1.1Definition of 1.1Definition of ConstructionConstruction::

Is the process by which material, Is the process by which material, equipment, machinery are equipment, machinery are assembled into a permanent assembled into a permanent facility.facility.

Management:Management:

Process of planning, directing Process of planning, directing and controlling resources to and controlling resources to achieve the desired goal.achieve the desired goal.

Construction Industry Construction Industry Characteristics:Characteristics:

It reacts rapidly to external economic It reacts rapidly to external economic pressures, tight money or national pressures, tight money or national recession.recession.

Widerange of activities, methods and Widerange of activities, methods and manufacture.manufacture.

Remote site with changing conditions.Remote site with changing conditions.

Construction contractor often enjoys Construction contractor often enjoys high incomes but due to the high incomes but due to the competitive nature, result in a high competitive nature, result in a high bankruptcy rate.bankruptcy rate.

Personnel are not permanent and Personnel are not permanent and skilled workers earn high wages, but skilled workers earn high wages, but due to interruption of season reduces due to interruption of season reduces the annual income of money.the annual income of money.

Compose of large number of Compose of large number of independent suppliers and independent suppliers and contractor.contractor.

The Construction The Construction Contractor:Contractor:

Is that party who brings together Is that party who brings together all of the diverse elements and input all of the diverse elements and input of the construction process into a of the construction process into a single, coordinated effort.single, coordinated effort.

Classification of Classification of Contractors:Contractors:

a. a. Prime”GeneralPrime”General” where he is ” where he is responsible for construction of the responsible for construction of the entire project.entire project.

b.Subcontractor”Speciality”b.Subcontractor”Speciality”wherwhere he is responsible for construction a e he is responsible for construction a limited aspect of the project etc..limited aspect of the project etc..

Plumbing,Heating,ElectricalPlumbing,Heating,Electrical etc. etc.

Classification of Classification of Constuction Industry Constuction Industry

1.By Size($)1.By Size($) Small Medium Large MegaSmall Medium Large Mega 5M 15M 50-200M 200M5M 15M 50-200M 200M 2.By Ownership2.By Ownership;; Private, Public, MilitaryPrivate, Public, Military 3.By Use;3.By Use; ResidentialResidential Commercial Can be expanded to moreCommercial Can be expanded to more IndustrialIndustrial UtilityUtility 4.By Scope4.By Scope (Preferred) (Preferred)

Building:Building: (Vertical Construction) (Vertical Construction) 1.Residential (Emphasis on 1.Residential (Emphasis on

Architects)Architects) 2.Nonresidential2.Nonresidential Engineering:Engineering: (Heavy construction or horizontal construction)(Heavy construction or horizontal construction) Highway _ AirfieldHighway _ Airfield RailroadRailroad BridgesBridges Utility Utility DamsDams Industrial:Industrial: Emphasis on production.Emphasis on production.

1.2 1.2 The Development The Development Process:Process:

Project development: major steps in the Project development: major steps in the process are:process are:

1.Recognition of need and initial concept 1.Recognition of need and initial concept for the facility.for the facility.

2.Feasibility studies (economic & 2.Feasibility studies (economic & technical) for the project.technical) for the project.

3.Detailed plans, specifications & cost 3.Detailed plans, specifications & cost estimates.estimates.

4.Approval of the project by regulatory 4.Approval of the project by regulatory agencies.agencies.

5.Advertizing the project for bid or 5.Advertizing the project for bid or negotiating with potential contractors.negotiating with potential contractors.

6.Award of prime construction 6.Award of prime construction contrac (or various subcontracts, if contrac (or various subcontracts, if owner-managed)owner-managed)

7.Facility construction and 7.Facility construction and construction contract administration.construction contract administration.

8.acceptance of completed facility by 8.acceptance of completed facility by owner.owner.

Parties involved in the Parties involved in the construction process:construction process:

Owner Owner Designer (A/E)Designer (A/E) ContractorContractor General (Prime)General (Prime) Subcontractor (Specialty)Subcontractor (Specialty) Construction Manager :Construction Manager : Agent of owner provides services to Agent of owner provides services to

owner.owner.

How Construction is How Construction is Accomplished?Accomplished?

1. Owner construction force1. Owner construction force..(fig.1-5)(fig.1-5)

Owner

Construction staff

Projectdirector

Constructionforces

2. Owner management of 2. Owner management of construction. (fig.1-6)construction. (fig.1-6)

Owner

Construction staff

Projectdirector

Hired laborforce

Contractor (s)

(a)* (b)*

Projectdirector

Hired laborforce

Contractor (s)

3. Construction by a general 3. Construction by a general contractor.(fig.1-7)contractor.(fig.1-7)

Design Firm Prime Contractor

Owner

Sub contractor(s)

Contractor work force

inspection

4. Construction using a 4. Construction using a design/build contract(turnkey).design/build contract(turnkey).

(fig.1-8)(fig.1-8)

Design/build firm

Owner

Designforce

Constructionforce

Subcontractors)

5. Construction utilizing a 5. Construction utilizing a construction management construction management

contract.(fig.1-9)contract.(fig.1-9)

Design/build firm

Owner

Designfirm

Constructionfirm (s)

Constructionmanager

Construction Construction Management:Management:

Objective:Objective: Contract approachContract approach Is to treat the project planning, design Is to treat the project planning, design

and construction as integrated task within and construction as integrated task within a construction system in order to serve a construction system in order to serve the owner interests in optimum fashion.the owner interests in optimum fashion.

HoweverHowever, in a more general sense, it , in a more general sense, it refers to the control of the four basic refers to the control of the four basic resources of Men (labor), Material, resources of Men (labor), Material, Machinery and Money in executing a Machinery and Money in executing a construction project on time and within construction project on time and within the budget with acceptable level of the budget with acceptable level of quality.quality.

$ = Cost$ = Cost

T = TimeT = Time

Q=QualityQ=Quality

$ = Cost$ = Cost

T = TimeT = Time

Q=QualityQ=QualityT=Time $

Q=QUALITY

MACHINE

Direct

controlPlan

MATERIALMEN

MACHINE

MONEY

$=Cost

Reasons for construction Reasons for construction company failurecompany failure::

Lack of capital Lack of capital Inadequate cost accounting Inadequate cost accounting Poor cost estimating Poor cost estimating Lack of general management abilityLack of general management ability

(Poor management represents (Poor management represents 90% of failure)90% of failure)

$ = Cost$ = Cost T = TimeT = Time Q = QualityQ = Quality

CONTRACTING CONTRACTING METHODSMETHODS

Contract Types Contract Types (Classification)(Classification)

Contracts may be Contracts may be classified in several ways:classified in several ways: 1.Award point of view1.Award point of view

a. a. Competitive:Competitive: - Open (same proposal bids open in - Open (same proposal bids open in public)public)

- Closed (same negotiation)- Closed (same negotiation) b. b. Negotiated contractsNegotiated contracts (common in housing, (common in housing,

industrial) industrial) 2.Multiplicity view point2.Multiplicity view point a. No contract (Force account)a. No contract (Force account) b. Single contract (General/Prime) b. Single contract (General/Prime) c. Separate Contractsc. Separate Contracts 3.Design & Construction relation 3.Design & Construction relation a. Only constructiona. Only construction b. Design & Construction (Turnkey)b. Design & Construction (Turnkey)

Overlapping Design & Construction is called Overlapping Design & Construction is called Fast Tracking or Phase Construction.Fast Tracking or Phase Construction.

4.Cost point of view4.Cost point of view a. a. Lump sumLump sum Or combinationOr combination b. b. Unit priceUnit price

c. c. Cost plusCost plus – can be as follows: – can be as follows:

1.1. Cost plus percentage of costCost plus percentage of cost

2.2. Cost plus fixed freeCost plus fixed free

3.3. Cost plus with guaranteed max, Cost plus with guaranteed max, costcost

4.4. Cost plus incentive fee.Cost plus incentive fee.

Reasons of using Cost-plus contractReasons of using Cost-plus contract:: The owner may want a particular The owner may want a particular

contractor contractor When plans & specifications cannot be When plans & specifications cannot be

completed before the starting of the completed before the starting of the project, because:project, because:

Nature of project.Nature of project. Urgency.Urgency. Many changes are expected to be Many changes are expected to be

involved.involved.

When cost-plus is used, When cost-plus is used, Contractor and Owner should Contractor and Owner should

establish:establish:

1. Procedures of subcontracting (Unit, 1. Procedures of subcontracting (Unit, lump or negotiable)lump or negotiable)

2. Determination of the contractors’ 2. Determination of the contractors’ paymentpayment

3. Book keeping and Accounting 3. Book keeping and Accounting methodsmethods

4. Determination of requirement of 4. Determination of requirement of reimbursable costs:reimbursable costs:

Labor wagesLabor wages Field office personnelField office personnel Cost of material, equipment, tools Cost of material, equipment, tools

for the use in the project (Equipt. – for the use in the project (Equipt. – salvage value)salvage value)

Costs not reimbursedCosts not reimbursed..

1. Office overhead (unless the office 1. Office overhead (unless the office functions are done in the field office)functions are done in the field office)

2. Cost due to negligence of 2. Cost due to negligence of contractor. (correction of defective contractor. (correction of defective work)work)

1.Cost plus % of cost1.Cost plus % of cost

Used when project is poorly defined Used when project is poorly defined or cost is immaterial and the or cost is immaterial and the owners desire the best materials owners desire the best materials and workmanship.and workmanship.

Disadvantage : No incentive for cost Disadvantage : No incentive for cost to go down. to go down.

(Government agency may not use (Government agency may not use it)it)

22. . Cost plus fixed- fee Cost plus fixed- fee contractcontract

Popular.Popular.

Project is fairly defined Cost estimate Project is fairly defined Cost estimate Fixed fee.Fixed fee.

Contractor is encouraged to run efficient Contractor is encouraged to run efficient operation since fee is fixed. So, OH has to operation since fee is fixed. So, OH has to (go(go

down) so profit (go up)down) so profit (go up) OH (go down) Efficiency (go up)OH (go down) Efficiency (go up)

33. . Cost-plus fixed fee with Cost-plus fixed fee with guaranteed max. costguaranteed max. cost

Advantage : Owner knows his Advantage : Owner knows his maximum cost in advancemaximum cost in advance

Only additional costs will be Only additional costs will be absorbed by contractor profitabsorbed by contractor profit

You need fairly decent plans and You need fairly decent plans and specifications.specifications.

4.Cost-plus incentive fee4.Cost-plus incentive fee

Incentive to keep cost (duration) Incentive to keep cost (duration) downdown

Contractor & owner agree on Contractor & owner agree on established cost target (fair plans established cost target (fair plans and specifications)and specifications)

Fee = x + yFee = x + y x = fixed (base fee)x = fixed (base fee) y = f (target cost – actual cost)y = f (target cost – actual cost)