Contents

Chapter 1 Introduction to Construction Industry

Project Management, construction management

and contract management
Construction Industry and Parties involved in construction project and

Contract Management contract management

Stages and processes of construction project

Prepared by: Dr. Azeanita Suratkon

Introduction to Construction Industry Introduction to Construction Industry

Construction Construction
3 4

The Malaysian Industrial Classification (M.I.C) refers to

Construction refers to the processes of building physical
structures and related activities.
The end products are site-specific and for each product the
processes involve elaborate commissioning, design,
management and assembly of resources human, finance
and materials over a period of time.
It encompasses all types of buildings, all civil engineering
works and the repair and maintenance of existing structures.
construction as:
new construction, alteration, repair and demolition.
Installation of any machinery or equipment which is built-in at the
time of the original construction is included, as well as installation
of machinery or equipment after the original construction but
which requires structural alteration in order to install.
The M.I.C categorises construction works into 2 categories:
General contracting covering residential, non-residential,
civil and engineering construction.
Special trade contracting - covering specialist works such as
metal work, electrical, refrigeration and air-conditioning,
carpentry, planting, etc.

Introduction to Construction Industry Introduction to Construction Industry

Construction The Environment

5 6

Category of
Construction 3D Dirty, Dusty, Danger.

Gathering of multi-sector industries.

CIVIL
BUILDING
ENGINEERING
CONSTRUCTION
CONSTRUCTION
Installation process or combination/compilation
construction materials or building components.
Industrial Dam
Agricultural Port
Community Airport
A manufacturing process?
Residential Highway
Educational Sub-marine pipeline
Recreational
& medical social.

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 Introduction to Construction Industry
The Characteristics
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The products are heterogeneous
The final process is in-situ
The product is unique
The output consists of capital goods
Separation of design and construction responsibilities
The setting up of ad-hoc team
Methods of price determination
Risks
Introduction to Construction Industry
The Characteristics
9 10
The final process is in-situ (contd)
There is a limit on the potential for prefabrication. Prefabrication
refers to using component parts or sections of a structure
produced elsewhere, perhaps on the basis of economies of scale.
There must always be a balance between the savings that may be
gained from prefabrication and the ensuing costs of
transportation of components parts or sections of a structure to the
construction site.
Since the products of construction are site-specific, generally they
cannot be produced in advance of demand but rather have to be
sold before they are produced. Construction therefore, follows a
sequential process of planning, ordering and the final production
on the particular location where they are required.
Introduction to Construction Industry
The Characteristics
11
Separation of design and construction responsibilities
The general trend in the construction sector is that the party that
designs the project is normally different from the party that
constructs the project.
This approach referred to as the traditional system of construction
procurement follows a pattern of activities that is sequential in
nature: a client engages a team of designers to produce design
tender documents are prepared and tenders are invited from
contracting firms award the project to successful contracting firm.
However, there are alternative approaches (such as design-build
or turnkey system and management-oriented systems) were
developed in response to problems that may arise from the
separation of the responsibility for the design from the
responsibility for construction.
Introduction to Construction Industry
The Characteristics
The products are heterogeneous
The products are different in terms of design, size, location
and in terms of end-use.
The products differ widely in terms of the materials and
techniques used in production.
The final process is in-situ
The finished products are generally permanent in the
particular location where the construction takes place.
Consequently, the final process of construction must be in-
situ, although some sections of the completed products may
be produced elsewhere.
Introduction to Construction Industry
The Characteristics
The output consists of capital goods
Capital or investment goods refer to products required for
the production of other goods or services in an economy.
The products of construction including roads, railways, air
and sea ports, telecommunication, electricity generation and
transmission, water supply, buildings for factories, offices,
hospitals, schools, houses, etc. are all regarded as capital or
investment goods.
This makes the construction sector highly susceptible to
variations in the level of activity in the economy.
Introduction to Construction Industry
The Characteristics
12
The setting up of ad-hoc team
A construction project requires the setting up of an ad-hoc
team consisting of persons and firms, each specialising in a
particular area of expertise, to work together to complete
the project.
Since a construction project is one of its kind it is unlikely for
the same team to work together again and if they do so it
would be for a different project and in a different location.
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 Introduction to Construction Industry Introduction to Construction Industry

The Characteristics The Characteristics

13 14

Methods of price determination Risks

The common methods used for determining price: measurement- Construction work involves risks, the level of risk is considered much
based method and cost reimbursement-based method. higher than in other types of economic activities.

Measurement-based method the contractor is paid for the
work based upon the actual quantities of work that formed the
finished project multiplied by the respective unit rates. The
quantities of work is measured prior to commencement or
alternatively after the work is completed. The contractor is also
paid for costs of plant hire, temporary materials, contractors
overheads and profits, etc.
Reimbursement of costs method the contractor is paid for the
actual costs of materials that have been used, the time spent on
the project by the operatives and an agreed amount for the
contractors profit and overheads.
A construction entrepreneur moves from one location to another, organise
the logistics required to complete each project, and follows a bespoke
design for each project.
Most contracts are awarded through some forms of competitive tenders
contractors have to estimate the cost based on assumptions about
many factors including weather, site conditions, availability and
productivity of labours, availability and timely supplies of materials and
plant, time constraint, interest rates, political and social scenarios, etc.

Introduction to Construction Industry Project Mgmt, Construction Mgmt & Contract Mgmt

The Characteristics Project Management

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Project: A temporary endeavour undertaken to create a

TIME CONSUMING
UNIQUE unique product through a set of inter-related tasks (Proj.
FRAGMENTED INDUSTRY
Mgmt. Inst.).
In engineering/construction industry, e.g. a building project
RELYING TO OTHER
would constitute a temporary endeavour where a myriad of
INDUSTRIES CHARACTERISTCS JOB OPPORTUNITIES
skills and materials are brought together to create a unique
OF product (i.e., the building) through a set of inter-related tasks
CONSTRUCTION (i.e. the relevant activities)
LACK OF INDUSTRY
COORPERATION
Project Management: The planning, monitoring and control
RISKY INVESTMENT

of all aspects of a project (i.e. financial, technical,

administrative etc.) and the motivation of all those involved
SEPARATED PROCESSES
VAST WORK LOAD in it from inception right up to eventual completion with the
COMPLEX
ultimate objectives of delivering the end product within the
ORGANISATIONS specified cost, time, quality and performance.

Project Mgmt, Construction Mgmt & Contract Mgmt Project Mgmt, Construction Mgmt & Contract Mgmt

Construction Management Contract Management

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A term used to describes:
the particular type of contract procurement method or
the actual process of running of a construction project
The planning, monitoring and control of all aspects of the
construction process from pre-tender to the completion stage.
Entails the planning, monitoring and control of essentially the
construction aspects of a project.
The scope of construction management includes not only the
activities pertaining to the construction stage but also all the
preliminary enabling matters at the pre-contract stage.
Construction management is weighted heavily to the construction
process.
Contract: A legally binding agreement between two or more
persons which creates mutual rights and duties, enforceable at
law, or
a legal device for conducting exchanges between parties/
binding parties to future performance.
Contract Management: A term to describe the control and
administration of the legally binding agreement between
two or more parties from its inception up to its final discharge.

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 Project Mgmt, Construction Mgmt & Contract Mgmt
Scope of Contract Management
19
the planning for the legal framework or transaction that is to
be entered into by the parties to a project;
The administration and enforcement of the provisions,
procedures and practices (as expressly or impliedly
stipulated) in the contract
The management of the roles, responsibilities, powers,
rights, duties and liabilities of the contracting parties
The implementation of relevant sanctions to induce
performance or to compensate for the non-performance on
part of the parties
First line resolution of disputes between the contracting
parties
Parties involved in construction project & contract mgmt
Construction Stakeholders
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Parties involved in construction project & contract mgmt
Contractor
The contractor is the person or legal entity (partnership or
company) who under the contract is actually entrusted to
carry out construction works.
He is variously labeled as the contractor, the builder, the
installer, the erector, etc. depending on the nature of the
contract involved.
Construction development can only remain at blue-print and
drawing board stage without contractor and builders to
actually translate the project into reality.
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Project Mgmt, Construction Mgmt & Contract Mgmt
Purpose of Contract Management
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The contract entered into by the parties is efficiently and fairly
administered to ensure that:
the parties perform their respective obligations/duties under
the contract fully;
each party to the contract receives the full benefit due under
the contract;
the contract is completed within the time frame and cost
agreed between the parties;
the quality of the finished product as agreed upon by the
parties is not compromised in terms of material, workmanship
and design (as applicable); and
disputes and contentious issues are minimised or resolved
completely without having to resort to litigation or arbitration.
Parties involved in construction project & contract mgmt
Employer
Also called the client/ purchaser/ authority
Normally the person or party who wishes to have
development project constructed on a piece of land
The employer is the most important party to a contract as
he is in reality the paymaster who initiates and ultimately
uses the tangible fruits of the contract.
The employer may be a public entity (government bodies)
or private entity (developers/ owners/ investors).
He will appoints consultants, employs contractors and supply
the necessary fund to implement the project
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Parties involved in construction project & contract mgmt
Contractor
Owing to the complexities of the nature of the contracts
entered into between the employer and the contractor, the
contractor may be further described as a:
main or general contractor; or
turnkey contractor; or
design and build/design and construct contractor; or
management contractor; or
construction management contractor
Normally these contractors enter into a main contract with
the owner for the execution and completion of a construction
contract.
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 Parties involved in construction project & contract mgmt
Sub-Contractor
A sub-contractor is a person or firm to whom part of the
main contract works are sub-let.
A sub-contract is a contract made between a main-
contractor and another contractor (sub-contractor) for part
of the work which the main contractor has already
contracted to carry out as part of his contract with the
employer.
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Parties involved in construction project & contract mgmt
Sub-Contractor
Nominated Sub-Contractor (NSC)
Specialist contractor nominated by owner/architect/
engineer, who sign their respective sub-contract with the
main contractor and perform their respective duties and
responsibilities under sub-contracts.
In Malaysia, there is a prevalent practice of sub-contractors
further sub-letting portions of their work to an array of sub-
sub-contractors, i.e. labour, material supply, fabrication,
erection/installation, etc.
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Parties involved in construction project & contract mgmt
Professionals
The professionals are not parties to the various contracts
employed between employer and main contractor, main
contractor and subcontractor, and sub-contractor and his
sub-contractors/suppliers.
The professionals may have his own services agreement
whereby he may contract to undertake either all or some of
the following work depending on his term of employment:
design work; supervision work; contract administration;
auditing or independent checking of turnkey/design &
build contractors work; project management; facilities
management.
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Parties involved in construction project & contract mgmt
Sub-Contractor
Depending on the complexity of the works, the specialist
skills required, the extent of detailing or design work
involved, the method of contract procurement adopted, sub-
contractors can be further classified as:
domestic sub-contractors; or
nominated sub-contractors; or
designated (or named) sub-contractors; or
selected sub-contractors; or
specified or named sub-contractors.
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Parties involved in construction project & contract mgmt
Supplier
A person or firm undertaking the supply of goods or
materials to a contract. The suppliers contract is with the
main contractor
In essence, a supplier is a sub-contractor concerned solely
with supplying goods or materials as compared to
undertaking services or labour.
As for sub-contractors, a supplier may be a domestic/
nominated/ designated/ selected/ specified supplier.
In practice, the common types of suppliers encountered are
of the domestic, nominated or designated types.
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Parties involved in construction project & contract mgmt
Professionals
Owing to the peculiarities of Malaysian law, in most
instances only the qualified person is entrusted with the
design and supervision of the works undertaken.
The definition of the qualified person encompasses mainly
architects and engineers.
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 Parties involved in construction project & contract mgmt
Architect
In most building projects, i.e. of the traditional general
contracting type, the professional team during the design and
construction stage is normally led by the architect.
Person who practises the profession of architecture and usually
submits the application on behalf of the owner to obtained
development order and designs and submit building plans for
approval.
Building By-Laws defines architect as any person who is
registered as an architect under any law relating to the
registration of architects and who under that law is allowed to
practice or carry on business as an architect.
The Architects Act 1967 restricts the usage of the word to a
person registered as such by the Board of Architects, Malaysia
for the practice of architecture. 31
Parties involved in construction project & contract mgmt
Quantity Surveyors (QS)
Person who practises the profession of quantity surveying
and building economics and usually prepares bills of
quantities, tender and contract processes, evaluates interim
payment and final accounts of the project.
QS maybe engaged by the architect or engineer or may be
directly appointed by the employer to play a role during
the pre-contract and post-contract award stages.
There is a necessity for the QS to be registered with the
Board of Quantity Surveyors under the Quantity Surveyors
Act 1997.
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Parties involved in construction project & contract mgmt
Other professionals
Interior Designer - person who practises the profession of
interior designing involving furnishing and finishing work
usually for prestigious buildings
Landscape Architect - person who practises the profession
of landscaping architecture involving beautification of the
project internally and or externally by using plants of all
kinds, rocks etc.
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Parties involved in construction project & contract mgmt
Engineers
Person who practises the profession of either civil, structural,
mechanical or electrical engineering and usually designs
and submits plans for approval by the approving
authorities.
In projects, i.e. of essentially engineering or infrastructure
origin, the engineers are expressly stipulated in the contract
as the principal designers and contract administrators.
In this country, the law restricts the label engineer to any
person who is registered as a Professional Engineer under
any law relating to the registration of engineers and who
under the law is allowed to practice or carry on the business
of a Professional Engineer.
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Parties involved in construction project & contract mgmt
Other professionals
Land Surveyor person who carries out boundary and
contour surveys and other surveys on land, submits survey
plans for amalgamation and sub-division of land, applies on
behalf of owner for qualified titles and final titles from the
land office.
Town Planner - person who practises the profession of town
and country planning covering land use, zoning, density, the
type, mode and form of development, traffic pattern, infra-
structural requirements, impact of development with other
developments in the vicinity etc.
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Parties involved in construction project & contract mgmt
Other specialists
Project Management Consultant
Person/group of persons practising the profession of
project management function.
The works involved ranges from feasibility report,
financial projection, design of management system,
evaluation designs prepared by consultants, co-
ordinating work of consultants etc.
These include traffic consultants, acoustical engineers,
information technology (IT) consultants and interior
decoration (ID) consultants.
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 Parties involved in construction project & contract mgmt Parties involved in construction project & contract mgmt

Authorities/Regulators Other stakeholders

Federal and State Authorities
Usually interested in matters regarding land, town and
country planning, drainage and irrigation, supply of
public utilities, fire requirements etc.
Finance
Invariably the owner requires to borrow funds from
banks and other financial institutions to finance or
provide adequate funding to their project

Local Authorities
Normally the building authorities and is therefore
entrusted with the power to approve layout plans,
building plans and services plans etc.

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Parties involved in construction project & contract mgmt Parties involved in construction project & contract mgmt

Manpower Manpower
Craftsmen
Technicians
Represent the skilled workers of the industry especially in new
Persons who qualified by specialised technical education and
construction method it is necessary for them to appreciate not training to work under the general directions of technologists.
only the how but also the why the work they do.
Semi-Skilled Worker Technologists
Person who have a qualification and experience required for
Those who possess skill of one or more construction trades but corporate membership of professional institutions.
have not attained the requisite level of skilfulness to be paid
as skilled workers.
Unskilled Worker
Those who do not possess skill in any building trades but are
working on construction sites performing such basic functions as
carrying materials etc.
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Parties involved in construction project & contract mgmt Parties involved in construction project & contract mgmt

Different Perspectives Different Perspectives

41 42

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 Parties involved in construction project & contract mgmt Parties involved in construction project & contract mgmt

Different Perspectives Different Perspectives

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Stages and processes of construction project Stages and processes of construction project

Stages of a project Stages of a project (Traditional)

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Undertake all testing, Commissioning

The principal phases of a typical engineering and construction
contract:
Identify project objectives
Pre-contract award phase: involves all activities or processes involved Resolve all land issues
from the inception of the project up to the award and/or signing the Set up users requirements
engineering and construction contract pertaining to the project. Conduct feasibility studies
Set up project organisation
Post-contract award phase: involves the activities or processes arising and management structure
after the award and/or signing of the contract up to the issue of the
final certificate. Inception &
Design
Feasibility
Issue tender documents
Prepare and submit tenders, i.e.
Contractors Proposals, etc.
Evaluate tender submissions
Award tenders
Prepare contract documents
Tendering
and training
Obtain CCC or CF (all authority
approvals)
Handover of project to employer/user
Carry out necessary maintenance and
defect rectification during defect
liability period
Undertake migration
Carry out facilities management
Handover &
Construction
Maintenance

Develop project brief further Site possession and mobilisation of

Pre-contract award phase Post-contract award phase Develop concept and schematic design resources
Obtain planning approvals Obtain necessary permits and approvals
Inception & Handover & Undertake detailed design and detailing Undertake procurement, fabrication,
Design Tendering Construction Prepare cost plan/budget installation, construction, etc.
Feasibility Maintenance
Undertake value engineering Carry out contract administration
Undertake project financing

Stages and processes of construction project Stages and processes of construction project

Parties involved in project stages

47 48
Developer/Owner Developer/Owner
Developer/Owner Project Manager Users/Consumers Nominated / Domestic
Valuer Architect Project Manager Sub-Contractors
Research firm Engineers Architect Regulatory bodies/
Real estate agents Quantity Surveyor Engineers authorities
Financial advisors Other specialists Quantity Surveyor Facilities Manager
Architect Main Contractor Other specialists
Engineers Nominated Sub-Contractors/ Main Contractor/ Turnkey
Quantity Surveyor Suppliers Contractor/ Management
Town Planner Domestic Sub-Contractors/ Contractor/ Construction
Other specialists Suppliers Manager

Inception & Handover &

Design Tendering Construction
Feasibility Maintenance

Developer/Owner Contractor for: Project Manager Suppliers

Project Manager Turnkey Contracts Architect Construction Site Staff &
Architect Management Contracts Engineers Workers
Engineers Construction Management Quantity Surveyor Regulatory bodies/
Quantity Surveyor (if applicable ) Other specialists authorities
Town Planner Main Contractor/ Financers
Other specialists Turnkey Contractor
Regulatory bodies/ Nominated/Domestic
authorities Sub-Contractors

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 Stages and processes of construction project Stages and processes of construction project

RIBA Work Stages 2007 RIBA Work Stages 2007

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