OPERATING AND MANAGING A

CONSTRUCTION ORGANIZATION
• Chapter 1 – The Right Project
• Chapter 2 – Finding the Right Projects

Reported by:
Art Talon
PSMCMOFW

Prof. MANUEL MELCHOR BONGULTO

 CHAPTER 1
THE RIGHT PROJECT

Main Topics

• Three KSA Mega Projects

• Characteristics of a right project
• Factors to consider when pricing the right project
• Projects you should not be tendering on
 Before we begin…

For the sake of good discussion, assume that

you are a contractor (of any type).

I will ask your participation from time to time

during the presentation as a contractor.
KSA Mega Projects
 NEOM PROJECT
Launched in 2017 by Crown Prince Mohammed bin Salman,
NEOM stands as the flagship project of Vision 2030 and post-
oil diversification plans.

Completion is scheduled for 2030, but with a 26,500-sq-km site

and 450 km of coastline, growth and development of the area is
expected to continue well beyond then.
 NEOM PROJECT
The project’s contribution to the country’s GDP is projected to reach
more than $100bn by 2030.

It stands to become the home and workplace for more than 1m people
and is expected to attract up to 5m visitors annually, playing a key role
in the Kingdom’s budding leisure tourism industry.

The project broke ground in 2019, with the commencement of phase 1 of

the NEOM city development.

That year the NEOM Bay Airport was completed and much of the
project team relocated their offices from Riyadh’s Digital City to the
site. Construction was due to begin at the site in 2020.
THE RED SEA PROJECT

The Red Sea Project is a luxury tourism venture being developed along
200 km of virtually untouched coastline on the west of the Kingdom.

The site comprises nine islands surrounded by a vast desert landscape

and mountains. It will include 50 new hotels with approximately 8000
rooms, a new international airport, and a town for the 35,000 inhabitants
who will eventually live and work there.
THE RED SEA PROJECT
THE AMAALA PROJECT
 THE AMAALA PROJECT
Located on the north-western coast of the Red Sea, Amaala is
an ultra-luxury tourism project.
The development will cover an area of 3300 sq. km. and serve
as a resort and wellness destination with its own airport.
It will consist of 2500 luxury hotel rooms, 700 residential
villas, an equestrian club and four yacht marinas.

By 2030 it is expected to contribute 0.6% to GDP. Phase 1 of

the development commenced in 2019 and the entire project is
scheduled to be completed in 2028.
 CHAPTER 1
THE RIGHT PROJECT
Most construction companies are:
• Desperate – willing to accept any project
• Take wrong project that impacts profitability, affect other projects and the company as a whole
• Believe that taking large projects will enhance their business reputation

Results:
• Losing money
• Mismanagement of other projects
• Wasting time in solving problems
WHAT IS THE RIGHT PROJECT?
It’s one which the contractor can:
1. Complete on time
2. Complete with quality work (as per specifications and requirements)
3. Complete with NO safety incidents (any person and the environment)
4. Make a profit
5. Receive payment on time
6. Be cash positive or cash neutral
7. Utilize the company's available resources
8. Get more project from the same client or other clients in the vicinity
Factors to consider when
choosing the right project
• Know which projects are profitable
If you lost money on a project, before you tender on a
similar one, you need to understand the reasons for
the loss and ensure the same will not happen again.
• Working for best clients (or right clients)
– Good payer - Pay the contractor on time and in full
– Client with multiple projects (phases)
– Client with strong professional teams
– Client that understands construction processes
• Strength of the client’s team
– Team of designers, architects and a managing director
– Team should produce quality drawings, information and
access ON TIME
• The field of construction
– Contractors must have knowledge of the field for proper tender and
accurate pricing
– Contractors should only consider looking alternative fields after
considering all the risks and opportunities
– Branching out into a new field requires new staff and specialist equipment
– Subcontracting a specialist work is a better option
– Forming a joint venture with another company that has the required
expertise
– Any work done poorly by a new field (or division) can adversely impact
the whole company’s reputation
• Opportunities for further work
– First contractors on a large project hope for further work
– Some contractors even tender for a project with reduced
or zero profit in the hope of getting further works
• The project’s location
– Project locations near the company’s head office is
desirable
– Projects in prominent location give opportunity for
advertising
– Some projects disrupt business and traffic and result in
negative publicity
• The project’s proximity to existing projects
– Project situated close together can share resources
– Project managers can look after more than one project
when projects are located close together
– Travelling consumes time
• Challenges of remote sites
– Lack or absence of right personnel (resourceful, independent, can work
with little or no assistance)
– Hiring new people that does not understands company culture
– Forcing existing staff to relocate
– Transporting equipment that later requires servicing, repairing, supplying
parts)
– Additional salary costs and allowances
– Undetected or unresolved problems due to less frequent management
visits
– Less chance of further work
• The resources required for the project
– Manpower and staff that match the project
– Winning a project (even at a lower margin) that will
utilize equipment and earn revenue
– Employing new people for a project that are not the
most suitable (people not familiar with procedures,
safety and quality) often leads to problems
• Keep it simple
– The simplest and least attractive projects are the more
profitable ones
– Fantastic and Mega Projects (good for headlines) are
more difficult, costly and risky than those projects that
are not visible to the public.
• The project’s risks
– Contractor must understand the project risks (and
consequences)
– Employ strategies that mitigate risks
• Negotiate better contractual terms
• Reduced risk and potential loss by allotting contingency (say
inclement weather)
• Purchase insurance
• Add additional profit to the tender
• Some risks to consider
– Difficult ground condition (rock excavation)
– Existing services which can be expensive to locate
– Adverse weather conditions
– Industrial relations problems
– Unknown or untried technology
– Short or difficult schedule
– Complex and difficult structures
– Working in and around existing operating facilities
• The right size
– The right size “for the company”
– Not too small (in duration or value)
– Not too big
– Mix of different sized projects is beneficial
• Niche markets
– Keep other contractors out of your Niche field or client
– Contractor can become trapped in a particular niche that
may soon come to an end
– Develop and chase a niche market where practical
– Get involve with other opportunities that can replace the
one that may come to end
• Fad or potential for a new market
– The success of another company doesn’t mean your
company’s success too
– Research new markets and opportunities to ensure
understanding all risks
– Setting up an office in another region or country just for
one or two contract is not sustainable
• Understanding the current market conditions
– Suitability of a project depends on prevailing market or
economic conditions
– Construction market changes and moves quickly from
abundance to scarcity
– Profit margins should be adjusted appropriately
– It is possible to win a project with a larger profit margin
when others are busy in their own projects
• Bid (or tender) procedures
– Open tender – no restrictions and any contractor can submit a
tender
– Meeting a specified criteria – open to all provided the criteria
are met ( say tender bond)
– Prequalification – only prequalified contractors are invited to
bid
– By invitation – clients invite select contractors (3 to 12)
– By negotiation with a client – best option for the contractor
• The contract document
– Simple variations of standard conditions used in the
industry
– Protection to both the client and the contractor
– Some client use their own form of contract document –
too bias, all risks are on the contractor with little or no
protection
• Payment conditions
– Short payment periods are better (1-2 weeks) than
longer periods say 4-8 weeks
– Payment conditions – 5-10% retention
– Some clients only pay on completion of a milestone
• The client’s budget
– Too low - client will argue and resist all claims and
variations
• Client may use cheap and poor quality materials
• Client may take shortcuts with the design
• When the project price is above the client budget,
clients will run out of money leaving the contractor
unpaid
• The quality of the tender documents
– Poor quality documents are indication of problems that
will occur
– Submit variations for the delays or inconveniences
caused by poor information
– Contractors should clearly define all assumptions and
and specify what they have priced (or not priced) in their
tender submission
• Liquidated damages
– Understand the liquidated damages and what the risks
are of being penalised
– It is possible to qualify a lower value or place a cap on
the maximum amount of damages
– Do not submit tender if client refuse accept the proposed
lowered or capped liquidated damages
• Will you be competitive?
– Consider location, size or type of project before
submitting a tender
– Your price maybe TOO expensive if the project is more
suitable for other contractors
– It is better to explain to the client (why you’re not
submitting) to protect your business reputation
• Illegal and criminal activities
– Projects that are built illegally and without permit can
result in bad publicity, stopped project, equipment being
impounded, and the contractor not getting paid
– Money illegally acquired by the client to finance a
project can result to negative publicity, stopped project,
and unpaid works
• Controversial projects
– Projects located in sensitive environmental areas
– Local inhabitants being relocated that may protest
(sabotaging, vandalism, blocking off access)
– Opposition can delay the project, lose money, and being
in the press for the wrong reasons
SUMMARY
The right project to price is influenced by several variables.

We should not be tendering on projects which:

1. Are unprofitable
2. Pose safety risky to workers and the public
3. You don’t have the knowledge and expertise to prepare a tender
4. Have high risks that can affect the future of the company
5. Require staff with expertise and knowledge that cannot be used in
the future
SUMMARY
The right project to price is influenced by several variables.

We should not be tendering on projects which:

7. Negatively impact the cash flow

8. Require bonds which cannot be obtained
9. Have final value in excess of client’s budget
10. Have unachievable milestone
11. Have high and uncapped liquidated damages
 SUMMARY
The right project to price is influenced by several variables
We should not be tendering on projects which:

12. are unprofitable

13. Have unreasonable contract conditions
14. Have a weak design team
15. don’t have all the permits in place or no chance to be granted
16. Are too small or too large
SUMMARY
The right project to price is influenced by several variables
We should not be tendering on projects which:

17. Are in remote region you have no experience with

18. Are for difficult clients
19. Are illegal
20. Are funded by known criminal activities
21. You will not have a competitive price
SUMMARY

Selecting and winning a suitable

project for the company is vital to
being a successful contractor.
END OF CHAPTER 1
 CHAPTER 2

Finding the right projects

KEEPING A RIGHT (GOOD) CLIENT
• Keep other contractors away from your client
– Develop a relationship
– Deliver quality project on time and without incident
– Being fair and honest with the client
– Acknowledge mistakes
– Rectify problems as soon as possible
– Manage client expectation
– Senior management seen at site by client
RESEARCH
• Look for projects in
– Press releases
– Local news media
– Trade publications
– Clients’ websites
TENDER DATA BASE

• Look for projects in

– Data bases published by government or other parties
– Other contractors in the list may be contacted for
subcontracting works
EXISTING PROJECTS

• While working on a project

– Talk to the client’s representative for information
– Keep contact details of people in charge of vendors list
– Keep in touch with designers, architects and managing
contractors for projects still on planning stage
– Update your website
– Make brochures
NETWORKING

• Take your networks further

– Not what you know, but who you know
– Be a member of professional/trade groups
– Contact union representatives for information
– Always carry business cards
– Don’t forget friends and relatives
CONTACTS
• Other useful contacts
– Land surveyors
– Quantity surveyors
– Town planners
– Environmentalists
– Geotechnical engineers
– Estate agents
– Recruitment agencies
– LGU officials
EMPLOYEES

• Do not underestimate their market knowledge

– Encourage them to report potential works
– Make them as salespeople
– Promote the company in a positive way
COMPETITORS

• Know where your competitors are working and for

whom
– Competitors most of the time announce their projects
in gathering events
– Check their websites
– Read press releases
MARKETING

• If you can, have a marketing specialist

– Check their experience
– Make sure they understand your business
– Set a clear budget for a specific client

It’s better if you can do your own marketing.

What works for others may not work for you.
WEBSITE

• Clients want to check your website for:

– Quick overview of your company
– Contact details
– Sample projects with photos
– Registrations and certifications
– Financial status (for larger contractors)

>Avoid pop ups and videos

BROCHURES

• Clients need handy reference

– Simple and similar format with the website
– Look professional and on quality paper
– Proof-read before printing
PHOTOGRAPHS

• “Better than a thousand words”

– Good quality
– Don’t show any unsafe acts
– Work shown is of good quality
– Show neat and organized site
– Portray diversity of work
– Has company logo on equipment
COMPANY LOGO

• What people see first and remember

– Keep it simple
– Clear letters
– Not too long
– Bold letters and colors
ADVERTISING

• Can be useful but it is costly

– Should reach the right client
– Keep it simple but complete
– Don’t forget contact details
– Must attract attention
– Not too crammed and cluttered
– Place ad in print, online, social media
SPONSORSHIPS

• Can be useful to other “but not in construction”

– Sometimes it’s unavoidable (client may ask you)
– Give charity to the community where you are
successful
– Donate something tangible and visible
– Invite clients and the press during handover
ceremonies
PLANT AND EQUIPMENT

• Maintained in good condition

– Logo should be displayed prominently
– Drivers should obey traffic rules
– Use sticker for hired equipment
SIGNBOARDS

• Important form of advertising

– Seek permission before placing
– Look professional, placed securely and properly
– Clear and legible
– Keep it there for some times after completion
DIRECT CALLS AND MEETINGS
• Prearrange visits and meetings with prospective clients
– Do your homework
– Take business cards and brochures to the meeting
– Introduce yourself and your position
– Make notes
– Congratulate the client for any significant achievement
– Ask progress of existing projects
– Offer assistance with their feasibility studies
– Thank them and send follow up email
COMPANY NEWSLETTERS

• Useful form of marketing

– Page-long or longer
– Quarterly is better
– Should be proof read
– Distributed to staff and clients
– Emphasize on + changes and project features
– Printed on good quality paper
BUSINESS CARDS

• Useful form of marketing

– Uniform (logo, layout, colors)
– Replace if there are changes
– Should contain what you do
– Can be read even without using glasses
REFERRALS

• Excellent form of advertising

– Utilize your existing clients for referrals to other
prospective clients
– Hand them spare business cards or brochures
ENTERTAINMENT

• Often can be a waste of money

– Be selective with who is invited
– Review the guess list
– Send formal invitations
– Organize properly (sufficient food and drinks)
REGISTRATION WITH TRADE BODIES

• Optional but useful

– Relevant trade bodies
– Can be a guarantee for some clients
– Clients usually contact these trade bodies
– Trade bodies events can be a place to meet new
clients and competitors
FORMING JOINT VENTURES

• One way of taking on bigger projects

– Combined resources can tackle more works
– Combined expertise for proper execution
– Reduces competition when both clients submit tender
for a project
PARTNERING WITH LOCAL
CONTRACTORS AND COMMUNITIES

• Effective in regions with large indigenous population

– Either by joint venture or subcontracting
– Local contractors will assist with their knowledge of the
area
POLITICAL SUPPORT

• Understand who can actually help

– Don’t forget that politicians come and go
– The next official, most of the time, does not want
anything to do with friends and allies of their
predecessors
– Political friendships sometimes turn into corrupt
relationships and dealings
CORRUPTION

• Avoid areas where corruption and bribery are

common
– Official receiving the bribe has no say in the awarding
– Official getting the bribe maybe working with other
contractors
– One contractor may pay another contractor not to
tender or submit higher non-competitive tender
OTHER WAYS TO SOURCE PROJECTS
• Design and construct projects
• Multi-disciplinary projects
• Offering the client to finance a project
• Assisting with feasibility studies
• Tracking potential projects
• Mailing lists and data bases
• Having a Business Development Manager
• Trade Registrations
• Quality, environmental and safety accreditations
• Green building and sustainability
SAYING NO
• Learn to say NO firmly and politely
• Never be forced into a project that will harm your
reputation or cause it to lose money
SUMMARY
• Find suitable projects by
1. Researching
2. Subscribing to tender data bases
3. Marketing
4. Getting referrals
5. Visiting and meeting clients
6. Networking
7. Utilizing your employees marketing knowledge
SUMMARY
• Find suitable projects by
8. Talking to other professionals
9. Establishing database of potential projects and clients
[Link] relationship with good clients
11. Forming joint ventures with other contractors
12. Ensuring the company has good reputation
13. Understanding market conditions
SUMMARY
• Find suitable projects by
[Link] clients with their feasibility studies
15. Engaging political support
16. Having the appropriate registrations and accreditations
17. Being able to tender for design and construct projects
and those which are multidisciplinary in nature
18. Even offering to finance a project
 THANK YOU.

• Reference:

Building A Successful Construction Company – The Practical Guide

by Paul Netscher