Outline
CONSTRUCTION CONTRACTS
DOCUMENTS
Introduction to Construction Project
Stages
Construction Project Characteristics
Construction projects are different than other types of
projects due to the following characteristics;
 Construction projects are complex undertaking.
 Every construction project is unique.
 Construction projects involve a lot of uncertainties,
lack of information and variables.
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1. Introduction to construction project stages, overview of
the construction contracting methods, and contracts
types.
2. Bidding document

Invitation to bid

Instruction to bidders

Information to bidders & bid data

Biding Forms

General conditions of contract

Specific condition of contract

Specification

BOQ

Drawings

Contract forms
3. Methods of Tendering, Bidding and Awarding
4. Contract Documents and Conditions
Major Project Phases

The major phases in the project cycle that are common to most design
and construction projects are :
Project Planning
Design
Schematic Design
Design Development
Contract Documents
Construction Procurement (Bidding Phase)
Construction
Post Construction
Project Life Cycle
Most of Construction projects life-cycle have common
characteristics, Construction projects start with low cost and
resources, high risk and uncertainty.
The life-cycle of a typical construction project could be summarized
as following :

Stage I : represents the project formulation, feasibility studies,
and the strategic decisions needed for project continue.

Stage II : represents planning, basic design, budgeting,
tendering and placing the project major contracts.

Stage III : involves the construction phase of the project,
equipment installation and testing.

Stage IV : represents the final phase in the project which
includes the project turnover, final testing and start-up.
 Project Life Cycle
Full
Ope rations

Ins tallation Subs tantially

Percent Complete
Com ple te

Major Contracts
Le t

Pr oje ct "GO"
De cis ion

Stage II Stage III Stage IV

Stage I

F e a s abilit y P la nning & D e s ign C o ns t ruc t io n T urno v er

- P ro ject Formulatio n - B ase Design - M anufacturing & S t art Up
- Feasabiltiy Studies - Co st & Schedule - Delivery - Final Testing
- Strategies Design & - Co ntract Terms & - Civil Wo rk - M aintenance
A ppro val Co nditio ns. - Installation
- Detailed P lanning - Testing

Figure 1.1 : Construction Projects Life-Cycle (Ref: PMBK, 2000)

Construction Contracting Method

(delivery methods) Traditional Approach (D-B-B):
For many years, DBB has been the most common method of
Traditional Approach (D-B-B): 
project delivery for public projects, and for many private projects
The most common delivery system is called “the as well.
traditional or standard approach” or “design-bid-  Design Bid-Build is effective on projects

where the owner needs both professional design services and
build”, in which the employer assigns the design and
construction services
construction phases to two different firms
where the designer does not require detailed knowledge of the
(consultant/designer and contractor). means and methods of construction.
 DBB provides the owner with a high degree of control. That’s why
it is the preferred project delivery system for owners who:

Appointing Main
Appointing
Contractor
Consultant

Constructing
Designing

Traditional Approach (D-B-B): Advantages of D-B-B Approach

The owner defines project goals and objectives, secures the financing, ⌧ Applicable to a wide range of projects.
and specifies the standards and contract terms.

The owner may perform planning, conceptual design and full design,
⌧ Well established and easily understood.
or may engage an outside design professional (designer) for some or ⌧ Clearly defined roles for all parties.
all of these tasks. ⌧ Provides the lowest initial price that competitive

During this planning and preliminary stage, owner and designer work bidders can offer.
as a team to obtain required permits and conduct necessary site
investigations. ⌧ Extensive litigation has resulted in well established

The designer prepares the construction bid documents to reflect the legal precedents.
owner’s project goals and objectives, the project’s site conditions, and ⌧ Insurance and bonding are well defined.
sound engineering practices.

Prospective contractors prepare their bids from these complete and
specific bid documents.

The bidders submit their proposals to the owner, who determines the
most responsive (typically the lowest) bid meeting project
requirements.

In certain circumstances, owner may be justified in selecting a
contractor outright and negotiating contract terms directly.

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 Disadvantages of D-B-B Approach

Least-cost approach requires higher level of inspection.

Initial low bid might not result in ultimate lowest cost or
final best value.

Designers may have limited knowledge of the true cost
and scheduling implication of design decisions.
Design-Build Approach

The owner contracts with a single entity to provide the design
and to construct the project according to that design.

The contract might be negotiated with a single design-builder
or result from competitive proposals.

The selection can be based on low price or on a set of value
criteria (experience, staff, bonding capacity, etc.).

Design-build provides the owner with a single point of contact
for project responsibilities, eliminating the need to assist in
resolving designer-contractor disputes.

With the contractor playing a major role in design, costs are
typically defined and maintained to a greater degree, and the
coordination of fast-track management to achieve early
completion is greatly simplified.

The design-builder makes many decisions that owner would
make under DBB, due to delegation of greatly increased
authority.
Advantage of Design-Build Approach

Innovation and quality improvements through:
- Alternative designs and construction methods
suited to the contractor’s capabilities
- Flexibility in the selection of design, materials, and
construction methods.
• Earlier schedule and cost certainty
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Design-Build Approach
Design-build approach is a project delivery system involving a
single contract between the project employer and a
design-build contractor covering both the design and
construction of a project.
The design-builder performs design, construction engineering,
and construction according to design parameters,
performance criteria and other requirements
established by the employer or his representative.
Appointing design & construction
contractor
Tendering Designing Constructing
Design-Build Approach

For many owners, delegation of responsibilities leads to
satisfactory projects. However, if the parties are
inexperienced and do not cooperate, the transfer of control
and risk can be disappointing.

The owner may need to restructure his/her internal
procedures to accommodate design-build approach.

Compared to DBB, this involves a significantly different set
of requirements and expectations for process, timelines and
communications.

A clear understanding and documentation of design-build
processes enhances the quality of design-build projects
Disadvantage of Design-Build Approach
 Reduced opportunities for smaller, local construction firms.
 Fewer competitors and increased risk may result in higher
initial costs.
 Elimination of traditional checks and balances. Quality may
be subordinated by cost or schedule considerations.
 Less Engineer control over final design.
 Higher procurement costs.
 Traditional funding may not support fast-tracking
construction or may require accelerated cash flow.
 Accelerated construction can potentially overextend the
workforce.
 Others Turnkey
 Turnkey  Turnkey adds to the design-builder’s
responsibilities the operation and/or maintenance
 Turnkey Variations of the completed project.
 Direct Labor Approach.  Turnkey delivery has the potential for bringing a
new project on line more quickly.
 Construction management
 Three forms of turnkey project delivery:
 Design-build-operate-transfer
 Design-build-operate-maintain
 Design-build-own-operate-transfer

Turnkey Variation 2nd lecture

 Variations on turnkey add financing as a key  The contract, and contract types,
component. While financing arrangements are
unique for each project, developer financed overview of the construction documents.
projects generally resemble one of the turnkey
delivery methods:
 FDBT (Finance, design, build, transfer)
 FDBOT (Finance, design, build, operate, transfer)
 FDBOOT (Finance, design, build ,own, operate, transfer)
 In each case, the transfer of the project occurs
only after the developer’s interests and financial
obligations have been satisfied.

Contract Definition Introduction to contracts

Why Use contract in construction:

 Agreement of at least two parties with purpose of  Describe scope of work
creating legal obligation between the parties and  Establish time frame
capable of being enforced by the court of law.
 Establish cost and payment provision
 Contract = offer + acceptance + consideration
 Set fourth obligations and relationship
 Minimize disputes
 Improve economic return of investment

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 Content of the contract Major Contract Types (traditional)
o Identify the parties
o Promises and responsibilities
o Scope of work
o Price and payment terms
o Commercial terms and conditions
o Project execution plan.

Lump Sum Contract Lump Sum Contract/ advantage

One price for the whole contract

Lump sum includes costs plus overheads and profits  Low risk on the owner, Higher risk to

Higher risk to contractor the contractor

Price quoted is a guaranteed price as per contract
 Cost known at outset
documents.

Payment based on a scheduled percentage scheme  Contractor will assign best personnel
(monthly progress claims)
 Contractor selection is easy.

The contractor is free to use means and methods to
complete the work and responsible for proper performance

Work must be well defined at bid time.

Fully developed plans and specifications

Lump Sum Contract/disadvantage Unit Price

 Changes is difficult and costly.
 Contractor is free to use the lowest cost of
material equipment, methods.

Quote Rates / Prices by units

No total final price

Re-negotiate for rates if the quantity or work
considerably exceeds the initial target

Payment to contractor is based on the measure.

Unbalanced bids

Higher risk to owner

Ideal for work where quantities can not be
accurately established before construction starts.

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 Unit Price contract

Require sufficient design definition to estimate
quantities of units

Contractors bid based on units of works

Time & cost risk (shared)

Owner : at risk for total quantities

Contractor : at risk for fixed unit price.

Large quantities changes (>15-25%) can lead to
increase or decrease of unit price.
Unit Price / Requirement

Adequate breakdown and definition of work units

Good quantity surveying and reporting system.

Adequate drawings.

Experience in developing BOQ

Payment based on the measurement of the finished
works.

Quantity sensitive analysis of unit prices to evaluate
total bid price for potential quantity variation.

Unit Price / advantages Unit Price / disadvantages

Suitable for competitive bid

Easy for contract selection

Early start is possible

Flexibility : quantities and scope can be easily
adjusted

Final cost not known from the beginning (BOQ
only is estimated)

Staff needed to measure the finished quantities
and report on the units not completed.

Unit price sometime tend to draw unbalanced bid.
(For Unit-Price Contracts, a balanced bid is one in which each bid
is priced to carry its share of the cost of the work and also its
share of the contractor’s profit.
Contractors raise prices on certain items and make corresponding
reductions of the prices on other items ,without changing the total
amount of the bid)

Cost Plus Cost + Percent of Cost

1. Actual cost plus a negotiated reimbursement to Fee = percentage of the Advantages Disadvantages
cover overheads and profit. total project cost

(Cost = $500.000,Fee = profitable for No incentive
2. different methods of reimbursement : the contractor to finish job
2%)
Cost + percentage quickly
Cost + fixed fee
Cost + fixed fee + profit-sharing clause. Owner does
not know total
3. Higher risk to owner price
4. Compromise : guaranteed maximum price
Larger the
(GMP) reduces risk to owner while maintain cost of the
advantage of cost plus contract. job, the
5. By using this type of contract the contractor can start higher the fee
work without a clearly defined project scope, since all the owner
costs will be reimbursed and a profit guaranteed. pays

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 Cost + Fixed Fee
Cost Plus Fixed Fee
 Fee = percentage of the Advantages Disadvantages  Most common form of negotiated contracts
original estimated total figure

Utilized on large multi- Fee amount is Expensive  COST = expenses incurred by the contractor
year jobs fixed materials and for the construction of the facility

Ex: WW treatment plant regardless construction
Includes: Labor, equipment, materials, and
Facility (Cost = $20 of price techniques may administrative costs
million, Fee = 1%) fluctuation be used to

$20 Million 1% fee = expedite  FEE = compensation for expertise
$200,000 Million construction
Includes: profit

Provides
incentive to
complete
the project
quickly

Cost + Fixed Fee + Cost + Fixed Fee +

Profit-Sharing Clause Profit-Sharing Clause
 Rewards contractors Advantag Disadvantages variation of this type of contract is called a guaranteed
who minimize cost es maximum price (GMP).
 Percentage of cost
In this type of contract the contractor is reimbursed at cost
under GMP is Provides Contractor with an agreed-upon fee up to the GMP, which is essentially
considered profit incentive must absorb a cap; beyond this point the contractor is responsible for
to the any covering any additional costs within the original project
and shared with the
contracto amount over scope
contractor
r to save the GMP

Guaranteed Maximum
An incentive clause, which specifies that the contractor
money
Price (GMP) will receive additional profit for bringing the project in

% of profit sharing is Plans & specs. under the GMP.
specified in contract need to
detailed

Construction Documents Construction Documents

Bidding requirements
Construction Documents are defined as the written and graphic documents
prepared or assembled by the A/E for communicating the design of the

Notice to Bidders
project and administering the contract for its construction.

Instruction to Bidders

2 major groups

Proposal Form
1.Bidding Requirements

Contract Documents
Used to attract bidders & explains bidding process

Contract Forms

Conditions of the Contract
2.Contract Documents

Specifications Legally enforceable requirements that become part of the contract

Drawings Include all construction documents except bidding forms

Addenda

Change Orders

Agreement.

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 CONSTRUCTION DOCUMENTS CONSTRUCTION DOCUMENTS
BIDDING REQUIREMENTS
BIDDING REQUIREMENTS
Bidding Requirements are used to attract bidders and explain the procedures to be followed
in preparing and submitting bids .
Bidding requirements help bidders follow established procedures and submit bids that will
not be disqualified because of technicalities. They do not become part of the contract
documents

Bidding documents
All of the construction documents issued to bidders before the signing of an owner-
contractor agreement.

Bid Package
Documents available to the contractor and on which he must make a decision to bid
or not
A set of plans and technical specifications, Proposal form, general conditions,
special conditions,
Description of the project to be constructed
Bid Package is prepared by: