Link to original video by Tom Stephenson

Introduction to Construction Management, Contract Procurement Methods Lecture 3B

Summary of "Introduction to Construction Management, Contract Procurement Methods Lecture 3B"

Short Summary:

This lecture focuses on different contract procurement methods used in construction management, exploring how these methods impact the relationship between owners, contractors, and consultants. The lecture discusses the assignment of risk, project complexity, funding, and timing as key factors influencing the choice of contract type. Specific methods like lump sum, unit price, cost plus, design build, and construction management are analyzed, highlighting their advantages and disadvantages. The lecture also touches on the importance of collaboration and value engineering in modern construction practices, emphasizing the shift towards integrated project delivery (IPD) as a more holistic and collaborative approach.

Detailed Summary:

Section 1: Introduction to Contract Procurement Methods

• The lecture begins by emphasizing the importance of understanding different contract types in construction management.
• The speaker explains that these methods define the working relationship between owners, contractors, and consultants, influenced by factors like risk allocation, project complexity, funding, and project timeline.
• He highlights the inherent risk associated with pricing construction projects and how contractors often factor in risk probabilities into their bids.

Section 2: Lump Sum Contracts

• Lump sum contracts, also known as fixed price or stipulated price contracts, involve a predetermined price for the entire project.
• The speaker emphasizes the importance of well-defined drawings and specifications for successful lump sum contracts, as changes can significantly impact the agreed-upon price.
• He notes that government agencies often favor lump sum contracts due to transparency and taxpayer protection.

Section 3: Cost Plus Fee Contracts

• Cost plus fee contracts involve the contractor being reimbursed for actual costs, plus a predetermined fee for managing the project.
• This method offers less risk for the contractor but requires more monitoring and documentation to ensure cost justification.
• The speaker shares his personal experience with cost plus contracts, highlighting the pressure to be efficient and the potential for increased costs if not managed carefully.
• He mentions the concept of a Guaranteed Maximum Price (GMP) contract as a possible transition from cost plus to a fixed price model.

Section 4: Unit Price Contracts

• Unit price contracts are suitable for projects with clearly measurable quantities, like drywall installation or earthwork.
• The speaker explains that this method involves a predetermined price per unit of work, allowing for adjustments based on actual quantities.
• He notes that unit price contracts are common in heavy civil work, such as road construction and dam projects.

Section 5: Competitive Bidding and Negotiated Contracting

• The lecture discusses the two main methods of contractor selection: competitive bidding and negotiated contracting.
• Competitive bidding is the most common method, particularly in the public sector, where the lowest bidder is typically awarded the contract.
• The speaker highlights the challenges of competitive bidding, including the need for detailed bid documents and the requirement for bid bonds to ensure contract fulfillment.
• Negotiated contracting is more prevalent in the private sector, allowing owners to work with preferred contractors and negotiate price and payment terms.
• He emphasizes the importance of time and trust in negotiated contracts, as owners often prioritize speed and rely on the contractor's past performance.

Section 6: Procurement Process

• The lecture defines procurement as the process of purchasing goods and services, encompassing the contracting process between owners, general contractors, and subcontractors.
• The speaker explains that procurement decisions consider contract type, owner objectives, risk allocation, project timeline, and project complexity.
• He highlights the increasing demand for faster project completion, leading to a shift away from traditional lump sum contracts in some cases.

Section 7: Design-Bid-Build, Design-Build, and Construction Management

• The lecture outlines three common procurement methods: design-bid-build, design-build, and construction management.
• Design-bid-build is the traditional method, involving separate design and construction phases with a lump sum or unit price contract.
• Design-build combines design and construction under a single contract, fostering collaboration and potentially leading to faster project completion.
• Construction management involves hiring a construction manager to provide advisory services and oversee construction, with the owner contracting directly with subcontractors.
• The speaker emphasizes the advantages of collaboration between designers and builders in design-build projects, leading to better value engineering and potentially faster project delivery.

Section 8: Integrated Project Delivery (IPD)

• The lecture introduces Integrated Project Delivery (IPD) as a more holistic and collaborative approach to construction.
• IPD involves forming a consortium of key stakeholders, including designers, contractors, and owners, to work together from the initial design phase.
• The speaker highlights the potential benefits of IPD, including shared profit and risk, increased collaboration, and reduced waste.
• He mentions that IPD is gaining traction in the industry, with companies like Gillum Group leading the way in implementing lean construction principles.

Section 9: Conclusion

• The lecture concludes by summarizing the different contract types and highlighting the ongoing discussion about industry change and the potential of IPD.
• The speaker emphasizes the importance of understanding the various contract methods and their implications for successful project delivery.

Notable Quotes:

• "It's really important to understand the risk associated with the different types of construction contracts."
• "Sometimes it depends if it's a government agency, there's a lot more pressure on government agencies to use lump sum type pricing because you know you're representing the taxpayers' money."
• "I always felt a certain amount of pressure to produce... clients would be kind of more suspect if things seem to be taking longer."
• "Builders know how to build... architects know how to design... when you get a combination of those strengths and you collaborate, you get a more positive result."
• "IPD is really a system contract system that is very holistic that the key main members get to share in the profit instead of it just being one and then one doing this and then this adversarial relationship."
• "Anything that's not value is waste."