Concepts
1. Project Delivery Methods
A project’s delivery method refers to the procedural layout utilized to execute and complete a project. It formalizes the relationship between the owner and other project participants while defining the roles and responsibilities of each entity involved.
A. Design-Bid-Build (DBB)
This is a traditional project delivery method where the project owner contracts the design team and construction team independently. The main advantage is it allows the owner flexibility and control throughout the project. However, it tends to place more risk on the project owner as they are the central figure managing both parties.
B. Design-Build (DB)
Design-Build consolidates the design and construction into a single contract agreement with one entity. This method optimizes project delivery through a single point of accountability. It involves fewer conflicts and lesser chances of cost escalation.
C. Engineer, Procure, Construct (EPC)
Similar to Design-Build, in EPC, the contractor is responsible for all the phases. The major difference is that the responsibilities extend to procurement as well. It significantly reduces the risk for the owner and accelerates delivery but mandates robust contractor capabilities.
2. Contract Structures
The structure of the contract defines how risks and responsibilities are shared between the project owner and service providers. Here are the most common contract types:
A. Fixed-Price Contracts (FP)
In FP contracts, the contractor agrees to deliver the project for a fixed price, regardless of the actual costs. This contract type lowers the risk for the owner but could be high risk for the contractor if cost overruns occur.
B. Cost-Reimbursable Contracts (CR)
In a CR contract, the owner agrees to cover the actual costs plus a fee to cover overhead and profit. This contract type involves high risk for the owner as the final costs could exceed initial estimates.
C. Time and Material Contracts (T&M)
T&M contracts involve payment based on contractors’ hourly labor rates and actual costs of materials. This arrangement is suitable for projects where the scope is not wholly defined.
Each of these delivery methods and contract structures provide different means to manage risk, allocate roles, and responsibilities and optimize project execution. By understanding the nuances of these structures, PMI-CP candidates can appreciate the myriad of ways to deliver a successful project in the built environment sector.
For example, consider a complex infrastructural project with multiple interdependent phases and varying technological considerations. A project delivery method such as EPC, coupled with a CR contract, may be suitable. The project owner can mitigate the risk owing to the contractor’s end-to-end responsibility, and the contractor can balance the risk with the cost-reimbursable nature of the contract, safeguarding against unforeseen cost escalations.
This forms an integral part of learning for a PMI Construction Professional (PMI-CP) exam, which places strong emphasis on project delivery methods, contract types and structures to prioritize project cost, schedule, and quality outcomes. By strategically selecting the appropriate delivery method and contract structure for your project, you can effectively manage risk, clarify roles and responsibilities, and streamline project delivery.
Therefore, as a construction professional preparing for the PMI-CP Exam, understanding these factors ensures that you are better equipped to lead and manage projects effectively and successfully. The right combination of delivery methods and contracts can significantly impact the project’s profitability, making the difference between a successful or a failed project.
Answer the Questions in Comment Section
True/False: In a design-bid-build contract, the construction contractor is responsible for designing as well as building the project.
- True
- False
Answer: False.
Explanation: In a design-bid-build contract structure, the owner contracts separately with the designer and contractor. The designer is responsible for the design, and the contractor is responsible for construction.
In a construction management-at-risk contract structure, who has the final decision on all change orders?
- a) Owner
- b) Construction Manager
- c) Architect
- d) Engineer
Answer: a) Owner.
Explanation: In a construction management-at-risk contract structure, while the construction manager may recommend and oversee change orders, the ultimate decision rests with the owner.
True/False: In a design-build contract structure, the design and construction services are contracted by a single entity.
- True
- False
Answer: True.
Explanation: In a design-build contract, one entity—the design-build team—works under a single contract with the project owner to provide design and construction services.
Which construction delivery method allows the owner to begin construction before the design is fully completed?
- a) Design-bid-build
- b) Design-build
- c) Construction management at risk
- d) Integrated project delivery
Answer: d) Integrated project delivery.
Explanation: Integrated project delivery allows for a phased approach where design and construction can overlap, so construction can start before the design is fully completed.
Which contract structure often used in construction projects can support significant risk apportionment?
- a) Fixed price
- b) Cost plus fee
- c) Lump sum
- d) Guaranteed maximum price (GMP)
Answer: d) Guaranteed maximum price (GMP).
Explanation: A GMP contract can facilitate risk apportionment as it places a cap on the project cost, limiting the owner’s financial liability.
True/False: In a cost-plus contract structure, the contractor is paid for all of its allowed expenses up to a set limit plus additional payment to allow for a profit.
- True
- False
Answer: True.
Explanation: A cost-plus contract is a contract where the contractor is paid for all of its allowed expenses to a set limit plus additional payment to allow for a profit.
Who is responsible for the day-to-day oversight of the construction site in a design-build contract structure?
- a) The owner
- b) The architect
- c) The contractor
- d) The engineer
Answer: c) The contractor.
Explanation: In a design-build contract, the contractor is generally responsible for overseeing day-to-day activities at the construction site, including safety protocols, quality management, and progress checks.
True/False: In an integrated project delivery contract structure, the key participants are all contractually linked and share risks and rewards.
- True
- False
Answer: True.
Explanation: In integrated project delivery, the primary team members including the architect, key technical consultants, and the contractor, form a contractual entity to share risks and rewards.
Which of the following is not usually a role of the contractor under a Construction Management at Risk contract?
- a) Design input
- b) Estimation during design
- c) Price certainty
- d) Material sourcing
Answer: a) Design input.
Explanation: While a contractor under a Construction Management at Risk contract has crucial roles, it does not usually include design input, which is typically provided by the architect.
True/False: In some cases, the design and construction phases can overlap in a design-build contract structure.
- True
- False
Answer: True.
Explanation: In the design-build delivery method, design and construction phases can indeed overlap, which is one of the reasons for the potential time savings associated with this method.
In a lump-sum contract, who carries the maximum risk?
- a) The owner
- b) The contractor
- c) The architect
- d) The subcontractor
Answer: b) The contractor.
Explanation: In a lump-sum contract, the contractor commits to complete the project for a set price and therefore takes on a significant level of risk due to unforeseen changes or project complexities.
True/False: The roles and responsibilities of the parties involved in a construction project do not vary with the type of delivery method or contract structure.
- True
- False
Answer: False.
Explanation: The roles and responsibilities of the parties involved in a construction project can significantly change depending on the delivery method or contract structure chosen.
Excellent write-up. Could anyone share their experience with Alliance Contracting?
I think exploring more on Private Finance Initiatives (PFIs) would be useful.
Thanks for this! Very helpful overview.
Can someone highlight the key benefits and drawbacks of using a Multiple Prime Contracting approach?
Very informative post! Thank you.
Great topic! Can someone explain the difference between Design-Bid-Build and Design-Build in terms of risk apportionment?
Great post on the delivery methods and contract structures for construction projects!
I really appreciate the detailed explanation on risk apportionment in the article.