Question #11, Case 1: Subcontractor Bonds Your firm has negotiated a 30-story high-rise office complex in a downtown metropolitan area. This is a very major project both for your firm's volume and reputation. Unfortunately for you, as the project manager, and your client, the market was very busy when the subcontracts were bid. Subcontractors with whom you do not have prior relationships or history will perform many of the major scope categories. Your guaranteed maximum price proposal and contract with your client requires that your firm post a 100% performance and payment bond. The cost of this bond was anticipated and is included. At the time of the execution of the bond, your bonding agency is requiring that you also bond all second-tier subcontractors and suppliers whose values are greater than $40,000. This is a total of approximately $15 million worth of subcontracts. Their average bond price is 2%; therefore, the subcontract bonds will cost approximately $300,000. This value was not included in your GMP estimate. You approach the client and ask them to pick up these bond fees, but they respectfully decline. Should these firms be bonded? Is it standard that your bonding agency would require these bonds? Is the client required to pay? Where did you error? What can you do now?
Question #11, Case 1: Subcontractor Bonds Your firm has negotiated a 30-story high-rise office complex in a downtown metropolitan area. This is a very major project both for your firm's volume and reputation. Unfortunately for you, as the project manager, and your client, the market was very busy when the subcontracts were bid. Subcontractors with whom you do not have prior relationships or history will perform many of the major scope categories. Your guaranteed maximum price proposal and contract with your client requires that your firm post a 100% performance and payment bond. The cost of this bond was anticipated and is included. At the time of the execution of the bond, your bonding agency is requiring that you also bond all second-tier subcontractors and suppliers whose values are greater than $40,000. This is a total of approximately $15 million worth of subcontracts. Their average bond price is 2%; therefore, the subcontract bonds will cost approximately $300,000. This value was not included in your GMP estimate. You approach the client and ask them to pick up these bond fees, but they respectfully decline. Should these firms be bonded? Is it standard that your bonding agency would require these bonds? Is the client required to pay? Where did you error? What can you do now?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Transcribed Image Text:Question #11, Case 1: Subcontractor Bonds
Your firm has negotiated a 30-story high-rise office complex in a downtown
metropolitan area. This is a very major project both for your firm's volume and
reputation. Unfortunately for you, as the project manager, and your client, the
market was very busy when the subcontracts were bid. Subcontractors with whom
you do not have prior relationships or history will perform many of the major
scope categories. Your guaranteed maximum price proposal and contract with your
client requires that your firm post a 100% performance and payment bond. The
cost of this bond was anticipated and is included. At the time of the execution of
the bond, your bonding agency is requiring that you also bond all second-tier
subcontractors and suppliers whose values are greater than $40,000. This is a total
of approximately $15 million worth of subcontracts. Their average bond price is
2%; therefore, the subcontract bonds will cost approximately $300,000. This value
was not included in your GMP estimate. You approach the client and ask them to
pick up these bond fees, but they respectfully decline. Should these firms be
bonded? Is it standard that your bonding agency would require these bonds? Is the
client required to pay? Where did you error? What can you do now?
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