What is Construction(Project) Management & Contracting

In The Beginning....

Mankind has constructed something for some reason before recorded history. It’s what we do and is usually out of need and often out of want. Early construction includes bridges, amphitheatres, dams, roads and canals. Before there were metal working tools, man used what he had available, which were wood, stone and earth (which includes clay and lime). Early Civilizations such as the Egyptians, Greeks and Romans constructed from stone and wood and began combining other materials such as volcanic ash with the mortar to produce a stronger building material, which was stronger than the adobe, or mud brick (clay and straw mixture). One of the most significant breakthroughs in the building industry is the implementation of concrete, which is constantly undergoing changes to improve its strength. As man and technology evolved, newer materials were used. Iron,  steel, aluminum, copper, bronze, glass and plastics, to name a few. Today, we improve upon the early structures by making them longer, larger and higher, all due to combining many materials so that these structures last the test of time.

The Great Egyptian Pyramids

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Roman Aqueduct, Nimes, France

















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The Modern SkyScraper
The City of San Diego Skyline

http://www.google.com/search?q=modern+skyscrapers&hl=en&qscrl=1&nord=1&rlz=1T4TSNJ_enUS471US471&prmd=imvnsfd&tbm=isch&tbo=u&source=univ&sa=X&ei=DNseUPeiO4yo8gSBioFQ&sqi=2&ved=0CFMQsAQ&biw=1366&bih=582


You Have A Building and you Want It Built...


You are the owner and you can be public or private. As a public owner you build for the federal, state, county, and municipal governments. Public projects are paid by raising bonds, taxes and other forms of financing. Private owners can be individuals, partnerships or corporations and obtain financing through banks and pooled money resources. As an owner you will hire an Architect/Engineer to design a project which will include drawings and specifications. After hiring the Architect/Engineer you will hire the prime contractor. The prime contractor is the party that brings all the aspects of the construction process together. Prime contractors primary responsibility is to coordinate the labor equipment and materials in a cost efficient and timely manner. The prime contractor will then will hire various sub-contractors that will each perform their specific building tasks. The sub-contractor reports directly to the prime contractor and not the owner.

Basically the owner will build will build in four different categories:

1.     Residential construction – Single family/Multi family 




New Urban Village - Midtowne Development  

                                                                                    














New Multi-Family Construction - Fossil Creek


2.     Building construction which includes educational light industrial, commercial, and governmental to name a few.

                                                                                   

Government High Rise Construction - Downtown Ft. Worth

                                                    














Excavation for Government High Rise - Downtown Ft. Worth




3.     Engineering construction which involves highway, bridges, dams and water/sewage treatment plants to name a few.

                   

    

New Bridge Construction - 820 Loop & I 35W




4.     Industrial construction which includes very large structures that accommodate steel mills, chemical plants and heavy manufacturing to name a few

Chemical Plant Construction

                                                     

As the owner you will select a prime contractor on the basis of competitive bidding. There are two types of competitive bidding in the United States, they are open and closed bidding. The open bid is opened and read in public; while the closed bid is not read in public. Normally the low bidder is the successful bidder. As the owner it is one of your primary functions to award the construction contracts. There are several types of construction contracts. One of the most widely used is the single prime contract. The general contractor will have a direct relationship with you as the owner. A second form of contract distribution is called separate prime contracts. This is where you as the owner have awarded contracts for each phase of the building construction. Additionally, you may choose to contract for a construction management firm. The construction management firms’ objective will be to achieve high quality at minimum cost and time.

No matter what the construction project it will always be in the best interest of the owner and the public to make sure that all Architects/Engineers and prime contractors meet the licensing requirements mandated by the state in which the constructions project is being built. In addition to the licensing requirements all design and build professionals should carry adequate bonding. And lastly, the owner design professional prime and sub-contractors must be aware of all local building codes. Now you have the basics to begin you construction project.

Now To The Specifics...

You as the owner have a general idea (plan) of what you want to have constructed. How do you proceed? You will need a set of drawings and specifications that are highly detailed. Providing that you are not an owner that already has Architects/Engineers services in house, you will need to hire a licensed Architect and a licensed Engineer. The scope of services provided by the Architect/Engineer may include construction-phase services, construction inspection, reviewing shop drawings and approval of draw (periodic) payments to the prime contractor. For these and many other services they will perform they will charge a fee for design services. Often these fees are fixed lump-sum but can be a percentage of the construction cost. Most importantly the Architect/Engineer will produce detailed accurate a complete set of drawings showing building structure, the arrangement, dimensions, construction details and materials necessary to complete the project. In addition to the drawings a written set of instructions are produced, which are called specifications. Whereas the drawings show what is to built the specifications show how it is to be built.

The specifications will use the MASTERFORMAT, as specified by the Construction Specifications Institutes (CSI). The Architect/Engineer will provide various sets of conditions and specifications for the project. One such set is called the General Conditions. The General Conditions regulate the obligations of the formal contract. They include definitions, contract documents, rights and responsibilities of the owner, sub-contractors, separate contracts and payment and completion to name a few. In addition a set of Supplementary Conditions are generated and cover more specifics of a given project. Such as project location, permissible times to work, time of project completion and liquidation damages to name a few. Also, Technical Specifications (verbal descriptions of the technical requirements to accomplish the work), Performance Specifications (describes the required performance that the finished product or system should produce), and Design Specifications (describes the kind and types of materials to be provided) are all provided as part of the “spec” manual. And finally, in regards to specifications, you as the owner will have to decide on Closed Specifications (only one proprietary product will be acceptable) or Open Specifications (where various manufactures are acceptable and like products are considered). Now you are equipped with a specific set of plans and instructions on how to construct you project.

Choosing the Prime Contractor or “The Art and Science of Cost Estimating and Bidding”…

Now you have your detailed plans and specifications and you reviewed them and made some preliminary estimates. The next step is to hire someone to build it, generally referred to as a General Contractor. Most importantly who you are building for will determine the nature of the bidding process. Building construction targets two sectors the public and private. There is a big difference between these sectors. For public project you start the process by advertising for bids; which is called “Notice to Bidders” or “Invitation to Bid”. The advertisement should include such information as the address of who is issuing the bid, an estimated cost of the project, project title, a short description of the work to be preformed, and if the bidding party will be charged for the documents. If the project is for private use you the owner may select a General Contractor however you choose.

Each General Contractor solicits bids from sub-contractors, often advertising for sub-contracting bids. General Contractor will compile these bids in to a bid packages for submitting to the owner. Some considerations regarding the bidding process for the General Contractor and/or the owner are: 1) Set asides (project may contain set asides for disadvantaged business enterprises [DVE’s]), 2) Bidding period (is there enough time allotted to produce and submit an accurate bid proposal), and 3) Qualifications (this is the owners responsibility to make sure each General Contractor meets certain qualifications).  

The General Contractor after examining the drawing and specifications must visit the job site and perform an on-site inspection. This inspection will yield information like availability of utilities, how to access the site, local ordinances and regulations, surface topography, drainage and local sub-contractors to name a few.

Now the fun begins, often the General Contractor will perform an overall project estimates. More importantly each sub-contractor is responsible for submitting their own estimates.  Often these estimates are referred to as a quantity survey or takeoff. “The quantity survey is the only accurate and dependable procedure for compiling a detail estimate” (Clough, Sears, & Sears, 2005 pg. 89). These detailed estimates will give the General Contractor the information they need to schedule construction time, crew sizes, and what equipment will be needed. The General Contractor will compile all the sub-contractors estimates into a summary sheet. The General Contractors main estimating goals are to divide the cost into specific categories. These categories are material cost, direct labor cost (calculated from basic wage rates), indirect labor cost (expenses that are additional to the wage rates), and equipment cost (own or rented). In addition to these cost the General Contractor will add an allowance, which will cover any small additional cost usually pertaining to materials. The General Contractor will then add to the estimate his project overhead; which are cost that do not pertain directly to the construction work. In addition to he will add his markup; which is his profit margin, usually from five to more than twenty percent.  He will include in his bid package a project time schedule, a list of sub-contractors, and a bid bond; is usually in the amount of 5 or 10 percent of the maximum bid price. Lastly, the owner and contractor should be aware of any bid rigging or bid shopping. Bid rigging is a criminal offense and you as the owner can seek damages as dictated by law. As the owner you have the right to reject any and all proposals.  

Protecting You The Owner Part 1...The Construction Contract(s)

The Construction Contract can be divided into two separate groups. The first group is where you the owner select the prime contractor using a competitive bidding process. This process is generally used for public construction and is called a lump-sum contract; which is a contract that is a fixed fee that covers all aspects of construction. Another type of contract that is used in public construction is the unit-price contract. This is a contract that is based on estimated quantities of specific items pertaining to construction work.

The second type of construction contract is generally used for private construction. This is where you the owner can negotiate the contract and these are sub-divided by generally a cost plus a fee, a cost plus percentage of cost, a cost plus fixed fee, a guaranteed maximum cost or any other type of incentive contract. These types  of contracts are used for private construction because they are based on estimates that are derived from incomplete drawing and specifications and an incomplete scope of the project as a whole.

Once the contractor has been chosen and the contract type decided on, the owner will issue “a letter of intent” which give the contractor a “go-ahead” to begin preliminary work, such as placing material orders and issuing sub-contracts. The agreed upon and signed contract then becomes part of the Contract Documents. The Contract Documents will include items such as Invitation to Bid, Instruction to Bidders, General and Supplementary Conditions, the Agreement and various required Bonds. As part of the contract, you the owner, will be required to make progress payments to the General Contractor (sometimes referred to as draw payments). In addition, the agreement will carry such clauses referring to retainage (which is usually an amount of 10% that is withheld until the end of the project), an acceptance in final payment, warranty period, liquidated damages, contract times/extension of times/delays, and changes made to the scope of work, change orders, value engineering, and the rights and responsibilities of the owner, the Architect/Engineer, and the General Contractor.

In addition to these clauses you as the owner, have the right to accelerate the performance to complete the project. The acceleration may be due to lost time on the job or the need to complete the project before the required contract date. One final important part of the contract: always include a clause regarding termination rights.

Protecting You The Owner Part 2...Bonds and Insurance…

The Bonding Part…

The construction contact has been accepted and signed by you the owner and the General Contractor. Beyond the standard construction contract you will need additional assurances that the work will be performed as drawn, specified, on time, and will meet high quality standards. One of the ways that you can be protected is through the use of a contract surety bond. A surety bond is not an insurance policy but rather is serves as an endorsement of the General Contractors financial status (capital, his character, and his capacity and ability to undergo the construction project.  These bonding agencies are known as the surety. What the surety bond is is a guarantee that all of the work will be performed as detailed in the construction contract. A construction project will usually have more than one type of bond. Two of the most widely used bonds are 1) performance bond, (guarantees that the contract will be performed and the structure will be built in accordance with the terms of the contract), 2) payment bond, (guarantees payment for labor and materials to complete construction). There is a host of other bonds available which will depend on what type of construction and the size of the project. Generally a good indication of a highly sought after a General Contractor is his bonding capacity, or bonding line. The higher the bonding capacity the more sought after he is.

The Insurance Part…

For you the owner, it all comes down to the proper practice of risk management. For proper risk management the contract will require the General Contractor to carry several types of insurance policies. Some of the major forms of insurance are: 1) property insurance on project during construction, 2) property insurance on contractors own property), 3) liability insurance, 4) employee insurance, and 5) business accident and life insurance. Certain kinds of these insurances are required by law and the contractor must provide them. Examples of these required policies are workers compensation, and unemployment. Of course, not all of these types of insurance will be used on any project. It will be up to the size, the type, and the value of the project.

The “Glue” That Holds It All Together…Project Management

A construction project can be compared to a large complex puzzle. Every piece or tasks fits in the puzzle at a designated time and place. It is the tasks of the project manager to make sure all the pieces of the puzzle fit properly, in a timely manner and agreed upon budget. The project manager organizes, plans, schedules and controls the field work to complete the project. In addition some of his duties are project budgets, payment request, and progress schedule. To be an effective project manager you must have expertise in planning, scheduling, and cost control. He has broad authority over all aspects of a construction project. As the owner and depending on the size of the project you may chose to employ a project management firm. Depending on the size of the project the General Contractor may chose to employ a project superintendent, a job engineer, a project administrator, a quality control manager, a materials manager, and various office employees. One of the secrets of good project management is timely and regular job site meetings. These meetings will cover items such as job progress and identifying trouble spots on the project. An important aspect of project management is the overseeing of shop drawings. Shop drawings are detailed drawings supplied by the materials fabricators and is usually submitted to the General Contractor. Additionally project management requires accurate job records, timely disbursements of payments, keeping a daily job log, timely sub-contractors scheduling, keeping an accurate set of records drawings (also known as-builts), and any filing of insurance claims regarding the construction site.

One of the most important aspects in good quality project management is the ability to manage time. Most construction projects are highly complex and time schedules and mirrors that complexity. Each task has its own set time of completion and often these tasks are required to overlap in time.

One of the most highly used time management systems is what’s known as The Critical Path Method (CPM). Through the use of diagrams and charts the Critical Path Method will identify the tasks to be completed and what order the tasks will be completed in. Through the use of a tracking computer program (such as Excel) a flow chart is comprised of different modules that depict each activity, the amount of working days, and start times. It is through this diagrammatic process that the construction project will flow and meet the contract deadline. For the owner CPM means timesaving or often referred to as fast tracking.

Time is money. Quality project management not only calls for time control but cost control. Cost control begins with detailed estimates of prices and overseeing that these cost estimates are in line with the original contract. The General Contractor is responsible for producing monthly cost reports; which will reflect materials, labor, equipment, sub-contracts, and the total project. Any costs overruns and changes to the contract work must be reported to the owner immediately.

And Last But Not Least…The Laws That Apply And Safety Related Matters To The Project…

Building construction is a complicated process. For your added protection as the owner it is best to hire a lawyer that deals in labor law and is also familiar with the (ends and outs) of the construction industry. Labor law varies from state-to-state so guidance and labor law is paramount. Industrial labor relations have a long history in the United States dating back to 1890 with the Sherman Anti-Trust Act from there labor unions were formed out of necessity to deal with the treatment and the rights of workers. As early as 1914 congress has passed different acts regarding labor unions and many times the US Supreme court has intervened for clarification. Out of these acts was born the Nationals Labor Relation Board (NLRB). The NLRB has two primary functions these consist of overseeing the collective bargaining process is up-held and to prevent unfair labor practices. Unions vary from state-to-state. Some state recognized the closed shop concept, which requires all workers to join that union. Other states recognize the concept of a “Union Shop”, in the case of a “Union Shop” a new employee has a choice wither to join the union or not. One of the most important acts to be enacted is the “Davis Bacon Act” of 1931. Which states all workers on a federal construction project must be paid a determined wage rate which includes fringe benefits and overtime pay in excess of forty hours worked per week.

Everyone that works on the project construction job site is responsible for job safety. One of the most comprehensive pieces of safety legislation occurred in 1970, this was the Occupational Safety and Health Act (OSHA). OSHA administers a set of regulations for the construction industry that are found in what is known as the Federal Register. At anytime an OSHA inspector can visit a construction site. It is during these inspections that an OSHA inspector will look for and safety and health violations and if need be, site the General Contractor for any violation. The General Contractor as a rule will hold timely safety meetings on site. Depending on the size of the construction project the General Contractor may employ a safety officer to overlook the jobsite for any safety and/or health infractions. By law the General Contractor must carry workers compensation insurance and his premiums are dictated by the Experience Modification Rating (EMR). The EMR is calculated from the contractor’s record of worker injuries. The lower the EMR value the better the contractor’s safety record. What this equates to is a monetary savings for good safety practices on the overall construction project.

Some Final Thoughts…

Today’s construction project is more complicated than ever before. So goes technology goes the construction industry. Construction projects are complicated by the use of new materials and the ability to build higher than ever before. We are in a new era of construction that is responding to new construction methods such as “Green Building” and “Sustainability Concepts”. Construction project management is now required to encompass all of the professions that make up a sustainable construction project. In the past each profession complete their task and passed off to the next profession to complete theirs. With sustainable project management all construction professionals are now required to continually meet to achieve their final goals. In sustainability this type of project management is referred as a “meeting of the minds’. A successful example of a high-rise that uses sustainable methods is One Bryant Place in New York City.

The information presented here gives a basic outline for what is required for the owner to build his/her construction project. It is far more complicated than what has been presented here. As the owner you will need to choose your professionals wisely. It is your project and ultimately it will be your responsibility to make sure it is built to the best of every one’s ability.