CONSTRUCTION MANAGMENT

PROCUMENT, CONTRACT DELIVERY SYSTEM AND

CONSTRUCTION CONTRACT
Construction Document
Introduction
• A construction contract is a legally binding agreement between the owner and the
contractor that states a given job will receive the proper compensation. The contract
outlines the terms and conditions of the agreement, rights, and duties of all the
involved parties, the commencement date of the work, and the expected completion
date. The contract also denotes how the compensation will be distributed.
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1. Project Delivery Systems

Definition

Contract or Project Delivery System is the way Project Owners together with Project
Regulators and Financiers determine the assignment of responsibilities to Project
Stakeholders along the Construction Process.

It is often determined during the Basic Planning phase of the Construction Project.
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CONT…
Types of Project Delivery Systems

Project delivery systems are basically classified in to two broad areas:

 Force Account; and
 Outsourced.
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CONT…
Force Account

When the project owners engage themselves to undertake the project, it is called a force
account delivery system.
Such a system is often promoted if the Project Owners believe that there is a
comparative advantage in cost, time & quality.
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CONT…
Outsourcing
In this case owners/clients reach out to related professionals in the process.
Most of the project delivery methods/systems are found under this category

The following are some of them.

Design-Bid-Build (D-B-B);
Design-Build (D-B);
Construction Management (CM At Free & At Risk);
Design -Build- Operate (D-B-O);
Build-Operate- Transfer (B-O-T);
Build -Own -Operate -Transfer (B-O-O-T);
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Design-Bid-Build (D-B-B)

Some times called as the traditional method; after project owners did prepare the
Basic Planning that identifies construction project programs, they call upon the
participation of Design and/or Supervision Consultants.

This Consultant will carry out the design together with the necessary tender
documents which will be the basis for tendering to select Contractors.
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Advantages may include:

Open competition;
Distinct roles are clear;
Owner(employer’s) flexibility;
Easy to tender;

Disadvantages may include:

Innovation not optimized;
Usually cost overruns;
Disputes between parties;
Employer retains risks (cost & time);
Usually low bid-incentive for change orders;
Owner responsible for errors & omissions of design;
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Design Build (D-B) or Turnkey

In principle, it reduces numbers of procurement processes engaged in the fragmented

process and employ only one procurement process and a single contractor to provide
the entire Design & Construction Implementation Process.

In this arrangement both the design &construction liability rests with the Contractor.
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Employer's Requirements & Contractor's Proposals;

The employer approaches a contractor with a set of requirements defining what the
employer wants.
The contractor responds with proposals, which will include production as well as design
work.
The scale of design work included depends on the extent to which the employer has
already commissioned such (design) work from others.
The contractor's design input varies from one contract to another, ranging from the
mere detailing of a fairly comprehensive design to a full design process
including proposals, sketch schemes & production information.
The Design-Build contractor, in any way be responsible for both the design &
construction.
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Advantages may include:

Single source responsibility both for design & construction;

Integrating design with construction methods;
Reduction in administration;
Innovation;
Cost savings;
Most risks transferred to the design-builder;(contractor)

Disadvantages may include:

Limiting competition;
High tendering costs;
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Construction Management

Under Construction Management the Owner contracts separately, but somewhat

simultaneously, with a design consultant and with a firm whose primary expertise is
construction (the Construction Manager).

The owner procures the management services of the Construction Manager (in most
cases a general contracting construction firm) early in the design phase.
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i. Construction Manager (CM) At Free/ as Agent

This is a form of CM under which the Construction Manager acts as an agent of and
advisor to, the Owner.
The Owner enters in to multiple trade contracts with the trade contractors & suppliers.
The Construction Manager is retained on a fee for services basis & acts on the Owner's
behalf in managing & coordinating the trade contracts in the best interests of the Owner.

The Owner retains all of the contracting risks inherent in each of the trade contracts.
It essentially involves the Owner acting as its own general contractor, with the assistance of
a Construction Manager.
This form of CM is sometimes also referred to as the “CM as Advisor” or “owner contacted
form of CM”.
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ii. Construction Manger (CM) At Risk (as Constructor)

This is a form of CM under which the Construction Manager enters in to multiple

trade contracts with the trade contractors & suppliers.
The Construction Manager assumes responsibility for the performance of the trade
contracts (subcontracts) much as a general contractor under the traditional method,
and is paid for the trade contract work on a cost reimbursable basis.
The Construction Manager may, or may not, also provide a guaranteed maximum price
& schedule to the Owner under a cost plus type of arrangement, or enter into a
stipulated price contract, when the design is sufficiently complete.
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Advantages may include:

CM At Free

 Provides a managing & administering for all phases of a project;

 Treats planning, design, construction as an integrated tasks;
 Some costs & schedule control;

CM At Risk

 Good for clients with insufficient staff;

 Owner flexibility;
 Responsible for time & cost overrun;
 Holds & manages the trade contractors;
Same legal position as a General Contractor;
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Disadvantages may include;

CM At Free

 No contractual relationship with trade contractors;

 No contractual responsibility for outcomes of a project;
 Client retains the risks;

CM At Risk

 Duplication of administration & additional paperwork;

 More paper work for the client;
 Some duplication of administration;
 Fast tracking difficult to control with designer & CM;
 Sometimes difficult to manage all phased packages with costs, changes & schedules;
BOT (BUILD–OPERATE–TRANSFER)

Build–operate–transfer or build–own–operate–transfer is a form of project

delivery method, usually for large-scale infrastructure projects, wherein a
private entity receives a concession from the public sector to finance, design,
construct, own, and operate a facility stated in the concession contract
BOT
ADVANTAGES
• The Government gets the benefit of the
private sector to mobilize finance and to
use the best management skills in the
construction, operation and
maintenance of the project.
• The private participation also ensures
efficiency and quality by using the best
equipment.
• BOT provides a mechanism and
incentives for enterprises to improve
efficiency through performance-based
contracts and output-oriented targets.
DISADVANTAGES
• There is a profit element in the equity
portion of the financing, which is higher
than the debt cost. This is the price paid
for passing of the risk to the private
sector
• It may take a long time and considerable
up front expenses to prepare and close
a BOT financing deal as it involves
multiple entities and requires a relatively
complicated legal and institutional
framework. There the BOT may not be
suitable for small projects
Design build operate (DBO)
A design build operate (DBO) contract is a project delivery model in which a
single contractor is appointed to design and build a project and then to
operate it for a period of time
The common form of such a contract is a public private partnership , in which a 
public client (e.g. government or public agency) enters into a contract with a
private contractor to design, build and then operate the project, while the client
 finances the project and retains ownership.
Construction Contract Types

1. Cost-Plus Contract
• Under a cost-plus contract, contractors are paid for all of their construction-related expenses. That’s the cost part
of the name. The costs can include direct costs such as labor, materials, supplies, etc.
• They also include overhead costs such as insurance, mileage, a portion of your office rent. Additionally, they also
receive an agreed-upon amount for the profit. That’s the “plus.” 
• This type of contract is ideal when the project scope is uncertain in the early stages of the project.
Advantages
• There’s seemingly no risk of losing money on materials. Plus, you know you’ll incur a profit.
• useful when you don’t have enough information to provide a thorough estimate of work or the scope is not well
defined.
• prioritize quality.  
Disadvantages
• They can require additional resources and labor costs on your side.
• limited on how much you can spend.
• Some cost-plus contracts include clauses with “not to exceed” amounts for costs. 
Different Types of Cost Plus Contracts
1.1 Cost plus fixed percentage
• Payment covers both the associated project costs and the builder’s profit and overhead. The amount paid for
the builder’s profit and overhead is dependent on a fixed percentage of the project cost.
1.2 Cost plus fixed fee
• Payment includes coverage of the associated project’s costs as well as a fixed fee that covers the builder’s
profit and overhead.
1.3 Cost plus with guaranteed maximum price (GMP) contract
• Payment includes the coverage of the associated project costs and a fixed fee that is paid up to a maximum
cost. If the GMP is not reached, the difference between the total cost and GMP will not be paid out, which
results in savings for the owner.
• The builder and owner may also agree to split the savings, providing the builder an incentive to keep costs
under the GMP.
2. Design-Build Contract
• As the name suggests, a design-build contract addresses design and construction costs simultaneously. Under
this type of contract, the construction process actually begins before the final design is completed.
• This process saves the owner time and money by combining the design and construction project delivery into
one contract. It also helps to streamline communications and create repeatable processes. 
Advantages
• The design-build contract helps to speed up the process and avoid disputes between the designer and builder.
• It’s popular with organizations that want to accelerate project delivery, lean into the benefits of collaboration,
and streamline processes.
• Designers also have more input in the construction drawing process, reducing the need for changes. 
Disadvantages
• Because there’s no competitive bidding phase, the final costs may be higher for the owner.
• It’s also more difficult to estimate costs due to the necessary collaboration between designer and builder. 
3. Guaranteed Maximum Price Contract
• Under the guaranteed maximum price (GMP) contract, the maximum amount the owner will have to pay the
contractor is capped.
• The GMP contract limits the amount the owner will have to pay, and any additional expenses incurred are
covered by the contractor.
• These agreements limit the cost-risk for the customer. They clearly define the most the owner will have to
pay, which makes budgeting much easier. 
Advantages
• The GMP includes costs for labor, materials, overhead, and a percentage of those costs to generate a profit.
• If the final costs come in under the GMP, the customer may receive all of the cost savings or share them with
the contractor.
• For contractors, it can also help to expedite the lending process.
Disadvantages
• time-consuming on large, multi-phase projects.
• places the majority of the risks on the contractor.
• If the original estimate ends up being below the final costs, the contractor can lose money on the project. 
4. Incentive Construction Contracts
• Incentive contracts provide the contractor with an agreed-upon payment if the project is delivered by a certain
date and at a specific point.
• If the project is delivered at a lower cost and/or by the target deadline, the contractor receives extra payment.
• The amount they receive is specified in the contract and may be based on a sliding scale.  In other words, the
contractor is incentivized for controlling costs and staying on schedule. 
Advantages
• beneficial for controlling costs and timelines.
• create a more collaborative process where the contractor has more ownership.
• Because of the incentive phased approach, the contractor and owner often communicate more and look for
innovative ways to get the job done. 
Disadvantages
• Incentive contracts do require more negotiation to determine the incentives. It’s important for contractors to
ensure that the costs and deadlines are achievable.
• If the terms and conditions are not clear, it can leave room for disputes. Contractors need to clearly define
what meeting the incentive looks like so there are no miscommunications when the project is delivered. 
5. Integrated Project Delivery Contract
• “Integrated Project Delivery (IPD) is a delivery model for delivering construction projects using a single
contract for design and construction with a shared risk/reward model, guaranteed costs, waivers of liability
between team members, an operating system based on lean principles, and a collaborative culture.”
• This type of construction contract spreads the risk and rewards of the project across the designer, builder, and
owner, dependent on the project’s financial results.
Advantages
• IPD contracts are popular with teams that want to prioritize innovation and collaboration.
• They promote a sense of ownership and teamwork as all parties must work together to achieve the desired
rewards.
• They also spread the risk and reward fairly across parties and foster greater accountability for the results of the
project. 
Disadvantages
• Each party needs to remain committed to the IPD model or risk reverting to traditional project delivery
methods.
• IPD is still relatively new in the industry, so some design firms and subcontractors may not want to participate.
• Some contractors find it difficult to secure financing for these projects as well. 
6. Lump-Sum Contract
• With a lump-sum contract, the contractor delivers the project at a preset price. The contractor will deliver a
total price for the project rather than bidding on the deliverables. The agreement is relatively simple and
works well for projects with a well-defined scope.
• They’re popular with straightforward work that doesn’t require detailed estimates.
• These types of construction contracts also make administration and cash flow estimates easy. 
Advantages
• The lump-sum contract presents a digestible, easy-to-plan-for figure to the owner.
• These agreements streamline business analysis and the selection process as well.
• They give the contractor the flexibility to focus on quality, materials, and output.
• Unlike time and materials contracts, lump-sum contracts don’t dictate as much owner supervision and
approval. 
Disadvantages
• They don’t factor in changes in material costs, site conditions, or requests from the owner.  For the lump-sum
contract to pay off, you’ll need to be able to estimate the project’s schedule, materials, labor costs, overhead
costs, and profit margins easily. 
7. Time and Materials Contract
• Under a time and materials (T&M) contract, the owner pays an agreed-upon price based on the time spent on
the project, required materials, and the included profit rate. Like the lump-sum contract, this agreement is
simple and straightforward. However, T&M contracts allow for more flexibility in the costs of the materials
and account for labor rates. They may also include a mark-up for the materials if they are purchased at
wholesale rates. 
Advantages
• T&M contracts help the owner to budget for the overall costs while reducing the risk on the contractor’s part
in the case of fluctuating material and labor costs. They also help to prevent cost-cutting methods as the
contractor knows they’ll receive a profit.  
Disadvantages
• There are some potential downsides to this type of agreement. There’s less transparency about the final cost
for owners, which can lead to disputes along the way if prices rise. Inaccurate estimates can also potentially
eat into the contractor’s profit margins.
8. Unit Price Contract
• The unit price contract details prices per unit, which may include materials, labor, overhead, supplies, and
profit. The owner pays the contractor based on the units at agreed-upon rates. The contract may or may not
include the number of units needed to complete the project but will likely include at least an estimate.
Advantages
• These contracts work well with projects that can be easily divided into units. If your project is largely
dependent on the price of the units and involves repetitive tasks, a unit price contract may be a good choice.
Contractors who use unit price contracts find the simple invoicing and shared risk beneficial. 
Disadvantages
• They’re not always a good fit for complex projects that require complicated tasks and many different types of
materials. They don’t incentivize contractors and can lead to profit loss if the initial estimates are off-target. 
9. Schedule Rate Contract
• In its most simple form a schedule of rates can be a list in a contract setting out the staff, labour and plant
hire rates the contractor will use for pricing cost reimbursable instructed daywork.
• However, on a much larger scale, a 'schedule of rates term contract', 'term contract' or 'measured term contract' may be used
when the nature of work required is known but it cannot be quantified, or if continuity of programme cannot be determined.
In the absence of an estimate, tenderers quote unit rates against a document that is intended to cover all likely activities that
might form part of the works.
Advantages
• Variations are easier to estimate and normally cheaper than on fixed price traditional contracts.
• The client can stop and start work at a pace that might be determined by cash flow or funding.
• A larger pool of contractors can be asked to tender as the process is inexpensive and quick.
• It is flexible in relation to scope and contractual commitment.
• As a fully-detailed design is not required the client can obtain tenders at the early stages of a project and
begin construction before completion of the design. So to this extent it is 'fast track'.
Disadvantages
• Additional resources are required to measure work and certify payments.
• The client does not have a final price when committing to starting work.
• It is difficult for contractors to plan long-term resources and so might mean changes to personnel with loss of continuity.
• Contractors may be tempted to front-load costs in case later work does not materialise.
• There is no real incentive for contractors to treat such work with any sense of urgency and its best staff will be placed on
the projects where the contractor is carrying more risk.
 Comparison Between Different Types of Construction Contracts
Point of
Lump-Sum Contract Unit Price Contract Cost Plus Contract Target Cost Contract
Differentiation

Advantages with Rewards for any savings

Incentives for early
respect to the Low risk No risk between actual and target
finish
contractor cost

Disadvantages
No incentives for No incentives for
with respect to High risk Share risk with the owner
early finish early finish
the contractor

Advantages with No risk, Total cost Can start a project

Share risk with the Target cost is defined at
respect to the is defined at early without finishing
contractor early stages
owner stages designs

High risk
Contractor desire
Disadvantages Total cost is
to decrease costs Share risk with the
with respect to uncertain at the  Total cost is
may be to the contractor
the owner early stages uncertain at the
detriment of quality
early stages

Flexibility of Has flexibility to More flexible to

Limited flexibility Limited flexibility
design changing change design design stages
 Procurement
Introduction
•Procurement is the act of obtaining goods or services, typically for business purposes. Procurement is most associated with
businesses because companies need to solicit services or purchase goods, usually on a relatively large scale.
•Procurement generally refers to the final act of purchasing but it can also include the procurement process overall which can be
critically important for companies leading up to their final decision.
Key Takeaways
•Procurement is the process of purchasing goods or services and is usually in reference to business spending.
•Business procurement requires preparation, solicitation, and payment processing, which usually involves several areas of a
company.
•Procurement expenses can fall into several different categories, depending on the procurement demand.
Main Types of Procurement
There are three main types of procurement activities: direct procurement, indirect procurement, and services procurement.
•Direct procurement: Direct procurement involves the direct purchase of raw goods, machinery and wholesale goods that directly
contribute to the company’s end product. The key stakeholders in direct procurement processes are procurement officers and
contracted suppliers.
•Indirect procurement: Indirect procurement involves the purchasing of goods like office supplies. These goods don’t directly
affect the company’s product or bottom line, but they support the day-to-day management of the business. A small company may
task office managers with indirect procurement processes while large corporations may employ a facilities management company
to manage those purchases.
•Services procurement: This type of procurement can involve hiring temporary staffers, leasing software, and bringing in short-
term vendors to work at an event or seminar.
 Advantages of procurement
•A well-defined procurement process can provide your organization a competitive advantage by reducing costs across the value
chain; causing greater efficiency in the delivery of quality goods and services; assisting with product innovation; mitigating supplier
risk; and increasing supply chain resiliency.
1.3 Types of procurement
 Traditional Procurement
This is one of the most basic types of procurement where the responsibility of a contractor is limited only to build. All
design works and management of contract are carried out by a consultant or an engineer.
The fact that the construction industry has been working with this method for a long time is its main advantage
since.However, the poor influence that the contractor as an operational party has over the design cost involved, and risk
allocation are considered to be the main disadvantages of this approach.
 Management Contracting
Management contracting is one of the important types of procurement in the construction industry. In this approach, in
addition to the client, the consultants and contractors and specialized contractors become a participant.
The contractor acts as a manager for the project whereas specialized contractors undertake the real build aspect in their
specialized field. Finance and operation are carried out by the client in such projects.
Design and Build (D&B)
In this type of procurement, the same contractor is meant to design and construct the project, meaning that a closer
collaboration is required in the process and all risks are allocated to the contractor.
The design and build responsibility is usually covered by the contractor. The consultant’s scope is only limited to the
management of the contract. The client is responsible for finance and operations.
Joint Venture or Partnering
The barriers between parties often could result in major problems in the construction contract. In order to overcome barriers,
different parties must establish a working environment based on trust, mutual objectives, teamwork, and sharing risks and
rewards.
The success of such types of procurement largely depends on a memorandum of understanding between the parties involved
Contract Delivery System
• A project delivery method is a system used by an agency or owner for organizing and financing design, construction,
operations, and maintenance services for a structure or facility by entering into legal agreements with one or more entities or
parties.
Types of Delivery System
Comparing 5 Delivery Methods for Construction Projects
1. Design-Bid-Build (Traditional Building)
2. Design-Build (D-B)
3. Construction Manager at Risk (CMAR)
4. Job Order Contracting (JOC)
5. Multiple Award Task Order Contract (MATOC)
1. Design-Bid-Build (Traditional Building)
• Design-Bid-Build is the most commonly used method for completing construction projects and is probably what comes to
mind when most people think about the construction process.
• As its name suggests, this delivery method consists of three distinct phases: the design phase, the bid phase and the build
phase. Design-Bid-Build is a good option for new commercial construction. Although it’s a lengthy process, it allows
owners to work in tandem with architects and engineers to get the best price for their project.
• The design phase begins with an owner hiring a designer, either an architect or an engineer, to design a new facility. While
designing the new building, the architect or engineer will prepare any necessary drawings and specifications that the
contractor’s team will need to complete the construction work. Once the design work is finished, the project is opened for
bids.
2. Design-Build (D-B)
• The Design-Build method was created to reduce the lengthy timeline that often accompanies Design-Bid-Build. It does
so by replacing the designer and the contractor with a single party who fills both of these roles, called a design-builder.
• The design-builder, who is usually an architect, engineer or contractor, serves as the owner’s single contact for the
entirety of the project
• The D-B process begins with an owner drafting an initial project design and asking for project proposals from various
design-builders. These proposals, like bids in the Design-Bid-Build method, generally represent a design-builder’s best
price for the project.
• The key difference between a bid and a proposal is that proposals include notes on the project design, whereas bids
don’t alter the project design. Owners typically select the proposal that provides the best value for the project without
sacrificing design elements.
3. Construction Manager at Risk (CMAR)
• Construction Manager at Risk, also called CM at Risk or simply CMAR, is also a derivative of the Design-Bid-Build
process. But instead of the designer overseeing the design process and construction quality, a construction manager
(CM) is hired by the owner to oversee the entire project.
• In fact, once hired, the CM stands in as the owner’s representative and advocate in every step of the construction
process from preconstruction to design and bidding, through construction.
• This makes CMAR ideal for project owners who want an expert’s help managing their project or communicating
between parties, and sometimes CMAR allows owners to remove themselves from the majority of the construction
process altogether.
4. Job Order Contracting (JOC)
• Job Order Contracting is an indefinite-delivery, indefinite-quantity (IDIQ) project delivery method. This
means that multiple projects can be completed over the life of one long-term contract, as opposed to the
single-project contracts used in the three previous methods.
• The long-term contract makes JOC an ideal choice for owners who complete a high volume of construction
projects over the course of each year.
• Rather than needing to take each project to bid, owners take bids from contractors at the beginning of the
contract, then can access their services without having to re-bid throughout the entire life of the contract.

5. Multiple Award Task Order Contract (MATOC)

• Like Job Order Contracting, MATOC is an IDIQ method that’s commonly used by the military and the
Federal government.
• It sets a long-standing contract under which multiple projects can be completed. MATOC is distinct, though,
as it houses multiple contractors under a single master contract.
• While JOC doesn’t prohibit the use of multiple contractors under one JOC program, it doesn’t necessitate it.
Because of this, the terms JOC and MATOC can be used interchangeably for certain projects.
• The MATOC delivery method begins with a master contract, sometimes called an umbrella contract, which defines the
parameters of work that can be completed under the program. The owner will select a pool of contractors they want to
participate in bids for projects.
• SPECIAL CONDITIONS OF CONTRACT
Items that need to be covered in the special conditions of contract can include the following:
• Any special conditions, for example, deadlines, site access or unforeseen conditions. This is common
in renovation work where the true extent of the work required may not always be evident before the
renovation work starts, even when an extensive and comprehensive survey has been undertaken.
• A minimum of 10% of the contract sum should be available and held in reserve to cover those
unforeseeable items. 
• Contract period and practical completion dates.
• Any nominated subcontractors or suppliers, materials or trades the owner will organise.
• Payment schedules and retentions.
• Required site meetings and attendees.
• Whether the house is going to be occupied during renovation work.
• What work (if any) the owner will be responsible for. 
• The amounts and liability periods that apply to any retention.
• For late completion provided such costs can be shown to be incurred, for example, additional
accommodation costs where the owner is in rental accommodation because the house could not be
occupied as originally specified. 
Group Members
1.Akrem Hassen

2. Eyerusalem Okbay

3.Hikma Mohammed

4.Rahel Teklay

5.Wengelawit Meshesha

6. Yohannes Fantahun

7. Yordanos Abrha