The Contract Procedure

The Contract Procedure

??On every construction project there are but two primary parities or principals involved:the owner,who wants the job done,and the general contractor,who agrees to build it for an agree price in a specified period of time.

??The job architect or engineer

??Upon deciding to have a facility built,the owner engages the services of an engineer or architect who prepares the contract documents.Engineers are normally engaged by the owner when the proposed project consisrs primarily of engineering work such as roads,dams,bridges,and certain industrial facilities.Architects are usually engaged when the proposed project consists primarily of buildings.On most large projects the architect will,engage the services of a structural engineer,a mechanical engineer,and an electrical engieer,who report to and are paid by the architect.

??In all cases the contract documents will consist of a set of plans,the job specifications,the bid proposal,and the contract agreement.In addition,a notice to contractors,contract bonds,and a bidder¡¯s bond may be included.While the plans are being prepared,the architect or engineer maintains close contract with the owner and furnishes him with priliminary cost estimates for the developing project.These estimates enable the owner to confirm the economic feasibility of the project,and the plans may be modified to fit th e project to the funds available.

??Upon his final approval of the plans and specifictions,the owner selects a contract to build the facility.This may be done through negotiations with one or more contractors,or a number of responsible contractors may be invited to bid the project,which will subsequently be awarded to the lowest bidder.

??Skepticism is sometimes expressed regarding the concept of dealing with the lowest bidder.Such skepticism may be warranted in those cases wheree the prices of products or services are compared without regard to the specifications to which the products have been manufactured or to the experience and integrity of the suppliers of the services.

??In the construction industry it is the responsibility of the architect or the engineer to furnish a complete and detailed set of plans and specifications and a qualified job inspector or resident engineer and to limit the biding to competent and responsible contractors.Under such conditions,the awarding of the job to the lowest bidder will enable the owner to obtain the exact job desired at the lowest possible price.From the owner¡¯s point of view,his selection of the architect or engineer is of the utmost importance,and he should exercise great care and his besgt judgment in making this choice.

??Notice to contractors

??When the job is to be awarded on the basis of competitive bids,the owner sets a bid date togethere with a place and time fore the bid opening,and the architect or engineer notifies the contrctors that the job is out for bids.Public agencies have strict,legislated procedures for notifying contractors,and these procedures must be followed in detail on such work.In practice,all contractors subscribe to daily construction services which publish the essential information concerning jobs out for bid as well as the prices subsequently bid on all projects in any given geographical area.

??Prequalification of bidders

??To ensure that all contractors biding their work are competent and experienced,many public agencies require all prospective bidders to be prequalified.In such cases the contractors files a financial statement and an experience record with the agency on a yearly basis and is given a ratingt expressed in terms of the maximum total dollar volume of work he will be allowed to have under construction with the agency during the course of the year.The required bid proposal form will not be issued to any contractor if the estimated cost of the proposed project plus the value of other work he may still have to complete for the same agency exceeds his prequalification limit.

??Prequalification of contractors is an excellent requirement from all pionts of view.Inenables the owner to accept the lowest bid with confidence,and it provides an impartial and fair method of screening out prospective bidders who are too small or too inexperienced to bid on a particular project.This screening process thus provides definite benefits to the owner,his engineer or architect,and those contractors who are screened out.

??Prequalification should be required more often by architects and engineers in connection with larger private work.The prequalification limit in such cases could be based on a copy of the contractor’s current letter of prequalificition from the appropriate state agency,and no further analysis by the architect or engineer would be required.

??The cost estimate

??Upon receiving the plans,specifications,and bid proposal,each general contractor prepares a detailed cost estimate for the job.Time is often critical in the preparation of such estimate.The contractor may have only 5 or 6 weeks to bid a five-story concrete buildingt occupying a city block,for which the concrete take off alone may require as much as 160 man hours of work.

??During the preparation of the cost estimate,the estimator must not spend time analyzing unneessary details.Each job item must be analyzed only to the degree necessary to determine the lowest probable cost for the job as a whole.Extreme care must be used in estimating the cost of major job items,but time must not be wasted in efforts to be too precise in determining the costs of insignificant items.

??Subcontract costs

??In addition to the cost of the general contractor’s own work,estimates will include the costs of a number of subcontractors.During the course of construction,the subcontractors report to,are under the general direction of,and are paid by the general contractor.Subcontractors are often referred to by the trade or specialty they perform.Thus the painting subcontractor will frequently be called the painting contractor.The term”contractor” by itself normally refers to the general contractor.On building projects,aout 75 percent of the work is done by subcontractors,while on engineering work tghe general contractor will do about 65 percent of the work himself.

??In all cases,the general contractor has the sole responsibility fore the successful completion of the project.He furnishes the overall job supervision,prepares all time schedules,and coordinates the work of all of the subcontractors with his own work to ensure that the project is completed in strict accordance with the plans and specifications,in the least amount of time,and at the lowest possible cost to the owner.

??The bid opening

??On the bid day,all bids are submitted in sealed envelopes at the time and place designated,and no bids are accepted afeter the specified time for the bid opening.The bids are normally opened in public at the time apecified and are taken “under advisement” for a few days to enable the owner and his architect or engineer to carefully check and consider each proposal.Most specifications allow the owner to reject any or all bids,and all bids are rejected on rare occasions.In the typical case the job is awarded to the lowest bidder.

??The contract award

??Upon being awarded the job,the contractor and his bonding company sign the contract bonds and deliver them to the owner,and the owner and the contractor sign the construction contract.The contractor must then commence work within a specified period of time,which frequently will be 5 to 10 working days.

??After the dontract is signed,the owner is represented by the architect or engineer in all further dealings with the contractor.The contractor does the work in accordance with the plans and specifications and to the satisfaction of the architect or engineer.At the job level,the contractor’s superintendent deals on a day-to-day basis with the architect’s representative or job inspector or with the resident engineer in the case of engineering work.

??Pay estimates

??During the course of the work the dontrractor is paid monthly by the owner on the basis of monthly pay estimates which are approved by the architect or engineer.On most jobs the owner retains a specified amount,usually 10 percent of the total amuout earned,during the course of the job and for a specified period of time after completion.The retention period after completion is specified to allow mechanics’ liens and claims from material or equipment suppliers to surface,if any are forthcoming.In practice,the contractror will receive the final payment about 6 weeks afer the owner has accepted the work.

??In most cases the contractor receives the monthly payment from the owner 2 to 3weeks after the monthly pay estimate has been submitted for approval.Because of this time lag and the retention,it is important for the contractor to exercise sound judgment in determining how he will distribute his allowanes for direct job overhead,general overhead,and profit among the job items on engineering work or among the sections of the cost breakdown on building work.

??Contract change orders

??Unforeseen changes in the proposed work,which become necessary or desirable during the course of the job,are specified and paid for on contract change orders.Change orders are negotiated at the job level,approved by the architect or engineer,and paid for at agreed prices when possible.In cases where it is difficult to arrive at an agreed price,as set forth in the speifications.If the change order work falls on the critical path for the project,a time extension is negotiated and becomes a part of the contract change order.

??Liquidated damages

??Specifications may require the contractor to pay liquidated damages to the owner for each calendar day that the actual time required for completion exceeds the time specified for completion.Such damages may vary from $100 a day for a simple box culvert job to several thousand dollars a day on large contracts.

??Liquidated damages represent an attempt to arrive at a predetermined and agreed price for the actual damages that will be suffered by the owner in the event of delays in completing the work.From the owner’