Chapter 2

Introduction to
Construction
Contracts

What is a Construction Contract?

It is a written and graphical document.

It defines legal responsibilities.
It defines what is to be constructed.
It says that the Owner promises funds.
It says that the Contractor promises a completed
facility.

METHODS
for selecting the Contractor
or CM as constructor
Competitive bidding

Invitational bidding
Negotiated Contract

Construction Contract Types

Lump sum: fixed price.
Unit price: project is divided into many separate
pay items.
Combination: A single price is given for the
majority of the project, but certain items are
provided as unit prices until their scope can be
determined.
Cost-plus-fee: contractor is reimbursed for all
costs plus a fixed fee
Guaranteed maximum price (GMP): contractor is
reimbursed for costs up to a set amount.

Competitive Bidding
Contractors submit a price for the project; lowest bid
is selected. This is the required method for public
projects.
Some disadvantages:
Bidders need a completed design to prepare bid.
Not ideal for fast-tracking.
Encourages search for loopholes and omissions in
documents.
Encourages collusion and bid rigging.

Contract Documents Package

(the Bid Package)
Specifications: written detailed instructions to the
builder about materials and methods of construction.
Project drawings: graphical description of what must
be constructed showing dimensions and locations.
Proposal form: contractor (or CM) provides prices.
General conditions: defines duties and obligations.
Special conditions: other requirements not covered
by general conditions such as contract duration.

Steps in Competitive Bidding Process

Completion of design and development of bid
package.
Advertising the bid: Owner advertises project
availability and a Notice to Bid may be published.
Obtaining the bid package: Owners charge
contractors for purchase of documents; Plan rooms,
CDs or online plans may be available.
Preparing the bid which includes construction costs,
project & office overhead and profit.

Bidding Period

Design changes during the bid period.

Answers to questions and clarifications.
Addenda.
Pre-Bid meeting.

Competitive Bidding

Steps in Competitive Bidding Process

Submitting the bid and bid opening: bids are
opened and low bidder is declared, however lowest
bid is not always awarded contract; Responsive bids,
Nonresponsive bids
Award of contract: Agreement incorporates bid
package documents into contract agreement
Notice to Proceed
Submission of Bonds
Bid bond provides bid security
Bid security check alternative
Performance bond

The Complexity of
Bidding
(for the contractor or CM)

External Factors
Size of the project
Technological difficulty
Site accessibility
Quality of plans and
specifications
Government
regulations
Availability of other
projects

Internal Factors
Experience with similar
projects
Current workload
Management expertise
Required project rate of
return
Financial ability to
conduct project

The importance of the General Conditions

during construction
The General Conditions describe modification procedures
during construction (after the contract has been signed).

Correction of design errors and discrepancies

Request from Owner for changes
Changed site or subsurface conditions
Delays affecting completion date which may result in
time extension.
Changes in regulatory requirements.
These modifications are made using Change Orders.

The Ethics of Competitive Bidding

Forms of Bid Rigging include:

Competitors agree in advance who will win a

contract.
Bid suppression.
Complementary bidding.
Bid rotation.
Bid Shopping via subcontractors.
Subcontracting collusion.
Under the table payments.

Summary
Competitive bidding starts with bid advertisement
and completes when bidder receives notice to
proceed.
A bid package defines project requirements.
Standard Specifications and General Conditions
may be used.
Contract changes during construction are made
through the use of change orders: source of many
disputes.
Unethical and illegal bidding practices carry heavy
criminal and civil penalties.

THE END