Daily Tenders Baseline - Leads to Business Tender Bulletins in South Africa & Africa for the Civil, Building and Construction Industry

The contract baseline includes the basic ingredients of a construction agreement. It is the documentation of the "meeting of the minds." It establishes two things: first, a starting point and second, a snap shot of the agreement at that moment in time. It signals the end of all prior negotiations and is the starting point for all future negotiations. All prior schedules, estimates, discussions of finishes, and details are moot if not included in the contract baseline documents. For a customer to determine what he or she wants out of a project, the mind flits back and forth while weighing decisions; unfortunately, many conflicting options may emerge as the customer discovers what he or she wants. Many times the contractor is "following the bouncing ball" as the customer explores the available options. The problems occur when the customer has discussed everything and anything and conclusions are not documented. As a contractor have you ever heard this dreaded sound coming from a customer: "Don't you remember we talked about that?" or "That's included, we talked about that from the beginning." The contractor will think, "Talked about what?" People talk about gold-plated toilet seats and helicopter pads until they find out how much it will cost.

I had one customer that went to my cabinetmaker during construction and asked if he could install a motorized spice rack. With confidence he stated: "if you can think it, I can build it." After researching it. The cabinetmaker presented me with a cost estimate. I presented it to the customer and she said, "Oh no, I asked the cabinet maker if he could build it and he said yes, he didn't say anything about it costing more." How frustrating! I concluded she was either a) a little confused, b) stupid, or c) a smart consumer wanting as much as possible for as little as possible, thinking that it is not dishonest to cheat someone as long as it is in the name of business. I concluded she was playing a game of word manipulation in order to win what she wanted without paying for it. When I insisted that a motorized spice rack would cost more, she acted devastated, insisting I should cover the cost because it would be a hardship on her. According to her, it had been represented that it would not cost anything, which is why she set her heart on it. Thank goodness I had a good contract baseline. In retrospect I could have used an even better contract baseline as this customer tested every loophole in the contract.

In the wild west the Winchester Rifle was called the great equalizer. It didn't matter if you were rich or poor, young or old, male or female. Once you had a Winchester Rifle in your hands you stood on equal ground. A contract baseline is the "great equalizer" of construction. It is the law that everyone must yield to and it equalizes any unfair advantage one may have over the other. It is the construction project's "constitution."
Without a secure contract baseline and the initial meeting of the minds, the abilities of the contractor may mean little when faced with the customer from the underworld. Establishing clear boundaries and starting points between customer and contractor will ensure the contractor's right in collecting money from delays and changes and if necessary enforce it with the law. The contract baseline is a tool for implementing sound leadership and management principles.

Some of the documents included in a contract baseline are

Contract documents (general and special conditions)
Scope of work (technical specifications, drawings, and other relevant data)
Contract schedule
Site conditions (such as information furnished to bidders, soil and geology reports)
Applicable laws and regulations (depending on the specifics of a project)

A contractor cannot ignore the importance of the contract baseline. Because the contract and its documents will change over the course of the project (especially the schedule), it is important that the contractor be able to take note of these changes and to make claims on those that affect performance.
To establish one of the main factors of your contract baseline you must come up with an accurate and reasonable cost estimate. Aside from the obvious hard costs associated with construction projects, there are many hidden costs that can creep in and lay waste to the unwary contractor. Poor estimating and scheduling are two of the biggest causes of project failures. It is no coincidence that creating estimates is also one of the more boring and tedious tasks, which only contributes to its frequent neglect.

Construction estimates have some requirements that must be fulfilled:

A construction estimator

. Whether this is the contractor, project manager, superintendent, or dedicated office estimator, it is a person who has the experience and qualifications to do the following:

Pre-qualify and contact subcontractors, suppliers of products to solicit bids and proposals.

Prepare quantity take-offs for various types and forms of construction.

Determine general requirements needed for the project.

Determine site conditions.
Qualify unknowns and determine exclusions and allowances.

Quantities and cost. Whether this comes from the estimator's own job histories or from an outside source, an accurate cost base must be established:
Historical labor cost records.
Quantities of materials.
Material quotes and unit prices.
Job plan and schedule.
Subcontractor's bids.
Job site overhead (direct costs).

Even though managing the money on construction projects is the focus of most project management "how to" books and management software, if they do not include some basic ingredients they are neglecting one of the most powerful tools available. A good job cost system monitors the "projected cost at completion" during the course of construction. This is different than an "after the fact" accounting of what it ultimately will cost. The "to date costs," "cost to complete," and "projected costs at completion" are three lines that are important indicators of the financial status of a project. They have a direct effect on each other and tracking them gives the ability to plan forwards and backwards during the project.

To understand how this works on the financial aspects of a project consider how it works on the time aspects of a project. If a nervous owner is trying to verify a move-in date mid-way through the project, a good, updated schedule is valuable. This is because the unknown variables of the first half of the project are now known facts and the projections must only be extended to the second half of the project. The closer the job moves to completion, the more accurate the schedule is. The same is true with the financial aspect. Simply adding up all the costs after the fact only reveals how far on or off the budget was. This is important information, but if you are only doing "after the fact accounting" you are denying the conscientious project manager one of the most valuable tools in project management.

Tracking costs and projecting final costs during the course of construction is vital for the contractor who wants to be paid for all his work. Aligned with a good schedule, tracking and projecting costs forms the powerhouse needed in managing the job, the customer, and the profits. The natural by-product that follows are projects that are completed on time and in budget.

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CONTRACT BASELINE
The contract baseline includes the basic ingredients of a construction agreement. It is the documentation of the "meeting of the minds." It establishes two things: first, a starting point and second, a snap shot of the agreement at that moment in time. It signals the end of all prior negotiations and is the starting point for all future negotiations. All prior schedules, estimates, discussions of finishes, and details are moot if not included in the contract baseline documents. For a customer to determine what he or she wants out of a project, the mind flits back and forth while weighing decisions; unfortunately, many conflicting options may emerge as the customer discovers what he or she wants. Many times the contractor is "following the bouncing ball" as the customer explores the available options. The problems occur when the customer has discussed everything and anything and conclusions are not documented. As a contractor have you ever heard this dreaded sound coming from a customer: "Don't you remember we talked about that?" or "That's included, we talked about that from the beginning." The contractor will think, "Talked about what?" People talk about gold-plated toilet seats and helicopter pads until they find out how much it will cost. I had one customer that went to my cabinetmaker during construction and asked if he could install a motorized spice rack. With confidence he stated: "if you can think it, I can build it." After researching it. The cabinetmaker presented me with a cost estimate. I presented it to the customer and she said, "Oh no, I asked the cabinet maker if he could build it and he said yes, he didn't say anything about it costing more." How frustrating! I concluded she was either a) a little confused, b) stupid, or c) a smart consumer wanting as much as possible for as little as possible, thinking that it is not dishonest to cheat someone as long as it is in the name of business. I concluded she was playing a game of word manipulation in order to win what she wanted without paying for it. When I insisted that a motorized spice rack would cost more, she acted devastated, insisting I should cover the cost because it would be a hardship on her. According to her, it had been represented that it would not cost anything, which is why she set her heart on it. Thank goodness I had a good contract baseline. In retrospect I could have used an even better contract baseline as this customer tested every loophole in the contract. In the wild west the Winchester Rifle was called the great equalizer. It didn't matter if you were rich or poor, young or old, male or female. Once you had a Winchester Rifle in your hands you stood on equal ground. A contract baseline is the "great equalizer" of construction. It is the law that everyone must yield to and it equalizes any unfair advantage one may have over the other. It is the construction project's "constitution." Without a secure contract baseline and the initial meeting of the minds, the abilities of the contractor may mean little when faced with the customer from the underworld. Establishing clear boundaries and starting points between customer and contractor will ensure the contractor's right in collecting money from delays and changes and if necessary enforce it with the law. The contract baseline is a tool for implementing sound leadership and management principles. Some of the documents included in a contract baseline are Contract documents (general and special conditions) Scope of work (technical specifications, drawings, and other relevant data) Contract schedule Site conditions (such as information furnished to bidders, soil and geology reports) Applicable laws and regulations (depending on the specifics of a project) A contractor cannot ignore the importance of the contract baseline. Because the contract and its documents will change over the course of the project (especially the schedule), it is important that the contractor be able to take note of these changes and to make claims on those that affect performance. To establish one of the main factors of your contract baseline you must come up with an accurate and reasonable cost estimate. Aside from the obvious hard costs associated with construction projects, there are many hidden costs that can creep in and lay waste to the unwary contractor. Poor estimating and scheduling are two of the biggest causes of project failures. It is no coincidence that creating estimates is also one of the more boring and tedious tasks, which only contributes to its frequent neglect. Construction estimates have some requirements that must be fulfilled: A construction estimator. Whether this is the contractor, project manager, superintendent, or dedicated office estimator, it is a person who has the experience and qualifications to do the following: Pre-qualify and contact subcontractors, suppliers of products to solicit bids and proposals. Prepare quantity take-offs for various types and forms of construction. Determine general requirements needed for the project. Determine site conditions. Qualify unknowns and determine exclusions and allowances. Quantities and cost. Whether this comes from the estimator's own job histories or from an outside source, an accurate cost base must be established: Historical labor cost records. Quantities of materials. Material quotes and unit prices. Job plan and schedule. Subcontractor's bids. Job site overhead (direct costs). Even though managing the money on construction projects is the focus of most project management "how to" books and management software, if they do not include some basic ingredients they are neglecting one of the most powerful tools available. A good job cost system monitors the "projected cost at completion" during the course of construction. This is different than an "after the fact" accounting of what it ultimately will cost. The "to date costs," "cost to complete," and "projected costs at completion" are three lines that are important indicators of the financial status of a project. They have a direct effect on each other and tracking them gives the ability to plan forwards and backwards during the project. To understand how this works on the financial aspects of a project consider how it works on the time aspects of a project. If a nervous owner is trying to verify a move-in date mid-way through the project, a good, updated schedule is valuable. This is because the unknown variables of the first half of the project are now known facts and the projections must only be extended to the second half of the project. The closer the job moves to completion, the more accurate the schedule is. The same is true with the financial aspect. Simply adding up all the costs after the fact only reveals how far on or off the budget was. This is important information, but if you are only doing "after the fact accounting" you are denying the conscientious project manager one of the most valuable tools in project management. Tracking costs and projecting final costs during the course of construction is vital for the contractor who wants to be paid for all his work. Aligned with a good schedule, tracking and projecting costs forms the powerhouse needed in managing the job, the customer, and the profits. The natural by-product that follows are projects that are completed on time and in budget. Copyright (c) 1998-1999 Dean E. Foreman All rights reserved.
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