specialty services. Indirect costs typically include portions of a business’ operating expenses, such as costs associated with a home office or field office that are shared with multiple projects, and salaries of company personnel (e.g., executives, assistants and accounting personnel). The overhead expense added to a project is the percentage of the project’s base price that is used to support the business’ operational and indirect costs. The contingency fee is project-dependent fee that is used to offset the uncertainties and risk exposure on a given project. Ground or geotechnical engineering projects are no exception to the above described principles. On these types of projects, the cl ient (e.g. , owner, general/specialty contractor or engineering firm depending on the contractual relationship or privity) may influence only two components of a project’s bid pricing. First, the client may be able to affect the project-related (or direct) costs through economic planning. Second, more notably, the client may be able to influence the magnitude of the contingency fee(s) by choosing low-risk construction methods or, if this is not possible, by implementing processes to reduce the risk exposure to the contractor or engineer. For example, on projects with challenging or highly variable ground conditions, the client could mandate additional site investigation and characterization to define the subsurface as much as practical, thereby reducing the risk associated with unknown site conditions. Mitigating Risk Exposure Throughout the various countries in Europe and North America, the contractual or legal situation pertaining to subsurface conditions varies widely. Therefore, it is difficult to give general advice that is a one- size fits all; how risks associated with subsurface conditions are handled along with the specifications and pay items in the contract documents will vary by project and, likely, on a country-by-country basis. Regardless of location, what appears to be generally common is the manner in which a contractor or construction company operates, especially regarding its risk management. That is, a construction 112 • DEEP FOUNDATIONS • MAY/JUNE 2018 company works essentially in a manner similar to that of an insurance company: risk is calculated and priced into the offer or bid. The risk is priced into the contingency fee, which is directly proportional to the risk exposure that the contractor may need to absorb (i.e., the greater the risk equals a higher contingency fee). The contractor may have to accept the client’s decision as to the extent and quality of planning and subsurface investigation, but the contractor is able to develop its offer price accordingly. From the perspective of the client, the geotechnical works are often envisioned as only preliminary activities that may be impeding the overall construction project. Some clients consider the geotechnical components as a necessary evil, and something the client does not want to deal with or have as little as possible to do with. The consequence of these sentiments, therefore, is that client does not include a qualified (ground engineering) specialist during the planning and does not perform a detailed site subsurface investigation, which ultimately transfers the risk of encountering unknown or unforeseen subsurface conditions during execution to the awarded contractor. U n d o u b t e d l y, a s u c c e s s f u l entrepreneur would not accept an undesirable or inequitable position without compensation commensurate with the hardship or risk. So, why would a client 100 10 20 30 40 50 60 70 80 90 0 0 10 20 30 40 50 60 Average Rock Hardness (MPa) Adverse physical conditions 70 80 90 100 or owner expect that a contractor would accept unwanted risk without financial compensation? If the risk of unknown or unforeseen subsurface conditions is transferred to the contractor, it will likely carry a contingency fee to offset this risk. If the contractor commits itself contractually without already knowing the subsurface conditions and without having optimized the planning and activities based on this lack of knowledge, then the price will inevitably not only include the exploration and planning costs but also a risk surcharge. In case an additional subsurface investigation yields unfavorable results, which affects the planning and activities, the execution will turn out to be more expensive. Therefore, if the contingency condition is encountered, the contractor has some level of funds to offset the expenses to handle the condition. However, if the contingency fee is a lumped item in the bid price, the client or owner will have to pay that fee regardless whether the condition is encountered. An example taken from a foundation project is presented to illustrate the effect of different subsurface conditions: rock s t rength ver sus relat ive dr i l l ing performance. In the instance an imprecise specification or range of values are included in the tender documents (e.g., rock strength is between 20 and 100 MPa [2,900 and 14,500 psi]), the contractor will make a judgement based on available Production Rate (% per operational hour)
