An Najah National University

Faculty of Engineering


Dr. Nabil Dmaidi
Eng. Mohammed Abu Neamah


CONSTRUCTION CONTRACTS
COST ESTIMATE AND
SPECIFICATIONS


Course Description
The course is designed to give students, a working
knowledge of construction contracts, contractual
relationships within the construction industry and
fundamentals of construction specification writing.
Course Outline
Introduction
Elements of the total construction project cycle and processes.
project delivery methods,
Construction contracts types
bidding process
Contract documents
Type of bonds
Specifications
Drawings
General Conditions

Course Outline
Claims
Dispute resolution
Quantity surveying
Estimating construction cost
Pricing

Grading System
Grading policy for this course will be based on the following:
Project 30%
Midterm Exam 30%
Final Exam 40%

Text Book & References
Text Book:
Estimating Construction Cost, Robert R. Peurifoy
Hinze, Jimmie (2003) Construction Contracts. 3
rd
Edition,
McGraw-Hill Book Company, New York.
References:
Edward R. Fisk & Wayne D. Reynolds, Construction Project
Administration, 9
th
Edition.
Smith, Currie & Hancock (2005) Common Sense Construction
Law. 3
rd
Edition, John Wiley and Sons, Hoboken , New Jersey



Aims and Objectives
At the completion of this course, the student will:
Describe the relationships between the parties in the construction
process (the owner, contractor, and architect) as well as their
roles, duties, and responsibilities.
Understanding the projects delivery systems and different
contracts organizations. And understanding the different
construction contracts types, documents and specifications.
Understanding the various bidding procedures and ability to
prepare bid documents and contract documents, in addition to
ability to understand the types of bonds.



Aims and Objectives
At the completion of this course, the student will:
Ability to estimate various cost components in construction
projects.
Understand the quantity surveying techniques and methods.



Introduction
Definition of Terms:
Construction Management
Construction Contracting
Construction Administration
One-to-One Concept (in organization)
Construction Management
Construction:
The process by which material, equipment,
machineries are assembled into a permanent facility.
Management
The planning, directing, and controlling of resources
(Material, Manpower, Machines, Money) to achieve
the desired goal (Time, Cost, Quality)

Construction Contracting
Contracting:
The legal and business activities needed for initiating,
executing, and terminating a construction contract.

Construction Administration
Construction Administration:

Closely related to construction management.
Can be defined as the implementation of construction
management principles.


Construction Administration
Covers the following area:
Planning and Scheduling
Business and communication system
Material control
Payment procedure
Changes to the work
Inspection and acceptance


One-to-One Concept
Previous Administration functions involve different
parties (Owner, contractors, Engineers)
To minimize confusion, conflicts, claims, use:
One to One concept
Each party has a single representative who
communicates important project information and
orders.



Classification of Construction Projects:
By Size: Small, Medium, Large, Mega.
By Ownership: Private, Public, Military.
By Usage: Residential, Commercial, Industrial,
Utility. (Usage can be expanded to subcategories).
By Scope (preferred):
Building (Residential, non residential), emphasis
on aesthetics.
Engineering (Highway, Heavy, Utility) emphasis
on function
Industrial: emphasis on production


The Construction Participants
Three key players in the game:

The client (or Owner or stakeholder)
The A/E or consultant
The contractor (or Constructor or Builder)



Relationship Among Parties




Owner
General
Contractor
Subs A/E
Project
contract
contract
own
Design
build
build
contract
The Owner
The owner, (also called the client)
A client maybe an individual.
A group of people.
A partnership.
A limited liability company.
A local or central government authority



The Owner
The owner is responsible for:
Funding and paying bills for the construction of project.
Determining what the project will include (also called the
scope of the project), when the project can begin and must
end (the schedule),
Receive the ultimate benefits of the finished project.




The Owner
Owner organizations can be broken into two major categories,
public and private.

A public agency exists for the ultimate benefit of the
citizens, the general public. Examples of public projects:,
an highway, or an University.

A private organization can be described as any individual,
partnership, corporation, or institution that builds a project
for its own use or for resale.

The owner enters into separate contract with Architect and
contractor.


The Design Professional
The consultant is a party of the contractual relationship has
professional skills in engineering whether civil, structure,
architectural, mechanical. Etc.
Who acts in behalf of the client.





The Design Professional
The major role of the design professional:

Is to interpret or assist the owner in developing the project's scope,
budget, and schedule and to prepare construction documents that
will be used by the construction contractor to build the project.

The architect typically sub-contracts portions of work to other
design professionals such as structural engineers, landscape
architects, electrical & mechanical engineers

In almost all cases the design professional is a licensed, registered
professional who is responsible for the physical integrity of the
project.




The Contractor
A contractor is an individual or an entity that enters into a
contract with the owner to carry out the construction work.

If only one contractor is appointed he may be known as the
main/prime contractor.

The Contractor is responsible for the interpretation of the contract
documents into physical facility. Transform idea to reality







The Contractor
In most cases the prime contractor divides the work among
many specialty contractors called subcontractors. On a large
project these subcontractors may also divide up the work into
even smaller work packages

In a traditional arrangement where the owner, design
professional, and contractor are separate companies, the
contractor is termed a prime contractor and is contractually
responsible for delivering a completed project in accordance
with the contract documents.





The Subcontractors
A contractor assigned and work under the supervision of the
main contractor and who has special skills, experiences and
equipment to deal with specialized aspects of the work.

Nominated subcontractor
Non-nominated subcontractors
Project Life Cycle
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
Occupancy



Project Planning Phase
During this phase of the project the owner makes decision that
set the tone for the project. All projects begin with an idea or a
need

During this stage the owner :

Selects the project site, and
Establishes a conceptual estimate, schedule.
The most critical decision that is made during this project
phase is to make a decision as to whether or not to proceed
with the project (called a go/no go decision).



Project Planning Phase
Phase activities:

Feasibility studies
Facility programming
Budgeting
Project delivery system selection
Scheduling
Site selection/acquisition
Site investigation
Financing
Design services procurement



Design Phase
Design process involves:
Schematic Design
Talk to owner, rough sketches
Design Development
Major Systems & component selected
Contract Documents
Preliminary Cost estimate
Develop Preliminary working drawings
Develop working drawings with Specifications


Schematic Design
The A/E reviews and evaluates the owners program and budget
requirements and discusses with the owner alternative approaches to
the design and construction
During schematic design, the A/E prepares conceptual design
documents. These may include: Preliminary sketches ,Small scale
schematic plans, elevations, sections, diagrams, renderings, and other
graphic and written documents, General written description of
project.
The completion of the schematic design phase represents
approximately 30 percent design completion for the project

Design Development
The design development phase takes the project from about 30
percent to approximately 60 percent design.
It is the time when the design team will be evaluating and selecting
all the major systems and components of the project.
During this phase of the project the design team is involved in the
evaluation and finalization of all the architectural components and
project systems.
The project's budget and schedule continue to be monitored and
adjusted.



Contract Documents
Construction Procurement:
Contractor qualification/bidder list
Solicitation
Proposal preparation
Bid/proposal opening
Bid/proposal evaluation
Award of contract
Final negotiation




Construction
Mobilization
Subcontracting
Purchasing
Permits
Site preparation
Foundations
Interior finishes and equipment




Occupancy/ Post Construction:
Start-up and testing
Leasing
Operation
Correction
Repairs/maintenance
Building evaluation




Cost Influence Curve
Level of Influence
I
n
f
l
u
e
n
c
e

P
r
o
j
e
c
t

C
o
s
t

Time
Project Delivery Systems (PDS)
Project Delivery Systems
Project Delivery Methods
Definition
Types of Project Delivery Methods
Traditional
Design-Build
Professional Construction Management (PCM)
BOT ( Build Operate Transfer)
Advantages & Disadvantages of various PDM



Project Delivery Method
The term delivery method means the approach used to
organize the project team so as to manage the entire designing
and building process.
The owner needs to decide which designers to hire, when to
hire them, and under what type of contract ?
The owner also needs to decide when to hire the
construction professional and under what type of contract ?
Which organization gets hired first? Do both organizations
report to the owner, or does one report to the other?


Project Delivery Method
project delivery systems
describe how the
participants are organized
to interact, transforming
the owners project goals
and objectives into a
finished facility. Also its is
the method by which a
construction project is
executed.

Project Delivery Method
It is the first allocation of base responsibilities between the
owner, design professional and contractor. Thus, the project
delivery system is the foundation on which all subsequent
negotiations will be based.

Type of Project Delivery Systems
Traditional (Design-Bid-Build)
a) Design-Bid-Build with prime contractor
b) Design-Bid-Build with multiple contractors
Design-Build (Turnkey)
Self performance (In house) or (force account work)
Professional Construction Management (PCM)
BOT ( Build Operate Transfer)
Choose one of these classifications depends up the client goal
suitability.


Traditional Approach
Also known as Design-Bid-Build or hard money or Competitive bid
contract.
Has three sequential phases: Design - Bid - Construction
The owner hires a design professional who prepares a complete set of
contract documents for the owner for a design fee.
The owner either negotiates a price with a general contractor or bids out the
work.
The general contractor is totally responsible for delivering the completed
project as spelled out in the contract documents.
The general contractor may subcontract out parts of the project, with each
subcontractor reporting directly to the general contractor.
The designer may be involved in overseeing the construction work in the
field.
In this delivery method no direct, formal relationship exists between the
designer and the builder. They communicate only through the owner

a) Design-Bid-Build with prime contractor
Owner
Prime
Contractor
subcontractor Suppliers subcontractor
A/E
Design consultant
b) Design-Bid-Build with multiple
primes/GC (separate contracting)
Owner
Prime
Contractor
subcontractor
M. Prime
Contractor
E. Prime
Contractor
A/E
Design consultant
subcontractor subcontractor
b) Design-Bid-Build with multiple
primes/GC (separate contracting)
The client has a direct contract with consultant.
The client also has direct contracts with many contractors to
carry out construction
The contractors also have contracts with the material suppliers
and other specialized subcontractors.

Typical DBB Process
The four phases:
Advantages of Traditional PDS:
Familiarity: Most owners, designers, and builders have worked
under this framework on many projects and therefore are familiar
with the system.

Overall Job coordination: Their control systems, documentation,
and organizations are all set up to manage this process. The workers,
subcontractors, and vendors also understand the system, improving
overall job coordination.

Owner can get a firm fixed price for the project before any work
begins. The owner knows before construction begins what the cost of
the project will be.

Opportunity to get good price competition from the open market.
Disadvantages of Traditional PDS:
The approach takes a long of time.

Design does not benefit from construction experience

Conflicts between owner & G.C. and between A/E & G.C.

Changes in work may lead to disputes, litigation , claims and
may increase cost.





Design-Build (Turnkey)
In this approach, a single organization is responsible for performing both
design and construction .

Within the design-build organization, parts of the design may be
subcontracted to specialist consultants.

Being responsible for both design and construction, the design-build
contractor carries most of the project risks, and this can mean additional cost
to owner.

The owner's role in this approach is minimal and is only to express his or
her objectives and specifications precisely before detailed design is started.

Consultant maybe appointed to prepare tender and evaluation

Contractor consultant if the first is unable to perform design skills.


Design-Build DB (Turnkey)
Owner
Design-Build
Contractor
subcontractor supplier subcontractor
Design consultant
Some times
Design-Build DB (Turnkey)
Typical Design-Build Process
The four phases
Design-Build Advantages
Good communication occurs between the design team and the
construction team. Allows for constructability analyses and value
engineering.
Single point of responsibility for owner.
This collaboration allows the project to be easily fast-tracked, cutting
down on the design-build time for the project.
Good cost estimating and scheduling should occur throughout the
entire project.
In general, this arrangement allows easier incorporation of changes
due to changed scope or unforeseen conditions than in the other
arrangements, since the coordination is to occur within the same
company.
Claims reduction
Design-Build Disadvantages
Cost may not be known until the end of design

Design-build company may sacrifice quality to insure
profitability

Reduced owner involvement in the design process may result
in less than expected results

All your eggs in one basket

Heavy overhead due to large multi-disciplined staff
requirements

Forms of Design Build Organization
Identity of the design-builder:

Integrated Design-Build Firm

Contractor as lead

A/E as lead

Joint Venture





Self performance
Owner
subcontractor supplier subcontractor
Design consultant
worker
Self performance
The client has a direct contract with consultants. (some times
not)
Owner is responsible for both design and construction
The client has no contracts with contractors to carry out
construction.
Best suited when volume of work is large and continuous.
He is the one who will perform the job.
Professional Construction Management
In this approach, the owner appoints a PCM organization (also known as
own construction management organization) to manage and coordinate the
design and construction phases of a project using a teamwork design
approach.
The design may be provided by specialist design firms and in some cases
by the PCM organization.
With a high level of coordination between the participants, innovative
approaches of overlapping design and construction (i.e., fast-tracking) can
be adopted.
The PCM organization aims at holding a friendly position similar to that of
the consultants in the traditional approach.
The services offered by the PCM organization overlap those traditionally
performed by the architect, the engineer, and the contractor.
Professional Construction Management
These services may include:
management and programming of design;
cost forecasting and financial arrangements;
preparation of tender documents; tender analysis
and selection of contractors;
selection of methods of construction;
planning and scheduling construction works;
materials procurement and delivery expedition
Professional Construction Management
Although this approach is likely to prove marginally more expensive
than the traditional approach, it offers greater guarantee of
performance and the potential to avoid time overruns and to reduce
the cost of claims.

The payment to the PCM organization is usually a fixed fee or
percentage of the total project cost.

Use of PCM approach, should be considered when there is a need for
time saving and flexibility for design changes, and the owner has
insufficient management resources

a) Management Contracting (CM @ risk)
Owner
subcontractor supplier subcontractor
A/E
Design consultant
Management
Contractor
a) Management Contracting (CM @ risk)
The client contracts a contractor acts as a management
contractor.

Provide purely management services.

Management contractors contracts directly with other
contractors to carry out the work

The client contracts consultant to provide design and cost.
b) Construction management (Agent)
Owner
subcontractor supplier subcontractor
A/E
Design consultant
Construction
Manager
Prime
Contractor
b) Construction management (Agent)
The clients directly contracts with a

professional construction manager.
Design and cost consultant
Construction Contractor to carry out the work

The construction manager is the agent of the client.
PCM Advantages and Disadvantages
Advantages:
Construction skills can be utilized at all stages of the project
Independent evaluation of cost, schedule, and construction performance
CM often assumes greater DEGREE of control over contractor
Full time coordination between design and construction
Opportunity to use value engineering and constructability review

Disadvantages: CM
Does not guarantee construction cost or time
Involve additional fee up to 4%
Is not responsible for their performance
Success of the entire program depends on the skills of C. Mgr.
Built Operate Transfer (BOT)
The term Build-Operate-Transfer (BOT) was first coined by Minister
of Turkey, in1984

Essentially in a BOT project delivery method, a private entity,
usually a consortium is responsible for financing, construction,
operation and maintenance of the facility for agreed duration known
as Concession period and at the end of the period, transfers the
ownership of the facility to the government.

A BOT mechanism is a complex structure comprising multiple, inter-
dependent agreements among various participants.

The concession agreement is between the government and the
concessionaire. The concession agreement is regarded as the heart
of a BOT project
Examples on (BOT) Projects
(BOT) Contractual Structure
Built Operate Transfer (BOT)
Characteristics of BOT projects:

Project financing is totally provided by the private sector.

Projects are large scale infrastructure, such as power plants,
transportation, telecommunications.

The delivery is a complex system involving many
independent agreements with various parties.

Projects involve high risk.

Advantages of Built Operate Transfer
Facilitate building public projects which otherwise can not be
done due to tight government budget.

The project and its associated services will be produced more
efficiently, since private organizations are more efficient and
innovative than public organizations.

BOT projects attract direct foreign investment and create
business opportunities for the local private sectors.

BOT projects help in transferring technology in the host
country.



Disadvantages of Built Operate Transfer
BOT is not an easy method and requires high capability of
promoters and expertise.

Not suitable for small projects

Transaction costs are high, they amount to 5-10% of total
project cost

Requires assurance that the revenues generated in the operation
phase are high enough to result in attractive Return On
Investment (ROI)




Selecting Delivery Method
Three main factors:
Time
Cost
Quality






Selecting Delivery Method
All the systems mentioned provide adequate Performance.
However, they all provide different emphasis and different
levels of risk.


Economy & Speed Design & Build

Individual building
with longer program Traditional

Fast Completion with
innovation Management