Chapter 16 Exercises — Procurement and Buyout

Work these with the chapter closed where you can. Selected answers appear in Appendix J; calculation items have numeric answers in the collapsed blocks below.

Difficulty legend: ⭐ basic · ⭐⭐ applied · ⭐⭐⭐ judgment and integration · ⭐⭐⭐⭐ research and extension

Part A — Conceptual Understanding ⭐

A1. In your own words, define buyout. Name the three things it produces and say which of the three you will still be using eighteen months from now.

A2. Explain the difference between a subcontract and a purchase order. Give the one-sentence practical test for deciding which to use, and name two protections you lose when you use a PO for work that should have been a subcontract.

A3. A subcontractor's proposal says "In-wall blocking by others." A different subcontractor's proposal says "Welding of embed plates by the structural steel erector." Both are exclusions. Explain why one of them is much more dangerous to you than the other.

A4. What does an EMR of 1.00 actually mean? Give three reasons a low EMR is not by itself proof that a subcontractor is safe, and one thing you would ask a subcontractor that tells you more than the number does.

A5. Distinguish pay-when-paid from pay-if-paid. Then state the single most important caveat a project manager must attach to any statement about which one applies to their project.

A6. State the difference between bid shopping and clarifying scope. Then give the one operating rule that makes shopping structurally impossible on a job you run.

A7. What is a back-schedule, and what is the only fixed point in one? Name the three durations in a typical back-schedule that you must obtain from another party in writing rather than assume.

A8. Why does the bidding process systematically produce scope gaps? Answer in terms of bidder incentives, not bidder carelessness.

A9. Define flow-down. Name one thing flow-down does very well and two limitations on what it can accomplish.

A10. A subcontractor is "approved with conditions" at a prequalification score of 66. List four conditions you could attach, and for each one state which specific risk it retires.

Part B — Applied Analysis ⭐⭐

B1. The exclusion page cross-read. Here are three exclusion lines from three adjacent packages on a mid-rise office project:

• Acoustical ceilings: "Grid and tile only. Ceiling-mounted devices by others. Hanger wire from structure included."
• Electrical: "Light fixtures set in grid by others. Whips to fixtures included."
• Fire protection: "Sprinkler drops to 6 inches above finished ceiling. Escutcheons and final trim by others."

Identify every piece of work in nobody's number, and assign each to a package with a one-line justification.

B2. Packaging judgment. You are building a three-story, 90,000 SF medical office building with 34 exam rooms and an imaging suite. Your first instinct is to buy MEP as three trade packages (plumbing, HVAC, electrical). Your VDC manager argues for one design-assist MEP package. Write a half-page recommendation. Address bidder count, cost transparency, seam risk, coordination benefit, and whether your contract permits it.

B3. Reading the statement. A masonry subcontractor gives you these figures:

You are considering awarding them a $1,900,000 subcontract. Compute working capital, current ratio, debt-to-equity, and backlog-to-working-capital. Then write the two sentences you would put on the prequalification form, and state your recommendation.

B4. Whose date is it? Your curtain wall fabricator tells you the shop drawing review must be complete by August 17. Your submittal log shows an approval milestone of August 17. Explain why those two statements might describe different constraints, and write the exact question you would ask the fabricator to find out.

B5. The supplier's terms. A rooftop-unit manufacturer's order acknowledgment contains: (a) a disclaimer of all implied warranties, (b) a limitation of liability to the purchase price, (c) an exclusion of consequential damages, and (d) a broad force majeure clause. Your project's daily delay exposure is $8,900. The units are 9 weeks late. Compute your delay exposure, state your contractual remedy against the manufacturer, and then state the only thing that would actually have protected you.

B6. The seam checklist, applied. Take the roofing package on a project you know or can imagine (a 34,000 SF TPO membrane roof on a steel deck). Run all twenty seam-checklist items from §16.4 against it. For each, write "included," "excluded — carried by ," or "not applicable, because ." No blanks.

B7. Award or not? Two bidders on a flooring package:

Flooring is on the interior critical path. Your project's daily exposure is $6,400/CD. Write the recommendation, and price the risk explicitly.

Part C — Calculations and Deliverables ⭐⭐–⭐⭐⭐

C1. Reconcile the buyout log. You have awarded eleven of twenty-eight packages. Estimate value of the awarded packages is $14,620,000; awarded value is $14,338,000. During scope review you identified $214,000 of scope that no bidder carried and added it to three of the eleven subcontracts. One allowance (landscape) was converted to hard scope at $41,000 above the allowance value.

(a) Compute the gross buyout variance. (b) Compute the net real buyout variance. (c) Write the two-line summary you would put on the monthly report, showing both numbers. (d) Your operations VP looks at the gross number and calls it a win. Write the three sentences you would say in response.

C2. Back-schedule an air-handling unit. A custom air-handling unit must be set on its curb before the roof membrane is installed, because it will not fit through any opening afterward. Roofing starts October 14, Year 1.

(a) Compute the latest date the mechanical subcontract can be executed, assuming one review round. (b) Recompute assuming a resubmittal cycle of 12 CD plus a second review of 10 CD. (c) State in one sentence which of the two dates you would actually manage to, and why.

C3. Price the gap twice. A scope gap for firestopping of 1,240 mechanical and electrical penetrations is discovered. At buyout the firestop subcontractor's unit price is $58 per penetration.

Discovered in month ten instead: 640 of the penetrations are now above finished, painted gypsum ceilings that must be opened and re-closed; access is by lift during off-hours; the firestop sub applies a 15% overhead-and-profit markup on the extra work; ceiling demolition and re-close is $94 per opening; retape/finish/paint is $47 per opening.

(a) Compute the buyout cost. (b) Compute the month-ten cost. (c) State the ratio and one sentence on what the ratio does not capture.

C4. The bond-versus-SDI decision. Your enrolled subcontract value is $22,400,000. Bonds average 1.5%. Your corporate SDI program is 0.80% with a $400,000 self-insured retention and 12% co-participation. The owner requires bonds on two packages totaling $5,100,000 regardless.

(a) Compute the cost of bonding everything. (b) Compute the cost of the SDI approach including the two required bonds. (c) Compute the annual savings. (d) A subcontractor defaults and completion costs $640,000. Compute your out-of-pocket under SDI, and state how many years of savings that consumes.

C5. Write the scope sheet. Produce a complete scope exhibit for a masonry package (CMU and architectural veneer) using the four-part structure from §16.4: Included, Excluded (with the package that carries each excluded item named), Clarifications, and Schedule and manning obligations. Minimum 15 inclusions, 6 named exclusions, 4 clarifications, 3 schedule obligations. Run all twenty seam-checklist items; leave no blanks.

C6. Escalation clause arithmetic. A subcontract of $4,600,000 is 48% material. You negotiate a clause under which the subcontractor absorbs the first 4% of material price movement and increases above 4% are shared 60/40 (owner-side 60, subcontractor 40). Material prices rise 15%.

(a) Compute the material value. (b) Compute the total increase. (c) Compute the absorbed band and the shared amount. (d) Compute your share. (e) Compute what the clause is worth relative to a firm bid in which the subcontractor carried the full 15% as contingency.

C7. Build the award memo. Using the format in §16.5, write a complete award recommendation for a $1,340,000 acoustical ceiling package where you are recommending the second-low bidder at $76,000 above the low bid. Invent the prequalification and manning facts, but make the risk arithmetic real: days at risk × daily exposure, against dollars saved. Show your work.

Part D — Judgment and Ethics ⭐⭐⭐

D1. Your low bidder on drywall calls you two days after bids and says, "I heard I was close. Tell me what I need to be at and it's done." Write exactly what you say. Then write what you do next, and why the second part matters more than the first.

D2. You discover during scope review that a bidder omitted $140,000 of clearly specified scope — an honest arithmetic mistake, not an exclusion. They are low by $210,000 and they have not withdrawn. Your contract with the owner requires you to take the lowest responsible bid. What do you do, and what do you owe (a) the bidder, (b) the owner, and (c) the other bidders? Does your answer change if the project is public rather than private?

D3. Your prequalification program requires a bond, three similar references, and an EMR below 1.10. A capable eleven-person masonry firm — owned by a woman who was a foreman for fifteen years, with excellent work and two references — fails the bond requirement and has a 1.34 EMR driven by a single claim four years ago. The project has a municipal DBE participation goal. Write your recommendation. Address the risk honestly rather than waving at it, and say specifically what you would do to make the award safe.

D4. Your project manager reports $412,000 of favorable buyout variance to the operations committee. You know that $270,000 of it is scope no one has bought yet, and you also know that the committee's quarterly bonus pool is calculated partly on early-job margin. What do you do, in what order, and to whom? What is the cost of saying nothing, and to whom does that cost fall on a GMP job with a 75/25 savings split?

D5. A subcontractor asks you to strike the pay-if-paid clause. Your legal department says the clause is enforceable in this state and is standard company language. The owner is a well-capitalized institution. Construct the argument you would make to your own company for softening it on this job, and state the one project circumstance under which you would insist on keeping it.

Part M — Mixed and Interleaved Practice ⭐⭐–⭐⭐⭐

M1. (Ch 13 + Ch 16.) Take a leveled bid tab you built in Chapter 13 and convert it into a scope exhibit. Specifically: for every adjustment you made during leveling, write the sentence that would appear in the executed subcontract's Included, Excluded, or Clarifications section. Then state what changes about the purpose of the document when it moves from estimating to buyout.

M2. (Ch 14 + Ch 16.) Take five activities from the CPM schedule you built in Chapter 14. For each, identify the material or equipment that must be procured to support it, and back-schedule from the activity's early start to the date the submittal must be issued. Then identify which of the five has the least float in its procurement chain — and note whether that is the same activity that has the least float in the construction schedule. Explain any difference.

M3. (Ch 10 + Ch 16.) Chapter 10 argued that MEP coordination sets the interior schedule. Using the six coordination conflicts you predicted for Willow Street in the Chapter 10 checkpoint, identify which of them are scope conflicts (two subcontracts each assuming the other has the work) rather than space conflicts (two systems occupying the same volume). Write the scope sheet language that resolves the scope conflicts, and state why the space conflicts cannot be solved by a scope sheet.

M4. (Ch 6 + Ch 16.) Take three items from your Willow Street risk register (Chapter 6 checkpoint). For each, state whether buyout retired the risk, transferred it to a subcontractor, priced it, or left it exactly where it was. Then update the register with the post-buyout position and the residual contingency you would carry.

M5. (Ch 5 + Ch 16.) Your buyout produces 38 subcontracts and 26 purchase orders, all of which generate lien rights. Using the framework from Chapter 5, describe the lien-waiver process you would build into your monthly payment cycle: who signs what, when, conditional versus unconditional, and how you handle a second-tier supplier who is not in privity with you. State clearly which parts of your answer vary by jurisdiction.

M6. (Ch 15 + Ch 16.) In Chapter 15 you wrote a qualifications page from the bidder's side. Now write the same page from the reader's side: take a qualifications page you wrote and mark every statement that a careful general contractor would flag as a seam. Then rewrite the page so that every exclusion names the party you believe carries the work. Compare the two versions and say which one you would rather submit — and which one you would rather receive.

Part E — Research and Extension ⭐⭐⭐⭐

E1. Your state's rules. Research three things for the state where you work or study, using primary sources — the state legislature's site, the state contractors' licensing board, or your state bar's construction section: (a) whether pay-if-paid clauses are enforceable and under what conditions; (b) statutory retention limits on public and private work; and (c) whether an anti-indemnity statute limits indemnity clauses. Write a one-page summary with citations to the sources you actually read, and date it. Then write the two questions you would bring to a construction attorney that your research could not answer.

E2. A real prequalification form. Obtain a real subcontractor prequalification questionnaire — many large general contractors and most public owners publish theirs. Compare it to the scoring framework in §16.3. What does it ask that the chapter does not? What does the chapter weigh that it ignores? Then write a short critique addressing the exclusion question honestly: which requirements on the real form do genuine risk work, and which are habits?

E3. Verify a lead time. Pick one long-lead item — an air-handling unit, a switchgear lineup, an elevator, a unitized curtain wall system. Contact a manufacturer's representative or a subcontractor and ask, for a specified configuration, what the current lead time is from approved release, and what it was two years ago. Then ask what would have to happen for it to double. Write down what you learn, note the date, and note explicitly that the number will be wrong within a year. This exercise is not about the number. It is about building the habit of asking.