07-Str-B2 · December 2018
Nivaar worked solution (AI-drafted; not reviewed by a licensed engineer)
Paper format: National Exams, December 2018 — 07-Str-B2 Management of Construction. Three hours, closed book, one approved Casio or Sharp calculator permitted. Six questions of equal value (20 marks each); any five constitute a complete paper and only the first five that appear in the answer book are marked. All six are worked below so the paper serves as a complete revision set whichever five a candidate elects.
Reference texts: Hegazy, T., Computer-Based Construction Project Management (Prentice Hall) — activity-on-arrow and activity-on-node networks, forward and backward passes, total and free float, and the contractor cash-flow / overdraft model with mark-up, retention and payment lag; these chapters carry Questions 1 and 3. Hendrickson, C. & Au, T., Project Management for Construction (2nd ed., Carnegie Mellon) — Chapter 5 (cost estimation and unit-cost data), Chapter 8 (construction contracts and the allocation of risk), Chapter 10 (fundamental scheduling procedures) and Chapter 12 (cost control, monitoring and accounting, including project financing). Halpin, D.W. & Senior, B.A., Construction Management (4th ed., Wiley) — delivery systems, crew productivity and quantity take-off, surety bonding and lien law. R.S. Means, Building Construction Cost Data (annual) — the anatomy of a unit-price line (crew, daily output, labour-hours per unit, bare material / labour / equipment / total, and total including overhead and profit) and of the related crew table, behind Question 6. Sullivan, W.G., Wicks, E.M. & Koelling, C.P., Engineering Economy (17th ed., Pearson) — Chapters 4 and 5, the uniform-series present-worth factor and deferred annuities, used in Question 4. Canadian Construction Documents Committee, CCDC 2 Stipulated Price Contract (2020), CCDC 4 Unit Price Contract, CCDC 3 Cost Plus Contract, CCDC 14 Design-Build Stipulated Price Contract, and CCDC 220 Bid Bond, CCDC 221 Performance Bond and CCDC 222 Labour and Material Payment Bond — the Canadian contract and surety machinery behind Questions 2 and 5. Provincial lien statutes — the British Columbia Builders Lien Act (SBC 1997 c.45) and the Ontario Construction Act (RSO 1990 c.C.30, as amended 2018) — supply the Canadian equivalent of the American “mechanics lien” named in Question 5.
Check — how the two printed figures on page 2 were read. Network (Question 1): nine numbered event circles and eleven arrows, every arrow carrying a letter and a duration — A(4) 1→2, B(6) 1→4, C(2) 1→7, D(8) 2→3, E(4) 3→6, F(10) 4→5, G(16) 4→8, H(8) 5→6, I(6) 6→9, J(6) 7→8, K(10) 8→9. There is no dummy arrow on this drawing, so the translation to activity-on-node in part (c) is exact and needs no extra logic. Budget S-curve (Question 3): the six labelled markers fall squarely on months 1 to 6 of the printed axis (ticks 0 to 7). The project therefore runs six months and the budget (cost) at completion is $127,000.
Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.
The four approaches named in the question differ in one fundamental respect — who carries the risk that the work will cost more than expected — and every other difference between them follows from that single choice. A lump-sum contract transfers price risk almost entirely to the contractor; a cost-plus contract retains it almost entirely with the owner; unit-price and turn-key sit between the two but split the risk along different seams. In Canada each is embodied in a standard form published by the Canadian Construction Documents Committee — CCDC 2 for stipulated price, CCDC 4 for unit price, CCDC 14 for design-build, CCDC 3 for cost plus — so the comparison below is also a comparison of the four documents a Canadian engineer will actually be administering.
Lump sum (stipulated price). The contractor undertakes the whole of a fully defined scope for one fixed price. It suits projects whose design is complete and unambiguous at tender: buildings, water and wastewater plants, bridges of conventional form, any work where quantities can be taken off the drawings with confidence. The owner's risk is confined to what the owner controls — the completeness of the design, differing site conditions, and any changes the owner initiates. Everything else, including productivity, weather, subtrade pricing and material escalation, is the contractor's. Because that risk has to be priced, the tendered figure carries a contingency the owner pays whether or not the risk materialises, so lump sum is rarely the cheapest way to build; what it buys is price certainty at award, which is exactly what a public owner with a fixed appropriation needs. Delivery time is moderate and predictable but sequential: design must be substantially finished before tender, so the total project duration includes a full design period before any construction begins. Administration is comparatively light — progress payments follow a schedule of values — but change orders are adversarial, because every change reopens a price that was supposed to be closed.
Unit price. The contractor bids a rate for each item of work and is paid for the quantities actually measured in the field. It is the natural form where the nature of the work is well understood but the quantity is not: earthworks, roadway construction, dredging, pipeline and utility work, rock excavation, pile driving. The owner carries quantity risk; the contractor carries productivity and unit-cost risk. That division is usually the honest one, because the owner controls the site information on which quantities depend and the contractor controls the means and methods. The owner gains a lower risk premium in the rates and the ability to start construction from a partially detailed design, but gives up final-price certainty, which is a real problem for a fixed budget. Administration is the heaviest of the four in one specific respect — every pay item must be measured and agreed in the field, which requires competent inspection — and the form is vulnerable to unbalanced bidding, where a contractor loads the rates on items it expects to over-run and starves the rates on items it expects to shrink. Owners defend against this by comparing bid rates item-by-item against the engineer's estimate and against each other, and by reserving the right to renegotiate rates when a quantity varies beyond a stated threshold (commonly 15 to 25 per cent).
Turn-key (design-build). One organisation takes responsibility for both design and construction and hands the owner a completed, commissioned facility. It suits projects where performance rather than prescription can be specified — process plants, industrial facilities, warehouses, standardised repeat buildings, and increasingly public infrastructure procured on a design-build or public-private-partnership basis. The owner's risk position is the strongest of the four in one important sense: the interface risk between design and construction, which under the other forms lands on the owner in the form of design-error claims, is transferred to the design-builder along with a single point of responsibility for the finished product. In exchange the owner surrenders control over design development and detailed selections, and must invest heavily up front in a performance specification, because the contract price is fixed against that document and anything omitted from it becomes an extra. Delivery is the fastest of the four, because design and construction overlap — foundations can be under construction while the upper floors are still being detailed — and because there is no separate tender period between the two. Cost is typically competitive but the owner has less visibility into how it is composed, and comparing proposals is harder because bidders are not pricing an identical scope.
Cost plus. The owner reimburses the contractor's actual, audited cost of the work and pays a fee, structured as a percentage of cost, a fixed fee, or a fixed fee with a guaranteed maximum price and a shared-savings clause. It suits work that cannot be defined in advance: emergency and disaster repair, remediation of unknown conditions, renovations to occupied or heritage buildings, research and first-of-a-kind facilities, and fast-track projects where construction must start before design is complete. Risk allocation is the reverse of lump sum — essentially all cost risk stays with the owner, and the pure percentage-fee variant actively rewards the contractor for spending more, which is why it is the least used form and why a guaranteed maximum price with shared savings is the usual compromise. Delivery can be very fast because work starts the moment there is enough information to proceed, but the final cost is unknown until the work is finished. Administration is by far the most onerous: the owner must audit payroll, invoices, equipment rates and subcontracts, and must police the boundary between reimbursable cost and items covered by the fee, which is precisely where cost-plus disputes arise.
| Approach | Best suited to | Owner's risk | Contractor's risk | Relative cost | Relative time |
|---|---|---|---|---|---|
| Lump sum (CCDC 2) | Complete, unambiguous design; conventional buildings and structures | Low — limited to design adequacy and owner-driven change | High — quantities, productivity, escalation | Highest risk premium; price certain at award | Longest overall — design must finish before tender |
| Unit price (CCDC 4) | Known work types, uncertain quantities: earthworks, roads, pipelines | Moderate — carries quantity risk and unbalanced-bid exposure | Moderate — carries unit-rate and productivity risk | Lower risk premium; final price uncertain | Shorter — can tender off a partial design |
| Turn-key / design-build (CCDC 14) | Performance-specifiable facilities; process plants, repeat buildings | Low on interface and design-error risk; high on specification-quality risk | High — owns design and construction together | Competitive but least transparent | Fastest — design and construction overlap |
| Cost plus (CCDC 3) | Undefinable scope: emergency work, remediation, fast-track | Highest — carries essentially all cost risk | Lowest — recovers cost plus fee | Lowest risk premium, least certain outturn | Fast to start, uncertain to finish |
Read across that table and one theme dominates: risk is never eliminated, only priced and relocated. Every transfer of risk to the contractor comes back to the owner as contingency in the bid, and every risk the owner retains comes back as budget uncertainty and administrative effort. The competent choice therefore turns on two questions asked before tender — how completely can the scope be defined today, and which party is genuinely better placed to control each significant risk. Where the design is finished and the quantities are firm, lump sum is right. Where the design is firm but the ground is not, unit price is right. Where the outcome can be specified but the means need not be, design-build is right. And where nothing can honestly be defined yet, cost plus with a guaranteed maximum price is the only form that does not simply invite a claim.
