In the United States, for example, the U.S. Army Corps of Engineers has in-house capabilities to deal with planning, budgeting, design, construction and operation of waterway and flood control structures. Other public agencies, such as state transportation departments, are also deeply involved in all phases of a construction project. In the private sector, many large firms such as DuPont, Exxon, and IBM are adequately staffed to carry out most activities for plant expansion. All these owners, both public and private, use outside agents to a greater or lesser degree when it becomes more advantageous to do so.
The project life cycle may be viewed as a process through which a project is implemented from cradle to grave. This process is often very complex; however, it can be decomposed into several stages as indicated by the general outline in Figure 1-1. The solutions at various stages are then integrated to obtain the final outcome. Although each stage requires different expertise, it usually includes both technical and managerial activities in the knowledge domain of the specialist. The owner may choose to decompose the entire process into more or less stages based on the size and nature of the project, and thus obtain the most efficient result in implementation. Very often, the owner retains direct control of work in the planning and programming stages, but increasingly outside planners and financial experts are used as consultants because of the complexities of projects. Since operation and maintenance of a facility will go on long after the completion and acceptance of a project, it is usually treated as a separate problem except in the consideration of the life cycle cost of a facility. All stages from conceptual planning and feasibility studies to the acceptance of a facility for occupancy may be broadly lumped together and referred to as the Design/Construct process, while the procurement and construction alone are traditionally regarded as the province of the construction industry.
Owners must recognize that there is no single best approach in organizing project management throughout a project's life cycle. All organizational approaches have advantages and disadvantages, depending on the knowledge of the owner in construction management as well as the type, size and location of the project. It is important for the owner to be aware of the approach which is most appropriate and beneficial for a particular project. In making choices, owners should be concerned with the life cycle costs of constructed facilities rather than simply the initial construction costs. Saving small amounts of money during construction may not be worthwhile if the result is much larger operating costs or not meeting the functional requirements for the new facility satisfactorily. Thus, owners must be very concerned with the quality of the finished product as well as the cost of construction itself. Since facility operation and maintenance is a part of the project life cycle, the owners' expectation to satisfy investment objectives during the project life cycle will require consideration of the cost of operation and maintenance. Therefore, the facility's operating management should also be considered as early as possible, just as the construction process should be kept in mind at the early stages of planning and programming.
Since most owners are generally interested in acquiring only a specific type of constructed facility, they should be aware of the common industrial practices for the type of construction pertinent to them. Likewise, the construction industry is a conglomeration of quite diverse segments and products. Some owners may procure a constructed facility only once in a long while and tend to look for short term advantages. However, many owners require periodic acquisition of new facilities and/or rehabilitation of existing facilities. It is to their advantage to keep the construction industry healthy and productive. Collectively, the owners have more power to influence the construction industry than they realize because, by their individual actions, they can provide incentives or disincentives for innovation, efficiency and quality in construction. It is to the interest of all parties that the owners take an active interest in the construction and exercise beneficial influence on the performance of the industry.
In planning for various types of construction, the methods of procuring professional services, awarding construction contracts, and financing the constructed facility can be quite different. For the purpose of discussion, the broad spectrum of constructed facilities may be classified into four major categories, each with its own characteristics.
Residential housing construction includes single-family houses, multi-family dwellings, and high-rise apartments. During the development and construction of such projects, the developers or sponsors who are familiar with the construction industry usually serve as surrogate owners and take charge, making necessary contractual agreements for design and construction, and arranging the financing and sale of the completed structures. Residential housing designs are usually performed by architects and engineers, and the construction executed by builders who hire subcontractors for the structural, mechanical, electrical and other specialty work. An exception to this pattern is for single-family houses which may be designed by the builders as well.
The residential housing market is heavily affected by general economic conditions, tax laws, and the monetary and fiscal policies of the government. Often, a slight increase in total demand will cause a substantial investment in construction, since many housing projects can be started at different locations by different individuals and developers at the same time. Because of the relative ease of entry, at least at the lower end of the market, many new builders are attracted to the residential housing construction. Hence, this market is highly competitive, with potentially high risks as well as high rewards.
Figure 1-2: Residential Housing Construction (courtesy of Caterpillar, Inc.)
Institutional and Commercial Building Construction
Institutional and commercial building construction encompasses a great variety of project types and sizes, such as schools and universities, medical clinics and hospitals, recreational facilities and sports stadiums, retail chain stores and large shopping centers, warehouses and light manufacturing plants, and skyscrapers for offices and hotels. The owners of such buildings may or may not be familiar with construction industry practices, but they usually are able to select competent professional consultants and arrange the financing of the constructed facilities themselves. Specialty architects and engineers are often engaged for designing a specific type of building, while the builders or general contractors undertaking such projects may also be specialized in only that type of building.
Because of the higher costs and greater sophistication of institutional and commercial buildings in comparison with residential housing, this market segment is shared by fewer competitors. Since the construction of some of these buildings is a long process which once started will take some time to proceed until completion, the demand is less sensitive to general economic conditions than that for speculative housing. Consequently, the owners may confront an oligopoly of general contractors who compete in the same market. In an oligopoly situation, only a limited number of competitors exist, and a firm's price for services may be based in part on its competitive strategies in the local market.
Figure 1-3: Construction of the PPG Building in Pittsburgh, Pennsylvania (courtesy of PPG Industries, Inc.)
Specialized Industrial Construction
Specialized industrial construction usually involves very large scale projects with a high degree of technological complexity, such as oil refineries, steel mills, chemical processing plants and coal-fired or nuclear power plants. The owners usually are deeply involved in the development of a project, and prefer to work with designers-builders such that the total time for the completion of the project can be shortened. They also want to pick a team of designers and builders with whom the owner has developed good working relations over the years.
Although the initiation of such projects is also affected by the state of the economy, long range demand forecasting is the most important factor since such projects are capital intensive and require considerable amount of planning and construction time. Governmental regulation such as the rulings of the Environmental Protection Agency and the Nuclear Regulatory Commission in the United States can also profoundly influence decisions on these projects.
Figure 1-4: Construction of a Benzene Plant in Lima, Ohio (courtesy of Manitowoc Company, Inc.)
Infrastructure and Heavy Construction
Infrastructure and heavy construction includes projects such as highways, mass transit systems, tunnels, bridges, pipelines, drainage systems and sewage treatment plants. Most of these projects are publicly owned and therefore financed either through bonds or taxes. This category of construction is characterized by a high degree of mechanization, which has gradually replaced some labor intensive operations.
The engineers and builders engaged in infrastructure construction are usually highly specialized since each segment of the market requires different types of skills. However, demands for different segments of infrastructure and heavy construction may shift with saturation in some segments. For example, as the available highway construction projects are declining, some heavy construction contractors quickly move their work force and equipment into the field of mining where jobs are available.
Click HereWhen an owner decides to seek professional services for the design and construction of a facility, he is confronted with a broad variety of choices. The type of services selected depends to a large degree on the type of construction and the experience of the owner in dealing with various professionals in the previous projects undertaken by the firm. Generally, several common types of professional services may be engaged either separately or in some combination by the owners.
At the early stage of strategic planning for a capital project, an owner often seeks the services of financial planning consultants such as certified public accounting (CPA) firms to evaluate the economic and financial feasibility of the constructed facility, particularly with respect to various provisions of federal, state and local tax laws which may affect the investment decision. Investment banks may also be consulted on various options for financing the facility in order to analyze their long-term effects on the financial health of the owner organization.
Traditionally, the owner engages an architectural and engineering (A/E) firm or consortium as technical consultant in developing a preliminary design. After the engineering design and financing arrangements for the project are completed, the owner will enter into a construction contract with a general contractor either through competitive bidding or negotiation. The general contractor will act as a constructor and/or a coordinator of a large number of subcontractors who perform various specialties for the completion of the project. The A/E firm completes the design and may also provide on site quality inspection during construction. Thus, the A/E firm acts as the prime professional on behalf of the owner and supervises the construction to insure satisfactory results. This practice is most common in building construction.
In the past two decades, this traditional approach has become less popular for a number of reasons, particularly for large scale projects. The A/E firms, which are engaged by the owner as the prime professionals for design and inspection, have become more isolated from the construction process. This has occurred because of pressures to reduce fees to A/E firms, the threat of litigation regarding construction defects, and lack of knowledge of new construction techniques on the part of architect and engineering professionals. Instead of preparing a construction plan along with the design, many A/E firms are no longer responsible for the details of construction nor do they provide periodic field inspection in many cases. As a matter of fact, such firms will place a prominent disclaimer of responsibilities on any shop drawings they may check, and they will often regard their representatives in the field as observers instead of inspectors. Thus, the A/E firm and the general contractor on a project often become antagonists who are looking after their own competing interests. As a result, even the constructibility of some engineering designs may become an issue of contention. To carry this protective attitude to the extreme, the specifications prepared by an A/E firm for the general contractor often protects the interest of the A/E firm at the expense of the interests of the owner and the contractor.
In order to reduce the cost of construction, some owners introduce value engineering, which seeks to reduce the cost of construction by soliciting a second design that might cost less than the original design produced by the A/E firm. In practice, the second design is submitted by the contractor after receiving a construction contract at a stipulated sum, and the saving in cost resulting from the redesign is shared by the contractor and the owner. The contractor is able to absorb the cost of redesign from the profit in construction or to reduce the construction cost as a result of the re-design. If the owner had been willing to pay a higher fee to the A/E firm or to better direct the design process, the A/E firm might have produced an improved design which would cost less in the first place. Regardless of the merit of value engineering, this practice has undermined the role of the A/E firm as the prime professional acting on behalf of the owner to supervise the contractor.
A common trend in industrial construction, particularly for large projects, is to engage the services of a design/construct firm. By integrating design and construction management in a single organization, many of the conflicts between designers and constructors might be avoided. In particular, designs will be closely scrutinized for their constructibility. However, an owner engaging a design/construct firm must insure that the quality of the constructed facility is not sacrificed by the desire to reduce the time or the cost for completing the project. Also, it is difficult to make use of competitive bidding in this type of design/construct process. As a result, owners must be relatively sophisticated in negotiating realistic and cost-effective construction contracts.
One of the most obvious advantages of the integrated design/construct process is the use of phased construction for a large project. In this process, the project is divided up into several phases, each of which can be designed and constructed in a staggered manner. After the completion of the design of the first phase, construction can begin without waiting for the completion of the design of the second phase, etc. If proper coordination is exercised. the total project duration can be greatly reduced. Another advantage is to exploit the possibility of using the turnkey approach whereby an owner can delegate all responsibility to the design/construct firm which will deliver to the owner a completed facility that meets the performance specifications at the specified price.
One of the most obvious advantages of the integrated design/construct process is the use of phased construction for a large project. In this process, the project is divided up into several phases, each of which can be designed and constructed in a staggered manner. After the completion of the design of the first phase, construction can begin without waiting for the completion of the design of the second phase, etc. If proper coordination is exercised. the total project duration can be greatly reduced. Another advantage is to exploit the possibility of using the turnkey approach whereby an owner can delegate all responsibility to the design/construct firm which will deliver to the owner a completed facility that meets the performance specifications at the specified price.
In recent years, a new breed of construction managers (CM) offers professional services from the inception to the completion of a construction project. These construction managers mostly come from the ranks of A/E firms or general contractors who may or may not retain dual roles in the service of the owners. In any case, the owner can rely on the service of a single prime professional to manage the entire process of a construction project. However, like the A/E firms of several decades ago, the construction managers are appreciated by some owners but not by others. Before long, some owners find that the construction managers too may try to protect their own interest instead of that of the owners when the stakes are high.
It should be obvious to all involved in the construction process that the party which is required to take higher risk demands larger rewards. If an owner wants to engage an A/E firm on the basis of low fees instead of established qualifications, it often gets what it deserves; or if the owner wants the general contractor to bear the cost of uncertainties in construction such as foundation conditions, the contract price will be higher even if competitive bidding is used in reaching a contractual agreement. Without mutual respect and trust, an owner cannot expect that construction managers can produce better results than other professionals. Hence, an owner must understand its own responsibility and the risk it wishes to assign to itself and to other participants in the process.
Although many owners keep a permanent staff for the operation and maintenance of constructed facilities, others may prefer to contract such tasks to professional managers. Understandably, it is common to find in-house staff for operation and maintenance in specialized industrial plants and infrastructure facilities, and the use of outside managers under contracts for the operation and maintenance of rental properties such as apartments and office buildings. However, there are exceptions to these common practices. For example, maintenance of public roadways can be contracted to private firms. In any case, managers can provide a spectrum of operation and maintenance services for a specified time period in accordance to the terms of contractual agreements. Thus, the owners can be spared the provision of in-house expertise to operate and maintain the facilities.
As a logical extension for obtaining the best services throughout the project life cycle of a constructed facility, some owners and developers are receptive to adding strategic planning at the beginning and facility maintenance as a follow-up to reduce space-related costs in their real estate holdings. Consequently, some architectural/engineering firms and construction management firms with computer-based expertise, together with interior design firms, are offering such front-end and follow-up services in addition to the more traditional services in design and construction. This spectrum of services is described in Engineering News-Record (now ENR) as follows: [2]
Facilities management is the discipline of planning, designing, constructing and managing space -- in every type of structure from office buildings to process plants. It involves developing corporate facilities policy, long-range forecasts, real estate, space inventories, projects (through design, construction and renovation), building operation and maintenance plans and furniture and equipment inventories.
A common denominator of all firms entering into these new services is that they all have strong computer capabilities and heavy computer investments. In addition to the use of computers for aiding design and monitoring construction, the service includes the compilation of a computer record of building plans that can be turned over at the end of construction to the facilities management group of the owner. A computer data base of facilities information makes it possible for planners in the owner's organization to obtain overview information for long range space forecasts, while the line managers can use as-built information such as lease/tenant records, utility costs, etc. for day-to-day operations.
Builders who supervise the execution of construction projects are traditionally referred to as contractors, or more appropriately called constructors. The general contractor coordinates various tasks for a project while the specialty contractors such as mechanical or electrical contractors perform the work in their specialties. Material and equipment suppliers often act as installation contractors; they play a significant role in a construction project since the conditions of delivery of materials and equipment affect the quality, cost, and timely completion of the project. It is essential to understand the operation of these contractors in order to deal with them effectively.
The function of a general contractor is to coordinate all tasks in a construction project. Unless the owner performs this function or engages a professional construction manager to do so, a good general contractor who has worked with a team of superintendents, specialty contractors or subcontractors together for a number of projects in the past can be most effective in inspiring loyalty and cooperation. The general contractor is also knowledgeable about the labor force employed in construction. The labor force may or may not be unionized depending on the size and location of the projects. In some projects, no member of the work force belongs to a labor union; in other cases, both union and non-union craftsmen work together in what is called an open shop, or all craftsmen must be affiliated with labor unions in a closed shop. Since labor unions provide hiring halls staffed with skilled journeyman who have gone through apprentice programs for the projects as well as serving as collective bargain units, an experienced general contractor will make good use of the benefits and avoid the pitfalls in dealing with organized labor.
Specialty contractors include mechanical, electrical, foundation, excavation, and demolition contractors among others. They usually serve as subcontractors to the general contractor of a project. In some cases, legal statutes may require an owner to deal with various specialty contractors directly. In the State of New York, for example, specialty contractors, such as mechanical and electrical contractors, are not subjected to the supervision of the general contractor of a construction project and must be given separate prime contracts on public works. With the exception of such special cases, an owner will hold the general contractor responsible for negotiating and fulfilling the contractual agreements with the subcontractors.
