Research Topics: Construction Industry

Catastrophe Model of Construction Dispute Negotiation Behaviour

Department variable to withdrawal The construction industry is certainly mature and yet both the popular and the professional view see major problems in the simplest of tasks ( 2001). The inability of organizations and members of the construction industry to see major problems leads to conflict within the organization. This conflicts can be inter organizational or intra organizational. Inter organizational focuses on the conflict in the external environment brought about by extreme competitiveness by companies. Intra organizational conflict starts because of the differences in the beliefs, knowledge, practices, and culture of people in the construction firm. Simple failures to understand the other party at a verbal level stand alongside the baggage of agendas that virtually demands misunderstanding as a commercial negotiating tool (1997). It is optimistically believed that the current and genuine development of partnership and team spirit is reducing what were extensive departments of claims surveyors. Although there may be fewer people involved in actively seeking out the grey areas for commercial advantage, there still remains plenty of opportunity for completely innocent misinterpretation (2001).   Structural failures may be due to different instances. One instance is when engineers and leaders in the construction company fail to compute certain angles or specification of the building or edifice. Another reason for structural failures is when the materials used are of low quality and are made with low standards. Structural failures can be due to materials that are weak and are easy to be broken (2005). But one big cause of structural failure is when there is failure to communicate, or when people fail to see the need to communicate with in the construction team. Communication is vital for a team in every thing they do. Communication helps in making sure that the focus of the team is to reach their goal. It helps a team solve problems in reaching a goal. When there is failure to communicate the tendency is people do things according to what they please thus the goal of the group cannot be reached ( 1998).     When people in the construction team fail to communicate there is a big chance that the building will have defects because everyone will rely on what he/she believes should be the specification of the building thus creating in conflicts in how the building is built and how materials for the building will be used (1990).  In the instance of no communication in the construction team the order of steps to be done in constructing a building cannot be followed since everyone will opt to do what he/she wants when he/she wants it ( 1998). The withdrawal of any department in the construction industry can be caused by lack of proper communication between departments and other related sectors. The lack of proper exchange ideas leads to less work to be finished and less progress for any project. Another cause of withdrawal of departments is the internal problems within departments. This internal problems stem out from various issues within each department that were not given appropriate solutions. The internal issues became more intense and harder to contend in a departmental setting thus it became a blown out problem. Catastrophe flags Hysteresis is an evolutionary process that takes place through historical time and takes place in an uncertain environment. There are pragmatic compatibilities between models of hysteresis and the post-Keynesian research program. A central characteristic of hysteresis is that the long run or final value of a variable depends on past values of this variable. This distinguishes hysteretic systems from other dynamic systems whose short-run outcomes are path specific, but which ultimately converge to configurations defined and reached without reference to the path taken towards them (1996).  The first catastrophe flag which is Hysteresis focuses on determining the seen economic environment; it concentrates on the effect of what is done to the economy. Hysteresis develops over time and cannot be abruptly seen.   The second catastrophe flag is Anomalous variance, it comes out when there is a discrepancy in any transaction or situation in a certain sector. This discrepancy is not supposed to be neglected and should be made public for proper action to be done on it. Improvements cannot be hampered or slowed down. Once this kind of problem is evident in any sector, actions need to be taken immediately to prevent other problems to arise. Anomalous variance causes projects not to be completed because the focus shifts from the desire to reach the goal to the desire to know what transpired into what caused the discrepancy in the particular sector.  The attention is now between the goal and the cause of the discrepancy. The third catastrophe flag is critically slowing down wherein the sector cannot finish the progress desired because of various barriers that prevent the completion of growth. Barriers can be in different forms and each may cause more loss of time for the sector. The different barriers cause the inability of the sector to take stops that make the progress of projects be slowed down. Any transaction made by the sector should not slow down because it may lead to further problems or the loss of momentum for the sector to reach its goal.     The fourth catastrophe flag is divergence. It means having difference in policies or procedures. Divergence can bring problems to a sector since it causes chaos and disorganization. It can also destroy the concentration on achieving the different goals and objectives set. When there are different policies or procedures the focus becomes disrupted and divided among different things. Different policies can also cause confusion among people in the sector, this will lead to one doing things on his own accord without him/her realizing the importance of the achievement of their goals.   The fifth catastrophe flag is divergence of linear response. Divergence can exist in the linear response wherein divergence causes changes not fit for the sector and thus reduces the capacities and capabilities of such sector.  This scenario happens when policies and procedures continue to be not unified. If such scenario continues the sector is doomed to lose its path to progress and it may shift to a path that the sector cannot comprehend. The sixth catastrophe flag is inaccessibility. It means that sectors are not able to communicate with each other thus procedures are hampered and succeeding activity points cannot be completed. This causes goals not reached and longer time for the goals and objectives to be completed. Sectors have to be connected to one another so that they can work together to achieve their goals. Once the communication is broken it will be difficult for the sectors to do their responsibilities, they will have a hard time in reaching their goals without consulting the opinions of other sectors.    The seventh catastrophe flag is multimodality. An important prediction of catastrophe models is multimodality, in it simplest form bimodality. In terms of statistical distributions this means that there should be two or more peaks in the frequency distribution of scores on the dependent variable. Bimodality is a well known criterion in cognitive developmental psychology, and reported for a large number of cognitive developmental tasks (1998).Multi modality means any methods or materials can be used to decipher information to the sector. It also creates a certain effect to the achievement of goals because once information does not reach the sector it intends to be numerous consequences follow and then failure of goals happen.   The eighth catastrophe flag is sudden jump. Sudden jump pertains to the probable changes that can happen to a certain sector. This changes can be influenced by the sector’s internal and external environment. This change can be a good or bad thing depending on the environment and it can be a big help to the achievement to reach goals or the failure to pass barriers in achieving the goals. When a sector suddenly jumps to another procedure or another goal the end result may not be always good since the procedures or goals that were neglected may be important to strengthening the sector’s chance to achieve its goal. Credit:ivythesis.typepad.com

Catastrophe Model of Construction Dispute Negotiation Behaviour

Department variable to withdrawal The construction industry is certainly mature and yet both the popular and the professional view see ma...

Design of New Territories Exempted House (in Hong Kong)

FRENCH CAFÉ / RESTAURANT FEASIBILITY   QUESTION A   The Hong Kong construction industry consists of private companies and public authorities, with many individuals and organizations involved, from the manufacture of necessary components to the assembly and construction process. The French café / restaurant project requires a registered architect and civil engineer under the direction of a project manager to execute the design and to make sure that it complies with the regulations governing building construction, at the same time conforming to the requirements of the owner. The architects or engineers convert the requirements into a set of drawings and written specifications that are usually sent to contractors for bidding. The successful bidding contractor will be the one responsible for the required manpower such as the plumber, painter, electrician, carpenter and other manpower required for the construction. Contractors carry out the work under the supervision of an architect and engineer who act as agents of the owner. Current Statutory Land Matters in Hong Kong In constructing the French café / restaurant, there are certain laws and various regulations and standards in Hong Kong that must be taken into account and followed. These basic rules are the generally accepted technical rules for construction in Hong Kong. These laws and regulations are designed to ensure safety during and after the construction of the French café / restaurant and to protect the building against damage and defects. The French café / restaurant must be constructed in such a way that the public who will go to the building as well as the structures within the vicinity of the building will be safe. Regulations are also enforced to guarantee the owner of the French café / restaurant that the building will be profitable for him in the long run.             Fire protection and security are the basic concerns of many construction regulations. The French café / restaurant should be designed and constructed in a manner that all the people inside can leave the building without the risk of injury and at the shortest possible time once a fire breaks. Generally, it is a standard for cafes and restaurants to be constructed with escape routes and fire escapes, fire compartments and with the choice of material. Operational security concerns the safety of elevators and escalators, stairs, railings and parapets and the installation of emergency lightings. Regulations for operational security also include the alarm system for carbon dioxide in underground parking lots; and the non-slip nature of floor in traffic areas, sanitary rooms and kitchens. Building Control             Stability and construction physics are also major concerns in standards and regulations. Stability of the French café / restaurant depends on how the building is designed and constructed. The designs and construction methods are govern by these regulations; plans and designs which includes stability calculations and material properties and specifications are checked by authorities and should passed their standards. Demonstrations of the internal structural strength of the construction and safe transfer of loads to the subsoil should also be practiced to determine the allowable maximum load that the building can withstand. Planning Issues             Construction planning of the French café / restaurant involves the weighing of the project costs and determining the most reliable options, making sure that the project is feasible at the most cost-effective time. Construction planning is challenging because of the changes that must be handled as the construction proceeds. Financing             The cost of construction of a French café / restaurant in Hong Kong ranges to roughly a millions dollars. It is very rare that an owner can afford the costs without outside assistance such as banks and other financial institutions. Sources of capital to finance the construction of the French café / restaurant depend on the type of low-rise. Financing of the café / restaurant depends on what type of business is going to be established. Basic sources of capital can be through equity finance, debt finance or internally generated funds. Cost Estimation             Cost of construction of the French café / restaurant depends on the nature, size, location and management organization of the project. Project managers and designers such as the architect and engineer should realize that the costs are only estimated values and may vary depending on the changes, schedule adjustments and site conditions.             Capital cost for the French café / restaurant project includes: ·         land acquisition, including assembly, holding and improvement ·         planning and feasibility studies ·         architectural and engineering design ·         construction, including materials, equipment and labor ·         field supervision of construction ·         construction financing ·         insurance and taxes during construction ·         inspection and testing ·         owner’s general office overhead Engineers and contractors used different types of cost estimation and should be weighed and compared to determine the most cost-effective estimate. QUESTION B: WORKS PROGRAMME Submission /Approval Period There are several factors to consider evaluating and estimating the construction period of the French café / restaurant. The scope and the method of construction used in the project decide how long it will take to finish the project. The scope of a French café / restaurant requires a short time compared to high-rise structure. A typical café / restaurant can take 3- 6 months construction time which may vary depending on the location, construction methods and procurement processes involved.       Timeframe   Week                         1   2 3 4 5 6 7 8 9 10 11 12   Submission of Papers                           Excavation                           Substructure                           Superstructure                           Exterior Walls                           Weatherproofing                           Interior Finishes                           Mechanical                           Electrical                           Exterior Work                           Alteration                               Credit:ivythesis.typepad.com

Design of New Territories Exempted House (in Hong Kong)

FRENCH CAFÉ / RESTAURANT FEASIBILITY QUESTION A The Hong Kong construction industry consists of private companies and public autho...

Esssence of Strategic Management for a growing company

Strategic Management in Construction (1996) places imperative upon examining company’s mission another, survey  construction company’s business environment which is specific to the construction sector. The survey should reveal prospective project opportunities and highlight potential threats to the order of strategic based activities. Then, to analyze company’s main resource upon including of construction capacity, procurement system, marketing system, organization, personnel, finance as well as knowledge. Aside, the need to develop strategic management domains as it can adhere on mapping relative attractiveness of various effective areas in construction.  (1989 p) have indicated that, “construction is no stranger to change; both weather and business cycles affect the industry and that construction firms can acquire technology and encourage technological change and innovation as technologies are worth developing are those that contribute to overall business strategy and enhance competitive advantage”. The need to introduce approaches to address new environment and role of strategic management in Sudan construction organizations. Moreover,  (2000 ) recognized “traditional philosophy of management in construction, both in academia and in industry, places great emphasis on the ability to plan and execute projects, through sharing of research, teaching and practice, the construction industry has evolved itself on a project management model”. Further noted that, “professors, researchers and practitioners use project management indicators such as schedule and budget as the industry’s standard of performance, as there has been similar emphasis on strategic management is noticeably lacking in the construction industry, in which strategic management can be undertaken, making strategic management essential issue for Sudan construction” (2000) Indeed, strategic management has positive meaning that aids to react with the various internal and external influences of an organization. It responds the current situation of competition state, predicts the needs of the future and consequently proposes the potential  method for achieving competitive advantages. Strategic management benefits for companies to develop and compete in the changing environment of construction industry. However, Sudanese construction companies may not know and apply well strategic management. The research would like to investigate understandings and practices in strategic management issue, then to find the  problems and propose the solutions to improve the current situation. The survey will be executed on such 30 project contractors working in Sudan as there may be substantial perception on strategic management application in Sudanese construction companies Finding out if certain mission  statement and objectives are not being design in official sense as there may lack of mature analysis for generating strategies as well as lacks formal plan and have to confront the problems of finance and impacts. Moreover, do focus on financial and internal business for effectiveness of performance measurement and do not concern in other aspects for value contribution to strategy success. In order to reinforce strategic management situation, Sudan based contractors should change their perceptions by  professional study and pay strong commitment to compete and accommodate within changes of construction industry on certain strategic notion. There is ample need to provide research and critical analysis pertaining to strategic management effectiveness, studying cases towards construction companies located in Sudan. Identifying critical issues related to Sudanese construction industry and analyzes dynamics from strategic inclined viewpoint. For methodology, integrated review of key themes of strategic management in construction particular on roads construction as to be developed by researchers are to be discussed and assessed respectively. Thus, critical review of pertinent characteristics of Sudan construction industry and those related to the general strategic context, which can possibly affect strategic decision-making by the project team involved in road construction projects. Several case studies will be in use in order to illustrate strategic management ideas, aspects, concepts and other salient points to be noted by research process and such proposed assumptions. Thus, to be able to find out with evidence from secondary sources that there can be no hard and fast rule in developing coherent strategic matters for construction business in Sudan upon considering the fact that Sudan construction in terms of circumstances are still evolving, good starting point for construction companies to develop such detailed strategic management plan and process. The research can bridge strategic management gap that might occurring in mainstream management researchers in having precedence of studying strategic base of Sudan road construction industries and intends to focus on project management issues rather than strategic assumed issues along with corporate stature.     Credit:ivythesis.typepad.com

Esssence of Strategic Management for a growing company

Strategic Management in Construction (1996) places imperative upon examining company’s mission another, survey construction company’s b...

Construction Failures

OBJECTIVES As a person with knowledge of construction case studies, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of these topics and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it. By delving into this project paper, the author intends to have better insights into how construction failures are thought up, formulated and then imparted down into the key stakeholders. The author hopes to have an in-depth understanding as to how the construction management policies enables construction companies to avoid failures and thus be able compete effectively and profitably in this era of internationalization where competition is extremely intense. In order to reinforce the learning objectives, two key focal issues were focused upon, i.e. innovation and diversity. Innovation was discussed with regards to construction case studies where they were renowned for their developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to have a better understanding of the issues being discussed.   Is it true that most failures occur during construction? Failures in the construction management process can occur from any part of the process. But more often than not, when there is a failure in the planning process of the construction, then most likely the construction process is also doomed. In the aftermath of a construction failure, the value of the construction company will consequently fall to an alarming rate. However, in most cases, the construction management will be able to already start noticing specific signs proving that their construction plan is starting to lag behind and point to the wrong direction. And in most construction failure cases, rather than carefully assessing the situation, the construction management decides to pursue for a fast action to finish the construction process, and decides to launch and move on with the construction plans and neglecting the preliminary signs of failure. Because of the eagerness to accomplish the construction process, the construction management team will be able to predict that the construction process could possibly be finished at a certain period of time (1999). What is worse in most construction failure cases is that the primary signs of downfall are being ignored, and the priority of the construction company in spite of the failure signs appears to have been to move on with the plans. The result, obviously, is not good at all. Aside from the safety concerns of the project teams involved in the construction process, the construction company will soon be bothered by an inventory consisting of both new and old construction material and parts, along the process experiencing a huge decline in their company’s integrity to finish construction projects. Worse, all resources invested into the construction project are put to waste. And for the construction company, revenue forecasts will be down compared to the expectations prior to starting the construction project. Among the basic elements of the construction process, the ability to pinpoint risks and signs of failures with enough accuracy to verify the observations of the project teams is critically important. In most failure cases, the construction management certainly did not evaluate carefully all the risks of starting their construction project. Facing the same problems as a new construction firm would have, the construction management failed to immediately recognize its declining position as far as the timetable of the construction project is concerned. Worse, the construction management failed to properly understand the implications of the preliminary signs of construction failure ( 1981). Preventing the Failures A. Effective Construction Planning Construction planning is a necessary function within the construction project. In most construction companies this process is often very difficult because of the fast rate of change and the occurrences of unplanned events. Most companies also use several methodologies depending on what the situation demands and the price of the construction materials. Nevertheless, the objectives of the construction planning do not change: efficiency, effectiveness and safety ( 1999). Effective construction planning is being implemented in order for the project activities and resources to be coordinated over time. This enables the construction firm to achieve overall safety in all of its operations with minimal resource utilization. Construction planning also enables the construction firm to monitor the progress of their plans at regular intervals and maintain their control over operations. Construction planning involves four elements: scheduling, labor safety planning, equipment safety planning, and cost planning. <ul type="disc" style="margin-bottom: 0in"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Scheduling involves the specification of the beginning, the length or the duration, and end of the planned activities.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Labor planning involves allocating the necessary personnel and delegation of responsibilities and resources.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Equipment planning involves identifying the types and needs in terms of the equipments being used in the construction site. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Cost planning involves determining the costs and the possibility of their occurrence.</li> </ul> Critical Construction Project Success Factors For construction projects to become effective and successful, the following construction project success factors are critical: ·         Financial Stability Financial stability is crucial especially in the pursuit of construction project management and development activities. In the construction industry, it is important to remain updated with the latest construction project management developments to be able to stay competitive in the market. ·         Construction Materials Performance and Price The success of construction projects is dependent on well-funded construction project management and development activities. The success of the construction projects could also be linked to their cost-effectiveness. However, the construction firm has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market. ·         Construction Project Strategy and Implementation The awareness of the successful construction project strategy within the construction project team will create the need for aggressive implementation of these policies, and access to strong distribution channels is critical for the introduction of new safety precautions.   Credit:ivythesis.typepad.com

Construction Failures

OBJECTIVES As a person with knowledge of construction case studies, the author has always brought up to his superiors the viability of s...

SELECTING THE OPTIMUM WAY TO SELECT CONTRACT IN CONSTRUCTION PROJECT ESSAY

SELECTING THE OPTIMUM WAY TO SELECT CONTRACT IN CONSTRUCTION PROJECT   TYPE OF CONTRACTS There are two primary types of construction contracts, single contracts and multiple prime contracts. Variations of contracts involve the participation of construction manager; single contract is the most commonly used contract type. Plans and specifications are prepared by the design professional and become part of the bidding documents. The single contract is easiest to administer because of its centralization of responsibility, namely, one owner, one contractor, and one construction contract. With multiple prime contracts, most frequent use of multiple prime contracts is for phased construction, in which contracts are awarded sequentially for each phase. Contracts for parts of the project such as site development, site excavation, or foundation work are awarded before the contract for the main structural work is awarded. Multiple prime contracts require careful coordination because several contractors are involved, and no single contractor is responsible for the entire project. Sometimes, construction managers are contracted to do limited work on a project or to perform the construction work. Construction management may be used with either single or multiple prime construction contracts, and these contracts may be made with either the construction manager. Contracts involving construction management may also include guaranteed maximum price, whereby the construction manager guarantees that the construction cost will not exceed specified amount. The cost-plus contracts are preferred to fixed price contracts when project is complex.  In any construction contract, the cost of the project consists of the costs for labor and materials and the builder’s profit and overhead. Before a project begins, the costs are only estimates. That includes price quotes from a contractor. There is risk involved for both the owner and the builder concerning the builder’s ability to perform the work for a given actual cost. The differences between types of contracts primarily lie in who takes the risk, which has to pay for cost over runs, and who keeps the savings if the project costs less than the estimate. In a major construction project, some or all of the different types of contracts may be used. Lump Sum contract is the most basic form of agreement between a supplier of services and a customer however, costs that exceed the estimates may lead to disputes over the scope of work or attempts to substitute less expensive materials for those specified. Unit Price contract, the work to be performed is broken into various parts, usually by construction trade, and a fixed price are established for each unit of work. Cost plus contracts are rarely used for school projects because school administrators and school boards rarely have the authority to exceed the amount appropriated for the project. The great advantage of a cost plus contract, the project will result in the building that was envisioned, even if costs run high. The builder is less likely to cut corners or argue for less expensive materials because his profit is not in jeopardy.   CRITERIA TO SELECT CONTRACT FOR PROJECT   Industrial and academic awareness of the need for judicious construction contractor selection is increasing. Earlier investigations of client procurement decision have more recently been expanded upon that increased activity by presenting review of contractor evaluation and selection modeling methodologies there can be bespoke approaches, Multi-attribute analysis and multi-attribute utility theory. Cluster analysis, multiple regression, Fuzzy set theory and Multivariate discriminant analysis (Holt 1998, pp. 153-164). While the procedure is presented in construction contracting context, the methodologies cited are of potential benefit in a wide selection of purchasing scenarios (Holt, Olomolaiye and Harris 1994, pp. 139-148). There can be utilizing of relative index ranking technique and taking into account of each factor frequency as being the perceived cause of clients’ dissatisfaction with contractors’ performance, weighting index was determined for each of the factors. The contractors’ current workload, contractors’ past experience in terms of size of projects completed, contractors’ management resource in terms of formal training regime, time of year weather and contractors’ past experience in terms of catchments, that these most important factors be considered when selecting contracts are likely to perform to the satisfaction of client on construction projects. Contractor prequalification is a decision-making process involving a wide range of decision criteria as well as many decision-making parties and has received the attention of several researchers (Moselhi and Martinelli, 1993; Ng, 1992; Herbsman, 1992; Ellis and Herbsman, 1991; Merna and Smith, 1990; Russell, 1988). The prequalification and bid evaluation processes requires the development of necessary and sufficient criteria. The last two decades has witnessed a huge development in project complexity and client’s needs and this has led to an increasing use of alternative forms of project delivery systems. In contrast, the prequalification and bid evaluation process, quantifying and the assessment of criteria is still in its original form. Failure of contractors to comply with the contracts conditions occur for different reasons.   References   Ellis, R.D., Herbsman, Z.J., 1991, Cost-time bidding concept: an innovative approach, Transportation Research Record 1282, Washington D.C., 89-94   Herbsman, Z., Ellis, R., 1992, Multiparameter bidding system-innovation in contract administration, J of Const Engrg and Mangt, 118(1), 142-50   Holt, Gary D Paul O Olomolaiye and Frank C Harris Applying multi-attribute analysis to contractor selection decisions. References and further reading may be available for this article. To view references and further reading you must purchase this article.European Journal of Purchasing & Supply Management Volume 1, Issue 3, September 1994, Pages 139-148   Holt Gary D Which contractor selection methodology? References and further reading may be available for this article. To view references and further reading you must purchase this article. International Journal of Project Management Volume 16, Issue 3, June 1998, Pages 153-164   Merna, A., Smith, N.J., 1990, Bid evaluation for uk public sector construction contracts, Proc Inst Civ Engrs, Pt 1, Feb, 91-105.   Moselhi, O., Martinelli, A., 1993, Analysis of bids using multiattribute utility theory. (??publisher??)   Ng., S.T.T., 1992, Decision support system for contractor prequalification, MSc dissertation, University of Salford, Department of Surveying, UK   Russell, J.S., Skibniewski, M.J., 1988, Decision criteria in contractor prequalification, J of Mangt in Engrg, ASCE, 4(2), Apr, 148-64.       Credit:ivythesis.typepad.com

SELECTING THE OPTIMUM WAY TO SELECT CONTRACT IN CONSTRUCTION PROJECT ESSAY

SELECTING THE OPTIMUM WAY TO SELECT CONTRACT IN CONSTRUCTION PROJECT TYPE OF CONTRACTS There are two primary types of construction con...

Construction Contract

INTRODUCTION The Target Cost[w1]  contracting or also known as a stipulated sum contract is the type of contact where the contractor would come up with a fixed price or total cost of the work that he is going to perform. This is the negotiated price the owner/developer will pay regardless of the contractor’s actual cost of construction. For example, if the contract is valued at 0,000 and the contractor completes the project for ,000, the ,000 represents the contractor’s profit. Conversely, if the contractor’s cost is 0,000, the contractor is obligated, by contract, to complete the project for 0,000 and fund the difference out of his own pocket[w2] . Use of a target cost contract places all of the financial risk of construction on the contractor. The target cost contracts are relatively straightforward agreements in which the contract value is fixed, and the owner/developer knows what his cost will be. (Haug, 2002)   The second type of agreement is known as a guaranteed maximum price or GMP contract. This agreement should not be confused with “cost plus”, another contract type where the contractor includes charges to the owner/developer in labor (charging should only include field personnel, while home office personnel should not be reimbursable cost and should be covered by the contractor’s fee), materials ( evidence that a competitive bid process was followed on major material purchases), subcontractor costs ( work subcontracted to others should be covered by subcontracts), equipment rental (a lucrative sideline to many contractors where equipment purchased long ago and carried on the books at zero cost are being rented out at new equipment rates).   The GMP contract is offered or bided exactly the same as target contract; it is in this sense that the contractor assumes the same risk because he has to put on certain expense and risk that he cannot charge to the project; but a split risk in a sense that in case total budget exceeds, funding the difference incurred without the overcharge in labor, materials, etc. will not come out from the contractors own pocket, though from the perspective of the owner/developer, whatever saving is earned, less cost, will also go to him. Under this form of contract, the contractor is reimbursed its actual cost of the work plus a preset, guaranteed fee/profit up to an agreed guaranteed maximum price. If the actual cost exceeds, the owner/developer pays the contractor the same fee agreed upon and nothing more. So then, the owner/developer is protected by a guaranteed cost price on the contract and shares the same risk though receiving the additional benefit that, should the actual cost of the work plus the contractor’s fee come in under the guaranteed maximum price, the savings accrue to the owner/developer.   Under the target cost (TC) contract[w3] , the contractor in trying to minimize this risk will typically include a substantial contingency to protect the project from going over budget. If the project progresses well, the contractor makes his profit plus whatever contingency he did not use. However, if the contractor did not plan well and construction costs exceed the budget, then the contractor will have to use his contingency and/or profit. The worst case scenario is that the contractor’s costs go over the agreed stipulated sum and the contractor must finish the project out of his own funds. Should this scenario occur the contractor may cut corners in order to finish the project or, worse, not be able to finish the project, leaving the owner/developer to find a new contractor and infuse additional funds to finish construction Since the contractor accepts the greater risk and plans for that risk, the owner/developer on the other hand will also not have an opportunity to gain any contract savings once the document is signed.   Under the GMP contract, the contractor who is by virtue responsible for cost overruns (exceeds time limit or fixed budget) will then be at risk in case there is failure on the part of owner/developer. Risk in terms of home office cost, and especially if the owner/developer inserts additional scope of work within the base project.     Claims and Disputes of any Construction Contract Definition             A “Claim” is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of contract terms, payment of money, and extension of time or other relief with respect to the terms of the contract. The term “Claim” also includes other disputes and matters in question between owner and contractor arising out of or relating to the contract. Claims must be made by written notice. The responsibility to substantiate claims shall rest with the party making the claim. (FindLaw 2008)   Areas of Dispute in Construction Contracts             Contract terms and conditions are very vital in preventing and resolving disputes in construction contracts by providing comprehensive coverage of all the items of work, duties and responsibilities of the contracting parties, and conflict resolution mechanisms related to all contingencies. However, in most contracts, a few clauses are regarded as dispute-prone. Disputes may arise due to numerous reasons including unfair contract clauses allocating disproportionate risks on parties, ambiguity in contract clauses leading to varied interpretations and applications, discrepancies and inconsistencies among various documents, and conflicting interests of owners and contractors in the contracts. A survey was conducted of 72 clauses in some government construction contracts which led to the identification of 17 potential dispute prone-clauses. The study revealed that dispute-prone clauses can be grouped in one of the four factor dimensions, namely, owners’ powers, contractors’ default, payment to contractors, and deviations and discrepancies. (Chandrashekhar, et. al. 2002)   Reduction of disputes and claims             In order to reduce disputes and claims in construction contracts, there must be additional contract provisions for risk allocation. These provisions can appear in numerous areas in addition to the total construction price. Typically, these provisions assign responsibility for covering the costs of possible or unforeseen occurrences   The language used for specifying the risk assignments in these areas must conform to legal requirements and past interpretations which may vary in different jurisdictions or over time. Without using standard legal language, contract provisions may be unenforceable. Unfortunately, standard legal language for this purpose may be difficult to understand. As a result, project managers often have difficulty in interpreting their particular responsibilities. Competent legal counsel is required to advise the different parties to an agreement about their respective responsibilities.   Quality of work and collaboration in both TC & GMP From the conventional TC and GMP, modifications and fine-tuning are done on both the TC contract and the GMP contracts to alleviate its relentless effects to both the contractor and the owner/developer to ensue fair play among them or collaboration. Unlike the “conventional” TC contract the “modified” pain/gain sharing fashion initiated to give an opportunity to owner/developer to gain contract savings by sharing some risk in case target contract exceeds. This shared ratio formula is agreed upon at the start of the contract. This means that whatever extra payments or savings is gained, it is calculated in relation to the ratio that has been agreed upon.   In the case of the GMP contract, “modification” is set primarily to address the impact of project delay and anticipations to add-on scope of work from the base contract, though other features may also include stipulations to reach a compromise agreement to share the gains purportedly obtained by the owner/developer (in percentage, like 75-25 or 50-50).   The administrator plays an active role throughout the entire process either in the TC or the GMP “modifications” since savings are shared. Transparency in managing cost is well regulated and documented because every purchase order and invoice received from the contractor is submitted to the owner as backup.   When the administration is properly set-up and organized, the quality of work and collaboration between contractor and owner/developer is apparent, cost and time is manageable since cut measures for processing is timely.   Risk allocation Depending on who takes the responsibility of administering the project or how the project will be administered to balance the dynamics of collaboration and depending on how to distribute a fare share of the contractor and the owner/developer does not lie on the cost to each party separately. The goal of an optimal allocation of risk is to minimize the total cost of risk on a project. Thus, it might sometimes seem as if one party is bearing more of the risk costs than the other party. However, if both contractors and owners take a long-term view and take into consideration the benefit of consistently applying an optimal method to themselves and to the rest of their industry, allocation reduces everyone’s cost and increases the efficiency of all parties involved.               When risks are understood and their consequences are measured, decisions can be made to allocate risks in a manner that minimizes costs, promotes project goals, and ultimately aligns the construction team (agency, contractor, and consultant) with the needs and objectives of the project.               A contract therefore in a modified TC or GMP is a vehicle of a risk allocation. The objectives of risk allocation can vary depending on unique project goals, but three fundamental tenets of sound risk allocation should always be followed.   First is allocate risks to the party best able to manage them…the party assuming the risk should be able to best evaluate, control, bear the cost of, and benefit from its assumption. This will ultimately result in the lowest overall price because contractors will not be forced to include contingencies for possible financial losses or take gambles in an extremely competitive bidding environment.   Secondly is allocating the risk in alignment with project goals…risks should be allocated in a manner that maximizes the probability of project success. The definition of a clear and concise set of project objectives is essential to project success and these objectives must be understood to properly allocate project risks. : Project objectives directly determine optimum risk allocation strategies, or when project risk allocation is justified in deviating from traditional industry standards. In addition, project objectives can affect the procurement methods and contracting strategies. The objectives should be understood early in the project process and referred to for any important design, procurement, contracting, or construction management decision.   Thirdly is sharing risk when appropriate to accomplish project goals…define risk allocation as the process of identifying risks and determining how (to what extent) they should be shared. In reality, no risk is truly shared; instead, exposure to the risk is split among the parties. Risk sharing is clearly the defining point at which the task is transferred from one party to the other. Ex. the agency is allocated the risk of delay while the contractor is allocated the risk of additional costs. Communication among parties is a key to any sharing of risk allocation. Risk sharing provisions should be written with the principle of risk management and alignment of project objectives.   Risk sharing meter (Modified from Kerzner, 2000) 100%     Lump-Sum (Fixed Price)   Contractor’s Risk   Fixed-Price with Economic Price Adjustments     Fixed-Price Incentive       Cost-Plus Incentive Cost-Plus Award Fee       Cost-Plus Fixed Fee     Cost-Sharing   0% Cost-Plus Percentage                                           Figure Contractual risk allocation (Osgood 2004)   Above is a figure showing the risk allocation for the different kinds of construction contracts: fixed price (Lump Sum or uppermost), reimbursable (Cost Plus percentage or lowermost), or modified (those in-between Cost plus and Lump sum). Risk allocation depends on the people involved in the project because different parties have different abilities to manage or tolerate different types of risks. This means that the premium charge is less for the one who takes the bigger risk. Interest of the parties should be defined at the outset as project goals, which includes proper scheduling, overall budget and scope of the objective to save money on the total project We also take note in the graph that the optimum distribution of risk between the contractor and owner lays at the center of the diagram which is the cost-plus incentive. From the cost-plus incentive toward the lump sum, there is an increase in the risk for the contractor, so it belongs to the TC modified contract, TC being the conventional. Likewise, from the cost-plus incentive downward to cost-plus percentage, there is an increase in the risk for the owner so that it belongs to the modified GMP contract. This somehow can tip both parties which contract leaning are they going to approach. Graph below showing TC: (Osgood 2004) A similar diagram on internet? In a TC (Haug 2002), when the contractor accepts the greater risk, plans for that risk by including a substantial contingency because of the risk that he has to undertake. However any deviation to lessen that risk will amount to a risk factor for the owner/developer and thus should alters the measure of risk factor for the contractor. Graph (Osgood 2004) below showing GMP: I have saw it on the internet if it is copied please modify it and mention the reference             The graph represents the range of drawing how much percentage premium the contractor can get for sharing some risk in the modified GMP contract. The downside also needs stating. GMP contracts require more work on the owner’s part to administer. The main effort involves defining what cost is. And if you are not interested in collecting discounts, obtaining credits for small tools, establishing realistic labor rates, monitoring rentals, and are not really prepared to act as a partner with your contractor in the project. You have to have a strong administrator experienced in general contracting. Contractors also resent inexperienced owners questioning their decisions.   Advice Pre-qualification and selection of competent contractor Most owner/developer pre-qualifies bidders, but primarily on the basis of financial stability. In contrast, a more comprehensive use of pre-qualification requires further random selection. In pre-qualifying a competent contractor, his ability to get performance bonds and the consideration of the contractor’s past performance is enough at this stage. Contractors who have satisfactorily passed pre-qualification are then invited to submit an expression of interest on the target project.   Pre-qualification processes on selected contractors In this pre-qualification stage the amount of information provided by the contractors varies depending upon the size and complexity of the projects they will bid on. Success on pre-qualification should include several steps in order to shortlist to 2 contractors. From the randomly selected contractors, essential information at this point is probing further the contractor’s capability to provide:   Warranty coverage after completion of the project. Performance bond and the consideration of the contractor’s past performance is not enough at this stage. Performance bond only apply after work is being completed or provides assurance that the materials and workmanship of the contractor will be good during the project completion and project acceptance. Warranty coverage after the completion of the project will necessitate correcting failures from material or workmanship that may have escaped notice during construction and guarantees a higher concern for quality performance.   Another process requires the tenderer to answer a confidential questionnaire to be submitted along with a complete set of audited financial statements and details concerning assets, liabilities and equity and affidavit of financial condition. This questionnaire asks information regarded the preceding company details submitted. This must be submitted 10 days prior to the date bids are to be opened. After the questionnaire and qualifications have been assessed, 2 contractors are chosen.   Awarding of Contract             A frequently cited cause of contract problems is that the contractor is selected largely based on the lower bidder. Lower bidders, however, do not necessarily mean a more competent contractor to absorb greater risk, since it can also mean cutting corners and hiring low-quality personnel.             Thus, when the 2 best contractors are chosen, they are given three months to further develop their technical and financial proposals which will finally be assessed by an assessment panel chaired by the client’s senior management to finalize the contract award. The bidders are required to list specific cost qualifications including the base constructions costs, preliminaries, head office overheads, profits, commercial  and  technical risks to be borne by the contractor, shared commercial and technical risks, entrusted works and attendance on designated contracts.               Awarding the contract does not however mean that there is no room for negotiation on the intricate issues.   Issues to discuss on a pre-contract meeting Technical Issues Areas of concern would largely depend on the choice of the owner/developer and his preference on the structure of the contract that he wishes to enter into.   In a Design/Build Contract since the contractor is responsible for Architectural and Engineering Plans, issues of discussing does not only lie on an agreement between rights and obligations of both parties, but should also include areas of concern in the architecture and engineering concepts including ground survey. This is unlike the Build Only Contract where owner/developer produces his Architect, Engineer or other Consultant, who is or is identified as such in the Contract Documents.   Issues of agreement among various technical personalities that is directly involved in the project must explicitly clarify all areas of concern.   Rules of engagement must be discussed on how the course of the work on the project would be directed. The “who” and the “how” must be settled to warrant smooth administration of the project. There must also be an agreement between the various technical personalities who are directly involved in the administration of the project and the owner of the project.   Risk allocation must be thoroughly discussed by all parties to determine optimum distribution between the contractor and owner/developer.   The establishment of Project Cost must then be instigated. Master Plan involving all technical issues is drawn.   Financial Issues Financing a construction project presents a myriad of issues especially if owner’s lender or financial institution in involve. In fact, it requires the owner to negotiate separate contracts with two parties that have differing, and possibly conflicting objectives. The owner’s task is to negotiate the terms of both agreements so that the owner is not at odds with either or both the lender and the contractor during the construction process.   Identifying areas of potential conflict between the contractor and the lender, and addressing those areas during the negotiation of the construction contract and the loan documents, is the key to avoiding possible disruption or delay. The construction contract and the loan documents are often negotiated and finalized separately from each other (in some cases, the lender will review and approve the construction contract as part of the underwriting process). However, having a list of the relevant issues when dealing with both sides is helpful in keeping the negotiating point’s straight and keeping both agreements on track.   Other issues to discuss are the payment scheme the owner, owner’s lender and the contractor will agree upon, in either a fixed cost scheme (TC) or reimbursable (GMP). It also involves further discussion on sharing scheme in terms of percentage of savings incurred after the project completion. We have noted that under the TC kind of contract the owner and contractor enter into a pain/gain sharing scheme while in the GMP the owner and contractor negotiate the percentages that each party will share in agreed savings or overruns.    The following diagram shows the financial formation of the Target Cost. (Wong 2006)   After all this have been taken into account, both parties have to agree on measures to take on the occasion that a dispute or a claim might ensue either from delinquencies of owner or contractor. These measures are legal procedures that may be taken by either of the parties in case such a problem would occur.    Post Contract Considerations Record Keeping and Audit Rights To facilitate audit’s by Owner and Owner’s Lenders, Contractor shall at all times implement and maintain such cost control systems and daily record keeping procedures as may be necessary to attain proper fiscal management and detailed financial records for all costs related to the work and as are otherwise reasonably satisfactory to Owner and Owner’s Lenders.   Records to be maintained by the Contractor shall include the following: (a) payroll records, wages, salaries, taxes, (b) all correspondence, minutes of meetings, daily logs including schedule status reports, memoranda and other similar data, (c) items such as bids, proposals, estimating work sheets, quotes, cost recaps, tabulations, receipts, submittals, tax returns, etc.. and (d) all other data relating to or arising out of the work  like materials ordered and payment for supply contracts and the payment of sundry materials and any other similar supporting documentation reasonably required by the Owner or Owner’s Lender.   Also included in this stage is the keeping of accounts of the actual costs of the works done. Both parties must agree to the contractor’s opening or establishing a bank account where all payments from the client under the project are made and all outgoing payments to subcontractors and suppliers are also made. Transaction records are verified by the client regularly and checks on the following documents: payment receipts against the bank statements.   Contract Variations The contractor or the client may initiate a variation in contract which can be in the form of a value engineering proposal. They are required to state the reasons for and the benefits of the proposal, the cost estimate and any program benefits to the project. If this variation is in required, then an appropriate instruction is issued. With this variation comes a revision in target cost which must be agreed upon by both parties after determining its impacts and consequences. If the variation is only minor, no adjustment is made to the target cost. The final target cost should not be adjusted to reflect initiatives, innovations, economies, procurement benefits, etc. which are beneficial to the project as a whole. This enables the best reflection of cost savings at the final project outcome since the gain/pain share formula is not adjusted.   Compliance Certification The contractor is responsible for certifying his compliance with the requirements of the contract and must identify and carry out any alterations or remedial work necessary due to errors and omissions or by discrepancies during the self-certification of the works. The cost of these alterations is charged as actual costs forming part of the final total cost.   Upon inspection of the work, if the client identifies items that need remedial ramification work, the contractor has to carry these out. Cost of this work is not part of the total final cost. These are called disallowed costs.   Contract Administration and Supervision To best administer and supervise for TC contracting, the client monitors the contractor’s letting of subcontracts and supply contracts through the following policies. The client approves the contractor’s subcontract letting procedures, the terms of the subcontracts and the tender list for major subcontracts and supply contracts. The client participates in the selection and consent to subcontracts and supply contracts and prohibits single subcontract tenders unless fully justified by the contractor.   The supervision of works in progress by the client is important to any construction project. The contractor is required to submit inspection and test plans for each part of the works, to identify holding points (a stage in the construction process where work cannot proceed without a notification and successful inspection by the site supervisory staff) and witness points (a stage in the construction process where the site supervisory staff must witness any physical tests and confirm that the results are correctly recorded);.   Progress Monitoring[w4]  At six-month intervals, the client will assess the performance of the contractor and the associated subcontractors through the predetermined criteria and marking scheme. The performance reports will be feedback to the parties concerned, and the assessment results should be taken into account in the pre-qualification of contractors for future projects. The contractor also is required to submit monthly reports to the client containing the following commercial and financial information: (a) list of sub-contracts and supply agreements awarded up to the end of each reporting period, (b) forecast of procurement activities for the next 3 months, (c) summary of actual cost relating to the works completed, (d) forecast of costs to complete the works including any revisions to the cash flow forecast, (e) report on the status of items in the risk register which is a section of the progress report to reflect the effect of work progress to anticipate target cost and (f) identify measures to be taken to mitigate risk on activities in the next three reporting periods, (g) report on the status of value engineering proposals and (h) report on the status of claims, if any. (Wong, 2006)   List of References   Abdou, O.A. (1996), ‘Managing construction risks’, Journal of Architectural  Engineering, ASCE, vol. 2, no. 1, pp 3-10.   AGCNH.ORG (2006), Construction Contract Methods, viewed 20 March 2008, http://www.agcnh.org/public/owners_guides/contract_methods.asp   Ahuja, H.N. (1980), Successful construction cost contract, John Wiley & Sons, Inc New York, NY.   AMEC (2004). Construction Management (Guaranteed Maximum Price), available at http://www.amec.com/cm/2ndlevel.asp?pageid=3024   Anderson, J.T. (2000), ‘An alternative approach to avoiding the guaranteed maximum price in contracts’, Construction Weblinks, available at http://www.constructionweblinks.com/Resources/Industry_Reports__Newsletters/May_29_2000/5_29_2000_Contracts.htm   Blake, JJR 2003, Avoid lender-contractor conflicts in the construction process, available at http://www.tbhr-law.com/newsviews/articleJRBNEREJ122003.html   Bos, D n.d., Incomplete contracting and target-cost pricing, University of Bonn discussion paper series A, available at http://ideas.repec.org/p/bon/bonsfa/524.html   Boukendour, S and Bah, R (2001), ‘The guaranteed maximum price contract as call option’, Construction Management and Economics, vol. 19, no. 5, available at http://www.ingentaconnect.com/content/routledg/rcme/2001/00000019/00000006/art00003   Chandrashekhar, I.K., Satyanarayana, K.N., and Ganesh, L.S. (2002), ‘Dispute prone contract clauses – a basis for operational flexibility in contract administration’, Global Journal of Flexible Systems Management, available at http://findarticles.com/p/articles/mi_qa4012/is_200212/ai_n9151823   Combs, S 2001, Modern risk transfer approaches, Texas Department of Transportation, available at http://www.window.state.tx.us/txdot/txdot401.html   Cost Plus Construction Contracts, n.d., available at http://www.auditnet.org/docs/CostPlus.pdf   Eckfeldt, B, Madden, R and Horowitz, J 2005, Selling Agile Target-Cost Contracts, available at http://cyrusinnovation.com/downloads/agile2005_cyrusinnovation_targetcostcont  racts_paper.pdf   Federal Highway Administration, n.d., Risk Allocation, available at http://international.fhwa.dot.gov/riskassess/risk_hcm06_04.cfm#s454   FindLaw for Corporate Counsel (2008), Sample business contracts, available at http://contracts.corporate.findlaw.com/agreements/wynnresorts/marnell.construct.2002.06.04.html   Gogulski, P (2002), Avoiding construction claims through Guaranteed Maximum Contracts, available at http://www.expertlaw.com/library/business/construction_gsm.html   Haug, L.C. (2002), ‘Your development project may be costing you more than it should’, The Business Monthly, available at http://www.bizmonthly.com/9_2002/26.html   Kumaraswamy, M, Love, PED, Dulami, M and Rahman, M (2004), ‘Integrating procurement and operational innovations for construction industry development’, Engineering Construction and Architectural Management, vol. 11, no. 5, pp. 323-334.   Love, PED, et. al. 1998, ‘Selecting a suitable procurement method for a building project’, Construction Management and Economics, vol. 16, no. 2, pp. 221-233.   Misronet Construction Information Services (2007), Conventional construction contracts available at http://www.misronet.com/targetcost.htm   Osgood, N 2004, Delivery methods (2004), payment and award techniques, available at http://ocw.mit.edu/NR/rdonlyres/Civil-and-Environmental-Engineering/1-040Spring-2004/80C6E911-E196-4850-A01C-2FBD1467365E/0/l6organization2.pdf   Park, H.K., Han, S.H. and Russell, J.S. (2005), Cash flowing forecasting model for general contractors using moving weights of cost categories, available at http://www.engr.wisc.edu/cee/faculty/ressell_jeffrey/2005_CashFlowForecasting Models.pdf   Section 7.8 (2006), Guaranteed maximum price contracts, available at http://www.princeton.edu/facilities/administrative_services/contract_administration/pdf/Section7-8.pdf   Sketch Plus Canada 2004, Construction Pricing and Contracting, available at http://www.sketch-plus.com/resources/pmBook/08_Construction_Pricing_and_Contracting-01.html   Skitmore, R.M. and Marsden, D.E. (1988), ‘Which procurement system? Towards a universal procurement selection technique’, Construction Management and Economics, vol. 6, no. 1, pp. 71-89.   The University of Birmingham (2002), Week 4: Procurement of highway maintenance,      available at http://www.worldbank.org/transport/training/birmingham-un/Week4/Week4- day2.pdf   University of Kentucky Capital Construction Division (2007), General conditions of the contract for construction by a general contractor, available at http://www.uky.edu/EVPFA/Facilities/CPMD/standards/div0/GC%20-%20Genl%20Cond%20-%20Rev%20Aug%2007.pdf   Washington State Department of Transportation (2007), Contract Administration, available at http://www.wsdot.wa.gov/BIZ/CONSTRUCTION/MoreAdmin.cfm   Wikipedia Foundation Inc. (2007), Guaranteed maximum price, available at http://en.wikipedia.org/wiki/Guaranteed_Maximum_Price   Wong, A.K.D. (2006), The application of a computerized financial control system for the decision support of target cost contracts, available at http://www.itcon.org/data/works/att/2006_19.content.01737.pdf    [w1]Can you give a pure TC definition  [w2]You may use a figure to represent the case  [w3]If you want to have a comparison between the two it is better to use a table form  [w4]Is it post-contract stage? Credit:ivythesis.typepad.com

Construction Contract

INTRODUCTION The Target Cost [w1] contracting or also known as a stipulated sum contract is the type of contact where the co...