In managing built environment projects successfully, one must understand the full spectrum of delivery methods and contract structures, as well as the responsibilities and risk apportionment associated with each one. The built environment encompasses constructed objects or networks that support people’s activities, including buildings, parks, utility supply, transportation networks, etc. Therefore, projects in the built environment are often complex with high stakes of success. For the PMI-Construction Professional (PMI-CP) exam, candidates must be well-versed in such project management aspects.
Delivery Methods
1. Design-Bid-Build (DBB)
In a DBB contract, the owner contracts with different entities for design and construction. The design phase is completed before bidding, and the construction begins post-bidding. Here, the owner bears most risks but maintains control over the project’s entire scope.
2. Design-Build (DB)
For DB contracts, design and construction services are contracted to a single entity. This streamlines the process and reduces the owner’s risk since the design-build entity is responsible for cost overruns. However, the owner has less control over the project details.
3. Construction Manager at Risk (CMAR)
In a CMAR contract, the construction manager is committed to delivering the project within a Guaranteed Maximum Price (GMP). The CMAR provides input during the design phase, but risk is shared as the owner is responsible for design errors or omissions.
4. Integrated Project Delivery (IPD)
IPD is a collaborative approach where all stakeholders (owners, architects, contractors) share risks and rewards. It requires transparency and trust, fostering an early consensus on project goals and processes.
Contract Structures
Contracts form the project’s legal framework and establish parties’ roles, responsibilities, and liabilities. The following are the common contract types in the built environment area:
1. Lump Sum or Fixed Price Contract
In this contract, the contractor agrees to perform the agreed work for a fixed price. The contractor takes the risk of cost overruns.
| Advantages | Disadvantages |
|---|---|
| Set price gives certainty to the owner. | Any changes in the project scope can lead to disputes. |
2. Cost-Plus Contract
Here, the owner pays the contractor for all allowable construction costs plus a fee (either a fixed amount or percentage of costs).
| Advantages | Disadvantages |
|---|---|
| More flexibility for the owner on project changes. | Can lead to increased project costs. |
3. Time and Materials Contract
The owner pays on the basis of the contractor’s time at an hourly rate and the actual costs of the materials. This is generally used for small works or where work scope is unclear or highly variable.
| Advantages | Disadvantages |
|---|---|
| Flexibility when scope is undefined. | Owner bears significant financial risk. |
Risk Apportionment, Roles, and Responsibilities
Understanding risk apportionment among project participants is key. This partitioning is often defined in the contract. For example, in a Lump Sum contract, the contractor carries the risk of cost overrun. Conversely, in a Cost-Plus or Time and Materials contract, such risk is largely borne by the owner.
The roles and responsibilities for project delivery also vary with the delivery method and contract type. In a Design-Bid-Build contract, the owner has a higher degree of control and involvement in the design and construction process, while in a Design-Build contract, much of this control is handed over to the contractor, reducing the owner’s project management duties.
By understanding these varied delivery methods, contract structures, and risk apportionment aspects, built environment project managers can make strategic choices for their projects, leading to improved project outcomes and a higher chance of success. This understanding is also vital for passing the PMI-CP exam, making it an area that candidates should focus on.
Practice Test
True or False: A lump sum contract is a contract in which the total project cost is determined before the project starts.
- True
- False
Answer: True
Explanation: In a lump sum contract, the total project cost is agreed upon before the project begins.
Which of the following are common contract structures available for built environment projects?
- (A) Lump-Sum
- (B) Cost-Plus
- (C) Unit Price
- (D) Design-Build
Answer: A, B, C, D
Explanation: All named contracts are common structures available for built environment projects.
The Design-Bid-Build contract structure is commonly used in built environment projects because it reduces risk for the owner.
- (A) True
- (B) False
Answer: A
Explanation: In a Design-Bid-Build contract, the design and construction phases are usually separated, which helps the owner by reducing risk and enhancing control over the project.
In a Design-Build contract, who carries the most risk?
- (A) Owner
- (B) Contractor
- (C) Designer
- (D) Project Manager
Answer: B
Explanation: In a Design-Build contract structure, the contractor carries the most risk as they are responsible for both the design and construction of the project.
Cost Plus contracts are most beneficial when
- (A) The project is well defined
- (B) The project duration is short
- (C) The project is undefined or expected to change
- (D) The project budget is inflexible
Answer: C
Explanation: Cost Plus contracts are typically used when the scope of the work is uncertain or expected to change.
True or False: The principle of risk apportionment involves distributing the risk to those parties who are best able to manage them.
- True
- False
Answer: True
Explanation: Risk apportionment in contract structures involves distributing risks to the parties capable of managing them most efficiently.
When using a Unit Price contract, the total cost of the project is determined by:
- (A) The agreed price and the actual quantity of items
- (B) The agreed price and the estimated quantity of items
- (C) Fixed price regardless of quantity
- (D) The maximum available budget
Answer: A
Explanation: A unit price contract cost is determined by the agreed price multiplied by the actual quantity of unit items required for the project.
In Construction Management at Risk (CMAR) the construction manager acts in the owner’s interests through every stage of the project: design, construction, and post-construction.
- (A) True
- (B) False
Answer: A
Explanation: In a CMAR project, the Construction manager works as the representative of the owner, guiding them through all stages of the project.
Who is primarily responsible for drafting contracts in built environment projects?
- (A) Owner
- (B) Contractor
- (C) Developer
- (D) Lawyer
Answer: D
Explanation: Lawyers typically provide the expertise required to draft contracts, to ensure legal compliance and clear articulation of roles, responsibilities, and risk apportionment.
True or False: Project delivery methods affect the timing of the project.
- True
- False
Answer: True
Explanation: Different project delivery methods have different processes and timelines, therefore affecting the overall timing of a project.
Interview Questions
What are the major types of contract structures available for built environment projects?
The major types of contract structures for built environment projects include: Lump Sum or Fixed Price contracts, Cost Plus contracts, Unit Pricing contracts, and Time & Material contracts.
How is risk apportioned in a lump sum contract?
In a lump-sum contract, the risk is mainly borne by the contractor as he/she agrees to complete the work for a fixed price regardless of the actual costs incurred.
What is a unit pricing contract and how do its roles and responsibilities differ?
In a Unit Pricing contract, the owner pays the contractor a pre-determined amount per unit of work. Here, the contractor’s responsibility is to carry out the work within the estimated units while the owner can adjust the total payment based on actual units of work completed.
What are the pros and cons of using a cost-plus contract?
Pros of a cost-plus contract include flexibility for changing scope and no incentive for suboptimal material or work. However, the cons include the risk of overspending, lack of cost certainty, and less incentive for efficiency.
In terms of risk apportionment, how does Time & Material contract work?
In a Time & Material contract, the project owner takes on most of the risk. The owner agrees to pay the contractor on an hourly basis for labor and to reimburse for materials, with the understanding that actual costs could vary.
How can alternate delivery methods be used to mitigate risks in a construction project?
Alternative delivery methods like design-build, construction management at risk (CMAR), or integrated project delivery (IPD) mitigate risk by fostering more collaborative relationships, transparency in costs, early involvement of key team players, and shared risks and rewards.
What is the role and responsibility of the owner in a Design-Build contract?
In a Design-Build contract, the owner’s role is to provide detailed project specifications. The owner’s responsibility includes having a clear vision, making timely decisions, and coordinating with one entity (the design-build team).
How does a Construction Management at Risk (CMAR) contract apportion risk?
In a CMAR contract, the construction manager acts as a consultant during the design phase and assumes the risk of construction performance like the traditional general contractor during the construction phase.
What are the roles and responsibilities of a contractor in an Integrated Project Delivery (IPD) contract?
In an IPD contract, the contractor shares responsibility for project performance with the designer and the owner. The role of the contractor is to engage in the project from the design phase, offering expertise on constructability, cost, and schedule.
How does the project delivery method selected impact the roles and responsibilities of the project manager?
The project delivery method impacts the project manager’s responsibilities, including level of involvement in design, collaboration level with stakeholders, risk management, project control methods, and overall project coordination and communication.
How is risk apportioned in an Integrated Project Delivery (IPD) contract?
In an IPD contract, risk is apportioned among all parties (owner, designer, and contractor) depending on their contribution to the unfavorable outcome and the collaboration agreement signed at the beginning of the project.
What are the benefits of using a design-build contract in a built environment project?
Benefits of the design-build contract include faster project delivery, lower costs, improved quality, and less litigation. In a design-build contract, the owner collaborates directly with a single entity, which simplifies communication and accountability.
What are the potential disadvantages of using a time and material contract in a construction project?
Potential disadvantages include potential for escalating costs due to lack of cost ceiling, minimal incentive for contractor to work efficiently, and the owner’s financial risk if the project takes longer than anticipated.
What are the primary roles and responsibilities of a contractor in a Construction Management at Risk (CMAR) contract?
In a CMAR contract, the contractor is responsible for providing a Guaranteed Maximum Price (GMP) and has the responsibility to complete the project within the GMP. The contractor also participates during the design phase to aid in constructability review, cost estimating, and scheduling.
What is the difference between the roles of a project manager in a traditional design-bid-build contract compared to a design-build contract?
In a traditional design-bid-build contract, the project manager’s role typically revolves more around scheduling, budgeting, and coordination. In a design-build contract, the project manager generally has a more active role in the design phase and is responsible for integrating design and construction services for a streamlined approach.
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