Plot in a graph the level of risk distributed between the owner and the contractor ... were done with a fast track delivery method and explain the reason for doing it ...
Why do we use Contracts Describe scope of work. Define project duration. Specify way of payment. Set control mechanism. Manage risk. Avoid disputes.
Lecture # 3 Contracts 1
Contract Price
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Contract Price
The construction contract price includes the direct project cost including field supervision expenses plus the markup imposed by contractors for general overhead expenses and profit.
Contract Price = Direct cost + indirect cost + Markup
Chris Hendrickson, 2003
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Direct Cost
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Indirect cost includes
Labor cost Installed equipment cost Material cost
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Indirect Cost
Direct cost includes
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Direct supervision Capitals tools Overhead cost Insurance Risk Taxes
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Mark up
Definition of Contracts
Mark up includes profit and rang from 2 to 10%. Some contractors includes overhead and risk with mark up.
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Contract Components Statement of work Schedule Period of performance Roles & responsibilities Pricing and payment Inflation adjustments Acceptance criteria Warranty
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Product support Fees Retainage Penalties Insurance Performance bonds Change order handling Termination Dispute resolution mechanism
Fixed price for the total project. Scope must be well defined. Contractor set higher markup to account for risk. Payment according to percent complete. Risk is shifted to the contractor. ENGR 301 Lecture 3
the owner and the performing organization to execute a defined scope of work. It’s the owner who chooses the type of contract and this is done according to the nature of the facility or product.
Types of Contracts
Lump Sum Contract
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A contract is an agreement between
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Prices are calculated per sq, cu ft, item, etc. Unit price include direct, indirect, overhead and markup. Contractor must review quantities set by the owner. Lower risk than in lump sum. S. El-Omari
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Cost Plus Fixed Percentage Contract
Cost Plus Fixed Fee Contract
For contracts with new technology. Owner pays the actual direct cost plus fixed percentage to cover the contractor’s overhead and profit. Contractors interested in higher direct cost because it increases there profit. Also they get paid for overtime works if project must finish early. Not recommended for time limited projects. Risk shifted more towards the owner. S. El-Omari
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Similar like cost plus fixed percentage contract but contractor tends to finish the project as soon as possible. Owner risk only in direct cost. Contractor can loose profit if project delayed.
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Cost + Fixed Fee + Profit Sharing
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Guaranteed Maximum Cost Contract
Contractor will be penalized for cost overrun and rewarded for cost savings. Risk of cost overrun distributed between the owner and the contractor.
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1. Plot in a graph the level of risk distributed
minor changes from the owner Project cost must not exceed in any case the estimated price.
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Assignment # 1
Project must be well defined with extremely
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Cost + Fixed Fee + sliding fees
If contractor make savings he or she will be rewarded. If contractor finish with cost overrun no penalty. Contractor tends to finish with cost savings to increase profit with an agreed %. S. El-Omari
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between the owner and the contractor associated with the various types of contracts. 2. Choose from your discipline a project with a cost plus contract and explain the reason of using this type. 3. Find 5 major projects (from the net) that were done with a fast track delivery method and explain the reason for doing it with this method. Assignment due: 19/09/2006 before the class. S. El-Omari
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