Page 238 - Urban Construction Project Management

Contracts 193
• The value engineering method is used to reduce cost by evaluating alternative
materials, methods, and scope of the project.
• CM/GC has full responsibility for the project.
c. Disadvantages
• Auditing of the project by the owner is usually required.
• Total cost of the project may not be known.
d. Suggested use
• When documents are not 100% complete.
• To expedite a project (i.e., fast tracking—starting a construction project with-
out 100% completed documents, such as the foundation work starts without
the curtain wall documents completed).
• When the owner requires a CM/GC early on in the project to evaluate cost and
schedule.
• When the owner wants to negotiate the contracts with only one CM/GC.
• When critical long lead items have to be purchased early.
• Can be converted to a GMP contract.
3. Guaranteed maximum price (GMP)
a. Procedures
• CM/GC’s cost is fixed in advance and guarantees a limit on the cost of construc-
tion. A contingency is also included in the cost base. Any money left over at the
end of the project is usually shared between the owner and the CM/GC.
• Usually done on a negotiated basis between the owner and the CM/GC.
• The documents are not complete (usually 80% completed documents).
• CM/GC will not establish a GMP until approximately 80% of the trades have
been bought out.
• Costs are based on pricing received from the subcontractors and where items
are unknown, an allowance is added. An allowance is the estimated cost usu-
ally based on preliminary construction documents.
b. Advantages
• Can expedite construction when the scope is not clearly known.
• Maximum cost of the project is known even though the documents are not
complete.
• Work is usually accomplished in an atmosphere of cooperation.
• Savings can be achieved and shared between owner and CM/GC through the
use of alternatives or construction method efficiencies (value engineering).
• It is easier to resolve problems when working within a cooperative environment.
• Material can be purchased early, thus avoiding potential inflationary factors.
c. Disadvantages
• Every minor change has to be negotiated with the owner.
• The contract has to be very specific on what is to be included in the cost and
what is to be excluded.