Construction
Sites
Engineering &
Management
Program
Contract & Claims
CSM503
(CONTRACT STRATEGY)
Prepared by
Dr. Shady Dokhan
Course Contents
• Introduction
• What is a Contract ?
• Contract strategy
• Project Delivery Methods
Contents
• Introduction
• What is a Contract ?
• Contract strategy
• Project Delivery Methods
What is a Contract ?
A contract is defined as:
"an agreement made between two or more parties which is
enforceable by law to provide something in return for
something else from a second party".
In construction projects The two
parties are expected to perform
the various obligations they have
undertaken, as expressed in a
mutually agreed set of contract
documents. A contract therefore, is
necessary to protect both client
and contractor.
CONTRACT STRATEGY
At the early stage of a project ,the main issue that faces the owner
is to decide on the contract strategy that best suits the project .
Contract strategy means
“selecting organizational and contractual policies
required for the execution of a specific project”.
Selection of Contract Strategy
• The selection of contract Strategy to be used for a construction
project is made by the owner, acting upon the advice of his
Engineer and his legal advisor.
• A proper contract strategy for a project involves:
- Setting the project objectives and constraints
- Selecting a proper project delivery method
- Selecting a proper contract form / type
- Selecting a Method of selecting the contractor
Selection of Contract Strategy
Project objectives
Primary objectives Secondary objectives
• Allocation for risk.
Project Scope
• Training of the client's staff.
Time • Involvement of contractor in design.
Budget • Involvement of client in contract
management.
• Choice of labor-incentive construction.
• Use of local material and resources.
• Protection of the environment.
Selection of Contract Strategy
Project constraints
• Availability of funds.
• Availability of contractual
incentives.
• Project location.
• Target dates of the project.
• Possibility of design changes.
• Availability of resources.
• Seasonal working.
• Inflation.
Project Delivery Methods
The project delivery method translates what project parties
are involved in the project and how they interact with each
other and called also Project Organizational Structure
Project delivery methods in construction
projects are :
1- Traditional approach (Design/ Bid/ Build)
2- Separate contracting method
3- Direct labor
4- Design-build
5- Turnkey
6- Build-operate-transfer (BOT)
7- Professional construction management
(PCM)
Project Delivery Methods
Traditional approach (Design/ Bid/ Build)
§ This is the most common approach in construction projects in which the
design has to be completed before construction can start.
§ Design and construction are usually performed by two different parties
who interact directly and separately with the owner.
Project Delivery Methods
Traditional approach (Design/ Bid/ Build)
Advantages:
- Price competition
- Total cost is known before construction starts
- Well documented approach used in most government projects.
Disadvantages
- Long time
- Design does not benefit from construction expertise
- Conflict between owner, contractor and A/E
Therefore, this method is fine in many cases where the project is clearly
definable, design is completed, and changes are unlikely to occur during
construction.
Project Delivery Methods
Separate contracting method
OWNER
DESIGNER
GENERAL GENERAL GENERAL
CONTRACTOR 1 CONTRACTOR 2 CONTRACTOR 3
Suppliers Suppliers Suppliers
Subcontractors Subcontractors Subcontractors
Project Delivery Methods
Separate contracting method
Advantages
- Price competition
- The owner can save profit that goes to the general contractor
- Suitable for projects that need specialized contractors
Disadvantages
- Needs a qualified project manager
- The owner may be subjected to high risk
- Conflicts between contractors
Project Delivery Methods
Direct labor
In this approach, owner organization performs both the design and
construction using its in-house labor force.
- Used by large authorities
- May use consultants for some specialized designs
- Most suitable for small projects (maintenance)
- Can be used when expertise are available
- Low risk projects
- Inadequate scope definition OWNER
DESIGNER
Suppliers Subcontractors Labors
Project Delivery Methods
Design-build
In this approach, a single organization is responsible for performing both
design and construction and, in some cases, providing certain “know-how”
for the project.
Project Delivery Methods
Design-build
Advantages:
- One contract - Minimum owner involvement
- Used for fast-track projects in order to reduce time
- Co-ordination between design and construction is easier Disadvantages
- Cost may not be known until end of the construction
- High risk to contractor and more cost to owner
- Design-build company may reduce quality to save cost
The use of this approach, therefore, should be considered when
contractors offer specialized design/construction/know-how expertise or
when design is strongly influenced by the method of construction.
Project Delivery Methods
Turnkey
• This approach is similar to the design-build approach but with the
organization being responsible for performing both design, construction,
know-how (if any), and project financing.
• Owner payment is then made at the completion (when the contractor turns
over the “key”).
An example is franchise projects in which a new branch of a restaurant chain
needs to maintain the same design, and construction quality.
Project Delivery Methods
Build-operate-transfer (BOT)
• In this approach, a business entity is responsible for performing the design,
construction, long-term financing, and temporary operation of the project.
• At the end of the operation period, which can be many years, operation of
the project is transferred to the owner.
• This approach has also been used extensively in large infrastructure
projects financed by the World Bank in parts of the world that cannot afford
the high investment cost of such projects.
Project Delivery Methods
Professional construction management (PCM)
• In this approach, the owner appoints a PM organization (also known as
Construction Management organization) to manage and coordinate the
design and construction phases.
OWNER
PM
GENERAL
ARCHITECT
CONTRACTOR
SUBCONTRAC
CONSULTANT ENGINEER SUPPLIERS
TORS
Project Delivery Methods
Professional construction management (PCM)
The services offered by the PM organization include:
• Management 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
• Supervision of control of construction contractors;
• Construction quality assurance;
• Cost control;
• Costing of variations and assessment of claims;
• Closing out .
Project Delivery Methods
Professional construction management (PCM)
The use of PCM approach, therefore, should be considered when there is a
need for time saving, flexibility for design changes is required, and owner has
insufficient management resources.
Types of Contracts
Contracts
Cost Based Price Based
Cost plus Cost plus
Lump sum Unit Price
fixed fee incentive fee
Selecting the Contractor
Methods of Selecting
the contractor
Forced
Bidding
Tendering
Open
Tendering
Limited
Tendering
Material available @
You can safely download this slides, but please consider to read below:
Lecture 1
Thank You
