Construction Contracts

Question 1

What is a Construction Contract?

Answer 1

A private law between
- a person wanting something to be built (owner)
- builder (contractor)

Question 2

What items are set out in a Construction Contract?

Answer 2

• Work to be performed
• Price / Schedule of work
• Rights and responsibilities of parties

Question 3

What are the main players in Construction Projects?

Answer 3

• Owner
• General Contractor
• Architect
• Engineers
• Trade Contractors
• Suppliers

Question 4

What are the three main standard form documents for industry in Canada?

Answer 4

• CCDC (Canadian Construction Document Committee)
• CCA (Canadian Contractors Association)
• MMCD (Master Municipal Construction Document)

Question 5

What are the types of standard form contracts?

Answer 5

• Lump sum
• Unit price
• Negotiated

Question 6

What is lump sum suitable for?

Answer 6

• Well-defined project
• Known material quantities

Question 7

What are pros of lump sum

Answer 7

• Owner has price certainty
• Owner knows what the end project be
• Monthly payment for contractor based on completed work

Question 8

What are cons of lump sum

Answer 8

• Risky to contractors
• Less chance to make design change

Question 9

What is unit price suitable for?

Answer 9

• Well-defined project
• Unknown material quantity

Question 10

What are pros of unit price?

Answer 10

• Flexible meeting
• Contractors don’t need to be as precise in takeoffs

Question 11

What are cons of unit price?

Answer 11

• Owner has uncertainty in overall cost
• Can be manipulated by contractor

Question 12

What deviation in unit price requires renegotiating?

Answer 12

+15%: Owner requests unit price reduction
-15%: Contractor requests unit price increase.

Question 13

What are the key factors in a negotiated contracts?

Answer 13

• Owner chooses contractors
• O review C’s documents (complete/incomplete)
• O Chooses C based on their reputation, staff available, fee structure, etc.

Question 14

What is negotiated suitable for?

Answer 14

• Private sector (for phased construction)
• Less in Public (to avoid abuse through favoritism)
• Complex, long-duration project

Question 15

What are the 4 common fee structures of negotiated?

Answer 15

• Cost + % cost (Most lucrative to C, Potential to be abused)
• Cost + Fixed Fee (%of previously estimated cost, C may use expensive reimbursable materials to expedite the work)
• Cost + Fixed Fee + Profit-sharing clause (Reward on C who mizmize the cost)
• Cost + Sliding fee (Bonus for underrun, Penalty for overrun)