cost plus fee contracts

  • Contract value is NOT guaranteed

  • Used when design and drawings are NOT complete

  • Owner pays “reimbursable costs” plus a “fee”

  • “Fee” is usually a percentage of total reimbursable cost (2% to 6%)

Construction Engineering 221

Reimbursable costs
Reimbursable Costs

  • Defined by very detailed contract language

  • Subcontract bidding and letting procedures

  • Definitions of what types of costs can be reimbursed

    • Payments to Subcontractor per subcontract

    • Contractor’s field labor, material and equipment costs

  • Definitions of what types of cost that will NOT be reimbursed

    • Contractor’s main office overhead and staff

    • Salaries of contractor’s officers

Construction Engineering 221

Contractor s fee in cost plus contract
Contractor’s Fee in Cost-Plus Contract

  • Determined by taking into account:

    • Degree of risk

    • Nature and complexity

    • Geographical location

    • Equipment and manpower requirements

    • Estimated construction time

  • Final fee usually negotiated to be competitive (what will the market bear)

Construction Engineering 221

Cost reimbursable contracts
Cost Reimbursable Contracts

  • Cost–Plus-Fee as a Percentage-of-Cost

    • Fee may be on a sliding scale (smaller percentage as the cost of the project increases)

      • Fee of 10% for contract values <$50,000

      • Fee of 5% for contract values $50,000 to $500,000

      • Fee of 3% for contract values >$500,000

Construction Engineering 221

Cost reimbursable contracts cont
Cost Reimbursable Contracts (cont.)

  • Cost-Plus-Fixed-Fee Contracts

  • Incentive contracts (bonus-penalty)

    • Share of the cost savings up to a maximum

    • Bonus for each day finished early, or penalty for each day finished late

  • Guaranteed Maximum Cost (upset price)

Construction Engineering 221

Contact documents
Contact Documents

  • The construction contract is comprised of a number of different documents. Most construction documents include:

    • Invitation to bid

    • Instructions to bidders

    • General Conditions

    • Supplementary Conditions

    • Technical Specifications

    • Drawings

    • Addenda

    • Proposals

    • Bid Bond

    • Agreement

    • Performance bond

    • Labor and material payment bond

Construction Engineering 221

Construction contract conflicts
Construction Contract Conflicts

  • What if there is a conflict between the drawing and the specifications? Which is considered the governing document?

  • And what if a construction requirement is found in only the drawings and not in the specification? Is it still a requirement?

Construction Engineering 221


  • What is retainage and why is it necessary?

Construction Engineering 221

Retainage or retention
Retainage or Retention

  • A percentage of the payment to the contractor that is withheld each month

  • Usually is 10%

  • Owner may reduce below 10% after SUBSTANTIAL COMPLETION

  • Paid by owner to contractor after FINAL COMPLETION of the project

  • Serves as an incentive for contractor to complete ALL work per contract

Construction Engineering 221

Other contractual terms
Other Contractual Terms

  • Substantial Completion

    • “Beneficial Occupancy” of the project

  • Warranty Period

  • Contact time

    • Calendar days vs. working days

    • “time is of the essence”

Construction Engineering 221

Other contractual terms1
Other Contractual Terms

  • Liquidated Damages

    • Used as a PENALTY for late completion

    • Used in lieu of a determination of actual damages suffered by the owner

    • Must be a REASONABLE penalty based on a forecast of actual damages the owner would suffer if the contractor is in breach of contract by finishing late

Construction Engineering 221