The construction of various projects requires certain complex and difficult processes. Therefore, it is important to appropriate planning and scheduling of project activities as it will enable to avoid delays in construction and other challenges that are faced during the construction. For instance delay in any project for a day can cost millions of dollars. Thus, it is essential to adopt innovative methods for construction.
3.4.1 Cost – Plus- Time (A+B)
Cost- plus Time bidding can also be referred to as A + B bidding, which involves time along with certain costs that is associated with it. Contractors that offers low bid as compared to other items of the contract bid is selected and also the time needed for completing the critical portion of the project or for the completion of the entire project. The formula mentioned below is used under the A + B approach.
Lump Sum delivery methods enable the contractors to place a fixed amount of money at the beginning of the project and he will work with the budget until the project comes to an end. It is effective with simple and basic projects because the method has risks which the contractor faces it the project are big and underestimated.
In A+B A is the Sum bid of the items included in the contract and also determines the dollar amount that is required for performing the work mentioned under the contract. B is the total number of calendar days that will be needed for completing the project that is
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determine by the bidder which is then multiplied by the cost of user per day. State highway agencies use this method of bidding for encouraging and motivating the contractors by providing them contract incentives that will ensure to reduce the time of delivery for high priority and high volume roadways (Scanlon 2009). As compared to other methods cost- plus time can prove to be an effective approach that will assist in significantly decreasing the impact of high road user delays. This method has facilitated in reducing the costs to an acceptable level and simultaneously maintaining the quality. The aim of this approach is to motivate contractors for managing and organizing their work efficiently, which will assist in reducing the time of construction and also the inconvenience to the public.
Many of the researcher have argued that the inherent inaccuracy which the contractors use when specifying contract time in when they come up with bids making it to very ineffective. However, Timmerman (2009) disagreed with the statement and stated that A+B bidding can prove to be more effective, inexpensive than the I/D strategy because it enables the contractor to have better plans and schedules on the construction project and encourages competitive bidding in construction.
3.4.2 Incentive/Disincentive
It is common for contractors to ensure of providing certain incentive to the contractors for improving the performance that will facilitate in reducing the time of project completion along with delivering quality work and simultaneously ensuring to comply with the safety rules and regulations. Sukumaran et al (2006) indicated that construction agencies can adopt time-based I/D strategies in implementing the
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construction work because it ensures that the projects complete the work on time and there is a win-win situation on both parties and help the State Transportation Agencies to implement the projects successfully. The method enables the contractor to receive incentives if he completes the work early and it provides a penalty and sanctions which the contractor has to face when he or she completes the work after the deadline.
It is important for the contracting agencies to determine the monetary value of the time saved if the project is completed early and use that when coming up with the amount of Incentives to offer the contractors (Sillars and Riedl 2007). Incentive/disincentive form of contract strategy is developed for providing reward for improved and better performance or penalizing for not delivering better performance. Incentive/Disincentive strategy is one of the important and most appropriate strategies which can help the contractors to complete the work on time. The owner has the responsibility to ascertain the amount of Incentive/ Disincentive, which should then be negotiated with the contractors. The most common is the schedule incentive, which is offered by the owners to complete the project before time. Quality incentives are also provided for delivering quality.
Additionally, the owner or the state highway agencies may also provide safety if the contractor is able to comply with the safety rules and regulations. Furthermore, the state highway agencies can also provide other incentives such as providing incentives for innovations that is likely to result in cost saving for the owner. On the contrary, owners will penalize the contractor for depicting poor performance.
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3.4.3 Lump Sum
Another important contract strategy that has been developed with the aim to decrease the cost of design and administration is the Lump Sum contract. The contract is known as Lump Sum as the contractor is responsible for submitting a total and global price rather than bidding on individual terms. This type of contracting is most commonly used for simple and small projects, for instance contractors that are involved in projects with a well-defined scope or construction projects where the risk of different site condition is minimized.
The basics of the contract include that the supplier should provide the services that have been specified for a stipulated or fixed price. In this particular approach the agency (state highway agencies) assigns the entire risk to the contractor; therefore, the contractor is likely to ask for a greater mark-up to manage the unforeseen incidents. Lump Sum delivery methods enable the contractors to place a fixed amount of money at the beginning of the project and he will work with the budget until the project comes to an end. It is effective with simple and basic projects because the method has risks which the contractor faces it the project are big and underestimated.
The supplier who is involved in a lump sum agreement has the responsibility to execute the job properly along with its means and methods for completion of the work. It is a cost effective method, as it is developed by determining the labor costs, material costs and also to add a certain amount for covering the overhead of the contractor and profit margin. Each constructer uses a different approach for calculating the amount of overhead (Vella 2008). However, to choose the appropriate method will be based on the
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ability to assess risk and the expertise of the labor. The Lump sum contract proves to be beneficial for the contractor as they can have a greater control over the profit expectation. Although, the time required to award such contract is comparatively larger, but it will assist in reducing the change orders during construction.
3.4.4 Design/Build
According to Murdoch and Hughes, 2007 and Riley et al., 2005 Design and Build strategy is very important since it gives the contractor the liability of being in charge of all contractual remedies for the client since he is the one who designs and goes on with the work as a single point of responsibility. In this innovative/ alternate method the owner hires only one entity that has the responsibility of providing both design and construction services. The responsibility of arranging the finances lies with the owner (Vella 2008).
The effectiveness of the method can be assessed by the requirements of the method. It requires the owner to have a clearly defined scope of work for instance and existing prototype design. The owner is obliged to make a commitment related to the cost during the early phase of the design process. In addition to this, this method is more commonly used for a portion of the work. This innovative method provides the fastest schedule with least amount of owner claims and best control cost. However, it places a significant cost pressure on the agencies and is also likely to result in eroding the quality of value engineering (Vella 2008).
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3.4.5 No Excuse Bonus
“The No Excuse Bonus concept is intended to shorten the construction time that would normally be required to perform the work by providing the contractor with a substantial bonus to complete a project within a specified time frame regardless of any problems or unforeseen condition that might arise. An additional advantage of the use of this technique is that it serves as a tool to motivate efficient construction as it encourages the contractor to keep projects on schedule. Bonuses are intended to reward a contractor for early completion, thereby reducing disruption and inconvenience to the public”.(FDOT)