AWARDING  A  PROJECT

LEARNING OBJECTIVES

 

- The construction contract
- Types of contract - lump sum, re-measurement, cost plus, design & build etc
- Formation of a valid contract, discharge, breach, remedies

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2 KEY POINTS TO AWARD A PROJECT

 

 

1 TENDERING

 

What is tendering ?
It is a market transaction that searches for business objects.

Refers to the conditions and requirements for the disclosure of goods, works or services, and procurement within a certain scope. Many bidders 
are invited to participate in the bidding, and then the appropriate person is selected as the transaction object according to the original prescribed 
procedure.

Required Documents

• Drawings

Layout assembly of component

• Bills of quantity (BQ)

Schedules

Schedules of rates

Schedules of works

• Specification

Description of quality

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Drawings 

 

• illustrate the layout of the project and the construction 

• Accurately present the work needs in a consistent and clear format for effective communication with all members of the 

• design and construction team

• Tendering Drawing should include : 

• Location plan

• Site clearance and demolition plans

• Master layout plan (MLP)

• Setting out and levels plans

• Specialist plans - Lighting / Drainage / Plantting, etc.

• Elevation & Section

• Detailed Drawing

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Bills of Quantities (BQ)

 

• Materials, labor (and the cost)

• Details the terms and conditions of the construction contract

• List out all work for the contractor to price the work

Specification

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• Provide contractors with key requirements for construction and detailed design

• Descriptive 

• Describe the work and provide a description of the required quality in terms of structure, process and materials

• Material, dimensions, tolerances, weight, color, finish

• Quality requires technical standards completed by the contractor

• Performance Specifications

• Summary requirements for longevity, robustness, strength, etc

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Type of Tendering

 

• Negotiated tendering 

• Open tendering

• Serial tendering

• Selective tendering

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2 CONSTRUCTION CONTRACT 

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Type of Contract

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• Lump sum contract​​

  • The owner has essentially assigned all the risk to the contractor

  • Developed by estimating labor costs, material costs, and adding a specific amount that will cover contractor’s overhead and profit margin 

  • If the actual costs of labor and materials are higher than the estimate, the profit will be reduced. If the actual costs are lower, the contractor  gets more profit, either way, the cost to the owner is the same​

  • Contractor agree to provide specified services for a stipulated or fixed price 

  • Sometimes called stipulated sum, is the most basic form of agreement between a contractor and a customer 

• Unit price contract

  • The work to be performed is broken into various parts

  • Based on anticipated quantities of items which are counted in the project in addition to their unit prices 

  • The final price of the project depends upon the quantities required to carry out the work​

• Cost plus contract

  • The buyer’s consent to pay the complete cost for material and labor in addition to the amount for contractor overhead and profit

  • This contract type is favored where the scope of work is highly uncertain or indeterminate in addition to the types of labor, material, and  equipment being similarly uncertain in nature

  • Here, the contractor's profit is set at a fixed amount

  • If actual costs are lower than the estimate, the owner keeps the savings. If actual costs are higher than the estimate, the owner must pay the  additional amount

  • The advantage of cost plus contract is that, generally speaking, the project will result in the building that was envisioned, even if costs run highThree key types of cost plus contracts are:

    • Cost + Fixed Percentage Contract

    • Compensation is based on a percentage of the cost

    • Cost + Fixed Fee Contract - Compensation is based on a fixed sum independent the final project cost. The customer agrees to  reimburse the contractor's actual costs, regardless of amount, and in addition pay a negotiated fee independent of the amount  of the actual costs.

    • Cost + Fixed Fee with Guaranteed Maximum Price Contract

Compensation is based on a fixed sum of money. The total  project cost will not exceed an agreed upper limit.​

• Incentive contract

  • Compensation is based on the contracting performance according an agreed target

  • budget, schedule and/or quality

  • The two basic categories of incentive contracts are

    • Fixed Price Incentive Contracts

    • Cost Reimbursement Incentive Contracts

  • Fixed Price Incentive Contracts are preferred when contract costs and performance requirements are reasonably certain

  • Cost Reimbursement Contract provides the initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable  costs to total target costs

  • This type of contract specifies a target cost, a target fee, minimum and maximum fees, and a fee adjustment formula​

• Guaranteed Maximum Price contract

  • A.K.A GMP / NTX / NTE

  • The contractor is compensated for actual costs incurred plus a fixed fee subject to a ceiling price

  • The contractor is responsible for cost overruns, unless the GMP has been increased via formal change order

  • Savings resulting from cost underruns are returned to the owner

  • This is different from a lump-sum contract where cost savings are typically retained by the contractor and essentially become additional profits​

• Design-build contract

  • A design-build contract is appropriate when the project delivery method is design-build

  • The project owner starts by hiring an architect

  • Once the architect has finished the design phase, the project is put out for bid to general contracting companies. The contractor with the lowest   bid is awarded the project and is responsible for completing the job according to the plans created by the architect

  • With a design-build contract, the owner awards the entire project to a single company

  • It is typically awarded to a contractor

  • Once the contract is signed, the contractor is responsible for all design and construction work required to complete the project

  • When this type of contract is awarded to a contractor, he must hire all architects and engineers required to complete the design work

  • The owner is still given the right to approve or reject design options, but is no longer responsible for coordinating or managing the design team

  • Once the owner approves the design, the same contractor then oversees the construction process, hiring subcontractors as needed.​

• Integrated project delivert contract

  • Represent the latest trend towards a more collaborative approach to delivering construction projects

  • Require the involvement of owners, designers, contractors, and key stakeholders on a project as early as possible— sometimes even at the   conceptual stage

  • This contract type results in more transparency among all the parties involved on a construction project

  • Both risk and reward are shared by the parties who enter into the IPD contract

  • Resulting in greater integration of resources, processes, and expertise than would be possible under more traditional contract arrangements, as   well as maximizing efficiency through all phases of design, fabrication, and construction​

Sub-contractors

Much of the work attributed to a general contractor is carried out by subcontractors 

Subcontractors can be individuals or substantial firms who agree a contract with the main contractor to complete a section of a project

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• For the main contractor

  • Reduces the main contractor's liability to retain

  • Transfers risk to the supply chain

  • Subcontractors are used as and when required, thereby reducing overheads

  • Avoids having to pay operatives when work is scarce or having to pay redundancy

  • Introduces the potential for innovation

• The disadvantages to employing subcontractors

  • Some types of subcontractors may, on occasions, be difficult to engage 

  •  Non-availability of the best sub-contractor

  • Less control of health and safety issues

  • Control and co-ordination of subcontractor

  • Quality of work

  • Potential for clashes of culture and philosophy 

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Forms of Construction Contract

• What is contract?

A contract is an agreement between individuals, which can be enforced by law. It is the legal relationship between the parties. 

• Intention to Create Legal Relations

• Consideration

• Agreement – Offer and Acceptance

• Orally, in writing, or by conduct

• Some contracts written forms are required

  • Written evidence, which may be in the form of a several connected documents, must contain :

    • The names of the parties

    • Title of the contract

    • Consideration agreed

    • Signature of the parties

 

• 2 main forms of contract

  • Simple contract

    • Can be made in writing, orally or by conduct

    • Each party must contribute something to it to make it binding

    • 6 years limitation

  • Contract Under Seal

    • They must be in writing and have to be signed, sealed and delivered by the party who arranges the contract

    • The type of contracts which are required by law to be under seal include:

      • Leases exceeding three years

      • Transfers to the title of land

• Basis of construction contract 

• The Contractor builds the works in accordance with the contract documentation   -

• The Employer pays the Contractor for the works undertaken and completed in accordance with the Contract Documents

• Set out the rights and obligations of the parties which they both agree to e.g. start date / completion / payment provisions etc.

• Benefits and risks of establishing a contract

benefits

• Certainty

  • performance of each party

  •  avoid cost and time of individually negotiated contrects

• Standar disation

  • negotiated

  • risks are spread

  •  saces time, avoid confusion

  • standard forms enables contractors and professionals to 

  • be familiar with the rules

• Suites for purpose

  • Varies type of standard forms for particular kinds of  project

risks

• Accidents

• Extended length of contract

• Innovative design proves impossible

• Shortage of skilled 

• Shortage of material

• Unpredicted weather conditions

• Defective workmanship

• Unexpected ground conditions

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• Validation of contract

• formed when an offer by one party is accepted, without qualification, by another party 

  • Offer 

    • Expression of willingness to enter into a contract on certain terms 

    • To be bound by it when accepted by the party

    • Refers to estimate or quotation or order

    • If the person making the offer gives a time limit, then the offer will end when that time has elapsed without acceptance

    • In the event of the death of one of the parties before acceptance the offer will come to the end

    • Rejection - The offer comes to an end if rejected, or if a counter offer is made

    • Revocation – An offer maybe withdrawn or revoked, but this must be clearly communicated to the other party

  • Acceptance

    • Made orally, in writing or by conduct

    • Must accept all the terms of the offer

    • Acceptance must be clearly communicated to the person making the offer

    • The letter needs to have been sent as registered mail to form documentary proof of the time

    • Contract is only formed when the acceptance is received by the person making the offer

  • Consideration

    • A right, interest, profit or benefit accruing to one party or some service

    • Forbearance, detriment, loss or responsibility given, suffered or undertaken by the other

    • Consideration is what a party contributes towards the contract, the price paid for the other persons goods or services.

    • Condition : Must not be past, the law does not recognise past actions / Need not be fair but must be valuable

  • Contractual Capacity

    • The parties to a contract must be legally capable

    • Adult citizens have full capacity to enter into any contract

    • Persons who do not have full legal identity : anyone under the age of 18 / Persons Mentally Disordered or Affected by Drugs

• Discharge of a contract

  • By performance

    • Complete the contract

    • In a construction contract, if the supplier fails to provide the contractor with the exact goods ordered, the contractor may 

    • refuse to accept and refuse to pay the supplier

    • If a party fulfills its obligations, he can file a lawsuit against the contract price and deduct a sum to cover the deficiencies in the contract.

    • If the contractor waives his work without consent, the contractor has no right to charge for the completed work

    • Time is important in the completion of a contract, and delivery at a date later than stated in the contract need not be accepted

  • Discharge by Agreement

    • A contract is made by agreement and it is also possible to end it by subsequent agreement 

    •  Where there has been no performance, is called a bilateral discharge.

  • Breach

    • An express statement of intent not to perform , before time for performance arrives

    • A failure to fulfil obligations during the execution of a contract

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Tendering system for public works contract

• Policy and principles

The Government of HKSAR is guided by the twin policy objectives in calling tenders for public works contracts. These objectives are “Achieving best value for money” and “Maintaining open and fair competition” 

• Open and Fair Competition

Government treats all tenderers on an equal footing and ensures that the laid down contract specifications will not create unnecessary obstacles to tenderers

• Value for Money

Account in the tender evaluation not only the competitiveness of the tender prices, but also the past performance of the tenderers and 
whether the tenders conform to the specifications, terms and conditions laid down in the tender documents 

• Transparency in Procedures and Practices

Ensures that procedures and practices for tendering Government contracts are clear and transparent to facilitate better understanding 
  amongst contractors

• Public Accountability

Approves the use of public funds, to the community and also to the prospective tenderers

 

Type of tenders - Government work

 

• Open Tendering

  • Tender invitations are published in the Government of HKSAR Gazette on every Friday, on the Internet, and if necessary, in the local press and selected overseas journals

  • All interested contractors are free to submit tenders

• Selective Tendering

  • Tender invitations are published in the Government of HKSAR Gazette on every Friday, 

  • Sent by letter to all contractors on the relevant lists of approved qualified contractors established and approved for the purpose of selective tendering

• Single or Restricted Tendering

  • Circumstances when open competitive tendering would not be an effective means of obtaining the requisite supplies or services

    • urgency brought about by unforeseeable events 

    • with the protection of copyrights or technical reasons, the products or services can only be supplied by a particular supplier 

    • The equipment or services to be purchased must meet requirements of compatibility or interchangeability with already existing equipment or services

    • Demonstrated that “patent” or “proprietary” items are the only items

    • Maintenance is to be executed on paten

 

• Prequalified Tendering 

  • There may be circumstances which require the prequalification of a list of tenderers financially and technically capable of undertaking a public works contract

    • Extremely complex nature, high value

    • High level of co-ordination, technically demanding

    • Tendering Process | Government

    • Tender documents

    • Tender notices

    • Receipt and opening of tenders

    • Evaluation of tenders and 

    • Award of tenders

      • Tender documents

        • Conditions which a tenderer has to observe when submitting a tender, the tender validity period, the currency to be used for contract

        • General Conditions of Contract covering the conditions

        • Special Conditions of Contract covering any conditions peculiar to the contract

        • Drawings

        • BQ

        •  Form of Tender to be signed and completed

      • Tender notice

        • A broad description of the various requirements of the works contracts

        • The closing date and time for tender

        • The place for lodging the tenders

      • Amendments to Tender Documents

        • If amendments to tender documents are found necessary after they have been issued to tenderers, then a numbered and dated  addendum should be prepared either as a replacemen

      • Pre-Tender Meeting

        • If a pre-tender meeting is considered necessary, it should be arranged in the week following the last publication of the tender invitation, or in the case of restricted tendering at a suitable time before the date set for receipt of tenders.

      • Queries from Tenderers during the Tender Period

        • All questions raised at the pre-tender meeting or put forward in writing by tenderers

      • Extension of Time for Tendering

        • A black rainstorm warning or typhoon signal No. 8 or above is hoisted between 9.00 a.m.

        • Tenderers give substantive reasons showing why tenders cannot be properly prepared within the specified period

        • Queries raised by the tenderers require significant time to resolve

      • Receipt and Opening of Tenders

        • Tenderers must submit their tenders and deposit them into the prescribed tender box

        • Tenders received after the tender closing time or submitted not in accordance with the tender notices will not be considereds

      • Evaluation of Tenders

      • Errors in the pricing document

      • Examination of Tender Prices and Rates

      • Tender pricing

      • Procedure after Correction of Errors and Examination of Rates

      • Tender Qualification

      • Technical Submissions

 

PEER ASSESSMENT

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(TBC)

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