Which condition of contract will have bigger influence on the contractor's performance? a) Bonus/Incentive b) Penalty/Liquidated Damages or c) Both.Please share your experience. Saving Changes...
If the award of project is through the lowest bidder method, the bonus clause will practically be useless. In general, bonus clause might be effective when the scope of the work is unclear at the beginning of the project. But LD requirements of the contract documents will force the contractor at least to try to fulfill the project on time with required quality in lowest bidder method.
Frankly speaking I am really doubtful if there might be a win-win contract or negotiation.
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2 replies by Chandrashekhar Thatte and Rami Kaibni
Feb 03, 2017 5:23 PM
Rami Kaibni
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Unfortunately, I totally disagree with you Sungjoon.
Contracts with Cost Plus Incentive Fees are made for such cases and proved to work well if it is controlled well. Just to be clear, I am not referring to a defined bonus but to an incentive scheme where the contractor will save money through things like value engineering and in this case it will definitely be a win-win.
Feb 07, 2017 2:11 AM
Chandrashekhar Thatte
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Sungjoon,I tend to differ from your perception.In fact bonus clause will act as an incentive to endevour to complete the project within the agreed timelines.However,in case of project scope uncertainties; nothing can rescue a project from eventual delays resulting in EOT and prolongation costs. Inclusion of bonus clause will provide a reason and scope to realise a win-win situation.
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Feb 03, 2017 5:03 PM
Replying to Sungjoon Park
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If the award of project is through the lowest bidder method, the bonus clause will practically be useless. In general, bonus clause might be effective when the scope of the work is unclear at the beginning of the project. But LD requirements of the contract documents will force the contractor at least to try to fulfill the project on time with required quality in lowest bidder method.
Frankly speaking I am really doubtful if there might be a win-win contract or negotiation.
Unfortunately, I totally disagree with you Sungjoon.
Contracts with Cost Plus Incentive Fees are made for such cases and proved to work well if it is controlled well. Just to be clear, I am not referring to a defined bonus but to an incentive scheme where the contractor will save money through things like value engineering and in this case it will definitely be a win-win.
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1 reply by Sungjoon Park
Feb 03, 2017 5:34 PM
Sungjoon Park
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Hi Rami,
I agree with you on CPIF contracts if the works(scope) are unclear at the time of contract award. But practically in lowest bidder contract with limited time frame and well known scope of the works through highly competitive bidding as Chandrashekhar performs based on BOQs, bonus clause might not give the contractor motivation to complete the work on time with required quality.
In such a situation, a win-win contract and/or negotiation might not practically be possible whether both parties try to do so.
Unfortunately, I totally disagree with you Sungjoon.
Contracts with Cost Plus Incentive Fees are made for such cases and proved to work well if it is controlled well. Just to be clear, I am not referring to a defined bonus but to an incentive scheme where the contractor will save money through things like value engineering and in this case it will definitely be a win-win.
Hi Rami,
I agree with you on CPIF contracts if the works(scope) are unclear at the time of contract award. But practically in lowest bidder contract with limited time frame and well known scope of the works through highly competitive bidding as Chandrashekhar performs based on BOQs, bonus clause might not give the contractor motivation to complete the work on time with required quality.
In such a situation, a win-win contract and/or negotiation might not practically be possible whether both parties try to do so.
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1 reply by Rami Kaibni
Feb 03, 2017 5:41 PM
Rami Kaibni
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Hi Sungjoon,
Probably it won't work on BOQ contracts but it definitely works on CPIF and by the way, CPIF are not only used when scope is unclear. I currently have CPIF for one of the projects where scope was well defined in advance.
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Feb 03, 2017 5:34 PM
Replying to Sungjoon Park
...
Hi Rami,
I agree with you on CPIF contracts if the works(scope) are unclear at the time of contract award. But practically in lowest bidder contract with limited time frame and well known scope of the works through highly competitive bidding as Chandrashekhar performs based on BOQs, bonus clause might not give the contractor motivation to complete the work on time with required quality.
In such a situation, a win-win contract and/or negotiation might not practically be possible whether both parties try to do so.
Hi Sungjoon,
Probably it won't work on BOQ contracts but it definitely works on CPIF and by the way, CPIF are not only used when scope is unclear. I currently have CPIF for one of the projects where scope was well defined in advance.
Cheers,
RK
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1 reply by Sungjoon Park
Feb 03, 2017 5:50 PM
Sungjoon Park
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Hi Rami,
Thank you for your reply.
Yes, you're right. It doesn't mean that all CPIF contracts should be from unclear scope of the works at the beginning. But generally for the client, it might not be necessary to take risks with a CPIF contract if the scope of the works has been defined well.
Probably it won't work on BOQ contracts but it definitely works on CPIF and by the way, CPIF are not only used when scope is unclear. I currently have CPIF for one of the projects where scope was well defined in advance.
Cheers,
RK
Hi Rami,
Thank you for your reply.
Yes, you're right. It doesn't mean that all CPIF contracts should be from unclear scope of the works at the beginning. But generally for the client, it might not be necessary to take risks with a CPIF contract if the scope of the works has been defined well.
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1 reply by Rami Kaibni
Feb 03, 2017 6:53 PM
Rami Kaibni
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Hi Sungjoon,
At the same time, going with a fixed price contract is very restrictive as in construction there is always room for saving and when you insist on a FP then everyone will bump up their prices.
We are also following the Integrated Delivery Approach in our company (Check it out - AIA has done lots of research on it).
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Feb 03, 2017 5:50 PM
Replying to Sungjoon Park
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Hi Rami,
Thank you for your reply.
Yes, you're right. It doesn't mean that all CPIF contracts should be from unclear scope of the works at the beginning. But generally for the client, it might not be necessary to take risks with a CPIF contract if the scope of the works has been defined well.
Hi Sungjoon,
At the same time, going with a fixed price contract is very restrictive as in construction there is always room for saving and when you insist on a FP then everyone will bump up their prices.
We are also following the Integrated Delivery Approach in our company (Check it out - AIA has done lots of research on it).
I ever advocate for a win-win situation. But it will depends on the organization culture.
Quite true Sergio,the Organization culture is projected by the project team with whom the Construction Manager has to deal with day in and day out.There are bound to be clashes of views/opinions and disagreements on many trivial or major issues/concerns and an honest intention of collaborative effort from both the parties will only result in a win-win situation becoming a catalyst to realise project objective gainfully. Saving Changes...
J AppandarajuPM III| Al Ansari Trading Enterprise LLCOman
Condition of contract, in most of the gulf countries varies from FIDIC, it is mostly favoured to employer.
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1 reply by Chandrashekhar Thatte
Feb 04, 2017 2:26 AM
Chandrashekhar Thatte
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I agree,by and large,CC are biased in our region but that is a reality one has to accept and find the way out to strike a balance in managing the project risks and this is where the competency of the Project Manager is put to test.
Condition of contract, in most of the gulf countries varies from FIDIC, it is mostly favoured to employer.
I agree,by and large,CC are biased in our region but that is a reality one has to accept and find the way out to strike a balance in managing the project risks and this is where the competency of the Project Manager is put to test. Saving Changes...
Michael ZiyadehContracts Negotiator Sr. | Sikorsky, a Lockheed Martin CompanyBranford, Ct, United States
Depending on the contract type and type of project, you may be able propose an incrementally funded contract vehicle. The subsequent allotments may be contingent on performance. For example, 25% of contract value in funded up front with a review of performance in time. If project milestones are acceptable to the buyer then the next allotment of funding is made and so on. Saving Changes...
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