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Fundamentals of Construction Contracts: Common Types of Owner Constracts and Delivery Systems

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October 03, 2018
Author: John S. Finn
Organization: Benjamin, Bain, Howard & Cohen, LLC


As referenced by Robert F. Dorsey in his book Project Delivery Systems for Building Construction, published by the Associated General Contractors in 1997, a project delivery system is the comprehensive process by which a building is designed and constructed. The project delivery system includes all of the items relating to the owner's construction process. It is critical for all construction professionals to understand the interplay among the design professionals, construction firms (both general contractors and subcontractors), suppliers, financial advisors, insurance personnel, sureties and legal counsel. The goal of all of the construction professionals should be to provide a completed project that results in a satisfied owner while, at the same time, minimizing the exposure of all parties to claims and litigation, as well as providing each of the participants in the project a fair compensation for the risks undertaken by the method of project delivery chosen by the owner as defined by the construction documents.

One of the primary aspects of the project delivery system is the contractual requirements, obligations and responsibilities of the parties. In selecting the manner of project delivery the owner generally considers various forms of contracting including:
1. Lump Sum/Unit Price Contracting.
2. Cost of Work Plus a Fee Contracting with or without a Guaranteed Maximum Price (GMP).
3. Design-Build Contracting.
4. Construction Management Contracting.
5. Program Management Contracting.
6. Integrated Project Delivery/Collaborative.

All of the above types of project delivery can include variation of other elements and can include items such as pre-construction services, value engineering, Green Building Leeds certification, Building Information Modeling (BIM), cost management, constructability analysis, fast track approaches, bidding, negotiation, best value contracting, reverse auctions, as well as an overall approach to project delivery from the very beginning to the end under the concept of project management. Due to the shortage of government funding for construction, there has been a rapid growth in Public-Private Partnerships (P3s) which often involve groups of bidders who cover all aspects of the construction process from financing to design to construction to operation which allows the private investors to recover their investment. The collaborative contracting movement has attempted to shift the process away from the clearly identified roles to a process where the owner, designer and contractor all sign the same document and join in making project decisions. The challenge of every method of project delivery is to ensure that all participants clearly understand the legal relationships created by the various forms of project delivery so that they can understand the risk/reward associated with the entire process. Many issues associated with new forms of project delivery have not been fully tested in court actions which will be instructive in the future in determining the limits of responsibilities of the parties. The ongoing saga of the construction of the new Veterans Hospital in Aurora will most likely provide instructive case law as to how the courts will look at the responsibilities of the various parties to an integrated project delivery project.

USE OF STANDARD CONTRACTING FORMS
Before addressing the various types of contracts, it is important to address the use and availability of various standard forms and the adoption of the ConsensusDOCS. In the introductory materials available at www.consensusdocs.org, the ConsensusDOCS group indicates that for the first time in the industry, 22 leading construction associations united to publish a consensus set of contract documents. The goal was to avoid the perception that the documents published by the various construction groups favored the sponsoring organization. A secondary goal was to avoid the heavily modified versions of the standard agreements, generally the AIA documents which at times actually had modification pages that exceeded the standard form, often with conflicting clauses.

With the publication of the ConsensusDOCS, the AGC and COAA essentially folded their contract documents program into the consensus process. Of note is the fact that the American Institute of Architects did not join the consensus movement, but rather, published many revised forms in 2007 which directly compete with the ConsensusDOCS.

Since the publication of these forms, there have been many authors addressing the various aspects of the competing forms and attempting to analyze these forms from the perspective of the owner, design professional and contractor. A comparison of forms is beyond the scope of this presentation: however, the author will reference the standard forms that are available when discussing the methods of project delivery. All of these forms are readily available from their sponsoring organizations at www.aia.org and www.consensusdocs.org. Also in widespread use are the EJCDC document forms published by the National Society of Professional Engineers (www.nspe.org) and the standard specifications adopted by the Colorado Department of Transportation for all state highway projects. (www.coloradodot.info) Federal contracting is governed by the FAR regulations which are specifically incorporated by reference into all federal contracting work. Despite the effort to establish industry documents, owners continue to use their own proprietary contract forms, both private and government entities.

LUMP SUM AND UNIT PRICE GENERAL CONTRACTING/BID AND NEGOTIATED
AIA A101-2007, AIA A201-2007, AIA A401-2007 CONSENSUSDOCS 200 SERIES, CONSENSUSDOCS 700 SERIES
Historically, the most common method of project delivery between an owner and a general contractor was a lump sum or unit price contract which was either bid by the general contractor in some type of a competitively bid situation or was negotiated between the general contractor and the owner often times with the assistance of the owner's construction consultant or architect. The primary players in the fixed price contracting project delivery method are the owner, the design professionals, including the architect and engineers, and the general contractor.

The general contractor in turn, subcontracts specific areas of work through its subcontractors and suppliers providing the owner with a completed project built according to the plans and specifications provided by the design professionals. The lump sum and unit price methods of project delivery can be referred to as a stipulated sum, fixed price or a hard money contract. Care should be taken when a lump sum contract is also referred to as a turn-key contract, especially when the design has been provided by others. Generally the stipulated sum contract is only an agreement to build what is provided for in the plans and specifications not a commitment to provide some result intended by the owner in meetings that the contractor was not part of.

Pricings for a lump sum contract may be a single stipulated sum for all work or may use unit prices for certain aspects or all of the project performance. There may also be allowances for items that are not fully described in the plans and specifications with selection of the final items such as lighting fixtures or floor coverings left for some future time. If allowances are used, it is critical that the contract documents define what is included in the allowance figure and what adjustment will be made once decisions are made as to pricing of the allowance items. See AIA A201-2007 §3.8.2 which adjusts both the cost of the materials and equipment provided as well as the contractor’s costs. The inevitable issues of change orders, construction change directives and changes to the work are common in this form of project delivery, since the basis of the fixed price was a set of construction drawings. To the extent the drawings were incomplete or require modification as the project is built, decisions need to be made as to who is responsible for the additional costs associated with changes to the documents.

Although included under the category of a fixed price contract, the legal relationships and responsibilities of the parties differ when the contract incorporates unit price items. Generally the quantities established in the contract documents for unit price contracts are estimates only and the ultimate quantities are determined during or after completion of the project. Contracts generally contain variation in estimated quantities clauses for the unit prices in the event the ultimate quantities exceed the original quantity by more than a fixed percentage or are less than a fixed percentage of the estimated quantities. The concept of these clauses is that a certain fixed cost may have been anticipated and is allocated into the unit price based on the anticipated quantities. For example, a contractor may have anticipated building a batch plant at a fixed cost to provide for paving materials. The cost of the plant is allocated based on the estimated quantity so if the estimated quantity varies significantly, it may cause an increase in the unit price for the lesser quantity. Courts will also apply the obligation of good faith and fair dealing to changes in estimated quantities.

It is also critical for contractors to be aware that most government contracts allow the owner to terminate the contract at their convenience so unit items that include areas of greater difficulty and easier work at the end need to be further broken down by units in the bidding process to avoid having to perform the difficult unit price work then having the owner decide to self-perform the work at the end of the project when the contractor anticipated earning its profit.

Over the years, the use of lump sum contracting either by bid or negotiation has proven to be advantageous in certain areas. Although many governmental entities now allow for alternative methods of project delivery as discussed later in this outline, the lump sum contracting methodology has historically been popular with public owners who could combine this method of project delivery with public bidding to establish what it considered to be the reasonable market price for the delivery of construction services. In this method of project delivery, the owner maintains complete control over the project planning and the specifications based on its relationships with its design professionals, coordinated primarily through the architect or engineer.

Many of the disadvantages commonly cited as an element of the lump sum contract and method of project delivery include the adversarial nature of the relationships as among the owner, design professional and general contractor. The owner usually establishes a relationship with its design professional to deal with all of the owner's requirements in completing their construction project. Although cognizant of the costs of its design, the design professional is interested in meeting the owner's requirements, as well as the aesthetics of the project. Unfortunately, it is not generally the best method for allowing the general contractor and the various subcontractors to assist with the design stages, providing advice with respect to the value of the construction services, as well as the general constructability of the plan project. The Colorado Supreme Court has established clear contractual lines of authority on commercial projects when dealing with construction contracting and rejected efforts to create direct legal responsibility between parties that do not have direct contract relationships. See BRW, Inc. v. Dufficy & Sons, Inc., d/b/a Central Denver Ironworks, Inc. 99 P.3d 66 (Colo. 2004). Based on this case law, a contractor will not have an opportunity to challenge the design documents directly against the design professional, but rather, must look to the owner for defective plans and specifications and allow the owner to join the design professional if it so chooses.

The risks associated with a lump sum method of contract delivery include the risk of cost overruns by the contractors, both general and subcontractors, as well as the supplier, price escalation associated with materials and labor, scheduling problems, problems with subcontractors including insolvency and poor performance made worse by the general contractor's need to accept the lowest feasible bids from its subcontractors in order to generate a bid to the owner which not only covers the anticipated costs of the project, but also is sufficiently low to win successful contract award.

The Colorado Court of Appeals addressed the risk/ reward aspects of a lump sum contracting arrangement in the case of Randall & Blake, Inc. v. Metro Wastewater Reclamation District, 77 P.3d 804 (2003). In that matter, the Court dealt with an issue of determining entitlement to final payment and differentiated a lump sum versus a unit price contract within the context of a design-bid-build project delivery method.

In that case, certain aspects of the contract were to be performed based on a lump sum bid and certain aspects were to be done based on unit prices with the ultimate determination of the contract price to be determined by multiplying the established unit prices times the quantities established by the engineer at the conclusion of the project.

In finding for the contractor, the Colorado Court of Appeals examined the difference between a lump sum arrangement and unit price arrangement and ultimately determined that it was the general contractor that had taken the risk as to the quantities of materials necessary to complete the engineer's design, as well as the cost of those materials at the time when they would be needed for the project. The Court stated, "Under this lump sum arrangement, RBI's bargain was that it could complete the work and supply the materials for less than the contract price, and its risk was that it would be subject to the vagaries of the market, perhaps having to supply materials and labor at a cost greater than it had estimated." This result should be contrasted with a unit price method of delivery by which the contractor simply establishes a price per unit for the work it will perform.

The units can be by any readily identifiable measure of performance such as cubic yards or linear feet. Under those circumstances, the risks of the project would be shared between the contractor and the owner. The contractor would still have the risk of increases in the costs of materials or labor. Many contractors in Colorado have experienced those risks in the last few years with items such as oil and paving products, steel prices, lumber prices, cement prices and roofing materials, to name a few. Contrary to the lump sum method of delivery, the contractor does not have the risk of quantities since the owner's ultimate agreement is to pay for the actual quantities used to complete the project, whether they are more than or less than the originally anticipated quantities. Based on the court’s analysis, it is clear that the method chosen for project delivery will affect all aspects of the contract performance, including entitlement to change orders.

Contractors must use care in bidding unit price work to understand all of the work effort required to perform the particular unit of work. It is also important to understand when the unit cost may vary depending on actual quantities when compared to the estimated quantities contained in the bid documents and the contract form. This may be critical in projects where the availability of materials at the project price are limited such as access to a particular gravel pit close to a project site.

It is also important in unit price contracts to be certain that the work required includes unit pricing based on the type of work performed. Common change order pricing will include a default to the unit prices and it is often difficult to do a small change order quantity for the same unit price anticipated when the contract quantities are much larger. For example, a contract that calls for a contractor to remove and replace 6,000 feet of sidewalk on a highway widening job should also have a unit price for removal and replacement of small quantities that are done with different equipment and may require a more labor intensive effort.

B. COST PLUS CONTRACTING
AIA A102-2007,AIA A103-2007
CONSENSUS 500 SERIES
The cost of work plus a fee, with or without a guaranteed maximum price (GMP), is a project delivery method frequently used in private construction and is often referred to as a cost plus contract. There are many variations of the cost plus contract depending on whether the contractor is also asked to provide the owner with a GMP establishing an upper limit as to the amount of cost that can be charged for the delivery of construction services. Fundamental to the cost plus method of contract delivery is the fact that the owner retains the services of the contractor in a quasi-fiduciary capacity to build the project at the contractor's cost while allowing for a fixed amount as a fee to the general contractor for the services the general contractor renders in managing the project.

In making decisions as to the construction of a project based on a cost plus methodology, one of the initial considerations of the owner is whether the general contractor will be permitted to perform some of the work under the construction contract with its own forces or whether all of the work will be bid out to subcontractors with the intent of imposing a competitive process into the contract in order to establish either the best price or best value in completing the work. The 2007 AIA form adds the concept of Related Party Transactions at § 7.8.1. Whether or not the general contractor is performing specific trade work, the general contractor will always have a number of direct job expenses associated with general conditions items such a job trailers, trash removal, communications, safety and the many items necessary to run a successful project. Many contract forms do not use the concept of “general conditions” which means that, technically, all of these items must be separately accounted for. If a percentage or amount is used for general conditions, they must be clearly defined in order to avoid duplication with items that are billed on a cost of work basis. Article 7 of the AIA A102-2007 form defines the costs that are to be included as part of the cost of the work.

Fundamental to this method of project delivery is what had been considered almost a fiduciary relationship between the contractor and the owner to deliver the project at the best possible price for the owner. The owner and general contractor establish a closer relationship and the general contractor can be brought onto the project at an earlier stage to assist with certain pre-construction tasks such as value engineering and constructability issues. The difficulty of proceeding with this method is that, except for the GMP, the owner is not certain of the final costs of the project and the owner may be faced with a prospect of carefully monitoring the costs and auditing the general contractor at the conclusion of the project.

Frequently, an owner guards against the general contractor exceeding the budget established during the planning stages by asking the contractor to establish the GMP. The contract language is drafted such that the general contractor is entitled to recover its costs plus its agreed fee, provided that its costs plus the fee do not exceed the GMP.

Many issues arise in the negotiation of a contract of this nature since the general contractor has little to gain and everything to lose if the actual costs of the project approach or exceed the GMP. The general contractor's fees are generally fixed by the terms of the contract as a percentage of the costs or a fixed amount based on the final contract value. To the extent that subcontractors fail to perform or items of work are not accounted for in the original budget, the general contractor runs the risk of providing all of the construction services for no fee or at an overall loss.

The most common sources of dispute in negotiations in a cost plus contract with a GMP are how the parties are accounting for the savings between the estimated costs of the work and the GMP, as well as the amount and use of a contingency assigned to the project by both the owner and general contractor. Control of the contingency becomes an issue with many owners when they feel the contractor is only interested in bringing the project to completion at or slightly less than the GMP. From the contractor’s perspective, it is only entitled to its fee and does not anticipate spending its fee to replace a subcontractor or deal with any of a number of issues that can arise during a project.

In a cost plus a GMP method of project delivery, a change order is a change to the GMP and the general contractor is only entitled to a change order to the extent that work not contained in the original scope of the project is required by modifications to the construction documents. The GMP is not the same as the contract price and, at the end of the project, the contractor is only entitled to its actual costs as defined in the contract plus its fee.

A common source of dispute in a cost plus a GMP contract relates to determining what are the allowable costs that can be charged to the contract. There are usually detailed clauses defining the costs that are recoverable as well as the costs that are not considered part of the project. The AIA form provides for prior approval of certain types of costs before they can be considered costs of the project such a bonus programs, profit sharing payments and discretionary payments.

General contractors and subcontractors must take care in providing work on a cost of work plus a fee basis to be certain that all parties to the contract understand from the beginning of the project what costs will be charged, including the costs of project supervision and what portion, if any, of the general management and home office expenses of the general contractor can be billed directly to the project. It is common for there to be disputes with respect to labor rates used by the contractors, as well as labor burdens and whether such items as vacation pay, sick pay, profit sharing and pension plans or even bonus plans are properly included as costs of the work. It is not uncommon in this current environment of construction contracting for an owner to retain the services of an audit firm at the conclusion of the project to examine the contractor's hourly rates and burden numbers, as well as to verify that all items being passed on to the owner are being billed at the general contractor's cost with no additional markup other than that agreed as part of the contractor's fee.

An additional hazard for the contractor is to avoid allowing the work at the project to increase without a corresponding increase in the GMP. Often times, items arise during the course of construction which the owner and architect consider to be additions to the project, but which are still between the estimated cost of the project and the GMP established by the general contractor. It is for this reason that it is critical to all parties to the relationship to be certain that the parties clearly understand the use of any contingencies and the benefits to both the owner and the general contractor of having contingencies available to deal with the inevitable changes that will occur during the completion of the project.

C. DESIGN-BUILD CONTRACTING
AIA A141-2004
CONSENSUSDOCS 400 SERIES
DESIGN-BUILD INSTITUTUE OF AMERICA (DBIA)
The design-build method of project delivery is a form of project delivery that has gained great popularity for use on both public and private projects. The primary focus of the design-build method of project delivery is a single source project delivery with the design-build entity being responsible for both the design and construction of the project rather than the traditional design-bid-build methodology. As an interesting side note, Robert Dorsey in his publication of Project Delivery Systems for Building Construction correlates the use of the design-build concept to the master builder in Medieval times. That master builder was part architect, part engineer and part constructor who built some of the most impressive structures that remain to this day throughout the world without a clear distinction between design and construction. Many of the P3s projects are design-build projects.

The design-build method of project delivery has evolved and become popular in part based on demands from the owners for a less adversarial relationship in the construction process highlighted by the ability of the owner to look to a single source for construction responsibility. Because of the nature of the design-build process, public owners have had to amend their traditional approach to bidding public projects and have adopted strategies consistent with the applicable statutes which permit qualifying construction teams and making a selection to proceed with a contractor/architect combination based on best value which is defined in the bidding documents to involve not only lowest costs but other factors such as timing of project completion, use of a specific work force, or future anticipated energy use of a design.

There are certain types of projects which are particularly well suited to the design-build method of project delivery such as projects that allow the owner to clearly define the project requirements at an early stage such as industrial facilities, office and commercial buildings and even schools and hospitals.

Critical to the entire design-build method of project delivery is the use of a coordinated set of construction documents clearly establishing the responsibility of the design-builder and setting forth those responsibilities that the owner and the owner’s independent consultants retain as the design-build process moves forward. Although the design-build contractor clearly takes responsibility for the overall design and construction of the project in question, many additional consultants such as geotechnical, environmental, site development, zoning, right-of-way and landscaping consultants may be separately contracted for by the owner and responsibility for these items may be specifically disclaimed by the design-build contractor.

The largest advantage to the owner of this method of project delivery is the elimination of the potentially adversarial situation which exists between a design professional and general contractor relating to the sufficiency of the plans as developed by the design professional. The owner is no longer warranting the project plans thereby eliminating the underlying premise of the Spearin Doctrine. See U.S. v. Spearin, 248 U.S. 132 (1918). The owner is also in a position to avoid the “architect’s gap” which may exist for an owner when a general contractor seeks additional compensation for changes to the design documents and the architect defends a claim for additional compensation by defending on the basis that the architectural services were provided in a professional manner in keeping with the standards of industry adopted in the locale where the project is being constructed.

As a further advantage to the design-build methodology from the perspective of the owner, there are generally fewer change orders and cost overruns, the parties are able to proceed with a fast track approach whereby problems are identified and remedied without concern for fault allocation since the problems clearly fall on the shoulders of the design-build contractor.

There are certain disadvantages owners must contend with and for which design-build contractors must be vigilant in the design-build process. The owner must take care to understand and clearly define the scope of the project and, unless the owner has internal capabilities available to clearly define the scope of the project, the owner may still be required to retain independent design or construction management services to simply reach the starting point for the design builders’ proposal and to manage the project. Similarly, the owner may lose some of the oversight abilities associated with the design-bid-build process since the design professional will clearly be working with the contractor and not exclusively on behalf of the owner as the project proceeds. It, therefore, becomes more critical for the owner to retain the services of a qualified construction consultant to assist with the overall project, which may simply add an additional layer of cost not otherwise necessary in the more traditional approach to project delivery.

Finally, the owner must be careful that the contract clearly defines its independent obligations with respect to certain of the specialty areas referenced above since the ultimate goal of avoiding disputes will be lost if there is not a clear definition of responsibilities as between, for example, the owners’ geo-technical consultants and the design-build contractor who proceeds with the project in reliance on the information provided by the geo-technical consultant.

From the design-build contractor’s perspective, there are also many potential disadvantages, which could result in additional disputes. Establishing a close relationship between a more traditional general contractor and a design professional firm takes planning and a clear understanding as to the roles each entity will occupy in the process.

Architects and engineers who have in the past been accustomed to justifying increases to the project on the basis that the owner is receiving additional value and should not object to paying for such value will no longer be able to make that justification if the design-build contractor has provided the owner with either a fixed price or a guaranteed maximum price for the delivery of a complete project capable of meeting all of the code and occupancy requirements of both building departments and fire departments with jurisdiction.

An additional concern for the design-build contractor is the circumstance where the owner’s proposal is much more than a preliminary design but rather almost the equivalent of a design development document. The design-build contractor must be clear in disclaiming responsibility for the direction of the project established by the owner’s independent consultants. There has been significant litigation in the last few years when an owner questions the overall function of the design-build contractor’s design when the design-build contractor was simply attempting to complete a design within fairly specific parameters previously established by the owner.

The final danger to the design-build contractor is the ability to clearly define the quality of the project that the owner anticipates receiving for the price established at a relatively early point in the construction process.

It is critical in avoiding problems as the project develops that the owner and design build contractor understand exactly the scope and quality level of the project being constructed by the design build contractor. Once price has been established, the owner has little incentive not to seek the highest quality building at the established price.

D. CONSTRUCTION MANAGEMENT CONTRACTING
AIA A121CMc-2003, AIA A131CMc-2003
CONSENSUSDOCS 500 SERIES
In his book on Project Delivery Systems for Building Construction, Robert Dorsey defines construction management as follows:

Construction Management is a project delivery system based on an owner's agreement with a qualified construction firm to provide construction leadership and perform administration and management within a defined scope of services. The construction manager works throughout the various phases of a project (planning, design and construction) and cooperates with the owner and the designer in furthering the interests of the owner.

One of the basic considerations in attempting to define the concept of construction management is that construction management varies significantly depending on the role that will be played by the construction manager in the project.

In the first type of construction management relationship, the construction manager acts in a fiduciary capacity based on a strong agency relationship with the owner. The construction manager in this circumstance does not participate in the actual construction, but rather, serves as the owner's advisor through the planning, design, scheduling, financing and construction phases. As with most agency relationships, the construction manager's sole duty of loyalty and care is to the owner and the construction manager essentially acts as the owner's eyes and ears for the completion of the project.

The second approach to construction management bears strong similarities to the design-build process except that the design professional maintain a separate relationship with the owner and the construction manager works with the owner and the design professional through the preliminary stages of the project providing valuable services within the areas of the construction manager's expertise. As the plans develop, the construction manager has the obligation of reviewing the plans and beginning the process of pricing the project and developing schedules to carry out the project work. In this relationship known as the construction manager/general contractor ("CM/GC") or CM atrisk, the general contractor then proceeds to final pricing at the time that the construction documents are sufficiently complete and actually becomes the contractor in managing and constructing the project. Depending upon the contractual relationship, the CM/GC may perform work with its own forces or may simply bid or negotiate the various aspects of the work on behalf of the owner. The ultimate pricing for the project can be through a lump sum or cost of work plus a fee method and, in this circumstance, the CM/GC bears a greater risk of loss and an equally greater potential of profit based on the manner in which the project proceeds. As is the case with a cost plus fee with a CM/GC project, the use of a contingency is important for both the development of drawings and specifications, as well as construction contingencies and the inevitable additional costs related to potential change orders. Ideally, if the CM/GC has been involved in every step of the process, the number and types of changes will be minimized based on the input from the construction manager into the design process.

Generally, in a construction management situation, the services are divided into two stages, the pre-construction services and the construction services. During the preconstruction stage, the construction manager provides value engineering, constructibility review, material selections and business systems decisions, identifies long lead procurement activities, makes recommendations as to construction scheduling, makes recommendations as to the preparation of bidding forms, assists with the permit issues and coordinates the bidding and negotiations of the subcontracts.

Throughout the construction services portion of the project, the construction manager maintains responsibility for scheduling and coordination of trades and reviews all of the shop drawings and submittals on behalf of the owner. It is in this role that the responsibilities of the CM/GC differ from the agent construction manager and also the responsibility of the design professionals will vary depending on what role the construction manager occupies during the construction process. The agency construction manager does not contract directly with the subcontractors to perform the work while the CM/GC enters those contracts and the relationship becomes similar to the more traditional design-bid-build process whereby the design professionals take a more active role in advising the owner through the construction process.

As with the other methods of project delivery, a number of the professional organizations have developed contracting forms. The key issue in any contracting form used is a clear understanding of the role being taken by the construction manager during the various phases of the construction process. From the owner's perspective, once the construction manager has ceased its pure agency relationship and moves to the CM/GC stage, the owner must deal with a potentially more adversarial situation and take greater care with respect to pricing and construction quality issues since the CM/GC bears both risk and reward associated with these issues. From the CM/GC's perspective, the critical issues are identifying the point in time that the CM/GC feels comfortable in providing the owner with a cost of its project and also determining what aspects of the work it may self perform during the construction process. The CM/GC must also use care in avoiding claims that it is providing design services and must limit its preconstruction activities to areas of expertise within the general contracting skill set rather than overall design issues which should be left to the design professional. A dissatisfied Owner may well decide after the fact that it could have gotten a better deal or more value for its investment and a CM/GC needs to have clear records that all ultimate decisions were made by the Owner with full information.

E. PROGRAM MANAGEMENT
CONSENSUSDOCS 800 SERIES
With the advancing complexity of construction projects, the concept of program management has developed to provide an owner with assistance in all of the phases of the construction project, many of which are not addressed in any of the project delivery methods discussed above. Focusing mainly on complex or multi-facility projects, the program management approach often focuses on companies or owners who do not have the luxury of a full time construction department or in house construction staff, or companies that have reduced or eliminated such staffing during time periods when no construction activities were ongoing.

Program management has been described as a comprehensive building program that goes beyond the designbuild system and extends the role of the program manager to such preconstruction activities as procuring financing, developing long range plans, conducting extensive needs analysis, property acquisition and similar types of preconstruction activities all the way through the design, construction, start up and possibly even facilities management services after the completion of the construction program.

The program management project delivery system provides an owner with a single source of management for the entire process with the program manager acting as the owner's consultant. This is particularly helpful for an owner with limited knowledge of construction, an owner that does not have in house capacity to develop an overall construction program or where there will be multiple projects that will tax the existing staff of the owner available to deal with construction matters.

Although many of the services provided by the program manager are similar to the services provided by the construction manager or design professional, the program manager's role can be as extensive or as limited as the owner needs depending upon the requirements of the building program. Whether the program manager is compensated based on a percentage fee or paid hourly based on a set rate, the addition of a program manager provides an additional layer of expense to a project and owners must be careful in retaining the services of a program manager to assure that there is not a duplication of services that are already being paid for in the design or construction management fees being charged by the design professional or the general contractor.

Due to the wide range of services that may be performed by the program manager, choosing a qualified program management organization is critical and the owner must be assured that the program manager has the specific skills necessary to provide value at all stages of the project delivery process. Depending upon the needs of the project, the program management organization needs the ability to do conceptual planning, as well as understand aspects of land acquisition, governmental regulations, construction financing, public relations, as well as the skills normally associated with construction management and design-build entities.

The owner must also take care in ensuring that the program manager maintains a strong relationship with design and construction entities in the locale where the project is being built in order that the owner will have access to competent design and construction groups willing to consider the owner's project in a competitive price environment. To the extent that a program management organization has established a reputation for being difficult to work with, an owner's choice of that organization to assist with its program could have significant negative impact on both the owner's costs and ability to move forward with a successful program.

Since it is often difficult to define the program manager's scope of services at the beginning of a project, program management services are often contracted on a daily or hourly fee basis with the expectation that the program manager will ultimately benefit the owner through increased value and a reduction of costs throughout the execution of the construction program.

The program manager provides consultation into the actual delivery of the project and the contracting with the construction professionals may be done using any of the methods previously discussed in this article. Contrary to the varying roles possible for construction management, the program manager rarely undertakes actual construction or design services, but rather, maintains the agency relationship throughout.

F. INTEGRATED PROJECT DELIVERY
AIA A295-2008.AIAC195-2008
CONSENSUSDOCS 300 SERIES
Integrated project delivery and collaborative contracting has developed with the idea that all of the parties to the process can work together from the early stages of the project to build a successful project. The AIA form differ with the C195-2008 document featuring a separate entity owned by the owner, design professional and construction manager with each party separately contracting with the new entity. The goal of each of these contract forms is to promote cooperation in the project completion.

During the 2007 legislative session, Colorado adopted the Integrated Delivery Method for Public Projects Act (“Act”). The Act amended various sections of the Colorado statutes inserting language with respect to integrated product delivery methods into various aspects of the Colorado Revised Statutes dealing with contracts entered by the state agencies, § 24-93-101, C.R.S., counties, § 30-22-1101, C.R.S., municipalities, § 31-25-1301, C.R.S. and special districts, § 32-1-1801, C.R.S. Essentially, the Act provides the same general framework for permitting construction using integrated project delivery methods and is repeated in the four locations set forth above.

The legislative declaration indicates that it is the policy of the State of Colorado to encourage public contracting procedures that encouraged competition, openness and impartiality to the maximum extent possible while acknowledging that timely and effective completion of public projects could be achieved through a variety of methods and further acknowledging that cost was only one of the factors to be used in determining the best contractor to do business with the various segments of state government. Although some argued at the time the Act was introduced that the existing statutes allowed for contracting methods anticipated, the Act formally adopted various integrated project delivery methods into Colorado law.

The Act defines Integrated Project Delivery or "IPD" as a project delivery method in which there is a contractual agreement between an agency of the government  and a single participating entity for the design, construction, alteration, operation, repair, improvement, demolition, maintenance or financing, or any combination of these services, for a public project.

The Act provides that notwithstanding any other provision in the law, an agency may award an IPD contract in accordance with the provisions of the Act upon a determination by the agency that the IPD contract represents a timely or cost-effective alternative for a public project. The Act was not intended to limit other sections allowing for state construction by other methodologies but rather, expanded the options available. The Act provides for a number of steps in the process of awarding an IPD contract. The first step is providing public notice of a request to prequalify potential participating entities for the selection process. The information required during this prequalification process is a general description of the proposed public project, relevant budget considerations, requirements for the participating entity including listings of the ownership of the entity, evidence that the entity has completed or demonstrated the experience, competency, capability and capacity, financial and otherwise to complete a project similar in size, scope and complexity, evidence that the proposed personnel has sufficient experience and training and evidence that all applicable licenses, registrations and credentials, including information as to revocations and suspensions are required. The final item is that the notice and request for qualification should include the criteria for prequalification.

One portion of the Act that was somewhat controversial is the reference to apprentice training programs certified by the office of apprenticeship located in the employment and training administration in the United States Department of Labor. Where such a program exists, the participating entities may be required to identify that it has access to either a certified program or a comparable alternative.

The participating entity may also be required to demonstrate that each of its subcontractors, at any tier, selected to perform work under the contract with a value of $250,000 or more, has access to either a certified program or comparable alternative. Although labor unions certainly have certified programs with the United States Department of Labor for apprentice training, there are also non-union associated training programs certified in the State of Colorado. It is clear that this provision will be an encouragement to participate in available apprentice training.

The final part of the prequalification process is that the state agency is allowed to prepare and announce a short list of participating entities that it determines to be most qualified to receive a request for proposal from the state agency.

The second portion of the procedure is for each of the participating entities to submit a request for proposal. The request for proposal for IPD contracts is required to include, at a minimum, the following evaluation factors and sub-factors that are used to evaluate the proposals and capabilities of the participating entities. Those factors are:

A. Price
B. Design and technical approach to the project
C. Past performance and experience
D. Project management capabilities, including financial resources, equipment, management personnel, project schedule and management plan; and
E. Craft labor capabilities, including adequacy of craft labor supply and access to federal or state approved apprenticeship programs, if available.

Other factors consistent with the above criteria can also be included as factors and sub-factors as determined by the state agency, including cost analysis, performance standards, a description of the documentation to be provided with the proposal, scheduling considerations and any stipend to be provided for those entities responding to the request for proposal.

After obtaining and evaluating the proposals according to the criteria set forth in the request for proposal, the agency is given the discretion to accept the proposal that, in its estimation, represents the best value to the agency.

Written notice of acceptance is then provided and the parties proceed with the contracting process.

With respect to the types of contracts, the Act specifically authorizes that subject to the requirements of the Act, the agency making use of the provisions may award any type of contract that will promote the best interests of the agency except for a limitation on a cost-plus-a-percentage-of-cost contract, which is prohibited under the Act. The agency may award cost-reimbursement contracts after a determination is made in writing that the contract is either likely to be less costly to the agency than any other type of contract or it is impractical to obtain the required construction or other services authorized under this article unless the cost-reimbursement contract is used. Operation and maintenance elements may be procured on a cost-reimbursement basis under or in connection with an IPD contract.

The IPD Contract for public projects opens up the government to many of the various forms of contracting that have been used in the private sector for a number of years and brings state government into the modern era of construction project delivery methods.

Not to be outdone by the earlier legislative effort, The Colorado legislature in 2013 passed a bill containing a number of additions to the government contracting sections of the Colorado statutes. Included was a revision to 24-92-103 and the addition of 24-92-103.5 to allow for competitive best value bidding. The process is generally the same except they added additional factors such as the bidder’s safety plan, the bidder’s staffing plan, the benefits provided by the bidders to employees such as health care, defined contribution retirement benefits and whether the bidders pay “industry standard wages”. They even added the use of domestically produced iron, steel and related manufactured goods in an apparent effort to duplicate federal “Buy America” programs. After the award, all statements of qualification are open to the public and the score sheets used to make the final decision shall be made public omitting any confidential corporate information. Also added by the legislature are additional sections to 24-102-206 regarding disclosures as to whether a prospective vendor anticipates subcontracting any services outside the United States or the state. Also added is an additional disclosure of written notice if the vendor decides after the contract begins to contract outside the United States or the state.


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