Post on 26-May-2018
transcript
10/3/2016
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Gateway Connectors
Academy
The Essentials to Understanding Subcontracts
Welcome & Thank You
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Financing Design
Design Builder Maintenance
Welcome & Thank You
Gateway Connectors Steering Committee
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Gateway Connectors Academy
Mission: by sharing the fundamentals that make our firms successful, we can facilitate success in xBE organizations in the LA Area and build close, long-lasting relationships
Academy Sessions• Monthly (approximately) with Summer 2017
graduation/celebration
Outreach Events (planned)• October 2016
• January 2017
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LAX-APM Overview
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The Essentials of Understanding Subcontracts
10/3/2016
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Barriers of Entry
• What are typical CONTRACTUAL barriers of entry for
Subcontractors?
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Learning Objectives
• Understand why Subcontracts are important
• Understand how contracts protect both Prime and
Subcontractor from potential issues
• Understand the Prime and Subcontract models and risks associated
• Know how/when to negotiate clauses
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Our Disclaimer
WE ARE NOT LAWYERS AND THERE ARE NO LAWYERS
HERE TONIGHT.
WE ARE NOT HERE TO GIVE LEGAL ADVICE, NOR
REPLACE YOUR ATTORNEY.
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Subcontracts & Risk
Why are sub/material contracts important to us?
• 52% percent of corporate revenue 2015
Why do General Contractors/Prime Designers subcontract?
• Shed risk
• ?
• ?
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Subcontracts & Risk
Why are sub/material contracts important to us?
How do you manage risk?
• Ignore - do nothing and hope it goes away
• Price – contingency, escalation, etc.
• Mitigate – assign the resources to manage risk
• Negotiate – give and take to lower your risk
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Contract Type Overview
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Lump Sum
Unit Price
Time
& Materials
Hybrid
10/3/2016
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Lump Sum
Advantages
• Simplest to manage and invoice
• Highest margin (keep all upside
• Incentivized to build efficiently
Disadvantages
• High number of bidders
• Low price wins…
• Less influence to change the design
• More risk on the subcontractor
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Element of Lump Sum Contracts
Lump Sum Risk Matrix
Risk Prime Contractor Subcontractor
Weather X X
Labor Supply / Manpower X
Material Supply/Availability X
Differing Site Conditions X Notice
Escalation X
Availability of Specified Equip/Material X
Defective Design X Notice
Qty Over/Underruns X
Cost Overruns – over-run in contract $ X
3rd Party Delays/Approvals X Notice
Schedule delays – execution of the work X
Hazardous Materials X Notice
Project Performance Standards X Notice
Prime Contractor
Risk
Sub Contractor
Risk
Low
Risk
High
RiskLUMP SUM
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Unit Price Contracts • Unit Price contract establishes fixed prices for units of work.
• Fixed price is what is paid regardless of actual cost to perform the work
• Non-Construction Example: Buying can(s) of soup at the supermarket.
• Construction Example: cubic yard of concrete.
• Approximate quantities are calculated and used as basis for unit prices
• Actual quantities are measured, and the contractor is paid according to the contractor's quoted unit prices
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Unit Price Contracts
Advantages
• Flexible
• Easily quantifiable selection
• Final design not necessary
• Pre-defined scope items
• Schedule/Cash Flow
Disadvantages
• Fixed unit price
• Variable quantities
• Unknown final cost
• Quality
• Measurement/Tracking
• Unbalanced Bidding
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Element of Unit Price Contracts
Unit Price Risk Matrix
Risk Prime Contractor Subcontractor
Weather X
Labor Supply / Manpower X
Material Supply/Availability X
Differing Site Conditions X
Escalation X
Availability of Specified Equip/Mat'l X
Defective Design X
Qty Over/Underruns X
Cost Overruns – over-run in contract $ X X
3rd Party Delays/Approvals X
Schedule delays – execution of the work X
Hazardous Materials X
Project Performance Standards X
Prime Contractor
Risk
Sub Contractor
Risk
Low
Risk
High
RiskLUMP
SUM UNIT PRICE
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Time and Material (T&M)
Elements of T & M Contracts
Advantages
• Anything you spend you get paid for
• Very little risk to the Subcontractor
• Less management involved
Disadvantages
• Less risk = less margin
• Lots of contract administration
• Little ability to influence design
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10/3/2016
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Risk Prime Contractor Subcontractor
Weather X
Labor Supply / Manpower X
Material Supply/Availability X
Differing Site Conditions X
Escalation X
Availability of Specified Equip/Mat'l X
Defective Design X
Qty Over/Underruns X
Cost Overruns – over-run in contract $ X X
3rd Party Delays/Approvals X
Schedule delays – execution of the work X
Hazardous Materials X
Project Performance Standards X
Prime Contractor
Risk
Sub Contractor
Risk
Low
Risk
High
RiskLUMP
SUM UNIT
PRICE
T & M
T&M Risk Matrix
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Alternative Contract Types:
• CM/GC – typical for General contractors
• Performance Incentives – may be part of any contract type
• Target Price Contracts – professional services or designers
• Design-Build or Design Mgmt – involves
subs in design quality/quantity
Alternative Contract Models
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SUBCONTRACT TERMS BREAKOUT
• Top 10 most confusing/often misunderstood contract clauses
• Review the sample contracts
• Discuss your personal top 10 clauses within your group and be prepared for a group discussion
• Top 9 changes requested by Subcontractors –Subcontract General Provisions
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WRAP-UP AND EVALUATIONLearning objectives met?
• Understand why subcontracts are important
• Understand how contracts can protect
both Prime and Subcontractor from potential issues
• Understand the prime/subcontract
models we work with and the risks associated with each
• Have a more complete understanding
about how/when to negotiate contract clauses
Things to remember…
• Contracts protect both entities
• Pay attention to Additional
Provisions…if they are in the contract they must be important
• Which contract vehicle is appropriate for your work?
• Know the Prime’s risk and what they
might be willing to negotiate
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Thank You For Attending
Please fill out your evaluation sheet so that we know
how to improve.
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