1. 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

2. 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

3. 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

4. Review: Involve management External financing Regulatory bodies Zoning regulation Building procedures Licensing procedures Safety standards Environmental Impact B) Scheme Design C) Detailed engineering and Design

5. 1.3: PROCUREMENT: Materials Equipment Manpower (contractor, subcontractor) 1.4: CONSTRUCTION: 1.5: START-UP AND IMPLEMENTATION: Industrial facilities 1.6: OPERATION AND UTILIZATION:

6. FIGURE 2-1 The life cycle of a construction project Year 3 Year 2 Year 1 TimePhase 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

7. 20 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. Scoping __Clearly define desired project objectives. Planning__Predetermine a course of action to achieve project objectives. Planning__Predetermine a course of action to achieve project objectives. Organizing__Integrate individual, consultant and contractor efforts into an effective team. Organizing__Integrate individual, consultant and contractor efforts into an effective team. Controlling__Monitor, influence, and direct achievement of project objectives throughout the performance phase. Controlling__Monitor, influence, and direct achievement of project objectives throughout the performance phase.

11. 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 sompetition in a competitive situation.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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 eh 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.

19. 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.

20. 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.

21. 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 significan 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 underrun.

23. Advantages and disadvantages Advantages from the owner’s position are as follows: 1. Special construction skills may be utilized at all stages of the project with no conflicts of interest between the owner and the designer. 2. Independent evaluation of costs, schedules, and overall construction performance, including similar evaluation for changes or modifications, helps assure decisions, in the best interest of the owner. 3. Full-time coordination between design and the construction contractors Is available. 4. Minimum design-construction time can be achieved through use of phased construction. 5. The professional construction manager approach allows price competition from local contractors akin to the traditional lump-sum or unit-price methods. 6. Significant opportunities are provided for value engineering in the design, bidding, and award phases.

24. Disadvantages from the owner’s position are as follows: 1. If the professional construction manager recommends phased construction, the owner begins the project before the total price is established. Early completion may not provide a sufficient trade-off for this risk. 2. It the owner has only a fixed amount to spend, and would not build the project if its cost would exceed this amount, the traditional method would be preferable in such a go/no go situation. 3. The owner has certain responsibilities and obligations that must be fulfilled in a timely manner. 4. Success of the program depends greatly upon the planning, scheduling, estimating, and management skills of the professional construction manager. 5. The professional construction manager does not usually guarantee either the overall price or the quality of the work; this situation contrasts with that of the general contractor in the traditional lump-sum approach.

25. 2) PROFESSIONAL CM: CM treats the project planning CM treats the project planningdesign construction phases as integrated tasks This approach unites & tree-party team consisting of Owner, Designer and CM in a non-adversary relationship. 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. 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. The team works together from the beginning of Design to project completion, with the common objective of best serving the Owner’s interests.

26. 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 Task force is favorable Coordination (more than one project) Coordination (more than one project) Developed to other industries Developed to other industries

28. 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.

29. Background The roots of modern program management began with the major design-construct companies. Domestically, the companies initially performed direct ire construction work, generally operating under national agreements with the AFLCIO craft labor unions throughout the United States and portions of Canada. On overseas projects, as the American worker and middle manager became increasingly costly, many of the projects contracted out the actual construction work to local or international contractors while continuing to manage the overall project. Stephen D. Bechtel, Jr., in the keynote address to the 1988 Project Management Institute (PMI) Seminar/Symposium held in San Francisco, stated, “In 1951, Trans xxxxxxxx