Const. Mgmt. Chp. 01 - The Owners' Perspective

8/14/2019 Const. Mgmt. Chp. 01 - The Owners' Perspective

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Construction Management & Project Management

The Owners Perspe ctive Page 1 / 27

1. The Owners' Perspective1.1 Introduction

Like the five b lind m en e nc ounte ring d ifferent p arts of a n elepha nt, eac h ofthe numerous participants in the process of planning, designing, financing,c on struc ting a nd op erating physic al fa c ilities ha s a d ifferent pe rspe c tive onprojec t m ana gem ent for c onstruc tion. Spe c ialized knowled ge c an be verybeneficial, particularly in large and complicated projects, since experts invarious specialties can provide valuable services. However, it isad v anta ge ous to und erstand ho w the d ifferent p arts of the proc ess fittogether. Waste, excessive cost and delays can result from poorc oo rd ina tion an d c om munica tion am ong sp ec ialists. It is p artic ularly in theinterest of owners to insure that such problems do not occur. And itbehooves all participants in the process to heed the interests of ownersbe c a use, in the end , it is the ow ners who p rov ide the resou rc es an d c a ll theshots.

By ad op ting the viewpo int of the o wne rs, we c an fo c us our attention on thec om plete p roc ess of project management for constructed facilities rathertha n the histo rica l role s o f va rious sp ec ialists suc h a s p lanne rs, a rc hitec ts,engineering designers, constructors, fabricators, material suppliers, financialana lysts and others. To b e sure, ea c h sp ec ialty ha s ma de im p ortantad v anc es in de velop ing ne w tec hniq ues a nd tools for effic ientimplementation of construction projects. However, it is through theunderstanding of the entire process of project management that thesespecialists can respond more effectively to the owner's desires for theirservices, in marketing their specialties, and in improving the productivityan d q uality of the ir wo rk.

The introd uction of innovative and mo re e ffec tive projec t ma na gem ent forconstruction is not an academic exercise. As reported by the "ConstructionIndustry Co st Effe c tiveness Pro jec t" o f the Business Round ta b le: [1]

By c om mo n c onsensus a nd eve ry av a ilable me a sure, the United Sta tes nolonger gets it's money's worth in construction, the nation's largest industry ...The c ree p ing erosion of c onstruc tion efficienc y a nd p rod uc tivity is b a dne ws for the en tire U.S. ec onom y. Co nstruc tion is a p a rtic ularly sem ina lindustry. The pric e o f eve ry fac tory, offic e b uild ing, hotel or po we r pla nttha t is built affec ts the p ric e tha t must be c ha rg ed for the g oo d s or service sp rod uc ed in it or b y it. And tha t effe c t generally p ersists for de c ad es ... Toomu c h of the industry rem a ins tethered to the p a st, p artly by inertia a ndpa rtly b y histo ric d iv isions...


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Improvement of project management not only can aid the construction industry, but mayalso be the engine for the national and world economy. However, if we are to makemeaningful improvements, we must first understand the construction industry, its operatingenvironment and the institutional constraints affecting its activities as well as the nature of project management.

1.2 The Project Life Cyc le

The a c q uisition of a c onstruc ted fac ility usua lly rep resen ts a m a jor c ap italinvestment, whether its owner happens to be an individual, a privatec orpo ra tion o r a p ublic a ge nc y. Sinc e the c omm itme nt of resource s forsuch an investment is motivated by market demands or perceived needs,the facility is expected to satisfy certain objectives within the constraintsspe c ified by th e o wner an d relevant regulations. With the exce p tion o f thespec ulative housing m arket, whe re th e resid en tial units ma y be sold a s b uiltby the real estate developer, most constructed facilities are custom madein c onsulta tion w ith the ow ners. A rea l esta te d eve lop er m ay b e rega rde das the spo nsor of b uilding p rojec ts, as m uc h a s a go ve rnme nt ag enc y ma ybe the sp on sor of a p ublic p rojec t and turns it ove r to a nothe r g ove rnme ntunit upon its completion. From the viewpoint of project management, theterms "owner" and "sponsor" are synonymous because both have theultim a te a utho rity to m a ke all imp ortant d ec isions. Since a n ow ne r isessentially acquiring a facility on a promise in some form of agreement, itwill be w ise fo r an y o wner to ha ve a c lear unde rstand ing of the a c q uisitionprocess in order to maintain firm control of the quality, timeliness and costof the c om pleted fac ility.

From the perspective of an owner, the project life cycle for a constructedfa c ility ma y be illustra ted sc he ma tica lly in Figure 1-1. Essentially, a p ro jec t isconceived to meet market demands or needs in a timely fashion. Variouspo ssibilities m ay b e c onsidered in the c onc ep tual planning stag e, and thetec hnolog ic al a nd ec ono mic fea sibility of e a c h a lternative will be a ssessedan d c om p ared in orde r to selec t the be st p ossible p rojec t. The financ ingschemes for the proposed alternatives must also be examined, and theproject will be programmed with respect to the timing for its completionand for available cash flows. After the scope of the project is clearlydefined, detailed engineering design will provide the blueprint forconstruction, and the definitive cost estimate will serve as the baseline for

cost control. In the procurement and construction stage, the delivery ofma terials and the e rec tion of the p rojec t on site m ust be c a refully planne dand controlled. After the construction is completed, there is usually a briefperiod of start-up or shake-down of the constructed facility when it is firstoc c up ied . Finally, the m a na ge me nt of the fa c ility is turned ove r to theowner for full occupancy until the facility lives out its useful life and isde signa ted for dem olition or co nversion.


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Figure 1-1: The Projec t Life Cycle of a Co nstruc ted Fac ility

Of course, the stages of development in Figure 1-1 may not be strictlyseq uen tial. Som e o f the stag es req uire iteration, an d others ma y be c a rriedout in parallel or with overlapping time frames, depending on the nature,size a nd urg enc y of the p rojec t. Furthermore, an o wne r ma y ha ve in-house


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c a pa c ities to ha nd le the w ork in ev ery sta ge of the entire p roc ess, or it m a yseek professional advice and services for the work in all stages.Understandably, most owners choose to handle some of the work in-houseand to contract outside professional services for other components of thewo rk as nee de d . By exam ining the p rojec t life c ycle from a n ow ner'spe rspe c tive we c a n foc us on the p rop er roles of va rious ac tivities a ndparticipants in all stages regardless of the contractual arrangements ford ifferent typ es of w ork.

In the United Sta tes, fo r exam ple, the U.S. Arm y Corps of Eng inee rs ha s in-house capabilities to deal with planning, budgeting, design, constructionand operation of waterway and flood control structures. Other publicagencies, such as state transportation departments, are also deeplyinvolved in all phases of a construction project. In the private sector, manylarge firm s suc h a s DuPon t, Exxon , and IBM a re ad eq ua tely sta ffed to c a rryout most activities for plant expansion. All these owners, both public and

priva te, use outsid e ag ents to a grea ter or lesser de g ree whe n it bec om esmo re a dva ntag eous to do so.

The p rojec t life c ycle m a y be v iew ed a s a p roc ess throug h which a p rojec tis imp leme nte d from c ra dle to g rav e. This p roc ess is ofte n ve ry c om plex;ho weve r, it ca n be d ec om po sed into sev eral stag es a s indic a ted by thegene ra l ou tline in Figure 1-1. The solutions a t va rious sta g es a re the nintegrated to obtain the final outcome. Although each stage requiresdifferent expertise, it usually includes both technical and managerialactivities in the knowledge d oma in of the sp ec ia list. The ow ne r m ay c hooseto dec om p ose the e ntire p roc ess into mo re or less sta ges b a sed on the size

and nature of the project, and thus obtain the most efficient result inim pleme ntation. Very o ften, the o wne r reta ins d irec t c ontrol of wo rk in thepla nning a nd p rog ram ming stag es, but increasingly o utside planne rs a ndfinancial experts are used as consultants because of the complexities ofprojec ts. Sinc e o p eration a nd m a intena nc e o f a fa c ility will go on long a fterthe completion and acceptance of a project, it is usually treated as aseparate problem except in the consideration of the life cycle cost of afacility. All stages from conceptual planning and feasibility studies to theac ce pta nce of a facility for oc cup anc y may be b road ly lumped togetherand referred to as the Design/Construct process, while the procurementand construction alone are traditionally regarded as the province of the

c onstruc tion ind ustry.

Owners must recognize that there is no single best approach in organizingproject management throughout a project's life cycle. All organizationalap proac hes have a dva ntag es and d isad va ntag es, de pe nding on theknowledge of the owner in construction management as well as the type,size a nd loc a tion of the p rojec t. It is imp orta nt for the ow ner to be a wa re o fthe approach which is most appropriate and beneficial for a particular


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projec t. In m aking c hoice s, owne rs sho uld be c onc erned with the life c yc lec osts of c onstruc ted fa c ilities ra the r tha n simp ly the initial c onstruc tion c osts.Sav ing sm all amo unts of m one y du ring c onstruc tion m a y not b e worthwhileif the result is much larger operating costs or not meeting the functionalreq uirem en ts fo r the new fa c ility sa tisfa c to rily. Thus, owne rs m ust b e v eryc on c erned with the q uality of the finished p rod uc t a s we ll as the c ost ofc on struc tion itself. Sinc e fa c ility op eration a nd m a intena nc e is a p a rt of theproject life cycle, the owners' expectation to satisfy investment objectivesduring the project life cycle will require consideration of the cost ofop eration a nd ma intena nc e. Therefore, the fa c ility's op eratingmanagement should also be considered as early as possible, just as theconstruction process should be kept in mind at the early stages of planningand programming.

1.3 Major Types of Construction

Sinc e m ost owne rs a re g enerally interested in a c quiring o nly a sp ec ific typ eof c onstruc ted fac ility, they should b e a wa re o f the c om m on industrialpractices for the type of construction pertinent to them. Likewise, theconstruction industry is a conglomeration of quite diverse segments andprod uc ts. Som e o wne rs m ay p roc ure a c onstruc ted fac ility only onc e in along while and tend to look for short term advantages. However, manyow ners req uire pe riod ic a c q uisition of new fac ilities a nd / or reha b ilitation o fexisting facilities. It is to their advantage to keep the construction industryhealthy and productive. Collectively, the owners have more power toinfluence the construction industry than they realize because, by theirindividual actions, they can provide incentives or disincentives forinnovation, efficiency and quality in construction. It is to the interest of allparties that the owners take an active interest in the construction andexerc ise b eneficial influenc e on the pe rform an ce of the industry.

In planning for various types of construction, the methods of procuringprofessional services, awarding construction contracts, and financing thec on struc ted fac ility c an be q uite d ifferent. For the p urp ose o f disc ussion,the broad spectrum of constructed facilities may be classified into fourma jor c a teg ories, ea c h with its own c ha ra c teristics.

Residential Housing Construction

Residential housing construction includes single-family houses, multi-familydwellings, and high-rise apartments. During the development andconstruction of such projects, the developers or sponsors who are familiarwith the construction industry usually serve as surrogate owners and takecharge, making necessary contractual agreements for design andc on struc tion, and a rra ng ing the fina nc ing a nd sa le of the c om pleted


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struc tures. Residen tial ho using d esig ns a re usua lly p erform ed b y a rc hitec tsand engineers, and the construction executed by builders who hiresubc ontrac tors for the struc tural, me c ha nic al, elec tric al a nd othe r spe c ialtywork. An exception to this pattern is for single-family houses which may bedesigne d b y the b uilde rs a s well.

The residentia l housing m arket is he av ily a ffec ted b y ge neral ec onom icc on dition s, tax laws, and the m one tary a nd fisc al p olic ies of thego ve rnme nt. Often, a slig ht inc rea se in tota l de ma nd will c au se asubstantial investment in construction, since many housing projects can besta rted a t d ifferent loc a tions by d ifferent ind ividuals a nd d ev elope rs at thesam e time . Bec a use of the relative ea se o f entry, at lea st a t the lowe r endof the market, many new builders are attracted to the residential housingconstruction. Hence, this market is highly competitive, with potentially highrisks a s well as high rewa rds.

Figure 1-2: Residential Housing Construction (courtesy of Caterpillar, Inc.)

Institutional and Commercial Building Construction

Institutiona l and c om m ercial build ing c onstruc tion e nc om pa sses a g rea tvariety of project types and sizes, such as schools and universities, medicalc linics and hosp ita ls, rec rea tiona l fa c ilities and sp orts stad ium s, re ta il c ha instores and large shopping centers, warehouses and light manufacturingplants, a nd skysc ra pers fo r o ffices a nd ho tels. The owners o f suc h b uild ing sma y or ma y not b e fam iliar with c onstruc tion ind ustry p ra c tic es, but the yusua lly a re a ble to selec t c om pe tent p rofe ssiona l c on sultants a nd arra ngethe fina nc ing of the c onstruc ted fac ilities them selves. Sp ec ialty a rc hitec tsand engineers are often engaged for designing a specific type of building,while the builders or general contractors undertaking such projects mayalso b e spe c ialized in o nly tha t type of b uilding .


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Because of the higher costs and greater sophistication of institutional andcommercial buildings in comparison with residential housing, this marketseg m en t is sha red b y few er co m petitors. Since the c on struc tion of som e o fthese buildings is a long process which once started will take some time toproc ee d until c om pletion, the d em a nd is less sensitive to g ene ral ec ono m icconditions than that for speculative housing. Consequently, the ownersmay confront an oligopoly of general contractors who compete in thesame market. In an oligopoly situation, only a limited number ofc om p etitors exist, and a firm 's p rice for service s ma y be b a sed in p a rt on itsc om p etitive stra teg ies in the loc al m a rket.

Figure 1-3 : Co nstruc tion o f the PPG Build ing in Pittsb urgh , Pennsylvan ia(c ourte sy of PPG Ind ustries, Inc .)

Specialized Industrial Construction

Sp ec ia lized ind ustrial c onstruc tion usua lly involve s ve ry la rge sc ale p rojec tswith a high degree of technological complexity, such as oil refineries, steelmills, chemical processing plants and coal-fired or nuclear power plants.The ow ners usua lly are d eep ly involved in the de velop me nt of a p rojec t,and prefer to work with designers-builders such that the total time for thec om pletion o f the p roject c an b e shortened . They also w ant to pick a teamof d esig ners a nd b uilders with whom the o wne r ha s d ev elope d g oo dwo rking rela tions ov er the yea rs.


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Although the initiation of suc h p rojec ts is also affe c ted by the sta te o f theec onom y, long rang e d em and forec asting is the mo st imp ortant fac torsinc e suc h p rojec ts a re c a p ital intensive a nd req uire c onside ra ble am ountof p lanning a nd c onstruc tion time . Governmenta l reg ulation suc h a s theruling s of the Environm enta l Prote c tion Ag enc y a nd the Nuclea r Reg ulatoryCo mm ission in the United Sta tes c a n a lso p rofo und ly influenc e de c isions onthe se p rojec ts.

Figure 1-4: Co nstruc tion of a Benzene Plant in Lima , Ohio (c ou rtesy o fMa nitowo c Co mp any, Inc.)

Infrastructure and Heavy Construction

Infrastructure and heavy construction includes projects such as highways,mass transit systems, tunnels, bridges, pipelines, drainage systems andsew a g e trea tme nt pla nts. Most of the se p rojec ts a re p ublicly owned a ndthe refo re financ ed either throu gh bo nd s or taxes. This c a teg ory ofc on struc tion is c harac terized b y a high d eg ree o f mec ha niza tion, whichha s grad ua lly rep lac ed som e lab or intensive op erations.

The eng inee rs and build ers eng a g ed in infra struc ture c on struc tion a reusually highly specialized since each segment of the market requiresdifferent types of skills. However, demands for different segments ofinfrastructure and heavy construction may shift with saturation in someseg m en ts. For exam ple, as the a va ilab le highwa y construc tion p rojec ts a rede c lining , som e he av y c on struc tion c ontra c tors quickly mov e their workforce a nd e qu ipm ent into the field of m ining w here job s a re av aila ble.


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Figure 1-5: Construction of the Dame Point Bridge in Jacksonville, Florida (courtesy of Mary Lou Maher)

1.4 Selection of Professiona l Services

When a n owne r d ec ides to see k profe ssiona l servic es for the d esig n a ndc on struc tion o f a fa c ility, he is c onfronted with a broa d v a riety of c hoice s.The typ e o f service s selec ted de p end s to a la rge d eg ree o n the type ofc on struc tion a nd the expe rienc e o f the owne r in de aling w ith va riousprofessionals in the previous projects undertaken by the firm. Generally,seve ral c om mo n type s of p rofe ssional services m ay be eng ag ed eithersep a ra tely or in som e c om b ina tion b y the o wne rs.

Financial Planning Consultants

At the ea rly stag e o f stra teg ic p lanning fo r a c a pital projec t, a n ow ner

often seeks the services of financial planning consultants such as certifiedpublic accounting (CPA) firms to evaluate the economic and financialfeasibility of the constructed facility, particularly with respect to variousprovisions of fed eral, state an d loc al ta x la ws which m ay a ffec t theinvestment decision. Investment banks may also be consulted on variousop tions for financ ing the fac ility in order to a na lyze their long-term effec tson the fina nc ial hea lth of the owne r orga niza tion.

Architectural and Engineering Firms

Tra ditiona lly, the o wner eng a g es an a rchitec tura l and eng inee ring (A/ E)

firm or consortium as technical consultant in developing a preliminarydesign. After the engineering design and financing arrangements for theproject are completed, the owner will enter into a construction contractwith a general contractor either through competitive bidding orne go tiation. The g ene ral c ontra c tor will ac t a s a c on struc tor an d/ or acoordinator of a large number of subcontractors who perform variousspec ialties for the com pletion o f the p rojec t. The A/ E firm c om ple tes thedesign and may also provide on site quality inspection during construction.


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Thus, the A/ E firm a c ts a s the p rime p rofe ssional o n b ehalf of the ow ne r a ndsup erv ises the c onstruc tion to insure sa tisfa c to ry results. This p rac tic e is m ostc om m on in building c onstruc tion .

In the past two decades, this traditional approach has become lesspop ular for a num b er of rea sons, pa rticula rly for large sc ale p rojec ts. TheA/E firms, which are engaged by the owner as the prime professionals fordesign and inspection, have become more isolated from the constructionp roc ess. This ha s oc c urred b ec ause o f p ressures to red uc e fe es to A/ E firm s,the threat of litigation regarding construction defects, and lack ofknowledge of new construction techniques on the part of architect andengineering professionals. Instead of preparing a construction plan alongwith the d esign, many A/ E firms a re no long er responsible fo r the d eta ils ofc on struc tion nor do they p rov id e p eriod ic field inspe c tion in ma ny c a ses. Asa matter of fact, such firms will place a prominent disclaimer ofresponsibilities on any shop drawings they may check, and they will often

regard their representatives in the field as observers instead of inspectors.Thus, the A/ E firm a nd the g ene ral co ntra c tor on a p rojec t often b ec om eanta g on ists who a re loo king a fter their ow n c om p eting inte rests. As a result,eve n the c ontra c tibility of som e e ngineering d esigns m ay b ec om e an issueof c onte ntion. To c arry this p rote c tive a ttitude to the extrem e, thespecifications prepared by an A/E firm for the general contractor oftenp rote c ts the inte rest of the A/ E firm a t the expe nse of the inte rests of theowne r and the co ntrac tor.

In order to reduce the cost of construction, some owners introduce value engineering , which seeks to reduce the cost of construction by soliciting a

second design that might cost less than the original design produced bythe A/ E firm. In p rac tic e, the sec ond d esign is subm itted b y the c ontra c torafte r rec eiving a c onstruc tion c ontra c t a t a stipu lated sum , a nd the sav ingin cost resulting from the redesign is shared by the contractor and theow ne r. The c on tra c tor is a b le to a b sorb the c ost of red esign from the p rofitin construction or to reduce the construction cost as a result of the re-de sign. If the o wne r ha d be en willing to p ay a higher fee to the A/ E firm orto b ette r d irec t the d esign p roc ess, the A/ E firm m ig ht have p rod uce d animproved design which would cost less in the first place. Regardless of theme rit of v alue eng inee ring , this prac tic e ha s und erm ine d the role o f the A/ Efirm a s the prime p rofe ssiona l ac ting o n be ha lf of the o wne r to sup ervise the

contractor.

Design/ Construct Firms

A common trend in industrial construction, particularly for large projects, isto engage the services of a design/construct firm. By integrating designan d c on struc tion m an ag em ent in a single orga niza tion, ma ny of thec on flic ts b e twee n d esig ne rs and c onstruc tors might b e a vo id ed . In


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particular, designs will be closely scrutinized for their contractibility.How ev er, an ow ner eng ag ing a d esig n/ c onstruc t firm m ust insure that thequ ality of the c onstruc ted fac ility is not sa c rific ed by the d esire to red uc ethe time or the cost for completing the project. Also, it is difficult to makeuse of competitive bidding in this type of design/construct process. As aresult, owners must be relatively sophisticated in negotiating realistic andc ost-effec tive c onstruc tion c ontra c ts.

One of the most obvious advantages of the integrated design/constructp roc ess is the use of phased construction for a large p rojec t. In this p roc ess,the project is divided up into several phases, each of which can bede signe d and c onstructe d in a stag ge red ma nner. After the c om pletion o fthe de sign of the first p ha se, c onstruc tion c a n b eg in without w a iting for thec om pletion o f the de sign of the sec ond p hase, etc . If prope r c oo rdination isexerc ised . the total p roject duration c an be greatly red uce d. Anotheradvantage is to exploit the possibility of using the turnkey approach

whe reb y an ow ner ca n d elega te a ll resp onsibility to the d esig n/ c onstruc tfirm which will delive r to the owne r a c om pleted fac ility that m ee ts thepe rform anc e sp ec ific a tion s at the sp ec ified p ric e.

Professiona l Construction Manage rs

In recent years, a new breed of construction managers (CM) offersprofessional service s from the inc ep tion to the c om pletion of a c onstruc tionp rojec t. These c on struc tion m a na ge rs mo stly co me from the ranks of A/ Efirms or general contractors who may or may not retain dual roles in theservice of the owners. In any case, the owner can rely on the service of asingle prime professional to manage the entire process of a constructionproject. However, like the A/E firms of several decades ago, thec on struc tion m ana g ers a re a pp rec ia ted by som e o wne rs b ut not by o thers.Befo re long , so m e owne rs find tha t the c onstruc tion ma na ge rs too ma y tryto p rote c t the ir o wn interest instea d of th at o f the ow ners whe n the stakes

are high.

It should be obvious to all involved in the construction process that theparty which is required to take higher risk demands larger rewards. If anowner wants to engage an A/E firm on the basis of low fees instead ofestablished qualifications, it often gets what it deserves; or if the ownerwants the general contractor to bear the cost of uncertainties inc on struc tion suc h a s found a tion c ond itions, the c ontrac t p ric e will be


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higher even if competitive bidding is used in reaching a contractualagreement. Without mutual respect and trust, an owner cannot expecttha t c onstruc tion m a na ge rs c an p rod uc e b etter results than o therprofessionals. Hence, an owner must understand its own responsibility andthe risk it wishe s to a ssign to itself a nd to o the r p a rticip a nts in the p roc ess.

Operation and Maintenance Managers

Although many owners keep a permanent staff for the operation andmaintenance of constructed facilities, others may prefer to contract suchtasks to professional managers. Understandably, it is common to find in-house staff for operation and maintenance in specialized industrial plantsand infrastructure facilities, and the use of outside managers undercontracts for the operation and maintenance of rental properties such asapartments and office buildings. However, there are exceptions to thesec om mo n prac tic es. For exam ple, ma intenanc e of p ublic roa dw ays c an bec on tra c ted to p riva te firm s. In any c a se, ma nag ers c a n provide a sp ec trumof operation and maintenance services for a specified time period inac c orda nc e to the terms of c ontrac tual ag ree me nts. Thus, the o wne rs c a nbe sp ared the p rovision of in-house expertise to o p erate an d m aintain thefacilities.

Facilities Ma nagement

As a logical extension for obtaining the best services throughout the projectlife c ycle of a c onstruc ted fac ility, so me owne rs and d ev elope rs arereceptive to adding strategic planning at the beginning and facilitymaintenance as a follow-up to reduce space-related costs in their realestate holdings. Consequently, some architectural/engineering firms andc on struc tion m ana ge me nt firms with co mp uter-b ase d e xpertise, tog ethe rwith interio r de sign firm s, are offering suc h front-en d and follow -up service sin ad d ition to the m ore tra d itio na l services in de sign and c onstruc tion. Thisspectrum of services is described in Eng inee ring News-Rec ord (now ENR ) a sfollows:

Facilities management is the discipline of planning, designing, constructingan d m ana g ing sp ac e -- in eve ry type of struc ture from offic e b uilding s toprocess plants. It involves developing corporate facilities policy, long-range

forecasts, real estate, space inventories, projects (through design,c onstruc tion and renova tion), building op eration and ma intenanc e plansan d furniture a nd eq uipme nt inventories.

A common denominator of all firms entering into these new services is thatthey all have strong computer capabilities and heavy computerinvestments. In addition to the use of computers for aiding design and


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monitoring construction, the service includes the compilation of ac om puter rec ord o f building p lans that c an b e turned over at the end ofc onstruc tion to the fac ilities ma na gem ent g roup of the owne r. A c om puterdata base of facilities information makes it possible for planners in theow ner's orga niza tion to o b tain ove rview informa tion for long rang e spa c eforecasts, while the line managers can use as-built information such aslea se/ tenant rec ords, utility c osts, e tc . for d ay-to-da y op erations.

1.5 Construction Contractors

Builders who supervise the execution of construction projects aretraditionally referred to as contractors , or more appropriately calledconstructors . The general c ontrac tor c oo rd inate s va rious ta sks fo r a p rojec twhile the spe cialty c ontrac tors suc h as m ec ha nic al or elec tric a l contrac torsperform the w ork in the ir sp ec ia lties. Ma terial a nd eq uipm ent sup pliers ofte nac t as insta llation c ont rac to rs ; they play a significant role in a constructionprojec t sinc e the c ond itions of d elivery of ma terials a nd e quipm ent a ffec tthe quality, cost, and timely completion of the project. It is essential tounderstand the operation of these contractors in order to deal with themeffectively.

Ge neral Contractors

The func tion o f a g ene ral c on tra c tor is to c oo rd ina te a ll ta sks in aconstruction project. Unless the owner performs this function or engages aprofessional construction manager to do so, a good general contractorwho ha s wo rked with a tea m of sup erintend ents, sp ec ialty co ntra c tors o rsubc ontrac tors tog ethe r for a numb er of projec ts in the p a st ca n b e m osteffe c tive in insp iring loyalty a nd c oo perat ion . The g ene ral c on tra c tor is a lsoknowled ge ab le ab out the labo r forc e em ployed in c onstruction. The lab orforc e m ay o r ma y not b e unionized de pend ing on the size a nd loc ation o fthe p rojec ts. In som e p rojec ts, no m em be r of the wo rk forc e b elong s to alab or union; in o ther c ases, bo th union a nd non -union c ra ftsm en w orktog ethe r in wha t is c a lled an op en shop , or all c raftsm en m ust b e a ffiliate dwith la bor unions in a c losed sho p. Sinc e la b or unions p rov ide hiring ha llsstaffed with skilled journe yman who ha ve g one throug h ap p ren tic eprograms for the projects as well as serving as collective bargain units, anexperienced general contractor will make good use of the benefits andav oid the pitfalls in d ea ling with o rg a nized lab or.

Specialty Contractors

Spe c ia lty c ontrac tors inc lude m ec hanic al, elec trica l, found a tion,exc av a tion, and dem olition c on tra c tors a mong othe rs. They usua lly serveas subcontractors to the general contractor of a project. In some cases,


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lega l sta tutes m ay req uire a n o wner to d ea l with va rious spe c ialtyc on tra c tors d irec tly. In the Sta te o f New York, for exam ple , sp ec ialtyc on tra c tors, suc h as m ec ha nica l a nd elec tric a l co ntra c tors, a re no tsubjected to the supervision of the general contractor of a constructionprojec t a nd must b e given sep arate p rime c ontrac ts on pub lic wo rks. Withthe exception of such special cases, an owner will hold the generalcontractor responsible for negotiating and fulfilling the contractualag ree me nts with the sub c ontrac tors.

Materia l and Equipme nt Suppliers

Major material suppliers include specialty contractors in structural steelfabrication and erection, sheet metal, ready mixed concrete delivery,reinforcing steel bar detailers, roofing, glazing etc. Major equipmentsuppliers for industrial construction include manufacturers of generators,boilers and piping and other equipment. Many suppliers handle on-siteinstallation to insure that the requirements and contractual specificationsare met. As more and larger structural units are prefabricated off-site, thedistrib ution b etwe en sp ec ialty co ntra c tors and m ate rial supp liers b ec ome sev en less obvious.

1.6 Financing of Constructed Facilities

A m a jor c onstruc tion p rojec t req uires a n eno rmo us am ount o f c a pital tha t isoften sup plied b y lend ers who wa nt to be a ssured that the p rojec t will offera fa ir return on the inve stmen t. The d irec t c osts a ssoc ia ted with a ma jorc on struc tion p rojec t ma y be b roa d ly classified into two c at eg o ries: (1) thec on struc tion e xpe nses pa id to the g eneral co ntra c tor for erec ting thefacility on site and (2) the expenses for land acquisition, legal fees,architect/engineer fees, construction management fees, interest onc on struc tion loa ns a nd the op p ortunity c ost of c a rrying em p ty spa c e in thefa c ility until it is fully oc c up ied . The d irec t c onstruc tion c osts in the f irstc a teg ory rep resen t ap p roxima tely 60 to 80 p erce nt of the tota l co sts inmost c onstruc tion p rojec ts. Since the c osts of c onstruc tion a re ultima telyborne by the owner, careful financial planning for the facility must bema d e p rior to c onstruc tion .

Construction Financing


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Construction loans to contractors are usually provided by banks or savingsand loan associations for construction financing. Upon the completion ofthe fac ility, c on struc tion loa ns will be term ina ted a nd the po st-c onstruc tionfac ility fina nc ing will be a rra nge d b y the owne r.

Construction loans provided for different types of construction vary. In thecase of residential housing, construction loans and long-term mortgagesc a n b e o b tained from savings a nd loans assoc ia tions or co mm ercial ba nks.For institutional and commercial buildings, construction loans are usuallyob ta ined from c om me rc ial ba nks. Sinc e the va lue of spec ialized ind ustrialbuildings as collateral for loans is limited, construction loans in this domainare rare, and c onstruc tion financing c an b e d one from the po ol of gene ralc orp orate fund s. For infra struc ture con struc tion owned b y go vernme nt, theprop erty c a nnot b e used a s sec urity for a p riva te loan , b ut there a re m an ypossible ways to finance the construction, such as general appropriationfrom ta xa tion or spec ial bo nd s issue d fo r the p ro jec t.

Tra d itiona lly, ba nks serve a s c onstruc tion lend ers in a th ree -pa rtyag reem ent a mo ng the c ontrac tor, the o wner an d the b ank. The stipulatedloan will be paid to the contractor on an agreed schedule upon theverification of completion of various portions of the project. Generally, apa yme nt req uest tog ethe r with a stand ard p rog re ss re po rt will be subm ittedea c h m onth by the c ontra c tor to the owne r whic h in turn subm its a drawreq ue st to the b an k. Provide d tha t the work to d a te ha s be en p erform edsatisfactorily, the disbursement is made on that basis during thec on struc tion pe riod . Und er suc h c irc um stanc es, the b a nk ha s b ee nprimarily concerned with the completion of the facility on time and within

the b ud g et. The ec ono m ic life o f the fa c ility after its c om pletion is no t aconcern because of the transfer of risk to the owner or an institutionallender.

Facility Financing

Ma ny p riva te c orporations ma intain a po ol of ge neral fund s resulting fromretained earnings and long-term borrowing on the strength of corporatea sse ts, whic h c a n be used fo r fa c ility finan c ing . Similarly, fo r p ub licag enc ies, the long-term funding m ay be ob tained from the c omm itment ofgeneral tax revenues from the federal, state and/or local governments.

Both p riva te c orporations a nd p ublic ag enc ies ma y issue spe c ial bond s forthe c on struc ted fac ilities which m ay o b tain lower interest rate s than othe rforms of b orrow ing . Sho rt-term b orrow ing m a y also b e used for bridg ing thega p s in long-term fina nc ing . Som e c orp orate b ond s a re c onv ertib le tostocks under circumstances specified in the bond agreement. For publicfacilities, the assessment of user fees to repay the bond funds meritsconsideration for certain types of facilities such as toll roads and sewage


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treatment plants. [3] The use of m ortgag es is p rima rily con fined to ren talp rop erties suc h a s ap a rtments a nd o ffic e b uild ing s.

Because of the sudden surge of interest rates in the late 1970's, manyfinancial institutions offer, in addition to the traditional fixed rate long-termmortgage commitments, other arrangements such as a combination ofdebt and a percentage of ownership in exchange for a long-termmo rtga g e o r the use of a d justab le ra te mo rtga g es. In som e c ases, thec onstruc tion loan m ay b e g ranted on a n op en-ended ba sis without a long-term financ ing c om m itme nt. For examp le, the p lan m igh t b e issued for thec on struc tion p eriod with an op tion to extend it for a pe riod of up to threeyears in order to give the owner more time to seek alternative long-termfina nc ing on the c om pleted fac ility. The b an k will be d ra wn into situationsinvolving financial risk if it chooses to be a lender without long-termguarantees.

For international projects, the currency used for financing agreementsbe c om es im po rtant. If fina nc ial ag ree me nts a re written in term s of loc alcurrencies, then fluctuations in the currency exchange rate cansig nific a ntly affec t the c ost and ultim ate ly profit of a p rojec t. In som ecases, payments might also be made in particular commodities such aspe troleum o r the outp ut from the fac ility itself. Aga in, these a rran ge me ntsresult in greater uncertainty in the financing scheme because the price ofthese c om mo d ities m a y vary.

1.7 Lega l and Regula tory Requirements

The ow ne rs of fa c ilities na turally wan t lega l protec tion for all the a c tivitiesinvolved in the construction. It is equally obvious that they should seekcompetent legal advice. However, there are certain principles that shouldbe rec og nized b y owne rs in orde r to a vo id unnec essa ry p itfalls.

Lega l Responsibilities

Activities in construction often involve risks, both physical and financial. Anowner generally tries to shift the risks to other parties to the degree possiblewhen entering into contractual agreements with them. However, suchac tion is no t w ithout c ost o r risk. For exam ple , a c on tra c tor who is a ssig nedthe risks may either ask for a higher contract price to compensate for thehigher risks, or end up in non-performance or bankruptcy as an act ofde sp eration. Suc h c onseq uenc es c a n be a vo ide d if the o wner isreasonable in risk allocation. When risks are allocated to different parties,the o wne r mu st und erstand the imp lic ations a nd sp ell them out clea rly.Som etime s the re a re sta tuto ry lim ita tions on the alloc a tion o f liab ilitiesamong various groups, such as prohibition against the allocation of


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negligence in design to the contractor. An owner must realize its superiorpower in bargaining and hence the responsibilities associated with thispo wer in m aking c ontrac tual ag reem ents.

Mitigation of Conflicts

It is impo rtant fo r the ow ne r to use lega l c ou nselors a s adv isors to m itiga tec on flic ts be fore they ha p pe n rathe r than to w ield c onflic ts a s wea po nsag a inst other pa rties. The re a re e noug h p rob lem s in d esign a ndc on struc tion du e to unc e rtainty ra ther than b ad intentions. The o wne rshould rec og nize the m ore e nligh tened ap proa c hes for m itig ating c onflic ts,such as using owner-controlled wrap-up insurance which will providep rote c tion for all p a rties invo lved in the c onstruc tion p roc ess for unforesee nrisks, or using arbitration, mediation and other extra-judicial solutions fordisputes among various parties. However, these compromise solutions arenot without pitfalls and should be adopted only on the merit of individualcases.

Government Regulation

To p rote c t pub lic sa fety and we lfare, legisla tures a nd va riou s go ve rnme ntagencies periodically issue regulations which influence the constructionprocess, the operation of constructed facilities, and their ultimate disposal.For example, building codes promulgated by local authorities haveprovided guidelines for de sign a nd c onstruc tion p rac tic es for a v ery longtime . Sinc e the 1970's, m any fed eral reg ulations tha t a re rela ted d irec tly orindirec tly to c onstruc tion hav e b ee n esta b lished in the United Sta tes.Amo ng them are sa fety stand a rd s for wo rkers issued b y the Oc c up a tiona lHea lth and Sa fety Ad m inistra tion , env ironm enta l stand a rd s on p ollutantsand toxic wastes issued by the Environmental Protection Agency, anddesign and operation procedures for nuclear power plants issued by theNucle a r Reg ulato ry C om mission.

Owne rs mu st b e a wa re of the imp ac ts of these reg ulations o n the c osts anddurations of various types of construction projects as well as possibilities oflitiga tion d ue to va rious c on tentions. For exam ple, o wne rs a c quiring sites forne w c on struc tion m a y b e strictly lia ble for any ha za rd ous wa stes a lre ad y o nthe site or rem ov ed from the site und er the U.S. Co mp rehe nsiveEnvironm enta l Resp onse Com pen sa tion a nd Liab ility (CERCL) Ac t of 1980.For large scale projects involving new technologies, the construction costsofte n e sc ala te w ith the unc ertainty asso c iate d with suc h restric tions.


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1.8 The Changing Environment of the ConstructionIndustry

The c onstruc tion ind ustry is a c onglom eration of d ive rse field s a ndpa rticipa nts that ha ve be en loosely lump ed tog ethe r as a sec tor of the

ec on om y. The c on struc tion ind ustry pla ys a c en tra l role in nationa l welfare,including the development of residential housing, office buildings andindustrial plants, and the restoration of the nation's infrastructure and otherpub lic fa c ilities. The im p ortanc e of the c on struc tion industry lies in thefunction of its products which provide the foundation for industrialproduc tion, and its im pa c ts on the na tional ec onom y ca nnot b e me asuredby the va lue of its ou tput or the num b er of p erson s em ploye d in its a c tiv itiesalone.

To b e m ore sp ec ific , c onstruc tion refe rs to a ll typ es o f ac tivities usua llyassociated with the erection and repair of immobile facilities. Contract

construction consists of a large number of firms that perform constructionwork for others, and is estimated to be approximately 85% of allc on struc tion ac tivities. The rem a ining 15% of c onstruc tion is p erform ed byowners of the facilities, and is referred to as force-account construction.Although the numb er of c ontra c tors in the United Sta tes exce ed s a m illion,over 60% of all contractor construction is performed by the top 400c on tra c tors. The va lue o f new c on struc tion in the United Sta tes (expressedin c onstant d ollars) and the va lue of c onstruc tion a s a p erce ntag e o f thegross national products from 1950 to 1985 are shown in Figures 1-6 and 1-7.It can be seen that construction is a significant factor in the Gross NationalProd uc t althoug h its im p ortan c e ha s be en d ec lining in rec ent ye ars. [4] No t

to be ignored is the fact that as the nation's constructed facilities becomeolder, the total expenditure on rehabilitation and maintenance mayinc rea se relative to the value of ne w c o nstruc tion.


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Figure 1-6: Value o f New Co nstruc tion in the United Sta te s, 1975-1995

Figure 1-7: Co nstruc tion a s Perc en ta ge of G ross Dom estic Prod uc t in theUnite d Sta te s, 1975-1995

Owne rs who pa y c lose atte ntion to the p ec ulia r c ha ra c teristic s of thec on struc tion industry a nd its c ha ng ing op erating environm ent w ill be a bleto take advantage of the favorable conditions and to avoid the pitfalls.Sev eral fac tors a re p a rticula rly no tew orthy b ec a use o f their sign ific antim p ac ts on the q uality, c ost and time of c onstruc tion .


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New Technologies

In recent years, technological innovation in design, materials andconstruction methods have resulted in significant changes in constructioncosts. Computer-aids have improved capabilities for generating qualityde signs a s we ll as red uc ing the time req uired to p rod uc e alterna tivede signs. New m a terials not o nly hav e e nhanc ed the qua lity of c onstruc tionbut also have shortened the time for shop fabrication and field erection.Co nstruc tion me thod s hav e go ne throug h va rious stag es of m ec haniza tionan d a utom a tion, inc luding the la test de velop m ent of c onstruc tion rob otics.

The m ost dram a tic new te c hnolog y ap plied to c on struc tion ha s be en theInternet a nd its p riva te , c orp ora te Intrane t ve rsions. The Inte rne t is wide lyused as a m ea ns to fo ster co lla b oration am ong p rofessiona ls on a p rojec t,to c om munica te for bids a nd results, and to p roc ure ne c essa ry go od s an dservices. Real time video from specific construction sites is widely used toillustrate c onstruc tion p rog ress to intereste d p a rties. The result ha s b ee nmo re effec tive c ollab oration, com munication and p roc ureme nt.

The effec ts of m a ny new tec hnolog ies on c onstruc tion c osts hav e b ee nmixed because of the high development costs for new technologies.However, it is unmistakable that design professionals and constructionco ntrac tors who have not ad ap ted to c hanging technologies have b eenforce d out o f the m ainstrea m of d esign and c onstruc tion ac tivities.Ultimately, construction quality and cost can be improved with thead op tion o f new tec hnologies whic h are proved to b e e ffic ient from bo ththe viewp oints of pe rforma nce and ec onomy.

Labor Productivity

The te rm productivity is generally defined as a ratio of the productionou tput v olume to the input vo lume of resource s. Sinc e b oth o utpu t andinp ut c an be q ua ntified in a numb er of wa ys, there is no single m ea sure o fproductivity that is universally applicable, particularly in the constructionindustry where the products are often unique and there is no standard forspe c ifying the levels for a g grega tion o f da ta. Ho wev er, sinc e lab orc on stitutes a large p a rt of the c ost of c onstruc tion, lab or produc tivity interms of o utput v olume (co nstant d ollar value o r functiona l units) p er

person-hour is a useful measure. Labor productivity measured in this waydoes not necessarily indicate the efficiency of labor alone but ratherme asures the c om bined e ffects of labo r, equipment and other fac torsc ontributing to the output.

While aggregate construction industry productivity is important as ame asure o f national ec onom y, owne rs are mo re c onc erned ab out the


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lab or prod uc tiv ity of ba sic u nits of wo rk p rod uc ed by va rious c rafts on site.Thus, an o wner ca n c om pa re the lab or performa nc e a t differentge og rap hic loc a tions, unde r different w orking c on ditions, and for differenttyp es a nd sizes o f p ro jec ts.

Construction costs usually run parallel to material prices and labor wages.Ac tua lly, over the ye a rs, lab or prod uc tivity has increa sed in som e trad itiona ltype s of c onstruc tion a nd thus provides a leve ling or co mp ensating e ffec twhen hourly rates for labor increase faster than other costs in construction.However, labor productivity has been stagnant or even declined inunc onventiona l or la rge sc ale proje c ts.

Public Scrutiny

Und er the p resen t litig iou s c lim a te in the United Sta tes, the p ub lic isincreasingly vocal in the scrutiny of construction project activities.

Som etime s it ma y result in c on sid erab le d iffic ulty in siting new fac ilities a swell as additional expenses during the construction process itself. Ownersmu st be p rep a red to m an ag e suc h c rises b efo re they g et ou t of c ontrol.

Figure 1-8 can serve to indicate public attitudes towards the siting of newfacilities. It represents the cumulative percentage of individuals who wouldbe willing to a c c ep t a ne w industrial fac ility at v arious d istanc e s from theirhom es. Fo r exam ple, over fifty pe rc ent o f the p eo ple surve yed wo uldaccept a ten-story office building within five miles of their home, but onlytwenty-five p erc ent would ac c ep t a large fa c tory or c oa l fired po wer plantat a similar distanc e. An even lower perc entag e wo uld ac c ep t a

ha za rd ous wa ste d isp osa l site o r a n uc lear po we r p lan t. Eve n a t a d istanc eof o ne hund red m iles, a signific an t fra c tion of the pub lic wo uld b e unwillingto a c c ep t hazard ous wa ste fa c ilities or nuclea r po we r pla nts.


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Figure 1-8: Pub lic Ac c ep tanc e To wa rd s New Fa c ilities (Rep rinted fromEnvironmental Quality - 1980 ,

the Eleven th Annua l Rep ort of the Counc il on Environm enta l Qua lity, U.S.Governmen t Printing O ffic e, Washingto n, DC, Dec em ber 1980.)

This ob jec tion to n ew fac ilities is a wide sp rea d p ub lic a ttitud e, rep rese ntingc on sid erable skepticism a bo ut the external b ene fits a nd c osts which ne wfacilities will impose. It is this public attitude which is likely to make publicsc rutiny a nd reg ula tion a c ontinuing c onc ern for the c onstruc tion ind ustry.


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International Competition

A final trend which deserves note is the increasing level of internationalc om p etition in the c onstruc tion ind ustry. Owners a re likely to find no n-tra d itiona l firm s b idd ing for con struc tion wo rk, pa rtic ula rly on large p rojec ts.Sep a ra te b id s from nume rous Europ ea n, North Am eric an, and Asianc onstruc tion firms a re no t unusua l. In the United Sta te s, ov ersea s firms a rebecoming increasingly visible and important. In this environment ofheightened competition, good project management and improvedproduc tivity are mo re a nd m ore impo rtant.

A bidding competition for a major new offshore drilling platform illustratesthe c om petitive e nvironme nt in c onstruc tion. As d esc rib ed in the Wall Stree tJournal: [5]

Throu g h m ost o f the p ostwa r yea rs, the na tion 's b ig g est b uilders of offshore

oil platforms enjoyed an unusually cozy relationship with the Big OilCo mp a nies they served . The ir top offic ials d ev elop ed p ersonal friend shipswith oil exec utive s, en tertained them at o p ulent hunting c am ps- an d wo ncontracts to build nearly every major offshore oil platform in the world. Butthis sum me r, the g oo d -old b oy ne two rk fell a p a rt. Shell [Oil Co.] a wa rd edthe m a in c ontrac t for [a new] pla tform - ta ller than Chica g o's Sea rs Tow er,fou r time s heav ier tha n the Broo klyn Brid ge - to a tiny up sta rt.

The winning b id d er arra nge d ove rsea s fab ric a tion of the rig, kep t ov erhea dcosts low, and proposed a novel assembly procedure by whichc onstruc tion e quipme nt wa s mo unted o n c om pleted sec tions of the

pla tform in ord er to sp ee d the c om pletion o f the en tire struc ture. The resultwa s low er co sts tha n those e stima ted a nd b id b y tra d ition al firm s.

Of c ou rse , U.S. firm s includ ing A/ E firm s, co ntrac tors and c onstruc tionma na g ers a re also c om pe ting in foreign c ou ntries. The ir suc c ess or fa ilure inthe international arena may also affect their capacities and vitality top rov ide se rvic es in the d om estic U.S. ma rket.

Contractor Financed Projec ts

Inc rea singly, som e ow ne rs look to c on trac tors o r joint v en tures a s a resou rc e

to design, to build and to finance a constructed facility. For example, autility c om pa ny ma y see k a c onsortium c onsisting of a d esig n/ c onstruc t firmand a financial investment firm to assume total liability during constructionand thereby eliminate the risks of cost escalation to ratepayers,stockholders and the management. On the other hand, a local sanitationdistrict may seek such a consortium to provide private ownership for aproposed new sew ag e trea tment p lant. In the forme r c ase, the o wner ma ytake over the completed facility and service the debt on construction


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through long-term financing arrangements; in the latter case, the privateowner may operate the completed facility and recover its investmentthroug h user fee s. The ac tivities of joint v en tures a mon g d esign,construction and investment firms are sometimes referred to as financial engineering .

This type of joint venture ha s be c om e m ore imp orta nt in the internationa lc on struc tion m a rket whe re a g gressive c ontrac tors often win co ntrac ts byoffering a m ore a ttra c tive financ ing p a c kag e ra ther than sup eriortechnology. With a deepening shadow of international debts in recentyears, many developing countries are not in a position to undertake anyne w p rojec t without c ontra c tor-ba c ked fina nc ing. Thus, the c ontrac tors or

joint ventures in overseas projects are forced into very risky positions if theyintend to sta y in the c om p etition.

Lean Construction

"Lean manufacturing" had a revolutionary effect on many industries,especially automotive assembly companies. Characteristics of thisap proa ch include :

Improvement in quality and reduction of waste everywhere. Ratherthan increasing costs, reducing defects and waste proved toimp rove qua lity and red uc e c osts.

Em powering wo rkers to b e responsible for sa tisfying c ustom er need s.In construction, for example, craftsman should make sure their worksa tisfied the d esign inten t.

Co ntinuous im provem ent o f proc esses involving the e ntire workforc e.

Lean construction is intended to spread these practices within theconstruction industry. Of course, well managed construction projectsalrea d y have man y asp ec ts of lea n c on struc tion. For exam ple , just-in-timede live ry of ma terials is c om mo nplac e to av oid the wa ste o f la rg e invento rystockpiles. Green building projects attempt to re-use or recycle allconstruction wastes. But the systematic attention to continuousim p rovem ent a nd zero ac c id ents an d d efec ts is ne w.


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1.9 The Role of Project Managers

In the project life cycle, the most influential factors affecting the outcomeof the p rojec t o ften reside a t the ea rly stage s. At this p oint, de c isions sho uld

be based on competent economic evaluation with due consideration foradequate financing, the prevalent social and regulatory environment, andtechnological considerations. Architects and engineers might specialize inpla nning , in c onstruc tion field m a na ge me nt, or in op eration, b ut a s p rojec tma na g ers, they m ust hav e som e fa m ilia rity with a ll suc h a spec ts in ord er tound erstand p rop erly their role and be a ble to m ake c om p ete nt de c isions.

Sinc e the 1970's, ma ny large -sc ale p rojec ts ha ve run into serious p rob lem sof m ana ge me nt, suc h a s c ost ove rruns an d long sc hed ule delays. Actua lly,the management of megaprojects or superprojects is not a practicepec ulia r to o ur time. Witness the c onstruc tion o f tra nsc on tine ntal ra ilroa d s inthe Civil War era and the construction of the Panama Canal at the turn ofthis century. Although the megaprojects of this generation may appear ingreater frequency and present a new set of challenge, the problems areorga niza tional rathe r tha n te c hnica l. As no ted b y Ha rd y Cross: [6]

It is customary to think of engineering as a part of a trilogy, pure science,applied science and engineering. It needs emphasis that this trilogy is onlyone of a triad of trilog ies into w hic h e ng ine ering f its. This first is pure sc ienc e,applied science and engineering; the second is economic theory, financeand engineering; and the third is social relations, industrial relations andengineering. Many engineering problems are as closely allied to socialproblem s as they a re to p ure sc ienc e.

As engineers advance professionally, they often spend as much or moretime on planning, ma nag eme nt and other ec onom ic or soc ial p rob lem s ason the tra ditiona l eng inee ring d esig n a nd a nalysis problem s which form thecore of most educational programs. It is upon the ability of engineers totac kle a ll suc h p rob lems tha t their p erforma nc e w ill ultim ate ly be jud ge d .

The g rea test stum bling bloc k to effec tive ma na g em ent in c on struc tion isthe inertia and historic divisions among planners, designers andc on struc tors. While tec hnica l co m pe tenc e in de sig n a nd innova tionremains the foundation of engineering practice, the social, economic andorganizational factors that are pervasive in influencing the success andfailure of c onstruc tion p rojec ts m ust a lso b e d ea lt with effec tively b y d esig nan d c onstruc tion orga niza tions. Of c ourse, eng inee rs a re not expe c ted toknow every detail of management techniques, but they must beknowled ge ab le enoug h to antic ipa te the problem s of mana gem ent sothat they can work harmoniously with professionals in related fields toov erc om e the inertia a nd historic d ivisions.


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Pa rad oxic ally, enginee rs who a re c rea tive in eng inee ring d esign a re ofteninnovative in planning and management since both types of activitiesinvolve problem solving. In fact, they can reinforce each other if both areincluded in the education process, provided that creativity and innovationinstea d o f routine p ra c tic e a re e m ph asized . A p rojec t ma na ge r who is welleducated in the fundamental principles of engineering design andmanagement can usefully apply such principles once he or she hasac quired ba sic unde rstand ing of a new application area . A projectmanager who has been trained by rote learning for a specific type ofproject may merely gain one year of experience repeated twenty timeseve n if he o r she ha s b ee n in the field for twenty ye ars. A broa dly e duc ate dproject manager can reasonably hope to become a leader in theprofession; a narrowly trained project manager is often relegated to therole o f his o r he r first job lev el pe rm ane ntly.

The o wners have muc h at stake in selec ting a c om pe tent project m ana ge r

and in providing her or him with the authority to assume responsibility atvarious stages of the project regardless of the types of contractualagreements for implementing the project. Of course, the project managermust a lso p ossess the lea dership q ua lity and the ab ility to ha nd le effec tive lyintrica te inte rpersona l relationships within an o rg aniza tion. The ultima te te stof the e duc ation and experienc e of a projec t m ana ger for c onstruction liesin her or his ability to apply fundamental principles to solving problems inthe ne w a nd unfam ilia r situa tions which h av e b ec om e the ha llmarks of thec ha nging environm ent in the c onstruc tion industry.

1.10 References

1. Au, T. and C. Hend ric kson , "Ed uc a tion in Eng inee ring Planning a ndManagement," Proc ee ding s of the ASCE Confe rence on Civil Engineering Education, Colum bus, Ohio, 1985.

2. Barrie, D.S. (editor), Directions in Managing Construction , John Wileya nd Sons, New York, 1981.

3. Lea n Co nstruc tion Institute, http :/ / ww w.lea nc onstruc tion .org / 4. Bonny, J.B. and J.P. Frein, Handbook of Construction Management

and Organization , 2nd Edition, Van Nostrand Reinhold Co., New York,1980.

5. Hasa g a wa , Fum io e t.al., "Built by Jap an," John Wiley & Son s, 1988.6. Lang, J.E. and D.Q. Mills, The Co nstruc tion Ind ustry , Lexington Books,

Lexing ton, MA, 1979.7. Walker, N., E.N. Walker a nd T.K. Rohdenb urg, Legal Pitfalls in

Architecture, Engineering and Building Construction , 2nd Edition,Mc Gra w-Hill Boo k Co ., New York, 1979.

1.11 Footnotes


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1. The Business Round ta b le , More C onstruc tion for the Money , Sum m aryReport of the Construction Industry Cost Effectiveness Project,Janua ry 1983, p. 11. Back

2. "Hot New Market Lures A-E Players to Cutting Edges," Engineering News-Record , April 4, 1985, pp. 30-37. Back

Const. Mgmt. Chp. 01 - The Owners' Perspective

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