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CONSTRUCTION CLAIMS | FIXED-PRICE CONTRACTS

This series of articles on construction claims provides suggestions, from a general contractor’s perspective, on some of the ways to avoid financial losses, claims and disputes in fixed-price construction project contracts. These suggestions reflect mistakes made by contractors on several hundred construction projects we have worked on over the past 40 years.

Complimentary articles on fixed price contracts can be fond at:

BID STAFFING

BID PREPARATION

SUBCONTRACTING APPROACHES

CONSTRUCTION CLAIMS | FIXED-PRICE CONTRACTS

CONSTRUCTION BID COMPETITION

Fixed-price or lump-sum construction contracts are often competitively bid and most awards are based solely on price, as long as the contractor meets certain pre-qualification criteria. The contractor’s challenge is to submit a bid price that covers the work involved and provides a reasonable profit, while still bidding lower than his competitors. To do this, the contractor should systematically plan its bid preparation so that:

1. The bid is considered responsive by the client,
2. No significant requirements are overlooked,
3. Any necessary qualifications or exceptions are documented and accurate data is assembled for pricing.

Included in this planning should be a detailed evaluation of work means, methods and sequencing to provide the desired product in the most economical manner.

Unfortunately, various factors can cause a construction contractor to adopt cost-cutting strategies, both in pre-planning and in execution, with the philosophy often being that project management personnel will have the necessary experience and ability to overcome the aggressive bid pricing and “pull it off.” All too often, this risky strategy backfires in the form of cost/schedule overruns, lower quality work, lost owner confidence and disputes.  

CONSTRUCTION DISPUTE CASE STUDY | BID COMPETITION

The arbiter’s ruling in a recent construction dispute case, wherein Holloway testified as an expert on behalf of the owner, provides insight into how and when not to try to pull it off. After first underbidding the cost of the job by $600,000 and the duration of the job by two months, the contractor’s management decided to fire three superintendents and blame all problems on the owner, architect, and its subcontractors. After experiencing a cost overrun of $800,000 and filing a demand for arbitration against the owner, the arbiter denied all the contractor’s claims and ruled that the contractor must pay the owner an additional $300,000. Such a contractor might be better off trying to “pull it off” at the gaming tables in Vegas.

READ MORE ABOUT AVOIDING CLAIMS IN FIXED-PRICE | LUMP-SUM | CONSTRUCTION

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The Holloway Consulting Group, LLC
Construction Advisers, Managers, Consultants and Experts
12081 W. Alameda Pkwy., #450
Lakewood, CO 80228-2701
Denver Phone: (303) 984-1941
International : (888) 545-0666
Fax: (303) 716-0432

Email: steve.holloway@disputesinconstruction.com
Blog: disputesinconstruction.com
Web: hcgexperts.com

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See Related Selected Pages at our site disputesinconstruction.com (2-12-12)

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