01 the owners' perspective

8/2/2019 01 the Owners' Perspective

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GoUptoTableofContents GoToChapter2(OrganizingforProjectManagement)/TheOwners'Perspective/IntroductionMajorTypesofConstructionConstructionContractorsLegalandRegulatoryRequirements

TheRoleofProjectManagersFootnotes


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Byadoptingtheviewpointoftheowners,wecanfocusourattentiononthecompleteprocessof/projectmanagement/forconstructedfacilitiesratherthanthehistoricalrolesofvariousspecialistssuchasplanners,architects,engineeringdesigners,constructors,fabricators,materialsuppliers,financialanalystsandothers.Tobesure,eachspecialtyhasmadeimportantadvancesindevelopingnewtechniquesandtoolsforefficientimplementationofconstructionprojects.However,itisthroughtheunderstandingoftheentireprocessofprojectmanagementthatthesespecialistscanrespondmoreeffectivelytotheowner'sdesiresfortheirservices,inmarketingtheirspecialties,andinimprovingtheproductivityandqualityoftheirwork.

Theintroductionofinnovativeandmoreeffectiveprojectmanagementforconstructionisnotanacademicexercise.Asreportedbythe"ConstructionIndustryCostEffectivenessProject"oftheBusinessRoundtable:[1]


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ownertohaveaclearunderstandingoftheacquisitionprocessinordertomaintainfirmcontrolofthequality,timelinessandcostofthecompletedfacility.

Fromtheperspectiveofanowner,theprojectlifecycleforaconstructedfacilitymaybeillustratedschematicallyinFigure1-1.Essentially,aprojectisconceivedtomeetmarketdemandsorneedsinatimelyfashion.Variouspossibilitiesmaybeconsideredintheconceptualplanningstage,andthetechnologicalandeconomicfeasibilityofeachalternativewillbeassessedandcomparedinordertoselectthebestpossibleproject.Thefinancingschemesfortheproposedalternativesmustalsobeexamined,andtheprojectwillbeprogrammedwithrespecttothetimingforitscompletionandforavailablecashflows.Afterthescopeoftheprojectisclearlydefined,detailedengineeringdesignwillprovidetheblueprintforconstruction,andthedefinitivecostestimatewillserveasthebaselineforcostcontrol.Intheprocurementandconstructionstage,thedeliveryofmaterialsandtheerectionoftheprojectonsitemustbecarefullyplannedandcontrolled.Aftertheconstructioniscompleted,thereisusuallyabriefperiodofstart-uporshake-downoftheconstructedfacilitywhenitisfirstoccupied.Finally,themanagementofthefacilityisturnedovertotheownerforfulloccupancyuntilthefacilitylivesoutitsusefullifeandisdesignatedfordemolitionorconversion.

fig1_1.GIF(12284bytes)

*Figure1-1:*TheProjectLifeCycleofaConstructedFacility

Ofcourse,thestagesofdevelopmentinFigure1-1maynotbestrictlysequential.Someofthestagesrequireiteration,andothersmaybecarriedoutinparallelorwithoverlappingtimeframes,dependingonthenature,sizeandurgencyoftheproject.Furthermore,anownermayhavein-housecapacitiestohandletheworkineverystageoftheentireprocess,oritmayseekprofessionaladviceandservicesfortheworkinallstages.Understandably,mostownerschoosetohandlesomeofthe

workin-houseandtocontractoutsideprofessionalservicesforothercomponentsoftheworkasneeded.Byexaminingtheprojectlifecyclefromanowner'sperspectivewecanfocusontheproperrolesofvariousactivitiesandparticipantsinallstagesregardlessofthecontractualarrangementsfordifferenttypesofwork.

IntheUnitedStates,forexample,theU.S.ArmyCorpsofEngineershasin-housecapabilitiestodealwithplanning,budgeting,design,constructionandoperationofwaterwayandfloodcontrolstructures.Otherpublicagencies,suchasstatetransportationdepartments,arealsodeeplyinvolvedinallphasesofaconstructionproject.Intheprivatesector,manylargefirmssuchasDuPont,Exxon,andIBMareadequatelystaffedtocarryoutmostactivitiesforplantexpansion.All

theseowners,bothpublicandprivate,useoutsideagentstoagreaterorlesserdegreewhenitbecomesmoreadvantageoustodoso.

Theprojectlifecyclemaybeviewedasaprocessthroughwhichaprojectisimplementedfromcradletograve.Thisprocessisoftenverycomplex;however,itcanbedecomposedintoseveralstagesasindicatedbythegeneraloutlineinFigure1-1.Thesolutionsatvariousstagesarethenintegratedtoobtainthefinaloutcome.Althougheachstagerequiresdifferentexpertise,itusuallyincludesbothtechnicalandmanagerialactivitiesinthe/knowledgedomain/ofthespecialist.The


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ownermaychoosetodecomposetheentireprocessintomoreorlessstagesbasedonthesizeandnatureoftheproject,andthusobtainthemostefficientresultinimplementation.Veryoften,theownerretainsdirectcontrolofworkintheplanningandprogrammingstages,butincreasinglyoutsideplannersandfinancialexpertsareusedasconsultantsbecauseofthecomplexitiesofprojects.Sinceoperationandmaintenanceofafacilitywillgoonlongafterthecompletionandacceptanceofaproject,itisusuallytreatedasaseparateproblemexceptintheconsiderationofthelifecyclecostofafacility.AllstagesfromconceptualplanningandfeasibilitystudiestotheacceptanceofafacilityforoccupancymaybebroadlylumpedtogetherandreferredtoastheDesign/Constructprocess,whiletheprocurementandconstructionalonearetraditionallyregardedastheprovinceoftheconstructionindustry.

Ownersmustrecognizethatthereisnosinglebestapproachinorganizingprojectmanagementthroughoutaproject'slifecycle.Allorganizationalapproacheshaveadvantagesanddisadvantages,dependingontheknowledgeoftheownerinconstructionmanagementaswellasthetype,sizeandlocationoftheproject.Itisimportantfortheownertobeawareoftheapproachwhichismostappropriateandbeneficialforaparticularproject.Inmakingchoices,ownersshouldbeconcernedwiththelifecyclecostsofconstructedfacilitiesratherthansimplytheinitialconstructioncosts.Savingsmallamountsofmoneyduring

constructionmaynotbeworthwhileiftheresultismuchlargeroperatingcostsornotmeetingthefunctionalrequirementsforthenewfacilitysatisfactorily.Thus,ownersmustbeveryconcernedwiththequalityofthefinishedproductaswellasthecostofconstructionitself.Sincefacilityoperationandmaintenanceisapartoftheprojectlifecycle,theowners'expectationtosatisfyinvestmentobjectivesduringtheprojectlifecyclewillrequireconsiderationofthecostofoperationandmaintenance.Therefore,thefacility'soperatingmanagementshouldalsobeconsideredasearlyaspossible,justastheconstructionprocessshouldbekeptinmindattheearlystagesofplanningandprogramming.

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theconstructedfacilitycanbequitedifferent.Forthepurposeofdiscussion,thebroadspectrumofconstructedfacilitiesmaybeclassifiedintofourmajorcategories,eachwithitsowncharacteristics.

ResidentialHousingConstruction

Residentialhousingconstructionincludessingle-familyhouses,multi-familydwellings,andhigh-riseapartments.Duringthedevelopmentandconstructionofsuchprojects,thedevelopersorsponsorswhoarefamiliarwiththeconstructionindustryusuallyserveassurrogateownersandtakecharge,makingnecessarycontractualagreementsfordesignandconstruction,andarrangingthefinancingandsaleofthecompletedstructures.Residentialhousingdesignsareusuallyperformedbyarchitectsandengineers,andtheconstructionexecutedbybuilderswhohiresubcontractorsforthestructural,mechanical,electricalandotherspecialtywork.Anexceptiontothispatternisforsingle-familyhouseswhichmaybedesignedbythebuildersaswell.

Theresidentialhousingmarketisheavilyaffectedbygeneraleconomicconditions,taxlaws,andthemonetaryandfiscalpoliciesofthegovernment.Often,aslightincreaseintotaldemandwillcauseasubstantialinvestmentinconstruction,sincemanyhousingprojectscanbestartedatdifferentlocationsbydifferentindividualsand

developersatthesametime.Becauseoftherelativeeaseofentry,atleastatthelowerendofthemarket,manynewbuildersareattractedtotheresidentialhousingconstruction.Hence,thismarketishighlycompetitive,withpotentiallyhighrisksaswellashighrewards.

fig1_2.JPG(24264bytes)

*Figure1-2:*ResidentialHousingConstruction(courtesyofCaterpillar,Inc.)

InstitutionalandCommercialBuildingConstruction

Institutionalandcommercialbuildingconstructionencompassesagreatvarietyofprojecttypesandsizes,suchasschoolsanduniversities,medicalclinicsandhospitals,recreationalfacilitiesandsportsstadiums,retailchainstoresandlargeshoppingcenters,warehousesandlightmanufacturingplants,andskyscrapersforofficesandhotels.Theownersofsuchbuildingsmayormaynotbefamiliarwithconstructionindustrypractices,buttheyusuallyareabletoselectcompetentprofessionalconsultantsandarrangethefinancingoftheconstructedfacilitiesthemselves.Specialtyarchitectsandengineersareoftenengagedfordesigningaspecifictypeofbuilding,whilethebuildersorgeneralcontractorsundertakingsuchprojectsmayalsobespecializedinonlythattypeofbuilding.

Becauseofthehighercostsandgreatersophisticationofinstitutionalandcommercialbuildingsincomparisonwithresidentialhousing,thismarketsegmentissharedbyfewercompetitors.Sincetheconstructionofsomeofthesebuildingsisalongprocesswhichoncestartedwilltakesometimetoproceeduntilcompletion,thedemandislesssensitivetogeneraleconomicconditionsthanthatforspeculativehousing.Consequently,theownersmayconfrontan/oligopoly/ofgeneralcontractorswhocompeteinthesamemarket.Inanoligopolysituation,onlyalimitednumberofcompetitorsexist,andafirm'spriceforservicesmaybebasedinpartonitscompetitivestrategiesinthelocal


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market.


*Figure1-3*:ConstructionofthePPGBuildinginPittsburgh,Pennsylvania(courtesyofPPGIndustries,Inc.)

SpecializedIndustrialConstruction

Specializedindustrialconstructionusuallyinvolvesverylargescaleprojectswithahighdegreeoftechnologicalcomplexity,suchasoilrefineries,steelmills,chemicalprocessingplantsandcoal-firedornuclearpowerplants.Theownersusuallyaredeeplyinvolvedinthedevelopmentofaproject,andprefertoworkwithdesigners-builderssuchthatthetotaltimeforthecompletionoftheprojectcanbeshortened.Theyalsowanttopickateamofdesignersandbuilderswithwhomtheownerhasdevelopedgoodworkingrelationsovertheyears.

Althoughtheinitiationofsuchprojectsisalsoaffectedbythestateoftheeconomy,longrangedemandforecastingisthemostimportantfactorsincesuchprojectsarecapitalintensiveandrequireconsiderableamountofplanningandconstructiontime.GovernmentalregulationsuchastherulingsoftheEnvironmentalProtectionAgency

andtheNuclearRegulatoryCommissionintheUnitedStatescanalsoprofoundlyinfluencedecisionsontheseprojects.


*Figure1-4:*ConstructionofaBenzenePlantinLima,Ohio(courtesyofManitowocCompany,Inc.)

InfrastructureandHeavyConstruction

Infrastructureandheavyconstructionincludesprojectssuchashighways,masstransitsystems,tunnels,bridges,pipelines,drainage

systemsandsewagetreatmentplants.Mostoftheseprojectsarepubliclyownedandthereforefinancedeitherthroughbondsortaxes.Thiscategoryofconstructionischaracterizedbyahighdegreeofmechanization,whichhasgraduallyreplacedsomelaborintensiveoperations.

Theengineersandbuildersengagedininfrastructureconstructionareusuallyhighlyspecializedsinceeachsegmentofthemarketrequiresdifferenttypesofskills.However,demandsfordifferentsegmentsofinfrastructureandheavyconstructionmayshiftwithsaturationinsomesegments.Forexample,astheavailablehighwayconstructionprojectsaredeclining,someheavyconstructioncontractorsquicklymovetheirworkforceandequipmentintothefieldofminingwherejobsareavailable.


*Figure1-5:*ConstructionoftheDamePointBridgeinJacksonville,Florida(courtesyofMaryLouMaher)

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1.4SelectionofProfessionalServices

Whenanownerdecidestoseekprofessionalservicesforthedesignandconstructionofafacility,heisconfrontedwithabroadvarietyofchoices.Thetypeofservicesselecteddependstoalargedegreeonthetypeofconstructionandtheexperienceoftheownerindealingwithvariousprofessionalsinthepreviousprojectsundertakenbythefirm.Generally,severalcommontypesofprofessionalservicesmaybeengagedeitherseparatelyorinsomecombinationbytheowners.

FinancialPlanningConsultants

Attheearlystageofstrategicplanningforacapitalproject,anowneroftenseekstheservicesoffinancialplanningconsultantssuchascertifiedpublicaccounting(CPA)firmstoevaluatetheeconomicandfinancialfeasibilityoftheconstructedfacility,particularlywithrespecttovariousprovisionsoffederal,stateandlocaltaxlawswhichmayaffecttheinvestmentdecision.Investmentbanksmayalsobeconsultedonvariousoptionsforfinancingthefacilityinordertoanalyzetheirlong-termeffectsonthefinancialhealthoftheownerorganization.

ArchitecturalandEngineeringFirms

Traditionally,theownerengagesanarchitecturalandengineering(A/E)firmorconsortiumastechnicalconsultantindevelopingapreliminarydesign.Aftertheengineeringdesignandfinancingarrangementsfortheprojectarecompleted,theownerwillenterintoaconstructioncontractwithageneralcontractoreitherthroughcompetitivebiddingornegotiation.Thegeneralcontractorwillactasaconstructorand/oracoordinatorofalargenumberofsubcontractorswhoperformvariousspecialtiesforthecompletionoftheproject.TheA/Efirmcompletesthedesignandmayalsoprovideonsitequalityinspectionduringconstruction.Thus,theA/Efirmactsastheprimeprofessionalon

behalfoftheownerandsupervisestheconstructiontoinsuresatisfactoryresults.Thispracticeismostcommoninbuildingconstruction.

Inthepasttwodecades,thistraditionalapproachhasbecomelesspopularforanumberofreasons,particularlyforlargescaleprojects.TheA/Efirms,whichareengagedbytheownerastheprimeprofessionalsfordesignandinspection,havebecomemoreisolatedfromtheconstructionprocess.ThishasoccurredbecauseofpressurestoreducefeestoA/Efirms,thethreatoflitigationregardingconstructiondefects,andlackofknowledgeofnewconstructiontechniquesonthepartofarchitectandengineeringprofessionals.Insteadofpreparingaconstructionplanalongwiththedesign,manyA/Efirmsarenolonger

responsibleforthedetailsofconstructionnordotheyprovideperiodicfieldinspectioninmanycases.Asamatteroffact,suchfirmswillplaceaprominentdisclaimerofresponsibilitiesonanyshopdrawingstheymaycheck,andtheywilloftenregardtheirrepresentativesinthefieldasobserversinsteadofinspectors.Thus,theA/Efirmandthegeneralcontractoronaprojectoftenbecomeantagonistswhoarelookingaftertheirowncompetinginterests.Asaresult,eventheconstructibilityofsomeengineeringdesignsmaybecomeanissueofcontention.Tocarrythisprotectiveattitudetotheextreme,thespecificationspreparedbyanA/Efirmforthegeneralcontractoroften


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protectstheinterestoftheA/Efirmattheexpenseoftheinterestsoftheownerandthecontractor.

Inordertoreducethecostofconstruction,someownersintroduce/valueengineering/,whichseekstoreducethecostofconstructionbysolicitingaseconddesignthatmightcostlessthantheoriginaldesignproducedbytheA/Efirm.Inpractice,theseconddesignissubmittedbythecontractorafterreceivingaconstructioncontractatastipulatedsum,andthesavingincostresultingfromtheredesignissharedbythecontractorandtheowner.Thecontractorisabletoabsorbthecostofredesignfromtheprofitinconstructionortoreducetheconstructioncostasaresultofthere-design.IftheownerhadbeenwillingtopayahigherfeetotheA/Efirmortobetterdirectthedesignprocess,theA/Efirmmighthaveproducedanimproveddesignwhichwouldcostlessinthefirstplace.Regardlessofthemeritofvalueengineering,thispracticehasunderminedtheroleoftheA/Efirmastheprimeprofessionalactingonbehalfoftheownertosupervisethecontractor.

Design/ConstructFirms

Acommontrendinindustrialconstruction,particularlyforlargeprojects,istoengagetheservicesofadesign/constructfirm.Byintegratingdesignandconstructionmanagementinasingleorganization,

manyoftheconflictsbetweendesignersandconstructorsmightbeavoided.Inparticular,designswillbecloselyscrutinizedfortheirconstructibility.However,anownerengagingadesign/constructfirmmustinsurethatthequalityoftheconstructedfacilityisnotsacrificedbythedesiretoreducethetimeorthecostforcompletingtheproject.Also,itisdifficulttomakeuseofcompetitivebiddinginthistypeofdesign/constructprocess.Asaresult,ownersmustberelativelysophisticatedinnegotiatingrealisticandcost-effectiveconstructioncontracts.

Oneofthemostobviousadvantagesoftheintegrateddesign/constructprocessistheuseof/phasedconstruction/foralargeproject.Inthisprocess,theprojectisdividedupintoseveralphases,eachofwhich

canbedesignedandconstructedinastaggeredmanner.Afterthecompletionofthedesignofthefirstphase,constructioncanbeginwithoutwaitingforthecompletionofthedesignofthesecondphase,etc.Ifpropercoordinationisexercised.thetotalprojectdurationcanbegreatlyreduced.Anotheradvantageistoexploitthepossibilityofusingthe/turnkey/approachwherebyanownercandelegateallresponsibilitytothedesign/constructfirmwhichwilldelivertotheowneracompletedfacilitythatmeetstheperformancespecificationsatthespecifiedprice.

ProfessionalConstructionManagers

Inrecentyears,anewbreedofconstructionmanagers(CM)offersprofessionalservicesfromtheinceptiontothecompletionofaconstructionproject.TheseconstructionmanagersmostlycomefromtheranksofA/Efirmsorgeneralcontractorswhomayormaynotretaindualrolesintheserviceoftheowners.Inanycase,theownercanrelyontheserviceofasingleprimeprofessionaltomanagetheentireprocessofaconstructionproject.However,liketheA/Efirmsofseveraldecadesago,theconstructionmanagersareappreciatedbysomeownersbutnotbyothers.Beforelong,someownersfindthattheconstructionmanagerstoomaytrytoprotecttheirowninterestinsteadofthatof


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theownerswhenthestakesarehigh.

Itshouldbeobvioustoallinvolvedintheconstructionprocessthatthepartywhichisrequiredtotakehigherriskdemandslargerrewards.IfanownerwantstoengageanA/Efirmonthebasisoflowfeesinsteadofestablishedqualifications,itoftengetswhatitdeserves;oriftheownerwantsthegeneralcontractortobearthecostofuncertaintiesinconstructionsuchasfoundationconditions,thecontractpricewillbehigherevenifcompetitivebiddingisusedinreachingacontractualagreement.Withoutmutualrespectandtrust,anownercannotexpectthatconstructionmanagerscanproducebetterresultsthanotherprofessionals.Hence,anownermustunderstanditsownresponsibilityandtheriskitwishestoassigntoitselfandtootherparticipantsintheprocess.

OperationandMaintenanceManagers

Althoughmanyownerskeepapermanentstafffortheoperationandmaintenanceofconstructedfacilities,othersmayprefertocontractsuchtaskstoprofessionalmanagers.Understandably,itiscommontofindin-housestaffforoperationandmaintenanceinspecializedindustrialplantsandinfrastructurefacilities,andtheuseofoutsidemanagersundercontractsfortheoperationandmaintenanceofrental

propertiessuchasapartmentsandofficebuildings.However,thereareexceptionstothesecommonpractices.Forexample,maintenanceofpublicroadwayscanbecontractedtoprivatefirms.Inanycase,managerscanprovideaspectrumofoperationandmaintenanceservicesforaspecifiedtimeperiodinaccordancetothetermsofcontractualagreements.Thus,theownerscanbesparedtheprovisionofin-houseexpertisetooperateandmaintainthefacilities.

FacilitiesManagement

Asalogicalextensionforobtainingthebestservicesthroughouttheprojectlifecycleofaconstructedfacility,someownersanddevelopers

arereceptivetoaddingstrategicplanningatthebeginningandfacilitymaintenanceasafollow-uptoreducespace-relatedcostsintheirrealestateholdings.Consequently,somearchitectural/engineeringfirmsandconstructionmanagementfirmswithcomputer-basedexpertise,togetherwithinteriordesignfirms,areofferingsuchfront-endandfollow-upservicesinadditiontothemoretraditionalservicesindesignandconstruction.Thisspectrumofservicesisdescribedin/EngineeringNews-Record/(now/ENR/)asfollows:[2]


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computerrecordofbuildingplansthatcanbeturnedoverattheendofconstructiontothefacilitiesmanagementgroupoftheowner.Acomputerdatabaseoffacilitiesinformationmakesitpossibleforplannersintheowner'sorganizationtoobtainoverviewinformationforlongrangespaceforecasts,whilethelinemanagerscanuseas-builtinformationsuchaslease/tenantrecords,utilitycosts,etc.forday-to-dayoperations.

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MaterialandEquipmentSuppliers

Majormaterialsuppliersincludespecialtycontractorsinstructuralsteelfabricationanderection,sheetmetal,readymixedconcretedelivery,reinforcingsteelbardetailers,roofing,glazingetc.Majorequipmentsuppliersforindustrialconstructionincludemanufacturersofgenerators,boilersandpipingandotherequipment.Manysuppliershandleon-siteinstallationtoinsurethattherequirementsandcontractualspecificationsaremet.Asmoreandlargerstructuralunitsareprefabricatedoff-site,thedistributionbetweenspecialtycontractorsandmaterialsuppliersbecomesevenlessobvious.

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willbesubmittedeachmonthbythecontractortotheownerwhichinturnsubmitsadrawrequesttothebank.Providedthattheworktodatehasbeenperformedsatisfactorily,thedisbursementismadeonthatbasisduringtheconstructionperiod.Undersuchcircumstances,thebankhasbeenprimarilyconcernedwiththecompletionofthefacilityontimeandwithinthebudget.Theeconomiclifeofthefacilityafteritscompletionisnotaconcernbecauseofthetransferofrisktotheowneroraninstitutionallender.

FacilityFinancing

Manyprivatecorporationsmaintainapoolofgeneralfundsresultingfromretainedearningsandlong-termborrowingonthestrengthofcorporateassets,whichcanbeusedforfacilityfinancing.Similarly,forpublicagencies,thelong-termfundingmaybeobtainedfromthecommitmentofgeneraltaxrevenuesfromthefederal,stateand/orlocalgovernments.Bothprivatecorporationsandpublicagenciesmayissuespecialbondsfortheconstructedfacilitieswhichmayobtainlowerinterestratesthanotherformsofborrowing.Short-termborrowingmayalsobeusedforbridgingthegapsinlong-termfinancing.Somecorporatebondsareconvertibletostocksundercircumstancesspecifiedinthebondagreement.Forpublicfacilities,theassessmentofuserfeestorepaythebondfundsmeritsconsiderationforcertaintypesof

facilitiessuchastollroadsandsewagetreatmentplants.[3]


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principlesthatshouldberecognizedbyownersinordertoavoidunnecessarypitfalls.

LegalResponsibilities

Activitiesinconstructionofteninvolverisks,bothphysicalandfinancial.Anownergenerallytriestoshifttheriskstootherpartiestothedegreepossiblewhenenteringintocontractualagreementswiththem.However,suchactionisnotwithoutcostorrisk.Forexample,acontractorwhoisassignedtherisksmayeitheraskforahighercontractpricetocompensateforthehigherrisks,orendupinnon-performanceorbankruptcyasanactofdesperation.Suchconsequencescanbeavoidediftheownerisreasonableinriskallocation.Whenrisksareallocatedtodifferentparties,theownermustunderstandtheimplicationsandspellthemoutclearly.Sometimestherearestatutorylimitationsontheallocationofliabilitiesamongvariousgroups,suchasprohibitionagainsttheallocationofnegligenceindesigntothecontractor.Anownermustrealizeitssuperiorpowerinbargainingandhencetheresponsibilitiesassociatedwiththispowerinmakingcontractualagreements.

MitigationofConflicts

Itisimportantfortheownertouselegalcounselorsasadvisorstomitigateconflictsbeforetheyhappenratherthantowieldconflictsasweaponsagainstotherparties.Thereareenoughproblemsindesignandconstructionduetouncertaintyratherthanbadintentions.Theownershouldrecognizethemoreenlightenedapproachesformitigatingconflicts,suchasusingowner-controlled/wrap-up/insurancewhichwillprovideprotectionforallpartiesinvolvedintheconstructionprocessforunforeseenrisks,orusingarbitration,mediationandotherextra-judicialsolutionsfordisputesamongvariousparties.However,thesecompromisesolutionsarenotwithoutpitfallsandshouldbeadoptedonlyonthemeritofindividualcases.

GovernmentRegulation

Toprotectpublicsafetyandwelfare,legislaturesandvariousgovernmentagenciesperiodicallyissueregulationswhichinfluencetheconstructionprocess,theoperationofconstructedfacilities,andtheirultimatedisposal.Forexample,buildingcodespromulgatedbylocalauthoritieshaveprovidedguidelinesfordesignandconstructionpracticesforaverylongtime.Sincethe1970's,manyfederalregulationsthatarerelateddirectlyorindirectlytoconstructionhavebeenestablishedintheUnitedStates.AmongthemaresafetystandardsforworkersissuedbytheOccupationalHealthandSafetyAdministration,environmentalstandardsonpollutantsandtoxicwastesissuedbythe

EnvironmentalProtectionAgency,anddesignandoperationproceduresfornuclearpowerplantsissuedbytheNuclearRegulatoryCommission.

Ownersmustbeawareoftheimpactsoftheseregulationsonthecostsanddurationsofvarioustypesofconstructionprojectsaswellaspossibilitiesoflitigationduetovariouscontentions.Forexample,ownersacquiringsitesfornewconstructionmaybestrictlyliableforanyhazardouswastesalreadyonthesiteorremovedfromthesiteundertheU.S.ComprehensiveEnvironmentalResponseCompensationandLiability(CERCL)Actof1980.Forlargescaleprojectsinvolvingnew


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technologies,theconstructioncostsoftenescalatewiththeuncertaintyassociatedwithsuchrestrictions.

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NewTechnologies

Inrecentyears,technologicalinnovationindesign,materialsandconstructionmethodshaveresultedinsignificantchangesinconstructioncosts.Computer-aidshaveimprovedcapabilitiesforgeneratingqualitydesignsaswellasreducingthetimerequiredtoproducealternativedesigns.Newmaterialsnotonlyhaveenhancedthequalityofconstructionbutalsohaveshortenedthetimeforshopfabricationandfielderection.Constructionmethodshavegonethroughvariousstagesofmechanizationandautomation,includingthelatestdevelopmentofconstructionrobotics.

ThemostdramaticnewtechnologyappliedtoconstructionhasbeentheInternetanditsprivate,corporateIntranetversions.TheInternetiswidelyusedasameanstofostercollaborationamongprofessionalsonaproject,tocommunicateforbidsandresults,andtoprocurenecessarygoodsandservices.Realtimevideofromspecificconstructionsitesiswidelyusedtoillustrateconstructionprogresstointerestedparties.Theresulthasbeenmoreeffectivecollaboration,communicationandprocurement.

Theeffectsofmanynewtechnologiesonconstructioncostshavebeenmixedbecauseofthehighdevelopmentcostsfornewtechnologies.However,itisunmistakablethatdesignprofessionalsandconstruction

contractorswhohavenotadaptedtochangingtechnologieshavebeenforcedoutofthemainstreamofdesignandconstructionactivities.Ultimately,constructionqualityandcostcanbeimprovedwiththeadoptionofnewtechnologieswhichareprovedtobeefficientfromboththeviewpointsofperformanceandeconomy.

LaborProductivity

Theterm/productivity/isgenerallydefinedasaratiooftheproductionoutputvolumetotheinputvolumeofresources.Sincebothoutputandinputcanbequantifiedinanumberofways,thereisnosinglemeasureofproductivitythatisuniversallyapplicable,

particularlyintheconstructionindustrywheretheproductsareoftenuniqueandthereisnostandardforspecifyingthelevelsforaggregationofdata.However,sincelaborconstitutesalargepartofthecostofconstruction,laborproductivityintermsofoutputvolume(constantdollarvalueorfunctionalunits)perperson-hourisausefulmeasure.Laborproductivitymeasuredinthiswaydoesnotnecessarilyindicatetheefficiencyoflaboralonebutrathermeasuresthecombinedeffectsoflabor,equipmentandotherfactorscontributingtotheoutput.

Whileaggregateconstructionindustryproductivityisimportantasameasureofnationaleconomy,ownersaremoreconcernedaboutthelaborproductivityofbasicunitsofworkproducedbyvariouscraftsonsite.Thus,anownercancomparethelaborperformanceatdifferentgeographic

locations,underdifferentworkingconditions,andfordifferenttypesandsizesofprojects.

Constructioncostsusuallyrunparalleltomaterialpricesandlaborwages.Actually,overtheyears,laborproductivityhasincreasedinsometraditionaltypesofconstructionandthusprovidesalevelingorcompensatingeffectwhenhourlyratesforlaborincreasefasterthanothercostsinconstruction.However,laborproductivityhasbeenstagnantorevendeclinedinunconventionalorlargescaleprojects.


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PublicScrutiny

UnderthepresentlitigiousclimateintheUnitedStates,thepublicisincreasinglyvocalinthescrutinyofconstructionprojectactivities.Sometimesitmayresultinconsiderabledifficultyinsitingnewfacilitiesaswellasadditionalexpensesduringtheconstructionprocessitself.Ownersmustbepreparedtomanagesuchcrisesbeforetheygetoutofcontrol.

Figure1-8canservetoindicatepublicattitudestowardsthesitingofnewfacilities.Itrepresentsthecumulativepercentageofindividualswhowouldbewillingtoacceptanewindustrialfacilityatvariousdistancesfromtheirhomes.Forexample,overfiftypercentofthepeoplesurveyedwouldacceptaten-storyofficebuildingwithinfivemilesoftheirhome,butonlytwenty-fivepercentwouldacceptalargefactoryorcoalfiredpowerplantatasimilardistance.Anevenlowerpercentagewouldacceptahazardouswastedisposalsiteoranuclearpowerplant.Evenatadistanceofonehundredmiles,asignificantfractionofthepublicwouldbeunwillingtoaccepthazardouswastefacilitiesornuclearpowerplants.

fig1_8.GIF(10277bytes)

*Figure1-8:*PublicAcceptanceTowardsNewFacilities(Reprintedfrom/EnvironmentalQuality-1980/,theEleventhAnnualReportoftheCouncilonEnvironmentalQuality,U.S.GovernmentPrintingOffice,Washington,DC,December1980.)

Thisobjectiontonewfacilitiesisawidespreadpublicattitude,representingconsiderableskepticismabouttheexternalbenefitsandcostswhichnewfacilitieswillimpose.Itisthispublicattitudewhichislikelytomakepublicscrutinyandregulationacontinuingconcernfortheconstructionindustry.

InternationalCompetition

Afinaltrendwhichdeservesnoteistheincreasinglevelofinternationalcompetitionintheconstructionindustry.Ownersarelikelytofindnon-traditionalfirmsbiddingforconstructionwork,particularlyonlargeprojects.SeparatebidsfromnumerousEuropean,NorthAmerican,andAsianconstructionfirmsarenotunusual.IntheUnitedStates,overseasfirmsarebecomingincreasinglyvisibleandimportant.Inthisenvironmentofheightenedcompetition,goodprojectmanagementandimprovedproductivityaremoreandmoreimportant.

Abiddingcompetitionforamajornewoffshoredrillingplatformillustratesthecompetitiveenvironmentinconstruction.Asdescribedin

theWallStreetJournal:[5]


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boynetworkfellapart.Shell[OilCo.]awardedthemaincontractfor[anew]platform-tallerthanChicago'sSearsTower,fourtimesheavierthantheBrooklynBridge-toatinyupstart.

Thewinningbidderarrangedoverseasfabricationoftherig,keptoverheadcostslow,andproposedanovelassemblyprocedurebywhichconstructionequipmentwasmountedoncompletedsectionsoftheplatforminordertospeedthecompletionoftheentirestructure.Theresultwaslowercoststhanthoseestimatedandbidbytraditionalfirms.

Ofcourse,U.S.firmsincludingA/Efirms,contractorsandconstructionmanagersarealsocompetinginforeigncountries.TheirsuccessorfailureintheinternationalarenamayalsoaffecttheircapacitiesandvitalitytoprovideservicesinthedomesticU.S.market.

ContractorFinancedProjects

Increasingly,someownerslooktocontractorsorjointventuresasaresourcetodesign,tobuildandtofinanceaconstructedfacility.Forexample,autilitycompanymayseekaconsortiumconsistingofadesign/constructfirmandafinancialinvestmentfirmtoassumetotalliabilityduringconstructionandtherebyeliminatetherisksofcostescalationtoratepayers,stockholdersandthemanagement.Ontheother

hand,alocalsanitationdistrictmayseeksuchaconsortiumtoprovideprivateownershipforaproposednewsewagetreatmentplant.Intheformercase,theownermaytakeoverthecompletedfacilityandservicethedebtonconstructionthroughlong-termfinancingarrangements;inthelattercase,theprivateownermayoperatethecompletedfacilityandrecoveritsinvestmentthroughuserfees.Theactivitiesofjointventuresamongdesign,constructionandinvestmentfirmsaresometimesreferredtoas/financialengineering/.

Thistypeofjointventurehasbecomemoreimportantintheinternationalconstructionmarketwhereaggressivecontractorsoftenwincontractsbyofferingamoreattractivefinancingpackageratherthansuperiortechnology.Withadeepeningshadowofinternationaldebtsin

recentyears,manydevelopingcountriesarenotinapositiontoundertakeanynewprojectwithoutcontractor-backedfinancing.Thus,thecontractorsorjointventuresinoverseasprojectsareforcedintoveryriskypositionsiftheyintendtostayinthecompetition.

LeanConstruction

"Leanmanufacturing"hadarevolutionaryeffectonmanyindustries,especiallyautomotiveassemblycompanies.Characteristicsofthisapproachinclude:

*Improvementinqualityandreductionofwasteeverywhere.Rather

thanincreasingcosts,reducingdefectsandwasteprovedtoimprovequalityandreducecosts.*Empoweringworkerstoberesponsibleforsatisfyingcustomerneeds.Inconstruction,forexample,craftsmanshouldmakesuretheirworksatisfiedthedesignintent.*Continuousimprovementofprocessesinvolvingtheentireworkforce.

Leanconstructionisintendedtospreadthesepracticeswithintheconstructionindustry.Ofcourse,wellmanagedconstructionprojectsalreadyhavemanyaspectsofleanconstruction.Forexample,


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just-in-timedeliveryofmaterialsiscommonplacetoavoidthewasteoflargeinventorystockpiles.Greenbuildingprojectsattempttore-useorrecycleallconstructionwastes.Butthesystematicattentiontocontinuousimprovementandzeroaccidentsanddefectsisnew.Backtotop


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ofteninnovativeinplanningandmanagementsincebothtypesofactivitiesinvolveproblemsolving.Infact,theycanreinforceeachotherifbothareincludedintheeducationprocess,providedthatcreativityandinnovationinsteadofroutinepracticeareemphasized.Aprojectmanagerwhoiswelleducatedinthe/fundamentalprinciples/ofengineeringdesignandmanagementcanusefullyapplysuchprinciplesonceheorshehasacquiredbasicunderstandingofanew/applicationarea/.Aprojectmanagerwhohasbeentrainedbyrotelearningforaspecifictypeofprojectmaymerelygainoneyearofexperiencerepeatedtwentytimesevenifheorshehasbeeninthefieldfortwentyyears.Abroadlyeducatedprojectmanagercanreasonablyhopetobecomealeaderintheprofession;anarrowlytrainedprojectmanagerisoftenrelegatedtotheroleofhisorherfirstjoblevelpermanently.

Theownershavemuchatstakeinselectingacompetentprojectmanagerandinprovidingherorhimwiththeauthoritytoassumeresponsibilityatvariousstagesoftheprojectregardlessofthetypesofcontractualagreementsforimplementingtheproject.Ofcourse,theprojectmanagermustalsopossesstheleadershipqualityandtheabilitytohandleeffectivelyintricateinterpersonalrelationshipswithinanorganization.Theultimatetestoftheeducationandexperienceofaprojectmanagerforconstructionliesinherorhisabilitytoapplyfundamentalprinciplestosolvingproblemsinthenewandunfamiliarsituationswhichhavebecomethehallmarksofthechangingenvironment

intheconstructionindustry.

Backtotop

1.11Footnotes

1.TheBusinessRoundtable,/MoreConstructionfortheMoney/,SummaryReportoftheConstructionIndustryCostEffectivenessProject,January1983,p.11.Back


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3.SeeHendrickson,C.,"FinancingCivilWorkswithUserFees,"/CivilEngineering/,Vol.53,No.2,February1983,pp.71-72.Back5.SeePetzinger,ThomasJr.,"Upstart'sWinningBidforOffshorePlatformStunsitsOlderRivals,"/WallStreetJournal/,p.1,c.6,Nov.20,1985.Back

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