Project Initiation

Contractural Arrangement Project Management requires teamwork among the three principal contracting parties. The owners team must provide the projects needs, the level of quality expected, a permissi le udget, and the required schedule. They must also provide the overall direction of the project. The designers team must develop a set of contract documents that meet the owners needs, udget, required level of quality, and schedule. !n addition the work specified in the contract documents must e constructa le y the contractor. The contractors team must efficiently manage the physical work required to uild the project in accordance with the contract documents. There are numerous com inations of contractual arrangements for handling a project. "ig. illustrates the fundamental arrangements in their simplest form. #ach of these arrangements are riefly descri ed in the following paragraphs. $% &esign'(id'(uild (% &esign'(uild
Project Owner

Project Owner

Design/Buil d Firm Designer A/E General Contractor Contractor Contractor Contractor

)% )onstruction Management *)M+

&% ,wner'$gent
Owner
In house Design Contract Design

Owner

A/E

CM

Owners Contract Coordinator

Contractor

Contractor

Contractor Contractor Contractor Contractor

$ design' id' uild contract is commonly used for projects that have no unusual features and a well% defined scope. !t is three party arrangement involving the owner, designer and contractor. This

method involves three stpes- a complete design is prepared, followed y solicitation of competitive ids from contractors, and the qward of a contract to a construction contractor to uild the project. Two separate contracts are prepared one to designer and the one to the contractor. .ince a complete design is prepared efore construction, the owner knows the project configuration and approximate cost efore construction, the owner knowsthe projects configuration and approximate cost efore commencing construction. )onsidera le time can e required ecause each step must e completed efore starting the next step. $lso changes during construction can e expensive ecause starting the award of construction contract is usually ased upon a lump%sum, fixed%price id efore construction, rather than during construction. $ design' uild is often used to shorten the time required to complete a project or to provide flexi ility to owner to make changes in the project during construction. !t is a two way party arrangement etween tha owner and the design' uild firm. .ince the contract with the design' uild firm is awarded efore starting any design or construction, a cost reim ursa le arrangement is normally used instead of lump%sum fixed%cost arrangement. This method requires extensive involvement of the owner for decisions that are made during the selection of design alternatives, and the monitoring of costs and schedules during construction. $ construction management contract can e assigned to a construction management *)M+ firm to coordinate the project for the owner. The )M contract is a four party arrangement involving the owner, designer, construction management firm and the contractor. (ut there has een de ate regarding the )M process and the amount of responsi ility assigned to the )M y the owner. The asic )M concept is that the owner assigns a contract to a firm that is knowledgea le and capa le of coordinating all aspects of the project to meet the intended use of the project y the owner. $n owner'agent arrangement is sometimes used for handling a project. .ome owners perform part of the design with in%house personnel and contract the alance of design to one or more outside design consultants. )onstruction contracts may e assigned to one or multiple contractors. $lthough uncommon, an ownermay perform all design and construction nactivities with the in%house personnel. /hen a project is handled in this manner, it is sometimes refered to as a forced%account method. There are two general types of owners- single% uilder owners and multiple 0 uilder owners. .ingle% uilder owners are organisations that do not have a need for projects on repetitive asis, normally have a limited project staff, and contract all design and construction activities to outside organi1ations. They usually handle projects with a design' id' uild or construction management contract. Multiple% uilder owners are generally large organi1ations that have a continual need for projects, and generally have a staff assigned to project work. They typically will handle small%si1ed, short%duration

projects y design' id' uild. "or a project in which they desire extensive invol ement, a design' uild, construction management, or an owner' agent contract arrangement is often used. $n owner can select a variety of ways handling a project. The contract management that is selected depends on the resources availa le to the owner, the amount of project control the owner wishes to retain, the amount of involvement desired y the owner, the amount of risk that is shared etween the owner and the contractor, and the importance of the cost and schedule. Phases of a project $ project is in continual state of change as it progresses from his start, as a need y the owner, through design development and finally, construction. "ig. shows the various phases during the life of a project. $s the project moves from one phase to another, additional parties ecome involved and more information is o tained to etter identify the scope, udget, and schedule. There are times when a project recycles through a phase efore gaining management approval to proceed to tha su sequent phase. &uring each phase, it is the responsi ility of the project manager to keep all work within the approved scope, udget, and schedule. !n the early phases of design development, there may not e sufficient information to define the scope accurately enough to know the work to e performed. $ characteristic of most project managers is 2 ! can do it3. This characteristic often leads to the assignment of work to the project manager efore the work is completely defined or eing approved. This applies to the project manager in either the owner, designer, or contractor organi1ation. The people who work around the project manager includes clients, su ordinates, project team mem ers, upper management, and colleagues who are themselves project managers. $ project manager can not effeciently utli1e his or her time or effectively manage when special requests are made for work that is not well defined. !f these conditions exist, the work should e performed on a time and material asis for actual work accomplished, until an adequate scope, udget, and schedule can e determined. $nother option is to define a scope, with a matching udget and schedule. Then when there is a deviation from the defined scope, the project manager can advice the owner of the readjusted udget and schedule caused y the change in scope and o tain their approval efore proceeding with the work. &uring the development of conceptual configurations and alternatives, the total cost of the project must e considered. This can only e achieved through expensive input from the owner who will ultimately use the project, since the cost to operate and maintain the facility after completion is a major factor in project design. .ometimes the udget is a controlling factor which causes the owners contemplated scope to reduced or expanded. !f this condition exists, care msut e exercised to ensure the project meets the minimum need of the owner and there is a clear understanding of the level of

quality that is expected y the owner. !t is the duty of the project manager to ensure that the project development meets the owners expectations.

Owners eed !or Project "e#uest !or Engineering $tud%

Conce&tual con!igurations and alternati'es !or technical !easi(ilit% De'elo&ment o! cost and schedule !or each alternati'e "e'iew (% Owner Economic anal%sis !or rate o! return) Pa%(ac* &eriod) Ca&ital reco'er% or Bene!it/Cost ratios
Owner "e#uest !or Further $tud% o! Project

Owner Authori+es Project

Owner A(andons Project

Final Design o! &roject Detailed drawings) ,ritten s&eci!ications) and Pre&aration o! contract documents Procurement o! Bul* Materials) $&ecial E#ui&ment) Construction Contract Construction Contractors Administration o! Contracts !or Ph%sical ,or* in Place Project Close Out $%stem -esting) Final ins&ection) As. (uilt Drwaings
The owners authorisation to proceed with the final design places pressure on the designer to complete the contract documents at the earliest possi le date. 4owever, the quality and completeness of the id

documents have a great influence on the project cost. $dequate time should e allocated to the designer to produce a design of the project that is constructa le and will perform for the owner with the least amount of maintenance and operating costs. "or large projects the procurement of ulk material and special equipment has a large impact on the construction schedule. The project manager must ensure that long lead%time purchase items are procured. This must e coordinated with the owners representative on the project team. The type of contract chosen and the contractors selected to id the project influence cost, schedule, and quality. The project manager plays an important role in process of pre%qualification of contractors, the evaluation of ids, and recommendations of the award of construction contracts. Owners Study $ project starts as a need y the owner for the design and construction of a facility to produce a product or service. The need for a facility may e recogni1ed y the operating division of the owner, a corporate planning group, a top executive, a pursuing the project. The first requirement of the owner is o jective%setting. This is important ecause it provides a focus for scope definition, guides the design process, and influences the motivation of the project team. The process of setting involves an optimi1ation of quality, cost, and schedule. The owners o jective must e clearly communicated and understood y all parties, and serve as a enchmark for the numerous decisions that are made throughout the duration of the project. The magnitude of the owners study varies widely, depending on the complexity of the project and the importance of the project to the owner. !t is an important study ecause the goals, o jectives, concepts, ideas, udgets, and schedule that are developed with greatly influence the design and construction phases. The owners study must conclude with a well defined set of project o jectives and needs the minimum and a required project completion date. "ailure to provide any of the a ove items starts a project in the wrong direction and leads to future pro lems. .ometimes an owner will contract parts of the study to an outside consulting firm. !f an outside firm is utili1ed, the owner must e involved to e certain his or her needs are represented. The thoroughness and completeness of the owners study has a significant impact on total project cost. $n inadequately defined project scope leads to changes during design and'or construction. $n incomplete scope leads to costly changes orders and frequently, to claims and disputes which lead to oard of directors, or an outside consulting firm. 5enerally one or more persons are assigned to perform a needs assessment to study the merits of

major cost overruns, delays, and other pro lems. #xperienced project managers agree the time achieve savings and reduce changes is in the early life of the project, not at all start of construction. This concept is illustrated in fig.

Owners need and project objectives $n owner must know his need or her needs and o jectives efore any productive project work can e started. !f the owner doesnt know what the project requires, then no one knows what to do. &efining owner need is the first step in road range of preproject activities that lead to scope definition. $ project manager cannot for the project team to execute the project without a clear scope definition. The process of identifying owner needs and o jectives requires the involvement of a wide range of people within the owners organi1ation. This includes top managers and investors, financial personnel, and in particular the people who will use and'or operate the project after it is constructed. The process of identifying owner needs and o jectives usually involves numerous activities and discussions. !t is important that 2what is needed3 e separated from 2what is wanted3. /ithout constraints of cost and schedule, focus easily shifts from what is needed to what is wanted. This makes a project unafforda le and non%feasi le. (ecause there are always constraints of cost and schedule, the owner must develop a project definition ased upon need. This process involves an optimi1ation of quantity, quality, cost and schedule. The owners organi1ation must reali1e that it is their responsi ility to receive an issue related to project needs and o jectives efore assigning the project to the project manager. !t is not the duty of

project manager or project team to define the owner needs. 6ague owner leads to project changes, scope growth, cost overrun, rework, and misunderstandings among team mem ers. The est way to determine needs, and information related to needs, is to talk to the people who will use the facility after it is constructed. $ part of owners need and o jectives study is assessment of the total project udget ecause

management ecause management will generally will not approve starting the design of a project unless the pro a le total cost is known. The project udget at this stage of development is ased on the parameter costs, such as cost per square foot of uilding or cost per acre of site development. !f the anticipated project costs exceeds the amount that management is willing to approve, then it is necessary to reduce the scope of the work. "or example, the employees office uilding and maintenance shop may e retained in the project and the warehouse eliminated. This decision would e made if the warehouse is the lowest priority of the three uildings. )onsiderations would e given to construction of the warehouse in the future when the funds are availa le, after completion of site work, the employees office uilding, and the maintenance shop. Project Scope Definition Project scope identifies those items and activities that are required to meet the needs of the owner. "or example, a project may need three uildings consisting of an employees office uilding, a warehouse, and a maintenance shop. !n addition, the project may need a crushed aggregate for storage of heavy equipment and ulk materials. #ach of the a ove items should e defined in further detail, such as num er of employees in each uilding, type and amount of storage needed in the warehouse, type of maintenance required, si1e and weight of equipment, etc. This type of information is needed y the project manager and team to define the work required to meet the owners needs and o jectives. The purpose of project scope definition is to provide sufficient information to identify the work to e performed, to allow the design to proceed without significant changes that may adversely affect the project udget and schedule. 7ust to state that a project consists of three uildings and an outside storage area is not enough information to start the design phase. To assist the owner in this effort, a comprehensive check list of items should e prepared. Ta le 8%9 is an a ! "eneral 9.9 .i1e of plant capacity 9.8 Process units to e included 9.: Type of plant feedstock reviated check list for

9.; Products to e made, initial and future 9.< .hould plant e designed for minimum investment 9.= 4ori1ontal vs. stacked arrangement of equipment 9.> ?ayout and provisions for future expansion 9.@ $ny social relationships, *e.g. involvements of other companies+ #! Site information 8.9 $ccess to transportation, air, waterway, highway, railway 8.8 $ccess to utilitiesA water, sewer, electrical, fire protection 8.: )limate conditionsA moisture, temperature, wind 8.; .oil conditionsA surface, su surface, earing capacity 8.< TerrainA special precautions for adjacent property 8.= $cquisition of landA purchase, lease, expansion potential 8.> .pace availa le for construction $! %uildings :.9 Bum er, types, and si1e of each :.8 ,ccupancyA num er of people, offices, la oratories :.: !ntended usageA offices, conferences, storage, equipment :.; .pecial heating and cooling requirements :.< Cuality of finish work and furnishings :.= ?andscaping requirements :.> Parking requirements &! 'egulatory 'e(uirements ;.9 PermitsA construction, operation, environmental , municipal ;.8 Degulations and codesA local, state, federal ;.: .afetyA detection systems, fires, emergency power

;.; #nvironmentalA air, liquids, solids, wetlands ;.< Preservations restrictions

Project scope definition of a petrochemical project. The ta le is provided for illustrative purposes only and does not include all of the items that should e considered. $ similar check list should e prepared for the other types of projects. #xperienced design and construction personnel can provide valua le input to assist an owner in the development of a check list for project scope. (efore design is started, the scope must adequately define delivera les, that is what will e furnished. #xamples of delivera les are- design drawings, record drawings, reim ursa le expenses, etc. $ll of this information must e known efore starting design ecause it affects the project udget organi1ation must e involved early in the projectA and he or she will require input from experienced technical people who represent every aspect of the proposed project. $ realistic udget and schedule cannot e determined for a project without a well defined scope of work. Thus, the project scope should e developed first, then a project udget and schedule developed that matches the scope. !t is the relationship all project managers to keep all work within the approved scope, and all costs and schedule within approved limits. There are times when an owner may ecome excited a out the merits of a project and anxious to egin work as soon as possi le. This usually occurs when a new product is developed of a government official decides a facility should e uilt at a particular time or location. The project manager must thoroughly review the project scope and e certain that it is sufficiently well defined efore starting work on the project. !f this is not done, the project team is forced into defining scope while work is eing performed, which leads to frustration and adverse relationships. The simple solution to this pro lem is to lock in the scope at the eginning of the project, efore staring work, to make certain that all parties know thw full extent of the required work. Project Strategy !n the early stages of the project development the owner must develop the project strategy a plan to carry out tasks in a timely manner. Project strategy forms the framework for handling the project. !t includes thye contracting strategy, the roles and responsi ilities of the project team, and the schedule for design procurement, and constructions. )ontract strategy identifies the overall organi1ational structure and the allocation of risk among the contracting parties. !n the early stages of the project development the owner must e contracted to outside organi1ations. The owner may have a large engineering staff that can handle the entire projectA

design, procedure, and construction. !n other cases the owner may have only have a limited staff for projects, which require the assignment of contracts to outside organi1ations that have the capa ility to perform the work that is required. $lthough a large organi1ation may have the in%house capa ility, it may not e a le to schedule the work when it is needed due to prior commitments. The owners organi1ation must make a realistic assessment of that can e accomplished in house and an outside firms capa ility to perform the work, then evaluate the cost and schedule trade%offs of purchasing outside services. The type of contract chosen defines the allocation of responsi ilities and risks for each party and influences the project schedule. !f a fast track project is important in order to o tain an early return on the project investment, then a cost%plus%fee contracting strategy may e desira le. !f there is ample time to complete the entire design, a traditional design' id' uild approach with a lump%sum contract may e desira le. The owner must evaluate all possi ilities, identify the advantages and disadvantages, and consider what est meets his or her needs, o jectives, udget constraints, and schedule requirements. The project strategy includes a schedule for the timing of design, procurement, and construction tasks. The purpose of the owners schedule is to identify and interface overall project activities- design, procurement, and construction. $ worka le schedule must e developed that integrates the activities of all parties involved in the project schedule should e approved y all parties.