Audio Sessions. Session 4 PROCUREMENT. Construction Contract Administration Education Program

Transcription

1 Audio Sessions Session 4 PROCUREMENT Construction Contract Administration Education Program Certified Construction Contract Administrator (CCCA) Preparatory Course 2011 The Construction Specifications Institute This presentation is protected by US and International copyright laws. Reproduction, distribution, display and use of this presentation without written permission of the speaker and The Construction Specifications Institute is prohibited. The Construction Specifications Institute AIA The Construction Specifications Institute is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-aia members available on request. This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation. 2 1

2 Learning Objectives To name the various pricing methods and become familiar with the concept of pricing To identify pricing considerations and pricing under various delivery methods To contrast between public and private bidding and negotiating To explain subcontracting as well as the issues and concerns, especially bid shopping To describe the general considerations and processes of good purchasing The Construction Specifications Institute 3 Session Outline STUDY GUIDE: Subject Matter Area No. 4-8% PROCUREMENT A. The Concept of Pricing 1. Pricing methods 2. Purchasing 3. Project funding B. Pricing Considerations 1. Pricing categories 2. Competitive pricing 3. Value analysis of substitutions 4. Pricing under various delivery methods C. Project Information 1. Distribution of information 2. Control of information D. Bidding 1. General considerations 2. Public bidding process 3. Private bidding process E. Negotiating 1. Participants 2. Procurement documents 3. Negotiating procedures 4. Value analysis The Construction Specifications Institute Continued on following slide 4 2

3 F. Subcontracting Session Outline STUDY GUIDE: Subject Matter Area No Subcontractor prices 2. Subcontractor issues and concerns 3. Bid shopping 4. Subcontractor bidding environment G. Award of Contract PROCUREMENT Continued from previous slide H. Purchasing of Goods 1. General considerations 2. Participants 3. Documents 4. Processes 5. Cost impacts and concerns I. Agreements The Construction Specifications Institute 5 PROCUREMENT STUDY GUIDE AREA NO. 4 The Construction Specifications Institute 6 3

4 THE CONCEPT OF PRICING STUDY GUIDE: Submit Matter Area No. 4 - A. 1. Pricing methods 2. Purchasing 3. Project funding The Construction Specifications Institute 7 Pricing Methods Stipulated sum, also known as lump sum Cost of the work plus fee Cost of the work plus fee with guaranteed maximum price (GMP) Time and material with an estimate of probable cost Unit price

5 Pricing Methods Stipulated Sum Lump Sum Simplest type of bidding Typical for competitive bidding Fixed amount for extent of work Includes Cost of the work Contractor overhead Contractor profit Pricing Methods Cost of the Work Plus Fee Usually negotiated, often during design phases Owner accepted risk of not knowing final cost when construction begins Construction input on design Control of scheduling commitments Includes Cost of direct expenses Contractor fee - Fixed - Percentage of direct expenses

6 Pricing Methods Cost of the Work Plus Fee with GMP Same as cost of the work plus fee, except Contractor provides a not to exceed price (usually an estimate) Protects more knowledgeable Owner Opportunities for shared savings if actual costs are less GMP Pricing Methods Time and Material with Estimate of Probable Cost Alternate to cost of the work plus fee with GMP Also effective for negotiated Contracts Owner and Contractor agree to Proceed on a time and material basis Include percentages for overhead and profit Include estimate of probable cost

7 Pricing Methods Unit Price Popular method for public and private projects that can not be accurately defined prior to construction Type of work known at time of bidding Extent of some or all of the work not known until project completion Cost of the work based on a price per unit of measure for designated items Price per unit of measure includes Labor and materials Overhead and profit Other applicable pricing considerations Purchasing Direction acquisition of materials and equipment by Owner (buyer) For installation in project Use in constructed facility Supplier not normally engaged in project site installation Purchasing requires documentation that, governed by Uniform Commercial Code (UCC) Define extent of goods and related services to be purchased Rules defining manner in which supplier s price is to be presented Prices can be presented as Stipulated sum Unit prices

8 Sources will influence Project delivery method Pricing method Project Funding Privately funded projects may be Competitively bid Negotiated Publicly funded projects, by law, states that contractors are to be selected by competitively bid process Funds are from publicly generated revenue, such as tax revenue or publicly issued bonds Many AHJ s have determined that it is in public s interest to procure projects according to design-build delivery method Construction Contract Administration Practice Guide: PRICING CONSIDERATIONS STUDY GUIDE: Submit Matter Area No. 4 - B. 1. Pricing categories 2. Competitive pricing 3. Value analysis of substitutions 4. Pricing under various delivery methods The Construction Specifications Institute 16 8

9 Pricing Categories Construction costs Cost to perform the work Contingency Amount estimated for unknown costs Contractor s overhead Business costs Contractor s profit Financial benefit Labor and personnel Subcontractor Products Allowances Mock-ups and samples Tools and equipment Rentals Fuel Safety and security Special training Construction Costs Temporary facilities and controls Waste removal/disposal Administrative Permit and inspection Field engineering Testing and inspections Coordination Mobilization and start-up Site restrictions

10 Royalties, licenses, and fees for use of patented designs or products Delegated design costs for engineering of products based on performance criteria Insurance and bonds Applicable taxes Deductions Construction Costs Construction Costs Costs can vary significantly from Contractor to Contractor Product cost vary among suppliers - Quantity discounts - Payment history - Credit rating of purchaser Labor costs and time estimates vary Labor rates vary with skill and experience Cost vary with composition of workforce Cost vary with Contractor s perception of difficulty Profit margins vary with other work available Competition for project Human error

11 Contingency Costs Covers unexpected cost perceived by Contractor arising from Incomplete documents Estimated sums for unverified cost factors Errors made in pricing Costs related to dispute resolution, legal fees, and claims Costs and penalties related to scheduling delays Subcontractor or supplier default resulting in delays and monetary losses Unspent contingency can result in more profit when all costs and claims are settled Contractor s Overhead Cost of maintaining a business not directly related to a particular project Business licensing fees Salaries, wages, and benefits for general management General office expenses including rent, mortgage, and utilities Equipment Office supplies Overhead usually calculated as a percentage against cost of a project

12 Financial benefit after all costs and claims are paid Often based on a percentage of the cost of the work Contractor s Profit Depends on Competitive Pricing Seeking lowest prices available from subcontractors and suppliers for known cost factors Accurately estimating contingency factors without overestimating or underestimating their economic effects Determining reasonable sums for overhead and profit Represents accurate analysis of project Prices can vary from contractor to contractor Product costs vary among different suppliers Labor costs and time estimates will vary among Contractors and subcontractors Labor rates vary with skill and experience Continued on following slide

13 Competitive Pricing Continued from previous slide Costs vary with composition of workforce Costs vary with Contractor s perception of difficulty in executing project Profit margins vary with other work available Competition for project Human error can influence pricing Straining Contractor s resources Project participants might be adversely affected Careful review of price prior to award of contract can reveal problematic areas Value Analysis of Substitutions When value analysis are proposed during procurement, value analysis procedures determine acceptability

14 Pricing Under Design-Bid-Build (D-B-B) Pricing activity between bidders, subbidders, and separate Contractors Owner exposed to risk if prices are not verified Requiring list of subcontractors on bid form ensures bid is complete Pricing Under Design-Negotiate-Build (D-N-B) Similar to design-bid-build (D-B-B), but negotiated Can be a protracted process Conducive to value analysis and repricing during negotiations

15 Pricing Under Construction Management (CM) Usually multiple prime contracts each bid separately CMa Agent or advisor to Owner CMc Capacity as Contractor Pricing Under Design-Build (D-B) Pricing and design by same entity Pricing estimated early in design stage Pricing confirmed with bids or negotiation later

16 Contractors bid or negotiate with Owner Pricing may be phased Pricing may take place at a fixed time Pricing Under Owner-Build (O-B) Pricing Under Integrated Project Delivery (IPD) Early involvement by suppliers and trade contractors during design allows cost to evolve along with design Buyout stage Owner, A/E, Contractor, and supplier teams interact before construction documents are completed to have a positive impact on the project cost Decisions can be made and orders placed for products needing long lead delivery time Process managed better because of team interactions and extended time

17 PROJECT INFORMATION STUDY GUIDE: Submit Matter Area No. 4 - C. The Construction Specifications Institute 33 Project Information Complete and timely graphic and written documents Important to efficient pricing Must be available to Prospective Contractors Subcontractors Suppliers Other contributing to pricing process

18 Distribution of Information Information distributing methods Owner and A/E to prospective Contractors Prospective Contractors to subcontractors and suppliers Through construction trade organizations Through plan rooms Through construction reporting services Through subscription information services Project websites Purchasing from reproduction services Distribution of Information Information forms Printed Reproducible media Electronic Electronic distribution becoming primary means of information distribution Cost savings Time savings Ability to transfer complete documents

19 Control of Information Procurement procedures Should be fair and effective Carefully managed Ensure participants receive same information Having an information control plan helps avoid misuse or loss of information and should include Owner s disclosure and privacy services Reporting and distribution services Quality control system before distribution Timely distribution of supplemental information Information integrity Oral information documentation BIDDING STUDY GUIDE: Submit Matter Area No. 4 - D. 1. General considerations 2. Public bidding process 3. Private bidding process The Construction Specifications Institute 38 19

20 General Considerations Objective of competitive bidding is to ensure cost of project is reasonable and consistent with prevailing conditions in construction industry Competitive bidding participants Qualifications for prospective contractors Experience Special training and certification or licensing Personnel Specialized equipment Financial stability History of claims and disputes General Considerations Competitive bidding activities Procurement documents Establishing a competitive bidding period Prebid meeting Substitution requests Addenda Subcontractor and supplier bids Preparing competitive bids

21 Submitting bids Bid depository Evaluating bids General Considerations Timeliness Completeness Variance from the construction budget Competitive bidding irregularities Public Competitive Bidding Process Design-bid-build (D-B-B) project delivery method is the traditional method, although use of design-build (D-B) project delivery method is growing due to public demand To ensure costs stay within established budgets Prevent cost overruns Competitive bidding participants General characteristics of public projects Contractor qualifications for public projects Multiple-prime contracts in public projects Procurement documents

22 Public Competitive Bidding Process Bid solicitation Receipt, tabulation, and review of bids Award of public contracts Additional considerations Wage requirements Percentage of the bidder s own labor forces provided Minority business enterprise (MBE)/ disadvantaged business enterprise (DBE) Environmental requirements Liquidated damages Incentives Private Competitive Bidding Process Competitive bidding procedures for private projects may be as formal or informal as Owner prefers with framework of laws governing private enterprise Owner should practice fair and reasonable competitive bidding procedures to ensure that reputable contractors will participate Competitive bidding participants Design-build (D-B) participants Construction management (CM) participants Owner-build (O-B) participants Procurement documents

23 NEGOTIATING STUDY GUIDE: Submit Matter Area No. 4 - E. 1. Participants 2. Procurement documents 3. Negotiating procedures 4. Value analysis The Construction Specifications Institute 45 Negotiating Process of dialog, offer, compromise, and resolution between two parties, precedent to an agreement, or contract modification Negotiating takes the place of bidding when Contract can be awarded without formal bidding process Owner and Contractor have established a level of trust making competitive bidding unnecessary Contractor meets Owner s requirements for skill, timing, and cost

24 Participants Participants Owner A/E Prospective contractors and subcontractors Owners may negotiate with Design-builders Construction managers Contractors may negotiate with Subcontractors Suppliers Procurement Documents Request for proposal (RFP) Invitation to a prospective contractor to submit an offer to perform the work Contains - Instructions - Offer format - Time limit in which offer is to be submitted Types of bonds and supplemental information required Drawings and specifications Offer forms and supplements

25 Negotiation Procedures An RFP by one participant to another to engage in a negotiation process Discovery Pricing procedures Offer Counteroffer Resolution Award of contract Execution Value Analysis Owner might discover cost of project will exceed established budget without design changes Value analysis can determine how project can be reduced in extent and still serve Owner s program requirements

26 SUBCONTRACTING STUDY GUIDE: Submit Matter Area No. 4 - F. 1. Subcontractor prices 2. Subcontractor issues and concerns 3. Bid shopping 4. Subcontractor bidding environment The Construction Specifications Institute 51 Principal providers of following in commercial construction process Labor Materials Services Subcontractor defines contractual relationship between a specialist trade contractor and a prime contractor Subcontracting

27 Subcontracting Subcontractors can provide important information useful for all project stages Technical information about systems, subsystems, and products for design development and construction documents Financial information for estimating Installation information for project coordination Manufacturing and delivery information for project scheduling Information and services necessary for facility management programs Subcontractor Pricing Most construction contracts can be broken down into smaller units of specialized work, such as Demolition Excavation Concrete Masonry Roofing Within each area of specialization, separate competitive bidding occurs Subcontractors compete on price basis within their specialty Price submitted by Contractor is made up of prices from as many subcontractors as appropriate for project scope

28 Subcontractor Issues and Concerns Concern that affect their relationships with A/E Prime contractors Owners Concerns include Bid shopping Payment and retainage provisions Labor availability and competency Liability risk management Legislative initiative affecting labor Bid Shopping Practice of revealing subbid of one subcontractor to obtain a lower price from another subcontractor Concerns include Potential for adversely altering project performance Imposes unanticipated risks on other project participants Encourages cost cutting measures that might compromise project requirements Owner does not always receive benefit of cost savings Can lead to unauthorized substitutions Generally degrades competitive bidding environment

29 Possible remedies include Bid Shopping Bid depositories Requiring bidders to list subbidders they intend to use Provisions requiring the Contractor to submit lists of subbidders and suppliers within a specified period prior to award of a contract Subcontractor Bidding Environment A/E and Owner can improve competitive bidding environment by implementing a few measures Consult qualified subcontractors during design Consider bid listing and bid depository provisions Control substitutions Accurate, concise contract documents Clear quality assurance/quality control provisions and submittals Enforce contract documents Promptly review submittals and payment requests Reasonable retainage provisions Administer contract closeout procedures effectively

30 AWARD OF CONTRACT STUDY GUIDE: Submit Matter Area No. 4 - G. The Construction Specifications Institute 59 Award of Contract After bids have been evaluated to satisfaction of Owner, Owner notifies successful bidder that they will be awarded the contract For projects using public funds, there may be a need to notify all bidders or proposers of intent to award the contract For some projects requiring qualified bidders, proposers, contractors, vendors, or subcontractors, a specific period of time may be required after notification of intent to award in which a challenge may be made

31 PURCHASING OF GOODS STUDY GUIDE: Submit Matter Area No. 4 - H. 1. General considerations 2. Participants 3. Documents 4. Processes 5. Cost impacts and concerns The Construction Specifications Institute 61 General Considerations Purchasing is direct acquisition by Owner Supplies Materials Furniture and furnishings Equipment Special services Goods are used for one or more of following Installation by Contractor for project, referred to as owner furnished and contractor installed Installation by Owner s personnel or separate contractor engaged by Owner, referred to as owner furnished and owner installed Use in operation of completed project during facility management stage

32 General Considerations Procedures are similar to competitive bidding and negotiating Public owners (buyers) required to obtain goods at most competitive price available Solicit purchasing proposals by legal advertisements Distribute documents to prospective good contractors (sellers) Private owners might select sellers based on other factors than price, such as Buyer s previous experience with seller Exceptional service from seller Reliability of seller Other qualifications General Considerations National accounts Contractor or Owner has special or fixed pricing direct from manufacturer, distributor, or supplier Guaranteed price regardless of project location Cooperative purchasing National, regional, state, or local organizations of two or more buyers who solicit bids for good and services from two or more sellers; buyers have enhanced purchasing power Organized by - Federal, state, or local government agencies - Not-for-profit organizations - Hospitals and schools - Small private businesses Continued on following slide

33 General Considerations Continued from previous slide Benefits to participants - Sellers can be more competitive with buyers - Buyers receive better discounts - Public buyers can avoid cost of bidding and still comply with laws - Cooperatives are managed by review boards and experienced management personnel which reduce administrative burden to buyers - Cooperative can control value of goods and services Participants Buyers act individually or as a member of a purchasing cooperative Sellers are the goods contractor who bids and supplies goods required by Owner

34 Processes RFP issued to one or more prospective goods contractor Visit Point of destination of goods Point of performance of special services Perform pricing procedures Bid submitted Evaluation of prices Executing a contract or purchase order, and modifications Delivery to Point of destination of goods Point of performance of special services Cost Impacts and Concerns Process is affected by combination of events and factors in supply chain Delivery and distribution concerns Lead times Supply and demand Labor disputes and strikes Weather Special handling considerations Geographic influences Coordination with adjacent materials Shipping and packaging requirements and damage claims

35 Cost Impacts and Concerns Lead time Special shipping and handling Import and export Language Trade agreements Unit of measure and currency exchange Terms of payment Cost Impacts and Concerns Role of product representatives Can advise of potential delays or complications Can help facilitate timely delivery Can encourage buyer to place an order in a timely manner Can help coordinate delivery with installation Can assist with submittals

36 AWARD OF CONTRACT STUDY GUIDE: Submit Matter Area No. 4 - I. DISCUSSED PREVIOUSLY IN SESSION 3 The Construction Specifications Institute 71 A. The Concept of Pricing 1. Pricing methods 2. Purchasing 3. Project funding B. Pricing Considerations Review Outline STUDY GUIDE: Subject Matter Area No. 4 PROCUREMENT 1. Pricing categories 2. Competitive pricing 3. Value analysis of substitutions 4. Pricing under various delivery methods C. Project Information 1. Distribution of information 2. Control of information D. Bidding 1. General considerations 2. Public bidding process 3. Private bidding process E. Negotiating 1. Participants 2. Procurement documents 3. Negotiating procedures 4. Value analysis The Construction Specifications Institute Continued on following slide 72 36

37 F. Subcontracting Review Outline STUDY GUIDE: Subject Matter Area No Subcontractor prices 2. Subcontractor issues and concerns 3. Bid shopping 4. Subcontractor bidding environment G. Award of Contract PROCUREMENT Continued from previous slide H. Purchasing of Goods 1. General considerations 2. Participants 3. Documents 4. Processes 5. Cost impacts and concerns I. Agreements The Construction Specifications Institute 73 37