1 1 T HE C ONSTRUCTION E NVIRONMENT Objective: Overview of the environment within which the planning and control of a construction project must proceed. Summary: 1.1 Uniqueness of Construction Projects 1.2 The Players 1.3 Contracting Arrangements 1.4 Selection of Prime Contractor 1.5 Contracts

2 1.1 Uniqueness of Construction Projects One of the most complex manufacturing industries from a management perspective: –Large size of many projects –Volatility of the market –Diversity of a construction project in terms of: the construction methods adopted the resource types employed –Interactions between resources

3 The problem is made worse by the fact that no two construction projects are the same: –A manager will thus be planning work that is: unfamiliar (how should I build it ?) subject to uncertainty (what is under the ground ?) –Even 2 projects of the same design will differ: ground conditions site access/ storage labor, materials and equipment availability micro climate –Compare, for example, with shipbuilding: labor, material suppliers, etc are well established site access is fixed

4 Uncertainty in planning results for many reasons, notably: –Each project is a one-off –Variability and uncertainty in the environments and circumstances within which the project must proceed, eg: labor markets weather (temperature & precipitation affect performances of labor and equipment) supply of information (this may be delayed and/or there may be revisions in the pipeline) incomplete geological information –Change orders may occur. Others ???

5 Construction planning is further complicated by the large number and great diversity of operations involved: –All operations have to be planned (this is demanding and requires knowledge of many different technologies) –All dependencies, interactions and interference's between operations have to be understood and planned This is essential if the overall objectives of the project are to be achieved, rather than just those of its parts

6 Devising some arbitrary plan for putting a project together is fairly straightforward. However, we want a plan that is efficient, meeting certain objectives, eg: –Meets tight deadlines –Maximizes profit –Ensures owner satisfaction –Maximizes safety –Satisfies space restrictions –Combinations of the above. Others ??? This requires considerable skill on behalf of the project manager.

7 Many tools have been developed to assist the manger in developing and implementing an effective plan, the most successful of which has been CPM (critical path method). –This provides the manager with a formal framework within which to plan and control work

8 1.2 The Players The Owner (party that instigates project): –Public Federal, State, County, Municipal Work usually awarded by competitive bidding –Private Corporations, Partnerships, Individuals Work usually awarded by competitive bidding, though sometimes by negotiation or a hybrid

9 The Architect-Engineer (Design Professional). The main designers of the project; may be architectural or engineering in nature: Usually independent, contracted by owner to execute the design Could be affiliated with contractor for design- construct projects Could be in-house for public bodies and large corporations

10 The Prime Contractor (General Contractor). The organization contracted by the owner to execute the construction work May be one or several prime contractors. Usually performs the basic work, employing specialty subcontractors for the remainder. Sometimes may subcontract all the work providing just supervision and coordination. In a single contract system, the prime contractor will assume full responsibility for delivery of the complete facility, including the work of the subcontractors.

Contracting Arrangements There are many alternative arrangements that may be adopted in the organization of the design and construction of a project. The most appropriate arrangement to adopt will depend on the circumstances of the project, its function and objectives

12 Construction Services. General contractor is employed by the owner solely to perform the construction work Construction Team Subcon tractor Subcon tractor Subcon tractor Primary Contractor Owner Fig. 1-1: Construction Services (organization of players) Design Team Architect- Engineer A separate contract is awarded to the designers. Designers and contractor are in an adversarial relationship

13 –Design-Then-Construct. Design is completed first, then bidding and construction proceed Ordering of Design, Bidding and Construction TIME single phase Design BidConstruction

14 –Fast Tracking. The design work is performed in phases, with each phase put out to bid separately Fig. 1-2: Ordering of Design, Bidding and Construction ( Fast Tracking versus Design-then-Construct) TIME single phase DesignBidConstruction Des’ DESIGN-THEN-CONSTRUCT FAST TRACKING phase 1 phase 2 phase 3 Des’ Bid Des’ Constr Bid Constr

15 This way, construction work can commence sooner, and thus finish sooner. Depending on the nature of the project, construction work may also overlap between the phases. Careful coordination of the phases of the project is of extreme importance.

16 Design-Construct and Turn-Key. The contract is awarded to a single organization for both design and construction services. Design- Construction Team Subcon tractor Subcon tractor Subcon tractor Primary Contractor Owner Fig. 1-3: Design-Construct (organization of players) (a) single firm for design and construction Architect- Engineer

17 The owner, designer and constructor operate together in a team, with valuable input from the contractor in the design stage. Time and costs can be reduced since design and construction can, to an extent, be performed in tandem. Fig. 1-4: Ordering of Design and Construction (design- construct, construction management, force account, speculative construction) TIME single phase Design Construction Typically, this type of contract is negotiated, though it is sometimes bid for competitively.

18 It may be that the design team are a division within the contractors organization - see Fig. 1-3(a) above. Alternatively, a contractor and architect-engineer firm may establish a joint-venture for the project. Design-Construction Team Subcon tractor Subcon tractor Subcon tractor Owner Fig. 1-3: Design-Construct (organization of players) (b) corporate affiliates or joint-venture affiliates/ joint-venture Primary Contractor Architect- Engineer

19 In turn-key projects, the contractor provides all major services, including land selection and acquisition, financing, and procurement of equipment, in addition to design and construction services. Design- Construction Team Subcon tractor Subcon tractor Subcon tractor Primary Contractor Owner Fig. 1-3: Design-Construct (organization of players) (c) turn-key Architect- Engineer Procure- ment

20 Construction Management. The owner employs a firm to provide the management of the project, or part thereof. Subcon tractor Subcon tractor Subcon tractor Owner Fig. 1-5: Construction Management (organization of players) Construction Manager Non-Adversarial Design-Construction Team Primary Contractor Architect- Engineer

21 A nonadversarial team is established, coordinated by the construction manager. This facilitates production of the project in a way that best meets the objectives of the owner in terms of completion date, cost, quality and suitability for end use. The construction management firm is typically selected by qualification and through a process of negotiation.

22 Force Account. The owner, who will be the end user, performs the work with its own forces, or at least manages the construction. Subcon tractor Subcon tractor Subcon tractor Owner Fig. 1-6: Force Account (organization of players) own construct- ion force Architect- Engineer Architect- Engineer Usually only economic if the owner is engaged in such work on a regular basis.

23 Speculative Construction. Similar to the previous arrangement, except that the owner is producing the project for lease or sale. Subcon tractor Subcon tractor Subcon tractor Developer Fig. 1-7: Speculative Construction (organization of players) own construct- ion force Architect- Engineer Architect- Engineer

Selection of Prime Contractor Clearly, the owner needs to choose a prime contractor in a manner which is most likely to meet his aims. There are several options available:

25 Competitive Bidding. Here, a number of contractors bid, within a competitive environment, to perform the work. Usually, the lowest responsible (qualified) bidder is awarded the work. This is the approach normally required for public agencies, and most usually adopted by private owners.

26 Negotiated Contracts. Here, the owner negotiates the contract with one or more contractors, preselected based on their reputation and qualifications to complete the work. This provides greater flexibility in that the contractor can suggest changes, specifications, and methods in which they specialize. Typically, negotiated contracts are of the cost-plus- fee type.

27 Combined. Here, attributes of both the competitive bidding and negotiated contract mechanisms are adopted. For example: The initial stage may be through an open bidding procedure where contractors submit, along with their bids, their qualifications and suggestions for improving the efficacy of the project. The most promising contractors are selected and enter with the owner into a process of negotiation.

Contracts Fixed-Sum. The contractor agrees to complete the work for a sum of money fixed within the contract. The contractor needs to determine the likely cost of the work, overheads and required profit. There are two basic types of fixed-sum:

29 –Lump-Sum. The contractor agrees to complete the specified work for a single fixed sum of money. Most appropriate for projects where the type and amount of work to be performed are well defined.

30 –Unit-Price. The contractor agrees to complete the work at a fixed rate for each unit of work. May be a provision for adjustment of the unit-price in case of substantial variance from the initial quantities of work estimated by the architect- engineer. Most appropriate for projects where the type of work is well-defined, but the quantity of work is uncertain.

31 Cost-Plus-Fee. The owner agrees to reimburse the contractor for all construction costs incurred and pay a fee for its services. The fee may, for example, be a fixed sum or a percentage of the total direct costs. There will often be a stipulated maximum price that the contractor can charge to complete the project.