CONSTRUCTION ECONOMICS

AND LAW

CHAPTER 1 CONSTRUCTION INDUSTRY 1.1. Construction industry The construction industry of today has been built on the same needs of the human beings to provide or repair shelter, transport facilities, energy production units, public spaces or monuments, and protect from natural desasters.

The basic human needs have not changed over time even though the process and the environment in wich the designer and the constructor operate have become
increasingly complicated.

The Construction Industry is a conglomeration of diverse segments and products. It refers to all types of activities associated with the erection and repair of constructed facilities such as:
Building works - includes single family houses, high-rise blocks of flats, institutional and commercial buildings. Building work is mostly above ground level with structural safety and aesthetic consideration tending to dominate the design process. The design is usually performed by architects and engineers and the construction executed by contractors (builders). Building work needs a wide range of different tradesman (structural, electrical, mechanical, finishing and other specialty work), is labour intensive and the cost of the work is largely derived from materials and labour. The market for this type of constructions is large, and very competitive.

Civil engineering works - is mainly concerned with roads, bridges, railways, tunnels, marine structures, pipelines, sewage treatment plants, etc. Each project is normally a unique design. Most of these projects are publicly owned and therefore financed by central/local government subsidies. These type of works usually involves large- scale operations, highly mechanized. Consequently plant costs form a large element of the total construction cost. The engineers and contractors engaged in civil engineering works are usually highly specialized since each segment of the market requires different type of skills.

Process plant erection/specialized industrial construction - involves large-scale projects with a high degree of technological complexity such as oil refineries, steel mills, chemical processing plants, coal-fired or nuclear power stations etc. The owners usually are deeply involved in the development of such a project and prefer to work with designer-constructors such that the total time for completion of the project can be shortened.

Construction industry - Main Features

The Construction Industry differs from the manufacturing industries because of the following main specific features:

It is unique: Even then may look similar, but because of their location,
each project is constructed on a site with its own peculiar problems. On the other hand, for a given contract (a building for example) it is unlikely that two bidding contractors will consider the same construction methods to carry out the works and consequently to submit the same offer in terms of cost and duration.

It is commissioned: The vast majority of the projects are ordered before

construction is commenced. Compare this feature with consumer goods (motorcars, shoes etc. ) which are produced first and sold afterwards. Usually the contractor is paid at regular time intervals (monthly).

It is constructed in-situ: This means that the works are influenced by

climate-factors and other influences which are not present in a stabile factory environment. Prefabricating and precasting in a factory may assist construction on site but do not eliminate it. The various components still have to be transported and erected on suitable foundation on site.

Apart from these features, in construction we are dealing with

- remote locations, - physical uncertainties, - high costs and high-incidence of design-change factors,

that all contribute to financial risk and require a particularly flexible and dynamic approach to management in comparison with the management process required in any other industry.

Parties to a construction project.

A project is defined, whether it be in construction or not, by the following characteristics:

- A defined goal or objective; - Specific tasks not routinely performed; - A defined beginning and end; - Defined deliverables; -Resousces (scarce most of the time) being consumed.
Every project can be clearly broken down into a series of logical, definable steps/activities.

The party which tries to satisfy its need for a constructed facility is the client.
The one who carries out the works to construct the built facility is the contractor, who puts into real shape the drawings and specifications

made by the designer/ (consultant).

The Client is that party that is the customer of the construction industry and proposes to purchase either a construction facility or one of the other services that are offered by the industry (ex: design, consultancy etc.). The Client is also known as the Promoter, Owner or Employer. A Client may be an individual, a group of people, a private or public company or a local or central government authority. Among anther things, a Client not skilled in construction practice will need to obtain expert advice on one or more of the following:

-Feasibility studies; -The design of the works;

-Preparation of contract documents;

-Tendering procedure and evaluation of the tenders; -Supervisor of the construction works;

- Certification of completed work for payment.

The Client's responsibilities are:

Define the basic requirements of the project; Commissions feasibility studies, investigations and alternative solutions; Commissions design by the Engineer/Designer ( usually but not always); Commissions construction by the Contractor or Contractors; Obtains legal authority for the project; Ensures access to the site;

Ensures that Contractor receives sufficient information in time for construction work to proceed;
Ensures regular payments as construction proceeds.

The Consultant is an organization or a person possessing the necessary qualification to practice in one or more various branches: engineering, architecture, project management, supervision of the works, etc. The Consultant is often referred as Engineer.

The basic duty of the Engineer is to design that project which will most satisfy the needs of the Client at the lowest predictable cost. The Engineer should study every major item of the project to determine if it possible to reduce the cost, without affecting the quality and the time of construction. The Consultant/Engineer, acting on behalf of the client will undertake the following tasks as the project goes forward:

Design phase:

Makes feasibility study to find out the best project scheme. This might include: preliminary site investigation, alternative solutions, cost-benefit analysis/estimations, risk-analysis, outline programs and budgets; Design the permanent works;

Tender and Construction phases: Submits a rough cost estimate (based on the detail design) to the Client; Prepares all contract documents(drawings, specifications, bills of quantities etc.); Invites tenders, analyze them and makes recommendations for the client to nominate the winner contractor; Supervises construction quality control (periodically and/or at control points), technical assistance; Authorizes payments to the constructor(s); Examines and decide upon contractor's claims for extra payment and/or extra time; Coordinate contractors (if required).

The Contractor. After the engineering design and financing arrangements for the project are completed, the Client will enter into a construction contract with one or more Contractors. A Contractor is an individual or a company that contracts to carry out the construction works. If only one contractor is appointed, he is known as general (main) contractor. He will act as a constructor and/or coordinator of a larger number of sub-contractors who perform various specialties for the completion of the project (civil engineering works, services works, building works etc.).

The Contractor's responsibilities are:

Designs temporary works;
May sublet works if the Consultant permits or may be obliged to enter into sub-contracts with nominated sub-contractors and/or suppliers; Must conform to any of the Engineer's instruction; Must provide the Engineer with a Program of execution of the works, witch must be followed; Where sub-contractors carry out part of the work, the Main Contractor remains as responsible for that work as if it were his own; Submits interim (monthly) claims for payment as the work proceeds; Must deliver the contract as stipulated in the contract documents in terms of time, money and quality.

Material and Equipment Suppliers include major material suppliers (as specialty contractors in structural steel fabrication, ready - mixed concrete delivery, reinforcing steel-bar detailers etc.) and major equipment and plant suppliers (ex: manufactures of generators, boilers piping; suppliers of bulldozers, cranes, excavators, concrete pumps etc.)

1.3. The Stages of a Construction Project.

In any construction project, three major distinct stages can be identified, namely: Promotion (Appraisal), Engineering and Operation. These stages are shown in Fig.2.1., together with a typical cumulative cash flow curve for the whole project and with a graph showing the degree of influence over the project major attributes :quality, time and cost.