CIVE1149 Construction

(Project) Management (Week 2)

Dr Kevin Zhang
Room: 10.13.06
Tel: 9925 3824
kevin.zhang@rmit.edu.au

Project Procurement
Management

Project Delivery Systems

Contracts and Tendering

Project Participants

Architect
Structural engineer
Service engineers
(Mechanical, electrical,
hydraulics, fire
protection)
Interior designer
Environmental designer
etc.

Designer

Client

Owner (developer)
Financier
Land supplier
etc.

Main contractor
Subcontractors
Suppliers
etc.

Project
Organization

Builder

Client Requirements

Ideal goals:

Low cost
High quality
Rapid completion

IS IT POSSIBLE???

In reality setting up the priority

Is there a particularly time limit?

How important is this deadline?
What are the cost limitations?
Is a particular standard of quality required to attract
customers/tenants?
The clients willingness to take risks
The likelihood of the client wanting to modify the design as
time progresses

Project Delivery Systems &

Contractual Arrangement

The interrelationships between the major

parties collectively is referred to as the
Project Delivery System. It presents the
contractual structure and compensation
arrangement that the owner uses to acquire a
completed facility that meets its needs.
The details of these relationships in the
delivery of a project are specified in a
contractual form which is called contractual
arrangement.

Typical Project Delivery

Systems

Traditional
Construction Management
Project Management
Design and Construct (Build)

Novations
Public Private Partnership (PPP)
Project Alliance

Major parameters pertaining

to PDSs

Contractual Arrangements (-----------)

Determine to whom each party is contractually
bound (Contract applies)

Functional Arrangements (

Determine who is responsible for overseeing the

performance of each party in the PDS.

Options for Contract Price

The decision made on the most appropriate option

of project delivery system will be closely followed by
a decision on the most appropriate option for the
contract price.
The price payable under the contract to members of
a project team for specific work and services may
either be pre-ascertained in the form of a lump-sum
(documentation is clear) or price rates/schedule of
rates (scope is not clear) called fixed price
contracts), or determined when a project (high risk
profile, few decided information) has been
completed (called cost-plus or Fee +
reimbursement contracts).

Traditional System

Also called Design Bid and Build

(D/B/B)
Separation of design and construction
process
Popularly used in government projects
in the old days.

Client

Architect

Tendered Lump Sum

Negotiated Fees

Builder
Consultants

Q.S.
subcontractors

Suppliers

Traditional System

Client (Principal, Proprietor):

Acquire land and arrange finance;
Appoint an architect to prepare and
coordinate the design and documentation
and manage the project potentially;
Appoint a builder to organize the
construction;
May select to appoint specialist contractors.

Traditional System (cont.)

Architect:
Appointed by the client with a contract;
Carry out the conceptual and detailed designs;
Organize design team including structural engineer,
service engineer (mechanical, electrical, fire safety,
hydraulic engineer), landscape designer, interior designer,
quantity surveyor, etc;
Have contractual links with these specialist consultants
and engineers;
Work as a project manager for the client, and oversee the
whole project design and construction;
Arrange documentation and administer the tender process
and help the client appoint a builder (most likely based on
lowest price).

Traditional System (cont.)

Builder (Contractor):

Appointed by the client with a main or head contract;

Appoint subcontractors and material suppliers with
contractual arrangements (usually with lump sum price);
Fulfil all the obligations under the contract, namely to
build the facility within the agreed cost and time
budgets and to the required quality standards;
Accept liability for construction performance and
coordinate the overall construction process;
Manage nominated specialist contractors;
Paid a lump sum plus or minus any variations incurred;
Have a communication link with the architects rather
than the client.

Traditional System (cont.)

Risk sharing:
Client has a low risk profile;
Architect works as the agent of the client. A claim
cannot be made against the agent for acts performed as
agent of the client but must be made against the client;
Contactor is responsible for the construction quality and
time, and take the risk of subcontracts.
The contract price paid to the contractor may be in the
form of a lump sum, a schedule of prices, or a mixture
of both, or even cost-plus.

Traditional System (cont.)

Advantages

a fairly accurate estimate of the cost and construction time;

The risk associated with design changes is expected to be
low
The clients financial risk associated with the construction
stage is relatively low;
The availability of full documentation and the responsibility
of the design consultant to administer the contract is
expected to ensure the highest level of quality control;
Selection of the low bidder ensures that the lowest
responsible price is obtained.
All bidders are treated equally and there are no favourites.
Standard forms of contracts exist in which the legal rights
and obligations of the parties have been well defined.

Traditional System (cont.)

Disadvantages
Construction cannot start until the project is fully designed
and documented, which extends the period of the whole
project and increase the financial risk and burden of the
client;
The builder tends to be in an adversarial situation with the
architect/client (high potential of conflict);
The variations of design after the award of contract are
costly;
The lack of the builders technological and management
expertise and input into those aspects of the design will
weaken the constructability;
If the builder goes bankrupt, payments made to the
builder not passed onto the sub-contractor may have to be
paid again.

Traditional System (cont.)

Contract Strategies

The design for the project is established without involving

the prospective general contractor. This is conditional on
the design team having broad site experience in
availability of resources and knowledge of
constructability, industrial relations and safety aspects.
If this is not the case, the client should appoint a
consultant with construction knowledge on a fee basis;
The client requires the architect (consultant) to provide
advice and monitoring the project through design,
documentation and construction stages;
The time available for the project is such that the detailed
design is completed before construction commences;
Standard forms of general conditions of contract are used
for the traditional system (AS4000-1997).

Construction Management
Construction Management is an example of
managed delivery method, which is
characterised by a more active role for the
client as an active member of the project
team.
It attempts to unite a three-party team of client,
architect and construction manager into a
non-adversarial, cohesive contractual
relationship, all with a common goal to serve
the project objectives and the clients needs
in the best possible way.

Client

Fee + Reimbursable

Fees

Architect

Construction manager
Q.S.
Tendered
Amounts

Consultants

Subcontractors

Suppliers

Agency Construction Management

Client

Fee + Reimbursable, etc.

Fees

Architect

Construction manager
Q.S.
Tendered
Amounts

Consultants

Subcontractors

Suppliers

Non-Agency Construction Management

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Construction
Management (cont.)

Client:
Acquire land and arrange finance;
Appoint an architect to prepare and coordinate the
design and documentation (together with the
construction manager);
Appoint an construction manager to organize the
construction and seek his advice on the design as
well;
Select and appoint subcontractors based on the
recommendation of construction manager;
Work in the project team actively and is involved
in the projects day-to-day affairs.

Construction
Management (cont.)

Architect:
Appointed by the client with a contract;
Carry out the conceptual and detail design with the
knowledge input from the construction manager;
Organize design team including structural engineer,
service engineer (mechanical, electrical, fire safety,
hydraulic engineer), landscape designer, interior
designer, quantity surveyor, etc;
Have contractual links with these specialist
consultants and engineers;
Help construction manager arrange documentation
and administer the tender process.

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Construction
Management (cont.)

Construction Manager:
Appointed by the client in two optional ways (agency CM or nonagency CM);
Under the agency CM,

CM can be a contractor, design consultant or any other consultant.

The key selection criteria in appointing a CM is the knowledge and
experience that the person has of managing construction;
CM operates as the clients agent in managing construction,
coordinating and administering the activities of subcontractors;
CM also helps the client prepare documentation (including technical
issues in the design), separate the construction work into trade
packages and select subcontractors (with direct contract with client
but overseen by the CM);
CM has no contract to build.
CM has direct communication with both the client and the architect.

CM is paid a fee for overheads and profit margin and is

reimbursed for incurred construction costs.

Construction
Management (cont.)

Construction Manager:
Under the non-agency CM (not typical)

Before the construction stage, non-agency CM undertakes

much the same tasks as agency CM. However, after the
commencement of construction, non-CM contracts to manage
and construct the construction (as compared with agency
CM);
The construction work will not be divided into trade packages
(separate contracts with the client). CM prepares
documentation and selects subcontractors directly (with
contract); the CMs role looks like a contractor under the
traditional system;
The CM constructs the facility through the work of the
subcontractors. Normally, the CM normally does not
undertake construction tasks himself.

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Construction
Management (cont.)

Risk sharing:
Client takes most of the risks (particularly under the
agency CM);
Under the non-agency CM, the CM takes the risk of
construction;
Architect takes the risk of design;
Agency CM is paid with a fee plus reimbursement +
Incentives (which indicates a risk sharing such as
guaranteed construction sum . For non-agency CM,
use guaranteed construction sum or Cost-Plus).

Construction
Management (cont.)

Advantages

Fast track;
Improved constructability;
Non-adversarial climate can improve work efficiency;
Since the client assumes more risk, the project is less reliant on
risk contingencies and the client has a better control over risk;
Greater flexibility to make design changes as the project
proceeds;
The CM method should attract more competitive prices from
separate contractors;
Information flow is greatly enhanced;
Teamwork reduces the incidence of contractual disputes;
Breaking up work into packages allows the client to control the
budget and to change, omit or postpone work where the
budget is likely to be exceeded.

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Construction
Management (cont.)

Disadvantages
Total construction cost is unknown until the project is
completed;
The client carries more risk and is more exposed to the
adverse impact of risk (much of the financial risk is transferred
from the builder to the client);
The clients involvement and evolution of the design process
can have a detrimental effect on the cost;
Unless special provisions are made there may be no incentive
for the CM to contain costs;
Liquidated damages are almost impossible to enforce because
of the difficulty of proving who is to blame;
Non-agency CM could have a conflict interest with the client
when exposed to the possibility of a financial loss.

Construction
Management (cont.)

Contract Strategies

Depending on the extent of work and the degree of risk, a

architect may be engaged on a lump sum or a percentage fee
contract; the architect is engaged early in the conceptual stage;
A construction manager is engaged as early as possible, either
at the end of the conceptual stage or in the beginning of the
design stage. Under the agency CM, the CM is contracted with
lump sum management fees with a guaranteed maximum price;
if the guaranteed maximum is exceeded, the CM would usually
be liable to pay for the excess; in the opposite case, the CM
may earn a share of savings. Under the non-agency CM, the CM
is contracted with cost-plus with a payment of a lump-sum
management fee.
Trade contractors/subcontractors are engaged usually with lump
sum contracts based on competitive tendering;
Standard forms of general conditions of contract with minor
revisions/conditions can be used for CM (AS2124-1986).

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Project Management

Project Management as a project delivery method,

refers to a unique organization structure with the
project manager as a leader of the team for the
procurement of a project; it is distinct from a body of
knowledge or a process known as Project
Management.
The PM delivery method is a more refined form of
the agency CM method with the addition of a project
manager who assumes total responsibility of
managing the project from inception to completion
(including both design and construction).

Client
Fee
Fee

Tendered Lump Sum

or Fee + Reimbursable

Project Manager
Fee

Architect

Consultants

Q.S.

Builder

subcontractors

Suppliers

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Client
Fee
Fee

Tendered Lump Sum

or Fee + Reimbursable

Project Manager
Fee

Architect

Consultants

Q.S.

Builder

subcontractors

Suppliers

Project Management (cont.)

Client:
Acquire land and arrange finance;
Appoint and empower a project manger to
represent the clients interest as the leader of a
project team in procuring the products;
Act as a member of the project team but fully
represented by the project manager in day-today decision;
Have only contractual relationship with architect
and builder.

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Project Management (cont.)

Project Manager:
Have contract relationship with the client;
Represent the client to manage the project from the
inception to the completion on a day-to-day basis and is
required to act in the clients best interest;
Be responsible for the development of a strategic plan,
organization of the necessary resources both human and
physical, coordination and integration of activities at each
stage of the projects life cycle and control of the entire
process;
Make recommendations to the client on the selection of the
architect and builder;
Do not have contractual relationship with architect and
builder.

Project Management (cont.)

Architect:
Appointed by the client with a contract but overseen by the
project manager;
Carry out the conceptual and detailed designs;
Organize design team including structural engineer, service
engineer (mechanical, electrical, fire safety, hydraulic
engineer), landscape designer, interior designer, quantity
surveyor, etc;
Have contractual links with these specialist consultants and
engineers;
Have communication link with builder and report to project
manager.

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Project Management (cont.)

Builder (Contractor):
Appointed by the client with a lump sum contract or fee +
reimbursable contract;
Appoint subcontractors and material suppliers with
contractual arrangements (usually with lump sum price);
Fulfil all the obligations under the contract, namely to build
the facility within the agreed cost and time budgets and to
the required quality standards;
Accept liability for construction performance and coordinate
the subcontractors;;
Have a communication link with the architects and report to
the project manager.

Project Management (cont.)

Risk sharing:
While the client empowers the project manager to lead the
team and be the main day-to-day decision-maker, the client
assumes the responsibility for contracts with other team
members;
In the absence of a guaranteed maximum price, the project
manager assumes the lowest level of risks; with a guaranteed
maximum price, the risk will naturally increase.
Architect needs to assume the risk associated with design
mistakes;
The contract price paid to the builder may be in the form of a
lump sum, a schedule of prices, or a mixture of both, or even
cost-plus.

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Project Management (cont.)

Advantages

The PM method should complement most of the advantages

associated with the CM method;
It provides a more professional approach to the overall
management of the project, particularly suitable for a client
who does not have the time and/or expertise to manage the
project;
The client may replace the project manager without
adversely affecting any of the existing contract;
A lump-sum fee or an incentive-based fee to the project
manager ensures motivation and performance;
The PM is an ideal approach to handle fast-tracking and for
projects with complex nature and high risks.
It is suitable for very complicated project.

Project Management (cont.)

Disadvantages
The client is exposed to a high level of risk;
While the client carries a lot of risk, the client is not involved
in day-to-day decision making;
The project manager needs to be appointed at the early part
of the conceptual stage, which may not always be possible
or convenient;
The project manager must be given functional control over
resources including a fund for paying separate contractors.

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Project Management (cont.)

Contract Strategies
The project manager is the clients agent based on a
contract (generally, fees) and appointed at the early part of
the conceptual design stage;
The architect and builder are appointed by the client with
the recommendation of the project manager;
The PM system is basically a fast-tracking in nature and the
contracts between the client and other parties are decided
based on the negotiation and the taking of risks.

Design and Construct (D&C)

A major cause of dispute and delay in projects is late

resolution of design details. The D&C method reduces
this potential problem by assigning the design task to
the building contractor there is a single point of
responsibility for the project.
The D&C method is referred to as a package deal or a
turnkey method. The client does not want to be
enmeshed in the details of the project delivery and
hence gives the builder the responsibility for both the
design and construction.

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Client
Tendered Lump Sum
or GMP

Builder
Negotiated Sum

Tendered Amounts

Architect
Subcontractors

Suppliers

Consultants

Design and Construct (cont.)

Client:
Acquire land and arrange finance;
Work a de facto project manager (may engage a specialist
consultant as a superintendent);
Appoint a D&C contractor (builder) and supervise the
contractor work;
Considering that D&C projects are expected to be fasttracked, direct involvement of the client in the project is
essential;
Experienced clients have no reason to engage independent
superintendents since they have the necessary expertise
in-house; inexperienced clients should consider using the
traditional method.

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Design and Construct (cont.)

Builder:
Appointed by the client in a lump-sum contract;
is the single point responsibility for delivering the project,
managing design and construction including time, cost,
quality and safety;
Can be a company with capacity to design and construct or
contract the design and construction out;
Appoint design consultants (including architect) and
subcontractors with direct contractual relationship as well as
oversight relationship;

Design and Construct (cont.)

Architect (not an independent party with

contract to the client):
Usually is a branch of the builders company but can be an
independent company appointed by the builder;
Carry out the conceptual and detail design with the
knowledge input from builder and other subcontractors;
Organize design team including structural engineer, service
engineer (mechanical, electrical, fire safety, hydraulic
engineer), landscape designer, interior designer, quantity
surveyor, etc;
Have contractual links with these specialist consultants and
engineers.

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Design and Construct (cont.)

Risk sharing:
Brief is the most important document in appointing the D&C
builder; if the brief is not of sufficient details or unclear,
disputes may arise over the required standard or quality;
The client assumes the lowest risk provided that the brief is
clearly defined;
Whether a D&C contract is tendered or negotiated, it may be
difficult to estimate the contract price accurately due to a lack
of documentation; the builder would include a contingency
which could be either too high or too low;
The builder takes most of the risks (usually recognized as the
highest risky project delivery method for builder);
If the builder contracts the design and construction tasks out,
the designers and the subcontractors may have to take
corresponding risk.

Design and Construct (cont.)

Advantages
Time is saved because D&C is also fast tracked in nature;
The knowledge input of builder can improve constructability;
The client has only one party to deal with, improved direct
communication and management;
Variations will be minimised as the builder is in charge of the
design and construction;
The client knows the final cost right at the start if using lump
sum contract;
The builder has more flexibility to select the design and
construction methods which are the most suitable for him.

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Design and Construct (cont.)

Disadvantages

It only suits straight forward conventional projects which

can be adequately described in a brief;
The variations from the client will cost a lot after the
award of the D&C contract;
It is the builder who appoints the architect, which may
mean lesser quality materials or techniques are used
than other project delivery methods;
It is very hard to define a clear brief at the project early
stage, which may cause disputes at the end of the
project over whether the project satisfies the clients
expectations.
The client has to look after his own benefit without help
from architect.

Design and Construct

(cont.)

Contract Strategies
Payment to the builder, covering both the design task
and the construction, is generally on a lump sum basis;
the contract sum is established by competitive tender
based on the clients brief, or negotiated based on
estimates prepared by the clients advisors (in this case,
could be Cost-Plus);
The design work would more often than not be
performed for the builder by an architectural firm with
sub-consultants, on a set fee basis negotiated with the
builder.
Subcontractors are engaged usually with lump sum
contracts based on competitive tendering.

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Client
Client

Tendered Lump
Sum

Architect

Fee + Reimbursable, etc.

Fee

Architect

Construction manager
Q.S.

Negotiated Fees

Tendered
Amounts

Builder
Consultants

Q.S.
Consultants
subcontractors

Subcontractors

Client

Client
Tendered Lump Sum

Fee
Fee

Project Manager
Fee

Architect

Suppliers

Suppliers

Tendered Lump Sum

or Fee +
Reimbursable

Q.S.

Builder
Tendered Amounts

Negotiated Sum

Builder

Architect
Subcontractors

Subcontractors

Consultants

Suppliers

Suppliers
Consultants

Novation
FINANCIERS

CONTRACTURAL
Functional
NOVATED
CONTRACT

LAND AQUISITION

Client
PRE NOVATION

POST NOVATION
COMPLIANCE ADVICE

HEAD CONTRACTOR

ARCHITECT

SUB CONTRACTORS

OTHER CONSULTANTS

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Public Private Partnership

CONTRACTURAL
Functional

GOVERNMENT
PROJECT
PERFORMANCE SPEC

ADVISORS
FINANCE

SPECIAL PURPOSE VEHICLE (COMPANY)

LEGALS
FINANCIER

INVESTORS

OPERATOR

D&C TEAM

PROJECT MANAGER

ADVISORS

DESIGN TEAM

PROBITY

PROJECT MANAGER

GOVERNMENT CONTRACTS WITH ONE PARTY (SPECIAL PURPOSE VEHICLE)

ALL RISK INCLUDING COST, PERFORMANCE & DESIGN TAKEN BY SPV
SPV WILL PASS ON RISK WITHIN CONSORTIUM

Project Alliance

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