CE 222/CEM 201 Life Cycle Engineering and Management of

Constructed Facilities

Bid Preparation

Chapter 2

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Review Questions

� Characteristics of the construction industry� An easy entry industry� Fragmented� A barometer of the economy� Customized, unique products� A variety of stake holders� Low level of automation� High hazard� Unique project development process� ……

� Project success criteria� Cost, time, quality, and safety

� Key players in construction� Owner, contractor/constructor, designer

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Learning Objectives

� DESCRIBE the project development cycle

� EXPLAIN each step in the project development cycle

� LIST and DESCRIBE bid package components

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Project Development Cycle

For competitive bid

� First step of the project development cycle – conceptual definition of the need

� Need recognized by owner (or users)� Personal preference� Profit� Improvement of quality of service

� Differs based on the type of entity� Individual� Companies� Institutes� Profitable organizations

� Completed by Feasibility analysis� Meeting established need(s)?� Cost/financial feasibility?� Market analysis and profitability?� Local conditions� ……

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Step 1: Establishing Need

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Project Feasibility – Need Evaluation

� Prepare cost analysis

� Cost-benefit analysis

� Determine feasibility based on “metrics”

� Conceptual level of sketches (graphical) and cost

estimate

I NEED …

VALID?STOP

Next step

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Cost Benefit Analysis

� Commercial projects - comparison of cost of the project against the expected revenue

� Public non-profit projects - cost versus development benefit

� Involves assessment of tangible (cost) aspects and intangible aspects (quality of life, social benefits)

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Step 2: Conceptual Drawings & Estimates

� Very early design and cost estimate

� Present to potential funding sources

� Architect’s sketch drawings (3-D CAD, BIM, …)

� Preliminary cost plan

� Cost per unit

� Cost per square footage

� Cost per cubic footage for services

� Use standard published cost data

� Use of company historical data

� Projected cost in the future – ENR Index

� 2nd step in project life cycle

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Conceptual Design

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Step 3: Preliminary and Detail Design

� A/E and the design team design the project� End product is plans (graphical) and

specifications (verbal) – binding elements of the contract

� Preliminary designs - review before final design is made and owner must approve

� Detailed designs� Every possible detail is defined

� Prepare owner’s estimate (should achieve a reasonable accuracy, especially for contractual purposes)

� Inputs:� Need & Conceptual design

� Outcomes:� Set of drawings and specifications

� 2 stages1. Preliminary (40% completion)

� Allows the owner to review his needs and financial status.� Outputs:

� Drawings (40% completed)� Specifications (40% completed)� Preliminary estimate

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Preliminary and Detail Design (continued)

2. Detailed Design� Outputs:

� Full set of integrated Drawings

� Full set of Specifications

� Detailed estimate (± 3% accuracy) including

� Direct Cost

� Indirect Cost

� Purpose:� To ensure that the design produced is within owner’s

financial resources

� To establish a reference point in evaluating bids

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Preliminary & Detailed Design (continued)

� Design team� Includes a team leader and members from the

different disciplines

� What are the different involved disciplines?

� Extensive coordination is required� Foundations loads� Floor plans and finishing nature dictate pipes & outlets

orientation.

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Preliminary & Detailed Design (continued)

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Step 4: Bidding

� Purpose of Tendering/Bidding Process� To provide competition --- and thereby reduce

costs

� Cost is not the only factor to consider� Lowest tender/bid will not necessarily provide the

lowest cost

� Prudent owner will consider not only the amount of the bid but also such factors as experience and capability of the contractor, and whether the bid is realistic

4.1 Bid Package and Bid Request

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Obtaining Bids

� Methods for obtaining:

� Competitively bid – in part or in total

� Negotiated – in part or in total

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Request For Bids

� Bid call

� Invitation to bid� These are preliminaries that allow prospective bidders

to determine if they are interested

� Public bids - government, public authorities

� Basis for award is usually lowest bid price

� Closed Bids - private individuals & organization

� Basis for award is not necessarily the lowest bid price

� A document announcing to prospective bidder that design documents are available for consideration and that the owner is ready to receive bids

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Notice to Bidders

� What does it include?� Size of project� Availability of plans

and specifications� Project duration� Place and date of bid

opening� Bonds requirement� …

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Contents in the Notice to Bidders

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Methods to Request Bids

� Advertisements � Newspapers

� Trade journals

� Trade association bulletins

� Letters of invitation

� Oral requests – followed up with memo

� Request for pre-qualification

� Web based systems like Dodge report systems

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Prequalification

� Technical competence and experience

� Current financial position

� Bonding capacity (10 times Net Worth)

� Current amount of work underway

� Post project litigation history

� Defaults on contracts

� Small Business Qualification, MBE, WBE, DBE

� Safety records

4.2 Bid Package

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� What is included?� A set of documents defining project scope and details

and on which a contractor must base his decision to bid or not to bid.

� Includes:� Proposal form� General conditions – common procedures to all

construction contracts� Special conditions – unique procedures applicable to a

given project� Drawings� Specifications

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Bid Package

� Proposal form

� When filled and submitted by a contractor illustrates his/ her intent and commitment to perform the work as per the specifications and drawings in the desired time and budget filled out

� Project duration and pay schedule (lump sum, unit price, combinations)

� It is not a formal contract

� It is an official offer – its acceptance results a contract

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Bid Package

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Lump-Sum Proposals

� Proposals under the competitive bidding system

are usually submitted as a Lump-Sum or Unit-

Price Bid

� These are used for most building projects and

other works where the scope and requirements

of the project are well defined

� The Proposal form must provide spaces for only

one amount to be given in words and figures

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Unit-Price Proposals

� Requested when the scope of the work

cannot be well-defined

� The project consists of a relatively small

number of activities

� Bidders are given estimated quantities and

asked to supply unit-price (i.e., $/cy)

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Bid Package – Sample Proposal Form

� General conditions� Certain specifications regulating

how a contract is to be administered and the relationship between involved parties

� Generally address aspects common in all projects

� Standard sets/templates of GC are available (e.g., U.S. Army Corps of Engineers, Associated General Contractors (AGC), and Construction

Specifications Institute (CSI))28

Bid package

A document that defines the responsibilities of the partiesaffected by the Contract and

describe the guidelines that will be used in the administration of

the contract.

� Supplementary/Special conditions� Covers aspects of the contractual relation that are

peculiar to a specific project� Duration of the project� Owner’s procured materials� Specific payment days� Progress reporting� Liquidated damages

� An extension to general conditions� Items included are of two types

� Modifications of the articles of the general conditions� Additional articles that are legally binding

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Bid package

If a clause in SC is in conflicts with GC, which over governs?

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Sample Contents of the Supplementary Conditions

� Scope (of the entire project)

� Supplementary Definitions (not in General Conditions)

� Legal Address of the A/E and Owner

� Amounts of Bonds

� Amounts of Liquidated Damages

� Permits and Inspections Costs (who pays)

� Complete list, by number and title, of the Contract Drawings

� Applicable Laws and Regulations

� Amounts and Types of Insurance Coverage (not specified in the General Conditions)

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Bid package

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Bid Package

� (Technical) Specifications

� Verbal description of the technical requirements and aspects of the work to be performed

� Specifications are written instructions to be used in conjunction with the drawings so that together they fully describe and define the work that is to be accomplished along with this method and quality that

will be required

� They are supplement to the drawings and show information that cannot be easily shown in graphic form

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More on Specifications

� To specify quality standard of performance

� To supplement information that is not easily put on drawings� Guide the bidders in cost estimates for their proposals

� Guide the Contractor during the:

• Construction Phase

• Erections and Installations

• Ordering of materials

• Performance of work

� Guide the owner during acceptance of the work performed

� Types:

� Proprietary – requires the use of a sole source product

� Prescriptive – lists acceptable products and vendors

� Performance – the performance must be achieved

� Reference standards (ASTM)

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Bid Package

� Addenda� A document illustrating any changes, additions, omissions,

corrections, and contract conditions that arise before bidding is finalized

� Purposes� To correct errors in documents

� To respond to queries from bidders

� To authorize design changes to approve material substitutions

� Takes precedence over original documents

� Bids should clearly record which addenda have been considered

� It becomes part of the contract documents.

� It is a binding document.

4.3 Bid Submission

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Considerations Affecting the Decision to Bid

� Goals and capabilities of the firm

� Location of Work

� Time and Place of Bid

� How to Obtain the Plans

� Legal and Other Requirements

� Scope of Work

� Comparison of Resources

� Project risk (social, political, technical)

� Cost estimate

� Cost estimate� Site inspection� Analysis of contract documents� Quantity takeoff (Quantity Surveying)

� Why?� Costs of bid preparation are only recoverable if bid is

won.� Approximately 0.25% of total bid value

� Bid value includes� Direct cost� Indirect cost� Markup

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Decision to Bid

� Prequalification:� A statement submitted by a contractor illustrating his

potentials for performing the current project� Includes:

� Company portfolio� Company Curriculum Vita� Satisfactory performance letters of other projects

� why:?� Provides a supporting documents to help the owner decide

on the best contractor to perform the works.

� Subcontractor’s and vendors costs:� How does a general contractor incorporate

these costs?

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Bid submission

4.3.1 Special Attention on Bond(s)

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What is a Construction Bond?

A construction surety bond is a three-party instrument under which the Surety joins with the contractor (Principal) to guarantee to the owner (Obligee), that the contractor will comply with the terms and conditions of the contract.

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Bonds

� A BOND is a three party instrument that protects one party from default of a second party. In the event of a default occurring the third party is legally bound to offset any damages resulting from the default

� Parties Involved:

� Principal: Party in position to default (contractor)

� Obligee: Party in a position to be damaged (owner)

� Surety: agent

� Assurances provided by a third party (Surety Company)

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Bonds

# Type To whom By whom Why? Value

1 Bid Owner Cont.

Protects the owner in case the awarded contractor did not sign a contract

1. The difference between currentbid and the next lowest bid

2. Specified value

2 Performance Owner Cont.

Protects the owner against the contractor’s lack of performance

Varies from one contract to other

3 Payment Owner Cont.

Protects the owner against any liens or unpaid amounts by the contractor

Varies from one contract to other

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Bid Bond

� Protect against default in entering into contract by Principal

� Damages: Owner selects next lowest bidder (Loss = Next Low Bid – Bid Price)

� Surety issues Bid Bond for a low fee – pay damages if contractor cannot

� Amount of bond is usually 5-10% of the Bid amount

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Performance and Payment Bonds

� Performance Bond - Protects against failure by Contractor to complete work

� Payment Bond - Protects against failure by Contractor to pay vendors and subs

� Issued at a cost of between 0.6 and 2.5% of Bid Price

� Bonds are issued for a service fee� For contract sums of ≤ $ 200,000

� 1 % of contract value or $10 for each $ 1,000

� For contract sums of > $ 200,000� Rate varies according to contractor’s history of

performance� Usually rates are between 0.5% to 3% of contract total

value

� Miller’s Act – federally funded projects� Establishes the level of bond for federally funded

projects� Performance bond = 100% of contract total value� Payment bond

� 50% if contract value is ≤ $1,000,000� 40% if contract value is >$1,000,000 and ≤ $5,000,000� Fixed amount of $2,500,000 if contract value is >$5,000,000 45

Costs & requirements for bonds

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� USA federally funded project (Miller Act)

Contract Size Size of Bond

< 1,000,000 50%

1,000,000-5,000,000 40%

>5,000,000 $2,500,000

Protects the interest of the subcontractors, suppliers and laborers if the construction

firm/general contractor fails to make payments.

Labor & Material Payment Bond

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Liens

� Lien is an action to recover the value of the losses

� Assists those who provide services or materials on a construction project to obtain payment

Review on Bonds

� Three types of bond� Bid, performance, and payment bonds

� Three-party surety� The principal, obligee, and surety

� Protect the owner/obligee� Bid bond – “lead parachute” for a small administrative fee –

backed by assets of the principal� Performance and payment bonds for a service charge� The principal purchases bonds and pays for the bond cost� The difference between bond cost/fee and “face value”,

i.e. the amount of bond� Bond cost/fee – the cost incurred for securing a bond� Face value – the maximum amount covered by a bond� Example: a $5 million bond secured at a cost of 50k (1%)

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Important Steps in Preparing Bid Proposal

� Analyze the bid documents for items to be included in the bid

� Schedule site trip to investigate potentialproblems (i.e., soil condition, vicinity)

� Order bid bond early

� Schedule estimating properly

� Develop and use uniform estimating standard

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Bid Substitutions

� A substitution is a suggested change to the

base bid, which has been volunteered by the

bidding firm, not the owner or the design

professional

� One disadvantage to substitutions is that

there are no comparative prices available

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Bid Alternates

� Alternates and Substitutions are changes to

the base bid

� Alternates are requested by the owner

� Used to compare different products or

methods

� Too many alternates have a tendency to

increase the chances of bid errors

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Step 5: Opening, Acceptance, and Documentation of Bids

� Private Sector - No “rigid” procedures

� Public Sector - following “inflexible” rules apply:

� Receipt of sealed bids at the designated time and place

� Confirmation that all bids are responsive

� Acceptance and logging of name and amount for all responsive bidders

� Summary of all line and unit price items

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To Withdraw a Bid

A contractor must satisfactorily establish the following:� A mistake was made

� Written notice given to agency

� Specify how mistake occurred

� Mistake made bid materially different than intended

� Mistake was made in filling out the bid and was not due to an error in judgment or carelessness in inspecting the site of the work or in reading the plans and specifications

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Low Bidder Determination

� Under a lump sum price process a direct

comparison of the base bids is all that is

required

� Under the unit price proposal system, the

method used is that of “equivalent lump sum”

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Rejection of Bids

� Usual in bid requests to state that owner is not bound to accept lowest or any tender

� Person cannot be forced into contract against person’s will

� Some reasons for rejecting bids:

� Too few bids

� Substantially over budget

� Irregularities

� Qualifications to the bid

� Obvious error

Step 6: Award of Contract

� Owner Notice to proceed Contractor

� Construction shall start within a specified period of time, e.g., 10 calendar days, upon the receipt of this notice

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Review Exercises

� Explain the typical project development cycle� How accurate is the cost estimate of the detailed

design?� What is the estimated bid preparation cost for a

$10,000,000 project?� What is the damage to the obligee if the lowest

bidder fails to enter the contract, based on the numbers in the table below?

� What items are included in a bid package?� For a $3,000,000 federally funded project, what are

the bond requirements, i.e. how much of what bonds?

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