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SPECIALIZATION 2 – CONSTRUCTION MANAGEMENT

“The Eternal Triangle
of Construction”
OWNER
- What Dorsey (1997)

EXPECTATIONS CONSTRUCTION
DESIGNER ORGANIZATION
Construction Industry Segments
General Building Construction
projects that include residential, commercial, institutional and industrial buildings. Architectural firms usually
take the lead in the design of these construction projects, with assistance from engineering firms for such
specialties as structural and electrical elements.

Engineered Construction
This broad category of construction, sometimes called engineering construction, is characterized
by designs prepared by engineers rather than architects. These projects usually emphasize functionality
rather than aesthetics and involve substantial quantities of such field materials as timber, steel, piping, soil,
concrete and asphalt.

Specialty Trade Contractors

works as a subcontractor for a general, or prime, contractor responsible for the construction of the entire
project
Project Lifecycle
Pre-Project Phase
Prior to the commencement of the construction project, even before the selection of
the designer and the accomplishment of any planning activities, the project owner
faces two important decisions regarding the relationships among the various parties
and the basis upon which the contractor will be paid.
1. Review the various project delivery systems that form the basis for the project’s
contractual relationships and dictate the span and duration of responsibility of each
party.
2. Identify different types of contracts that are used to measure how the construction
contractor will be paid for completed construction work.
Various Project
Delivery Systems
Pre-Project Phase
Selection of project delivery system
Traditional design–tender–build
With this method, the owner contracts with a design organization to
perform preliminary planning, carry out design work and prepare contract
documents. Following the completion of this phase, a construction
organization is selected based upon the owner’s criteria, and the owner
enters into a contract with the successful contractor for the assembly of the
project elements in the field. (The contract for the design work is separate
from that for the construction work.)
Pre-Project Phase
Selection of project delivery system
Traditional design–tender–build
Pre-Project Phase
Selection of project delivery system
Design–build
The distinguishing characteristic of the design–build, or design–construct,
method is that the owner executes a single contract with an organization
that becomes responsible for both the design and the construction of the
project
Pre-Project Phase
Selection of project delivery system
Design and Build
Pre-Project Phase
Selection of project delivery system
Construction Manager
The owner engage a construction manager to provide professional
construction management services. The construction manager organization
provides advice to the owner regarding construction matters, including cost,
schedule, safety, the construction process and other considerations; such
advice may be offered throughout the project life cycle or at selected
portions thereof
 Pre-Project Phase
Selection of project delivery system
Two Types of construction management
1 “Agency” type construction management 2. At “risk” construction management
The construction manager acts as advisor to the owner for Occupies a contractual position between the owner and
a fee and the owner engages separate contractor and the execution contractors. The construction manager
designer organizations. Here, the construction manager replaces the general contractor in this arrangement and
acts as an extension of the owner’s staff and assumes little thus holds the various trade contracts. The at-risk
risk except for that involved in fulfilling its advisory construction manager provides expert advice to the
responsibilities owner on all matters related to the construction, usually
beginning well before the field work begins
Pre-Project Phase
Selection of project delivery system
Construction Manager (Agency)
Pre-Project Phase
Selection of project delivery system
Construction Manager (At-Risk)
Pre-Project Phase
Selection of project delivery system
Project Manager
The project manager manages the project on the owner’s behalf.
This arrangement implies that the project manager contracts with
the designer and the general contractor.
Pre-Project Phase
Selection of project delivery system
Project Manager
Pre-Project Phase
Selection of Type of Contract
Lump sum/Fixed price
Salient features
1. Contractor is paid a pre-agreed fixed amount for the project, based on a contract for a specified
amount of in-place finished construction work.
2. The price of the lump sum, or ‘stipulated sum’, contract must include all direct costs of labour,
materials, equipment and subcontractors, as well as such indirect costs as field supervision, field office,
equipment maintenance and the like, plus general company overhead, plus profit.
Advantages
1. Total cost of the project is known before construction begins;
2. and the lack of a need to monitor and approve the contractor’s costs.
Disadvantages
1. The owner bears the risk of poor quality from a contractor trying to maximize profit within the fixed sum;
2. High cost and long time required for contractors to prepare tenders
 Pre-Project Phase
Selection of Type of Contract
Lump sum/Fixed price
Salient features
From the standpoint of the contractor, a fixed-price job has the potential for a satisfactory profit, if the
project is well managed and costs are controlled; it is the contractor who wields this control. Also, the need
for detailed cost records for the owner’s use does not exist; the contractor does not need to ‘prove’ its costs
in order to be paid. (The contractor will still need to keep cost records in order to compare actual
performance against estimated costs, but these records are for the contractor’s use only.)

Example 1. Total Cost of Project are Known

As Per-Plan before the construction begins.
2. In addition, the flexibility of this
Description Quantity Unit Unit Price Unit Cost contract form is limited; any
1. Electrical Works 1 Ls P 280,000.00 P 280,000.00 variation from the original plans
and specifications requires a
Actual change order, a process that can
be time consuming and
Description Quantity Unit Unit Price Unit Cost
expensive and may even lead to
1. Electrical Works 1 Ls P 280,000.00 P 280,000.00 contract disputes.
Pre-Project Phase
Selection of Type of Contract
Unit Price/Measure and Value
Salient features
1. The Principal shall pay the Contractor for the measured quality as determined by the
Architect/Engineer of each item carried out at the rate set out in the Schedule of Prices
2. This method determines the amount the contractor will be paid as the project proceeds by requiring that
the actual quantities of finished product be measured and then multiplied by pre-agreed per-unit prices.
Total payment to the contractor will be a
Example collection of items in addition to the
piling, such as excavation, backfill,
As Per-Plan concrete, paving and the like.
Description Quantity Unit Unit Price Unit Cost
1. Pile Driving 720 Lm P 150.00 P 108,000.00
Variation Order
1. Owner Requested Variation
Actual
2. Contractor Requested Variation
Description Quantity Unit Unit Price Unit Cost
1. Pile Driving 720 Lm P 150.00 P 108,000.00
Selection of the type of
Contract
Unit Price/Measure
and Value
Pre-Project Phase
Selection of Type of Contract
Cost Plus
Salient features
• The owner pays the contractor’s costs related to the project plus a fee that covers profit and non-
reimbursable overhead costs.
• Simple, straightforward and desirable, at first glance
Two types of cost-plus contracts are used:
(1) cost plus a percentage of costs, under which the fee is an agreed-upon percentage of the ‘costs’; and
(2) cost plus fixed fee, wherein the fee does not depend on the contractor’s costs.

Four important considerations to be taken into account by owners and contractors when negotiating such
contracts, as follows:

➢ a definite and mutually agreeable subcontract letting procedure;

➢ a clearly understood agreement concerning the determination and payment of the
contractor’s fee;
➢ an understanding regarding the accounting methods to be followed;
➢ a list of job costs that will be reimbursable.
 Pre-Project Phase
Selection of Type of Contract
Cost Plus
Salient features

Sears and Clough (1994) further note that two categories of expense can be particularly difficult to
define and manage.
➢ One is contractor’s general overhead. Are the costs of preparing payroll and working drawings, of
engineering and other office functions, and those general administrative costs involving home office
personnel reimbursable or are they to be covered by the fee? Clear definition is essential.

➢ The other troublesome category of reimbursable cost is that related to construction equipment; if the
contractor owns equipment used on the job, some sort of charge rate must be agreed upon.
o Cost-plus type of contract, the owner will o There is less incentive to overspend under the cost-plus-fixed-fee type of
want to recognize that a cost-plus- contract and the contractor may be motivated to complete the project quickly
percentage contract may lead to in order to save on non-reimbursable overhead expenses and recover the fee
overspending by the contractor, because quickly. On the other hand, the contractor may tend to ‘skimp’ on quality,
there is little incentive to be efficient and because the fee will be the same no matter how low the costs are. A cost-
economical. Under this system, the greater plus-fixed- fee contract requires the project size and scope to be defined
the ‘costs’, the more will be paid as a fee. reasonably firmly so that a fair fixed fee can be defined.
 Pre-Project Phase
Selection of Type of Contract
Time and Materials
Salient features
Time-and-materials contract is often used on small projects, perhaps a maintenance effort, a small building or a series
of small projects.
o It has elements of both the unit-price and cost-plus approach. The owner pays the contractor based on effort
expended, but there is no ‘fee’ as such. Materials are paid at their actual cost, while labour and equipment inputs
are reimbursed at pre-agreed rates. An important element of this method is that these labour and equipment rates
must include all indirect and overhead expenses, profit and contingency, in lieu of the payment of any extra ‘fee’.

o The contract includes a list of hourly payment rates – for carpenters, millwrights, labourers, 10 cu.m dump trucks,
front loaders and the like. If carpenters are paid P600.00 per hour, the hourly rate billed for their services might be
P850.00 to include all indirect payroll expenses and a portion of the many other overheads, plus profit and
contingency. Then, as the basis for a payment request for a given period, the contractor presents material invoices,
payroll records with hours by category and similar records for equipment.
o Subcontract payments would normally be reimbursed at actual cost. If the request is approved, the contractor
receives payment based on ‘time and materials’ – the time for each labour and equipment category multiplied by
its respective rate, plus materials and subcontracts at cost.