Assignment 2 SOLUTION

Assignment 2 on Construction Management – CENG 5104
Deadline –April 2, 2013

1. What are the legally essential elements of a construction contract?
These are:
• Capacity of contracting parties
• give their consent sustainable at law
• object of contract is sufficiently defined, possible & lawful.
• the form is prescribed by law
2. List and briefly describe the documents making up a construction contract

These are: the Agreement, the General Conditions, the Special Provisions or
Supplemental Provisions, the Specifications and the Drawings
3. What type of construction contract provides the greatest incentive for a contractor to
minimize project cost?
Cost plus variable percentage contract.
4. Name and define the purpose of the three types of bonds. Who do bonds protect? Should
subcontractors be required to provide bonds?
- Bid bonds - are guarantees which have two purposes. One is to guarantee that
the contractor will enter into a contract if determined to be the lowest
responsive bidder, and second is to guarantee the contractor will provide
payment and performance bonds. The contractor is released from bid bond
obligations when payment and performance bonds are submitted.
- Payment bond - guarantees the contractor will pay the subcontractors and
suppliers.
- Performance bond - guarantees the contractor will complete the work in
accordance with the plans and specifications.
5. What are the major differences between a lump sum and unit price contracts? When is it
appropriate to use each type? When is it appropriate to use a cost plus percentage or
fixed fee contract?
- The difference between the two are that in a lump sum contract, the contractor agrees
to do the job at a lump sum price for the project. The risk is totally born by the
contractor, as a result the contractor uses higher mark up. In unit price contracts, the
contractor and the client agree on unit rates and the total project cost depends on the
volume of work. Here the risk is born by the client.
- Lump sum is best used when the quantities can be calculated accurately like in
building projects. Unit price contracts are to be used when quantities can not be
estimated accurately.
- Cost percentage contract is appropriate to use for projects involving new technology
or for projects with extremely pressing needs, in which the client is willing to bear
risk of all cost overruns.
6. Why do contractors use subcontractors? Does the subcontracting process make a
construction more or less expensive? Does the practice improve or hurt overall project
quality?
- To avoid holding personnel they can’t engage year round.
- It makes the construction more expensive but with a better quality and shorter
duration
- The practice improves overall project quality. Of course it requires good coordination
by the general contractor.
7. What is the difference between unbalanced bid and front loaded bid?
- Unbalanced bid occurs when the contractor discovers underestimated quantities and
raises the unit cost for these items to maximize its/his/her profit.
8. What is the difference between liquidated damages and a penalty for late completion of
the contract?
- A liquidated damage is payment the contractor pays to the client to compensate for
additional cost the client is made to pay in the project due to delay caused by the
contractor. Liquidated damage is estimated when the actual additional cost that the
client incurred is difficult to estimate.
- Penalty for late completion is what the contractor pays as penalty for delays. The
purpose is to discourage delays in completion.
9. Attend a construction bid opening and report on the number of bidders who participated,
their cost offer and the difference between the winner and the others.
10. Describe the procedure to be followed by the contractor who wishes to claim a time
extension. What sort of documentation do you think is necessary to either refute or
defend a time extension claim due to unusual weather? What sort of records do
contractors keep of weather conditions?
11. Research a G+5 or more Building Construction Project and report on the following.
a. The delivery method employed
b. The type of contract employed and between which parties it is
c. When the conception phase of the project began and on what dates the designer
and contractor were hired
d. The number of subcontractors used and under what type of contract they were
hired
e. Project risk and how the delivery method and contract types were able to shift it
12. How are construction contracts most often terminated?
13. Why do construction projects have change orders? Who issues the change order and how
are the project cost and time duration affected?
14. What causes claims? What must contractors do to support a claim? What dispute
resolution methods are used here in Ethiopia? Why is there growing interest in alternate
dispute resolution systems?
15. One of your weaknesses after you graduate is less interest in data collection and analysis
which is an invaluable input for subsequent similar projects in cost estimating and
determining activity time duration in scheduling. The other is lack of skill in IT. Develop
a computer program that can be used to maintain the current status of all active contracts
of a construction firm. Input should include contract number and description, contract
amount, date of contract award, date work started, required completion date, current work
status(percent completed), projected completion date, amount billed to date, payment
received to date, payment due but not received, number and value of contract
modifications, number and value of pending modifications and claims. Provide output in
a format that can be used by company management as a summary of contract status.
Using your computer program, solve an example problem.

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Assignment 2 on Construction Management – CENG 5104

Deadline –April 2, 2013

2. List and briefly describe the documents making up a construction contract

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