Management of construction projects

Ed. note: The following article discusses certain aspects of construction management. Most of the discussion focuses on the many types of contracts which can be used to acquire construction services, and their relationship to the construction manager concept.

The paper starts with the rather dramatic conclusion that “it can be assumed that the development of so-called network planning techniques spawned the idea of Construction Project Management.” Taken literally, it is difficult to accept the inevitability of the evolution of construction management from the development of network planning.

From a broader viewpoint, however, the premise has merit in terms of the people who have been active in the development of project management. John Fondahl, Russ Archibald, and other names familiar to PMI have been active in the development of both project management tools, and now better project construction management techniques.

In the past decade or so, the construction industry has come to use the term construction management with some regularity. A number of authorities in the field have written excellent treatises on the subject. Since most writings in the field have dealt heavily with the use of CPM and PERT in project management, it can be assumed that the development of so called network planning techniques spawned the idea of construction project management.

Although the construction management (CM) concept is widely used today, it is not so widely accepted as might be expected. The General Services Administration (GSA) is said to have “spearheaded national interest in CM.” The U.S. Department of Health Education and Welfare (HEW) has given specific definition to the CM as it is to be used in HEW projects. Recently, the GSA caused to be published a pamphlet instructing and encouraging local governments to utilize the services of construction managers. Nevertheless, owners, architects, engineers, general contractors, almost anyone to whom you might mention CM are still asking, “Isn’t that what the architect (or general contractor) is supposed to do?” Some even become accusative: “If only the architects (or GC’s, depending on the side of the fence you are on) had been doing their job!"

This, of course, is nothing more than a lack of understanding of construction management. It may, in some instances, be an indication of a lack of understanding of the construction contracting process as a whole. Before launching a discussion of CM, it might be worthwhile to look briefly at the “basics” of construction contracting as practiced in this country.

Traditional Contracts

There are several forms in which contractual agreements for construction work have evolved over the years. Each form was developed to satisfy the needs of certain specific situations. No one form is “better” than another although each, in its place, has fulfilled the requirements of the situation. Without any effort to evaluate their relative merits of detail their use, the common forms of construction contracts may be considered to be the following:

1. The most familiar form is probably the Lump-Sum Bid Contract. A complete set of contract documents (drawings and specifications) are prepared by an architect/engineer for an owner. Qualified contractors are asked to submit a firm, lump-sum bid price for all the work as documented. This will include work which the contractor will perform with his own forces and that which is to be done by specialty contractors who become his sub-contractors.

In preparing the bid, the contractor (commonly referred to as the general contractor) will estimate the cost of labor and material, add a percentage of those costs to cover his overhead and profit and a fee for handling the sub-contracts. The total will become his firm lump-sum bid. The amount of the mark-up will depend on such variables as the completeness of the contract documents and the amount of risk involved. It must also be assumed that the GC will manage all the project elements, including all the trades not directly in his employ.

2. A variation of the lump-sum bid contract is the Lump-Sum Negotiated Contract. An owner requiring some highly specialized work may find it expedient to by-pass the competitive bidding process. He will deal with only one general contractor to obtain the cost proposal for the documented work rather than asking several to submit bids. An above-average sophistication on the part of the owner and his staff and a well recognized and experienced GC would be needed for the negotiating involved. Once the lump-sum price is established, the project can proceed as any other general contract.

3. Another variation of this general contract is the Guaranteed Maximum Price (GMP or G-max) Contract. As the name implies, the maximum or “upset” cost will be determined for the project. That price can be arrived at by taking bids from several GC’s or negotiating with one. The owner is assured that his project costs will not exceed the G-max and the contractor is certain that his proposed price will adequately protect him from most contingencies and risks. Incentive clauses can also be introduced so that owner and contractor can share in any cost savings.

As we might expect, this type of contract is little used if a project can be well defined and contract documents completed in time to permit bidding. There are instances when there is insufficient time and/or the project cannot be totally defined. Large shopping centers have, in recent years, been prime examples. It is not the most economical arrangement, but some owners feel a greater sense of security knowing what the project will not cost!

4. An owner wanting to build a complex manufacturing plant of ill-defined scope and having many unquantifiable aspects will enter into a Cost-Plus-Fee Contract with an experienced, trusted contractor. Under these contract terms, the owner agrees to pay for all material, labor, overhead and incidental costs, plus a fee. That fee can be a predetermined fixed amount or a percentage of the job costs. The owner must be somewhat more sophisticated and have adequate staff to oversee project activities and to verify job costs. The G-max contract is essentially a cost-plus arrangement with limitations.

5. There are construction projects in which the type and quality of work are easily defined but not the quantity. Examples are highways, sewer and water mains, pipe lines and earthwork. In such cases, it is common to enter into a Unit-Price Contract. Through bids or negotiations the price for the various component units of work are arrived at and payment is made for the actual measured quantities of work. Unit pricing can be combined with lump-sum bids in some types of work.

6. In industrial plant construction, the Design-Build Contract is often employed. An owner will enter into a contract for the architectural-engineering design and the construction with one firm. Many of the major contracting firms operate in this manner exclusively. Contract price can be arrived at through bidding or negotiating. Estimates of design and construction can be approximated from a performance specification. The contract can be in any one or several of the previously discussed forms. A “Turnkey” project is most often a design-build contract.

7. The last contract form is not a different form but a variation on the original theme. Some owners, mainly state governmental units, employ Multiple Prime Contracts. In some states, it is mandatory for public works. The owner signs a separate contract for each of the general construction, electrical, HVAC, plumbing, sprinkler and other areas of work on a single project. There will then be, in effect, at least four and maybe five or more prime contractors on the job. Since multi-primes are used mostly on government work, it can be assumed that the actual contract entered into with the contractor in each major trade will be the lump-sum bid variety. Whereas in the discussion of the lump-sum contract we expressed some doubt about responsibility for the management of the overall project, in multi-prime contracts, there is no responsibility assumed unless the owner pays someone to do so.

The Role of the Architect

Except for the more “specialized” owners such as processors, manufacturers and shopping center developers, most owners will enter into a lump-sum bid contract with a general contractor for the execution of a construction project. This is done after the architect-engineer, with whom he also has a contract, has completed plans and specifications, has taken bids from contractors in the name of the owner and has recommended that the owner enter into these contracts. During the construction, the architect has the responsibility to “observe” whether or not the contractor is performing in accordance with plans and specifications and to recommend payment or nonpayment periodically and the acceptance or non-acceptance of the project at its completion.

This oversimplification tells basically what the architect will do for the owner. The profession of architecture is defined as requiring “unusual education, skill, artistic temperament, imagination and common sense.” But the architect does not “participate in the ‘business’ of building.” The architect assumes no liability or responsibility for the “means” of construction. In the traditional sense the owner is at the mercy of the contractors. In most cases we must assume he is in good hands. But if he is not, there is little recourse outside the courts. Even if the architect has “done his job” to the n-th degree, the owner has no control over his own project.

The Owner’s Responsibility

The traditional methods of construction contracts permit the owner little or no access to his project. It is often assumed that the owner wants no part of the operation until the project is ready for occupancy. In recent years, owners have found that their best interest is not served by aloofness. The high cost of doing business dictates that somehow or other, the owner must get a handle on his project. Traditional methods of construction take too long and are too expensive. Owners who are public officials entrusted with the taxpayers’ dollars have a responsibility to their constituents to be involved in the construction process.

Ergo: Construction Management

We can imagine that this logic, more or less, gave rise to the idea of construction management. It must have been evident that the functions of management and coordination should be separated from those of design and construction to give new conformation to the rigid traditions in the industry. Construction management is a flexible concept. It can be what the owner wants it to be, but to get some understanding of what it is in general terms, we can review a system scope outlined by an independent consultant offering CM services.

CM — the Alternative

Construction management is the integration of the various component parts of the architectural, engineering and construction cycle into one continuous, free flowing, well managed and harmonious progression. The construction manager does not perform any design or construction contracting and must, therefore, be assumed to maintain a cold objectivity in the management and coordination function. The prerequisites of a CM are a good knowledge of the architectural, engineering and construction fields plus a superior background in planning, scheduling and directing of the many activities of a multi-disciplined team. The emphasis is on MANAGEMENT with a strong capability in the use of advanced time and cost control systems. The construction manager should be brought into the project in the conceptual stage and his involvement through the various phases would be approximately as follows:

A. The Planning Phase — Construction management begins with the establishment of a comprehensive plan and overall strategy for accomplishing the project which will include:

(i) A summary overview incorporating the activities of major participants throughout the project. The overviews are prepared in CPM/PERT format converted to bar charts from which the project team can preplan the organization of all activities and establish major goals and milestones. Use of the project team concept firmly defines the responsibilities of all participants and the methods and lines of communications among participants.

(ii) A cost plan and project budget starting with the conceptual estimates, interim estimates and progressive “actuals” are continually compared to plans and budgets throughout the life of the project.

B. The Design Phase — During the design stages, the CM consolidates the project organization. Detailed cost budgeting and time budgeting (scheduling) criteria are prepared and monitoring and accountability systems implemented. Preliminary estimates are expanded upon and refined. Progress and costs are monitored and updated. In this phase, the CM will also serve as consultant on strategies, feasibility and value management (once known as value engineering). Progress through the conceptual, schematic, design development and contract document preparation stages of the architectural work is monitored and reported to the project team.

C. The Bidding and Procurement Phase — The CM assumes a major role in the division of work into bid packages, the pre-qualifications of contractors, solicitation of bids, and bid negotiations. With the architect, the CM makes appropriate recommendations to the owner on the awarding of contracts. Early purchase by the owner of long lead time items can be expeditious. The CM solicits proposals and submits purchase order requests to the owner who makes actual purchases.

D. The Construction Phase — During construction, the CM is responsible for the total coordination of the project. The responsibility is all-inclusive. He or she will assist the owner in the selection of surveying and materials testing consultants, obtain permits, direct the handling of owner purchased equipment and materials, coordinate contractor activities, assign “general conditions” work, maintain the project clerical requirements, maintain project schedules and cost control systems and generally see to it that the job progresses satisfactorily. He or she will make certain that material and contractors are available as scheduled. He or she will expedite the project and will make certain that decisions are always made in a timely fashion.

The Management System

The construction manager will have ready access to the control and accountability systems. These generally include computer-based systems which will produce functional, realistic schedules which are readily and inexpensively up-dated periodically, status reports for architect/engineer design drawings, shop drawings, purchasing and expediting, job progress and costs reports. They are computerized for fast turn around. The CM must be able to prepare progressive estimates starting from the conceptual stage of design. His or her cost control reports must compare actual costs to estimated costs, forecast costs at project completion and generate periodic contractor payment requests. On the more complex projects he or she will develop resource leveling data for both manpower and financing.

Systems are the tools of the construction manager. As in any skill, the CM must know how and when to use them. More importantly, the CM must be a manager of people. It is his or her responsibility to coordinate all the many participants in the construction process.

The Project Team Concept

The key word in any managerial effort is probably “communications.” Good communications give the motivation and control required for a smoothly functioning operation. To effectively achieve the necessary exchange of information and ideas, the project team concept has gained widespread use throughout the business world. It is well adapted to construction because it can be structured with several levels of teams through which lines of communications can be maintained from top to bottom of the project hierarchy.

The project team meeting (PTM) brings team participants together on a pre-established, inflexible schedule. The main purpose of the PTM is for team members to report and assess progress. Progress must be periodically compared to the targets and milestones established in the schedules. Appropriate steps can then be taken to correct any deviations from the original plan or adjust the plan to suit the new situation.

As the term implies, every participant in the project becomes a member of the team, thus eliminating the adversary roles common in the traditional forms of construction contract performance. The team members have the common goals of timely project completion, construction of the highest quality and a legitimate profit for all participants.

The Improved Profit Picture

Construction management has a history extending over more than a decade. When made to function correctly, CM has achieved a demonstrably greater efficiency than traditional methods. It has proven profitable to owners, architects and engineers and to contractors in the following ways:

Owners — reduced construction costs, faster project delivery, reduction of risk factors, less chance of surprises.

A/E — time saved in arriving at firm decisions on design criteria, shared knowledge and experience of project teams, faster project completions.

Contractors — bid on specifically defined segments of work, reduced risk factors, lower overhead through faster project completion, more efficient use of all personnel.

Conclusions

In the early 1960’s, the construction industry proclaimed critical path method (CPM) scheduling the salvation of the industry. Sixteen years later, the industry looks at CPM with some disillusionment — not because it doesn’t work, but because tradition-bound builders who have not recognized it as merely a tool, have declared it a dud instead of learning to use it. Construction management may be receiving the same treatment not because it does not work but because it is not properly understood as the tool for better construction.

There are some in the industry, notably architectural firms and general contractors, who have designated themselves construction managers in the belief that by doing some of the things normally done by the others, they automatically become construction managers. The results have been disastrous. Those in the industry, including architectural firms, general contractors and independents who recognize CM as a useful tool, are learning to use it to the mutual advantage of all.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

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