Construction By Direct

Employment and By
Contract
(Chapter 10)
BUSINESS ARRANGEMENTS

The construction of an architectural or

engineering work is usually a rather
complex undertaking requiring the labor
of substantial number of mechanics of
various trades and the purchase of a
wide variety of materials.
BUSINESS ARRANGEMENTS

Two ways:
Direct employment
Contract agreement
 DIRECT EMPLOYMENT

• Workers employed by these

project
• Employment generated by
construction projects depends on
project type, size and local
urbanization.
 CONTRACT AGREEMENT

•  Scope of the work

• Time of completion
• The contract price
• Payments
• General Provisions
EXAMPLE OF GENERAL PROVISIONS
Some Factors Which Affect the
Cost of Construction Work
ENGINEER
 ENGINEER
• Depends upon the honesty, integrity,
judgment, and ability of the engineer.
• Make the interest of his client.
• Has the ability to design economically
and to supervise intelligently the
construction proposed.
 LOCAL CONDITIONS

• Where the size and the complexity of

the job warrants the cost of such an
investigation, it should be made, and
by technical experts employed by
the owner.
PLANS AND SPECIFICATIONS
PLANS AND SPECIFICATIONS

• Familiar with the requirements of the project

and also with the ways and means of
accomplishing the work required by them.
• Methods of construction will have marketed
effect on the cost of performing the work.
• Do not agree are a source of delay to the
construction and may cause costly changes
to work already completed.
 CONTINGENCIES

• Contingencies cannot be eliminated

• Weather conditions may prove
unfavorable and caused increased
expense.
• Continuous rain
• Severe cold weather
• Floods , tornadoes and heavy winds
CASUALTIES
 CASUALTIES

• These can be greatly reduced by care and

watchfulness
• Every man is dependent for his safety on
his fellow men, who are more or less
careless and unreliable, and on tools,
machinery, and apparatus that are liable to
contain unknown and serious defects.
TRANSPORTATION
 TRANSPORTATION

• For its prompt construction and cost

• The possibilities of freight congestion,
misshipments, wrecks, and various
disasters add to the uncertainty and
expense.
EQUIPMENTS
 EQUIPMENTS

• Promptly securing the proper

equipment for construction purposes
MATERIALS
 MATERIALS

• Material costs must be ascertained

as a basis for a cost estimate
SUPERVISION
 SUPERVISION

• Management by overseeing the performance or operation of a

person or group.
• A number of dependable men on whom they can reasonably rely.
LABOR
 LABOR

• Skilled and unskilled labor

• Ability to secure suitable men in sufficient numbers for the prompt completion of construction
• Change seriously between the time of compiling the cost estimate and the time of construction.
 COMBINATIONS

• Combinations of contractors, material suppliers, and manufacturers are not

unknown and often seriously affect prices.
• Rejection of all offers and he refusal to proceed until such condition can be
eliminated
 GRAFT

• Form of dishonesty
• Secure the acceptance of excessive
prices or substandard work
• Disreputable defect in the business
relations is still occasionally encountered
and still needs watchful attention
 POLITICS

• This evil creates some of the most

important uncertainties in the cost of
construction of public works
• Sometimes results in forms of graft
• Political influences are commonly
exercised to secure appointments
 Construction by the Direct
Employment of Workmen

Eliminates certain difficulties involved

in work let under a contract but
introduces other difficulties often no
less serious
Construction by the Direct
Employment of Workmen
 Contract at a Fixed Price

The oldest and most common method

of letting work under contract is by
receiving competitive bids with fixed
prices.
Contract at a Fixed Price
Waste in Competitive Bidding

Practice of strictly competitive bidding

with no restriction as to the number of
bidders.
 COST-PLUS-CONTRACTS

A contract wherein the contractor gets

paid for all construction related
expenses, plus an amount earned by
the contractor.
 What to charge?
Direct Cost

All people who work directly

on the construction
activities.
 What to charge?
Overhead Cost (Indirect Cost)
What to charge?
 When to use it?

• Budget is being restricted

• Actual cost might be reduced
• No enough data to perform a detailed
estimate of the work
• Design is not completed
 Advantages
• The contractor will not be able to
reduce workmanship.
• It can focus on quality instead of cost.
• It could cover all related expenses.
• Contractor’s risk is minimized
 Disadvantages

• Present uncertainty to the project owner

• Requires additional resources &
management
• Might lead to disputes when trying to
recover construction related expenses
• The project’s duration could be longer
than expected
 Contracts for Costs Plus a
Percentage
To pay the contractor the actual cost
of the construction work with a
specified percentage thereof as
compensation for his overhead
expenses, personal services, and
profits.
EXAMPLE

A CONTRACTOR AND THE OWNER

ENTERED INTO A COST-PLUS
CONTRACT TO BUILD A NEW SCHOOL
 Contracts Per Cost Plus a
Fixed Sum

The contractor cannot profit by any

increase in cost but on the other hand,
will secure the greatest returns to
himself by the least expenditure of
time and money for the owner.
 Contract Cost Plus a Variable
Premium
• A contract that provides incentive fees.
• The incentive fees are based on the
contractor’s performance and are set
under the contract provisions.
• The amount and type of incentive could
vary depending on the achievement.
 Renegotiation of Contracts

Business that fall short of monitoring

their contractual arrangements fail to
maximize revenues, control costs and
open their organizations up to a
multitude of risks.
 Factors
• Existing relationship
• More disagreement and blaming is
likely
• Less mutual benefit in renegotiated
contracts
Thank You!