CHAPTER 2 DEVELOPMENT AND ORGANIZATION OF PROJECTS

CHAPTER 2

DEVELOPMENT AND ORGANIZATION

OF PROJECTS

1) THE LIFE CYCLE OF A CONSTR. PROJECT:

1.1:CONCEPT AND FEASIBILITY STUDIES:

THE START Recognition of a need for a new facility

conceptual analyses

Technical feasibility study

Economic Feasibility study

Environmental Impact Reports

Selection of LOCATION is very important

Traditionally, these early stages are handled

by the Owner alone,

OR

By the Owner working with consultants

Knowledgeable of the most important factors

Affecting the situation

To some extent others are involved:

A/E

Design/constructors

CM

PM

1.2: ENGINEERING AND DESIGN:

A) Preliminary Engineering and Design.

- Arch. Concepts

- Evaluation of technological process

alternatives

- Size and capacity decisions

- Comparative economic studies

Inputs from specialists are needed such as:

geologists

hydrologists

ecologists

Review:

Involve management

External financing

Regulatory bodies

Zoning regulation

Building procedures

Licensing procedures

Safety standards

Environmental Impact

B) Detailed engineering and Design

1.3: PROCUREMENT:

Materials

Equipment

Manpower (contractor, subcontractor)

1.4: CONSTRUCTION:

1.5: START-UP AND IMPLEMENTATION:

Industrial facilities

1.6: OPERATION AND UTILIZATION:

FIGURE 2-1 The life cycle of a construction project

Year 3 Year 2 Year 1 Time

Phase

1. Concept and

Feasibility studies

2. Engineering and

design

3. Procurement

4. Construction

5. Start-up and

implementation

6. Operation or

Utilization

CHAPTER2: DEVELOPMENT AND ORGANIZATION OF PROJECTS

Part 1: CONSTRUCTION INDUSTRY AND PRACTICE

BASIC MANAGEMENT ACTIVITIES

Management theory identifies four essential management

activities that must be accomplished in any successful

organization. Organizations can be designed to best

perform these according to the needs of a specific project.

Scoping __Clearly define desired project objectives.

Planning__Predetermine a course of action to

achieve project objectives.

Organizing__Integrate individual, consultant and

contractor efforts into an effective team.

Controlling__Monitor, influence, and direct achievement

of project objectives throughout the

performance phase.

Organizational concepts

• 1. Functional org.

• 2. Task force (project) org.

• 3. Line and staff org.

• 4. Matrix org.

Functional Organization

• Strengths:

• High stability

• High professional standards

• Use latest technology

• Excellent corporate memory

• Weakness

• Low adaptability

• Minimum appreciation of overall project objectives

• Overly grid operating rules

• Resistance to change

• Difficulty to developing well rounded project manager

Functional org

Project (task force) org

Project Task Force

Strengths:

High adaptability

High understanding to overall tasks

Excellent team spirt

Close personal relationships

Responsive to new ideas

Weakness of task force Poor stability

No corporate memory

Own task is not clear

No functional check for quality and standards

This consists of a line, which is managers who make business decisions for their respective departments, and a staff, whose members perform tasks in support of the directives issued by the line. Though the duties of these two components seem clear, there is often overlap in tasks that they perform.

Line And Staff organization

The Line

The line comprises professionals whose day-to-day tasks directly work toward accomplishing the organization’s mission and goals.

Alternative names for the line are the business groups or, in the financial services industry, the front office.

These employees produce and sell the goods and services of the firm.

For example, the research and development team creates the products, while the supply chain manufactures them. The marketing department works to raise consumer awareness of the products and services.

The Staff

The staff is composed of every non-revenue generating department.

Though these groups do not directly contribute to the firm’s bottom line, their actions make those of the line possible.

The human resources department, for instance, ensures that the line is staffed with top-tier talent, content in their jobs.

Legal makes sure that the actions of the line and its employees are within the scope of the law.

Likewise, the finance group secures capital resources for the organization, while the accounting department balances the books

• Line and staff strength: Combination of functional strength and expertise with the project oriented team weakness: Conflict between operating org and functional staff overall cost may exceed more simplified operating concepts

Matrix org.

Matrix org

• It is a combination between task and functional org.

• Disadvantages:

• Difficulties in defining accountability to both functional and project managers

Contractual relationships

• Traditional approach

• The owner-builder

• Turnkey (design construct or design manage)

• Professional construction management

• Program management

• Public private partnership (PPP)

Traditional Designer-Contractor relationship

Used for projects of moderate size and complexity

The owner often employs a designer; The designer also acts on behalf of the owner

to oversee the project implementation during construction;

The general contractor is responsible for the construction itself even though the work may actually be undertaken by a number of specialty sub-contractors.

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Traditional Relationship

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Owner

Contractor’s

labor Subcontractors

Contractor

Designer

Advantages of using the traditional relationship

A. The most popular and easiest way to perform because of long experience in practice method.

B. Competitive bidding makes the owner benefit from reducing the cost of the project;

C. Owner can monitor and control all the phases of the project;

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Type of contract under traditional approach

• Lump-sum contract

• A unit price contract

• A negotiated cost-plus fixed fees

• Guaranteed maximum price

Single fixed price(lump sum)

• The contractor agrees to peform the work for predetermined price includes profit.

• Unit price

• Are similar to lump sum except that the total cost to the owner will vary with the actual quantities of units put in place

The disadvantages of the Traditional method

A. No benefit from contractor experience while designing the project

B. The design, tendering and implementation takes longer period of time

C. The non-friendly relationship between the owner and the contractor makes a lot of claims

D. The non-friendly relationship between the consultant and the contractor enforce them to return back to the owner to solve the claims

E. A lot of changes in the projects makes claims that increasing the final cost of the project and increase the time of execution

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FIXED PRICE

Advantages from the owner’s position include the following:

1. These systems are accepted and historically supported

with well-established legal and contractual precedent.

2. The lump-sum type permits overall cost to be determined

before the construction contract is awarded (except for

scope changes or changed conditions).

3. The unit price type permits variable amounts of work to

be paid for in a fair and equitable manner.

4. Minimal involvement of the owner is required in the

construction process.

5. The owner may benefit from price competition in a

competitive situation.

6. The contractor takes all of the construction risk in the

absence of changed or impacts unforeseen by either

party.

7. Contractor incentives and disincentives may improve

performance (bonus and liquidated damages).

FIXED PRICE

Disadvantages from the owner’s viewpoint are as follows:

1. Design usually does not benefit from construction

expertise through value engineering or constructibility

analysis prior to contract award.

2. Overall design- construct time is usually the longest.

3. The owner is often in an adversary position with the

general contractor.

4. The designer is often in an adversary position with the general contractor, and the owner may be required to be the referee.

5. Changes to the work or unforeseen difficulties will often

end in disputes and litigation that can drive up costs in

spite of the fixed-price concept.

6. The owner has minimal control over performance of the

work.

7. The unit price type requires a substantial expense to

measure pay quantities.

8. Contractor pressures to submit the lowest bid may result

in use of marginal subcontractors.

FIXED PRICE

Advantages from the contractor’s standpoint include:

1. The contractor can name his own price for the work as

well as his profit objective in his bid.

2. There is minimum involvement of the owner or

architect/engineer in the details of the building process

other than for quality, schedule and change control.

3. The innovative contractor may obtain an opportunity to

maximize profits through innovation.

4. Administrative requirements are based upon applicable

law, the contract and the contractor’s own determination.

5. The contractor may pass on much of the risk to lower-tier

specialty contractors when feasible.

FIXED PRICE:

Disadvantages from the contractor’s standpoint include:

1. To be competitive the builder must often use marginal

subcontractors who may have problems performing the

work.

2. On many contracts too many bidders may make it difficult

to obtain the work for a fair price and in weak markets the

cumulative cost of preparing the proposal by all contractors

may exceed the profit potential of the successful bidder.

3. The owner controls the funding on disputed extra work or

changed conditions, and the contractor must often resort to

expensive arbitration or litigation with no assurance that it

will recover for the additional costs.

4. The contractor usually bears the economic risk of unusual

weather, conditions, strikes, or other external factors that

influence a contractor’s cost but which may not be directly

under its control.

5. Last minute telephone quotations may contribute to

misunderstandings with material suppliers and

subcontractors.

COST+:

Advantages from the Owner’s point of view include the

following:

1. These contract systems are also accepted and historically

supported.

2. They permit reduction of design-construct time by utilizing

phased construction.

3. This approach enables the contractor to react quickly to

major design changes and unforeseen conditions, and, in

part, minimizes the adversary position.

4. There is an opportunity to utilize contractor expertise during

the design phase to help minimize overall costs.

5. The owner pays for the actual cost of the work plus a

negotiated fee which may result in savings in periods of

high demand for construction work.

6. The owner and the general contractor can still subcontract

a substantial portion of the work to prequalified

subcontractors, thus achieving the advantage of

eliminating marginal subcontractors as well as achieving

fixed prices for specialty work.

7. The owner may participate fully in the management and control of the project to the extent that he has qualified personnel and may exercise control of expenditures in advance, may participate in major decisions, or actually supply certain services or materials to the contractor.

8. Under the guaranteed maximum price option, the owner may pass on some portion of the construction risk to the contractor.

Cost+:

Disadvantages from the owner’s position are the following:

1. Cost plus a fixed fee may not be the most economical

alternative in a competitive market.

2. Disreputable, unskilled, or unknowledgeable contractors

can abuse this arrangement if the owner is not careful in

selection.

3. The guaranteed maximum, while theoretically setting a ceiling, may not stand up in the event of poor initial scope, changed conditions, price increases, design delays, or major design changes which may result in numerous change orders.

4. Owner involvement (or that of the designer) is increased over the lump-sum method in view of the necessity for controls on expenditures, audits, approvals, and other administrative requirements that are considered good practice when this form of contract is employed.

5. Definition of reimbursable items of cost, particularly those for contractor tools and equipment, contractor home office expense and other items that directly affect contractor profit, may be the subject of overruns, disputes and foster adversarial relationships.

6. Under the guaranteed-maximum-cost option, design and

scope changes may negate the advantages of the

guarantee.

Cost+: Advantages to the contractor will include:

1. The contractor has eliminated the risk inherent in fixed price contracting as a trad-off for a lower guaranteed fee.

2. The contractor is generally paid for the preparation if his initial planning including development of cost estimates, schedules and other work plan items which he must absorb in the preparation of a fixed-price bid.

3. The contractor has an opportunity to obtain future work from the owner with minimal or no competition if the program objectives can be achieved in a harmonious relationship.

4. The jobsite can be staffed to provide most of the required services on a reimbursable basis, thus minimizing the contractor’s home office overhead.

5. The contractor can profit from equipment and tool rental in excess of amounts usually included in fixed-price quotations.

Cost+:

Disadvantages from the contractor’s standpoint include:

1. Fees may be minimal in comparison to profit potential in areas of known performance with a favorable risk/reward ratio.

2. Contractor supervision and management may resent major decisions being made or questioned by the client in areas where they would normally have full responsibility.

3. Planning and control functions and assignment of personnel are

made increasingly difficult because of the simultaneous nature of construction and design. Numerous changes may foster a hip-shooting response that may not be the best training ground for young managers.

4. The contractor’s reputation may suffer in the event of significant delays, cost overruns, or compatibility or personal clashes with owner personnel.

5. Under the guaranteed-maximum-price option, the contractor may bear risks for items not under his control. The owner may resent amounts paid to contractor in event of a large under run.

Design -Build Relationship (Owner-Builder Operation)

• The owner may subcontract a substantial portion of the project to outside consultants and contractors for both design and construction

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Design- build relationship

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Owner

Executing

contractors

Subcontractors

Design & Build

contractor

Consultant

Designers

The Advantages of Design and Build Contract

A. Possibility to benefit from the contractor experience during the design;

B. Reducing the total duration of the project due to possibility to start execution before finishing all designs;

C. The relationship between the designer and the implementers is friendlier;

D. Possibility to reduce the total cost by reducing the changes to the minimum

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The Disadvantages of Design Build Relationship

A. No allowance for the owner interference while executing the project.

B. Increase of the cost of construction due to high risk given to the contractor side

C. There is no method to ensure real competiveness of contractor prices

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Professional Construction Management

• Used When project is very large or complex

• Project management team consisting of :

– A professional construction manager

– Other participants who will carry out the tasks of project planning, design and construction in an integrated manner

– Contractual relationships among members of the team are intended to minimize adversarial relationships

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A professional Construction Manager (PCM)

• PCM is a firm specialized in the practice of professional construction management work with owner and the A/E firms from the beginning and make recommendations on:

• design improvements,

• construction technology,

• schedules and

• construction economy.

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• Propose design and construction alternatives if appropriate, and analyze the effects of the alternatives on the project cost and schedule.

• Monitor subsequent development of the project in order that these targets are not exceeded without the knowledge of the owner.

•

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A Professional Construction Manager

• Coordinate procurement of material and equipment.

• The work of all construction contractors, and monthly payments to contractors,

• changes, claims and inspection for conforming design requirements

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CM Relationship

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Owner

Subcontractors

Special

Contractors

Construction

Manger

Designer

The Advantages of Using CM Relationship

A. Use of professional persons in all stages of executing the project.

B. There is individual evaluation for the cost, schedules and implementation and amendments.

C. Continues coordination between the design process and implementation process.

D. Reducing the design and construction periods by using construction packages.

E. Possibility to reduce the cost by using competitions between contractors.

F. Possibility of using efficiently the value engineering concepts.

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The Disadvantages of Using CM Relationship

A. The start of execution is usually starts before finalizing the cost of the project

B. It is preferable to use the traditional relationship when the budget is limited

C. The owner has high risk

D. The success of the project depends on the experience of the construction manger

E. No guarantee by the construction manager neither for the total cost nor for the quality

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2) PROFESSIONAL CM:

• CM treats the project planning

design

construction phases

as integrated tasks

• This approach unites & tree-party team consisting of

Owner, Designer and CM in a non-adversary relationship.

• It provides the owner with an opportunity to participate fully

in the construction process.

• The team works together from the beginning of

Design to project completion, with the common

objective of best serving the Owner’s interests.

PROJECT (PROGRAM) MANAGEMENT:

PM serves as

The single point of contact to the owner

to coordinate and manage

the various other parties involved in

planning, design, procurement and construction.

Difference bet. PM & CM

- PM is THE party that contacts the Owner

- Ther Owner is not really a team member

• Task force is favorable

• Coordination (more than one project)

• Developed to other industries

Program Management

Program management (sometimes called project

management) is an emerging concept being used on some

of the very largest projects.

Program management services may include no design or

direct construction but the program manager could handle

overall management of a number of individual projects

related to an overall program.

Program management has been applied on several major

projects where the owner has participated heavily in

managing the program in an integrated program

management team utilizing owner top management

personnel and management and specialized personnel

from a Construction Management (CM) firm,

architect/engineer, or other consultant.