Principles of Construction

Management

Lecture no. 2 – Overview of the

Construction Industry cont.
 Lecture no. 2 Topics:
•Challenges in Construction Industry
•Construction Project Delivery Systems
•Reasons Why Contractors Fail?
Challenges in Construction Industry
 Challenges in Construction
Industry
•Project managers lack strong
management skills and
experience.
•One of every three projects is
over budget or
• schedule.
•Many economically attractive
and proven practices are
receiving only very moderate
utilization.
•More sophisticated design
and as competition
intensified owners relies
more on specialty
subcontractors than
general contractor.
2
Challenges in Construction Industry
•Shift towards Lump Sum Contracting
•Significant level of litigation (court cases)
•Significant increase in foreign
competition
•Mistrust between contractors and
owners
Challenges in Construction Industry
•Operating units (plant) have lost
required expertise to execute
projects
•Project Managers handle greater
number of projects
•Average project size is smaller
•Industry losing young professionals
due to desire to be less mobile
Challenges in Construction Industry
•Operating units (plant) have lost
required expertise to execute
projects
•Project Managers handle greater
number of projects
•Average project size is smaller
•Industry losing young professionals
due to desire to be less mobile
Effects of Shortage of Skilled Workers &
Experienced Managers in Construction
Industry:
•Resulting high overheads to
contractors/owners.
•Decreased productivity
•Pressure to contractor to produce
better quality product/construction
Construction Project Delivery Systems

4
 Functions and Responsibilities in
Project Delivery Systems:
1. Owner:
• Initiates the construction project
• Responsible for obtaining financial resources
• Provides land and authorize access on it
• Have the right to start/stop the work
2. Designer (Architects/Engineers):
• Licensed to design the project
• Creates design that meets owner’s needs and can be
built successfully
• Responsible for the clear interpretation of the
plans, drawings and specs by the constructor
 Functions and Responsibilities in
Project Delivery Systems:
3. Constructor:
• Transform the plans, drawings and specs into a
physical structures
• Accepts responsibility for completing the project
based on agreement with the owner
• Responsible to provide all resources needed to execute
the project as per agreement with the owner
4. Professional Construction Manager:
•Depending on contractual relationship with the
owner he can function as owner’s agent or general
contractor/integrator if he accepts the project risks.
 Functions and
Responsibilities in
Project Delivery
Systems:
Functions and Responsibilities in Project
Delivery Systems:
Traditional Design-Bid-Build
Features Advantages Limitations
• Separation of • Certainty of price • No opportunity
Design & • Clarity of roles for phased
Construction • No coordination risks construction
• Completion of to owners • Fixed price
design prior to • Easy to accomplish established late in
selection of • Changes during design process
contractor • Owner administers
all design and
construction
contracts
• No contractor
input during
design
Functions and Responsibilities in Project
Delivery Systems:
Professional Construction Manager

Features Advantages Limitations

• Construction Manager to advise • Construction expertise • Increased overhead

owner and designer on available during design costs
construction aspects phase • Owner may take on
• May be agency type or at-risk • CM provides advise to greater risks under
type owner during construction agency type
phase • Owner relinquishes
• Under at-risk, some risk is some control
removed from owner
Functions and Responsibilities in Project
Delivery Systems:
Joint Venture
Features Advantages Limitations

• Two contractors (or • Takes advantage of • Coordination

more) in a strengths of each challenges
temporary co- venturer • Requires very
partnership to build • Allows combined clear agreement
a single project expertise to build between co-
large projects venturer
• Allows each contractor
to gain experience in
new area or with new
type of work
Functions and Responsibilities in Project
Delivery Systems:
Design-Build
Features Advantages Limitations

• Single • Single point • Difficulty of

organization of formulating price
responsible for responsibili prior to design
the design and ty • Lack of
construction • Constructability oversight by
inputs during design designer
• Fixed price early • Costly tendering
in process process
• Opportunity for • Less control by
phased construction owner
Comparing CM at Risk, Design-Build &
Design-Bid-Build (CCI Research 133-1)
 Cost Growth
•the lack of early planning participation by the
contractor, particularly with regard to
constructability reviews.
•the lack of previous working relations of the
architect/engineer and the contractor.
•the contractors’ recognition of engineering errors
during the bidding process, but with no
intercommunication. Often the errors found turned
into compensable scope changes.
 Schedule Growth
•Many projects are driven by a tight schedule.
•Many project scopes are in continuous
adjustment because of production needs,
revised technology, changes in consumer
demand, constant reengineering of the
system or others.
 High Needs in Construction
Industry
•Increased information sharing between Owner
& Contractor
•Increased emphasis on preconstruction
planning
•To find ways to improve performance in all
areas
Reasons Why
Contractors
Fail?
 Why Contractors Fail?
1. Unrealistic growth or change in the scope of
business
• Change in the type of work performed
• Change in the location of work performed
• Significant increase in size of individual projects
• Rapid expansion
2. Performance Issues
• Inexperience with the new type of work
• Personnel do not have adequate training or experience
• Insufficient personnel
 Why Contractors Fail?
3. Character/management/personal issues
• Contractor retires, company is sold, changes in leadership or focus
• No ownership or management transition plant to exists to ensure
continuity of operations in the event of principle’s death or
disability
• Key staff leaves the company
• Staff inadequately trained on company policy and operations

4.Accounting issues/financial management problems

• Inadequate cost and project management systems
• Estimating and procurement problems
• Lack of adequate insurance
• Improper accounting practices
 Why Contractors Fail?
5.Other factors (which also seem to point to management
problems)
• Economic downturn and/or high inflation
• Weather delays
• Poor site conditions and/or building plans
• Labor difficulties (lack of skilled labor)
• Material and equipment shortages
• Owner’s inability to pay
• Onerous (burdensome/time-consuming) contract terms
 Contractor’s Fence
(Guard Your Position!)
• Unreasonable Delays: • Denial of Work Access
• Request for information
• Ambiguous Specifications
• Conducting Inspections
• Change Orders
• Issuing change orders
• Inadequate Design
• Document
reviews/approval • Interruptions of
• Decisions Contractor’s Production Flow
• Payments • Conflicting Instructions
No Gold Plating