CE452 – Engineering Management IV

Lecture Note 4

Session One (1)

Project Management – Planning

Project management is the application of knowledge, skills, tools, and techniques to the many activities required
to complete a project successfully. In construction, project success generally is defined in terms of document
control, safety, quality, cost, and schedule.
The project manager’s challenge is to balance quality, cost, and schedule within the context of a safe project
environment while maintaining control of the many construction documents. While cost and schedule may be
compromised to produce a quality project, there can be no compromising regarding safety, and proper
documentation is required to ensure compliance with contract requirements.

All construction projects are made out of 3 main elements:

1. Owner/Client/Employer
2. Design Consultant/Construction Manager
3. General Contractor/Builder (GC)

All projects must sequentially follow the path of project conceptual planning, preliminary engineering, final
design, and procurement, and then the actual construction, the testing and project close-out.
Various processes or strategies are involved at each stages of the construction management from planning until
final usage of the facility/infrastructure.

1. Project Conceptual Planning

Project planning involves evaluation of the risks that are associated with the project, particularly those related
to safety, cost, quality, and schedule. Risk analysis and risk management are critical skills essential to successful
project management.
The project manager develops the organisational structure needed to manage the project and the
communications strategy to be used within the project management organisation and with other project
stakeholders. Materials and subcontracting strategies also are developed during the planning phase.

Every project evolves from a concept through an individual, organisation/company or government agency
based on:
 Funding availability
 Individual objectives – needing a house, shed, swimming pool, etc.
 Organisational objectives – need for expansion, competition, profit, etc.
 Government objectives – new developments, economics, sustaining/improving existing facilities,
maintaining diplomacy relation, etc.
 Market factors – demands, surplus, competition, disaster, etc.

The owner originally sketch down the conceptual plan, identify his available resources (funds, lands, etc.), and
invite the design consultants to design and establish the plan.
Sometimes the owner knows the consultant (Engineer or Architect) or has a section in his organisation looking
after this process, or he invites a Construction Manager to expand the conceptual plan.
Like the PNG Government, conceptual plan is expand and design by the Department of Works or the
Department of Transportation in terms of missing road links, improving existing highways, building airports,
wharfs, railways, etc.

During the conceptual planning stage the following essential parameters are established:
 Feasibility Studies – topography, weather, population, etc.
 Drawings – architectures, structural, shop drawings, etc.
 Organisation Structures – project manager, engineer, foreman, subbies, etc.
1
  Materials Listings – suppliers, gravel, concrete, steels, etc.
 Resources Listings – machineries, personnel, etc.
 Work Methodology/Procedures Statements – laying of pavements, drain structures, columns, beam,
roofing, etc.
 Quality Assurance & Quality Control – tests, inspection points, compliances, etc.
 Occupational Health, Safety and Environmental Plan – discussed in class recently
 Legislative Permits – building boards, lands, environment, etc.
 Bonds – bid, performance, material, etc.
 Insurances – workers compensation, public and property liabilities, machineries, etc.
 Work Schedule – itemized activities, day, months, year, etc.
 Cost Estimates – ex-works, delivery, installation, machine, labour, profit, administration, etc.
 Establishment, Maintenance & Continuous Improvements

Once the parameters of the project are established, it is now the design team (engineer/architect) work to
gather information to verify and confirm the actuals of the conceptual plan in order to finalize the design.
One of the import factors for verification is the engineering components of the design, which is elaborated
further under.

2. Preliminary Engineering

Once the design team establishes the conceptual design and drawings, the engineering components have to be
critically evaluated, mathematically analysed, and justified with engineering specifications and standards
compliance before progressing the plan onwards into the Final Design.

From the initial project planning, the various streams of engineering experts are engaged depending on the
type of project to finalize the engineering conceptual design.
This will or may include:
 Geotechnical Engineer
 Structural Engineer – Steel and Concrete
 Hydraulic/Water Engineer
 Environmental/Hydrology Engineer
 Transportation Engineer
 Electrical Engineer
 Mechanical Engineer
 Architecture – Architect and Builder
 Other required professionals

Their individual inputs on the designs are then collaborated together by the design team (engineer/architect) to
finalize the information and design, inclusive of costing, schedules, resources and discussed with the owner for
variation or amendments if needed before developing the Final Design.

Sustainable Construction

The design, construction, and operation of projects have environmental, economic, and social impacts.
Sustainable construction means evaluating these potential impacts and selecting strategies that emphasize the
positive impacts while minimizing the negative impacts.
The overall sustainability of a project is greatly influenced by the design, but he builder can influence the
environmental and social impact of the construction operations.

Some contractor sustainable actions include:

 Reuse of materials and minimization of construction waste,
 Minimization of noise, light, and air pollution during construction,
 Protection and restoration of the natural environment,
 Elimination of storm water runoff and soil erosion, and
 Selections of construction materials with high recycle content.

2
Buildings that are designed and constructed to achieve sustainability goals are often referred to as “green”
buildings. There are several systems that have been developed to provide a framework for assessing the
achievement of sustainability goals.

The United States Green Building Council (USGBC) developed its Leadership in Energy and Environmental
Design (LEED) green building rating system to provide a common standard for the measurement of what
constitutes a high-performance green building. The LEED rating system has been revised several times, but it
provides for 4 levels of certification, and measures compliance with 8 categories of standards.
The 4 levels of certification are:
 Certified,
 Silver,
 Gold, and
 Platinum
The 8 categories of standards are:
 Location and transportation,  Materials and resources,
 Sustainable sites,  Indoor environmental quality,
 Water efficiency  Innovation, and
 Energy and atmosphere  Regional priority.

The level of certification achieved by a project depends on the number of credits awarded by a third-party
certification process.
Another assessment process is known as Green Globes, which distributed and run by the Green Building
Institute (GBI). The Green Globes rating system includes a web-based self-assessment tool, a rating system for
certification of a building, and a guide for enhancing the sustainability of a project.
Its ratings are based on project management, site, water, resources, building materials, and solid waste,
emissions and effluents, and indoor environment. Based on verification by a third party, certification can be
granted as 1 to 4 globes, with 4 globes being the highest. Certification levels are based on the percentage of
applicable points achieved by the project.

Building Information Models (BIM)

A building information model is an integrated database containing parametric information and design
documents for the entire building or other project. The data are used to create three-dimensional projects of
the building or may be used to depict the locations of underground utility lines or structures.

Building information modelling (BIM) involves the process of designing a building collaboratively using a
coherent system of computer models. The architectural, structural, mechanical, electrical, and plumbing
models can be brought together to discover any clashes or elements of the separate models that occupy the
same space.
BIM can be used throughout the design and construction processes to illustrate the designers’ intent, to
simulate construction sequences, and to manage construction activities. It can be used to develop quantity
take-offs of building components to support development of cost estimates, to develop site logistic plans, to
create construction schedules, and to identify opportunities for offsite prefabrication of building components.

Lean Construction

Lean construction is a continuous process for analysing the delivery of construction projects to eliminate waste
while meeting or exceeding project owner expectations.
The application of Lean principles results in better utilization of resources especially labour and materials.
While Lean construction does not replace the project master schedule, it does utilize better short-intervals
planning and control that improve the timely completion of project tasks.
The strategy of Lean supply is to provide materials when needed to reduce variation, eliminate waste, improve
workflow, and increase coordination among the trades.
The project manager’s responsibility is to create a realistic construction flow that shows the contractor’s and
the subcontractor’s dependency on material suppliers. Material deliveries are then scheduled so that the
materials arrive on site just as they are needed for installation on the project.
Another aspect of Lean construction is the expanded use of off-site construction or prefabrication of building
3
components. Reduced fabrication on the project site enables workers to concentrate on component
installation rather than construction, saving time, reducing material waste, enhancing project safety, and
enhancing quality.

3. Final Design & Documentation

Once the Owner is satisfied with all the detailed information supplied by the design team, he then gives his
authority for the process to be finalized for tendering and construction. The information gathered regarding
the project by the designers are now integrated together to produce the Final Design and documentation to be
ready for bid invitation from contractors.

All the information put together are those as discussed in the conceptual planning phase outlining essential
parameters to be established. Information used to conclude the Final Design will not be similar for any
individual project.

Documentation

A typical construction contract consists of five (5) documents:

a. The Agreement
b. The General Conditions
c. The Special Conditions
d. The Technical Conditions
e. The Contract Drawings

A special conditions section is not always used, unless there are some specific requirements or restrictions
placed on the contractor for the project. Some project owners use a project manual that contains the general
conditions, special conditions, soils report erosion control requirements, prevailing wage rates, and other
project related documents.

The invitation to bid or request for proposals (RFP) is generally not considered contract documents.

Some public owners issue a public notice to bidders providing a brief description of the project, the method for
obtaining the bid package, as well as the date, time and location for submission of bids (most tender in PNG).

Other owners call their solicitation documents instructions to bidders or instructions for bidders.
Any of the contract documents can be modified by addenda or change orders. Addenda are issued by the
owner prior to award of the contract, and change orders are executed between the owner and the contractor
after award. Any addenda used are also considered part of the contract documents.

The agreement describes the project to be constructed; the pricing method to be used and cost, if lump sum, or
the fee structure, if cost-plus; the time allowed for construction; any liquidated damages; and the name of the
owner and the contractor.
Supporting document may be incorporated into agreement by reference or as exhibits. Examples might be a
geotechnical evaluation of the project site, erosion control plan requirements, traffic control plan
requirements, and hazardous materials management plan requirements. These documents then become part
of the contract documents.

The general conditions provide a set of operating procedures that the owner typically uses on all projects. They
describe the relationship between the owner and the contractor, the authorities of the owner’s representative
or agents, and the terms of the contract.
Some owner use standard general conditions published by professional organisations. Topics typically
addressed in the general conditions are:
 Rights and responsibility of the owner,
 Authorities of the designer or construction manager,
 Rights and responsibility of the contractor,
 Bonds and insurance,
4
  Changes in contract scope of work,
 Changes in contract price or fee,
 Changes in contract time,
 Inspections
 Uncovering defects and correction of works,
 Protection of personnel and property,
 Progress payments,
 Subcontracting,
 Contract close-out procedures,
 Warranty of work,
 Resolution of disputes, and
 Early termination of the contract.

The special or supplementary conditions contain any unique requirements for the specific project. Examples of
special conditions requirements are:
 Site access restrictions,
 Site security requirements,
 Permission requirements for night or weekend work,
 Location of parking for contractor’s employees,
 Listing of equipment furnished by owner,
 Required insurance coverage limit, and
 Mandatory (prevailing) wage rates (generally only on public projects).

Owners who use standard general conditions also may use the special conditions to modify selected general
conditions requirements for a specific project.

The technical specifications provide the qualitative requirements for construction materials, equipment to be
installed, and workmanship. There are four (4) types of technical specifications used in construction contracts:
a. Descriptive specifications detail the required properties and quality of a material, assembly of materials, or
products;
b. Performance specifications establish functional criteria for acceptable materials or products;
c. Proprietary specifications identify acceptable products by brand name, model number, or trade name; and
d. Reference standard specifications reference well-known standards such as the American Society of Testing
and Materials (ASTM), American Concrete Institute (ACI), PNGS 1001, etc.

The drawings show the quantitative requirements for the project and how the various components go together
to form the completed project. The drawings may be printed on paper or produced electronically. The initial
set of drawings issued to the contractor is updated, as required, throughout the duration of the project to
reflect modifications made by change orders.
These updated construction drawings become the basis for the set of as-built (or record) drawings that the
contractor provides to the owner at project close-out.
The drawings for a typical construction contract are organised as shown below. Not all the types of drawings
will be used on all projects.
 Architectural drawing,  Mechanical drawings,
 Control drawings,  Plumbing drawings,
 Electrical drawings,  Shoring drawings,
 Equipment drawings,  Site or civil drawings,
 Fire protection drawings,  Structural drawings, and
 Landscaping drawings,  Room finish, light fixture, and plumbing
 Low voltage data systems drawings, fixture schedules.

Contracts awarded in the construction manager-at-risk and design-build project delivery methods
typically do not have complete drawings and specifications. This is because the construction manager-at-
risk contract is awarded early in the design process before man design decisions are finalized, and the
design-build contract is awarded before design is started.
5
4. Procurement & Tendering

Owners who procure contracts use either a bid or a negotiated procedure. The owners may require
potential contractors to submit documentation of their qualification for review before being allowed to
submit a bid or proposal (selective), or the owners may open the solicitation to all qualified contractors
(competitive).

The first method is known as prequalification of contractors, and only the most qualified contractors are
invited to submit a bid or proposal. Private owners can use any method they like to select a contractor.
Private owners often use contractors they have had good experience with in the past and may ask a
select few or even only one contractor to submit a proposal.

Bid method

Bid contracts generally are awarded solely on price. The owner defines the scope of the project, and the
contractors submit lump sum bids, unit price bids or a combination of both.
The owner awards the contract to the contractor submitting the lowest total price for the project. Since
actual quantities of work are not known for unit priced items, the contractor’s unit prices are multiplied
by the estimated quantities provided on the bid form by the owner and summed. The contractor
submitting the lowest sum is selected for award.
The pre-bid conference usually is held in the designer’s office or at the project site to resolve any
contractor’s questions relating to the project or the contract.

The lump sum contract may require a single price for the entire scope of work or require separate prices
for individual portions of the scope of work. Some contracts may have additive or deductive items that
must be priced during the bidding process.

Negotiated method

Negotiated contracts are awarded based on any criteria the owner selects. Typical criteria include: cost
(or fee in the case of cost-plus contract), project duration, expertize of the project management team,
plan for managing the project, contractor’s safety record, contractor’s existing work load, and
contractor’s experience with similar projects.
Most negotiated contracts procured by public owners involve a two-step procedure.
First, prospective contractors are prequalified after review of their prior work experiences and safety
records.
Then a short list of the most qualified contractors (generally 3 to 5) are invited to submit proposals
containing project specific information required by the owner. As part of the evaluation procedure,
owners may require the proposed project management teams to brief their plans for managing the
project. This may include preparation of a project schedule and budget.
The owner than selects the contractor submitting the best proposal and negotiates a contract price, and
maybe a duration.

The pre-proposal conference is similar to the pre-bid conference used in a bid procedure. The major
difference in a negotiated procedure is the opportunity for the owner to discuss the contractors’
proposals, modify contract requirements, and clarify any issues before requesting best and final offers.
The owner selects the contractor submitting the best value final proposal, which may not be the least
cost.
Some owners use a more informal negotiating procedure, particularly if they have a long-term
relationship with their contractors. Such an owner may simply ask one or a few contractors to submit
proposals. After reviewing the proposals, the owner would negotiate contract terms with the selected
contractor.

6
 Project owner invites prospective Contractors receive Request for
contractors to submit their Qualifications and decide whether
qualifications for the project or not to submit bids

Owners review contractors’ Contractor submit qualifications

qualifications and select “short documentation
list” or 3 to 5 best qualified
contractors

Pre-qualification procedure for awarding contract on a negotiate basis

Project owner issues invitation to Project owner issues Request for

Bid to prospective contractors Proposals to contractors on the
“short list”

Contractors receive invitation to Owner and designer conduct pre-

Bid and decide whether or not to proposal conference on the “short
submit bids. list”

Owner and designer conduct a “Short list” contractors submit

pre-bid conference with proposal documentation
prospective contractors

Owner reviews contractors’

Contractor prepares and submits proposal
bids

Owner conducts discussion with

each contractor submitting a
Bids are opened and evaluated proposal and issues letter of
by project owner clarification to all contractors’
submitting proposals

Owner verifies that contractor Owner requests Best and Final

submitting lowest bid complied Proposals
with invitation to Bid requirement

Contractors submit Best and Final

Owner verifies that contractor Proposals
lowest bid is qualified to perform
the work

Owner evaluates final proposals

using evaluation criteria
Contractor submitting lowest bid
submits bonds (if required)

Owner conductions negotiations

with contractor submitting highest
value proposal
Contractor prepares and submits
bids

Contractor selected to receive

contract submits bonds (if
Procedure for awarding a contract on a bid basis required)

Owner awards contract to

contractor

Procedure for awarding a contract on a negotiated basis

7
Bonds

Bonds are used to protect the owner from some of the risks associated with construction. The concept
of a bond is that a third party (called the surety) guarantees to the owner that the contractor will
perform.
When the contractor completes its obligations under the terms of the contract, the bond expires.
Similar bonds also may be required by general contractors (GC) to guarantee the performance of
subcontractors.

There are 4 types of bonds typically used in construction:

1. Bid bond – guarantees that the low bidder will submit performance and payment bonds and execute
a contract to complete the project at the price bid. If the contractor does not, the bid bond becomes
payable to the owner as compensation for damages sustain, which are the additional costs incurred
by awarding the contract to the next lowest bidder.
2. Performance bond – guarantees that he contractor will complete the project in accordance with the
contract plan and specifications. If the contractor fails to perform or defaults, the bonding company
either must complete the project in accordance with contract requirements or compensate the
owner for additional costs incurred by hiring another contractor to complete the project.
3. Labour and material payment bond – guarantees that contractor will pay all suppliers, and
subcontractors and that no aliens will be placed on the completed project. If the contractor is unable
or refuses to pay the work performed or materials used on the project, the surety will pay the
claimants.
4. Maintenance bond (sometimes call warranty bond) – guarantees that the contractor will return to
the completed project and repair or replace any defective or inferior materials or workmanship
during the warranty period (defective liability period).

Contractor

Step 1: Contractor obtains

services of surety

Surety Step 3: Owner and contractor

execute contract in which
contractor’s performance
Step 2: Surety executes is guarantee by surety
bond guaranteeing
performance of
contractor

Owner (obligee)

Relationship between owner, surety and contractor

Private owners may or may not require bonds on their projects. However, lending institutions often
require bonds before financing private projects. Contractors purchase the bonds from a surety (also
known as a bonding company) typically through a broker.
Surety underwriters determine the amount of bonding that they will provide to an individual contractor
after evaluating the character, capacity, and capital resources of the contractor.

Capital refers to the financial strength of the contractor, capacity refers to the number and sizes of
projects the contractor can handle, and character refers to the contractor’s reputation for completing
projects on time and satisfying owners.

8
Insurance

Insurance is purchased by the contractor to cover some of risks associated with project. An insurance
policy is a two-party contract under which the insurer (insurance company) promises, for a consideration
(fee or premium), to assume the financial responsibility for a specified loss or liability for a specified time.
The amount of risk transferred is limited to the amounts stipulated in the individual insurance policy.
Minimum coverage requirements generally are specified in the contract documents, and deductibles may
be used to reduce insurance premiums if the contractor is willing to assume a portion of risk.
The following eight (8) types of insurance policies typically are purchased by the contractor:

1. Builder’s risk insurance – protects the contractor in the event the project is damaged or destroyed
while under construction. Builder’s risk insurance may be all-risk or limited to named perils such as
fire, wind, hail, and explosion. All-risk insurance covers all damage unless there a risk exclusion such
as earthquake.
Builder’s risk insurance generally includes coverage of materials stored on site and may include
coverage of materials in transit and stored off site. Builder’s risk policies typically include a standard
exclusion for loss or damage resulting from faulty or defective workmanship or material. Damage to
contractor’s equipment stored on the construction site typically is not covered by builder’s risk
insurance. Builder’s risk insurance is typically purchase with coverage extending to the general
contractor, the project owner, and all subcontractors working on the project. The subcontractors are
usually listed as additional insured on the builder’s risk insurance policy.

2. Generally liability insurance – protects the contractor against financial losses that may result from
injuries or property losses sustained by third parties as a consequence of the contractor’s activities.

3. Property damage insurance – protects the contractor against financial loss due to damage to the
contractor’s property, such as an office building, warehouse, or maintenance facility.

4. Equipment floater insurance – protects the contractor against financial loss due to physical damage
to equipment from named perils or all risks and theft. Coverage is for owned, leased, and rented
equipment not operated on streets and highways.

5. Automobile insurance – protects the contractor against claims from another party for bodily injury or
property damage caused by the contractor owned, leased, or rented automobiles and equipment
operated over the highway. Coverage may include damages to the automobiles and equipment.

6. Umbrella liability insurance – provides coverage against liability claims exceeding that covered by
standard general liability or automobile insurance. For example, a contractor may have a general
liability insurance policy covering up to K2 million per occurrence and an umbrella policy covering up
to K50 million per occurrence.

7. Workers’ compensation insurance – protects the contractor from a claim due to injury or death of an
employee on the project site. Workers’ compensation insurance is no-fault insurance in which the
employer cannot deny a claim by an insured employee and the employee cannot sue the employer
for injuries sustained on the job.

8. Errors and omissions insurance – protects the contractor against claims due to the professional
negligence of design professionals that the contractor may employ.

Some owners purchase the builder’s risk insurance, while others require the contractor to purchase it.
Coverage expires upon acceptance of the completed project by the owner. Workers’ compensation
insurance is either purchased form a commercial insurance company or a state fund. Some state
governments require employers to purchase workers’ compensation insurance form a monopolistic state
fund, unless they choose to be self-insuring. To be self-insuring, the contractor typically must meet
certain size and financial requirements.