Page 235 - Urban Construction Project Management

190 Chapter Nine
Exhibit 9-1
Contracts
Contracts
flowchart.
Type of contract submitted by the owner

CM/GC must evaluate the contract in terms of risk

Onerous clauses
Payment schedule and owner’s ability to pay
for the submitted requisitions
Project schedule

Condition of design documents to be received

Change order process

The most prevalent forms of contracts include stipulated sum (lump sum), cost plus,
guaranteed maximum price (GMP), construction management, construction manage-
ment with risk, construction management with no risk, unit price, and time and material
(T&M). Hybrid forms of these contracts are usually the rule, not the exception, as one
might surmise. In the theoretical world, the cost of constructing a particular facility
should generally be the same, no matter what form of contract you use. However, in the
real world, you only have the opportunity to choose one form of contract (or hybrid).
Thus, it is almost impossible to state that one type of construction contract would be
more advantageous than another type. The only way this could be done is if two identi-
cal projects were built at the same time on the same site, using different contracts with
the same contractor. Each contract form has its place, depending upon the circumstances
at the time of consideration. CM/GCs are usually given a contract by the owner. The
owner will decide upon the contract to use based on the items listed in Exhibit 9-2.
When dealing with work in the urban environment, private owners prefer two major
forms of contract. They are the GMP (as defined later in Types of Contracts section)
and the construction management (as defined later in Types of Contracts section) con-
tracts. The GMP provides the owner with a definitive price for the project. The actual
construction can start early because of fast tracking. These two advantages give the
owner the ability to assist in the financing of the project and to complete the project in
an expeditious manner so that cash flow from the occupancy of the project can start ear-
lier than under a normal construction contract.

The construction management contract provides the owner with the ability to analyze
the cost and complexity of a project from conception to completion. This offers the
owner the ability to construct the designed project at presumably the lowest cost and
with a minimum of cost changes (excluding scope changes). It is also possible to start
the project early by using fast tracking methods as indicated in Chapter 15. See
Chapter 1 for the preconstruction services that are offered by construction manage-
ment contracts.