What is a contract? A contract is a written agreement between two or more parties that clearly details the responsibilities and obligations for each party, is legally enforceable and is signed and dated by authorized representatives of each party.
The contracting process consists of the contractor receiving a request for proposal or RFP from the owner. The contractor then prepares a detailed proposal of the work including cost, schedule and other details required by the owner. The parties then negotiate the terms of the agreement. All parties then sign the contract.
What is the main purpose of a contract? The contract is a vehicle to transfer commercial risk from the owner to the contractor. Depending on the amount of risk the contractor is willing to assume will be determined by the type of contract.
The most common types of contracts used are Lump sum, Reimbursable or time and materials, Unit price, cost plus fee and guaranteed maximum contracts. The lump sum agreement assigns the majority of risk to the contractor with the reimbursable contract transferring the least amount of risk.
The basic elements of a contract include Commercial terms, Assurances of performance, Insurance, Indemnity, Changes, Disputes, Damages, Warranties, Termination and Suspension and Force Majeure.
The Commercial terms consist of three major elements. The Scope of Work is the first major element. The main purpose of the scope of work is to clearly describe the boundaries of your project. This will often include technical specifications and engineering documents and plans. The Pricing & Payments is the second element. This element details of how and when the contractor will get paid for work completed. The third element is the schedule. The schedule will clearly communicate the contractors plan for completing the scope of work.
Insurance will address the requirements for the different types of insurance, additional insured requirements, Owner controlled insurance program (OCIP) and safety.
Changes will document how changes are handled. These issues will include Owners Directives, Design Changes, Constructive Changes, Payment for changes, Major Changes and negotiating changes. The process for approving or rejecting changes to the project will be outlined.
Disputes and their resolution will provide for the framework and process for the resolution of any disputes that arise. This section will outline dispute resolution options that are available to all parties involved.
Damages will address issues such as Breach of Contract, failure to perform and Contractor’s Financial exposure. This section will determine how damages are determined with regard to liquidated damages, actual damages and consequential damages.
Warranties will address all warranty issues including the scope, duration and any specific requirements that are agreed upon by all parties involved.
Termination & Suspension will address termination for cause, termination for convenience, suspension and cancellation of the contract.
Other Contract Clauses that may be included are Site Conditions, Use of completed portions of the work, Patent Indemnity, Secrecy & Confidentiality, Owners right to inspect, Independent contractors, assignment, Acceptance & the punch list, Advance & Partial waiver of liens, Final waiver of liens, Audit rights, Severability or validity clauses and Venue & Applicable law.
Monthly Archives: April 2014
How to Achieve the Primary Objectives on a Construction Project?
How to Achieve the Primary Objectives on a Construction Project?
In order to meet the primary objectives the management team should consider the following acronym: PODC. P stands for plan. The team must have a plan for how they are going to accomplish each of the objectives. Some Project Managers claim they don’t have time to plan. Others realize that they don’t have time not to plan. Proper planning is what gives them time to successfully manage projects.
The O stands for organize. The team must organize everything to do with the project in order to meet the primary objectives. They must organize the job site for efficiency in receiving materials and staging equipment. They must be personally organized so they are not crisis drive.
The D stands for direct. Managers must give directions to all the participants so that the planning and organizing will be communicated to everyone. If there is a great plan and the team members are organized but no direction is given, the result will be failure. Stand up and give directions. Take command and make decisions. There must be a leader with the vision of the entire project to direct the workforce.
The C stands for control. The main objective of management is to control time cost and quality, while providing a safe work environment. If the management team is not planning, organizing, directing, and controlling, why are they there? Handling critical issues such as these is the purpose of management. To achieve control is very challenging, but successful managers find rewards and excitement in accomplishing this enormous challenge.
When the project is in trouble, it is important to take a close look at the PODC. A common comparison can be seen in the world of sports. When a football coach is being interviewed by the media right after a surprising and difficult loss, the coach is typically asked what he or she is going to do to recover from the loss and what will be the focus to prepare for the next week’s game. In football, the basics are blocking, tackling, passing, running, kicking and knowing and following the play. In project management, the basics are time, cost quality, and safety. How they are incorporated by planning, organizing, directing, and controlling. If a project is in trouble, look at these basics and see where the team is failing in their plan, their method of organizing the project and the workforce, the way they are directing the work to be done, and the controls they have put in place to monitor time, costs, quality, and safety.
The schedule is the key piece of the puzzle because it interfaces with all the project management basics. The schedule shows the plan of how the project is going to be built, helps the management team organize the workforce to build the project in an orderly manner, gives direction to all team members on how the team is going to accomplish the primary objectives, and helps managers control the time, cost, and quality of the project, while providing a safe work environment.
How do you maintain balance in a Construction Project?
All construction projects have four primary components; quality, safety, cost and schedule. To successfully execute any project requires that these elements are addressed. Every project has limited resources and the proper balance must be achieved for a successful project.
Quality is essential to meet or exceed the owners’ expectations of the quality of the work. The quality of work expected should be clearly communicated in the contract documents or work agreement with the owner. Quality cannot be sacrificed in order to hit the schedule or cost objectives. Increased quality above what is expected will consume precious cost and schedule resources. Specifications alone will not guarantee the total quality of the completed project. The final quality standards are set by the entire team involved in the process, depending on the costs and time allowed. It is extremely difficult, if not impossible, to complete an exceptionally high-quality project unusually fast, at a low cost, and in a very safe work environment.
Safety is an extremely important objective of any project. Safety can never be compromised to hit the cost or schedule objectives. Like other project elements maintaining proper safety consumes project resources. Proper training of the work force is essential. Planning the work and understanding the risks is an important element. Effective communication at all times is required to maintaining a safe work environment.
If cost is primary focus of a project then quality, schedule and safety will be impacted. Quality will be sacrifice because inferior products will be used often by an untrained workforce. Safety will be compromised due to the lack of experience and ability. Schedule is often impacted because of rework and the lack of the necessary manpower. Cost is often the only measure of success of a project. It is too easy for a project manager to only focus on this element.
If schedule is the driving force of the project, time is of the essence. Quality cannot be maintained or shortcuts are taken. Cost increases due to overtime and excessive manpower which often reduces productivity. Safety is sacrificed because time can be saved by not using the proper equipment or methods. When the crew is pressured by a time constraint they often work carelessly and take unnecessary chances.
One of the major challenges of project management is to balance time, cost, and quality, while ensuring a safe work environment. The project manager must keep all of these in mind and not let the pressure on one decrease the effective management of the others. Some projects inevitably demand that more emphasis be placed on one of these objectives. The experienced manager nonetheless will keep them as closely balanced as possible. It is important for the project manager who wants to satisfy all stakeholder objectives and to under promise and over deliver. If, during the initial planning stage, the project manager senses that quality must be above the norm, the additional costs and time must be determined and included in the estimate and the schedule to ensure the project’s success. Moreover, if initially it is realized that the project must be completed in an unrealistic time frame, the additional costs and safety precautions must also be planned for in advance, along with the steps to be taken to ensure that the project’s quality standards are met.
Compromising on these major objectives to the appropriate extent is a delicate task that the project manager must consider and handle carefully. The project’s schedule must represent a realistic attempt at meeting all four of these primary objectives. Again, the best schedule is not the shortest; it is the schedule that meets the project’s time, cost, quality, and safety objectives.
9 Reasons to use a Project Schedule
9 Reasons to use a project schedule.
Construction planning is a fundamental and necessary activity in the management and execution of construction projects. It involves the choice of technology, methods of construction, the definition of work tasks, the duration of the tasks and the resources to perform the work. The construction plan is the basis of the budget and schedule of the project. The project schedule is the formalizing of the work tasks and sequence of work needed to complete the project in a specified timeline. Nine reasons that a construction project should use a formal schedule are as follows:
1) Reduce total construction time.
The development of a schedule involves determining the work tasks required, the resources necessary and the sequence of work. A properly developed schedule will be able to predict the completion date of the project with a high degree of accuracy. Different work scenarios can then be developed and modifications can then be made to shorten the project schedule.
2) Force Detailed Thinking and Planning
During the construction planning stage much thought must go into determining the work activities and sequence of work. The details necessary to execute the project are put down on paper. The project is executed on paper before the first shovel in the ground resulting in a much higher probability of a successful project.
3) Reduce the costs of labor, overhead, interest on loans and capital
As the construction time is shortened so is the requirements for labor and capital. The schedule will help determine exactly when important resources are needed resulting in better use of capital.
4) Provide a more continuous work flow
The schedule will provide advance warning to important handoff events between key subcontractors enabling the work of the various subcontractors to flow efficiently contributing to a shorter timeline.
5) Increase productivity, give employees and subcontractors a goal to work toward
When a schedule is used, the entire team will have a common goal for employees and subcontractors to work towards. Many projects have developed an incentive plan based on the schedule performance of the project.
6) Improve your company Image – Makes you look professional
The use of a project schedule will improve your company image. You will look more professional in the way you execute your projects. More importantly the results that you are able to achieve for your clients will improve the reputation of your firm.
7) Meet Owners’ Requirements
Many project owners require the use of a schedule as a requirement of the job. Sometimes a third party that oversees the project such as a bank will require the use of a project schedule.
8) Quantify Delays
The use of a construction schedule is a very important tool to be used to quantify delays. A properly constructed and updated schedule is an invaluable tool in determining the effects on the final completion date delays no matter what party is responsible.
9) Improve communication
The project schedule is a very important communication tool for key team players. The schedule can be used to communicate with all key team members including subcontractor, architect, owner and any other parties as needed. Subcontractors will know well in advance when activities must start.
A project schedule is an invaluable management tool that should be a requirement of any construction project no matter the size. The information that the project schedule gives to the management team is an essential part of the management of a construction project.