SELECTING THE OPTIMUM WAY TO SELECT CONTRACT IN CONSTRUCTION PROJECT
TYPE OF CONTRACTS
There are two primary types of construction contracts, single contracts and multiple prime contracts. Variations of contracts involve the participation of construction manager; single contract is the most commonly used contract type. Plans and specifications are prepared by the design professional and become part of the bidding documents. The single contract is easiest to administer because of its centralization of responsibility, namely, one owner, one contractor, and one construction contract. With multiple prime contracts, most frequent use of multiple prime contracts is for phased construction, in which contracts are awarded sequentially for each phase. Contracts for parts of the project such as site development, site excavation, or foundation work are awarded before the contract for the main structural work is awarded. Multiple prime contracts require careful coordination because several contractors are involved, and no single contractor is responsible for the entire project. Sometimes, construction managers are contracted to do limited work on a project or to perform the construction work. Construction management may be used with either single or multiple prime construction contracts, and these contracts may be made with either the construction manager. Contracts involving construction management may also include guaranteed maximum price, whereby the construction manager guarantees that the construction cost will not exceed specified amount. The cost-plus contracts are preferred to fixed price contracts when project is complex. In any construction contract, the cost of the project consists of the costs for labor and materials and the builder’s profit and overhead. Before a project begins, the costs are only estimates. That includes price quotes from a contractor. There is risk involved for both the owner and the builder concerning the builder’s ability to perform the work for a given actual cost. The differences between types of contracts primarily lie in who takes the risk, which has to pay for cost over runs, and who keeps the savings if the project costs less than the estimate. In a major construction project, some or all of the different types of contracts may be used.
Lump Sum contract is the most basic form of agreement between a supplier of services and a customer however, costs that exceed the estimates may lead to disputes over the scope of work or attempts to substitute less expensive materials for those specified.
Unit Price contract, the work to be performed is broken into various parts, usually by construction trade, and a fixed price are established for each unit of work. Cost plus contracts are rarely used for school projects because school administrators and school boards rarely have the authority to exceed the amount appropriated for the project. The great advantage of a cost plus contract, the project will result in the building that was envisioned, even if costs run high. The builder is less likely to cut corners or argue for less expensive materials because his profit is not in jeopardy.
CRITERIA TO SELECT CONTRACT FOR PROJECT
Industrial and academic awareness of the need for judicious construction contractor selection is increasing. Earlier investigations of client procurement decision have more recently been expanded upon that increased activity by presenting review of contractor evaluation and selection modeling methodologies there can be bespoke approaches, Multi-attribute analysis and multi-attribute utility theory. Cluster analysis, multiple regression, Fuzzy set theory and Multivariate discriminant analysis (Holt 1998, pp. 153-164). While the procedure is presented in construction contracting context, the methodologies cited are of potential benefit in a wide selection of purchasing scenarios (Holt, Olomolaiye and Harris 1994, pp. 139-148). There can be utilizing of relative index ranking technique and taking into account of each factor frequency as being the perceived cause of clients’ dissatisfaction with contractors’ performance, weighting index was determined for each of the factors. The contractors’ current workload, contractors’ past experience in terms of size of projects completed, contractors’ management resource in terms of formal training regime, time of year weather and contractors’ past experience in terms of catchments, that these most important factors be considered when selecting contracts are likely to perform to the satisfaction of client on construction projects.
Contractor prequalification is a decision-making process involving a wide range of decision criteria as well as many decision-making parties and has received the attention of several researchers (Moselhi and Martinelli, 1993; Ng, 1992; Herbsman, 1992; Ellis and Herbsman, 1991; Merna and Smith, 1990; Russell, 1988). The prequalification and bid evaluation processes requires the development of necessary and sufficient criteria. The last two decades has witnessed a huge development in project complexity and client’s needs and this has led to an increasing use of alternative forms of project delivery systems. In contrast, the prequalification and bid evaluation process, quantifying and the assessment of criteria is still in its original form. Failure of contractors to comply with the contracts conditions occur for different reasons.
References
Ellis, R.D., Herbsman, Z.J., 1991, Cost-time bidding concept: an innovative approach, Transportation Research Record 1282, Washington D.C., 89-94
Herbsman, Z., Ellis, R., 1992, Multiparameter bidding system-innovation in contract administration, J of Const Engrg and Mangt, 118(1), 142-50
Holt, Gary D Paul O Olomolaiye and Frank C Harris Applying multi-attribute analysis to contractor selection decisions.
References and further reading may be available for this article. To view references and further reading you must purchase this article.European Journal of Purchasing & Supply Management Volume 1, Issue 3, September 1994, Pages 139-148
Holt Gary D Which contractor selection methodology?
References and further reading may be available for this article. To view references and further reading you must purchase this article. International Journal of Project Management Volume 16, Issue 3, June 1998, Pages 153-164
Merna, A., Smith, N.J., 1990, Bid evaluation for uk public sector construction contracts, Proc Inst Civ Engrs, Pt 1, Feb, 91-105.
Moselhi, O., Martinelli, A., 1993, Analysis of bids using multiattribute utility theory. (??publisher??)
Ng., S.T.T., 1992, Decision support system for contractor prequalification, MSc dissertation, University of Salford, Department of Surveying, UK
Russell, J.S., Skibniewski, M.J., 1988, Decision criteria in contractor prequalification, J of Mangt in Engrg, ASCE, 4(2), Apr, 148-64.
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