NUCLEAR SUPPLY CHAIN
SYMPOSIUM
Canadian
Contracting Models
Darryl J. Brown
Gowling Lafleur Henderson LLP
November 10, 2015
Suite 1600 1 First Canadian Place 100 King Street West Toronto, Ontario Canada M5X 1G5 Telephone (416) 862-7525 Facsimile (416) 862-7661 www.gowlings.com
Canadian Procurement/Construction
Delivery Methods
Various procurement/construction delivery methods exist to
provide alternatives as to how risks and responsibilities are
allocated for a project and how key factors such as time
and price are addressed.
Traditional Delivery Method:
Design-Bid-Build
Stipulated Price
Cost Plus
Unit Price
Contemporary Delivery Methods:
Construction Management (not-at-risk / at-risk)
Design-Build
Overview of Design-Bid-Build Model
Under this model the owner retains a design team/consultant
such as an architect or engineer to design a project. Once plans
are completed, the owner, usually through a call for bids (or,
possibly sole-sourced negotiations), retains a contractor to
construct the project. The owner, therefore, enters into two
separate contracts: one with the design team/consultant and the
other with the contractor.
Each of the parties may subcontract with various other
consultants, trades and suppliers in order to fulfill their
obligations at each project stage.
Overview of Design-Bid-Build Model
(cont’d)
Model’s pricing structure may take 3 basic forms:
Stipulated Price
Cost Plus
Unit Price
Cost Plus Model also lends itself to more complex pricing
structures
Guaranteed Maximum Price (Fixed)
Guaranteed Maximum Price with sharing of savings
Considerations
Design-Bid-Build Model In General:
Structure is good for a risk-averse owner as risks do not flow back to the
owner for construction or design defect issues – they remain with the
contractor and design team, respectively
Owner must await completion of the design before commencing construction
of the project - it cannot be fast tracked
Owner is not fully aware of the price until tender which may delay financing
arrangements, etc.
Design consultant and contractor have the potential to be at odds with each
other should problems arise - both could deny fault and engage in
finger-pointing resulting in delay
Considerations
Stipulated Price:
Easier for a contractor to provide a fixed price due to the design being
completed before pricing occurs
Should result in fewer changes to the design thereby saving owner
money
Contractor absorbing greater risk, therefore, higher contingency
Considerations
Cost Plus:
Contractor must keep and disclose full and detailed accounts and records
necessary to document cost
Contractor’s profits are tied to fees paid for all materials and services,
therefore, potentially less incentive to be efficient
Owner does not know the total cost of the construction project at the time of
signing the contract
Unit Price:
Suitable for projects where the required materials can be easily identified but
not the number of such items
Owner does not know the total cost of the construction project at the time of
signing the contract
Construction Management Method
Similar in framework to traditional construction contract
with the primary difference being that an owner retains a
construction manager (or Owner self-performs) in place of
the general contractor to provide project administration
and technical services such as scheduling, budgeting, and
material selection, but not to do any actual construction
work
No single contractor assumes responsibility for the entire
project
Considerations: CM Not-At-Risk
Cost advantages exist in that there is limited risk to the construction
manager whose fees should therefore be less
Model is suitable for moving
construction along at a fast pace
because procurement/construction can start before design is finalized
Owner has better control over budget
and schedule
Costs can be saved given that
contractors enter into contracts directly with the owner with no markup by a middleman
Construction manager’s experience
may be looked to by the design team and they can work together
Owner carries the risk of construction regarding scheduling and performance issues, etc. rather than the
construction manager
Limited incentives for construction manager to aggressively seek cost savings
Final cost of the design is not known to the owner until everything is in place
Increased level of contractual
complexity
Owner may be found to be the
“constructor” given that the owner is entering into several contracts with contractors
Considerations: CM At-Risk
Similar to that of a Construction Manager Not-at-Risk model except that the risk of being found
“constructor” now flows to the
construction manager instead of the owner
Cost savings reduced as construction
ONE MODEL DOES NOT FIT ALL
Contract Delivery Models and Pricing Structures
are becoming more complex to reflect the
EXAMPLE: Pricing Options
Hybrid Pricing Options arising to deal with different aspects of EPC contracting
1.
Engineering
Majority of pricing fixed
First of a kind risks or areas with significant unknowns (such as
Inside the Vault) may require Target Price
2.
Procurement
Generally Fixed
3.
Construction
Variations of Fixed and Target Pricing to address allocation of
risks and risk sharing for significant unknowns
STICKS & CARROTS
(Risk-Sharing)
A.
STICKS
Delay Liquidated Damages for failing to achieve milestones
Escalating Loss of Margin or Entire Fee above Target Price
B.
CARROTS
