Documente Academic
Documente Profesional
Documente Cultură
Sixth Edition
INTRODUCTION
A. J. Clark School of Engineering Department of Civil and Environmental Engineering
By
Dr. Ibrahim Assakkaf
ENCE 420 Construction Equipment and Methods
Spring 2003
Department of Civil and Environmental Engineering
University of Maryland, College Park
CHAPTER 1. INTRODUCTION
Slide No. 2
ENCE 420 Assakkaf
CHAPTER 1. INTRODUCTION
Slide No. 3
ENCE 420 Assakkaf
CHAPTER 1. INTRODUCTION
Construction Contract
Slide No. 4
ENCE 420 Assakkaf
An understanding of construction
Engineer/Architect contributes an
important service in developing a
contract.
CHAPTER 1. INTRODUCTION
Construction Contracts
Slide No. 5
ENCE 420 Assakkaf
CHAPTER 1. INTRODUCTION
Construction Contracts
Slide No. 6
ENCE 420 Assakkaf
Agreement:
There must be an agreement between the parties
involved
Such an agreement involves offer and acceptance
The signed contract by the contractor constitute an OFFER
Notification by the owner of the winning proposal constitute ACCEPTANCE
Slide No. 7
CHAPTER 1. INTRODUCTION
Construction Contracts
Consideration:
In the case of a construction contract, if a
CHAPTER 1. INTRODUCTION
Construction Contracts
Slide No. 8
ENCE 420 Assakkaf
Capacity:
This means that both parties must be of
sufficient age to enter into a contract and
mentally aware of what they are doing
CHAPTER 1. INTRODUCTION
Construction Contracts
Slide No. 9
ENCE 420 Assakkaf
Legality:
For a contract to be valid, it must be
legal. Obviously, a contract between
two parties in which one agrees to
commit an illegal act cannot be enforced!
CHAPTER 1. INTRODUCTION
Construction Contracts
Slide No. 10
ENCE 420 Assakkaf
Slide No. 11
CHAPTER 1. INTRODUCTION
because the owner can obtain the benefits of competitive bidding and
knows what the project will cost before he enters into a contract with a
constructor.
Slide No. 12
CHAPTER 1. INTRODUCTION
Example:
Quantity
Piping
Seeding
Palm Trees
Sub-total
150
15
$2,250
$1,050
20
200
$4000
Total
$7300.00
CHAPTER 1. INTRODUCTION
Slide No. 13
ENCE 420 Assakkaf
the preferred type of contract when the actual final quantities are not
known with certainty beforehand.
Under the terms of this contract the constructor may earn a profit or
incur a loss, depending on the accuracy of his estimate per unit of
work.
CHAPTER 1. INTRODUCTION
Slide No. 14
ENCE 420 Assakkaf
The owner will reimburse the constructor for all costs specified to
construct the project, including all labor costs, material costs,
equipment usage costs, subcontractor costs, and job supervision
costs.
Under this type of contract the constructor usually takes the least
risk, and therefore has the least incentive to keep costs down.
well defined ahead of construction or when the state of the art for the
particular project is not well known.
CHAPTER 1. INTRODUCTION
Slide No. 15
ENCE 420 Assakkaf
CHAPTER 1. INTRODUCTION
Performance Guarantees
Slide No. 16
ENCE 420 Assakkaf
CHAPTER 1. INTRODUCTION
Constructor Specialties
CHAPTER 1. INTRODUCTION
Slide No. 17
ENCE 420 Assakkaf
Slide No. 18
ENCE 420 Assakkaf
Slide No. 19
CHAPTER 1. INTRODUCTION
Slide No. 20
CHAPTER 1. INTRODUCTION
10
Slide No. 21
CHAPTER 1. INTRODUCTION
Slide No. 22
CHAPTER 1. INTRODUCTION
Financing Mechanisms
11
Slide No. 23
CHAPTER 1. INTRODUCTION
Slide No. 24
CHAPTER 1. INTRODUCTION
12
Slide No. 25
CHAPTER 1. INTRODUCTION
Slide No. 26
CHAPTER 1. INTRODUCTION
13
Slide No. 27
CHAPTER 1. INTRODUCTION
9.
10.
11.
12.
13.
Slide No. 28
CHAPTER 1. INTRODUCTION
14
Slide No. 29
CHAPTER 1. INTRODUCTION
Slide No. 30
CHAPTER 1. INTRODUCTION
15
CHAPTER 1. INTRODUCTION
Equivalency
Slide No. 31
ENCE 420 Assakkaf
The banker normally does not care whether you pay him $1,140.00 after
one year or $1,299.60 after two years. To him, the three values ($1,000,
$1,140, and $1,299.60) are equivalent.
$ 1,000 today is equivalent to $1,140 one year from today,
$ 1,000 today is equivalent to $1,299.60 two years from today.
The three values are not equal but equivalent.
Note:
1.The concept of equivalence involves time and a specified rate
of interest. The three preceding values are only equivalent for an
interest rate of 14%, and then only at the specified times.
2. Equivalence means that one sum or series differs from another
only by the accumulated interest at rate i for n periods of time.
CHAPTER 1. INTRODUCTION
Symbols
Slide No. 32
ENCE 420 Assakkaf
16
Slide No. 33
CHAPTER 1. INTRODUCTION
Financial analysis
Single payment
Uniform series of payments
Discounted present worth analysis
Rate of return analysis
Slide No. 34
CHAPTER 1. INTRODUCTION
F1 = P + Pi
F2 = P + Pi + (P + Pi)i = P(1 + i)2
F = P(1 + i)n
17
Slide No. 35
CHAPTER 1. INTRODUCTION
Note:
F is related to P by a factor which depends only on i and n.
This factor, termed the single payment compound amount
factor (SPCAF), makes F equivalent to P.
SPCAF may be expressed in a functional form:
(1 + i ) n = , i, n
P
or F = P , i, n
P
P=
F
(1 + i ) n
or P = F , i, n
F
CHAPTER 1. INTRODUCTION
Slide No. 36
ENCE 420 Assakkaf
Note:
The factor 1/(1+i)n is called the present worth compound
amount factor (PWCAF)
1
P
= , i, n
n
(1 + i )
F
18
Slide No. 37
CHAPTER 1. INTRODUCTION
Slide No. 38
CHAPTER 1. INTRODUCTION
To solve this problem you can also use the tables in Appendix A.
P =100,000 (P/F, 8,5) = 100,000(0.6805832) $68,058.32 = $68,060
19
Slide No. 39
CHAPTER 1. INTRODUCTION
F = A (1 + i )
n 1
+ (1 + i )
n2
+ .... + (1 + i ) + 1
Fi = A(1 + i ) 1
n
Slide No. 40
CHAPTER 1. INTRODUCTION
(1 + i )n 1
F = A
F = A , i, n
A
[(1+i)n - 1]/i is called the uniform series compound amount factor (USCAF)
It can also be shown that
i
A = F
n
(1 + i ) 1
20
Slide No. 41
CHAPTER 1. INTRODUCTION
A = F , i, n
F
The relationship i / [(1+i)n - 1]is termed as the uniform series sinking fund factor
(USSFF)
F = P (1 + i )
Recall that
Hence
(1 + i )n 1
P
or P = A , i, n
P = A
n
A
i (1 + i )
CHAPTER 1. INTRODUCTION
Slide No. 42
ENCE 420 Assakkaf
Also
i (1 + i )n
A
A = P
or A = P , i, n
n
P
(1 + i ) 1
The relationship i(1 + i ) is called the uniform series capital recovery factor
(1 + i ) 1
(USCRF)
n
21
Slide No. 43
CHAPTER 1. INTRODUCTION
n-1
1
n
F = P(1 + i ) or P = F
n
(1 + i )
Slide No. 44
CHAPTER 1. INTRODUCTION
A
2
A
4
A
6
A
n-1
(1 + i )n 1
i
F = A
or A = F
n
i
(1 + i ) 1
22
Slide No. 45
CHAPTER 1. INTRODUCTION
A
2
Example 3
A
6
A
n-1
(1 + i )n 1
i (1 + i )n
=
P = A
A
P
or
n
n
i (1 + i )
(1 + i ) 1
CHAPTER 1. INTRODUCTION
Slide No. 46
ENCE 420 Assakkaf
23
Slide No. 47
CHAPTER 1. INTRODUCTION
Example 3 (continued)
3,200
4,500
0
12.34 (1,400)
3,200
3,200
3,200
6,000
45,000
Slide No. 48
CHAPTER 1. INTRODUCTION
Example 3 (continued)
n = 8,400/1,400 = 6 years
A1 = - 45,000(A/P,15,6) = - 45,000 (0.26424) = -11,890.80
= -17,276.00
A2= - 12.34 (1,400)
A3= - 3,200 (A/F,15,2) = - 3,200 (0.46512) = -1,488.38
A4= - 6,000 (P/F,15,3)(A/P,15,6)
= - 6,000 (0.65752)(0.26424)
= -1,042.46
= + 879.65
A5= +(4,500 + 3,200) (A/F,15,6)
= -30,817.99
AT= the total annual cost
The hourly cost
30,817.99/1,400 = $22.01/hr
i (1 + i )n
A
A = P
or A = P , i, n
n
P
(1 + i ) 1
i
A = F
n
(1 + i ) 1
(1 + i )n 1
P
P = A
or P = A , i, n
n
A
i (1 + i )
24
Slide No. 49
CHAPTER 1. INTRODUCTION
Definition:
The present worth is discounted at a predetermined rate of interest
called the minimum attractive rate of return (MARR or i*).
The MARR is usually equal to the current rate of interest for
borrowed capital plus an additional rate for such factors as risk,
uncertainty, and contingencies.
MARR = i* = i + i(risk)
CHAPTER 1. INTRODUCTION
Example 4
Slide No. 50
ENCE 420 Assakkaf
25
Slide No. 51
CHAPTER 1. INTRODUCTION
Example 4 (continued)
7,200
2,250
2,250
2,250
1,200
4
750
2,700
2,700
2,700
2,700
CHAPTER 1. INTRODUCTION
Slide No. 52
ENCE 420 Assakkaf
Approach 1:
Truncate (cut off) the longer-lived alternative(s) to equal the
shorter lived alternative and assume a salvage value for the
unused portion of the longer lived alternatives. Then make
the comparison on the basis of equal lives.
Approach 2:
Assume equal replacement conditions (costs and incomes)
for each alternative and compute the discounted present
worth on the basis of the least common multiple of lives for
all alternatives.
26
Slide No. 53
CHAPTER 1. INTRODUCTION
Example 5
Slide No. 54
CHAPTER 1. INTRODUCTION
Example 5 (continued)
Approach 1. (comparison on the basis of equal lives)
8,000
26,000
26,000
26,000
New
tractor
26,000
26,000
26,000
Assumed Salvage
Value
73,750
30,000
12,000
12,000
12,000
Old
tractor
26,000
26,000
New
tractor
0
24,680
26,000
73,570
27
Slide No. 55
CHAPTER 1. INTRODUCTION
Example 5 (continued)
26,000
26,000
26,000
8,000
26,000
26,000
6
73,570
12,000
12,000
12,000
Old
tractor
0
24,680
12,000
12,000
12,000
24,680
CHAPTER 1. INTRODUCTION
Slide No. 56
ENCE 420 Assakkaf
Definition:
The rate of return of a proposed investment is that interest
rate which makes the discounted present worth of the
investment equal to zero.
28
Slide No. 57
CHAPTER 1. INTRODUCTION
Example 6
Slide No. 58
CHAPTER 1. INTRODUCTION
Example 6 (continued)
Approach 1. (comparison on the basis of equal lives)
26,000
26,000
26,000
New
tractor
0
26,000
P
NPWnew = 73,570 + 26,000 , i,6 = 0
(1 + i ) 1
73,570
P
= 2.82962 =
, i ,6 =
6
i (1 + i )
26,000
A
inew = 26.9%
6
12,000
12,000
12,000
Old
tractor
24,680
26,000
73,750
26,000
P
NPWold = 24,680 + 12,000 , i,3 = 0
(1 + i ) 1
P
24,680
= 2.05667 =
, i,3 =
3
i (1 + i )
A
12,000
iold = 21.5%
3
29
Slide No. 59
CHAPTER 1. INTRODUCTION
Example 6 (continued)
Iterative Solution
P
(1 + i ) 1 i = (1 + i ) 1
P
73,570
= 2.82962 =
, i,6 =
new
6
6
2.82962(1 + i )
i(1 + i )
A
26,000
6
(1 + i ) 1 i = (1 + i ) 1
P
24,680
= 2.05667 =
, i,6 =
old
3
3
2.05667(1 + i )
i (1 + i )
12,000
A
3
Slide No. 60
CHAPTER 1. INTRODUCTION
Example 6 (continued)
Iterative Solution
i
inew =
(1 + i )6 1
6
2.82962(1 + i )
inew = 26.9%
0.200
0.235
0.254
0.262
0.266
0.268
0.268
0.268
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
0.269
NPW new
12893
5877
2498
1027
416
168
67
27
11
4
2
1
0
0
0
0
0
0
0
0
0
0
0
0
0
i
0.150
0.167
0.180
0.190
0.198
0.203
0.207
0.210
0.212
0.213
0.214
0.214
0.215
0.215
0.215
0.215
0.215
0.215
0.215
0.215
0.215
0.215
0.215
0.215
0.215
NPWold
2719
1985
1415
990
683
466
316
214
144
97
65
43
29
19
13
9
6
4
3
2
1
1
1
0
0
iold =
(1 + i )3 1
3
2.05667(1 + i )
inew = 21.5%
30
CHAPTER 1. INTRODUCTION
Example 6 (continued)
Slide No. 61
ENCE 420 Assakkaf
If MARR is 20%
Then, the new tractor is selected.
CHAPTER 1. INTRODUCTION
Slide No. 62
ENCE 420 Assakkaf
31
CHAPTER 1. INTRODUCTION
Slide No. 63
ENCE 420 Assakkaf
CHAPTER 1. INTRODUCTION
Slide No. 64
ENCE 420 Assakkaf
32
Slide No. 65
CHAPTER 1. INTRODUCTION
6
48,890
CHAPTER 1. INTRODUCTION
Slide No. 66
ENCE 420 Assakkaf
While the initial investment of $24,680 for the old tractor will yield a
ROR of 21.5%, the incremental increase in initial investment of
$48,890 (by purchasing the new tractor) will yield an IROR of
30.9%.
Now that all the rates of return are known, a decision can be
reached which is dependent on the MARR.
For a MARR of 20% the ROR of the new tractor is too low, and
therefore the old tractor is chosen.
For a MARR of 15% both alternatives exceed it and we have to examine
the IROR.
In this case the IROR is higher than the MARR, so we should choose
the new tractor.
33