6 - Construction Services - Construction Proposal CE 332...

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Unformatted text preview: Construction Proposal CE 332 Page 1 Features The proposal form is an offer and a promise to enter into a contract if selected A prepared proposal form is included in the bid documents Not using the prepared form results in disqualification CE 332 Page 2 Features (cont.) The proposal form must include: the promise list of addenda base cost and alternatives accompanied by surety deposit or bid bond signatures and seal CE 332 Page 3 Features (cont.) Examine the proposal form for unit price contracts in Appendix E, p. 483 Notice the acceptance period of 60 days is cited Financial responsibility Competency Experience Bonds and insurance CE 332 Page 4 Proposal Details Detailed Costs Bidders Statement of Understanding Item by item Total Bid Bid Proposal Guaranty Bond CE 332 Sufficient time to examine work Understanding of General Conditions, supplements, and addendums Page 5 Proposal Details Prequalification certificate List of Subcontractors Certifications Qualifications Bonded and insured DBE, MBE, PA or US suppliers...... Specialty requirements..... CE 332 Page 6 Sample Schedule of Prices Item 10180001 Approximate Item & Unit Quantity 1 6000 hrs 1 1 3771 LF 1921 LF Removal of Existing Bridge, LS Trainees/Interns Prestressed Concrete Bridge Structure, LS or Steel Bridge Structure, LS Concrete Filled Pipe Bearing Piles, 14" Dia. LF Predrilling for Pipe Piles, LF CE 332 Item Total $90,000 19999999 80000288 81000288 90051000 90051301 Page 7 Penn State's Bid Form SECTION B FORM OF PROPOSAL 1. In compliance with the Notice to Bidders and the Contract Documents, we, the undersigned, do hereby agree to provide all labor, materials, services, tools, and equipment, and to perform all of the required work to complete the: Contract No. 1, [(Insert Construction Type)] Construction For the: PSU Project Official Name PSU Project No. Located at: The Pennsylvania State University [(Insert Campus Name)] [(Insert Campus City)], Pennsylvania For: The Pennsylvania State University, Owner All in strict accordance with the Specifications, Schedules, Drawings, and Conditions for the consideration of the following amounts, including federal, state, and all applicable taxes, for the sum of: Bid Item No. 1--Base Bid (write in dollar amount using words) $ [(Insert Additional Bid Items as Appropriate)] 2. $ We, the undersigned, agree, if awarded the Contract, to execute an agreement for the above-stated work and compensation on the standard Form of Agreement 1-C. We, the undersigned, agree, if awarded the Contract, to begin work at the site within ten (10) days after Notice to Proceed, and to complete the work in a thoroughly good and workmanlike manner under the direction of the Architect and to the satisfaction of the Owner, on or before Completion Date. 3. CE 332 Page 8 Penn State's Bid Form 4. We, the undersigned, acknowledge receipt of and have considered in our proposal the following Addenda: 5. 6. Bid results are available on the web at <http://www.opp.psu.edu/construction/bidders/bids.cfm>. We, the undersigned, acknowledge that all Contractors/Sub-Contractors requiring prequalification are contractors presently on the Prequalified Bidders List as issued by The Pennsylvania State University. Prior to the execution of the Contract, we will submit in writing their names and addresses to The Pennsylvania State University. We, the undersigned, agree that this Proposal as submitted shall hold good through the fortyfifth (45th) day following the bid date. Submitted By: Federal ID Number: Address: 7. Signed By: Authorized Signature Attest: Surety Name: Surety Address: Date: CE 332 Page 9 Bid Development CE 332 Page 10 Bid Components Bid Price Markup Home Office Job Site Direct Job Cost Indirect Job Cost CE 332 Page 11 Bid Components (cont.) Direct Job Cost Labor Materials Equipment Subcontracts CE 332 Page 12 Bid Components (cont.) Indirect Job Cost Overhead Salaries Insurance Office equip. Training Safety Utilities Support Structures Access roads Parking lots Project Office Storage trailers Purchase Orders Portable toilets Trash Security Testing Page 13 CE 332 Bid Components (cont.) Markup Home Office Contingency Overhead Clerks Secretaries Officers Utilities Travel Advertising Bidding Quality of plans Unforeseen cond. Owner and designer Schedule Location Work on hand CE 332 Profit Page 14 Risks Quantity takeoff something will be left out or computed incorrectly plans are incomplete and the quantities change owner will delete certain items CE 332 Page 15 Risks (cont.) Detail sheets numbers will be erroneously transferred subcontractor quotes will be misunderstood productivity will be overly optimistic or pessimistic unforeseen conditions will affect productivity there may be noncompensable fabrication errors overestimate ability of superintendent to organize and plan the work CE 332 Page 16 Risks (cont.) Markup incorrectly assess contingencies desired profit is too great or too little CE 332 Page 17 Form of Agreement CE 332 Page 18 Terms Retainage That portion of each progress payment that is withheld to cover correction of deficiencies and omissions Liquidated Damages A damage assessment that is withheld in the event of late completion CE 332 Page 19 Features The form of agreement is the contract PSU's Construction Contract On public contracts, statutory requirements must be followed One doing business with a public entity must be aware of the laws governing its administration and the limitations on the powers of the public officials involved CE 332 Page 20 Contractor Acceptance CE 332 Page 21 Background Construction services are procured by negotiation or competitive bid For competitive bid projects, the d.p. usually prepares the proposal form CE 332 Page 22 Background (cont.) The proposal: is a legally binding promise to enter into a contract references the project, requires addenda to be listed, and is accompanied by security deposits or bid bonds assures everyone is bidding on the same thing CE 332 Page 23 Private Sector Owner can do as he or she pleases negotiate with one or more contractors receive competitive bids from selected contractors or in an open bidding process select any bidder he or she wants CE 332 Page 24 Public Sector Statutes require competitive bidding Agency is seeking a fair and reasonable (competitive) price Process begins with advertisements Timeliness and other parameters of advertising are governed by regulations Statutes also govern how bids are received and a contract is awarded CE 332 Page 25 Contractor Qualification Is a way to screen who is on the prospective bidders list The purpose is to assure a reputable contractor Inquiries ask questions about financial capability past experience managerial expertise integrity CE 332 Page 26 Construction Contracts CE 332 Page 27 Pricing Arrangements cost proposal can be lump sum (fixed price), unit price, or cost reimbursable The choice is a function of the type and size of project and the project risks CE 332 Page 28 Lump Sum (Fixed Price) Contracts I propose to be paid $________ to build this project Used most often on residential, commercial buildings, engineered projects, and most industrial projects Design must be complete or nearly so Price will be fair and reasonable only if the contractor can assess and assume the risks CE 332 Page 29 Advantages of Lump Sum If properly applied, the owner receives a competitive price Minimum owner risks for unforeseen conditions Wellestablished administrative, legal, and contractual precedents CE 332 Page 30 Advantages of Lump Sum (cont.) Owner knows the cost in advance of the work Minimum owner involvement in construction process Significant contractor incentive to control costs and meet the schedule CE 332 Page 31 Disadvantages of Lump Sum Designconstruct time frame takes more time Adversarial relationships sometimes develop Changes and unforeseen conditions are more difficult to handle Contractor has limited input into constructability issues CE 332 Page 32 Unit Price Contracts I propose to be paid this way to build this project Line Item Unit Price No. Line Item Cost Item 1 $1.00/ea 3 3.00 Item 2 $2.00/ea 8 16.00 Item 3 $0.50/ea 1 0.50 Total $19.50 CE 332 Page 33 Unit Price Contracts (cont.) Used where quantities are uncertain Removes some of the contractor's risk Unit prices are requested for major or all items in the project Sum of all unit prices times the quantity yields the bid price There can be several hundred or more items CE 332 Page 34 Unit Price Contracts (cont.) D. p. must provide estimated quantities for each item Bid equals actual cost only if all quantities are exactly right In reality, owner knows only the approximate cost prior to the start of the work Used often on earthwork type projects where quantities are not known CE 332 Page 35 Unit Price Example Prices include layout, excavation, bedding, materials, placement, sealing, testing, compaction, backfill, overhead, profit, etc. Unit Qty. Unit Price Line Item Cost Line Item Mobilization 18" Conc. Pipe 24" Conc. Pipe 36" Conc. Pipe Manholes Total ls lf lf lf ea 1,200 372 588 7 CE 332 ________ Page 36 Advantages of Unit Price Risk to the contractor of variations in quantities is minimized Changes are easier to make Owner knows the approximate cost in advance Well established administrative, legal, and contractual precedents CE 332 Page 37 Disadvantages of Unit Price Owner has to provide greater contract administrative services Cost can escalate with significant changes in quantities Some of the same disadvantages of lump sum CE 332 Page 38 Cost Reimbursable Contracts Owner pays contractor expenses plus a fee Used sometimes on large, industrial type projects where scope cannot be determined More appropriate where design is incomplete or changes will be common Can sometimes be used on emergency projects Reserved for only extreme or highly unusual circumstances CE 332 Page 39 Advantages of Cost Reimbursable Can accelerate the schedule because the design need not be complete Can make changes easily CE 332 Page 40 Disadvantages of Cost Reimbursable Owner has no idea of the final cost until the end There is greatly increased contract administration There is little incentive for contractors to control cost or meet the schedule CE 332 Page 41 Variations in Fee Arrangements Cost plus % of cost% is fixed or may be a sliding scale Cost plus fixed feeprovides some incentive to minimize cost and time of performance Cost plus incentive targetcould be fee + bonus/penalty Guaranteed maximum price (GMP)cost = fee < max $ CE 332 Page 42 Delivery System Cost Reimb. Owner Lump Sum/ Unit Price/ Cost Reimb. Cost Reimb. CM D.P. Unit Price/ Cost Reimb. Mech. Fixed Unit Price HVAC Piping CE 332 Elec. Page 43 Subcontracts CE 332 Page 44 Contractual Obligations A subcontract is an agreement between a contractor and a subcontractor where the sub agrees to complete a part of the work The sub has no contract with the owner The sub is usually bound by the same obligations as the prime has to the owner (see AIA AS201, Art. 5.3.1) CE 332 Page 45 Contractual Obligations (cont.) The owner often has the right to approve subcontractors (AIA A201, Art. 5.2.1 5.2.4) Disapproval of subcontractors is not that common CE 332 Page 46 Potential Problems Disagreements often occur when a non standard contract is used Sub may not be bound to the same obligations as the prime Sub may not receive all the prime contract provisions to know the full extent of its obligations Sub may not get paid CE 332 Page 47 Relationship with Subcontractors Ethical considerations: bid shopping or using a sub's bid as the low bid and shopping for a better bid after the prime contract is awarded is troublesome trying to get a lower bid from a sub after being awarded the contract is to be frowned on sub should be offered the same payment provisions as the prime pay the sub when the sub's work is complete Page 48 CE 332 Relationship with Subcontractors (cont.) Contractual and legal considerations: sub should be given all the contract provisions to use in preparing the sub's bid CE 332 Page 49 Contract Bonds CE 332 Page 50 Background A surety is a party that assumes a liability for the debt, default, or failure of another A bond is not insurance, but rather an extension of credit in the form of an endorsement A bond is a three party instrument where the surety promises the owner (obligee) that the contractor will perform in accordance with the contract documents CE 332 Page 51 Background (cont.) If there is a default, the surety will step in and see that the project is finished The extent of the surety's obligation is defined by the contract documents The face value of the bond is the value of the bond and is expressed as a percentage of the contract amount, i.e., 100% bond CE 332 Page 52 Contractor Risks A surety will investigate contractors to evaluate their financial capacity and available capital Bonding capacity is the maximum value of uncompleted work the surety will allow the contractor to have on hand at any one time CE 332 Page 53 Types of Bonds Bid bond Performance bond protect the owner against a contractor that submits the lowest bid but refuses to sign a contract protects the owner against default and assures that the owner will get the facility without undue delay CE 332 Page 54 Types of Bonds (cont.) Payment bond protects third parties like suppliers, vendors, craft labor against not being paid protects the owner from liens being attached to the project CE 332 Page 55 Bond Premiums Premium amounts are a function of risk to the surety Premiums are based on two risk factors: project risks contractor risks CE 332 Page 56 Project Risks Project risks are related to the type of project and time of performance Assume we have a commercial project (use the Walker Building on campus as an example) that is estimated to cost $4.0 million and as a project schedule of 30 months. Calculate the bond premium using the information in the following Tables Page 57 CE 332 Construction Classification for Bonds CE 332 Page 58 Bond Premium Determination CE 332 Page 59 Bond Premium Calculation Classification: B Base rate: First $100,000 $25.00/1,000 Next $400,000 $15.00/1,000 Next $2,000,000 $10.00/1,000 Next $1,500,000 $7.50/1,000 Total of $4 m CE 332 = = = = $2,500 6,000 20,000 11,250 $39,750 Page 60 Bond Premium Calculation (cont.) Adjustment for time of performance $39,750 (1.18) = $46,905 or 1.17% of the bid Bond premiums usually range around 0.75 1.50% of the bid CE 332 Page 61 Contractor Default Options When the contractor defaults, the surety has two options 1. assume charge of and complete the contract. Surety may be able to get a lower price or be able to limit its exposure if the surety is in control. The surety is responsible for the total cost of completing the work, less the contract amount, even if the difference is higher than the face amount of the bond CE 332 Page 62 Contractor Default Options (cont.) 1. The purpose of the bond is not to allow the owner to make a profit make available to the owner sufficient funds to complete the work. Owner secures a new contractor. The liability of the surety is limited to the face value of the bond CE 332 Page 63 Default Liability Example Suppose a 100% bond was issued on a $4,000,000 project. Shortly after the work began, the contractor went bankrupt and the owner called on the surety to complete the work. The following conditions existed: initial contract value $4,000,000 face value of the bond $4,000,000 value of work performed $450,000 retainage $45,000 amount paid to contractor $405,000 CE 332 Page 64 Default Liability Example (cont.) The surety elects to let the owner secure another contractor, thus limiting its liability to the face value of the bond If the owner pays the new contractor $4,250,000, what is the extent of obligation of the surety? CE 332 Page 65 Default Liability Example (cont.) Total payout by owner $4,250,000 405,000 $4,655,000 $4,655,000 4,000,000 $655,000 Surety Liability But not to exceed $4,000,000 Net owner payout is $4,000,000 CE 332 Page 66 Cash Flow and Bonding Capacity CE 332 Page 67 Topics Cash flow Bond capacity calculations Effect of cash flow on bond capacity normal project impacted project CE 332 Page 68 Cash Flow Normal Project Cash flow is the difference between project receipts and expenditures It is usually expressed graphically Since expenditures exceed receipts part of the time, the contractor is a short term investor in the project Contractor must have cash reserves to pay for labor and materials Consider the New Jersey contractor PHA CE 332 Page 69 Cash Flow Diagram Normal Project Investment in Project 60 90 days Positive Cash Flow Negative Cash Flow CE 332 Page 70 Cash Flow Where the expenditures greatly exceed receipts, the contractor's financial position is seriously compromised perhaps leading to bankruptcy On impacted projects, owners often stop paying which makes matters worse CE 332 Page 71 Cash Flow Diagram Impacted Project Investment in Project Positive Cash Flow never occurs! Negative Cash Flow entire project CE 332 Page 72 Bond Capacity There are two types of capacities Project capacity is the maximum size single project that the surety will allow the contractor to undertake Aggregate capacity is the total amount of uncompleted work that the surety will bond CE 332 Page 73 project capacity aggregate capacity Bond Capacity Equations Project Capacity Project capacity Project Capacity = 10 x Working Capital Working Capital = Liquid or Quick Assets Liabilities CE 332 Page 74 Bond Capacity Equations Aggregate Capacity Aggregate capacity (Worth of Firm) Aggregate Capacity = Total Assets Total Liabilities CE 332 Page 75 Risk Management CE 332 Page 76 Owner Strategy Recognize and identify risks Measure the degree of exposure Decide how to protect against those risks Develop a companywide program of loss control and prevention CE 332 Page 77 Categories of Risk Project risks Legal and contractual risks Business risks CE 332 Page 78 Insurance Policy A contract where an insurer assumes financial responsibility for a specific loss CE 332 Page 79 Differences With Bonds Insurance covers specific known losses or risks, bonds cover a failure to perform In a bond, the owner is covered over and above initial contract amounts, insurance may have fixed limits In bond defaults, the surety seeks to recover losses from the contractor CE 332 Page 80 Insurance Checklist Property insurance on project Property insurance on contractor's property Liability insurance Employee insurance Automobile insurance CE 332 Page 81 Types of Policies Property insurance Builders risk insurance covers the project from damages or loss also covers subcontractors normally the basic policy on buildings two types are allrisk and named risk; the latter is seldom used CE 332 Page 82 Types of Policies (cont.) Builders risk (cont.) Contractor's equipment floater policies are flexible and can include many coverages covers direct losses, temporary structures, materials, etc. may not cover labor losses covers construction equipment, but not liability CE 332 Page 83 Types of Policies (cont.) Liability insurance Public liability and property damage imposed by law Workman's compensation covers liability to third persons is a legal requirement covers injuries to employees CE 332 Page 84 Types of Policies (cont.) Wrapup insurance Owners liability insurance Social security owner provides certain coverages employers and employees share the cost CE 332 Page 85 ...
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This note was uploaded on 04/11/2008 for the course C E 341 taught by Professor Scanlon,andrew during the Spring '07 term at Pennsylvania State University, University Park.

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6 - Construction Services - Construction Proposal CE 332...

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