Delivery Method -Cost plus fixed fee- Contractor Selection
I was reading AHPP and according to the diagram in Chapter 9 ( diagram 9.3), the contractor is selected after SD . Some other study sources say the contractor is selected after CD .
Can someone clarify?
We’d love the contractor to come on board early to consult with the architect on issues of buildability and cost estimating…but In classic design bud build, we rely on the competitive tension of the bidding process to achieve a low fixed price for the owner and sacrifice the early consulting for competitive tension…..HOWEVER, in cost plus fixed fee, we are not relying on competitive bidding to achieve a fixed price because we know that the price will reflect the cost to the contractor plus a pre established mark up. Of course the down side to this model is that the contractor is incentivized to hire the most expensive subcontractors and purchase needlessly expensive materials since she takes a percentage of each…plus it’s ripe for both illegal or questionable kickbacks (“why don’t you borrow my boat this weekend” says the electrician to the GC “and by the way, we may need to work overtime a bit on this project “)…there are some obvious quality advantages to having the contractor incentivized into purchasing good Phillips light bulbs instead of low quality cheap ones, plus without the bidding process, you can bring the contractor on early for buildabily and cost estimating purposes.
All that said, I’m not sure that the chart is telling you that the contractor can “be brought on early, FOR INSTANCE, after SD”…or telling you that something in either the wording of the AIA contract (or industry tradition dictates that the contractor should be SPECIFICALLY brought on right at that point)…I suspect it’s the former, but I don’t know that NCARB’s volunteer test item writers appreciate that nuanced distinction when authoring test questions from that particular book.
I think that some of the confusion about this chart stems from the fact that cost-plus is not a delivery method pe se, but is rather one of the ways a contractor and owner can contract for a project under the traditional delivery method (see AHPP fig. 9.1). Note that Figure 9.3 lists the delivery type as 'traditional' and the option as 'cost plus fixed fee'. Cost-plus is discussed further (AHPP p. 1087-1088) and is referred to as a 'basis of payment'.
With that understanding, I think it's fair to say that the contractor can be brought on at any point during the traditional delivery process, and bringing them onto the team after SD is one example, and a good idea.
Cost-plus can take two forms - cost-plus fixed fee, which is being referenced here, and cost-plus a percentage (see again AHPP p. 1087-1088).
In cost-plus fixed fee, the contractor is not incentivized to buy more expensive materials because they don't net any more or less money depending on the price of the material - by definition, they're reimbursed for the cost of the material and make a fixed fee. To continue the lightbulb example, a contractor might charge you the cost of the lightbulb (whatever that may be) plus a fixed fee of, say, $20, to change your lightbulb. So, if the lightbulb costs $1, you pay them $21 but they've spent $1, netting $20. If the bulb costs $10, you pay them $30 but they've spent $10, netting the same $20. They're indifferent, financially, to the cost of the lightbulb.
If the cost-plus structure is based on a percentage then I agree, the contractor is incentivized to spend more on materials, which may or may not benefit the owner. This is the same reason why percentage of construction cost has fallen out of favor as a fee method for architects.
Hope that was helpful and good luck on your next exam!
Chris Hopstock RA
Please sign in to leave a comment.