Construction Management solved answers 2022 batch
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Case 1: Pass-through contractor
A commercial construction firm that reports to be a design-build general contractor actually operates more as a pure construction manager. They sell their services as being an agent for the owner. This firm will procure all design and construction services, originate the contractual agreements, charge a fee on all hard and soft costs, but have the second-tier firms execute their contracts with the project owner directly. This method of procurement is referred to as a pass-through contract. The CM does not sign or initial any of the contract documents, pay requests, change orders, requests for information (RFIs), submittals, etc. The CM explains to owners the attractiveness of this contracting arrangement as a means of saving additional tax and insurance markups. The CM does not have problems convincing the subcontracting and supplying firms of the advantage of contracting directly with an owner, as these firms are now one step closer to the owner, and subsequently the bank. Several of this CM’s projects have had problems with secondtier contractors (such as foundation settlement, lack of sufficient air-conditioning, window leakage, roof leakage, or dead landscaping). In each instance, the CM has stepped back, not protecting the owner, and forces the owner to resolve problems with subcontractors directly. On other projects, there have been problems with the owner not paying the contractors or designers, and again the CM has stepped back, not protecting the subcontractors. The second-tier firms have had to pursue resolution, through liens or other means of collection, with the owner directly. The passthrough CM receives a guaranteed lump sum fee for their services and jobsite general conditions are cost-reimbursable.
Q1 What is wrong with this system?
Q2 How can it be improved and still utilize the services of a construction management or owner’s representative firm or individual?
Q3 How would a general contractor or CM at risk system improve this condition, if at all?
Develop three organization charts (pass-through, owner’s rep, and CM at risk) and utilize them to answer these questions.
Case 2: Owner’s contracts
a. On a very large, very complex remodeling and expansion project, an owner has contracted with numerous members of the design team independent of the architect. The architect does not have any second-tier design firms under their contract. The owner has also contracted with many different material suppliers and specialty subcontractors directly and not through the general contractor (GC). The owner is of the belief that they can save money avoiding multiple markups by doing business this way. The owner has, however, written into every contract that each firm is still responsible to “coordinate and communicate directly with the other independent designers and contractors as if they were contracted under the standard vertical method,” rather than this horizontal method.
Q1 What risks has the owner assumed?
Q2 What risks are the designers and contractors assuming through this system?
Draw up organization charts depicting this condition and the “standard” condition.
b. Assume the following costs for the case described above.
•$50 million total construction cost.
•$30 million total construction cost of sub-consultant-designed work.
•Four percent total architectural fee on the architectural portion of the work, and they would receive an additional 10%
markup on sub-consultants’ design fee if run through the architect’s books.
•The sub-consultants would receive 10% design fee of the construction cost of their portion of the design, either
billed directly to the client or through the architect.
•Five percent general contractor fee on costs run through their books.
•The values for four sample subcontracting firms working directly for the owner are $550,000 for landscaping, $950,000
for a swimming pool vendor, $5 million for the electrical subcontractor, and $12 million for the mechanical
subcontractor. Assume the subcontractor fees are included in these figures. The other subs traditionally work through
the GC.
Q1 What would the cost increases have been to the owner if they had contracted in a normal fashion?
Q2 Does this also provide contracting opportunities for the contractors or designers? Explain why or why not.
Case 3: Construction manager or general contractor?
A client is ready to negotiate a contract with a construction firm for a $30 million shelled office building project. The design-development documents (DDs) are complete. The building permit has been applied for and is scheduled to be issued in two months. The architect has requested the owner now bring on a contractor to assist with the balance of preconstruction services, estimating, scheduling, constructability analysis, material selections, and value engineering (VE) during the construction document (CD) development phase. The client and the architect have received written proposals and conducted interviews, and have narrowed the short list down to two firms who have a completely different approach to contracting. Both appear to be equally qualified with respect to experience, references, availability, etc. Both firms have worked with the architect and the owner successfully on previous projects. Both firms are quoting a competitive 4% fee on top of the cost of the work. All other conditions are equal. The only difference between the two firms is that one is a pure construction manager and will subcontract 100% of the project except job site administration. The other is a typical general contractor. The GC is only interested in building the project if they are allowed to perform the work that they customarily self-perform, such as concrete, carpentry, reinforcement steel, structural steel, and miscellaneous specialty installation, which will account for 30% of the cost of the work on this shell.
a. Take the position of the CM. Why is it to the owner’s and the architect’s advantage to employ your firm during the preconstruction phase? What are the advantages of using a CM during the construction phase? Discuss all project control issues, including quality, safety, schedule, and cost. Is a CM at risk truly an owner’s representative? Why is it better for you that your firm is selected now and on board when the tenant improvement projects become available? Does the GC hide costs? Sell your position and be creative. Use the tools you have learned from this book, your classes, professional experience, and outside research to convince the owner that the CM procurement approaches is more advantageous than the typical general contractor.
b. Take the position of the GC. Cover the same issues as outlined in the CM position above, except with the opposite perspective. Does the GC have more control over cost, schedule, quality, and safety? Which firm can build it better, faster, and safer? Who is best at looking out for the client’s interests?
Case Study 4: Bid or negotiate?
Two contractors are pursuing the same client for a dental clinic. The drawings are now 50% complete. The dentists’ organization knows and trusts both contractors. The first contractor likes the lump sum market and is encouraging the client to complete the drawings and competitively bid the project. The second contractor is recommending that the owner allow a select group of contractors to prepare proposals utilizing a negotiated procurement and GMP pricing approach based on the drawings as they exist now and save additional architectural fees.
a. Argue the first contractor’s case. What are the advantages to the owner to bid the project? Use statistics and materials obtained from your courses, textbooks, and outside research to support your position.
b. Argue the second contractor’s case. What are the advantages to the owner to negotiate the project? Use statistics and materials obtained from your courses, textbooks, and outside research to support your position.
Case 5 : Moving target
This large $400 million public works project was competitively bid utilizing drawings that everyone thought were relatively complete but turned out were just a progress set. The contract format was to utilize a guaranteed maximum price (GMP) rather than lump sum, which would have been more customary for bid and public works projects. A fee of 4% was stated in the GMP. Shortly after the contractor started the project, a completely new document set was issued. The contractor was to continue with construction based upon these new documents and prepare a change order, or revised GMP, in parallel. One month was allowed or re-estimating. Almost as the estimate was being finished, a third completely new document set was issued. The client put aside the requirement for change order number one since this third set of documents was really the set that was going to be built to, and hopefully incorporated via change order. The contractor then began to estimate these documents. This same process repeated monthly throughout the two years while the project was under construction. A total of 20 complete sets of revised documents were issued. The contractor continued on with the project and kept very accurate accounting records. The quality of the work, schedule adherence, and safety awareness were all managed well. The contractor eventually turned in a very large change order reflecting an increase of almost 50% over the original “bid,” backed up with “actual” costs, not estimated costs.
Questions:
Aren’t actuals more accurate than estimates? Was this a lump sum project?
Was it a conventional GMP project? Or was it actually completed as a cost-plus-percentage-fee project? Was this fair to the taxpayers?
Many public projects end up with the contractor claiming the owner. Do you think that happened in this case?
Case 6: Estimating too smart
You are a contracted owner’s representative for a new electrical trade’s educational facility. At the request of the board of trustees, you have put this relatively simple $2 million project to bid to a short list of four general contractors. You are very familiar with three of the GCs, who are of comparable size and experience. The fourth is an out-of-town firm who is substantially smaller, but has constructed these types of facilities in the past. Two of the larger general contractors are relatively silent throughout the bid cycle. They diligently pick up their drawings, attend the pre-bid meeting, and appear to be earnestly estimating the project. The third larger firm asks over 100 detailed questions about the documents. The estimator is a friend and you advise him that he is becoming “too smart” on the job. All of his questions are answered in writing and issued as addenda to all four general contractors. The smaller contractor does not attend the pre-bid meeting. His estimator calls you with only 10 days left before the bid is due and wonders where he can pick up drawings and when the bid will be due. He does not ask any detailed questions. The morning the bid is due, he asks for a time extension but is denied. As anticipated, the detailed estimator turns in the high bid. The two silent contractors are in the middle. The smaller general turns in a bid that is $100,000 lower than the others but is within 5% of the total. The client is very delighted about the tight bid results and with the low bidder’s qualifications.
Questions:
What should your advice be?
Is it ethical to disqualify someone who was on a short list?
If hired, what will eventually happen with this low firm?
Is this fair to the contractors who prepared what are anticipated to be “complete” bids?
Which firm will prepare the fewest change orders?
Case 7: Window bids
You have received three window wall subcontract bids. The low bid of $500,000 was from an unsolicited subcontractor. They did not fill out your prescribed bid forms. They neither acknowledge nor deny the bid documents or addenda. You know nothing about this firm. Their bid does not state any exceptions or qualifications regarding their proposal. The second bid of $600,000 is from a glass firm that you have worked with prior on other sites, but not successfully. The quality of their work was fine, but they battled with your office with respect to contract issues. They were short-listed and requested to bid on this project. They filled out your bid form, but their proposal came with an extensive list of exclusions, assumptions, and qualifications. The third bid was also from a local glazing firm whom you had solicited a proposal from and have worked with successfully. Their bid is exactly per your prescribed bid form. They do not state any qualifications or exceptions to the bid documents. Their bid is $700,000. Your pre-bid budget was $600,000 for this area of work.
Questions:
What do you do?
How would your answers differ if this were: (a) a lump sum competitively bid job; or (b) a negotiated GMP job?
