Lecture 1

- To be successful a construction company must:

o Estimate the cost of construction projects accurately
o Predict the schedule of the work
o Control the progress and expenditures during construction
o Complete projects safely and on time

- Responsibility to construct the project:

o In accordance with the plans and specifications
o To satisfy the customer’s cost, quality, and time expectations

- Owner functions:
o Defining the scope of the project
o Planning the project
o Financing the project
o Ensuring the project team understands the project’s goals

Construction Management Functions

- Company level
o Selecting the right jobs to bid
o Preparing the cost estimate
o Submitting the bid
o Procuring the payment and performance bonds
o Scheduling the work
o Securing project operating capital

- Construction site level

o Setting the standards for quality and safety
o Planning the sequence of construction
o Controlling progress and expenditures
o Communicating effectively with owner and designer
o Coordinating the work of the subcontractors
o Managing submittals, change orders and periodic pay estimates
o Closing out the project
- Planning phase
o Select the designer
o Define the project goals
o Ensure the availability of sufficient funds to complete the project
o Select and purchase the project site,
o Determine construction procurement system and the form of construction
contract to be used.

- Design phase
o Primary requirement for any facility is that it must be safe!!
o Building codes
o Owner and A/E schedule design reviews • schematic drawings
o preliminary drawings
o Working drawings

- Bid phase
o First step is to decide whether or not to bid the job. Contractors are
generally limited in their ability to bid by two factors:
§ Their bonding capacity
§ Policies of management: factors contractors consider in deciding
whether or not to bid a particular project include:
• Location of the work
• Identity of the owner
• Availability of the owner
• Availability of key company personnel
• Experience in the type of work solicited
• Whether or not there is financing for the project
• Size of the project

- Bid preparation
o Bid preparation is expensive. In preparing a bid, contractors must consider
the cost of:
§ Equipment
§ Labor
§ Materials
§ Subcontractors

o Consider the costs of:

§ Job and company overhead, contingency, and profit
§ Should also consider the number of competitor bidders and the
bidding history of those competitors on similar projects
- Award phase
o Owner provides the builder`s risk insurance

- Successful bidder must provide:

o Payment and performance bonds
o Workers compensation insurance
o Liability insurance
o List of subcontractors
o Detailed project schedule

- Notice to proceed
o Contractor cannot begin the work until the notice to proceed is received.
o Use the time between the bid opening and the award to prepare a detailed
pre-project planning

- Pre-project planning: Planning how the work will proceed and in what sequence
o Construction procedures
o Type of equipment to be used
o Job access
o Location of the field office and storage areas
o Final selection of subcontractors and suppliers
o Cash flow analysis should be completed to determine if the company
needs to borrow money
o Detailed project schedule is prepared
o Work breakdown structure (WBS) and pay schedule are planned

- Construction phase: Size of the contractor’s on-site project management

organization is a function of the size and complexity of the project

- Contracts are broken down into activities for purposes of scheduling, estimating,
progress control, and cost control. Large projects can have several hundred
activities. It’s important to know which activities are critical.
- Critical activities are those that could impact the cost of the work by at least one
half of one percent of the bid price. For example, on a $1,000,000 project, any
activity with a potential for cost over-run or under-run of $5,000 or more is by
definition a critical activity.

- Pareto’s 80-20 rule: 20% of the activities are critical and should be managed
carefully. The other 80% will average out.

- Cost control –> possible corrective actions could include

o Adding additional trade workers or crews
o Adding or removing equipment
o Working overtime
o Bringing in additional subcontractors
o Making the job more efficient
o Eliminating factors that cause subcontractors to interfere with each other
- Profit / loss to date: Project manager must calculate profit (loss) to date on a
regular, weekly basis
o Cost to date
o Re-estimate cost to complete
o Amount billed
o Contract amount (including change orders)

- Schedule control:
o Critical path: by definition, activities on the critical path will delay the entire
project if they are delayed.
 o Physical progress can be compared with the financial progress to
determine if the project is
§ On schedule or late
§ Over budget or under budget

- Ensure that materials are delivered in a timely manner to the site in the quantity
and quality required. When materials arrive, they are:
o Counted
o Inspected
o Tested

- Materials management à must determine the latest order date accounting for
the:
o Shop drawing
§ Preparation
§ Submission
§ Approval time
o Lead time required for fabrication
o Shipping

- To many materials stored on the site can lead to problem of:

o Space allocation
o Weather damage
o Theft

Risks management
- Risks are inherent in construction. Managing risk means
o Minimizing risks
o Insuring against risks
o Sharing risks

- Construction risks: inability of a subcontractor to perform

- Economic risks: cost escalation
- Political / public risks: disapproval of the required project permits
- Physical risks: subsurface conditions
- Contractual and legal risks: risks assigned by contract over which the contractor
has no control
- Design risks: a project design that is not constructible
- Worker injured or killed
- A job accident that injures the public
- A construction vehicle is involved in an accident off the project
- Risks are best assumed by the party with the ability to best control the risk
- The best way to manage risks is to avoid them, but the construction industry is
characterized by risks!
- Contractors manage risks by purchasing insurance
- Examining the contract language addressing changed conditions...
- Contractor safety programs
- Subcontracting is also a form of risk management – require performance and
payment bonds

- Value engineering: main objective to reduce project cost, without reducing the
quality of the structure.
- VE exists because contractors know better ways to build projects, and owners
are willing to pay for that knowledge.