Contract Strategy ا. Contract Strategy
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1 ا Contract strategy means: selecting organizational and contractual policies required for executing a specific project ا ا و ا و ا ا ار %اف ا#وع و! ه اح ا 12/10/2013 Emad Elbeltagi 2 1
2 Project Objectives 1. Time 2. Cost 3. Performance 4. Other Objectives Time If the top-rank owner objective is to start the project as early as possible to maximize the profit or for political reasons, then a contracting strategy that allows speedy project delivery, such as overlapping design and construction, may become desirable 12/10/2013 Emad Elbeltagi 3 Project Objectives 1. Time 2. Cost 3. Performance 4. Other Objectives Cost There may be a need for minimum project cost to ensure adequate economic return. The selected contract strategy, therefore, should be flexible to the owner s cost requirements while also maintaining the other objectives desirable 12/10/2013 Emad Elbeltagi 4 2
3 Project Objectives 1. Time 2. Cost 3. Performance 4. Other Objectives Performance If the performance of the work at top-rank to the owner then a contracting strategy that accommodates changes to achieve a better performance and a teamwork approach may be desirable 12/10/2013 Emad Elbeltagi 5 Project Objectives 1. Time 2. Cost 3. Performance 4. Other Objectives Other Objectives Risk sharing between the owner and the contractor Staff training or transfer of technology Involving the contractor in the design Use of local material and resources Choice of labor-intensive construction Protection of the environment 12/10/2013 Emad Elbeltagi 6 3
4 The Contract What is a contract? Legally binding document that describes the responsibilities and rights of the parties 12/10/2013 Emad Elbeltagi 7 The Contract How are contracts formed? Owner issues Invitation for Bids (IFB) Contractor prepares and submits bid Owner reviews and accepts bid A contract document is developed, reviewed, and agreed upon by parties The contract is signed by parties 12/10/2013 Emad Elbeltagi 8 4
5 The Contract Contracts documents Contract agreement General conditions Special conditions Bills of quantities Drawings Specifications Plans Others (Change orders, Warranty,..) 12/10/2013 Emad Elbeltagi 9 Contracting Stages When do contracting stages start? What are contracting stages? 12/10/2013 Emad Elbeltagi 10 5
6 Contracting Stages Bidding documents ا 789:8 Invitation to bid <= 9 ب Acceptance form CDE Construction Contract اFGH8 CDE 12/10/2013 Emad Elbeltagi 11 Contracting Stages Contractor selection R89S وKLSوف ا 9G:8 ول KL:Mوف FGPQم اRB[8 اKL:8 وف ا 9L:8 رTQ VPW?BX8 YGZم اR89:8 اKL:8 وف VP[M ا 8 [\?BX8 YGZم 12/10/2013 Emad Elbeltagi 12 6
7 The Contract Contract agreement Usually includes names of parties, contract price, project duration, and scope of work 12/10/2013 Emad Elbeltagi 13 Contracting Stages The agreement 12/10/2013 Emad Elbeltagi 14 7
8 The Contract General conditions Responsibilities of each party Project Duration Establishes the payment process Warranty period and process Special conditions Describe unique requirements of the project Unusual work hours Site access restrictions Owner-furnished items Other special requirements 12/10/2013 Emad Elbeltagi 15 Organizational Structure (Project delivery methods) ا وا وا اف و او ا&%$ # أطاف ا وع ا اFA9HP8 ا 9H8 م أو اF`aGP8 ى) Traditional (General) Approach (طGQK? Separate Approach اFA9HP8 اC@[B:8 ) (طGQK? اd`[BPa8 اF8 ا< Ra ) Direct labor force (In-house) طGQK? ) f`agz ا 9P[:8 ح) Turnkey approach طGQK? ) اFA9HP8 اi@jP:8 Construction Management ( طGQK? ) 12/10/2013 Emad Elbeltagi 16 8
9 Organizational Structure Traditional approach (Design-Bid-Build) 12/10/2013 Emad Elbeltagi 17 Organizational Structure Traditional approach (Design-Bid-Build) DBB 12/10/2013 Emad Elbeltagi 18 9
10 Organizational Structure Characteristics separation of responsibility in design and construction which are handled by two different organizations he owner first hires architect or engineer to design the building or structure using low price or low bid method The design professional prepares a design the owner selects the general contractor through a bidding process the owner holds two separate contracts with the designer and the contractor 12/10/2013 Emad Elbeltagi 19 Organizational Structure Traditional approach advantages Price competition Total cost is known before construction starts Well documented approach used in most governmental projects Traditional approach disadvantages Takes a long time Designer does not benefit from contractor experience Conflicts between owner & contractor and A/E & contractor Changes may lead to disputes and claims 12/10/2013 Emad Elbeltagi 20 10
11 Organizational Structure Separate contracting method 12/10/2013 Emad Elbeltagi 21 Organizational Structure Separate contract method advantages Price competition Total cost is known before construction starts The owner can save profit that goes to the general contractor Suitable for projects that need specialized contractors Separate approach disadvantages Needs a qualified project manager The owner may be subjected to high risk Conflicts between contractors 12/10/2013 Emad Elbeltagi 22 11
12 Organizational Structure Direct labor Used by large authorities The owner performs both the design and the construction May use consultants for some specialized designs 12/10/2013 Emad Elbeltagi 23 Organizational Structure Direct labor Most suitable for small projects Can be used when expertise are available Low risk projects Inadequate scope definition 12/10/2013 Emad Elbeltagi 24 12
13 Organizational Structure Design-build (DB) Used mostly for repetitive typical work The contractor performs design and construction The owner appoints project manager 12/10/2013 Emad Elbeltagi 25 Organizational Structure Design-build (DB) a single entity performs both design (architectural and engineering) and construction under a single contract The DB contractor then estimates the total cost and time needed to design and construct the project construction begins and any changes to the design (within predefined limits) are the responsibility of the DB contractor A key advantage of the DB method is that it is not necessary for detailed construction drawings to be complete prior to start of the construction work 12/10/2013 Emad Elbeltagi 26 13
14 Organizational Structure Turnkey contract advantages The contractor share or perform the design Used for fast-track contracts, construction can start with the design Turnkey disadvantages here is little flexibility for the owner to make changes after the initial design is approved and a contract amount is established 12/10/2013 Emad Elbeltagi 27 Organizational Structure Construction management ا 67 ادارة) (*ول ا*. *-,&*+ *ول )' 0 م وع وھ 0 *: ا-, *رى 9 ا*م اى وا (*ول ادارة) 12/10/2013 Emad Elbeltagi 28 14
15 Organizational Structure: Construction managemen Owner retains a construction manager to provide construction management services for a project throughout preconstruction and construction These services may include preparation and coordination of bid packages, scheduling, cost control, value engineering, and construction administration 12/10/2013 Emad Elbeltagi 29 Organizational Structure: Integrated delivery (IPD) Functional Organization within the construction industry 12/10/2013 Emad Elbeltagi 30 15
16 Organizational Structure: Integrated delivery Each step has its own associated handling and processing costs, time High levels of fragmentations. There are multiple stakeholders involved Project communications problems The Need for Integrated and Concurrent Engineering Approaches 12/10/2013 Emad Elbeltagi 31 Organizational Structure: Integrated delivery 12/10/2013 Emad Elbeltagi 32 16
17 Organizational Structure: Integrated delivery (IPD) is a relatively new procurement process that is gaining popularity as the use of virtual design and construction concept expands and the industry learns how to use BIM technology to support integrated teams integrated projects are distinguished by effective collaboration among the owner, designers, contractors and other project participants This collaboration takes place from the early design and continues through project handover 12/10/2013 Emad Elbeltagi 33 Organizational Structure: Integrated delivery The key concept is that project team works together using the best collaborative to ensure that the project will meet owner requirements at significantly reduced time and cost Either the owner be part of the team to help manage the process or a consultant must be hired to represent the owner s interests, or both may participate BIM provides the necessary tools to evaluate the design model to explore various tradeoffs such as cost, energy, functionality, aesthetics, and constructability 12/10/2013 Emad Elbeltagi 34 17
18 Organizational Structure: Integrated delivery key principles of IPD Co-operative working relationship between multiple project stakeholders Shared risk and reward Open exchange of data using technologies such as BIM Early sharing of project information and insight by project stakeholders Maximise value to owner by cutting waste and improving efficiency through all project phases. 12/10/2013 Emad Elbeltagi 35 Organizational Structure: Integrated delivery Factor DBB IPD Teams Process Fragmented, assembled on just-as-needed Linear, distinct, segregated; knowledge gathered just-as-needed An integrated team entity composed of key project stakeholders Concurrent and multi-level Risk Individually managed Collectively managed Communications Paper-based, 2 dimensional Digitally based, virtual; Building Information Modeling 12/10/2013 Emad Elbeltagi 36 18
19 Types of Contracts Contracts are classified according to the method of payment to the contractor payment to the contractor ا*( )ول +,- 3 ا 2 د /0 ا.. Contracts &ة Cost based Price based ا> &ةا 7 & Cost plus ا>@ ا,داد B7+ # او 9 *ت Target Cost Unit price =# ا 0 ة Lump sum ا< 0 ا> ا 7? 9 12/10/2013 Emad Elbeltagi 37 Type of Contracts What is the difference between cost & price? 6 ا/ق 0 ا)/ و ا, Price Margin Cost Profit Indirect cost Direct cost Risk allowance Site overhead Labor Financial charge Office overhead Material Equipment Subcontractors 12/10/2013 Emad Elbeltagi 38 19
20 Type of Contracts Providing incentive for efficient performance Introducing changes during construction Allocation of risk between owner & contractor 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost Factors favoring the use of a specific contract ا;:ء -*8 )/7 ا ارة ;) ا= ا>ء ا/ 7 2 ز( ا@ 0 ا? واول 12/10/2013 Emad Elbeltagi 39 Type of Contracts #= ا 0 ة ( Unit price ) or Admeasurement contract ا* 7 ) ) (B.O.Q. 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost *D ا&:> 0 ن و6?*# ا*.وا*ول (د 9 ا>*ت D* ا> و>#ا*.- &فا F7 >H : &, E دا*ول ا)?ه ا&* D و** - &ف أ *D: # ر J ا*ول أو )*طه J7 H ات 9 ا>*تا 0 اردة 9 ا>*ت B7 E دة (%25) إذا ا, E = L 0 د أو زادت *ت ا 0Bد ا 0 اردة 9 ا>*ت # ا B7 ا E دة ا 7 & را, O :< 9 ا F*H R - ا O ا*ول * Qدى إ وث *ز*ت 12/10/2013 Emad Elbeltagi 40 20
21 Type of Contracts Unit price contract 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost 7 )م ا* 97 ا و*ت ا< و و*ت ا?,ا+ وا># وث H اتأو &%ت أ=*ء ا +<*ق E ود و 9 * ما*ل ا*ت V %ف ا< 0. 12/10/2013 Emad Elbeltagi 41 Type of Contracts 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost Unit price contract ا ا*. *D: ا وعإ B و&ف B Y * ا Xا*ا* أ %80#Z و*تا و 7 )م 9 (إذا <F &%تأو H ات) E دة ]*B* ةا > 0 ن ا 9X ]*B* ا 7 &اىم ا*ول E ودة B7 H ا J7 م ا Eا$ 6 \*ل$ Z: 0>Vرة ا*.أوا*ول ( E :ا[,&*ر) ا> ا?* Y وع ] E دةو-># &9?* إ-& ا+?*ءا وع Zةا Xا*ت ا^* 09 د L7 **7 12/10/2013 Emad Elbeltagi 42 21
22 Loading of Rates 9Hpر) اq C`:rZ ) Balanced Bid tpsن u`:vz Unbalanced Bid tpsن K`w u`:vz 12/10/2013 Emad Elbeltagi 43 Loading of Rates 9Hpر) اq C`:rZ ) ز*دة ا 9 *تا 9 اا وعوذ. 7E # $0 ا* ا *9 و` 0 دV <_ *تا[*ل 9 - ا % #$ ان! رة ا أو اول Unbalanced Bid tpsن K`w u`:vz 12/10/2013 Emad Elbeltagi 44 22
23 Type of Contracts Lump Sum ا< 0 ) ) 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost ا-*ق# ا*.وا*ول ا وع (أو` Xء) 7& إ`* 0 ا*ول 9) & ا[ 0 ال) 0a7 اوا E: ا*ول $0 ا* +?* 9 ا وع أو د 9 &*ت 7 )م و*ت ا& 9 `اوا: 9?* ا)*ط projects) (Low risk (Design-build) *,F و*ت ا وا و 7 ا*ح (Turnkey) 12/10/2013 Emad Elbeltagi 45 Type of Contracts Lump Sum ا< 0 ) ) 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost ا :D* ا*. [ Xم_ ا*. 6B7 * Xا*ا* 7 *د# BVةا*ول 9 ا 12/10/2013 Emad Elbeltagi 46 cدv *ل أ H ات 9 ا J7 - وط ا&*$? H* و أى V: أو db 9?* Qدى إ *ز*ت E: ا*ول : ا)*ط ا $ &ض?* ا وع 23
24 Type of Contracts 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target ا,داد +B7 # او 9 *ت أو ا> وا-^* 9 ) Cost-Plus ا> ) ا-*ق# ا*.وا*ول ا وع (أو` Xء) أن 7 د ا*ول : او 9 *ت ا E?* * ^*9 إ ز*دة + ا دارة وھ* f ا J ا ^*9 $ > 0 ن gb =*L أو +B7 E دة # ا> ا> أو ا ا*ول Xم &: د 9 * = B *ت او 9 *ت ا& 9 ا وا*دھ* # ا*. ھا ا 0 ع # أ, 0 أ أ+ 0 اع ا& 0 د *B7 *. 12/10/2013 Emad Elbeltagi 47 Type of Contracts Cost-Plus 9 * ر] Bا*.ا *ر 9 إدارةا وعوا$ Bا> ا ا> #< ا B ء 9 ا :B$ ا-+?*ء # ا*ت - R$0 ا&*$ و+* [ي H ات أو&%ت 9 ا*ت أى X9* : ا> ا*ول d > ا وع إ- & ا+?*ء ا وع E D&0 م E: ا*ول أ )*ط 12/10/2013 Emad Elbeltagi 48!)'م 9 ا و*ت ا H E دة ** و]F ا*. 9 ا ا B > *ر ا*. 9 إدارة ا وع 24
25 Type of Contracts Target Cost ا 7? 9 ) ا> ) 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost 6 ا*. وا*ول ا وع > 7 ا> ا 7? 9 E د ا*ول وا*. ا> ا 7? 9 *ءا ا B *+*ت ا 90 ة و$ L ا&*$ ا># ا>ا 7? 9 و طأ- X cost-plus ا&*$< إذا زادت ا> ا?* Y # ا> ا 7? 9 7<@ ` Xء # ر J ا*ول وإذا $L *? ر J ا*ول B7 6 X 12/10/2013 Emad Elbeltagi 49 Type of Contracts Target Cost ا 7? 9 ) ا> ) 5% Fee 3% Fee 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost Actual cost Target cost ا ie و*$ أ H ات أو )*ط أ=*ء ا> ا 7? 9 ھه ا H ات و H ا> وا 9*^ واق ** B ا& ھا ھ 0 *ر ا*ول ` Xء :E 9 # أ ا 0Oھى X # ا> ا 7? 9 وع و 9 *ت Cost 7 )م ھا ا 0 ع 9 اjن 12/10/2013 Emad Elbeltagi 50 25
26 Type of Contracts Target Cost ا ا: 9*^-* cost-plus Xات d+ ا*ول *X9 : ا> ى E: ` Xء # ا> إذا زادت # ا 7?ف ا*ول ا_ V ا وع *^*9 *X9 %+?*ء ا B >و]ا %+?*ء ز# ا B *ر #< > ا وع إ- & ا+?*ء ا وع E D&0 E: ا*ول أ )*ط م 12/10/2013 Emad Elbeltagi 51 Type of Contracts: Target Cost Example: In on of the projects, the owner and the contractor agreed to use the Target Cost contract under the following conditions: Project target cost = LE 750,000 Contractor fee = LE 90,000 The contractor will pay 50% of any additional cost The contractor will get 50% of any saving What are the total project price and the contractor profit if: a. Actual cost = LE 750,000 b. Actual cost = LE 900,000 c. Actual cost = LE 650,000 12/10/2013 Emad Elbeltagi 52 26
27 Type of Contracts: Target Cost Case Target cost (LE) Actual cost (LE) a 750, ,000 b 750, ,000 c 750, ,000 Contractor income (LE) Total project price (LE) 90, ,000 15, , , ,000 b. 90,000 + (750, ,000) * 0.5 = LE 15,000 Project price = 900, ,000 = LE 915,000 c. 90,000 + (750, ,000) * 0.5 = LE 140,000 Project price = 650, ,000 = LE 790,000 12/10/2013 Emad Elbeltagi 53 Type of Contracts 1. Unit Price 3. Cost Plus 2. Lump Sum 4. Target Cost Risk sharing between owner & contractor 100% 0% Turnkey Owner risk Lump sum Unit price Cost plus Owner direct force 0% Contractor risk 100% 12/10/2013 Emad Elbeltagi 54 27
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