A time-and-materials contract is often used on small projects, perhaps a maintenance effort, a small building or a series of small projects. It has elements of both the unit-price and cost-plus approach. The owner pays the contractor based on effort expended, but there is no ‘fee’ as such. Materials are paid at their actual cost, while labour and equipment inputs are reimbursed at pre- agreed rates. An important element of this method is that these labour and equipment rates must include all indirect and overhead expenses, profit and contingency, in lieu of the payment of any extra ‘fee’.
The contract includes a list of hourly payment rates – for carpenters, millwrights, labourers, 10 m3dump trucks, front loaders and the like. If carpenters are paid US$ 17.50 per hour, the
hourly rate billed for their services might be US$ 42.00 to include all indirect payroll expenses and a portion of the many other overheads, plus profit and contingency. Then, as the basis for a payment request for a given period, the contractor presents material invoices, payroll records with hours by category and similar records for equipment. Subcontract payments would normally be reimbursed at actual cost. If the request is approved, the contractor receives payment based on ‘time and materials’ – the time for each labour and equipment category multiplied by its respective rate, plus materials and subcontracts at cost.
This method is often used for design services, for which it is usually difficult to determine the total expected effort in advance, thus making a fixed-price design contract impractical.
Having reviewed two important decisions the owner must make during the pre-project phase, we now turn to the planning and design phase, where we describe the several parties and their activities and then explain the development of construction contract documents.
Discussion questions
1 An owner is contemplating the design and construction of a high-rise apartment building in your region’s capital city. Identify potential appropriate project delivery systems and construction contract options. Which might be preferred? Why?
2 Answer question 1 if the project is an ore-processing facility in a remote equatorial region. 3 Which type of project delivery system might be best suited to a phased construction
schedule? Why?
4 Clarify the differences between the construction manager and the project manager delivery systems. Under what circumstances would one be preferable to the other, from the owner’s point of view?
34 The Management of Construction
5 Would the design professional tend to prefer the agency or the at-risk construction manager project delivery system? Why? Answer these two questions again from the point of view of the owner and from the point of view of the construction manager.
6 List several potential risks that will be assumed by the sponsor of a build–own–operate– transfer project. Identify those risks on your list that would not fall upon a design–build organisation if such a project were transferred to the owner upon completion of construction.
7 Visit a local building site and try to determine the number and types of subcontracts that are in active use. How might the number of subcontracts vary with different types of construction?
8 Is it better that a design–build organisation be led by a designer or a contractor? Why? 9 Draw a relationship chart for a project that uses an agency construction manager and
multiple prime contractors.
10 List several projects, real or hypothetical, for which a joint venture might be well suited to carry out the construction work. For each, suggest the special strengths that each joint venture partner would contribute to the project.
11 Suppose you are invited to consider performing a pile-driving contract, where the steel piles are to be driven to refusal. Subsurface soil data is incomplete and not trustworthy. What type of construction contract would you prefer? Why?
12 Distinguish between a time-and-materials contract and a cost-plus contract.
13 The text described a cost-plus-fixed-fee construction contract for which the estimated sum of all reimbursable costs was £15 000 000 and the fixed fee was £1 800 000. The guaranteed maximum price (costs plus fee) was £17 500 000. Any savings in costs below the target of £15 250 000 was to be shared, with the contractor receiving 25% of the savings. Suppose that any costs above £15 250 000 were to be shared equally between owner and contractor.
Determine the amount the contractor will be paid if the actual reimbursable costs are (a) £14 850 000, (b) £15 000 000, (c) £15 250 000, (d) £15 650 000, (e) £16 050 000, (f) £17 000 000, (g) £17 500 000 and (h) £17 800 000.
14 Interview a local general contractor to determine the proportion of its contracts that are lump sum, unit price, cost plus and time and materials. Try to find out whether this contractor prefers one over the others.
15 Can a cost-plus contract ever be favourable to both owner and contractor? If so, under what circumstances?
16 The section on design–build includes the following statement: ‘ . . . one of the primary reasons for low productivity in the construction industry is the lack of integration of activities across the project life cycle.’ Based on what you know so far, list several means by which better integration could be achieved across the entire project development cycle.
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