CE 23 - Construction Methods and Management b.

Owner management of construction

Lesson 1: Introduction

I. The Construction Industry

Construction as a discipline is a combination of art and science.
While understanding the technical aspects of construction is
extremely important, it is also essential that construction
professionals have knowledge of the business and
management aspects of the profession.

Construction Contractors
Construction contractors (or simply contractors) are companies
and individuals engaged in the business of construction.
Construction contractors may be classified as general
contractors or specialty contractors.
General Contractors engage in a wide range of construction c. Construction by a general contractor
activities and execute most major construction projects. When
they enter into a contract with an owner to provide complete
construction services, they are called Prime Contractors.
Specialty contractors limit their activities to one or more
construction specialties, such as electrical work, plumbing,
heating and ventilating, or earthmoving. Specialty contractors
are often employed by a prime contractor to accomplish some
specific phase of a construction project. Since the specialty
contractors are operating under subcontracts between
themselves and the prime contractors, the specialty contractor
are referred to as subcontractors.

Construction Industry Divisions d. Construction using a design/build (turnkey) contract

The major divisions of the construction industry consist of
building construction (vertical) and heavy construction
(horizontal). Building construction involves the construction of
buildings. Heavy Construction includes highways, airports,
railroads, bridges, canals, harbors, dams and other public
works.

II. The Construction Process

Project Development and Contract Procedures
The major steps in the construction contracting process include
bid solicitation, bid preparation, bid submission, contract
award, and contract administration. However, before the
bidding process can take place, the owner must determine the
requirements for the project and have the necessary plans,
specifications, and other documents prepared. These activities
make up the project development phase of construction. For e. Construction utilizing a construction management contract
major projects, steps in the project development process
include:
a. Recognizing the need for the project
b. Determining the technical and financial feasibility of
the project
c. Preparing detailed plans, specifications, and cost
estimates for the project
d. Obtaining approval from regulatory regulatory
agencies. This involves ascertaining compliance with
zoning regulations, building codes, and environmental
and other regulations.

How Construction Is Accomplished

The principal methods by which facilities are constructed are:
a. Construction employing an owner construction force
III. Codes and Regulations
Building Codes which are concerned primarily with public
safety, provide minimum design and construction standards for
structural and fire safety.
Zoning Regulations which control land use, limit the size, type,
and density of structures that may be erected at a particular
location.
Environmental Regulations protect the public and
environment by controlling such factors as water usage,
vehicular traffic, precipitation runoff, waste disposal, and
preservation of beaches and wetlands.
Safety Regulations are designed to protect both construction
workers and the public.

Reducing Construction Costs

a. Good work planning
b. Carefully selecting and training workers and managers
c. Efficiently scheduling labor, materials, and equipment
d. Properly organizing work
e. Using labor-saving techniques, such as prefabrication and
preassembly
f. Minimizing rework through timely quality control
g. Preventing accidents through good safety procedures

IV. Construction Management

Poor construction management practices often results in one
or more of the following:
a. Project delays that increase labor and equipment cost and
the cost of borrowed funds
b. High material costs caused by poor purchasing procedures,
inefficient handling, and/or loss.
c. Increased subcontractor cost and poor
contractor-subcontractor relations.
d. High insurance costs resulting from materials and equipment
loss or damage or a poor safety record.
e. Low profit margin or a loss on construction volume.

Quality Management
Quality management and quality assurance have been adopted
to include all aspects of producing and accepting a construction
project which meets all required quality standards. Quality
management includes such activities as specification
development, process control, product acceptance, laboratory
and technician certification, training, and communication.
Quality control which is a part of the quality management
process, is primarily concerned with the process control
function.

Organization for Construction

There are probably as many different forms of construction
company organization as there are construction firms.
CE 23 - Construction Methods and Management
Lesson 2: Contract Construction
I. Bidding and Contract Award
A bid is given to the owner by construction managers that are
willing to complete their construction project. A bid tells the
owner how much money they should expect to pay the
construction management company in order for them to
complete the project.
 Open Bid- An open bid is used for public projects. Any
and all contractors are allowed to submit their bid due
to public advertising.
 Closed Bid- A closed bid is used for private projects. A
selection of contractors are sent an invitation for bid
so only they can submit a bid for the specified project.
Bid Preparation
Construction contracting is a highly competitive business. To
prosper and grow, a construction company must achieve a
reputation for quality workmanship and timely completion
while achieving a reasonable return on its capital investment.
Thus profit is an obvious and principal motive for bidding on a
construction contract.
A contractor who has decided to bid on a project must then
prepare a detailed cost estimate for the execution of the
project. The first step in preparation of cost estimate is to take
off the quantities of material required by the plans and
specifications. These quantities are then extended (or
multiplied by unit cost estimates) to provide a total estimated
material cost for the project. Similar estimates are made for
labor, equipment, and subcontract costs. The costs of
equipment, labor, and material are often referred to as direct
costs. Next, estimates are made of the administrative and
management expenses that will be incurred at the project site.
These costs are often referred to as indirect cost.
Contract Award
 Low-bid Selection: This selection focuses on the price
of a project. Multiple construction management
companies submit a bid to the owner that is the
lowest amount they are willing to do the job for. Then
the owner usually chooses the company with the
lowest bid to complete the job for them.
 Best-value selection: This selection focuses on both
the price and qualifications of the contractors
submitting bids. This means that the owner chooses
the contractor with the best price and the best
qualifications. The owner decides by using a request
for proposal (RFP) which provides the owner with the
contractor’s exact form of scheduling and budgeting
that the contractor expects to use for the project.
 Qualifications-based selection: This selection is used
when the owner decides to choose the contractor
only on the basis of their qualifications. The owner
then uses a request for qualifications (RFQ), which
provides the owner with the contractor’s experience,
management plans, project organization, and budget
schedule performance. The owner may also ask for
safety records and individual credentials of their
members.
II. Construction Contracts
Ways of Procuring Construction Contract
a. Thru competitive bidding
-Project owner advertises the project and invites
interested and qualified contractors to submit bid proposal for
the construction of a project. From the proposals, the lowest
responsive bid is selected and awarded the project contract.
b. Negotiated Contracts
-The owner directly engages and enters into a contract
with a contractor for the construction of the project.
Contract Types
1. Lump sum- the owner of the project pays to the contractor
an agreed sum of money for the completion of the project
according to plans and specifications
Advantage:
a. simply practicable
b. a limit to the cost of the project is fixed
c. good for work that is very certain and pre-estimated
Disadvantage:
a. contractors tend to use cheap materials to gain more
b. creates problem when “extra work” is required
2. Unit-price- The owner pays the contractor an agreed
amount of money for each unit of work done.
Advantage:
a. good when actual quantities of work-in-place are uncertain
Disadvantage:
a. quality of work maybe sacrificed if no clear specifications as
to how the work must be performed
3. Cost-plus-a-percentage- the owner pays the contractor the
actual cost of construction work, with a specified percentage
thereof as compensation for the contractor’s overhead
expenses, personal services and profit.
Advantages:
a. risk of construction is entirely removed from the contractor
b. owner pays only the cost of construction as actually incurred
Disadvantages:
a. every increase in cost increases the amount payable to the
contractor, contractors exploit this opportunity to gain more.
b. labor inefficiency, unsatisfactory performance on the part on
the part of the contractor since his profit does not depend upon
his ability to work
4. Cost-plus-a-fee- the owner pays the contractor the actual
cost of construction work plus a fixed sum to pay for the
contractor’s overhead expenses, personal services and profit.
Advantages:
a. contractor can no longer profit from any increase in
construction cost, he will make efforts to finish the job soon
b. the risk of construction is entirely removed from the
contractor
c. the owner pays only the cost of construction as actually
incurred
Disadvantage:
a. labor inefficiency on the part of the contractor since his profit
is already fixed
Contract Documents
1. Advertisement
-a written invitation to bidders to furnish materials or services
of value
-includes information on what to furnish, site of the work,
deadline for submission of bids, required bidder’s bond, date
of opening of bids, manner of addressing the bids, where to
secure plans and specifications of the work, and statement of
owner’s right to reject any bid.
2. Instruction to Bidders
-to amplify anything which has been omitted in the
advertisement because of the cost and space limitation
-includes description of work, how to prepare bid proposals,
bid delivery and withdrawal, bidder’s bond, bidder’s
responsibility, interpretation of contract documents,
requirement for signing bids, conditions for the award of
contract, effectivity of contract, instruction for the execution of
performance bond, time of project completion, interpretation
of standard specification, and contract documents needed.
3. Bid Proposals
-the contract amount and services which the contractor offers
to the owner for the construction of the project; bid proposal
form is usually furnished by the owner to ensure uniformity
and easy comparison of bids.
4. General Conditions
-includes the intent of the contract, definition of terms, bond
requirements, financial protection, reports and payments,
contractual relations, conduct of work for protection of
properties and the general public, retainage matters,
termination of contract and arbitration matters, terms of
completion and acceptance.
5. Agreement
-the contract in its written form, contains the scope of work,
contract price, and components of the whole contract.
6. Performance bond
-A form of bond intended to protect the owner in the event
that the contractor is unable to finish the work in accordance
with the plans and specifications.
-A bonding company (surety) guarantees the owner that the
project will be completed by the contractor. In the event the
contractor is unable to finish the project, the surety uses the
amount of the bond to engage the services of another
contractor who will finish the project. If and when the original
contractor finishes the project, the performance bond he
posted is cancelled.
7. General Specifications
-specifications of general character relating to the project
8. Detailed Specifications
-specifications relating to a particular item of work
9. Plans and Drawings

Contract Time
The time allowed (expressed as either days allowed or as a
required completion date) for completion of a construction
project is normally specified in the contract along with the
phrase “time is of the essence”. If no completion date is
specified, a “reasonable time”, as interpreted by the courts, is
allowed. If the phrase “time is of the essence” is included in a
contract and the project is not completed within the specified
time, the contractor is liable for any damages (monetary loss)
incurred by the owner as the result of late completion. In such
a case, the courts will hold the contractor responsible for the
actual damages that the owner incurs. A liquidated damages
clause in the contract may be used to simplify the process of
establishing the amount of damages resulting from the late
completion. Such a clause will specify the amount of damages
to be paid by the contractor to the owner for each day of late
completion. If challenged in court, the owner must prove that
the amount liquidated damages specified in the contract
reasonably represents the owner’s actual loss. If the liquidated
damages are shown to be reasonable, the courts will sustain
enforcement.
Construction contracts normally contain provisions for time
extensions to the contract due to circumstances beyond
control of the contractor, such as owner-directed changes, acts
of God, and strikes.