The Construction Management - Case Study Example

Construction industry: An overview: World today is quite different from that of the past. Rapidly rising towers and sky-scrapers have changed the look of the world. These magnificent structures speak of the advancement in the technology and the glory of the construction industry. Construction industry has flourished manifolds in the past few decades, though the sector has been of major concern to the ever developing and progressing nations of the world. The hiring of the right team for the project is vital for the success of a project. A client, therefore, needs to understand the delicacy of the matter, and make sure that he has gone for the right option. This decision of the client can either make or break the mood of the project. This is because of the importance of a contractor in the execution of a project, since the contractor is the one who is fundamentally carrying out the actual construction work. A bad contractor not only incurs huge losses both for himself and the client, but also tarnishes the image of the whole project and the team associated with it. In view of this, a client should critically examine different approaches toward the project procurement, and then work out the most appropriate contractor to execute the project. Construction procurement: Case study: It is evident from the government’s interest and involvement in the development of the building that the contract is a public contract. The building is meant to serve the purpose of upgrading the city standard and facilitate the local residents. In context of the case under discussion, certain assumptions need to be made in order to examine the suitability of different types of construction procurement methods in the light of the project conditions. The assumptions are as follows: The project is in its programming phase. The client has sufficient time at hand to prepare the construction drawings and documents. Land is ready for construction. Conditions of contract to be employed in this project are the same as those used traditionally in the very region. There is no urgency. Prequalification phase: To limit the number of bids, the owner intends to conduct a prequalification phase to facilitate selective tendering. Therefore, the owner mentioned certain specific criteria for the eligible contractors while opening the tender. It is noteworthy, that the owner has asked the interested companies to submit the value of fee they desire to draw for offering their supervision to a project that would be fully financed by him, in the bid. This shows that the owner has opted for a Cost Plus Fee type of Construction Management procurement method. Also, the owner is interested in receiving bids only from those contractors, who have already had some past experience with the projects of similar nature and scope. Additionally, the interested companies need to present the proof of availability of the required staff educated and trained in construction management practices, and other resources that the owner feels necessary for a construction manager to be equipped with, in order to ensure efficient supervision of the project. Therefore, the interested firms, historically offering their services in Construction Management need to first provide the client with the proofs of their eligibility for the project in the prequalification phase. All the construction managers will be examined, and only qualified construction managers will be nominated to submit their bids. The final bids will then be examined and the CM offering his services for the lowest salary will be selected by the client. The Construction Management procurement method: There are basically two types of Construction Management procurement methods: 1. Cost plus fee type of Construction Management procurement method. 2. Construction Manager at risk procurement method. It is assumed that the client has selected the Cost plus fee type of Construction Management procurement method for the project being analyzed. In this, the client hires a CM to assist him with the project organizing and supervision from the initial stage of the project till the project closeout. The CM helps the client with the preconstruction activities and gives his advice to incorporate buildability in the construction drawings. The CM may be authorized by the client to hire any subcontractor that he finds qualified, or else, the CM may be contractually obliged to employ some specific subcontractors as nominated by the client to perform their respective duties. Nearly all of the work in a CM procurement method is subcontracted. The CM prepares the schedule and all subcontractors are supposed to follow the same schedule. CM carries out the management and supervision of the project from its start till its closeout and draws his fees for the same from the client at regular intervals. The advantages and disadvantages of the CM procurement method, analyzed from a client’s perspective are as follows: Merits: A thorough understanding and knowledge about the construction process is not necessary. An inexperienced client can hugely benefit from the services and guidance of an experienced CM. The client only needs to keep a check on the CM. Demerits: The client needs to be careful and be sure that the CM is only reimbursed the money he has actually spent to facilitate the works on the project. Increased involvement of the client is essential. The cost- and time- overrun risks are to be absorbed by the client alone. The project duration can be long enough to make the client incur losses due to money inflation and escalation risks. Construction Management Cost Plus Fee procurement methods suitability to the current project: Scope of the project is large. Also, the client has sufficient time to prepare the construction drawings and a formal contract. Therefore a CM cost plus fee type of procurement method would be a bit inappropriate since this kind of procurement method is suitable for the projects, in which the client does not have sufficient time to prepare the construction drawings or carry out the prequalification phase. Therefore, in such circumstances, it is rational to hire a CM that would not only guide the client on the initial phase but also initiate the construction immediately. Therefore, the project can be subcontracted on a unit cost basis for the subcontractors, who settle unit cost rates with the client, and use the material and equipment supplied by the client and do not require completed drawings to initiate practical work. Also, since the project is a public-sector-project, the government can easily hire a client who would be fully aware of the project scope and the basic construction methodology, and therefore does not very much needs the services of a CM. Alternate procurement methods to be considered for the project: There are numerous procurement methods like the design-bid-build, management contracting and the design-build methods as pointed out by (Anon. 2004). Two alternate procurement methods namely the CM-at-risk, and the Design-bid-build procurement method are analyzed in context of the conditions of the current project as follows: The CM at risk procurement method: In a CM at risk procurement method, risks of the cost overruns are shifted from the client to the Construction Manager. The CM commits to the client to execute the project remaining within the limitations of a certain pre-decided amount, which, if exceeded, would be a liability of the CM. this maximum project price is referred to as the Guaranteed-maximum-price (GMP). However, the client has to pay the CM an extra premium for absorbing the additional risks. Its advantages and disadvantages from a client’s perspective in light of the current project are as follows: Advantages: 1. The client is aware of the project cost at the start of the project. 2. The client needs not worry about the inflation or cost escalation. 3. Costs above the GMP are to be borne by the CM. 4. Client’s supervision and accordingly, client’s headache is reduced. Disadvantages: 1. Since the CM is bound to finish the project within the GMP, sometimes he might compromise upon the quality of work to bring the costs down and ensure his savings if the material and other costs go too high during the course of execution of the project. 2. The client needs to pay the CM an extra premium for absorbing the cost overrun risk. 3. The option does not make the inexperienced client learn much because of his lessened involvement in the project works. The design-bid-build procurement method: This method requires the client to conduct a bidding phase after the design is completed. The bidding is meant to select the contractor who would executer the project from the start of construction phase till the time it would last. This method is referred to as the Traditional method of project procurement. The interested contractors bid for a lump sum amount in which they would deliver the project. Advantages and disadvantages to a client are as follows: Advantages: 1. Unlike the CM at risk procurement method, the client needs not pay the contractor an additional premium for absorbing the cost overruns. 2. Project price is laid out at the start of project. 3. Risk is transferred from the client to the contractor. 4. The client needs not worry about the inflation and cost escalation. Disadvantages: 1. Quality of work may suffer due to the contractor’s struggle of keeping the costs low to enlarge profit. 2. this method requires sufficient time to carry out the prequalification phase and bidding efficiently. The Pre-tendering document: A hypothetical company ABC Associates is assumed as the government’s representative who would serve as the Owner for the project. The Client: ABC Associates: Head Office Postal address. Email address of the General Manager. Requirements of the client: ABC Associates is looking for a firm which offers services in Construction Management, to assist the ABC Associates with the supervision of design and construction of a city redevelopment scheme, the client intends to initiate shortly. The Construction Manager is supposed to supervise the project from its start till the close-out. The Construction Manager is expected to guide the ABC Associates in the preparation of construction drawings, selection of subcontractors, planning and scheduling of the scope of the project work, work specifications, preparation / modification of contracts and the conditions of contract for the subcontractors, and ensuring their conformance to the same. The Construction Manager is expected to assist the ABC Associates with the payments, whenever necessary, to be reimbursed in full to the Construction Manager by the client later. The client expects the Construction Manager to do his work with utmost sincerity and honesty. The Construction Manager will be compensated for his supervisory services by the client at regular intervals. The contract objective: ABC Associates intends to modify the city in a way that would modernize it and improve the social and cultural mood of the city. Therefore, ABC Associates has planned to undergo a massive redevelopment scheme in a large area in the heart of the city. The redevelopment is planned on an area of 45 acres, and the process will take place in well-defined phases in a 10 years duration. The purpose of redevelopment is to provide the residents with employment opportunities, business-oriented and recreational facilities, hotels, shopping malls, clubs, cinemas, and offices. Besides, construction of numerous buildings of residential and cultural significance is a major concern of ABC Associates. The tendering and evaluation process: ABC Associates plans to carry out the tendering process in two phases as explained below: 1. The first stage is a pre-tender stage in which, the firms interested in offering Construction Management services will need to present before the client: 1. their experience to date in general, and, 2. their past experience with the project of similar scope and nature in particular, 3. proof of their registration with the Engineering Council, 4. the number of qualified workers and Engineers, 5. their financial statements of the past five years, 6. their “Health and Safety” and “Quality” certification, 7. insurance records, 8. names and details of projects they worked as the Construction Manager on. In addition to this, the interested firms should express their reasons of interest in this project, and their approach toward the Construction Management practices as per the specifications mentioned in the contract documents accessible at the ABC Associates’ website. the participating firms need to submit their reports the latest by the 30th of March, 2010. The nominated firms will be called for an interview at the ABC Associates’ Head-office, 15 days after the pre-tendering close-out date. 2. The second stage is the tendering stage in which, the qualified Construction Management firms will submit their bids for the monthly salary, which the client is liable to pay the Construction Manager as a result of his services and sincere efforts. It is to be noted that the nominated contractors will have to enclose a bank draft worth $ 3000 alongwith the bid documents as a security, which they will be refunded given their bids are rejected. The successful bidder will have to sign a contract with the client, when notified, otherwise he will have to spare the security. Once the bids are received, the lowest bidder will be called for an interview with the client. Date for submittal of bids will be announced to the qualified contractors, once they have been finalized by the client. Conclusion: The business of construction is indeed, a very rewarding one. But, it requires the businessmen to be extremely smart and competent to enjoy the flavor of success in this rough and tough industry. Thus, in the construction industry, a client needs to be extremely specific about the selection of the project team in order to earn revenue. References: Anon.-15 March 2004, “Procurement”, published by Constructing Excellence. Available at: http://cecwchampions.co.uk/pdf/fact_sheet/procurement.pdf. Page 2-4. [Accessed 22 March 2010]. Read More