Types Of Contracts

c. Disadvantages

• GC usually bids what is shown on the documents (even if the drawings are not consistent with intent).

• Selection of the subcontractors is usually based on the lowest bid and not necessarily on the quality of work.

• Interpretation of the documents may have future cost implications for the owner and the GC.

• The GC's staff may not be up to organizational standards required for the project (unless spelled out in the documents). This is done in order to submit a competitive price.

• It is a closed-book relationship. The owner does not see any of the subcontractor's pricing.

d. Suggested use

• If dictated by company policy.

• When construction market is weak.

• When several good GCs are bidding on the project.

• When owner's staff is limited.

• Government/municipal-type projects.

• May be required under the Sarbanes-Oxley Act, which is a government mandate to enforce ethical standards for public corporations.

2. Cost plus a. Procedures

• CM/GC will be paid for all trade costs and expenses plus a fee to complete the work.

• This method could be used when all the construction documents are completed, but in most cases, it is used when the construction documents are not complete.

• Can be used to negotiate with only one CM/GC.

b. Advantages

• Can expedite construction when the scope is not clearly defined.

• Long lead items can be purchased early.

• Is usually owner/CM/GC "friendly" because the scope is reviewed when bids are obtained.

• Can be open book when spelled out in the contract. (Open book is the process whereby the owner reviews the bids of the subcontractors as submitted to the CM/GC.)

• The owner will know the subcontractors bidding the work and thus will give approval for the subcontractors being selected. A full leveling process has to be accomplished by the CM/GC (see Chapter 16).

• Clearly defines the CM/GC's team and time to be spent on the project.

• It is easier for the CM/GC to perform value engineering.

• The value engineering method is used to reduce cost by evaluating alternative materials, methods, and scope of the project.

• CM/GC has full responsibility for the project.

c. Disadvantages

• Auditing of the project by the owner is usually required.

• Total cost of the project may not be known.

d. Suggested use

• When documents are not 100% complete.

• To expedite a project (i.e., fast tracking—starting a construction project without 100% completed documents, such as the foundation work starts without the curtain wall documents completed).

• When the owner requires a CM/GC early on in the project to evaluate cost and schedule.

• When the owner wants to negotiate the contracts with only one CM/GC.

• When critical long lead items have to be purchased early.

• Can be converted to a GMP contract.

3. Guaranteed maximum price (GMP)

a. Procedures

• CM/GC's cost is fixed in advance and guarantees a limit on the cost of construction. A contingency is also included in the cost base. Any money left over at the end of the project is usually shared between the owner and the CM/GC.

• Usually done on a negotiated basis between the owner and the CM/GC.

• The documents are not complete (usually 80% completed documents).

• CM/GC will not establish a GMP until approximately 80% of the trades have been bought out.

• Costs are based on pricing received from the subcontractors and where items are unknown, an allowance is added. An allowance is the estimated cost usually based on preliminary construction documents.

b. Advantages

• Can expedite construction when the scope is not clearly known.

• Maximum cost of the project is known even though the documents are not complete.

• Work is usually accomplished in an atmosphere of cooperation.

• Savings can be achieved and shared between owner and CM/GC through the use of alternatives or construction method efficiencies (value engineering).

• It is easier to resolve problems when working within a cooperative environment.

• Material can be purchased early, thus avoiding potential inflationary factors.

c. Disadvantages

• Every minor change has to be negotiated with the owner.

• The contract has to be very specific on what is to be included in the cost and what is to be excluded.

• All allowances must be clearly defined.

• Design concepts must be "frozen" early, thus reducing design flexibility.

• Large contingency will be required by the CM/GC to protect the GMP.

• Any contingency money left over after the job is completed must be negotiated between the owner and the CM/GC.

• The owner may require an audit.

• Changes to the project have to be defined as to where the associated cost will be taken from (either from the contingency or additional change order cost).

d. Suggested use

• When construction has to be expedited and drawings are not complete.

• In an inflationary market.

• When the owner wants to know the cost exposure early in the project.

• Large base building projects in an urban environment.

• Cost plus contracts is sometimes converted to a GMP. 4. Construction management (no risk)

a. Procedures

• Owner retains the services of a second party to act as the owner's agent.

• Usually works on a CM's out-of-pocket expenses plus a fee basis.

b. Advantages

• Construction documents are reviewed and evaluated for constructability, cost, and schedule.

• Subcontractors for bidding are selected on a pre-qualified basis.

• Construction cost is based on subcontractor's cost without a CM's mark-up.

• Professional CM organization is used for the management of the project.

• Value engineering and cost control can be maintained throughout the project.

• Fast track method of construction can be utilized.

• Pre-ordering of long lead items can take place early.

• Coordination of all drawings is accomplished throughout all phases of the project.

• Change orders should be kept to a minimum.

• Quality control (QC) should be higher.

c. Disadvantages

• No cost exposure except reputation.

d. Suggested use

• Expediting of project is required.

• Owner does not have the resources to manage the project.

• Complicated projects.

• When you have critical long lead items.

5. Construction management (at risk)

a. Procedures

• Usually works on a CM's out-of-pocket expenses plus a fee basis.

• CM is the contractor for the project.

b. Advantages

• Construction documents are reviewed and evaluated for constructability, cost, and schedule.

• Subcontractors for bidding are selected on a pre-qualified basis.

• Professional CM organization is used for the management of the project.

• Value engineering and cost control can be maintained throughout the project.

• Fast track method of construction can be utilized.

• Pre-ordering of long lead items can take place early.

• Coordination of all drawings is accomplished throughout all phases of the project.

• Change orders should be kept to a minimum.

• Cost of the project is guaranteed by the CM.

• Open book relationship between the owner and the CM.

c. Disadvantages

d. Suggested use

• When expediting of project is required.

• Owner does not have the resources to manage the project.

• Complicated projects.

• Fast tracking required.

• When there are critical long lead items.

6. Unit price or time and materials (T&M)

a. Procedures

• CM/GC submits cost based on unit prices or labor time and materials used.

• In some cases, the units are taken off by a quantity surveyor (British method), and then the CM/GC fills in the unit prices.

• Total price is based on the addition of all the quantities plus the cost for the general conditions.

b. Advantages

• The owner only pays for the materials that are actually installed and the labor that is expended.

• Easy to calculate any changes.

c. Disadvantages

• This type of contract is usually not used in the United States except for change order pricing and small projects. It has not been accepted because the unit prices may change as the job progresses. The unit price may not reflect the actual condition in the field.

• Need auditing staff to keep track of all quantities (labor and material).

• Need good outside estimating company to complete the "take-offs."

d. Suggested use

• When simple elements (that are repetitive) are used in a project.

• T&M to be used where change order needs to be expedited and change is not clearly defined.

• Small or maintenance-type projects.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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Responses

  • elias
    What type of contracts for GC's GMP?
    2 months ago

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