Construction Methods and

Project Management
Construction Industry

Construction as a discipline is a combination of art and science. While

understanding the technical aspects of construction is extremely
important, it is also essential that construction professionals have
knowledge of the business and management aspects of the profession.
Close observation and participation in actual construction projects is
very valuable in obtaining an understanding of the construction process
as well.
Construction Industry
Construction Contractors
Construction contractors (or simply contractors) are companies and individuals engaged in
the business of construction. Construction contractors may be classified as general
contractors or specialty contractors.
General Contractors engage in a wide range of construction activities and execute most
major construction projects. When they enter into a contract with an owner to provide
complete construction services, they are called Prime Contractors.
Specialty contractors limit their activities to one or more construction specialties, such as
electrical work, plumbing, heating and ventilating, or earthmoving. Specialty contractors
are often employed by a prime contractor to accomplish some specific phase of a
construction project. Since the specialty contractors are operating under subcontracts
between themselves and the prime contractors, the specialty contractor are referred to as
subcontractors.
Construction Industry
Construction Industry Division
The major divisions of the construction industry consist of building
construction (vertical) and heavy construction (horizontal). Building
construction involves the construction of buildings. Heavy Construction
includes highways, airports, railroads, bridges, canals, harbors, dams
and other public works.
Construction Process
Project Development and Contract Procedures
The major steps in the construction contracting process include bid solicitation, bid
preparation, bid submission, contract award, and contract administration. However, before
the bidding process can take place, the owner must determine the requirements for the
project and have the necessary plans, specifications, and other documents prepared. These
activities make up the project development phase of construction. For major projects,
steps in the project development process include:
a. Recognizing the need for the project
b. Determining the technical and financial feasibility of the project
c. Preparing detailed plans, specifications, and cost estimates for the project
d. Obtaining approval from regulatory regulatory agencies. This involves ascertaining
compliance with zoning regulations, building codes, and environmental and other
regulations.
Construction Process
How Construction Is Accomplished
The principal methods by which facilities are constructed are:
a. Construction employing an owner construction force
Construction Process
b. Owner Management of Construction
Construction Process
c. Construction by General Contractor
Construction Process
d. Construction using a design/build (turnkey) contract
Construction Process
e. Construction utilizing a construction management contract
Codes and Regulations
Building Codes which are concerned primarily with public safety,
provide minimum design and construction standards for structural and
fire safety.
Zoning Regulations which control land use, limit the size, type, and
density of structures that may be erected at a particular location.
Environmental Regulations protect the public and environment by
controlling such factors as water usage, vehicular traffic, precipitation
runoff, waste disposal, and preservation of beaches and wetlands.
Safety Regulations are designed to protect both construction workers
and the public.
Reducing Construction Costs
Some ways in which productivity can be increased and costs minimized
during construction include:
a. Good work planning
b. Carefully selecting and training workers and managers
c. Efficiently scheduling labor, materials, and equipment
d. Properly organizing work
e. Using labor-saving techniques, such as prefabrication and
preassembly
f. Minimizing rework through timely quality control
g. Preventing accidents through good safety procedures
Construction Management
Poor construction management practices often result in one or more of
the following:
a. Project delays that increase labor and equipment cost and the cost of
borrowed funds
b. High material costs caused by poor purchasing procedures,
inefficient handling, and/or loss.
c. Increased subcontractor cost and poor contractor-subcontractor
relations.
d. High insurance costs resulting from materials and equipment loss or
damage or a poor safety record.
e. Low profit margin or a loss on construction volume.
Construction Management
Quality Management
Quality management and quality assurance have been adopted to
include all aspects of producing and accepting a construction project
which meets all required quality standards. Quality management
includes such activities as specification development, process control,
product acceptance, laboratory and technician certification, training,
and communication. Quality control which is a part of the quality
management process, is primarily concerned with the process control
function.
Construction Management
In recent years, there has been an increasing use of statistics-based methods for
quality assurance, particularly in asphalt and concrete pavement construction.
The following is a brief explanation of some of the concepts involved. Since the
results of virtually all construction processes are products which vary over some
statistical distribution, statistical methods can be used for such purposes as:
1. Ensuring that all elements of the work have an equal chance of being
included in test samples
2. Verifying that test samples taken by the contractor and by other parties
come from the same population
3. Analyzing the variations in the test results of mterial and processes sampled
4. Establishing acceptable levels of variation in sample result
5. Developing a payment schedule which reward or penalizes the contractor
depending on the level of quality attained in the constructed product.
Construction Management
Construction is inherently a dangerous process. Historically, the construction
industry has had one of the highest accident rates among all industries. While
specific hazards and safety precautions are presented in succeeding chapters,
the following construction operations have been found to account for the
majority of serious construction injuries:
1. Concrete construction, especially construction of formwork, placing
concrete into formwork, and failure of formwork during construction.
2. The erection of prefabricated trusses, precast concrete elements, and
structural steel.
3. The construction and operation of temporary facilities including scaffolding,
construction plants, lifts, and storage facilities.
4. Working from elevated positions resulting in falls
5. Construction equipment operations
Construction Management
Organization for Construction
Construction Management
Reasons for Construction Company Failure
Dun & Bradstreet and others have investigated the reasons for the high
rate of bankruptcy in the construction industry. Some of the major
factors they have identified include lack of capital, poor cost estimating,
inadequate cost accounting, and lack of general management ability.
All of these factors can be categorized as elements of poor
management. Such studies indicate that at least 90% of all construction
company failures can be attributed to inadequate management.
Contract Construction
Bidding and Contract Award
A bid is given to the owner by construction managers that are willing to
complete their construction project. A bid tells the owner how much
money they should expect to pay the construction management
company in order for them to complete the project.
1. Open Bid- An open bid is used for public projects. Any and all
contractors are allowed to submit their bid due to public advertising.
2. Closed Bid- A closed bid is used for private projects. A selection of
contractors are sent an invitation for bid so only they can submit a
bid for the specified project.
Bidding and Contract Award
Bid Preparation
Construction contracting is a highly competitive business. To prosper and grow, a
construction company must achieve a reputation for quality workmanship and timely
completion while achieving a reasonable return on its capital investment. Thus profit is an
obvious and principal motive for bidding on a construction contract.
A contractor who has decided to bid on a project must then prepare a detailed cost
estimate for the execution of the project. The first step in preparation of cost estimate is to
take off the quantities of material required by the plans and specifications. These
quantities are then extended (or multiplied by unit cost estimates) to provide a total
estimated material cost for the project. Similar estimates are made for labor, equipment,
and subcontract costs. The costs of equipment, labor, and material are often referred to as
direct costs. Next, estimates are made of the administrative and management expenses
that will be incurred at the project site. These costs are often referred to as indirect cost.
Bidding and Contract Award
Contract Award
1. Low-bid Selection: This selection focuses on the price of a project. Multiple construction management
companies submit a bid to the owner that is the lowest amount they are willing to do the job for.
Then the owner usually chooses the company with the lowest bid to complete the job for them.
2. Best-value selection: This selection focuses on both the price and qualifications of the contractors
submitting bids. This means that the owner chooses the contractor with the best price and the best
qualifications. The owner decides by using a request for proposal (RFP) which provides the owner
with the contractor’s exact form of scheduling and budgeting that the contractor expects to use for
the project.
3. Qualifications-based selection: This selection is used when the owner decides to choose the
contractor only on the basis of their qualifications. The owner then uses a request for qualifications
(RFQ), which provides the owner with the contractor’s experience, management plans, project
organization, and budget schedule performance. The owner may also ask for safety records and
individual credentials of their members.
Construction Contracts
Ways of Procuring Construction Contract
a. Thru competitive bidding
-Project owner advertises the project and invites interested and
qualified contractors to submit bid proposal for the construction of a
project. From the proposals, the lowest responsive bid is selected and
awarded the project contract.
b. Negotiated Contracts
-The owner directly engages and enters into a contract with a
contractor for the construction of the project.
Construction Contracts
Contract Types
1. Lump sum- the owner of the project pays to the contractor an agreed sum of
money for the completion of the project according to plans and specifications
Advantage:
a. simply practicable
b. a limit to the cost of the project is fixed
c. good for work that is very certain and pre-estimated
Disadvantage:
a. contractors tend to use cheap materials to gain more
b. creates problem when “extra work” is required
Construction Contracts
2. Unit-price- The owner pays the contractor an agreed amount of
money for each unit of work done.
Advantage:
a. good when actual quantities of work-in-place are uncertain
Disadvantage:
a. quality of work maybe sacrificed if no clear specifications as to how
the work must be performed
Construction Contracts
3. Cost-plus-a-percentage- the owner pays the contractor the actual cost of
construction work, with a specified percentage thereof as compensation for the
contractor’s overhead expenses, personal services and profit.
Advantages:
a. risk of construction is entirely removed from the contractor
b. owner pays only the cost of construction as actually incurred
Disadvantages:
a. every increase in cost increases the amount payable to the contractor,
contractors exploit this opportunity to gain more.
b. labor inefficiency, unsatisfactory performance on the part on the part of the
contractor since his profit does not depend upon his ability to work
Construction Contracts
4. Cost-plus-a-fee- the owner pays the contractor the actual cost of
construction work plus a fixed sum to pay for the contractor’s overhead
expenses, personal services and profit.
Advantages:
a. contractor can no longer profit from any increase in construction cost,
he will make efforts to finish the job soon
b. the risk of construction is entirely removed from the contractor
c. the owner pays only the cost of construction as actually incurred
Disadvantage:
a. labor inefficiency on the part of the contractor since his profit is
already fixed
Construction Contracts
Bidding / Contract Documents
1. Advertisement
-a written invitation to bidders to furnish materials or services of value
-includes information on what to furnish, site of the work, deadline for submission of bids, required bidder’s bond,
date of opening of bids, manner of addressing the bids, where to secure plans and specifications of the work, and
statement of owner’s right to reject any bid.
2. Instruction to Bidders
-to amplify anything which has been omitted in the advertisement because of the cost and space limitation
-includes description of work, how to prepare bid proposals, bid delivery and withdrawal, bidder’s bond, bidder’s
responsibility, interpretation of contract documents, requirement for signing bids, conditions for the award of
contract, effectivity of contract, instruction for the execution of performance bond, time of project completion,
interpretation of standard specification, and contract documents needed.
3. Bid Proposals
-the contract amount and services which the contractor offers to the owner for the construction of the project; bid
proposal form is usually furnished by the owner to ensure uniformity and easy comparison of bids.
Construction Contracts
4. General Conditions
-includes the intent of the contract, definition of terms, bond requirements, financial protection, reports and payments, contractual
relations, conduct of work for protection of properties and the general public, retainage matters, termination of contract and
arbitration matters, terms of completion and acceptance.
5. Agreement
-the contract in its written form, contains the scope of work, contract price, and components of the whole contract.
6. Performance bond
-A form of bond intended to protect the owner in the event that the contractor is unable to finish the work in accordance with the
plans and specifications.
-A bonding company (surety) guarantees the owner that the project will be completed by the contractor. In the event the contractor
is unable to finish the project, the surety uses the amount of the bond to engage the services of another contractor who will finish
the project. If and when the original contractor finishes the project, the performance bond he posted is cancelled.
7. General Specifications
-specifications of general character relating to the project
8. Detailed Specifications
-specifications relating to a particular item of work
9. Plans and Drawings
Construction Contracts
Contract Time

The time allowed (expressed as either days allowed or as a required completion date) for completion of a
construction project is normally specified in the contract along with the phrase “time is of the essence”. If no
completion date is specified, a “reasonable time”, as interpreted by the courts, is allowed. If the phrase “time is of the
essence” is included in a contract and the project is not completed within the specified time, the contractor is liable
for any damages (monetary loss) incurred by the owner as the result of late completion. In such a case, the courts will
hold the contractor responsible for the actual damages that the owner incurs. A liquidated damages clause in the
contract may be used to simplify the process of establishing the amount of damages resulting from the late
completion. Such a clause will specify the amount of damages to be paid by the contractor to the owner for each day
of late completion. If challenged in court, the owner must prove that the amount liquidated damages specified in the
contract reasonably represents the owner’s actual loss. If the liquidated damages are shown to be reasonable, the
courts will sustain enforcement.
Construction contracts normally contain provisions for time extensions to the contract due to circumstances beyond
control of the contractor, such as owner-directed changes, acts of God, and strikes.