MayJune 2013

THEJOURNALOFAACEINTERNATIONALTHEAUTHORITYFORTOTALCOSTMANAGEMENT
COST
TM
May/June 2013
ENGINEERING
AN EFFECTIVE AND ETHICAL APPROACH TO THE
GENERAL CONTRACTOR BID PROCESS

OWNERS: WHAT TO LOOK FOR IN A
CONTRACTORS PROJECT
CONTROL CAPABILITY
FIELD PROJECT CONTROL ROLES IN
MANAGING DIFFERENT CONTRACTS

(OWNERS APPROACH)
PRICING PROJECTS IN A
CONTINUING HYPER
COMPETITIVE MARKET
www.aacei.org
CONTENTS
COST ENGINEERING
TECHNICALARTICLES
5Pricing Projects in a
Continuing Hyper Competitive Market
Michael D. DellIsola, PE
16An Effective and Ethical Approach to the

General Contractor Bid Process
Chris Carson, PSP
25Owners: What to Look for in a

Contractors Project Control Capability
Stephen L. Cabano and Paul G. Williams
32Field Project Control Roles In

Managing Different Contracts
(Owners Approach)
Mohamed Abdel-Mageed
ALSOFEATURED
2AACE International Board of Directors41Professional Services Directory
41Index to Advertisers
2Cost Engineering Journal Information
15AACE Internationals Source Magazine44Calendar of Events
40New AchiveLinks Program
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TECHNICALARTICLE
Pricing Projects in a
Continuing Hyper
Competitive Market
Abstract: The construction marketplace in the US experienced dramatic changes

from 2002 through 2011. From 2002 to 2006, overall construction spending increased by 35%, an average of almost 7% per year. After the peak year of 2006,
spending then decreased by 35% through the end of 2011. The period of 2002
2011 has recorded the most significant upward and then downward change to
have occurred in the last 40 years. As a result of the dramatic reduction in construction volume, exceptional competition has dropped bid prices 10%, 20% to
even 40%. Construction volume remains constrained and bid prices remain very
low. This article expands on one presented in 2011 at the AACE Annual Meeting
that addressed how construction volume affects competition, how competition
affects price, how to react to very low bids/prices and how to properly enhance
competition. This article further explores reasons why construction volume expands and contracts, presents an analysis of the latest data and pricing (2012)
and offers projections on the construction marketplace to budget projects for the
future. This article was presented at the 2012 AACE International Annual Meeting
in San Antonio as EST.912.
Key Words: Bid prices, budget, competition,construction, and spending
he construction marketplace in
the US experienced dramatic
changes from 2002 through the
beginning of 2012. From 2002
to a peak in 2006, overall construction
spending increased by 35% or an average
of almost 7% per year. After the peak year
of 2006, spending then decreased by
almost 30% through the end of 2010.
The period of 2002 2010 recorded
the most significant upward and then
downward change to have occurred in
the last 40 years. As a result of the
dramatic drop in construction volume,
exceptional competition has dropped bid
prices 10%, 20% to even 40%. The

recovery of construction spending
through the end of 2011 has been
modest and bidding remains aggressive in
most areas.
Predicting the cost of projects is
always a challenge for owners and
estimators, but when the marketplace is
volatile, this challenge becomes even
more daunting. This article addresses
how to price projects in the continuing
hyper-competitive marketplace by
addressing underlying issues. These
issues include:
How construction volume affects

competition.
How competition affects price.
What are the reasons why
construction volume expands and
contracts.
How to react to very low bids/prices.
How
to
properly
enhance
competition. And,
How to budget projects for the
future.
Economics and Price

A basic law of economics is supply
and demand. As demand for any
product increases, the price for the
product goes up; and if the demand
drops, the price likewise drops. When
supply and demand are in reasonable
balance, modest price adjustments are
sufficient to keep the system smooth.
However, when demand becomes
extremely strong, prices will soar
potentially to the point of price gouging.
Or, if demand drops far enough, products
may be sold below their actual cost of
production just to keep them moving,
as with automotive industry rebates and
incentives. In some instances, supply is
kept artificially low in order to keep prices
high, as with crude oil.
Construction, as a commodity,
generally follows supply and demand
except that the product of
construction, namely a constructed

project, tends to be one of a kind
instead of off the shelf. Projects are
procured through a multi-step process
that includes design and construction
with only the simplest of modular
projects being an exception.
There is no real opportunity to
build inventory in the construction
industry. Supply and demand are
difficult to gauge, predict, and control.
Interest in any project is usually judged
by how many bidders, or in the newer
lexicon, offerors are competing for the
project.
Increased use of design-build,
construction manager at-risk and buildoperate-transfer are presenting new and
different challenges, especially when
negotiation is a prime means of
procurement.
Theoretical Relationships
In his book, Games, Strategies, and
Managers - How Managers Can Use
Game Theory to Make Better Business
Decisions, John McMillan discusses
how competition can affect price,
especially in the context of an auction.
Bidders calculate a price that includes
their direct costs, as well as overhead
and profit. A reasonably complete
assessment of cost would be the
bidders valuation, or the minimum
price that includes costs and a
reasonable profit.
In an auction a bidder wants to
submit the minimum price that can win.
McMillan points out that a bidder should
shade or cushion their bid, by
bidding (N-1)/ N times their valuation,
where N is the total number of bidders
expected. This relationship is shown as
follows:
As the numbers of bidders rise, in
order to be competitive an individuals
bid will tend to approach their valuation.
Conversely, if the number of bidders is
limited, the shade could be 50% for
two bidders. A single bid yields an
unknown result.
Construction bidding is the inverse
of an auction in the sense that the
bidder wants to achieve the maximum
price that can still win. Put in
construction terms, the larger the
number of bidders, the more likely that
the low bidder(s) will drop significantly
Figure 1 Relationship of Bidders in an Auction

below the true valuation for the
project.
Construction Spending and the Cost of
Projects
Historically, construction bid prices
have tended to follow increases, leveling
and decreases in construction volume.
Strong demand tends to increase price
while weak demand tends to drop price.
Extremely strong demand will raise the
price to the point that supply will
eventually increase, moderating the
price. If demand ebbs, the price will
continue to drop to the point where, if
demand becomes too weak to sustain a
reasonable supply, supply will be
eliminated and the price also moderates.
This effect can be even more
significant within industry sectors.
Residential spending in 2006 abruptly
dropped by almost 70% in a three year
period and still has only very modestly
recovered going into 2012. The
residential construction industry has
been decimated with virtually no
demand.
Conversely, the non-residential
sector held strong through most of 2008
only to eventually succumb to the

effects of a deep recession and drop
over 15% in 2009 and an additional 6%
in 2010. From that point spending
increased a modest 2.5% during 2011.
Figure 2 plots annual construction
spending from 1977 through the end of
2011 and displays that the period of
2002 2010 recorded by far the most
significant upward and then downward
change to have occurred in the last 40
years.
When supply and demand factors
are in reasonable balance, bid prices
tend to be predictable and yearly
increases will track inflation in labor and
material costs. This balance can be
defined as "Fair value."
For most of the late 1990s through
the mid 2000s, prices were reasonably
consistent and predictable. Most owners
could plan and program their projects
with adequate funds to meet eventual
bids and/or negotiated prices. However,
starting in 2005 and continuing through
2008, because of the continued
increases in non-residential spending,
bid prices rose much more rapidly than
basic inflation. This was compounded by
Figure 2 Construction Spending 1977-2011

overseas demand for raw materials that
also created spot" shortages, such as
with steel. Many owners found prices
exceeding their budgets by 10, 20, or
even 40%in spite of considerable
contingencies.
Since 2008, non-residential demand
has dropped dramatically and bid prices
have also dropped to the point where
most owners can comfortably fund their
projects, including most of their wish
lists. The downward swing has been as
much as 40% when compared to peak
years of 2006, 2007, and 2008. This is a
dramatic change that continued through
2011 in most locations.
Labor costs increase with time and
material costs will tend to swing up and
down to a certain degree. However, the
question arises as to why do
construction costs (measured by bid
prices) vary so much more than what
labor and material costs would indicate?
The answer to the question is
competition.
Competition
affects
prime
contractors and subcontractors, so even
if the procurement method does not
involve direct bidding to a prime
contractor, subcontractor pricing is

affected in a predictable manner.
Noting that the marketplace of 2004
2008 resulted in constrained
competitioncommonly less than three
bidderspremiums were 10% to
occasionally over 40%. By comparison, in
todays marketplace competition for
projects remains extreme, with often 6
8 prime bidders and even larger numbers
among subcontractors competing.
Breakdown of Construction Costs
Costs can be subdivided into direct
costs and indirect costs. Direct costs
are the costs of procuring and installing
material. While these costs usually
encompass the majority of a projects
cost, they tend to be relatively consistent
between bidders.
In other words, bidders tend to draw
from similar suppliers and labor pools
and on most projects these costs will be
very close, barring the occasional
circumstance where a particular bidder
(usually a subcontractor) has some
edge on competitors through access or
inventory.
The indirect cost side of the

equation is much different in that
bidders (prime contractors and
subcontractors) can allocate overhead
costs and define profit-related mark ups.
Figure 3 displays the relationship
between indirect and direct costs.
How Does Competition Affect Indirect
Costs?
In any bidders response much of
their cost is defined and settled. Either
they have direct control over their own
costs, or indirect control through a
subcontractors quote. However, a good
deal of their indirect cost is variable.
There are several major factors that
affect a bidders variable indirect cost,
including:
Risk PremiumHow much should

be added to compensate for risks
that
cannot
otherwise
be
controlled. The premium can be
mitigated by extensive analysis,
addition of qualifiers and provisions,
more in-depth estimating, transfer
of risk to lower tier subcontractors
COST ENGINEERING MAY/JUNE 2013
Figure 3 Breakdown of Construction Costs
and more in depth general

conditions staffing.
Purchasing Aggressiveness
Aggressive
purchasing
of
subcontractors and suppliers will
allow a prime to reduce a bid.
Certain contractors will always
command better pricing than
competitors regardless of market.
Also, how aggressively overhead
costs are allocated to projects can
affect bids, sometimes dramatically.
For example, earthwork contractors
are heavily equipment intensive and
can adjust their bids significantly
depending on how equipment
overheads are calculated.
Indirect Overhead CostsIndirect
overhead costs affect a contractors
cost of doing business and include
internal staff, marketing and
business development, insurances
and bonding capacity. A contractors
track record with previous projects
is an important discriminator.
Te c h n o l o g i c a l / I n fo r m a t i o n a l
AdvantageAdvantage
over
competitors can be gained by
superior construction methodology

and more effective management
strategies. High competition can
create incentives for creative
solutions.
Conversely,stringent/literal
interpretation of documents and
scope of work can limit a bid,
potentially provide an advantage
and may create future change order
opportunities that can be priced at a
premium. This is one reason why
document quality is so important.
Opportunity CostWhat are the
implications of winning a bid or of
not winning a bid? Most contractors
view backlog and the prospects of
future backlog as critical for long
term success.
Private sector developers and
real
estate
organizations
traditionally have used the prospect
of future work as leverage during
negotiations with contractors and
consultants. The basic need to
maintain backlog can also motivate
a contractor to bid low to be
successful. This is because the cost
of losing is more dramatic than

taking work at low/no return and
making due. The investment
required to prepare a bid also
figures significantly into the process,
because a bidder may have other
opportunities that do not require as
much investment. And,
Profit MarginConsidering all the
above issues, profit margin remains
a significant decision for the prime
contractor and for all subs and
suppliers. Its not uncommon for a
contractor to calculate a bid with
great accuracy only to adjust it
upward or downward at the last
minute. How much is the work
worth?
Each of these categories can affect a

bid by 5-10% and collectively, the total
combined effect, can exceed 30%.
Competition or the lack of competition is
a major factor in how these issues are
assessed, how the final bid is prepared
and why bids can vary so dramatically
depending on competition.
Figure 4 Competition and Bidding

Tracking Competition and Bidding
Several studies have been
conducted over the years to assess the
impact of the number of bidders on the
bid price. Possibly the most extensive
study was done in conjunction with the
development of area cost factors for the
US Army Corps of Engineers in the
1980s. The study examined a large
number of projects (in excess of 800)
and correlated the low bid with the final
government estimate and with the total
number of bidders. At the time of the
study, the expected norm for the
number of bidders was seven, so the
zero datum point was set at seven.
The result of the study included, for
example, four bids that resulted in a low
bid that was 7% higher than low bids
received from seven bidders, ten bidders
5% lower and two bidders 15% higher.
Todays expectations for the number of
bidders are more modest, probably
closer to five.
In
an
environment
where
anticipated bidders are less than seven,
figure 4 can still be used. For example, if
two bids instead of five bids were
received, the result would be about 11%

higher than expectations (1.15/1.04).
It is interesting to note the
similarities between the Corps of
Engineers chart in figure 4,and that of
McMillan as shown in figure 1. The two
charts/figures are a close inverse of each
other, as would be anticipated.
Other studies have assessed the
premium associated with reduced
competition. One study titled, Timing
and Bundling Projects to Offset the
Limitation on the Number of Bidders
Created by Contractor Prequalification
Criteria on Public Works, prepared by
Sheng Li and Peter Philips of the
Department of Economics/University of
Utah in 2000, assessed the effects of
reduced competition on publicly bid
projects. They concluded, among other
issues, that reduced competition
increased the gap between bidders and
ultimately added a premium to projects.
The gap grew to over 15% with only
three bidders.
Martin Skitmore has prepared a
number of papers over the years
addressing competition and bidding
including, Factors Affecting Accuracy of

Engineers Estimates from 1988. He
concurred that the number of bidders
affects the bid price and concluded
there is a non-linear relationship
between the numbers of bidders and
the resulting price offered.
The state of South Carolina
commissioned,
A
Review
of
Competition for the Department of
Transportations Road Paving Contracts
in 2001, and concluded that, Improved
competition could result in lower costs
for road construction projects. The
study states, We compared SCDOTs
project cost estimates to the low bids for
projects where there was a single bidder
and those for projects with multiple
bidders. We found that the average of
the low bids on single bid projects was
5% above SCDOTs cost estimate, while
the average of the low bids for projects
which had multiple bidders was 4%
below the cost estimate.
Recent work conducted by Glenn
Butts, of NASA, as presented in figure 5,
concluded similar results to the Area
Cost Factors study as shown in figure 4.
Collectively, the results support the

obvious conclusion more competition,
lower prices less competition, higher
prices.
What Drives Construction Volume?
Construction
serves
many
marketplacesindustrial, commercial,
institutional,
housing,
etc.,and
responds to the needs of those
marketplaces. As economic activity
increases there is a corresponding (and
somewhat lagging) demand for
construction.
The
need
for
manufacturing a new product requires a
new or modified plant. Increased
demand for healthcare creates the need
for more hospitals, clinics, and
infrastructure.
So, construction volume is a direct
function of economic activity. If
economic activity expands, then
construction demand increases and
volume goes up. Conversely, if economic
activity is weak, then construction
activity will constrict.
Gross domestic product (GDP) is the
most basic measure of economic activity.
So, the basic logic is essentially:
GDP drives construction spending.

Construction spending drives
competition.
Figure 5 NASA Chart for Bidding Impact
When GDP is robust, spending

increaseswhen GDP is weak,
spending drops. And,
When spending increases, prices
rise. When spending drops, prices
drop.
Figure 6 presents the relationship

between GDP and construction
spending,in
this
case,
only
nonresidential construction is tracked.
Note that in periods of sustained

positive GDP, construction spending
increased significantly and when GDP
dropped below 1.5%, or went negative,
there was a rapid and significant drop in
spending.
Also, note that high inflation in the
late 1970s and early 1980s distorted
construction spending growth. The
terrorist attack of Sept. 11, 2001,
resulted in a dramatic, but temporary,
Figure 6 Nonresidential Spending and Annual in Gross Domestic Product (GDP)
10
Figure 7 Regional and State GDP

drop in spending. As discussed
previously, the period between 2002 and
2010, represented an extreme set of
swings.
Regional Variations
The Department of Commerce
started reporting on regional GDP in
2004, and nearly all areas of the country
experienced solid growth from 2004
2007. As with national GDP, there is also
a direct correlation between the regional
economy and the money invested in
regional construction. In 2008 and 2009,
the recession impacted nearly all areas
with some states experiencing drops in
regional GDP of over 6%.
The most recent data (2009 2010)
is shown in figure 7, where most areas of
the country are experiencing at least
modest GDP growth as differentiated
from 2008 - 2009. A few states,
especially those benefitting from new
energy sources, are experiencing
reasonably solid growth over 3%.
The point is that care must be taken
to understand local and regional
differences from US national trends.
Longterm Issues to Consider

The current condition of the US
economy with relatively static spending
on construction can be expected to
continue for at least a year, and possibly
longer. So, competition in construction
will likely keep bid prices low for that
time period. However, there are a
number of major issues that will have a
longer term impact:
Gross Domestic Product (GDP)

Even if there is a substantial
increase in GDP, construction
spending is a lagging indicator that
tends to follow GDP increases by at
least a year. This will tend to keep
prices low even after a GDP
increase.
Government
Spending
Government stimulus spending is
all but complete, but grants of
various sorts can have a profound
effect on localized activity and
therefore pricing.
Inflation and DebtThe increasing
US federal debt has the capacity to
lead to general economy inflation of
over 5%, and perhaps even higher.
General inflation would spill over to
construction labor and material
costs, raise prices, and also increase

the cost of capital to fund
construction. This will tend to
increase cost.
Supply
ConstrictionMany
contractors, subcontractors, and
suppliers are barely managing cash
flow. With recent bids offering
modest, if any profit,a large
number may fail in the coming
years. This reduces competition and
will eventually increase costs.
Overseas
CompetitionThe
economies of China and India, in
particular, are still booming and will
continue to compete for natural
resources, contracting capacity and
investment of capital. The net effect
tends to raise prices.
Alternate Delivery MethodsThe
move to negotiated contracts,
design-build, and integrated project
delivery (IPD), all present significant
advantages to ownersbut have
the collateral effect of potentially
reducing competition. Care must be
taken to assure a fair price is paid.
Projects under design with

anticipated bidding within a year will
almost certainly benefit from a
11
Figure 8 Philadelphia Fed Projection of GDP, Unemployed and Payrolls
competitive marketplace. Projects in

planning or early design, where the
prospective bid date is more than one
year in the future will still benefit, but
the risk of increasing cost are definitely
worth considering. Projects with very
long durationsover three yearswill
present risks to the bidders that are hard
to quantify and may be worthy of special
consideration.
Projections
Predicting the future cost of projects
is a risky business with many variables.
However, the most important first step is
predicting the economy.
A number of sources are available,
but one source with a very good track
record is, The Federal Reserve Bank of
Philadelphia. It, helps formulate and
implement monetary policy, supervises
banks and bank holding companies, and
provides financial services to depository
institutions
and
the
federal
government. It is also, one of the 12
regional Reserve Banks that, together
with the Board of Governors in
Washington, D.C., make up the Federal
Reserve System, the Philadelphia Federal
Reserve
Bank
serves
eastern
12
Pennsylvania, southern New Jersey, and

Delaware.
In their Fourth Quarter 2011
Survey of Professional Forecasters, from
November 2011 (the most recent data
available) the following predictions were
provided. It is interesting to note that
the most current projections call for
more modest growth than was predicted
earlier in 2011. Moderate growth is
predicted for 2012 1nd 2013 of around
2.5%. Significant growth (over 3%) is not
predicted until 2014.
There is a certain amount of risk
with the GDP projections. Since the start
of the recession, predictions have
tended to be somewhat higher than
actual GDP, not only for the Federal
Reserve, but for others in the finance
arena. This is especially significant
because steady growth beyond a
threshold of 2.5% has historically been
critical to creating increased demand for
construction.
Bidding Factors and Budgeting Projects
Based on the history of construction
spending and the application of
historical bidding trends, it is possible to
develop a bidding factor that essentially
replicates the effects of the bid factors
from the Corps of Engineers study, and

other work on the subject presented
previously. Bid factors are summarized
as follows:
Bid Factor = 0When economic

growth and construction spending
are all in reasonable balance. This
means an estimate based on
material, labor, and reasonable
indirect costs, (a fair value
estimate), will also reasonably
predict bids.
Bid Factor > 0This would indicate
that demand for construction is in
excess of supply, and competition
would be limited. The bid factor
percentage would need to be added
to the fair value estimate as a
premium to predict the bids. The
more dramatic the excess, the more
significant the bid factor.
Bid Factor < 0This would indicate
that demand for construction is
below supply, and competition
would be enhanced. The bid factor
percentage would need to be
deducted from the fair value
estimate as a discount to predict the
bids. The more dramatic the
Figure 9 Annual Nonresidential Spending Versus Bedding Factor 1977-2014

downturn, the more negative the
bid factor.
Figure 9 presents historical bidding
factors for nonresidential spending along
with a projection into the future using
the Philadelphia Feds information for
GDP growth. Note that construction
spending turned slightly positive in 2011,
and is expected to continue with limited
growth in 2012. The bidding factor
should remain very competitive for
2012, and will likely move into the
positive range by 2013. If GDP growth
intensifies as predicted in 2014,
competition will likewise tighten.
As with all predictions, there are
risks, but the projections are consistent
with past circumstances.
Since the bid factor projects a
current condition, care must be taken for
future bidding relative to the likely
market at that time. Also, basic
underlying inflation/escalation must also
be accounted for in an estimate.
Regardless, the bid factor approach
presents a methodology to address

market-based fluctuations.
It is also worth noting that bids
received on projects in 2006 and 2007,
would actually be reduced by around
35%, compared to bids received in 2009
and 2010. Current bids in most locations
remain extremely competitive. A few
examples of non-competitive versus
competitive bid are presented in figure
10.
Managing Competition and Dealing
With Low Bids
Owners are aware of the market to a
greater or lesser degree.
They
understand that prices are down and as
a result, their expectations may be
growing, and good markets cannot
always overcome an increased appetite.
Owners also need to understand,
that to some degree, they control
competition directly and indirectly
through the perception of their project
by the marketplace. The contracts that
are used, provisions for local and
disadvantaged business, paperwork
requirements, payment history, bonding
and insurance requirements, liquidated

damages, schedule, access to the site,
security limitations, environmental
limitations, and complicated general
requirements, all contribute to the
marketplaces response. In spite of a
highly motivated market, care should
always be exercised on any and all of
these provisions.
In this market, owners are likely to
receive bids below their budgetseven
considering the application of bid
factors. There is risk with accepting very
low bids. That said, what are some steps
that can be taken?
o
o
o
o
Essential first step, always advise

owner before bid.
Should be anticipated and planned
for. And,
Surpriseseven good surprises
can be problematic.
Examine bids in as much detail as
possible.
Number of primes is significant.
Butnumber of subs per trade may
be more significant. And,
13
Figure 10 Project Examples Comparing Non-Competitive and Competitive Bids

o
Talk with second bidder if rules

allow to get a better idea of
circumstances.
Accepting a very low bid

Review owner general requirements
carefully.
Obtain backup information, but be
careful with complicated bid forms.
Have sensible add options that can
be exercised.
Negotiation (if allowed) may yield
excellent collective results.
Be
extremely
careful
with
subcontractors and suppliers. And,
Obtain reasonable bonding and
insurances.
o
o
o
o
o
documents must be clear and represent

the full scope of the work, even if they
are for preliminary purposes and not
100% complete. If the documents are
not clear and complete, then the low
bidder will likely be the one who
excludes the most, or who makes the
most limiting assumptions. This makes
evaluation of pricing problematic. Good
documents are an important component
of any procurement process, regardless
of the specific delivery method.
Conclusions
The relationship between economic
activity, construction spending and
pricing is clear:
challenges that will likely continue for

the foreseeable future. Intelligently
factoring market conditions into
estimating and projections of bidding is
an important step in overall project
delivery.
REFERENCES
1.
2.
3.
4.
o
o
How to spend the discount?

Allocate up to 60% to add options
and/or upgrades.
Keep the balance in reserve for
contractor changesthey will come.
And,
Nobody benefits if the bonding
companies finish your project.
This process assumes one very

important conditionthe bidding
14
GDP drives construction spending.

Construction spending drives
competition.
When GDP is robust, spending
increaseswhen GDP is weak,
spending drops. And,
When spending increases, prices
rise. When spending drops, prices
drop.
The dramatic ups and downs of the

past years presented a number of
5.
6.
7.
Architects Essentials of Cost

Management, Michael D. Dell'Isola,
John Wiley and Sons, 2002.
The Whole Building Design Guide,
National Institute of Sciences,
http://www.wbdg.org/
U.S. Department of Labor - Bureau
of Labor Statistics,
http://www.bls.gov/home.htm
US Census Bureau Construction
Spending,
www.census.gov/const/www/c30
index.html#
The Federal Reserve Bank of
Philadelphia.
http://www.philadelphiafed.org/
index.cfm
U.S. Department of Commerce Bureau of Economic Analysis,
http://www.bea.gov/index.htm.
Games, Strategies, and Managers How Managers Can Use Game
8.
9.
Theory to Make Better Business

Decisions, John McMillan, 1996.
Timing and Bundling Projects to
Offset the Limitation on the
Number of Bidders Created by
Contractor Prequalification Criteria
on Public Works, Sheng Li and
Peter Philips of the Department of
Economics, University of Utah,
2000.
A Review of Competition for the
Department of Transportations
Road Paving Contracts, State of

South Carolina, 2001.
10. Factors Affecting Accuracy of
Engineers Estimates, Martin
Skitmore, Cost Engineering, Vol
30/No. 10, October 1988.
11. Construction of Facilities and
Ground Support Equipment Cost
Assessment, Glenn Butts, NASA
KSC, 2011.
ABOUT THE AUTHOR
Michael D Dell'Isola,
PE, is a Senior Vice
President with
Faithful+Gould.
He can be contacted by
sending e-mail to:
michael.dellisola@fgould.com
AACE Internaionals
online magazine, the
Source, is available for
online viewing
Designed as an associaion e-magazine, the bi-monthly is available to anyone by logging onto the AACE website at www.aacei.org/resources/. The April 2013 issue features
your guide to the 2013 Annual Meeing in Washington DC, June 30 through July 3, 2013.
Read the Source at: www.aacei.org/resources/
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15
TECHNICALARTICLE
An Effective and Ethical Approach to the
General Contractor
Bid Process
Chris Carson, PSP
Abstract: Stipulated sum open market bidding for design-bid-build is still a popular
way to handle project delivery. In this highly competitive market, the primary
qualification is financial, proven by the ability to post a bid bond, and once that
hurdle is met, the contractor is selected by the apparent low bid. In the authors
25 years of experience in various roles in estimating, from materials surveyor to
bid captain, he developed a process that could be implemented on all bids, and
would allow for the best possible low bid, while still working with a solid base of
subcontractors. The process allows for quick resolution of subcontractor selections, achieving this goal at bid time, and allowing the project planning to start
immediately after NTP, without an extensive process of buy-out. This process covers the entire bidding portion of the procurement, from initial choice of projects,
to bid, to scope of work evaluations. At the same time, this eliminates the need
to engage in the risky and potentially unethical bid shopping negotiations with
subcontractors. This article was presented at the 2012 AACE International Annual
Meeting in San Antonio, as EST.1013.
Key Words: Estimating, design, bid, build, open market bidding, procurement,
project delivery, scope, and subcontractors
This means that if a general

contractor is to be successful in this
world, the GC cannot work only with his
or her preferred team. He or she has to
consider all bids in order to be
competitive.
Needs
The short term needs for this bid
process include a transparent process
that is designed to promote the
following:
he general contractor (GC) bid

market is a difficult and
challenging venue, which
requires careful judgment,
technical expertise, and, unfortunately a
bit of luck. In designing a process to make
the bid process more efficient and
profitable, a quick review of the general
problems with open market bidding is
useful.
Open market bidding, as outlined
within this article, involves design-bidbuild commercial and industrial
construction projects that also include
stipulated sum contracting.
16
Traditionally, there are multiple

issues with open market bidding. Since
the owner is choosing a contractor based
on the apparent low bid, even if there
was some type of technical qualification
process, the only way to win the award is
with the low bid.
The low bid market generally cannot
disqualify contractors or subcontractors
from bidding a project, unless the
contractor is not financially capable of
handling the work. But the owner rarely
stipulates that the subcontractors must
show financial capabilities, and it falls
back on the general contractor to make
these determinations.
getting the most legitimate bids in all

trades;
choosing the right bid for each trade;
and,
ensuring that the bids include full
scope of work.
Each of the above needs to be

accomplished without slipping into bid
shopping. Bid shopping is the process
where a general contractor receives bids
from subcontractors on bid day, but then
continues to both accept more bids and
discusses the low bids with multiple
bidders in an effort to negotiate
subcontractors against each other.
This negotiation often includes
starting with the apparent low bidder and
then releasing that bid to the other trade
bidders. This is done so the others have
an opportunity to undercut the low
bidder on bid day. This bid shopping is

unethical, unfair, and promotes
unhealthy company practices.
The author resigned from a
contractor years ago when the other
senior management at that firm refused
to halt the process of bid shopping. On
top of the unethical practice, eventually
the subcontractor community recognizes
which GCs are bid shoppers and many of
the better subcontractors refuse to
provide bid quotes to that GC. However,
the open bid market is so competitive
that a number of subcontractors will
willingly engage in the shopping, as long
as they get an opportunity to win a job
that way.
The long term goal is to have a
robust enough bid process handled
ethically, so that the process promotes a
reasonable and qualified low bid. As one
of the authors first mentors explained,
the contractor should provide a bid that
represents the lowest price for which he
or she would be willing to take on the
project and perform the work.
The mentor had the attitude that if
the owner asked for a reduction of one
dollar in the bid price, the contractor
would walk away from the project,
rather than reduce the price. This is
certainly a bit extreme, but the point is
well taken. The bid should represent a
judgment call that the costs in the bid
represent accurate costs and the
markups are reasonable and acceptable
to the contractor.
PROCESS DESCRIPTION
Qualifying the Project to Bid
Before the bid process can start, it is
important to identify attractive projects
that will fit the general contractors
workload needs, will match his or her
abilities, will offer trade work for which
the GC can be competitive and make
money, and mesh with other project
schedules.
Historical Data Collection
The first step in identifying attractive
projects is to develop and maintain a
database of projects. This should include
both awarded projects, as well as
projects where the GC was not the
apparent low bidder.
This database of projects should

capture enough data from each project
bid to allow for reasonable comparisons.
Some of the data collected should
include:
the driving or major trades required;

the duration of the project;
whether it is a new or renovated
project;
the percentage of trades; and,
any other heuristics that permit
comparisons.
Some contractors are particularly

good at self-performing much of the
work, while others operate better as
more of a broker, managing a larger
group of subcontractors. For selfperformed work, some contractors are
more efficient in concrete or masonry
work, some are better at finishes, some
are better at structure or site work.
Once the contractor has developed
and maintained this database, it is
possible to start to collect data related to
the project. What is the average
percentage of concrete work in projects
that were successfully bid and won; and
did the company make money on that
concrete work? What is the proportion
of interior work to structure work?
For example, the contractor might
be very competitive in electrical systems
work, so the more there is of electrical
work on the project, the more
competitive the contractor.
Determining the Company Strengths
and Weaknesses
With the data collected, the GC can
review those historical records. The GC
needs to compare the weights of various
trades with the overhead and profit
return. This review should include all
costs, including comparing field
overhead (general conditions). This is
done in order to determine if there is any
correlation between any of the ranges of
trade work, with additional or reduced
field overhead. This could happen when
the company has strong field staff that is
more knowledgeable and efficient with
certain trades, so they are able to
manage those trades more economically
than if the project had a different mix.
This review should make value
judgments about the companys
strengths in performing work. It can be a

simple qualitative assessment, such as
noting that high percentage masonry
projects generally show good returns. As
the process matures, it should be
possible to expand assessments to more
quantitative results, such as projects
with masonry contracts between 5% and
12% of the contract value.
The analysis of this data should
provide useful information related to
what types of projects on which the
company can bid competitively, as well
as make money.
Supplementing Weaknesses
The project types that fit the
company strengths are easily enough
identified. These clearly represent
projects that the GC should choose to
bid.
However, identifying company
weaknesses in project types will provide
first a list of projects to avoid, and
second, a view of projects that should
raise some red flags. These projects
have questions that need to be
addressed before they are bid.
For example, these should only be
chosen to bid if some accommodation
can be made to buttress the weaknesses.
So, if the GC determines that projects
with site development costing 40% or
more of the value of the project are not
good projects. The solution is to explore
teaming up with a partner or partners
who can provide the missing expertise.
Choosing Projects to Bid
Once the database is developed,
and a process is implemented for
qualifying projects to match the general
contractors specific strengths, projects
can be chosen based on the higher
scores on the qualification process. This
allows the GC to specialize in trade work
in which it is possible to make money
and maintain the corporate reputation.
PRE-BID PROCESS
Soliciting for Subcontractor Bids
One of the key needs with open
market design-bid-build projects is to
ensure that the GC receives a wide range
of subcontract trade bids. Each of the
GCs involved in a public bid will have
his/her own preferred subcontractors
17
Figure 1 Subcontractor Database Example
that they solicit and encourage to bid.

This generates a large pool of
subcontractors that may be pricing the
project, but are unaware of the other GC
bidders, and would not ordinarily provide
bids to all the GCs. Receiving as many of
these subcontractor market bids as
possible is a strong component to getting
a competitive bid for the general
contractor. So, it is very important that a
process is in place to solicit for
subcontractor bids.
The process starts with early
advertisement of the GCs intention to bid
the project, ensuring that all the list of
bidders contains the general contractors
proper name, address, and contact
information. Then, any holder of contract
documents should be notified, such as:
the Dodge Reports;

the contractor exchanges;
the major equipment supply houses;
the printing company; and,
any other place where a
subcontractor is likely to either use or
buy plans for their own estimating
purposes.
This will ensure that the contractors

name is circulated in the public arenas.
Most contractors maintain a database of
subcontractors for each trade, and have a
process of notification to let the
18
subcontractor community know about

the GCs participation in a bid.
This database should particularly
and
suppliers
specialty
include
contractors for items that are hard to find
bids for. For example, food service
equipment, athletic equipment, science
lab equipment, entrance mats, hydraulic
vehicle lifts, and other items that might
be hard to locate or to price. If a
contractor specializes in a particular type
of project, like hospitals or sewage
treatment plants, it is easier to develop
the full spectrum of appropriate contacts.
Since receiving as many bids from
this community is important, the
subcontractor solicitation process should
include multiple notifications regarding
the bid, including any addenda or
changes to the bid date, time, or scope.
However, even if nothing has changed in
the solicitation for bid, multiple
notifications is still important to urge the
subcontractors to bid the project to this
contractor.
Opportunity for notification of
interest in a project has changed over the
years. It started with letters and phone
calls, evolved into automatic fax systems,
and eventually arrived at the current
process of e-mail notifications, coupled
with use of the company website and/or
sharepoint site. However, it is important
that every type of publicity available is
used, to the extent possible, so as to
maintain the interest of the subcontractor

community. This includes the current
strong influence of the social media,
where networking sites, such as LinkedIn, Facebook, and maybe Twitter, can be
used to maintain both lists and publicity
regarding prospective bids.
Many contractors maintain bid
rooms, where the subcontractors may
visit and use the facilities to do their early
quantity surveys, and this is important.
The author has always maintained a bid
room that was open to all subcontractors,
and in addition, after the bid selection
process was over, we kept all contract
documents from projects that were not
selected and left them in the bid room for
use by subcontractors. This increased the
value of the bid room, and ensured robust
traffic through the bid room by the
subcontractor community.
During the bid process, regular
communications with the major suppliers
helps to keep the list of bidders updated.
This can be accomplished by requesting
which trade contractors have asked for
equipment quotes. This updated list of
bidders is used for the regular
notifications during the process.
As the project gets closer and closer
to bid day, confirmation from
subcontractors of their intent to bid will
help the GC recognize any missing trade
contractor bids. This also allows for a
targeted and elevated effort to bring in
the
potentially
missing
trade
contractors.
Attempting to compile a final bid
with missing, or only one bid in an
important trade, is a sure-fire way to fail
to be competitive on bid day. This effort
should include personal phone calls to
the subcontractors of interest, repeated
as necessary to keep up the interest.
Someone on the bid team should be
in charge of maintaining the bid list and
tracking the likelihood of receiving bids
from the updated list. Often, a trade
contractor has more opportunities to bid
work than time to handle the
estimating. This is especially the case
with a smaller contractor, so it becomes
more important to encourage those
contractors to bid the project.
A regular report on at least the
summary level from this subcontractor
coordinator to the bid captain should be
produced on a regular basis. This should
start on a weekly basis from two months
ahead of bid day and turn into a daily
report for the last week before bids are
received.
This report should emphasize any
weaknesses in the projected return of
bids, with direction to increase
solicitation and notification efforts in the
weak areas. As subcontractors drop off
the bid list, the tracking will provide the
opportunity to find and secure
replacement bids.
Use of this process will yield the
best penetration into the subcontractor
community. It will also secure the
competitive range of bids necessary to
gain an edge on bid day.
Quantity Survey
As bid day approaches, the
subcontractor community will start
submitting bids. In order to properly
evaluate those bids, the GC will need to
have an understanding of the scope of
work, as well as the value of each of the
trades involved in the project.
The value of each of the trade
packages will help determine the
interest
of
the
subcontractor
community, as well as filter out
subcontractors whose financial and
historical background represent a good
fit for the particular project. Sometimes
the magnitude of the trade work can
help to increase interest in bidding by
the trade contractors, and this can be

part of the solicitation for subcontractor
bidders.
When subcontractor bids are
received, it is imperative that the GC has
an understanding of each of the
individual trades in order to properly
evaluate the bids. For example, what if
four masonry bids are received. Two of
them are in the range of $450,000, but
the other two are in the range of
$350,000. Then there is no easy way to
tell which are appropriate, unless the GC
has some bill of materials, or a quantity
survey.
With a quantity survey in hand, the
estimator can ask detailed questions
about quantities of different sizes of
CMU or brick, or quantity of grout, and
specialty masonry products. This will
allow a useful discussion designed to
identify missing scope of work, or
problems related to the wrong scale on
reduced size drawings, or problems
related to metric drawings and poor
conversions done by the subcontractors.
The process should include an
internal take-off or quantity survey of all
trades, capturing the necessary
information to enable a unit cost budget
to be established. This means that some
trades will require very little survey, such
as acoustical ceilings, or sprinkler
systems. This is if unit costs are
reasonably accurate and available. But,
more detailed surveys will be needed for
more complicated trades. However,
failure to have a reasonable idea of the
costs of each trade will reduce the ability
of the GC to remain competitive. Armed
with unit cost data, the GC can reduce
risks
resulting
from
incorrect
subcontractor pricing.
AACE International Recommended
Practice No. 10S-90, Cost Engineering
Terminology, defines take-off as:
A
specific
type
of
quantification that is a
measurement and listing of
quantities of materials from
drawings in order to support
the estimate costing process
and/or to support the material
procurement process [1].
The goal, prior to bid day, is to
communicate concerns about scope
coverage or price to the subcontractors

who have provided bids, so that they
have an opportunity to double check
their own quantity surveys and pricing.
In the long run, this process will be
immensely rewarding.
Subcontractors will recognize that
the GC is engaged with ensuring that the
subcontractor makes money and doesnt
miss scope of work. Missing this results
in pricing problems. The more bids that
can be received and evaluated prior to
bid day, the more efficient bid day will
be, and that raises the opportunity for
success.
Scope of Work Development
Keith Collier notes in his book,
Fundamentals
of
Construction
Estimating and Cost Accounting that,
In order for a bidder to make an
accurate estimate of the costs of the
work, adequate information about the
work must be given in the bidding
documents [2].
This adequate information should
come from the contract documents,
including the plans. However, it is rare
that a set of plans is provided that does
not contain errors and omissions.
The division of specifications also
may simply not match the local trade
division of work.
This makes it
imperative for a GC to have his or her
own requirements for standard scope of
work in each trade. With requirements,
the GC can ensure that the entire project
scope is covered.
The scope holes that can occur on
an estimate can be quite large. For
example, the plumbing drawings may
show gas water heaters with B vent
exhaust, and the heating and air
conditioning drawings may not show
that exhaust. The plumber might not do
any sheet metal work as part of his or
her business model. Also, he or she
might not consider that the exhaust is
within his or her scope of work. Since
the exhaust is not on the heating and air
conditioning drawings, the mechanical
contractor will not pick up the costs of
the exhaust system.
The results of the preparation and
evaluation of scopes of work will also
result in the discovery of errors and
omissions in the plans and specifications
before bidding. This allows time for
19
Figure 2 Scope Comparison Summary Example

clarification to ensure fairness in the bid
process. This time for clarification is
maximized through good use of pre-bid
questions, equivalent to requests for
information that might be used after
bidding. The better the job of scope
resolution, the fewer unknowns there
are at bid time. Use of a comparison
spreadsheet that lists the scope of work
can make this evaluation straightforward
and thorough.
As part of the estimate preparation,
the issue of complete scope coverage is
a prime driver.
Schedule Development
Without a preliminary schedule, the
project duration will not be identified. If
the duration is specified by the contract
documents, the GC will not know if it is
reasonable or not. The preliminary
schedule enables a discussion about
resource flow and use, availability of
resources, and over allocation of specific
trade contractors. This is determined by
comparing the lists to current projects.
There also needs to be a competitive
budgeting of the general conditions.
Include all the work that is not built into
the project. A list should include
temporary works, field staff, trash
disposal, insurances, and other items
many of which are time dependent. A
20
competitive bid also needs to take into

account the planned project duration.
This is an opportunity to improve
competitiveness. This can happen if the
estimating team, in cooperation with
project management, determines that a
project may be built in less time than the
contract documents specify. Also, if an
aggressive schedule can be maintained
during the project, several percentage
points may be shaved off the project
costs. There are some risks to this effort,
such as relying on a right to finish early.
The contractor should inform himself or
herself about these risks. The issue of
early completion schedules, or the right
to finish early, is outside of the scope of
this article.
This preliminary schedule is useful
in discussions with subcontractors about
the need for their services. It helps them
to understand how aggressive the plan
for construction might be. The author
would often post a copy of the
preliminary schedule in the bid room, or
distribute it to the appropriate
subcontractors.
If a good historical record is kept of
project general conditions costs, then
that historical data can be used to
ensure appropriate pricing of those
costs. Since many of those costs are
time dependent in nature, this is an area
that might contain 2% to 10% of the
costs of the project. So, it is vital that

analysis of the general conditions is
evaluated.
Determination of Required Return
For
many
contractors,
the
discussion about what profit is required
is ignored until the last minute, when all
bids are in and compiled. This is a major
decision and is related to the long term
health of the GC. A good rule is to have
the project estimate ready and
complete, with all in-house surveys
priced and included, at least a day or so
ahead of the bid date. Then the
discussion about the return needed on
the project can happen with a
reasonable idea of the time frame and
cost of the project.
AACE International Recommended
Terminology, defines required return
as:
The minimum return or profit
necessary to justify an
investment. It is often termed
interest, expected return or
profit, or the charge for the use
of capital [1].
As long as this discussion is
conducted without the pressure of bid
delivery, a more rationale choice of
profits will be made. The same

discussion can include the issue of
contingency required for various
portions of the project.
Deliverables Due At Bid Day
On bid day, the following items
should be complete.
the estimate should be complete;

the cost of all general conditions
established,
based
on
the
preliminary schedule;
as many of the subcontractor bids
should be in hand as possible;
the fee established; and,
an idea of what trades might be
light in receiving subcontractor bids.
This last item is especially

important. On bid day, the bid captain
will likely see hundreds of bids, and he or
she needs to recognize which ones are
very important due to scarcity.
All in-house work must be priced
and entered into the bid summary, as
well as in-house pricing of all trades. This
is so the bid form is complete and
reasonable, likely within approximately
10% of the final bid. In addition, scope
sheets for all trades should be
developed, and the team established
and trained.
Bid Day Process
It is imperative that a process be
established for bid day that will be
efficient and manage the top risks of
missing trade prices. The team has to be
set up to control the flow of bids and to
capture essential bids for evaluation and
discussion. In addition, encouragement
of subcontractors at this point will make
a huge difference in the number of bids
received. The process must track the
submission of bids and include outreach
to missing trade contractors.
Setting Up the Bid Team Bid Captain
The bid captain organizes and
manages bid day. This team member
should be responsible for the estimate
quality and review. All final decisions
related to choice of subcontractor bids
are the responsibility of the bid captain.
Task assignments, along with training,
are done by the bid captain.
Figure 3 General Conditions Summary Example
Trade Bid Review

The people responsible for review
and evaluation of the trades should be
chosen and trained. Depending on the
size and complexity of the project, this
could be one or two people. But, it could
also be a dozen people if a large project
requires multiple trade evaluations.
Typically, the mechanical, electrical,
and plumbing trades (MEP) may require
individual team members, with
structure, fenestration, and finishes
requiring other team members. Team
members may wear multiple hats, such
as handling the entire MEP section, or
the fenestration and structure together.
No matter how this is structured,
the team members should have the
scopes of work and budgets for each of
the trades they will evaluate. As bids
come in, they are separated and
distributed to the team members, and
often the team members are on the
phone taking pricing from trade
contractors.
As bids are received, some will seem
competitive, some will be too high, and
some will be too low. These evaluations
cannot be made without in-house
pricing, unless the team member can
wait until there are enough bids to
establish some level of comfort from the
clustering of bids.
However, clustering of bids may not
be a valid consideration if there is some
risk of mistakes. These risks can include
the quality of drawings, uncertainty in

scope, or reduced size drawings
available
to
the
subcontractor
community.
On bid day, the discussions with
subcontractors move from evaluations
and feedback of the scope problems to
an attempt to scare the unreasonably
low price subcontractors out of bidding
the project. If there is no time for the
inaccurate bid subcontractors to rework
their bids, then it is in the GCs best
interests for that subcontractor to
withdraw their bid from all other
contractors.
Simply not accepting, or using a
ridiculously low subcontractors price is
not sufficient. There are unscrupulous,
or just careless, general contractors who
do not know what the trade work is
worth, do not have a process of soliciting
bids, and will not have enough bids or
knowledge to recognize that the bid is
untenable.
This makes it very important that
once the GC recognizes that a
subcontractor has a mistake in his or her
bid, the bid is either reworked or
removed from the market. Without time
to discuss the subcontractors quantities
and pricing, the only option is to let that
subcontractor know that they are too
low. Feedback at this point should not
include the average or estimated price
for this trade, since the subcontractor
may use that information to stay in the
bid process rather than withdraw.
21
Bids that are too high on bid day will

need to simply be ignored, unless there
is incomplete coverage and there is an
opportunity for that subcontractor to
check his or her estimate. However, bid
day doesnt provide much opportunity
for detailed discussions about quantities
and pricing. The trade bid reviewer
should engage as much as possible,
without losing the ability to evaluate all
bids.
Subcontractor Outreach
The person in charge of
subcontractor outreach will work with
the bid captain and the trade bid
reviewers to ensure that:
An effort by a prime contractor

to reduce the prices quoted by
subcontractors
and/or
suppliers, by providing the bid
price to other subcontractors or
suppliers in an attempt to get
the other subcontractors or
suppliers to underbid the
original price quoted. The
reverse of this situation is when
subcontractors try to get a
better price out of a prime
contractor. This is known as bid
peddling [1].
any missing bids are acquired;

that all the subcontractors who
committed to providing a bid
actually do so; and,
that problems with the bid process
are communicated to the bid
captain as early as possible.
Determining Apparent Low Bids

Often, what appears to be the low
bid on bid day will result from a weak or
poorly performing subcontractor who
would be a stumbling block to meeting
the committed completion date without
heavy GC project management oversight
and monitoring. When this is the case, it
would be deceptive to use this
subcontractors price as if it could be
achieved.
So, after evaluation of the bid, it is
not inappropriate to make a judgment
call as to what the bid is really worth. It
could be that a mechanical contractors
bid on a medical center is $400,000, but
the GC project management team
recognizes that dealing with this
particular subcontractor will take a full
time superintendent during the rough-in
stage. The estimator, armed with this
information, can add a factor to this
subcontractors bid to carry the unusual
costs of managing the subcontractor.
So, a masonry contractor might
have the apparent low bid, but after
evaluation, the GC might add 4% to that
bid to account for the real or likely
costs to use that contractor. Any
conclusions made during this evaluation
should be eventually communicated
back to the subcontractor for their use
22
and understanding. The subcontractor

may discover that he or she has the low
price with many of the other general
contractors.
This is a delicate operation since
there is always a risk for a GC of entering
into the process commonly called, bid
shopping. This is where the GC provides
the low bid price to a favored
subcontractor in order to allow that
subcontractor to match or beat the low
street price.
AACE international Recommended
Terminology, defines bid shopping as:
This is unethical, and is not

contemplated in the process described
above. If the GC adds money to a
subcontractors price to cover estimated
or historically accurate costs related to
dealing with the subcontractor(things
such as having to deal with joint-checks,
or provide unusual quality control
inspections), this is a legitimate
approach to estimating.
Once the real costs are
established, the apparent low bidder is
selected.
Negotiations
At this point, the individual trades
have been evaluated; the apparent low
trade contractor prices have been
established. The scopes of work will
have been verified, and quantities will
be checked. At this point, there is an
apparent low qualified bid for each
section.
As each section of the major trades
is established, there is an opportunity to
work on creating advantages. The
author recommends that the best
approach to this effort is to select large

price trade contractors and discuss the
project.
This discussion should start by an
acknowledgment that this particular
trade contractor has been evaluated to
be the apparent low bid at this time.
Any other low bids that have been
factored, because of the experience
rating, should be discussed in generality
with this apparent low bidder. This is
especially the case if the original unfactored bid was lower than the
apparent low bidder. However, this
effort cannot reveal that subcontractors
actual bid, just a general discussion
about what other subcontractor is in the
range of this bid.
Then the discussion should quickly
move to ways in which this
subcontractor can help reduce the price
in order to provide a competitive
advantage. These methods do not have
to include simply reducing price, but
rather should address efficiency
opportunities. These can include
aggressive scheduling, shared resources
such as equipment or cleanup, and
accommodations. These could include
advantages such as shorter travel routes
on site, equipment direct purchases,
lower or quicker release of retainage
amounts, elimination of performance
bonds, and other pricing opportunities.
If the five or six major trades can be
negotiated lower without bid shopping,
the GC will gain a significant advantage
over other bidders.
Final Pricing
The bid captain should be
responsible
for
reviewing
the
components of the bid, finalizing the bid,
and releasing it to the bid runner. At this
point the bid should be positioned such
that it is as low as the bid captain is
willing to submit.
Deliverables From Bid Day
When the bid is wrapped up and
submitted, the package should include:
qualified bids and tentative

agreements with the major trade
contractors;
the selection of a large number of
the apparent low bidders;
scope evaluations and qualifications for all trades;

a reasonable preliminary schedule that is already boughtin by the major trades;
an evaluation of the general conditions needs and costs;
and,
a complete listing of in-house performed packages with
detailed take-off lists and resource plans.
Wrapping Up The Bid

The bid package should contain all the deliverables, and
the bid captain should release the bid team to provide
feedback to subcontractors that call in and request feedback.
This is an important step for future bid coverage from the
subcontractor community.
In the case of any originally low subcontractors that were
not selected due to the real costs of managing, the bid
captain should make the call to those subcontractors
immediately and notify them of the action taken. This
discussion should include ways that the subcontractor can help
the GC remove the need to provide contingency add-on pricing
in the future for that trade.
Conclusion
From the authors experience, there is no substitute for
developing and using a process that requires performance in
all aspects of the bidding effort that is so vital to all contractors.
This process will enhance the opportunity for a general
contractor who is active in the public low bid market to move
from the estimating stage to the project management stage
more easily and profitably.
REFERENCES
1. AACE International, AACE International Recommended
Practice No. 10S-90, Cost Engineering Terminology,
Revision of March 5, 2010.
2. Prentiss-Hall, Inc., Fundamentals of Construction
Estimating and Cost Accounting, Second Edition, PrenticeHall, Inc. Englewood Cliffs, NJ 07632, 1987 and 1974.
ABOUT THE AUTHOR

Chris Carson, PSP, is with Alpha Corporation.
He can be contacted by sending e-mail to:
chris.carson@alphacorporation.com
Negotiating Scopes and Contracts

Properly done, once the bid is wrapped up, the GC is ready
to release subcontracts very quickly after award, knowing that
the scope review is done, and the apparent low trade
contractors have been selected appropriately.
This helps limit one of the sources of conflict on most
projects, slow initiation once awarded. Many projects suffer
from an extended bid evaluation and award process because it
was not done during the actual bid preparation.
In addition, if the drawings have quality control problems,
the contractor may find that the production delays due to slow
buy-out and planning will provide concurrent delays. These
remove the ability to collect compensable extended general
conditions that would be available otherwise.
Benefits of the Process
The benefits of an orderly and efficient bid process are
many, and include:
better choice of appropriate projects;

stronger emphasis on the required return from this
particular project in this particular time frame;
a good start to the planning process necessary for
production;
increased respect in the subcontractor community;
improved protection against scope problems; and,
an established team ready to move immediately upon
notice to proceed.
This process could be modified to enhance any type of

contract bidding operation as well.
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23
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TECHNICALARTICLE
Owners: What to Look for in a
Contractors Project
Control Capability
Abstract: As the world marketplace in the process industry heats up, owners will
rely more and more on contractors to provide accurate, timely, and value-added
project control information. this is so owners can manage the overall project function. This cannot, and will not, occur unless owners define and mandate what is
required by the owner to effectively execute the project control function. This includes defining (in the request for proposal (RFP)) the reporting requirements
down to specific deliverables, the reporting sequence, forecasting requirements,
etc. The owner needs to evaluate the contractors capability to deliver these requirements during the bidding process and include them in the final contract. Although not the main or only evaluation criteria, owners need to determine if the
contractor has the capability to deliver on these requirements. The owner also
needs to mandate that these requirements are delivered during execution without
exception or excuses. This article will provide guidance for the above and convey
realistic rules of the road to assure effective contractor/owner collaboration.
This article was presented at the 2012 AACE International Annual Meeting in San
Antonio as OWN.1042.
Key Words: Contractors, owners, and project control systems
s the process industry world

marketplace heats up, owners
will rely more and more on
contractors
to
provide
accurate, timely, and value-added project
control information. This is so owners
and contractors can manage overall
project functions from their joint and
separate perspectives.
Historically, prior to contract award
or shortly thereafter, process industry
owners specify, in one manner or
another, that they expect their contractor
to provide periodic project control
information. This is so both the owner
and contractor can be aware of actual
against planned performance, as the

project progresses. This positions the
owner and contractor to take timely,
intelligent, and corrective actions as
necessary.
Unfortunately, like most globallydefined goals, this expectation, without
more extensive definition of what specific
information is to be presented,
frequently
leads
to
different
interpretations between the parties. This
often is not evident until after the project
has been awarded and is well under way,
thus the disparity. When, how, and in
what format are questions that need to
be answered upfront.
The owner is most knowledgeable

with regard to what specific project
parameters are most sensitive to a
particular projects business, technical,
and operational success. Alignment
between the parties cannot, and will not
occur, unless the owner carefully
specifies
what
project
control
information is specifically required to
satisfy his or her need to effectively
manage the project.
This information should be conveyed
in the request for proposal (RFP)
documents, along with reporting
requirements
down
to
specific
deliverables, (the reporting sequence,
forecasting requirements, etc.). During
the bidding process, the owner needs to
evaluate the contractors capability to
deliver these requirements and
incorporate them and their delivery in
the final contract.
Although not the main or only
evaluation criteria, owners need to
determine if the contractor has the
capability to deliver on these
requirements, before awarding the
contract. The owner also needs to direct
that these requirements are delivered
during execution without exception or
excuses.
This article will provide guidance for
the above and convey realistic rules of
the road to assure effective contractor
25
Figure 1 The Basic Project Control Universe

/owner collaboration. Alignment in
establishing a project control system
appropriate to the needs of both parties
for a given project situation will be
discussed.
The concepts presented herein build
upon the authors previous AACE
International
non-technical
paper
entitled, The Owners Project Control
Function, dated Jan. 31, 2011 [1]. The
authors define a project control system to
include the organization, staff, processes,
procedures and tools necessary to
effectively deliver project controls.
In Part 1 of this article, the authors
describe the situation and point out what
they believe to be the fundamental
causes of project control disparity. In Part
2, the authors address how best to
resolve this situation. They outline basic
ground rules that the parties need to
follow in order to have a reasonable
chance of achieving a mutual and
satisfactory project control system that
accomplishes their separate and joint
objectives.
Obviously, project control system
requirements will vary from project to
project and certainly from one
contracting platform to another. For
purposes of this article, the authors have
assumed an oil and gas industry project
executed under a reimbursable cost
engineering, procurement, construction
(EPC) contract. This provides the broadest
26
project control information exchange

platform. At the end of Part 2, comments
will be made with regard to special
considerations appropriate to fixed price
or lump sum type contractual
arrangements.
PART 1 The Problem
There are a number of factors that
contribute to the misalignment between
owner expectations and contractor
capabilities with regard to the
contractors project control system. The
difficulty in resolving this disparity is
complicated by the number, dynamic
nature, and complexity of several of
these factors.
For years now, as the number of
factors has increased and gotten more
complex, both owners and contractors
have resorted to generalities rather than
specifics when addressing these
important project management features.
Owners have failed to identify the
relevant/important business, technical
and operational control parameters of a
given project.
Instead, they have tended to resort
to high-level, somewhat idealistic, allinclusive generalities with regard to
defining a contractors project control
system capabilities. By so doing, owners
assume that the contractors standard
project control system can accommodate
these unidentified specific requirements.
Unfortunately, the owner is later

often disappointed to find that their
unique and specific project requirements
cannot be adequately tracked /monitored
by the contractors standard project
control system. This eventually results in
a situation where the owners project
team is bogged down. They are chasing
such information and arguing with the
contractor, rather than jointly developing
remedial actions for already identified
project performance deviations.
The following misalignment factors
are considered to be among the most
significant:
Basic Project Control Systems
Scope and Reach As pointed out in
the authors previous paper, project
control is often perceived as a
singular, overall function, failing to
recognize its various diverse aspects
[2]. Figure 1 displays the components
generally considered to be included
within the scope of a contractors
basic
project
control
system/universe. Each of these
component functions, in and of itself,
requires careful definition and
customization to ensure that it
properly addresses the specific
needs of both owner and contractor
for any given project situation. Too
often,
this
integration
and
Figure 2 An Integrated Basic Project Control System

customization is not addressed until representation of how an integrated basic
after contract award.
project control system might be
configured.
Extended Project Control Systems
It should also be recognized that
Scope and Reach
these individual component packages,
Obviously as the scope of a even within a single contractors multicontractors project control function office organization, often use different
expands beyond the basic level, the need versions of some software packages
for owner requirement definition and/or are uniquely customized versions
expands as well. Stepping back, one of each package. Therefore, owners
appreciates that the coverage of a basic should not assume that all contractor
or extended contractor project control project control systems, or even those
system is extensive and comprehensive. within a contractors various offices, are
This
involves
almost
every necessarily identical.
aspect/attribute of a project on a
dynamic basis. The vastness of the Project Control System Coverage and
coverage and its various tentacles are an Features
important aspect of the challenge to
Contractor project control systems
customizing a contractors project control often have differing features. Typical
system, to satisfy the specific needs of among these are:
the owner and contractor for each unique
project.
number of performance parameters
Extended project control systems
monitored;
may also include:
scope and extent of coverage;
degree of integration;
materials management and logistics; depth of penetration or levels of
staffing and resource management;
detail;
invoicing and cash flow;
data collection and assembly
document control;
formulation;
safety statistics and records; and,
element
and
performance
etc.
measurement bases;
presentation format and media;
Heterogeneous Contractor Project degree of accuracy;
Control Systems
timeliness;
Most contractor project control responsiveness;
systems are a hybrid of in-house flexibility;
generated and purchased proprietary, accessibility; and,
software packages, woven together into etc., etc., etc.
their particular preferred configuration.
Figure 2 depicts a diagrammatic
Certainly an impressive array of

feature variables to be addressed!
Commercial Project Control Software
Development
Several
popular
commercial,
proprietary project control software tools
have matured significantly over the years
into very advanced and flexible systems.
A number of these flexibility features
have been incorporated because users
have requested them and not necessarily
to improve the application of best
practices. Many of these systems include
open architecture designs that could
inadvertently alter their intended
purposeand therefore, skew results
derived therefrom.
Differing Application Philosophy and
Practices
Contractors tend to develop their
own philosophy and application protocols
with regard to their project control
systems. Here again, there is a good
chance that they will vary, and may even
involve differing integration relationships.
Limited Experienced, Qualified Project
Control Practitioners
Owners and contractors generally
have only a few experienced, highly
qualified project control engineers, or
practitioners, within their organization
who are familiar with both their project
control system design and capabilities,
and
also
have
a
deep
understanding/appreciation of effective
project control applicationsthus
another situation variable.
27
Project Uniqueness
Most
experienced
project
management practitioners acknowledge
that no two capital projects are
completely identical. Often these special
characteristics are not fully identified or
given appropriate focus until after a
contractor has been awarded the work.
An assumption is made that the
contractors project control systems
capabilities will accommodate any special
requirements. That may not be true.
Increasing Number of Complex Mega
Projects
Process industry owners around the
world continue to seek the benefits of
technology advancements and the
economies of scale to improve their
competitive position and profitability. At
the same time, more and more complex
and mega scale projects are evolving.
These large scale composite projects
often involve expanding and/or
upgrading existing processing facilities,
introducing new product enhancement
units/features, operational efficiencies,
environmental improvements, etc. Such
multi-component/faceted projects tend
to exacerbate the project control
challenge by often involving multiple
contractors and/or multiple contractor
offices in a given mega project. In these
cases, the project control practices of
each participating entity has to be
coordinated and aligned to provide the
owner and management team of such
with
programs
consistent,
comprehendible
performance
information.
Thus, the owner or project sponsor
in such situations has an even greater
responsibility to ensure that the
contractors who are engaged to handle
such mega projects have compatible and
aligned project control systems,
practices, and personnel that are
sufficiently flexible to adapt to an owners
expectations.
They
also
must
acknowledge their willingness to do so.
Skewed Pre-Award Due Diligence
In pre-qualifying, qualifying, and
selecting their contractors, owner
organizations are usually careful to
examine a given contractors engineering,
procurement,
and
construction
28
experience, expertise, capabilities and

capacities in detail. This includes the
caliber and quality of their systems,
processes, procedures, tools, and most
importantly their people.
When it comes to project control,
however, this diligence is not generally
applied to the same degree. In fact, most
owner RFPs and contracts relegate the
details of how the project control
function will actually work and what it
will actually provide to the owner to postaward deliverables.
It is not uncommon for contracts to
specify that such important project
control features, such as a level III
schedule, the earned value management
system details, monthly progress report
contents and coverage, etc., are, due 60
to 90 days after contract award. Thus,
the message could be interpreted as
project control is a secondary
consideration or an after-thought rather
than a primary, important function.
Clearly, the fact that each capital
project is unique and is likely to have
special business, technical, or operational
project control needs is at the core of the
problem being addressed by this article.
When combined with the other factors
cited above, one can understand the
multitude of complications and confusion
that can develop if the most significant of
these factors are not addressed prior to
contract award. Addressing these prior to
the contract award allows interested
contractors to prove that their project
control systems capabilities can properly
accommodate these special needs.
PART 2 THE FIX
Establishing And Maintaining An
Effective Project-Specific Contractor
Project Control System
In Part 1, this article defined the
problem and its contributing factors. Lets
now turn to how best to avoid, or
certainly minimize, the disappointment
of trying to work with the wrong
contractor project control system. That is
to say, having to live with a contractor
project control system and/or personnel
whose capabilities are inadequate.
Specifically, an inadequacy to effectively
deal with important specific aspects of an
owners capital project.
Lets treat this in terms of an

evolutionary process for establishing and
maintaining an effective project-specific
contractor project control system.
Step 1Define Project-Specific Project
Control Needs And Capabilities
The critical first step in the process to
achieve adequate project control system
capabilities rests with the owner who
best knows his or her business, along
with the technical and operational
sensitivities of the project. This owner is
best equipped to identify what aspects or
attributes of project performance should
be measured, how, how often, and to
what level of detail, etc.
In creating such a comprehensive
project control plan for the project,
owners should follow a methodology
similar to the AACE International
Recommended
Practice
60R-10,
Developing the Project Controls Plan. [3]
Having established this project control
system specification, the owner should
include these specifications, along with
the results of Steps 2 and 3, in his or her
RFP documents. Later, after assurance
that the selected contractor has or will
have the required capability, also include
these requirements in the award contract
or its attachments.
Step 2 Define Monitoring Basis
After identifying the project
parameters, or the attributes to be
covered in the contractors project
control system, the owner should also
define the monitoring basis, format,
frequency, and penetration cascade
/level of detail that is expected to be
provided.
Step 3 Define Accuracy/Tolerance/
Sensitivity Requirements
In addition to those project control
system capabilities defined in Step 2, the
owner should indicate the desired level of
accuracy, tolerance, and sensitivity for
the project control system and its
performance indicators.
Step 4 Set Up And Operate Data
Collection/Processing Systems
Once the owner is satisfied that the
contractor has the project control
capability required, the contractor is
awarded the contract. The contractor,
Figure 3 Evolutionary Process For Establishing and Maintaining an Effective Project-Specific Project Control System
with the assistance of the owner,
proceeds to set up, populate, and operate
the elements of the contractors data
collection and processing systems.
Included are the elements needed to
support their project control effort. This
also includes staffing the team with the
people recommended in the contractors
proposal, and accepted by the owners
prequalification team.
Step 5 Compare Performance Against
Plan
Once the project is under way, the
contractors project control system will
collect project performance data on the
prescribed frequency. This data will be
sorted appropriately. A comparison will
be made of interval and cumulative
performance to date against planned or
expected performance. The contractors
project control team should be collecting
this data and providing results in the preagreed format. this starts at the first
report period, not the second or third,
but right from the start.
Step 6Evaluate And Recommend

Remedial Actions
Based on the results of step 5, the
contractors project control team will
analyze project performance. This will be
evaluated against expectations and a
forecast made of the implications, along
with any recommended remedial actions.
These actions would be developed in
conjunction with the contractors project
management staff.
Step 7 Reporting
The contractors project control
system will need to issue reports on the
above results in the media and frequency
agreed to with the owner. Status reports
should include all owner-requested, as
well as supplementary information that
the contractor believes to be important.
All of this needs to be presented in the
specified manner, with all relevant
supporting details. Include a well thought
out, integrated, concise, understandable,
and actionable summary. The summary
should clearly describe the situation, as
well as any recommended actions. It
should not be just a heterogeneous
collection of separate, stand-alone
department status reports.
Well-
designed performance dashboards are

also helpful.
Step 8 Action
Depending on the type of contract,
and the authorities provided therein, the
parties will agree on what, if any,
remedial actions will be taken. The
expected consequences of these
remedial actions will also be established.
Step 9 Feedback
Based
on
lessons
learned,
appropriate adjustments will be made to
Step 8 activities, to improve the project
control system performance.
Step 10 Follow-Up
The
owner
and
contractor
management teams will carefully monitor
any remedial actions taken to ensure
their positive impact and corrective
effect.
For convenient reference, the
evolutionary process for establishing and
maintaining an effective project-specific
project control system, as described
above, is displayed in figure 3. Also
included are certain step-by-step
29
examples, or explanations, and the

Often, this alignment is achieved by
associated responsibilities.
the
contractor
agreeing
and
demonstrating, in advance of award, that
Pre-Contract Award Due Diligence
he or she can take the output of its
The authors believe that the best standard project control system, and with
way for the owner to convey the a few mutually-accepted adjustments,
requirements of steps 1, 2 and 3, to responsibly
provide
the
data
interested contending contractors, is for requested/needed by the owner. The
the owner to prepare a clear and owner may, however, insist on limits or
thorough project-specific project control adjustments to certain contractor project
capabilities specification. This will control system protocols in order to avoid
address all of the relevant control system misapplication of certain system software
attributes necessary for the contractors flexibility features.
to test their project control system
capabilities. This can be done through a Other Contracting Platforms
written specification, defining attributeAs indicated earlier, the authors
by-attribute requirements and the type assumed an EPC reimbursable cost
and depth of coverage expected.
contract basis, as the framework for most
These requirements can be of this article. This framework provides
accompanied by a carefully designed set the maximum/broadest project control
of demonstration test case scenarios to system
information
which each contender is expected to requirement/demand between owner
provide his or her response. Through and contractor and on the contractors
these, the owner can reasonably assess project control system capability.
each contractors ability to comply.
The introduction of other contracting
The initial results of this platforms (e.g., lump sum), might well
demonstration may need more extensive introduce certain cost information
interaction with those contractors that constraints or restrictions to the
appear to meet, or nearly meet, the exchange between the owner and
specified
capabilities.
These contractor and/or of the depth of the
demonstration test case scenarios can be reporting. These should be respected
documented descriptions of situations, accordingly.
with the response format left to the
The owners project-specific project
contractors discretion. Or, if the owner control system specifications should
prefers, they can be presented as owner- acknowledge such restrictions, but
formatted, partially-completed report nonetheless be used to convey and
tabulations. The contractor is then confirm that contending contractors can
expected to complete these using his or comply with the non-restricted project
her proposed project control system.
control requirements.
The owners project control system
Fixed price or lump sum type
specification should include any contracts tend to focus attention
preferred reporting formats, diagrams, primarily on schedule-related capabilities
measurement bases, performance of the system and the associated
metrics, etc. As well as, any obligatory progress/performance measurement.
project control system operating Owner
project
control
system
policies/principles that the owner specifications should emphasize the
requires be respected and adhered to. importance
of
the
contractor
The authors are not advocating that demonstrating his or her capabilities
contractors change their standard project (system and personnel) to develop
control system components, integration credible schedules. Included will be
design, or operations, to something that proper logic, proper use of constraints,
will cause disorientation to their staff or durations broken down to controllable,
loss of confidence in system results. measurable levels, accurately and
Rather, confirm in advance of contract responsively
capturing
quantities
award that the owners specific needs can installed, worker hours consumed, rates,
be met by the contractors project control and cumulative earned value physical
system within its existing capabilities.
progress, etc.
30
Conclusion
The authors strongly recommend
that contractor project control system
capabilities and the quality of the
personnel assigned to operate and
manage these systems are vetted with
equal thoroughness and diligence. Lets
raise the due diligence bar for contractor
project control system capabilities.
A few of the industrys top
performing
owners
are
already
successfully using this thorough project
control system. Included is the precontract award due diligence vetting
approach, suggested in this article, or
something very similar. Hopefully, this
practice will be adopted by more and
more organizations to eventually
eliminate this contractor project control
system issue.
REFERENCES
1.
2.
3.
Cabano, Stephen L., Robert Mathias,

and Paul G. Williams. The Owners
Project Control Function, 2011 AACE
International Transactions. AACE
International, Morgantown, WV,
2011.
Ibid., pg. 1.
Stephenson, H. Lance, (primary
author).
AACE
International
Recommended Practice No. 60R-10,
Developing the Project Controls Plan.
AACE International, Morgantown,
WV, Dec. 21, 2011.
ABOUT THE AUTHORS
Stephen L. Cabano, is
with Pathfinder, LLC.
sending e-mail to:
slcabano@pathfinderinc.com
Paul G. Williams, is
with Pathfinder, LLC.
sending e-mail to:
pwilliams@pathfinderinc.com
TECHNICALARTICLE
Field Project Control Roles In
Managing Different Contracts

(Owners Approach)
Abstract: The purpose of this article is to shed some light on the role of project
controls in different types of engineering, procurement and construction (EPC)
contracts from an owners perspective. The varied functions of project controls
should all work together and supplement each other to act as a decision support
to project management. Also to manage the contracts, no matter what type of
contract it is. This article will focus on the three main types of contracts and the
roles of the different areas of project controls in handling each contract type. In
addition, this article will shed light on the different disciplines within project controls. Also, the integration among these disciplines to reach the ideal goal of controlled execution of a project with repeatable best practices. This article was
presented at the 2012 AACE International Annual Meeting in San Antonio as
OWN.810.
Key Words: Best practices, contracts, owners, project controls and management
he role of project controls

should start during contract
formation. Project controls
requirements should be clearly
communicated to bidders during the
request for proposal (RFP) stage. The
impact of project controls requirements,
and the ability to enforce them, would be
highly ineffective if they were
communicated following the contract
award.
This article is focusing on the
construction portion of major projects.
Handling multiple field construction
contractors by a single owner is a tough
assignment. Owners would like to focus
on getting their jobs done with no safety
incidents, no environmental impacts,
within budget, and on schedule. When
projects get big and cumbersome,
32
project controls, some owners have

experience in managing certain types of
contracts and lack experience on other
types. Some are proficient in managing a
cost reimbursable contract, while lump
sum or unit rate contracts spiral out of
control.
The solution could be to manage the
contract, not the contractor. The role of
project controls can be effective in
assisting project management in
managing different types of contracts.
TYPES of CONTRACTS
meeting those milestones becomes a

This article will discuss three main
challenge. This article attempts to bring types of contracts: lump sum, unit rate,
the attention of owners to project and cost reimbursable.
controls practices that would help meet
objectives on cost and schedule targets. Lump Sum
In contract strategy, with a lump sum
contract, the contractor bears the
maximum risk, pays for productivity, gets
The Problem
paid upon achieving payment milestones
The role of project controls in certain as outlined in a pre-defined schedule of
organizations starts following contract completion (the milestone payment
award, This means that project controls schedule). A precursor to this type of
would not have an influential role during contract, that can be taken as a
the RFP and bid clarification cycles, as mandatory requirement, is that detailed
these come before contract award.
engineering should be 100% complete.
This also means that any changes to
In this type of contracts, an avenue
perceived project controls requirements for concern is that contractors may hide
after bid award, result in added cost and from the owners some details, assuming
complexity to the successful bidder. In these are their proprietary rights.
addition to the late engagement of
Figure 1 Control Points On Lump Sum Contracts

Examples include indirect costs or actual
costs in general.
In a lump sum contract, the
contractor assumes almost the entire
cost risk, while the owner shares some
amount of schedule risk.
Unit Rate
With a unit rate contract, the
contractor still pays for productivity and
gets paid on quantities installed, pursuant
to a pre-defined all-inclusive unit rate
table. This type of contract is similar to
the lump sum contract, where the
contractors keep their actual costs and
their indirect costs away from the owner.
In this contract, the contractor assumes
most of the risk.
approved by the owner. In this type of

contract
everything
should
be
transparent to the owner. The owner has
to approve the contractors staffing plan
and keep an eye out for any deviation
from that plan. The owner takes on most
of the risk to both cost and schedule.
PROJECT CONTROL
Areas of Excellence for Planning and
Scheduling
An owner would like contractors to
abide by the following:
Cost Reimbursable
With a cost reimbursable contract,
the owner pays for the contractors
productivity and the contractor gets paid
by the daily time sheet submitted and
schedule dates that are achievable,

with major milestones that are
attainable.
A critical path that truly reflects the
critical activities, which if delayed
will delay the major milestones and
the overall project completion.
In addition, the owner would look to

get commodity curves from the schedule,
together with resource planning and
leveling for the sake of arranging for
transportation and housing if needed.
For all of that to be achieved, the
schedules need to be fully resource
loaded. Resources need to represent
labor and non-labor for the sake of
getting commodity curves.
For large projects, where there is
more than one major contractor or more
than one area, an integrated schedule
would be required. This is where many
schedules are built separately, to reflect
the many different areas of work. Those
schedules are all controlled via global
codes, calendars, and resources. A
breakdown of Activity IDs needs to be
identified. All regulations should be
communicated to the contractors, via a
formal transmittal, as is the case in
scheduling work practices.
33
Figure 2 Control Points On Unit Rate Contracts

All the different schedules need to be
automatically linked for the sake of
integration. For that to take place, the
points of interfaces among the schedules
need to be identified, linked, and
controlled by the owners planners.
To avoid breaking the interface links
and having to rebuild them again,
electronic files being sent to the owner by
different contractors should be
eliminated. All contractors should be
given the opportunity to work online, on
the live schedule in the owners database,
using an access key. Or, a client can
provide offline workability for the
contractors.
A work breakdown structure (WBS),
needs to be properly communicated to
contractors. In addition, any heavy lift
plans, equipment plans, scaffolding and
supporting services, need to be
addressed in advance. This determines
who is doing what, and lets everyone
know which schedules will include what.
34
It is really important for the owner to

get the contractors planned look-ahead
schedule on a shift basis. This planning
should involve quantities to install,
workforce required, hours to earn,
equipment location and maneuvering,
and
material
availability
and
transportation. For all of this work, face
planning is required. The package is
produced on a shift basis. This is called a
field installation work package, (FIWP).
The levels of schedules need to be
properly defined. Communicating this
information to the contractors is really
important.
Communicating
these
schedules is the right tool for advancing a
project. Clearly identifying the cut off
dates and the updates calendar is
important in aligning all contractors on
the same cut off.
Identifying
the
mechanical
completion and the pre-commissioning
activities is important in properly
planning the commissioning and start up
activities. This provides for proactive

planning in getting these activities done
at the right time.
Base-lining should follow a set of
interactive planning sessions where there
is buy-in to the schedule logic, activities
durations, and resources availability.
Include squad checks. The appropriate
personnel should sign off on the schedule
base-line. Any changes should be applied
to the baseline as a management means
of tracking every single deviation.
PLANNING OBLIGATIONS
Planning Obligations From Contractors
on the Three Main Types of Contracts
Lump Sum Contracts
With
lump
sum
contracts,
contractors need to build their schedules
in the owners database. Fully load these
resources for the sake of getting
commodity curves and worker forecasts.
Figure 3 Control Points On Reimbursable Contracts

Unit Rate Contracts
There is no big difference in
managing a unit rate contract. With a unit
rate contract, the contractors need to pay
attention to loading quantities into the
schedule. Changes will be managed by
listing each change in quantity of any
item.
Cost Reimbursable Contracts
On a cost reimbursable contract,
some owners may ask contractors to load
their actual data into the schedule, for
the sake of calculating earned value from
Primavera software. However, some
owners would not ask for this, as it makes
the earned value process cumbersome.
An earned value management system can
easily be implemented outside of using
Primavera software. Just track earned
income compared to the planned
schedule.
PROGRESS AND PERFORMANCE

The owners goal here is accurate
and consistent progress among all
contractors. The owner also needs to
keep an eye on the performance of all
contractors to identify and pinpoint any
low performers and get to the root cause
of any issues.
The owner may want to base
progress on the quantities installed of
commodities. To ensure common ground
on progress, the owner may want to
identify the production rates of
commodities. This will allow the owner to
build and validate budget worker-hours
for all of the field works.
Using a shift-based progress report
format can benefit project management.
Include information the owner needs.
Include data cut offs, set progress
meeting calendars, and invite appropriate
key field and home office personnel as a
way to foster alignment of all of the

project stakeholders.
Identifying
key
performance
indicators, prior the job start, is a means
of enabling clear communications on
expectations. This also assists in meeting
project benchmarking requirements.
Progress And Performance Obligations
From Contractors On the Three Main
Types of Contracts
Lump Sum Contracts
Hold the contractors accountable on
a specific performance factor, (PF), which
is calculated by dividing the earned hours
by the actual spent hours. That published
PF should be based on historical projects
that took place on similar sites with
similar conditions. The key point here is
for the owner to receive a reporting of
what has actually been spent. The
reporting must be transparent in content.
This is a point of debate because of the
35
Figure 4 Example of a Commodity Curve

nature of the lump sum contract, but this
data is invaluable to the owner.
Earned hours should follow the
agreed upon rules of credit. Once rules of
credit on every activity are agreed upon,
they should be signed off on, and become
a part of the contract.
With agreed upon rules of credit, the
contractor should be held accountable for
any PF lower than the contractual one.
This ensures consistent, measurable
performance from the contractor, and
pre-empts schedule slippage.
Unit Rate Contracts
The owner needs to hire full time
quantity surveyors to be able to control
this type of contract. Validating quantities
is important on all types of contracts, but
on unit rate contracts when the
contractors payments are linked to
quantities, the issue of quantity
validation becomes paramount. It is also
important to identify the PF based on site
historical data (if available) and base-line
it to hold the contractors accountable for
their performance. Watch to see the
impact of the lower PF on critical
36
activities.
Hold
the
contractors quantitative. Qualitative risks are
accountable for any schedule slippage.
reflected in the projects risk register. The
register is a document where all the
project risks are identified, updated, and
ranked according to their severity and
It is important to check the probability
of
occurrence.
The
contractors staffing plan and clearly get custodianship to that document normally
the ratio of indirects to directs (I/D ratio). stays with the owners project controls
On each time sheet (labor equipment person or project engineer.
material (LEM), or service time sheet that
The quantitative risks are identified
is submitted daily by a cost reimbursable by running a Monte Carlo simulation on
contractor), check the I/D ratio and both the project schedule and the
compare it to the baseline. One reason estimate. The main outcome from the
for doing this is to ensure that the Monte Carlo simulation is a probabilistic S
contractors are not trying to wrongly curve that identifies the amount of
charge their hours to indirects in an contingency between the deterministic
attempt to improve their PF ratio.
(date as in schedule) or (dollars as in
estimate) and the stochastic ones. In
(PF) = Earned Hours / Actual Hours
addition to the S curve, there is the
equation 1 tornado chart that ranks the risks top to
bottom, based on their impact on either
If contractors decrease the direct the schedule or the estimate.
actual hours, they will in turn falsely
The risk management process is not
increase the PF.
only limited to addressing risk
identification, but also risk handling and
RISK MANAGEMENT
controlling. These same processes also
Risks can be identified in two apply to opportunities.
different forms: qualitative and
Figure 5 Example of Cumulative Direct/Indirect Cost Ratio Trend

Risk Management Obligations From Cost Reimbursable Contracts
Contractors on the Three Main Types of
With a cost reimbursable contract,
Contracts
the contractors personnel would be
asked to participate in setting the
Lump Sum Contracts
optimistic and pessimistic parameters for
For a qualitative risk assessment, the the simulation model.
contractors need to follow the projects
risk register and provide input in their
TURNOVER
progress meetings on risks identified,
their severity and the risk mitigations.
Projects are built in construction
For a quantitative risk assessment, work areas, but turned over in systems.
contractors need to furnish their Owners would appreciate contractors
personnel for interviews with the owners building their schedules in systems, as
personnel, so a Monte Carlo risk prioritized by the operator in accordance
assessment can be run. Another option with an established system turn over
would be to discuss this early and ask the sequence.
contractors to run the Monte Carlo risk
To facilitate and plan a systems turn
simulation themselves. If they do this, over, all contractors need to transform
they need to provide full transparency on their schedules into systems schedules
the model inputs and outputs. Having the from bulk construction ones. This usually
contractors run their own risk simulation takes place at 70% construction
provides for increased confidence in their completion. System turn over schedules
planning, and promotes accountability need to be available to provide guidance
for their own schedule and estimate.
and enough time for turn over
sequencing in advance of the start of the
Unit Rate Contracts
first system. This allows for personnel and
There are no big differences in unit crafts to plan the walk downs and ensure
rate contracts compared to the other the availability of appropriate resources
mentioned
contracts.
Contractor to walk the systems down and work out
requirements are to provide inputs to a the punch items. In addition, there needs
risk register and to participate in a risk to be time to prepare a procedures
simulation.
manual and all the other documentation
necessary for turning systems over.
Lump Sum Contracts

With a lump sum contract,
contractors would be asked to follow the
turn over systems priority and be able to
provide a detailed level V systems
schedule. First, any key systems dates
should be included within contractual key
milestones, in order to keep the
contractors focus on sequential system
turnover.
Unit Rate Contracts
With unit rate contracts, contractors
should be ready to provide a detailed
systems schedule and follow the systems
schedule priority, as directed by the
owner.

With cost reimbursable contracts,
the sequence of work needs to follow the
systems turn over schedule. Once bulk
construction is complete, the sequencing
needs to be aligned with the owners
sequence
of
releases
to
the
commissioning group.
COST ESTIMATION
The owner should review contractor
estimates and cross-check them against
contracts for any anomalies. Identifying
the ratio between direct and indirect
work is a necessary step before receiving
37
invoices. Its important to clearly identify

allowances to determine the proper
production rates.
Having access to the contractors
performance factor, production rates,
and any allowances, helps the owner get
the required transparency within the
contract. The owner should also pay
attention to escalation on labor wages,
material, and equipment, and develop
proper contingency upfront to cover for
any known unknowns. Also, the owners
needs to provide a provisional sum for
any unknown unknowns.
Appropriate key personnel need to
be involved in estimate reviews. The
team needs to agree on the values of
estimates, contingency, and escalation,
from all contractors. Ensure that all
discrete risks on all contracts are covered.
Once these items are completed, the
contractors estimate base-lines are
issued. Management of the change
process then begins to track any
deviations from the set base-lines.
Unit Rate Contracts

With unit rate contracts, estimate
reviews are recommended to ensure that
there are no anomalies. Also to ensure
that the contractors estimated the
contractual quantities and properly
defended their estimates. The quantities
submitted are based on take-offs by the
contractor. These should be scrutinized
against engineering material take-offs, in
order to understand and plan for
variances. Any changes to contract
quantities, after contract award, are
rarely in the favor of the owner.

With cost reimbursable contracts,
estimate reviews are recommended. A
review will demonstrate if the contractors
followed their contract rates. This is
specific to equipment rentals and
indirects. Review ensures the contractors
used proper production rates. On a cost
reimbursable contract, monitoring the
indirect to direct cost (and worker-hours)
on a regular basis is key to ensuring rigor
Cost Estimating Obligations From cost management. The contractor need
Contractors On the Three Main Types of to supply indirect costs separately from
Contracts
direct costs, and match indirect expenses
against approved staff positions.
Lump Sum Contracts
With lump sum contracts, estimate
COST CONTROL
reviews are recommended to ensure that
the contractors have included the entire
Owners want to manage a
scope, properly estimated quantities, and contractors invoices, keeping in mind the
pricing, all according to industry norms. forecast at completion. The owners
Another key attribute of the lump sum concerns on cost are far beyond basic
contract is the ability to influence the contractor costs. This concern includes
schedule of payments by linking this to owners costs that are on top of any
either start milestones (e.g., Start services the contractors will not be
piping in area A), or completion including in their invoices. Included will
milestones (e.g., Complete all small bore be site contracts for things like camps,
piping in Area B) or turnover transportation, snow removal, dust
milestones (e.g., turnover of first three control, or janitorial services, among
utility systems).
other services that an owner may take
This choice in the schedule of on.
payments can significantly influence the
Receiving monthly incurred cost
work of a contractor. Two scenarios exist. reports from the contractors, in addition
The first promotes a cash positive to monthly cash flows, are important
scenario in which work starts on all tools for the owner. These help the owner
fronts. The other option promotes a cash is creating a long range plan and in
negative scenario where the contractor preparing for the cash needed for each
must complete a system or an area in month of the job.
order to qualify for payment. This choice
Asking contractors to prepare and
is also tied to the risk tolerance of both submit monthly cash flow reports is
the owner and the contractor.
broken down into what is planed,
incurred, and forecast. Some owners will
ask for further breakdowns. These can
38
include the baseline plan, approved

changes, and the current plan. The owner
is attempting to schedule approved
changes and to see the time impact of
those changes on the project.
Properly communicating a detailed
cost breakdown structure to the
contractors plays a big part in successfully
managing cost charges. It also help
ensure that the charges go to the right
report categories, so the owner can avoid
having to do reconciliations of the
invoices.
Asking contractors to provide a five
liner cash flow report would add a lot of
value to the owner. Such a report allows
an owner to easily schedule approved
changes, and to see the impact these
changes have on the final forecast of the
project. A five liner cash flow report
includes:
the baseline plan;

the approved changes;
the current plan (which equals the
baseline plan and the approved
changes);
incurred costs; and finally,
the forecast.
A variance analysis conducted on a

timely manner (shift bases or monthly),
between what was planned to incur
versus what actually incurred, is really
important for the owner. This analysis can
pinpoint areas of concern,
and
streamline issues that would impact the
forecast at completion.
Any contract price adjustments, or
amendments, need to be clearly
identified and well communicated to
contractors. Setting the software tools
and providing access rights for auditing
are two items that need to be agreed
upon early in the project.
Providing software access to all
contractors, for them to be able to work
on the owners software systems,
provides transparency and alignment. But
this may also end up costing the owner
extra for software licenses and USB
encryption flash drives (keyfobs or other
remote licensing hardware).
Timely progress reports should
include the budgeted amounts, incurred
amounts, committed amounts, invoiced
amounts and forecasted amounts.
Subtracting the invoiced amounts from
the incurred ones would enable the

owner to know the accrual values. The
owners finance department needs these
values in order to prepare the cash calls
for the following months cash out.
Cost
Control
Obligations
From
Contractors On the Three Main Types of
Contracts
Lump Sum Contracts
Pre
invoice
reviews
are
recommended on lump sum contracts to
ensure the contractors followed their
contract milestones of payments. All
payments need to be claimed by the
contractor only against approved
certificates of completion of a milestone.
Unit Rate Contracts
Pre invoice reviews of unit rate
contracts are recommended to ensure
that the contractors have the correct
measurements of quantities listed in their
invoices and that they follow the correct
contract rates.
Pre invoice reviews of cost reimbursable
contracts are recommended to ensure
that the contractors followed their
contract terms and rateson both
directs
and
indirects,
including
subcontract rates.
accruing change proposals from the

contracts.
One important principle should be
adopted; no work without a contract and
no contract without approval. Following
management of change procedures, and
getting the necessary signatures and
approvals, are necessary before any
contractor can start on any work. These
changes were not stated in the original
contract.
Always maintain a change log and
keep it live between the supply chain
management and project controls. In that
log exists all change proposals coming
from contractors. Included are both
approved and rejected change proposals.
For the approved ones, a breakdown
between the direct cost versus the
indirects should be kept live. The
percentage of indirects over directs also
needs to be logged for any future claims.
Conclusion
The impact of project controls on
contracts management, would be
effective if well communicated to the
contractors, prior to contract award.
Different disciplines within project
controls should integrate and supplement
each other for effective contracts
management, regardless of the contract
type.
Proper project controls obligations
need to be well communicated to
contractors in the appropriate time. In
addition, on boarding of each contractor
needs to take place on a detailed level.
During this time, communicate the exact
requirements and ensure proper
understanding and alignment to the
project controls obligations.
Project controls can do its job of get
ting the job safely completed, within
budget and schedule deadlines, provided
that the project requirements or
Change Management Obligations From obligations have been timely and
Contractors On the Three Main Types of properly communicated to contractors.
Contracts
Lump Sum Contracts

With lump sum contracts, claim
avoidance is paramount when reviewing
change proposals from contractors.
Holding the contractors accountable to
the performance factor and the
production rates, assessing the impacts
on critical paths is important. Clearly, it
CHANGE MANAGEMENT
must be stated in the contract the rules of
back charges and the conditions of
Proper definition of scope, versus bonuses for safety or budget/schedule
non-scope change, needs to be identified deadlines met.
and communicated to the contractors.
What could be a scope change from the Unit Rate Contracts
contractors perspective may not be from
With unit rate contracts, comparing
the owners point of view. Mapping these production rates on change proposals to
changes in a matrix is really important.
baseline contractual production rates is
Owners have money allocated for a important.
contract as part of the projects estimate.
Once the contract is awarded, it may very Cost Reimbursable Contracts
well take place with a different value. The
On cost reimbursable contracts, it is
variance between the estimate and the important to compare the contractual
awarded contract value is known to the staffing plan to each change proposal
owner as the contract reserve.
from contractors, bench mark against the
Any change proposals from production rates (budget workercontractors may not need a project hours/quantities installed), and the
change notice, as long as the value is contractual performance factor (earned
covered in the contract reserve. An worker-hours/spent worker-hours).
owner definitely needs a project change
notice (PCN), once this contract reserve is
depleted. This is because the owner is
RECOMMENDED READING
1. Barksdale, S and T. Lund, 10 Steps to
Successful Strategic Planning,
Washington DC, American Society for
Training and Development, 2006.
2. Yarberry, W.A. Effective Change
Management: Ensuring Alignment of
IT
and
Business
Function.
Information Systems Security, 16, 2:
(2007): pgs. 80-89.
3. Meredith, J. and J. Samuel, Project
Management - A Managerial
Approach, Fourth Edition.
4. Dr. Larew, R.E. AACE International
Certification Study Guide, Second
Edition, 1999.
5. Harris, F., and R. McCaffer, Modern
Construction Management. Copp
Clark, Ltd., Fouth edition, 1995.
6. Barrie, S.D. and B.C. Paulson,
Professional
Construction
Management. McGraw Hill, Third
edition, 1992.
7. Ahuja, H.N., S.P. Dozzi, and S.M.
Abourizk. Project Management:
Techniques in Planning and
Controlling Construction Projects,
John Wiley & Sons Inc., Second
edition, 1994.
8. A Guide to the Project Management
Book of Knowledge, 2000 Edition,
39
9.
Project Management Institute, Four

Campus Boulevard, Newton Square,
PA, 2000.
Practice Standard for Work
Breakdown Structures. 2001, Project
Management Institute, Four Campus
Boulevard, Newton Square, PA, 2001.
ABOUT THE AUTHOR
Informaion on Submiing Aricles to Cost Engineering

is with Suncor Energy
Services, Inc. He can be
contacted by sending
e-mail to:
mohmrw@hotmail.com
Peer-reviewed technical aricles published in the Cost Engineering journal

generally are rst submited as abstracts for an AACE Annual Meeing presentaion. The review commitee likes the addiional evaluaion input from the
presentaion atendees. To review the Ocial Guidelines for Preparing Papers
for the Cost Engineering journal, visit: www.aacei.org/resources/ce/submitAricles.shtml
New AchieveLinks Program Delivers Rewards for AACE Internaional members!

AACE Internaional is proud to announce that the AchieveLinks rewards program is now available
to all our members. AchieveLinks is the unique rewards program created exclusively for associaions.
Just by making the same purchases you already make for your business and personal life, youll earn
valuable LinksSM reward points that can be redeemed for exciing rewards, including family vacaions, great
merchandise, and once in a lifeime experiences.
According to Dennis Stork, AACE Internaional Execuive Director, AchieveLinks maximizes the value
our members get from their membership while increasing their engagement with AACE Internaional.
AchieveLinks rewards our members for purchases they make every day whether for personal or professional
reasons. The AchieveLinks reward points can really add upand be redeemed for an impressive array of rewards. With hundreds of merchants to chose from, the opions literally range from A-Z with members being
able to buy from companies as wide ranging as Adidas to Zales. Not only do our members benet with rewards points, but the Associaion will earn non-dues income to help diversify income sources for future benets.
To learn more about this unique membership benet provided at no cost to our members,
or see a list of earning opportuniies and reward opions, visit www.achievelinks.com.
Beter yet, acivate now before the holiday season and start earning Links today!
40
PROFESSIONALSERVICESDIRECTORY
Infrastructure Project Estimating
Consulting Services
Estimating Software
Infrastructure Cost Data
ipe
www.infrastructurecost.com
The Chief Estimator Software
INDEX TO ADVERTISERS
ARES Corporation, back cover
Bechtel Corporation, page 3
YOUR
VISIBILITY
D.R. McNatty and Associates, this page
ADVERTISE
Sage, page 45
Supertech, page 15
For additional information about the listed advertisers or about
advertising with us, please phone Garth Leech, 1.304.296.8444
x122, or e-mail him at gleech@aacei.org
Ron Winter Consulting, page 23
PLACE your products/services in front of

over 50,000 users each month with a banner
ad at our website, www.aacei.org.
ipe, this page

Management Technologies, this page
REACH the entire AACE International membership every month by placing an ad in the
Cost Engineering journal.
EcoSys, inside front cover

Infinitrac, this page
IN THE
COST ENGINEERING
JOURNAL
EXHIBIT at the AACE International Annual

Meetings, and contact AACE International
members face to face.
CONTACT
Garth Leech
phone 1.304.296.8444 fax 1.304.291.5728
e-mail gleech@aacei.org
OR GO ONLINE AT www.aacei.org
41
Contrary to rumor, there is no ceried League of TCM Heroes. Individuals who have earned
cericaions such as the Ceried Cost Consultant (CCC)/Ceried Cost Engineer (CCE), Ceried
Esimaing Professional (CEP), Ceried Forensic Claims Consultant (CFCC), Earned Value Professional (EVP), Planning & Scheduling Professional (PSP) and Ceried Cost Technician (CCT) are:
Not able to leap tall buildings in a single bound

Not faster than a speeding bullet
Not more powerful than a locomoive

Not in possession of x-ray vision
But the AACE Internaional Salary Survey did show that cericate holders earn an average
of $5,000 per year more than non-cericaion holders with the same age and experience!
If you want to be in the same salary league then visit

www.aacei.org for more informaion!
ARTICLEREPRINTSANDPERMISSIONS
COST ENGINEERING
Vol. 55, No.3/May/June 2013
Members of AACE International have access to free downloads of selected articles
that are published with an AACE International reference number. These articles are
available at the online Virtual Library at www.aacei.org. Electronic files of each
months technical articles are posted and members can download an Adobe Acrobat
(PDF) version of any of the technical articles for free. You can search for articles
using the reference numbers listed in the Cost Engineering journal. Non-members
can subscribe to the AACE Virtual Library at an annual cost of US $100.00. AACE International no longer offers reprints of individual articles.
Pages 5-15
Pricing Projects in a
Continuing Hyper Competitive Market
This article was presented at the 2012 AACE International Annual Meeting in San Antonio as EST.912.
Article Reference Number - 22000

Pages 16-23
An Effective and Ethical Approach to the

General Contractor Bid Process
Chris Carson, PSP
To Submit an Abstract/Manuscript
Cost Engineering is a refereed journal. All technical
articles are subject to a review by the AACE International
Cost Engineering Journal Review Committee. Abstracts are
only accepted in our annual AACE Call for Papers for our
Annual Meeting and ITCM Conference. Accepted abstracts
must be followed up with a full approved manuscript that
is presented and attendee evaluated at one of the AACE
Annual Meetings or ITCM Conferences. Top rated manuscripts will be considered for publication in the CE journal.
Any unsolicited abstracts received at other times throughout a year will receive an e-mail notice to submit in our next
Call for Papers.
To Subscribe
Contact AACE International Publications Sales at:
pubsales@aacei.org
Contact Us
AACE International
1265 Suncrest Towne Centre Dr
Morgantown, WV 26505-1876 USA
Phone: 304.296.8444
Fax: 304.291.5728
E-mail: editor@aacei.org
Website: www.aacei.org
This article was presented at the 2012 AACE International Annual Meeting in San Antonio,
as EST.1013.

Pages 25-30
Owners: What to Look for in a

Contractors Project Control Capability
This article was presented at the 2012 AACE International Annual Meeting in San Antonio as OWN.1042.

Pages 32-40
Field Project Control Roles In

Managing Different Contracts (Owners Approach)
This article was presented at the 2012 AACE International Annual Meeting in San Antonio as OWN.810.
Copyright/Permissions
Cost Engineering is a copyright protected AACE
International intellectual property product. For permission to photocopy individual articles for personal
use, contact the Copyright Clearance Center at
978.750.8400 and pay the required fees. For all
other permission to use, copy, translate, reprint requests, e-mail: editor@aacei.org.
43
CALENDAROFEVENTS
MAY 2013
JUNE 2013
2 Scope, Issues, and Liabilities of the 14 Leading Sustainability in

Construction Manager Agency and
Construction Manager At-Risk,
The Southern California Chapter of
the Construction Management
Association of America (CMAA),
The Grand Conference Center
Long Beach, CA
Public, Private and Nonprofit

Organizations,
SUNY-ESF and Farmingdale State
College in partnership with the
Sustainable Enterprise Partnership,
Farmingdale State College
Farmingdale, New York
Contact: www.cmaasc.org
Contact: Katherina Searing

phone 315 470-6817
kbsearing@esf.edu
www.esf.edu
14-16 The International School of

Hydrocarbon Measurement 2013
School and Exhibition, International
School of Hydrocarbon Measurement (ISHM),
Cox Communication Center
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18-23 ISEC-7,
The ISEC Society
Campus Center of the University of
Hawaii at Manoa
Honolulu, HI
Contact: phone 405 325-6034

fax 405 325-7164
www.ishm.info
Contact:
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17 Leading Sustainability in
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Public, Private and Nonprofit

Organizations,
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College in partnership with the
Sustainable Enterprise Partnership,
Farmingdale State College
Farmingdale, New York
Contact: Katherina Searing
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kbsearing@esf.edu
www.esf.edu
Education Seminars,
AACE International
Marriott Wardman Park
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Contact: phone 1-800-858-COST
fax (304) 291-5728
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18-21 17th Pacific Association of

Quantity Surveyors (PAQS),
China Engineering Cost
Association (CECA),
Campus Center of the
Sofitel Xian on Renmin Square
Xian, China
Contact: www.paqs.cn/
44
30-July 3 AACE International

Education Seminars,
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fax (304) 291-5728
info@aacei.org
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Please submit items for future

calendar listings at least 60
days in advance of desired
publication.
AACE International,
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USA
phone: 304-296-8444
fax: 304-291-5728
e-mail: editor@aacei.org
website: www.aacei.org
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THEJOURNALOFAACEINTERNATIONALTHEAUTHORITYFORTOTALCOSTMANAGEMENT

AN EFFECTIVE AND ETHICAL APPROACH TO THE

GENERAL CONTRACTOR BID PROCESS

MANAGING DIFFERENT CONTRACTS

16An Effective and Ethical Approach to the

25Owners: What to Look for in a

32Field Project Control Roles In

COSTENGINEERING MAY/JUNE 2013

Marlene Hyde, CCE EVP

John J. Ciccarelli, PE CCE PSP

Martin Darley, CCC FRICS

AACE International - The Authority for Total Cost Management

Julie Owen, CCC PSP

Michael R. Nosbisch, CCC PSP

George Whyte, CCC CEP EVP

COSTENGINEERING MAY/JUNE 2013

Bechtel is among the most respected engineering, procurement, and construction

Opportunities in Project Controls include:

Discover more at bechtel.com/careers

MINING & METALS

Abstract: The construction marketplace in the US experienced dramatic changes

Key Words: Bid prices, budget, competition,construction, and spending

prices 10%, 20% to even 40%. The

How construction volume affects

Economics and Price

COSTENGINEERING MAY/JUNE 2013

construction, namely a constructed

Figure 1 Relationship of Bidders in an Auction

COSTENGINEERING MAY/JUNE 2013

only to eventually succumb to the

Figure 2 Construction Spending 1977-2011

contractor, subcontractor pricing is

The indirect cost side of the

Risk PremiumHow much should

COST ENGINEERING MAY/JUNE 2013

Figure 3 Breakdown of Construction Costs

and more in depth general

COSTENGINEERING MAY/JUNE 2013

superior construction methodology

of losing is more dramatic than

Each of these categories can affect a

Figure 4 Competition and Bidding

received, the result would be about 11%

including, Factors Affecting Accuracy of

COSTENGINEERING MAY/JUNE 2013

Collectively, the results support the

GDP drives construction spending.

Figure 5 NASA Chart for Bidding Impact

When GDP is robust, spending

Figure 6 presents the relationship

Note that in periods of sustained

Figure 6 Nonresidential Spending and Annual in Gross Domestic Product (GDP)

COSTENGINEERING MAY/JUNE 2013

Figure 7 Regional and State GDP

Longterm Issues to Consider

Gross Domestic Product (GDP)

costs, raise prices, and also increase

Projects under design with

COSTENGINEERING MAY/JUNE 2013

Figure 8 Philadelphia Fed Projection of GDP, Unemployed and Payrolls

competitive marketplace. Projects in

Pennsylvania, southern New Jersey, and

COSTENGINEERING MAY/JUNE 2013

from the Corps of Engineers study, and