CE 463

Lecture 1

N C STATE UNIVERSITY
Department of Civil, Construction, and Environmental
Engineering

Today’s Plan
• About You:
– 1) Your name
– 2) Any experience in Construction?
• Construction Type?
• How Long Have You Worked?
• RS Means Decision?
– 3) One (1) Question You Always Wanted to Ask About
Construction and/or Construction in the USA?
– 4) One (1) Interesting Thing About YOU
• About Me
• Syllabus Review
• Introduction to CE 463

1
 Today’s Objective
• Review
– Types of Construction
– Industry Classification
• Review The Construction Industry
– vs. Economy in the USA
– vs. Other Types of Construction
• The Challenge of Construction
– Estimating, Scheduling, Control

Construction Projects (A)

BY OWNER
• Public > Dam, Highway
• Private > Restaurant, Apartments
BY PURPOSE / USE
• Commercial > Shopping Center
• Residential > Apartments
• Industrial > Factory
• Infrastructure > Dam, Highway,Tunnels, Bridge
BY SIZE
• Heavy > Highway, Marine
• Light > Commercial
BY MATERIAL
• Concrete > Buildings, Bridge
• Steel > Buildings, Bridges

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Construction Projects (B)
• Residential
• Commercial
• Heavy Civil
• Industrial/Institutional
• Environmental

Residential

3
Commercial

Residential

4
Residential

Residential

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 Construction Projects (B)
TYPE OWNER DURATION DESIGNER BUILDER NOTES
Contractor Low Tech.
Residential Private Short Architect (Local) Small Invest.
High Supply
Private Architect General Contractor Mod. Tech
Commercial Public Medium Engineer (Regional) Mod. Invest
Contractor High Supply
Heavy Large Contractors Mod. Tech
Infrastructure Public Long Engineers (Regional, Global) High Invest.
Mod. Supply
Engineer Large High Tech
Medium,
Industrial Private Contractor Contractor High Invest
Long
(Specialty) Low Supply
Environmental Medium, Large Contractor Mod. Tech
Infrastructure Public Long Engineer (Regional, Global) High Invest.
Mod. Supply

Goal 1: Competence & Capacity

Goals and Objectives Long Term

Long Term

Operating Short Term Financing

Long Term Investing Long Term

Managing Assets……..People!

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Goal 2: Consistent Profitability

Managing Risk to Create Value!

Goal 3: Sustainable Growth

Employee Entreprenur

Owner Investor

Managing Value and Opportunity!

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 The Future of Construction:
2015-2035
“The confluence of
– computer modeling,
– mobile devices, and
– new building materials
has put us at the beginning of a new era for
construction.”
Darren Conlee
Construction Executive
M.A. Mortenson Company.

The Future of Construction:

2015-2035
A new era indeed!

Construction has entered into its next iteration and

the successful contractor of the present and the
future will learn to embrace change, and prepare for
its future by gaining the skills, tools, technologies,
mindset and culture required to fully engage and
profit in this paradigm shift.

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 Change

Successful Contractors
• There is much to learn and much to be done to catapult to
contractor of today to success. To be successful you’re going
to have to address your capabilities and skills in at least the
following areas:
– Computer Modeling & BIM
– Mobile Devices
– New Building Materials
– Modularization
– Robotics & Automation in Construction
– 3D Printing
– Labor Productivity & the Human/Machine Interface
– Wearable Technology
– Superintendents & Technology
– The Future of Estimating, Planning and Managing the Project
– Workforce Recruitment
– Supply Chain Relationships
– Greater Transparency
– The Rethinking of How You Imagine How You Add Value and
What Your Firm Actually Does.

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USA Construction Spending
Nov
$1.45T

May

2017 2018 2019 2020

USA Construction Spending

10
 Construction Growth: Where Are We?

0%

ENR “Construction” Cost Index

CONSTRUCTION COST INDEX
YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVG. Increase
2021 11627 11698 11749 11849 11989 12112 12237 12463 11966 4.4%
2020 11392 11396 11397 11412 11418 11436 11439 11455 11499 11539 11579 11626 11466 1.6%
2019 11206 11213 11228 11228 11230 11268 11293 11311 11311 11326 11381 11381 11281 2.0%
2018 10878 10889 10959 10971 11013 11069 11116 11124 11170 11183 11184 11186 11062 3.0%
2017 10542 10559 10667 10678 10692 10703 10789 10826 10823 10817 10870 10873 10737 3.9%
2016 10132 10181 10242 10279 10315 10337 10379 10385 10403 10434 10442 10530 10338 3.0%
2015 9972 9962 9972 9992 9975 10039 10037 10039 10065 10128 10092 10152 10035 2.3%
2014 9664 9681 9702 9750 9796 9800 9835 9846 9870 9886 9912 9936 9807 2.7%
2013 9437 9453 9456 9484 9516 9542 9552 9545 9552 9689 9666 9668 9547 2.6%
2012 9176 9198 9268 9273 9290 9291 9324 9351 9341 9376 9398 9412 9308 2.6%
2011 8938 8998 9011 9027 9035 9053 9080 9088 9116 9147 9173 9172 9070 3.1%
2010 8660 8672 8671 8677 8761 8805 8844 8837 8836 8921 8951 8952 8799

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 ENR “Building” Cost Index
BUILDING COST INDEX
YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVG. Increase
2021 6459 6493 6545 6612 6754 6876 7006 7201 6743 7.4%
2020 6214 6217 6218 6234 6239 6247 6258 6268 6300 6344 6392 6445 6281 2.4%
2019 6107 6108 6110 6110 6112 6118 6131 6147 6147 6169 6179 6199 6136 2.0%
2018 5921 5932 5942 5954 5995 6005 6043 6060 6081 6093 6093 6105 6019 3.2%
2017 5734 5742 5789 5802 5816 5826 5844 5862 5873 5867 5902 5914 5831 3.3%
2016 5561 5588 5605 5632 5637 5636 5659 5669 5657 5681 5690 5722 5645 2.3%
2015 5497 5488 5487 5501 5490 5507 5510 5514 5541 5543 5563 5574 5518 2.4%
2014 5324 5321 5336 5357 5370 5375 5383 5390 5409 5442 5468 5480 5387 2.1%
2013 5226 5246 5249 5257 5272 5286 5281 5277 5285 5308 5317 5326 5278 2.0%
2012 5120 5122 5144 5150 5167 5170 5184 5204 5195 5204 5213 5210 5174 2.3%
2011 4969 5007 5010 5028 5035 5059 5074 5091 5098 5104 5113 5115 5058 3.6%
2010 4800 4812 4811 4817 4858 4888 4910 4905 4910 4947 4968 4970 4883

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13
Construction Concerns and Renewed Strategy
While there are very favorable signs of continued growth in
the construction industry, there are still fears in the
marketplace that have caused some to proceed with
caution. The risk factors that have caused some level of
trepidation in the construction market are as follows:
• Political and regulatory uncertainty
• National economic uncertainty
• Succession of the old guard to the new guard
• Rising material costs?
• Rising interest rates?
• Immigration employment protocol
• Overall shortage of construction workers

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 Labor Shortage
• One of the single biggest issues that the national construction industry
continues to face is the extremely tight supply of skilled workers and the
perceived negative notion that younger members of the workforce have
when entering the construction industry. With the baby boomer generation
set to retire within the next five to ten years and with the intense federal
pressure to limit and reduce the immigrant labor force for Mexico and
Central America, the local and national construction industry is faced with a
monumental task of finding workers. With unemployment at historic lows,
skilled laborers are picked up very quickly by construction firms in order to
staff projects immediately, leaving a less skilled labor pool for other
companies to use.
• Industry lobbying groups and special interest groups continue to address
these issues at the state and federal level in an effort to develop funding for
trade education and apprenticeship programs, as well as ways to create a
softening approach to immigration protocol, which should help to some
extent. However, headway needs to be made quickly and training is critical
to develop a skilled work force to complete the backlog of construction
projects both now and in the future.

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USA Unemployment

USA Labor Cost

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 Materials

Optimism!: Construction $’s in Place

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 Challenges: “Productivity”
•$1.63 trillion could be saved annually from
infrastructure productivity changes. [McKinsey Global
Institute]
•50% or more impact on productivity as a result of
issues with construction logistics. [MCAA]
•10% impact on productivity as a result of late crew
build-up. [Whirlwind Steel]
•50% variation in productivity of two groups of
workers doing identical jobs on the same site and at
the same time. This gap in productivity was found to
vary by 500% at different sites. [Sourceable]

Challenges: “Scope of Work”

•Average of 35% of all construction projects will have a
major change. [Project Analysis Group]

•Up to 30% of initial data created during design and

construction phases is lost by project closeout.
[Emerson]

•82% of owners feel they need more collaboration with

their contractors. [KPMG]

•78% of engineering and construction companies

believe that project risks are increasing. [KPMG]

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 Challenges: “Rework”
• Up to 70% of total rework experienced in construction
and engineering products are a result of design-induced
rework. [Quality]
• Roughly 4-6% of total project cost is the median cost of
rework—but only taking into consideration direct cost or
reported rework. [Navigant Construction Forum]
• 9% of total project cost is closer to the actual total cost
of rework—considering both direct and indirect factors
combined. [Navigant Construction Forum]
• As much as $4.2 billion a year in the U.S. is cost of
rework caused by poor document control. [Seattle
Government]

Challenges: “Technology Implementation”

• The construction industry is one of the least digitized
industries. [McKinsey Global Institute]
• Nearly 60% of construction companies are not
investigating in any new technologies. [JB Knowledge]
• Within 10 years, full scale digitization could lead to
savings between $0.7-1.2 trillion (13- 21%) in the Design
& Engineering and Construction phases and $0.3-0.5
trillion (10-17%) in the Operations phase. [World
Economic Forum]
• 40% of construction firms say new technology has not
been implemented due to lack of support, followed
closely by budget concerns at 37% and employee
hesitance at 32%. [JB Knowledge]

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 Construction Projects
BY OWNER
• Public > Dams, Highways
• Private > Restaurant, Apartments
BY PURPOSE / USE
• Commercial > Shopping Centers, Office Buildings
• Residential > Homes, Apartments
• Industrial > Factories, Processing Plants
• Infrastructure > Dam, Highway,Tunnels, Harbor, Bridge
BY SIZE
• Heavy > Highway, Marine, Bridges
• Light > Commercial
BY MATERIAL
• Concrete > Buildings, Bridge
• Steel > Buildings, Bridges

© North Carolina State University Nuñez and Leming 39

Construction Industry Characteristics

• Is Large
• Is Cyclical
• Is Risky
• Has Overlapping Boundaries
• Is Fragmented
• Is Service Oriented
• Is Technologically Conservative

© North Carolina State University 40

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 Sample 5 Year Survival Rates

2005
Census Bureau’s Business Dynamics

Why Construction Companies Fail 1

Cash Flow Problems
– Waiting to get Paid
– Paying as you go
• Overhead
• Labor
• Materials
• Equipment
– Low Bidding

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Why Construction Companies Fail 2
Fast Expansion
– Bid on every job
– Increase demands for cash
– Reduces quality
– Increase mistakes

Why Construction Companies Fail 3

Low Profit Margins
– Stresses cash flow
– Limits opportunity to recover from
mistakes
– Uses resources inneffectively

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 Risk Management Tools?
• Planning
• Company/Organization Type
• Contract Type
• Project Delivery Method Type
• Insurance
• Bonding
• Subcontracting

Starting a Business
External
O&T
idea,
Business (need)
Gaps

Internal
S&W

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 Objectives

• Outcome (Result) Oriented

• Observable
• Measurable
• Time Driven

SWOT’s
• Internal to Business
– Strengths
– Weaknesses
• External to Business
– Opportunities
– Threats

Each is one discussed (i.e., is either a S or a W)

New business: consider project’s and promoter's

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 Business Activities
• Set Vision, Mission, Goals, Objectives
– Our Desired Future State
– What we Do, Where we Do it, Whom we Serve
– How we Get There Tools?
• Obtain Financing ”As the right
– Obtain Funds questions”
Measurements?
• Decide Investments ”Manage with
– Acquire Resources numbers”
• Manage Operations
– Delivering Goods & Services

Managing a Business
Goals and Objectives Long Term
Long Term

Operating Short Term Financing

Long Term Investing Long Term

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 Planning Levels

• Strategic
– Broad Objectives and Goals
– Longer Planning Horizon (2-4 years)

• Business
– Specific Objectives and Goals
– Shorter Planning Horizon (1-2 years)

Business Organizations

1. SOLE PROPRIETORSHIP*
2. GENERAL PARTNERSHIP*
3. LIMITED PARTNERSHIP*
4. LIMITED LIABILITY COMPANY
5. CORPORATION

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 Relevance
Construction Professionals Should Know
– How individuals can associate to
accomplish an objective
– The basic legal structure of an organization
affecting Employees and Employers
– Details concerning corporate organizations
interacting in a project
– Degree to which
owners/employees/shareholders are at risk
in an organization

Relevance
• Company Structure
• Affects:
– How firm is taxed
– How liability is distributed within the firm
– The laws governing the firm (i.e., state, fed.)
– The ability of firm to raise funds
• Most Advantageous Company Structure:
– Risk Tolerance?
– Resources?
– Type of Work?
– Sought Employee-Employer Relationships?

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 Sole Proprietorship
Not considered to be a legal entity under
the law, but rather is an extension of the
individual who owns it.
Owner has possession of the business
assets, is responsible for the debts and
other business liabilities.
Income or loss is combined with any other
earnings of an individual for income tax
purposes.

Sole Proprietorship
One individual:
• Owns, Operates, Maintains Control
Taxation:
• All revenues, expenses, profits (loss) belong
to the individual
• Proprietor is taxed as individual; no separate
taxation for firm
Funding ability:
• Depends on personal assets

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 Sole Proprietorship
Bankruptcy:
• Company = Personal
Life:
• Death of proprietor is typically = dead of
business (except for “will”: “executor” can
take over until person to whom business is
sold/given by “will” is able to take over)
Recordkeeping:
• None, except for that required for taxation
Regulations:
• Required licenses
• Fictitious names

Example: RN Construction (RNC)

Owned by RN

RNC Revenues $ 187,000

RNC Cost (& Exp.) $ 100,000
RNC Income $ 87,000

RN Tax Declaration $ 87,000

RN Tax Deductions $ 17,000
RN Taxable Income $ 70,000

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 General Partnerships
Aggregate of two or more individuals own and
control (has own assets and conduct
business, but not generally treated as legal
entity separated from the individuals)
Agreement:
• Written Agreement
• Verbal?= Verbal + Uniform Partnership Act
Fiduciary Responsibility of Partners:
• Disclose all acts and any COI affecting the
Partnership
• Spell Partner duties/authority
Authority:
• Every Partner is an agent, can bind the
partnership, unless partner does not have
authority

General Partnerships
In other words, not binding acts by the partner if:
• Partners do not have authority to act, AND
• Third party has knowledge that Partner has NO authority
How about “apparent authority”
Liability:
• Spread among partners (typically % ownership as written) but
• May not be evenly spread (unlimited personal liability)
Life:
• Death of partner can = dead of business (not often due to
typical buy/sell agreements)
Taxes:
• Personal level= Share of profits + any salary

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 Example: C-J-B Construction
% Ownership (General Partnership)
Charles 40 %
Janice 30 %
Bob 30 %

Personal Assets (fortune)

Charles $ 1,400,000
Janice $ 800,000
Bob $ 100,000

Example: C-J-B Construction

C-J-B must pay $1,000,000 in losses

Share of loss would be:

Charles 40 % $400,000
Janice 30 % $300,000
Bob 30 % $300,000

But, Bob cannot pay more than $100,000 !

Partner with Liability or Debt Payment > than his/her

share, typically gets:
• Contribution by other partners
• Indemnification by Partnership

……Limited Partnerships

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 Limited Partnerships
• At least one (1) General Partner
• At least one (1) Limited Partner

General Partner(s)
• Retain control of partnership
• Has unlimited liability

Limited Partner(s)
• “Tangible” contribution (i.e. cash, equipment)
• No voice in management
• Liability limited to investment

Liability:
• Spread among partners (% ownership)
• But if not enough assets? => General Partner(s)

Profit Corporations
Use:
Medium, large, small business
Corporation = “Legal Person”:
Take, hold, convey property, sue, be sued in
its corporate name, be “taxed”
Management:
Centralized in Board of Directors
Transferabily of Interest:
Free

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 Profit Corporations
Duration:
Perpetual

Funding:
From owners (shareholders)

Liability:
limited liability of the owners (shareholders) is for debts
(obligation to pay) for corporate shares purchased

Taxation: “Double”
• Corporate: Taxes on Taxable Income
• Individual: Taxes on any Dividends

Example: ABC Corporation

ABC Revenues $ 187,000
ABC Cost (& Exp.) $ 87,000
ABC B.T. Income $ 100,000

Assume ABC Tax rate @ 34% $34,000

ABC A.T. Income $66,000

ABC Dividend Decision $ 30,000

ABC Retained Earnings $ 36,000

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 Example: ABC Corporation
ABC Shareholders @ 25% Personal Tax Rate:

Owns Dividend Tax

Camile 40 % $12,000 $3,000
Joe 30 % $ 9,000 $2,250
Barb 30 % $ 9,000 $2,250
100% $ 30,000 $7,500

Total Taxes “ABC”

Corporate = $34,000
Personal = $ 7,500

Limited Liability Company

Allthough the LLC is not a corporation, it
provides many of the same benefits as a
corporation. This is an option that is often
attractive to small businesses because it
provides the limited liability benefits of a
corporation with the "pass-through"
taxation of a sole proprietorship or
partnership.

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 S Corporation
– Allows for limited liability of the
owners/officers/directors.
– Typically runs on a calendar year.
– Full disclosure of corporate owners.
– Profits pass through to the individual
– It may only have one class of stock.
– State taxes will apply for individuals who are located
in a state with an individual state tax.
– It must be a domestic corporation formed in the USA
It may have no more than 35 shareholders (75).
– It may only have individuals, estates or certain trusts
as shareholders.
– It may not have nonresident alien shareholders

Organizational Forms

Generic Characteristics**:
• “SP” and “GP”, owners have unlimited personal liability for
all debts and liabilities of the business.
• “LP”, at least one member must be a general partner and
assume unlimited liability for all debts and liabilities of the
business.
• “LLC” , treated as corporation in terms of liability (provide
limited liability for all "owners“). Treated as partnership in
terms of taxes. Also “S”-Corporations.
• “C”, treated as corporation in terms of both liability and
taxes (provide limited liability for all "owners).

** Can vary from state to state.

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 Two Basic Project
Risk Management Tools

Project Delivery Methods

Contract Types

(among Others)

Contract Types

• Contract Type:
– Method to Define and Agree how the
finished project will be paid under Contract

• Typically, the type of project, and

available financing, drives the selection
of the type of contract.

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 Contract Types

• Single Fixed Price (Lump Sum)

• Unit Price (Remeasurement)
• Cost Reimbursement
• GMP
• Incentive, (A+B)

Delivery Methods
• Delivery method:
– Organize the project team and
– Manage the designing and construction
process
• Typically, the owner selects a delivery
method depending on his/her desire
and resources to get involved in the
project, and the type and urgency of the
project.

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 Project Delivery Methods
• Owner Management
• Traditional or Design-Bid-Build
(DBB)
–Single Prime vs. Multi Prime
• Turn Key, or Design-Build (DB)
• Construction Management (CM) or
Project Management (PM)

Owner Managed (I)

Owner

Construction
Staff

Project
Director

Construction
Force

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 Owner Managed (II)

Owner

Construction
Staff

Project
Director

Hired Labor Contractor

Traditional: Single Prime (DBB)

Design $ Construction $ and

Owner Contract Docs

Contract Docs Completed Project

Architect/ General
Engineers Informal, non- Contractor
contractual
relationship

Subcontractors Subcontractors
Suppliers Suppliers

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 Traditional: Multi-Prime (DBB)
Construction $ and
Design $ Contract Docs
Owner

Contract Docs Completed Project

Architect/
GC Elect. HVAC Plumb
Engineers Informal
non-contractual
relationship

Subs and Subs and

Suppliers Suppliers

Turn-Key or Design-Build (DB)

Owner

Design-Build
Firm
Design Construction
Force (A/E) Force (GC)

Subs and Subs and

Suppliers Suppliers

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CM (or PM) Approach (a)
Owner

CM (or PM)

Design Firm Construction

(A/E) Firm(s)

Subs and Subs and

Suppliers Suppliers

CM “At Risk”: Stage 1

Owner

Design Firm
(A/E)

Subs and
Suppliers

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 CM “At Risk”: Stage 2

Owner

“CM” (Contractor)

Design Firm
(A/E)

Subs and
Suppliers

CM “At Risk”: Stage 3

Owner

“CM” Contractor
becomes a
Design Firm Contractor @ Risk , or
(A/E) “CM @ Risk”

Subs and Subs and

Suppliers Suppliers

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Thank You!

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