Quantity Survey & Estimation – Lecture # 14

Table of Content

• • Introduction to “Specifications”  
  • Tendering  
  • Civil Engineering Contracts & Tender Documents  
  • Evaluation of Proposals & Contracts

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Quantity Survey & Estimation – Lecture # 14 – Excerpt

Quantity Survey & Estimation

Course Instructor

Engr. Shad Muhammad

Lecturer, Department of Civil Engineering

Qurtuba University of Science & IT, D. I. Khan.

Review of Lecture # 11, 12

Estimating Earthwork

Estimation of Excavation for Roads in Plains

Estimation of Surface Drains

Contents of Lecture # 13, 14

Introduction to “Specifications”  

Tendering  

Civil Engineering Contracts & Tender Documents  

Evaluation of Proposals & Contracts

Qualifications of Contractor

There are no fixed norms of qualifications of a contractor. There are some essentials which a contractor is expected to have. Such as:

1. He should be financially sound
2. He should have sufficient knowledge to read the drawings
3. He should be well versed with the procedure of the department to carry out the work, submission of bills, etc.
4. Good reputation and experience
5. Should have ability to handle labor and material efficiently and properly.
6. Should be capable of arranging men and material as per requirement.

Quotation: The rates quoted by a contractor in response to tender call are called “quotations” ,

Tenders: It is defined as an offer in writing to execute a specified work or supply. In this offer, some specific articles are required by the department mentioning approximate rate, under certain conditions of contract. An agreement between the contractor and the department is executed for the completion of the job.

Earnest Money: It is a guarantee is the shape of money given by the contractor along with their tenders, confirming their willingness to work for the department. Mode of money to be is informed by the department 2% of the total estimate.

ØIn case, if the tender of the contractor is not accepted. The money is refunded immediately.

Security Money: This is the money which the contractor has to deposit with the department when the contract is allotted to him. It is 10% of the total estimate. This money also wp-wp-includesss earnest money already deposited by the contractor. This deposit is kept as a check so that the conditions of the contract agreed upon are fulfilled and the work is in progress and quality of the work is satisfactory.

Notice Inviting Tenders (N.I.T.)

ØIt is prepared by the administrative wing after all the above mentioned formalities are complete including administrative approval, technical sanction, funds, land acquisition, etc. sealed tenders are invited by giving advertisement in leading newspapers, by sending letters to reputed contractors and displaying notice on notice board of the department.

ØThe date of issue of the notice should be 4 weeks before the receipt of tenders. Mode to send the earnest money should be mentioned clearly.

ØTime, date and place where the drawings can be seen, should also be mentioned in the advertisement.

ØCost of tender form and its availability should be mentioned.

ØIncomplete tender forms are likely to be rejected as per conditions mentioned.

Opening of Tenders

The tenders are opened at the place mentioned in the tender form i.e. in the office of executive engineer, on the due date and time mentioned.

Executive Engineer, Divisional Accountant and Office Superintendent represent the department on one side and contractors or their representatives are on the other side.

The lock of the box in which sealed tenders are dropped by the contractors is opened in the presence of all. After checking the seals of the tender covers, these are opened and are signed by both the parties.

Comparative statement is prepared item wise and the work is allotted to the lowest bidder.

The competent authority has powers to reject the tender of the lowest bidder, but he has to give reasons and confidential remarks, financial position and reputation of the contractor is also considered.

Earnest money to the bidders of rejected tenders is retuned.

Signature of each contractor is taken as a token of certificate that tenders were opened in their presence and the allotment has been done to the right bidder.

ØPEC has prepared a set of six documents.

(1)STANDARD FORM OF BIDDING DOCUMENTS (Civil Works) 
(to be used for construction contract over Rs. 25 Millions)

(2)   STANDARD FORM OF TENDER DOCUMENTS FOR PROCUREMENT OF WORKS (Electrical & Mechanical) 
(to be used for E&M procurement contract over Rs. 25 Millions)

(3)   STANDARD FORM OF TENDER DOCUMENTS FOR PROCUREMENT OF WORKS (For Smaller Contracts) 
(to be used for all type of procurement below Rs. 25 Millions)

(4)   STANDARD FORM OF CONTRACT FOR ENGINEERING CONSULTANCY SERVICES (For Large Projects) – TIME BASED ASSIGNMENTS 
(to be used for consultancy fee above Rs. 2 Millions)

(5)   STANDARD FORM OF CONTRACT FOR ENGINEERING CONSULTANCY SERVICES (For Large Projects) – LUMP SUM ASSIGNMENTS 
(to be used for consultancy fee above Rs. 2 Millions)

(6)   STANDARD FORM OF CONTRACT FOR ENGINEERING CONSULTANCY SERVICES (For Smaller Projects) 
(to be used for consultancy fee less than Rs. 2 Millions)

(to be used for construction contract over Rs. 25 Millions)

1)Instructions to Users of the document guide step by step to fill in the gaps and make the document project specific.

2)Invitation to Tenderers

3)Instructions to Tenderers

4)Used FIDIC Conditions of Contract (Part-I)

5)PEC varied some FIDIC provisions mandatory for users (Part-IIA)

6)Provisions kept for further changes by the user in Part-IIB.

7)Escalation Formula as Approved by the GOP.

8)Arbitration Provisions under the Arbitration Act 1940.

9)Tendering Data to provide specific information. This will facilitate not making any changes in Instructions to Tenderers.

10)Tender and Appendices provide formats and instructions to fill data such as Bill of Quantities, proposed Construction Schedule, etc.

11)Various Forms such as Tender Security, Performance Guarantee, etc.

12)Formats for complete bidding documents with the index for Specifications, Technical Provisions and Drawings to remind the user need of components to complete the documents.

LINK

1. From a “Legal Point of View”

  A mutual agreement between two or more parties that something shall be done, an agreement enforceable at law.

1. According to “FIDIC”

  Contract means the General Conditions, the Supplementary Conditions, the Specifications, the Drawings, the Bill of Quantities, the Tender, the Letter of Acceptance, the Contract Agreement, and such further documents as may be expressly incorporated in the Letter of Acceptance or Contract Agreement.

1. According to “Method of Payment”

  The agreement of how the owner will pay the contractor for work performed such as a lump-sum or cost-plus payment.

Contract is an undertaking (Bond) by a Person, or  by a Firm, to do a specified work under certain terms and conditions. This work may wp-wp-includess,

• Construction of new facilities,
• Maintenance (routine repair) of facilities,
• Repair of damaged facilities,
• Supply of materials (raw, manufactured),
• Supply of Labours for various works,
• Transportation of Material, etc.

The most common Contract Relationships created by modern construction projects are:

The Owner and the Contractor(s),

The Owner and  the Design Professional,

The Contractor and  the Subcontractor(s),

If the owner hires a Construction Manager, this creates an additional contract layer between the owner and the designer or contractor.

Contractor means a Person or Firm who undertakes any type of contracts, for the construction or execution of various civil works. The contractor arrange all material required and employ the workers required for the completion of the work in time.

ØThe contracts form the primary basis of the relationship among the parties.

A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally.

A contract is a binding agreement between the parties to exchange something of value.

Contracts are generally written. Oral contracts are valid agreements.

The parties involved must have a meeting of the minds and decide that they will do the things set forth in the contract.

The people that make the agreement must be competent to make the agreement.

The contract must be for consideration, including exchange of values.

No contract can be forced on someone.

Persons that are impaired in any way that makes them unable to make responsible decisions or people who are not of age, are not able to make contracts.

The contract must accomplish some lawful purpose. It is important to note that the consideration, for the exchange of value wp-wp-includessd in the contract, may not be valuable to others than the parties.

ØThe basic elements of a valid contract are:

1)Competent Parties,

2)Offer and Acceptance,

3)Reasonable Certainty of Terms,

4)Proper Subject Matter,

5)Consideration.

ØCompetent Parties must be of a proper age to enter into a contract; They must have sufficient mental capacity to understand the nature of the agreement.

ØOffer and Acceptance indicates that there has been a meeting of the minds or mutual assent/agreement. A contract cannot be formed if there is economic fraud, or mutual mistakes.

ØThe Terms of the Contract should be clear enough that an independent third party can determine whether the two parties performed as promised. This is rarely a problem in wp-content/uploads construction contracts, The private industry sector has a greater potential for these problems, It is due to more informal exchanges in determining boundaries of a contract.

ØContract Subject Matter must not be something that is illegal.

ØThe last element of a valid contract is Consideration. Contracts are generally economic exchanges; Everybody is working to make money, therefore, something of value must be exchanged.

ØConsideration need not be an equal exchange.  For example, one provide money and the other offer services.

ØCourts will uphold (maintain) seemingly unbalanced consideration, if all the elements of a contract are met, and there is no evidence of fraud or similar problems.

The actual form of agreement, which describes, The contracting parties’ authority, The work in general, The consideration to be paid, Penalties or bonuses, and Time for performance,

It is often a brief document containing under a dozen pages. This document is seldom the issue of concern in a dispute. Each page shall bear the signature of the contractor and the accepting authority.

More commonly, the documents that detail the relationships and project requirements are the source of disagreement. Primarily, these documents for a construction project are:

üThe general conditions,

üSpecial conditions,

üTechnical specifications, and

üPlans.

The estimator prepares the estimate of construction facility in accordance with the instructions to bidders.

Bidder: The applier (Contractor), a competitor that enters into the competition of winning the construction projects against other contractors.

Estimator: is the contractor itself or mostly his/her engineer who provide estimate of various items of work wp-wp-includessd in the facility i.e. construction projects.

The actual form of agreement, which describes, The following Document is attached to the contract agreement which should be duly endorsed and sealed.

Title Page, work name, bond number, etc.

Index Page, contents with page numbers

Tender Notice, brief description of work, estimated cost, tender date and time, earnest and security money (2% of estimated cost), completion time, etc.

Tender Form, bill of quantities, contractor’s rate, work cost, work progress, work completion time, penalty clause, etc.

Bill of Quantities or Schedule of Quantities, quantities and rates of each work.

Schedule of Issue of Materials, material issue list, giving rates and place of issue.

General Specifications, class and type of work in general e.g. Brick Masonry Construction

Detailed Specifications, each item of work and each material to be used.

Drawings, complete set of drawings: plans, elevations, sections, detailed drawings, etc.

General Condition of Contract, terms and conditions of contract in details

Special Condition, regarding taxes, labour camp, labour amenities, accident compensation

There are three ways in which construction contracts are awarded:

1.Competitive Awards,

2.Negotiated Awards,

3.Combination of Competitive-Negotiated Awards

With a purely Competitive Award, the decision is made solely on the basis of price. The lowest bidder will be awarded the project.

Usually, Public Works (Government Works) are awarded in this manner, and all who meet the minimum qualifications (financial) are allowed to compete.

In Private Works, the competitive method of award is used extensively; however, more care is taken to screen potential selective bidders.

Negotiated Awards, at the opposite extreme from competitive awards.

In a purely Negotiated Contract, the contractor is the only party asked to perform the work. The price is negotiated between the contractor and the client, where a price is required prior to initiating the work.

This lack of competition relieves some of the tension developed in the estimator through the competitive bid process, because there is no need to be concerned with the price another contractor might submit.

The contractor must still, if asked, provide

Firm Price, that is acceptable to the client

Submit Evidence of Cost, or

Allow an Audit.

The Combination Competitive-Negotiated Award may fall anywhere in between,

The Extremity of contract awards methods i.e. Purely Competitive and Purely Negotiated Method of contract awards.

A common practice for relatively large construction projects is to competitively,

Evaluate qualifications of several constructors,

Select among the contractors,

Negotiate with contractor a price for final work.

First, the needs of the project are identified.

So, as the requirements of the contract are identified.

These requirements come from needs assessment. The needs are further reduced to requirements.

For example, the decision to purchase a good or hire services is taken, a decision must be made as to whether the item should be purchased or made internally.

Requirements are frequently stated in a document called The Statement of Work.

Cost estimates must be produced to know beforehand the correct cost of the required items.

The estimated cost help ones understand whether or not the potential vendor is quoting a fair and agreeable price.

ØIt consists of reviewing the specifications and statement of the required work.

ØIt also wp-wp-includessd the identification of qualified suppliers. It is called as Solicitation Planning.

ØDuring the requisition process, the requirements definition is passed to the purchasing personnel i.e. finance and purchase committees. They may or may not be part of the project team.

ØThe specifications and statement of works are reviewed, thereby including input from the purchasing medium.

ØThis input provides cost information that may further reduce the requirement of items that are now deemed to be impractical.

ØFor example, if we require 800 KW generator to run a machine, whereas Finance Department can only buy 400 KW instead, since the cost for 800 KW cannot be covered.

It involves obtaining

Bids or

Proposals.

During this process a selection of vendors is solicited to participate in the process of becoming the chosen vendor.

In the case of commodity purchases, it may only be necessary to evaluate the price of the item being supplied.

In the case of unique items, It may be necessary to evaluate many different aspects of the vendor and the product that is proposed,

For example, detail specification of the machine He/she (Vendorer) is providing.

It Included selecting one vendor from the ones solicited for the required items.

At this time the contract is written, negotiated, and signed by both parties.

The writing and signing of the contract can be simple, as in the purchase of a commodity.

In the purchasing of common items, the contract is generally a standard item that is written on the back of a purchase order.

Many times these contracts are written in very light ink and in very small fonts.

In more complex purchases, the contract may have to be negotiated and specific terms and conditions for this particular contract must be agreed too.

The more detailed the contract, the more complex this part of the contracting cycle will be.

ØThe contracting process is the ultimate part of the contracting process.

ØThis process wp-wp-includess carrying out (writing) the actual contract.

ØThe vendor and the purchaser must follow the planning process.

ØThey must organize the work staff for the work to be carried out.

ØThey must control the contract.

ØThe purchaser and the seller both are responsible for their part of the contract.

Two broad categories:

1.Price Given in Advance Contracts (Priced-based Contracts)

2.Cost Reimbursement Contracts (Cost-based Contracts)

Factors Influencing the Choice of the Type of Contract

üThe appropriateness for providing an adequate incentive for efficient performance by the contractor

üThe ability to introduce changes

üThe allocation of risks

üThe start and completion date of the project

1. Lump Sum Contract

Sometimes called Drawings and Specifications Contract

a)Main Aspects of Lump Sum Contract

1. The contractor agrees to perform a stipulated job of work in exchange for a fixed sum of money. In other words a single tendered price is given for the completion of a specified work to the satisfaction of the client by a certain date.
2. Payment may be staged at intervals of time on the completion of milestones.
3. Useful for construction works:

Øthat can be accurately and completely described at the time of bidding such as residential and building construction,

Øwhen limited variation is needed,

Øwhen level of risks is low and quantifiable, and

Øwhen the client does not wish to be involved in the management of his project.

1. Lump Sum Contract
2. The contractor is responsible for preparing his B.O.Q. i.e. determination of work items, description of work items, obtaining his own quantity from drawings and specifications and taking the responsibility for the accuracy of the estimated quantities.
3. The responsibility is on the contractor to wp-wp-includess in his price everything necessary for carrying out the work.
4. b) Advantages of Lump Sum Contract
5. The final price is known, by the owner, before the work commences.
6. The contractor has more incentive to reduce his cost to increase the profit.
7. The contractor hopes to complete the job as quickly as possible, to minimize overhead, to maximize profit and to move to the next Job.

Types Of Construction Contracts

1. Lump Sum Contract
2. c) Disadvantages of Lump Sum Contract

1.A great deal of work should be done by the contractors prior to preparing the estimate. It is wasteful of a skilled estimator’s time.

2. Changes in drawings and specifications can be very expensive and source of trouble. In other words the contract has very limited flexibility for design changes.
3. The contractor carries much of the risks. The tendered price may wp-wp-includess high risk contingency.
4. Competent contractors may decide not to bid to avoid a high-risk lump sum contract.

Types Of Construction Contracts

2. Admeasurements Contract
3. Includes Bill of Quantities Contract and Schedule of Rates Contract.
4. Payment is made (monthly) for quantities of work completed and measured during the month.
5. The client can introduce variations in the work.
6. The contractor can claim additional payment for any changes in the work content.
7. Tender price is usually increased by variations and claims.

Types Of Construction Contracts

2. Contract based on a Bill of Quantities

Sometimes called “Unit Price Contract”

a)Main Aspects of Unit Price Contract

1. Items of work of the contract are specified with estimated quantities in the Bills of Quantities.
2. Estimated quantities are surveyed by Architect/Engineer.
3. Contractors enter unit prices against the estimated quantities of work.
4. The contract is based on estimated quantities of work items and unit price for each of these work items.
5. Payment is made on the basis of units of work actually done and measured in the field multiplied by the unit prices.
6. Re-determination of unit prices when substantial quantity deviations occur is stipulated in contract conditions.
7. Useful on projects where the nature of the work is well defined, but the quantities of work cannot be accurately determined in advance of construction. Suitable for highways, dams, airports…

Types Of Construction Contracts

2. Contract based on a Bill of Quantities

Sometimes called “Unit Price Contract”

1. b) Advantages of Unit Price Contract

1.Saving the heavy cost of preparing many bills of quantities by the contractors.

2.Fair basis for competition.

3.In comparing with lump-sum contract,

üChanges in contract documents can be made easily by the owner.

üLower risk for contractor.

1. c) Disadvantages of Unit Price Contract
2. The exact final price of the project is not known to the owner until the completion of the project.

Types Of Construction Contracts

3. Schedule of Rates Contract
4. a) Main Aspects of Schedule of Rates Contract
5. A Schedule of the work items without quantities (or inaccurate quantities; possibly with upper and lower probable limits) is prepared by the owner and /or A/E to be rated by the contractor.
6. The descriptions of items and the units of measurement are similar to those used in a normal B.O.Q., but no quantities are given.
7. It is common for separate rates to be quoted for labor, plant, and materials.
8. Used for repair and maintenance works or under conditions of urgency.

Types Of Construction Contracts

3. Schedule of Rates Contract
4. b) Advantages of Schedule of Rates Contract
5. Work can be commenced earlier than if a full B.O.Q has been prepared.
6. c) Disadvantage of Schedule of Rates Contract

1.No indication of the final price of the works.

2.Very difficult to determine which contractor submitted the most advantageous offer.

3.May cause financial problems to the wp-content/uploads owners.

This form is unsatisfactory for wp-content/uploads owners and a B.O.Q form is to be desired.

Types Of Construction Contracts

Cost Reimbursement Contracts

1. a) Main Aspects of Cost Reimbursement Contract
2. The contractor will be reimbursed for all actual costs plus an agreed fee to cover his services (overhead and profit).
3. The contractor must make all his records and accounts available for inspection by the client or by some agreed neutral third party.
4. The fee can be designated as:

vA fixed percentage of the cost of the work.

vA fixed fee.

vA fixed fee with a guaranteed top price.

vA fixed fee with bonus.

vA fixed fee with an arrangement for sharing any cost saving.

Types Of Construction Contracts

Cost Reimbursement Contracts

a)Main Aspects of Cost Reimbursement Contract

4. Suitable:

qwhen the requirements of the client are vague,

qwhen it is desirable for design to proceed concurrently with construction

qfor emergency projects, repairs, maintenance work, and alterations.

qfor project with unknown technologies or major changes.

qwhere the contractor possesses a special ability.

qwhen the client wishes to be involved in contract management.

qConfidential processes.

5. Topics that should be negotiated between owner and contractor before signing a cost reimbursement contract wp-wp-includess:

qSubcontract-letting.

qDetermination and payment of fee. 

qAccounting methods.

qOverheads (site and office).

Types Of Construction Contracts

Cost Reimbursement Contracts

1. b) Advantages of Cost Reimbursement Contract
2. Start construction without waiting for the whole set of drawings and specifications.
3. More flexibility for the owner to make changes as work progresses.
4. Draw the contractor expertise during design.
5. c) Disadvantages of Cost Reimbursement Contract
6. It is difficult to predict the final cost and the distribution of it, which may cause financial problems to the owner.
7. Contractor pays less attention to cost control.

Types Of Construction Contracts

4. Cost plus Percentage of Cost
5. a) Main Aspects of Cost plus Percentage of Cost

1.The contractor is reimbursed for all his costs with a fixed % age of costs to cover his services.

2.Project/site overheads may be covered by the %age or computed as one of the costs.

1. b) Advantages of Cost plus Percentage of Cost

1.Construction can start before design is completed.

2.If the contractor is efficient in the utilization of resources then the cost to the client should represent a fair price for the work undertaken.

1. c) Disadvantages of Cost plus Percentage of Cost

1.The project total cost is completely unknown before the project start.

2.No incentive for the contractor to be efficient in his use of labors, materials or equipments.

3.Minimum efficiency maximizes the profit.

4.Owner must exercise tight cost control, which may be difficult and/or costly.

Types Of Construction Contracts

5. Cost plus Fixed Fee
6. a) Main Aspects of Cost plus Fixed Fee

1.The owner pays all costs of construction with a fixed sum of money.

2.The fee is fixed and does not fluctuate with the actual cost of the project.

3.The work must be fairly well defined by the owner.

1. b) Advantages of Cost plus Fixed Fee
2. There is no incentive for the contractor to inflate costs.
3. There is incentive for the contractor to complete the work as quickly as possible since his fee remains constant.
4. c) Disadvantages of Cost plus Fixed Fee
5. Major variations create problems. The fee must be re-negotiated to take account of such variations.
6. The speed of commencing the work is undermined since before a fee can be agreed a fairly detailed description of work must be made.

Types Of Construction Contracts

6. Target Cost with Variable Fees Contract
7. a) Main Aspects of Target Cost Contract
8. The contractor and owner agree to a target estimate of construction.
9. Bonus or penalty arrangements are tied to this target figure.
10. The work must have a fairly definite nature. Drawings and specifications must be sufficiently developed to enable a reasonably accurate cost to be determined.
11. Cost target = sharing of savings
12. Time target = fixed sum of money for each day.

Types Of Construction Contracts

6. Target Cost with Variable Fees Contract
7. b) Advantages of Target Cost Contract

1.There is an incentive to carry out the work as quickly and as economically as possible.

2.The client also stands to benefit through the contactor’s efficiency.

1. c) Disadvantages of Target Cost Contract

1.Difficulties may arise in agreeing on a revised target cost if there are major variations or cost inflation.

2.A tight cost control must be exercised, which may be difficult and/or costly.

Types Of Construction Contracts

7. Guaranteed Maximum Price Contract (GMP)
8. The contractor guarantees that he will construct the project in full accordance with the drawings and specifications and that the price to the owner will not exceed some total upset price.
9. If the price of the work exceeds the assured maximum, the contractor pays for the excess.
10. Contracts are often competitively bid in a manner similar to that for lump-sum contracts, but managed as cost plus.
11. The successful bidder is determined on the combined basis of his quoted maximum price and fixed fee.

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