Canadian Procurement/Construction Delivery Methods Various procurement/construction delivery methods exist to provide alternatives as to how risks and responsibilities are allocated for a project and how key factors such as time and price are addressed. Traditional Delivery Method: Design-Bid-Build - Stipulated Price - Cost Plus - Unit Price Contemporary Delivery Methods: - Construction Management (not-at-risk / at-risk) - Design-Build - P3’s

1. NUCLEAR SUPPLY CHAIN
SYMPOSIUM
Canadian
Contracting Models
Darryl J. Brown
Gowling Lafleur Henderson LLP
November 10, 2015
Suite 1600
1 First Canadian Place
100 King Street West
Toronto, Ontario
Canada M5X 1G5
Telephone (416) 862-7525
Facsimile (416) 862-7661
www.gowlings.com

2. Canadian Procurement/Construction
Delivery Methods
 Various procurement/construction delivery methods exist to
provide alternatives as to how risks and responsibilities are
allocated for a project and how key factors such as time
and price are addressed.
 Traditional Delivery Method:
 Design-Bid-Build
 Stipulated Price
 Cost Plus
 Unit Price
 Contemporary Delivery Methods:
 Construction Management (not-at-risk / at-risk)
 Design-Build
 P3’s

3. Overview of Design-Bid-Build Model
 Under this model the owner retains a design team/consultant
such as an architect or engineer to design a project. Once plans
are completed, the owner, usually through a call for bids (or,
possibly sole-sourced negotiations), retains a contractor to
construct the project. The owner, therefore, enters into two
separate contracts: one with the design team/consultant and the
other with the contractor.
 Each of the parties may subcontract with various other
consultants, trades and suppliers in order to fulfill their
obligations at each project stage.

4. Overview of Design-Bid-Build Model
(cont’d)
 Model’s pricing structure may take 3 basic forms:
 Stipulated Price
 Cost Plus
 Unit Price
 Cost Plus Model also lends itself to more complex pricing
structures
 Guaranteed Maximum Price (Fixed)
 Guaranteed Maximum Price with sharing of savings
 Target Price (margin and/or entire payment at risk above Target)

5. Considerations
Design-Bid-Build Model In General:
 Structure is good for a risk-averse owner as risks do not flow back to the
owner for construction or design defect issues – they remain with the
contractor and design team, respectively
 Owner must await completion of the design before commencing construction
of the project - it cannot be fast tracked
 Owner is not fully aware of the price until tender which may delay financing
arrangements, etc.
 Design consultant and contractor have the potential to be at odds with each
other should problems arise - both could deny fault and engage in finger-
pointing resulting in delay

6. Considerations
Stipulated Price:
 Easier for a contractor to provide a fixed price due to the design being
completed before pricing occurs
 Should result in fewer changes to the design thereby saving owner
money
 Contractor absorbing greater risk, therefore, higher contingency
 No scrutiny of contractor’s books/records

7. Considerations
Cost Plus:
 Contractor must keep and disclose full and detailed accounts and records
necessary to document cost
 Contractor’s profits are tied to fees paid for all materials and services,
therefore, potentially less incentive to be efficient
 Owner does not know the total cost of the construction project at the time of
signing the contract
Unit Price:
 Suitable for projects where the required materials can be easily identified but
not the number of such items
 Owner does not know the total cost of the construction project at the time of
signing the contract

8. Construction Management Method
 Similar in framework to traditional construction contract
with the primary difference being that an owner retains a
construction manager (or Owner self-performs) in place of
the general contractor to provide project administration
and technical services such as scheduling, budgeting, and
material selection, but not to do any actual construction
work
 No single contractor assumes responsibility for the entire
project
 Construction manager may be “at risk” or “not at risk”

9. Considerations: CM Not-At-Risk
 Cost advantages exist in that there is
limited risk to the construction
manager whose fees should therefore
be less
 Model is suitable for moving
construction along at a fast pace
because procurement/construction can
start before design is finalized
 Owner has better control over budget
and schedule
 Costs can be saved given that
contractors enter into contracts directly
with the owner with no markup by a
middleman
 Construction manager’s experience
may be looked to by the design team
and they can work together
 Owner carries the risk of construction
regarding scheduling and performance
issues, etc. rather than the
construction manager
 Limited incentives for construction
manager to aggressively seek cost
savings
 Final cost of the design is not known to
the owner until everything is in place
 Increased level of contractual
complexity
 Owner may be found to be the
“constructor” given that the owner is
entering into several contracts with
contractors

10. Considerations: CM At-Risk
 Similar to that of a Construction
Manager Not-at-Risk model except
that the risk of being found
“constructor” now flows to the
construction manager instead of the
owner
 Cost savings reduced as construction
manager bears increased risk

11. ONE MODEL DOES NOT FIT ALL
 Contract Delivery Models and Pricing Structures
are becoming more complex to reflect the
complexities of the scope of nuclear projects

12. EXAMPLE: Pricing Options
Hybrid Pricing Options arising to deal with different aspects of EPC
contracting
1. Engineering
 Majority of pricing fixed
 First of a kind risks or areas with significant unknowns (such as
Inside the Vault) may require Target Price
2. Procurement
 Generally Fixed
3. Construction
 Variations of Fixed and Target Pricing to address allocation of
risks and risk sharing for significant unknowns

13. STICKS & CARROTS
(Risk-Sharing)
A. STICKS
 Delay Liquidated Damages for failing to achieve milestones
 Escalating Loss of Margin or Entire Fee above Target Price
B. CARROTS
 Bonus if cost savings below Target Price
 Bonus if milestone dates achieved

14. CONCLUSION
 The best Models allocate risks to the party best able to
manage risk
 Goal: achieve a partnership where both parties have an
opportunity to succeed