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4 Jonathan T. RickettsConsulting EngineerPalm Beach Gardens, Florida

CONSTRUCTIONMANAGEMENT

Construction is the mobilization andutilization of capital and specializedpersonnel, materials, and equipment toassemble materials and equipment on a

specific site in accordance with drawings, specifi-cations, and contract documents prepared to servethe purposes of a client. The organizations thatperform construction usually specialize in one offour categories into which construction is usuallydivided: housing, including single-family homesand apartment buildings; nonresidential building,such as structures erected for institutional, edu-

cational, commercial, light-industry, and recrea-tional purposes; engineering construction, whichinvolves works designed by engineers and may

be classified as highway construction or heavyconstruction for bridges, tunnels, railroad, water-ways, marine structures, etc.; and industrialconstruction, such as power plants, steel mills,chemical plants, factories, and other highlytechnical structures. The reason for such speciali-zation is that construction methods, supervisoryskills, labor, and equipment are considerablydifferent for each of the categories.

Construction involves a combination of special-ized organizations, engineering science, studiedguesses, and calculated risks. It is complex anddiversified and the end product typically is non-standard. Since operations must be performed atthe site of the project, often affected by local codesand legal regulations, every project is unique.Furthermore, because of exposure to the outdoors,construction is affected by both daily and seasonal

weather variations. It is also often influencedsignificantly by the availability of local construc-tion financing, labor, materials, and equipment.

Construction Management can be performed byconstruction contractors, construction consultantsalso known as construction managers, or design

build contractors. All of these individuals orentities have as their goal the most efficient, costeffective completion of a given construction project.Construction contractors typically employ super-visory and administrative personnel, labor, ma-terials and equipment to perform construction in

accordance with the terms of a contract witha client, or owner. Construction managers mayprovide guidance to an owner from inception of theproject to completion, including oversight ofdesign, approvals, and construction, or just provideconstruction advisory services to an owner. Aconstruction manager may also act as an agent forthe owner, contracting with others for performanceof the work and provide administrative andsupervisory services during construction. A design

build entity can provide all of the above-mentionedactivities providing a completed project for the

owner with a single contract through one entity.

4.1 Tasks of Construction

Management

Construction management can involve the plan-ning, execution, and control of construction

4.1Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com)

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operations for any of the aforementioned types ofconstruction.

Planning requires determination of financingmethods, estimating of construction costs, sche-duling of the work, and selection of constructionmethods and equipment to be used. Initially, a

detailed study of the contract documents isrequired, leading to compilation of all items ofwork to be performed and grouping of relateditems in a master schedule. This is followed by theestablishment of a sequence of construction op-erations. Also, time for execution is allotted foreach work item. Subsequent planning steps involveselection of construction methods and equipmentto be used for each work item to meet the scheduleand minimize construction costs; preparation of amaster, or general, construction schedule; devel-opment of schedules for procurement of labor,materials, and equipment; and forecasts of expen-ditures and income for the project.

In planning for execution, it is important torecognize that not only construction cost but alsothe total project cost increases with duration ofconstruction. Hence, fast execution of the work isessential. To achieve this end, construction manage-ment must ensure that labor, materials, andequipment are available when needed for thework. Construction management may have thegeneral responsibility for purchasing of materialsand equipment and expediting their delivery notonly to the job but also to utilization locations. For

materials requiring fabrication by a supplier,arrangements should be made for preparation andchecking of fabrication drawings and inspectionof fabrication, if necessary. Also, essential forexecution of construction are layout surveys,inspection of construction to check conformancewith contract documents, and establishment ofmeasures to ensure job safety and that operationsmeet Occupational Safety and Health Act (OSHA)regulations and environmental concerns. In ad-dition, successful execution of the work requiresprovision of temporary construction facilities.

These include field offices, access roads, coffer-dams, drainage, utilities and sanitation, and designof formwork for concrete.

Control of construction requires up-to-dateinformation on progress of the work, constructioncosts, income, and application of measures tocorrect any of these not meeting forecasts. Progresscontrol typically is based on comparisons ofactual performance of construction with forecast

performance indicated on master or detailedschedules. Lagging operations generally arespeeded by overtime work or addition of morecrews and equipment and expedited delivery ofmaterials and equipment to be installed. Cost andincome control usually is based on comparisons of

actual costs and income with those budgeted at thestart of the project. Such comparisons enablediscovery of the sources of cost overruns andincome shortfalls so that corrective measures can

be instituted.

Role of Contractors n The client, or owner,seeking construction of a project, contracts with anindividual or construction company for perform-ance of all the work and delivery of the finishedproject within a specific period of time and usuallywithout exceeding estimated cost. This individual

or company is referred to as a general contractor.The general contractor primarily provides con-

struction management for the entire constructionprocess. This contractor may supply forces toperform all of the work, but usually most of thework is subcontracted to others. Nevertheless, thecontractor is responsible for all of it. Completely incharge of all field operations, including procure-ment of construction personnel, materials, andequipment, the contractor marshals and allocatesthese to achieve project completion in the shortesttime and at the lowest cost.

The contractor should have two prime objec-tives: (1) provision to the owner of a service that issatisfactory and on time; (2) making a profit.

Construction Manager n This is a generalcontractor or construction consultant who per-forms construction management under a pro-fessional service contract with the owner. Whenengaged at the start of a project, the constructionmanager will be available to assist the owner anddesigners by providing information and rec-ommendations on construction technology and

economics. The construction manager can alsoprepare cost estimates during the preliminarydesign and design development phases, as wellas the final cost estimate after completion ofthe contract documents. Additional tasks includerecommending procurement of long-lead-timematerials and equipment to ensure delivery whenneeded; review of plans and specifications toavoid conflicts and overlapping in the work of

4.2 n Section Four

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subcontractors; preparing a progress schedule forall project activities of the owner, designers, generalcontractor, subcontractors, and construction mana-ger; and providing all concerned with periodicreports of the status of the job relative to theproject schedules. Also, the construction manager,

utilizing knowledge of such factors as local laboravailability and overlapping trade jurisdictions,can offer recommendations concerning the divisionof work in the specifications that will facilitate

bidding and awarding of competitive trade con-tracts. Furthermore, on behalf of the owner, themanager can take and analyze competitive bids onthe work and award or recommend to the owneraward of contracts.

During construction, the construction managermay serve as the general contractor or act as anagent of the owner to ensure that the project meetsthe requirements of the contract documents, legalregulations, and financial obligations. As an agentof the owner, the construction manager assumes theduties of the owner for construction and organizes astaff for the purpose. Other functions of construc-tion management are to provide a resident en-gineer, or clerk of the works; act as liaison with theprime design professional, general contractor, andowner; keep job records; check and report on jobprogress; direct the general contractor to bring

behind-schedule items, if any, up to date; take stepsto correct cost overruns, if any; record andauthorize with the owners approval, expenditures

and payments; process requests for changes in thework and issue change orders; expedite checking ofshop drawings; inspect construction for confor-mance with contract documents; schedule andconduct job meetings; and perform such other tasksfor which an owner would normally be responsible.

(D. Barry and B. C. Paulson, Jr., ProfessionalConstruction Management, 2nd ed., G. J. Ritz,TotalProject Management, and S. M. Levy, ProjectManagement in Construction, 3rd ed., McGraw-Hill, Inc., New York (books.mcgraw-hill.com).)

4.2 Organization of

Construction Firms

The type of organization employed to carry outconstruction is influenced by considerationspeculiar to that industry, many of which are unlikethose affecting manufacturing, merchandising, ordistribution of goods. This is due largely to the

degree of mobility required, type of risk inherent inthe particular type of construction, and geographicarea to be served.

4.2.1 Contractor Organization as

a Business

These contracting entities employ the usualbusiness forms. Perhaps the greater number aresole proprietorships, where one person owns orcontrols the enterprise. Many others are partner-ships, where two or more individuals form avoluntary association to carry on a business forprofit. The corporate form has a particular appealto both large- and small-scale enterprises operatingin the construction field. To the large enterprise,corporate structure is an easier way to finance itself

by dividing ownership into many small units that

can be sold to a wide economic range of pur-chasers, including those with only small amount ofcapital to invest. In addition to assisting financingoperations, the corporate device brings a limitedliability to the persons interested in the enterpriseand a perpetual succession not affected by thedeath of any particular owner or by the transfer ofany owners interest. Because of these features, thecorporate vehicle is also used by numerous smallcontractors.

4.2.2 Special Considerations in

Organization for

Construction

Each facility that a construction team produces, itproduces only once; the next time its work will bedone at a new location, to a new pattern, and undernew, although often similar, specifications. Further-more, from the very inception of each constructionproject, contractors are wholly devoted to com-pletion of the undertaking as quickly and econo-mically as possible and then moving out.

The problems of construction differ from those

of industrial-type businesses. The solutions canbest be developed within the construction industryitself, recognizing the unique character of theconstruction business, which calls for extremeflexibility in its operations. Based on foundationsresting within the industry itself, the constructionindustry has erected organizational structuresunder which most successful contractors find itnecessary to operate. They tend to take executives

Construction Management n 4.3




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away from the conference table and put them inclose touch with the field. This avoids the type oforganizational bureaucracy that hinders rapidcommunication between office and field anddelays vital decisions by management.

Contractor workforces usually are organized by

crafts or specialty work classifications. Each unit isdirected by a supervisor who reports to a generalconstruction superintendent (Fig. 4.1).

The general construction superintendent is incharge of all actual construction, including direc-tion of the production forces, recommendation ofconstruction methods, and selection of personnel,equipment, and materials needed to accomplishthe work. This superintendent supervises andcoordinates the work of the various craft super-intendents and foremen. The general constructionsuperintendent reports to management, or in caseswhere the magnitude or complexity of the projectwarrants, to a project manager, who in turn reportsto management. To enable the general constructionsuperintendent and project manager to achieveefficient on-the-job production of completed physi-cal facilities, they must be backed up by others notin the direct line of production.

Figure 4.1 is representative of the operation of asmall contracting business where the sole proprie-tor or owner serves as general construction super-intendent. Such owners operate their businesseswith limited office help for payroll preparation.They may do their own estimating and make

commitments for major purchases, but often theyuse outside accounting and legal services.

As business expands and the owner undertakeslarger and more complex jobs, more crafts, fun-ctions, or work classifications are involved than can

be properly supervised by one person. Accord-

ingly, additional crews with their supervisors maybe grouped under as many craft superintendents asrequired. The latter report to the general construc-tion superintendent, who in turn reports to theproject manager, who still may be the owner(Fig. 4.2).

Along with this expansion of field forces, theowner of a one-person business next finds that thevolume and complexities of the growing businessrequire specialized support personnel who have toperform such services as:

1. Purchasing, receiving, and warehousing perma-nent materials to be incorporated into thecompleted project, as well as purchasing,receiving, and warehousing goods and suppliesconsumed or required by the contractor indoing the work

2. Timekeeping and payroll, with all the ramifica-tions arising out of federal income tax and SocialSecurity legislation, and detail involved incontracts with organized labor

3. Accounting and auditing, financing, and taxreporting

Fig. 4.1 Basic work-performing unit and organization for a small construction company.

4.4 n Section Four




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4. Engineering estimating, cost control, plantlayout, etc.

5. Accident prevention, labor relations, humanresources etc.

To coordinate the operation of support staffrequired for general administration of the businessand servicing of its field forces, the head of theorganization needs freedom from the direct

demands of on-the-job supervision of constructionoperations. This problem may be solved by em-ploying a general construction superintendent orproject manager or by entering into a partnershipwith an outside person capable of filling thatposition, with the owner taking the overall man-agement position.

Further growth may find the company operatingconstruction jobs simultaneously at a number of

Fig. 4.2 Project organization, with that for the smallest unit as shown in Fig. 4.1.





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locations. Arrangements for the operation of this typeof business take the form of an expanded head-quarters organization to administer and control the

jobs and service the general construction super-intendent or project manager at each location. Thisconcept contemplates, in general, delegation to the

field of those duties and responsibilities that cannotbest be executed by the headquarters function.Accordingly, the various jobs usually have a

project manager in charge (Fig. 4.2). On small jobs, orin those cases where the general construction super-intendent is in direct charge, the project manager isaccompanied by service personnel to perform thefunctions that must be conducted in the field, such astimekeeping, warehousing, and engineering layout.

Some large construction firms, whose opera-tions are regional, nationwide, or worldwide inscope, delegate considerable authority to operatethe business to districts or divisions formed on ageographical or functional basis (Fig. 4.3). Districtmanagers, themselves frequently corporate offi-cers, are responsible to the general management ofthe home office for their actions. But they are free toconduct the business within their jurisdiction withless detailed supervision, although within definiteconfines of well-established company policies.The headquarters office maintains overall admin-istrative control and close communication butconstructs projects by and through its districtorganizations (Fig. 4.4).

4.2.3 Joint Ventures

Since risk is an important factor in construction, itis only prudent to spread it as widely as possible.One safeguard is a joint venture with othercontractors whenever the financial hazard of anypar-ticular project makes such action expedient. In

brief, a joint venture is a short-term partnershiparrangement wherein each of two or moreparticipating construction companies is committedto a predetermined percentage of a contract andeach shares proportionately in the final profit orloss. One of the participating companies acts as themanager or sponsor of the project.

4.2.4 Business Consultants

Contractors often employ experts from variousdisciplines to advise them on conduct of their

business. For example, in addition to the usual

architectural and engineering consultants, con-tractors consult the following:

Accountant n Preferably one experienced inconstruction contracting, the accountant should befamiliar with the generally accepted principles of

accounting applicable to construction projects, suchas costs, actual earnings, and estimated earnings onprojects still in progress. Also, the accountantshould be able to help formulate the financial statusof the contractor, including estimates of theprobable earnings from jobs in progress and theamounts of reserves that should be provided forcontingencies on projects that have been completed

but for which final settlements have not been madewith all the subcontractors and suppliers.

Attorneys n More than one attorney may be

needed to handle a contractors legal affairs. Forexample, the contractor may require an attorney formost routine matters of corporate business, such asformation of the corporation, registration of thecorporation in other states, routine contract ad-vice, and legal aid in general affairs. In addition,the company may need different attorneys tohandle claims, personal affairs, estate work, realestate matters, taxes, and dealings with variousgovernment bodies.

Insurance and Bonding Brokers n Con-

tractors would be well advised to select an insurancebroker who manages a relatively large volume ofgeneral insurance. This type of broker can beexpected to have large leverage with insurancecompanies when conditions are encountered invol-ving claims for losses or when influence is needed inestablishment of premiums at policy renewal time.

For bonding matters, however, contractors willfind it advisable to select a broker who specializesin bonding of general contractors and would behelpful in solving their bonding problems. Bondingand general insurance involve entirely different

principles. A broker who provides many clientswith performance and payment bonds should beable to recommend bonding and insurance com-panies best suited for the contractors needs. Also,the broker should be able to assist the contractorand the contractors accountant in preparation offinancial statements with the objective of showingthe contractors position most favorably for

bonding purposes.

4.6 n Section Four




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4.3 Nature and Significance

of a Proposal

Contractors obtain most of their business fromoffers submitted in response to invitations to bidissued by owners, both public and private (Art. 3.8).Inasmuch as award is usually made to the lowest

bidder or lowest responsible bidder, the con-tractor is constantly faced with the likelihood offailing to secure the business if a bid is too high. Onthe other hand, the contractor risks financial loss inexecuting the work if a bid is low enough so thatthe contract is awarded. Therefore, the submissionof a proposal is a commitment of far-reaching

Fig. 4.3 District-type organization, with district offices organized as shown in Fig. 4.4 and projects asindicated in Fig. 4.2.





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significance. The contractor is responsible for theconsequences of such mistakes as may be made aswell as those risks inherent in construction overwhich the contractor may have no control.

A proposal is an offer made by the contractor to

the owner to perform the work required by thecontract documents for a stated sum of money.Furthermore, the proposal is a promise by thecontractor that upon acceptance of the proposal bythe owner, the contractor will enter into a contractand perform the work for the stated remuneration.Note that the proposal and its acceptance, togetherwith the monetary consideration, constitute theessential elements of a contract between competent

parties. Ordinarily, a proposal is effective until it isrejected by the owner. Most owners, however,provide in their invitations for bid that award ofcontract will be made within a stipulated period oftime, such as 30 days after the opening date.

By furnishing the form of proposal to be used bycontractors in submitting bids and stipulating howit must be completed, the owner intends to putall bids on the same basis, thereby permittingequitable comparison and selection for award ofcontract. Although the time allotted for preparationof the estimate and submission of bid is seldomregarded as sufficient by the contractor, it isnonetheless incumbent upon the contractor to

Fig. 4.4 District-type organization for a construction company.

4.8 n Section Four




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prepare the proposal in strict conformity withinstructions in the invitation to bidders and otherdocuments. Failure to do so may result in dis-qualification of the bid on the grounds of irregu-larity, with a resulting loss of the time and moneyexpended in the preparation of the bid.

Bid Alternatives n In addition to the basicbid, the owner may call for prices on alternativematerials, equipment, or work items. These pricesmay be either added to or deducted from the base

bid. This device is generally employed as a means ofensuring that an award can be made within theamount of the owners available funds. It servesalso as an aid to selection by the owner after havingthe benefit of firm prices on the various alternatives.Accordingly, figures quoted by the contractor onalternatives should be complete within themselves,

including overhead and profit.

4.4 Prime Contracts

A construction contract is an agreement to con-struct a definite project in accordance with plansand specifications for an agreed sum and tocomplete it, ready for use and occupancy, withina certain time. Although contracts may beexpressed or implied, oral or written, agreements

between owners and contractors are almostuniversally reduced to writing. Their forms may

vary from the simple acceptance of an offer to theusual fully documented contracts in which thecomplete plans, specifications, and other instru-ments used in bidding, including the contractorsproposal, are made a part of the contract byreference.

Recognizing that there are advantages tostandardization and simplification of constructioncontracts, the Joint Conference on Standard Con-struction Contracts prepared standard documentsfor construction contracts intended to be fair to

both parties. The American Institute of Architects

also has developed standard contract documents.And the Contract Committees of the AmericanSociety of Municipal Engineers and the AssociatedGeneral Contractors of America have proposedand approved a Standard Code for MunicipalConstruction.

Contractors generally secure business by sub-mitting proposals in response to invitations to bidor by negotiations initiated by either party without

formal invitation or competitive bidding. Agenciesand instrumentalities of the federal governmentand most state and municipal governments, how-ever, are generally required by law to let construc-tion contracts only on the basis of competitive

bidding. However, certain federal agencies, for

security reasons or in an emergency, may restrictbidders to a selected list, and, in these cases, maynot open bids in public.

Normally, competitive bidding leads to fixed-price contracts. These may set either a lump-sumprice for the job as a whole or unit prices to be paidfor the number of prescribed units of work actuallyperformed. Although negotiated contracts may beon a lump-sum or unit-price basis, they often takeother forms embodying devices for making possi-

ble start of construction in the absence of completeplansand specifications, forearly-completion bonus,or for profit-sharing arrangements as incentives tothe contractor (see also Art. 3.3).

One alternative often used is a cost-plus-fixed-fee contract. When this is used, the contractor isreimbursed for the cost plus a fixed amount, the feefor accomplishment of the work. After the scope ofthe work has been clearly defined and both partieshave agreed on the estimated cost, the amount ofthe contractors fee is determined in relation tocharacter and volume of work involved and theduration of the project. Thereafter the fee remainsfixed, regardless of any fluctuation in actual cost ofthe project. There is no incentive for the contractor

to inflate the cost under this type of contract sincethe contractors fee is unaffected thereby. Butmaximum motivation toward efficiency and quickcompletion inherent in fixed-price contracts may belacking.

A profit-sharing clause is sometimes writteninto the cost-plus-fixed-fee contracts as an incen-tive for the contractor to keep cost at a minimum,allowing the contractor a share of the savings if theactual cost, upon completion, underruns theestimated cost. This provision may also beaccompanied by a penalty to be assessed against

the contractors fee in case the actual cost exceedsthe agreed estimated cost.

A fundamental requirement for all cost-plus-fixed-fee contract agreements is a definition of cost.A clear distinction should be made betweenreimbursable costs and costs that make up thecontractors general expense, payable out of thecontractors fee. Some contracts, which wouldotherwise run smoothly, become difficult because





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of failure to define cost clearly. Usually, only thecost directly and solely assignable to the projectis reimbursed to the contractor. Therefore, thecontractors central office overhead and generalexpense, salaries of principals and headquartersstaff, and interest on capital attributable to the

project frequently come out of the fee, although afixed allowance in cost for contractors home-officeexpense may be allowed.

Cost-plus-fixed-fee contracts do not guarantee aprofit to the contractor. They may also result, par-ticularly in government cost-plus-fixed-fee con-tracts, in unusually high on-job overhead occa-sioned by frequent government requirements foronerous and cumbersome procedures in account-ability and accounting.

(B. M. Jervis and P. Levin, Construction Law:Principles and Practice, M. Millman, GeneralContracting: Winning Techniques for Starting andOperating a Successful Business, and M. Stokes,Construction Law in Contractors Language, 2nded., McGraw-Hill, Inc., New York (books.mcgraw-hill.com).)

4.5 Subcontracts

General contractors generally obtain subcontractand material-price bids before submitting a bid fora project to the owner. Usually, these bids areincorporated into the subcontracts. (Sometimes,general contractors continue shopping for subcon-

tract bids after the award of the general contract, toattain budget goals that may have been exceeded

by the initial bids.)For every project, the contractor should keep

records of everything to be purchased for the joband prepare a budget for each of the items. As eachsubcontract is awarded, the contractor should enterthe subcontractors name and the amount of thesubcontract. Later, the profit or loss on the purchaseshould be entered in the record, thus maintaininga continuous tabulation of the status of the pur-chase. For convenience, priority numbers may be

assigned to the various items, in order of preferencein purchasing. Examination of the numbers enablesa contractor to concentrate efforts on the subcon-tracts that must be awarded first.

Contractors typically solicit bids from subcon-tractors employed previously with satisfactoryresults and through notices in trade publica-tions, such as The Dodge Bulletin. If the owner orthe law requires use of specific categories of

subcontractors, the contractor must obtain bidsfrom qualified members of such categories. Afterreceipt of subcontractor bids, the contractor shouldanalyze and tabulate them for fair comparison. Tomake such a comparison, the contractor shouldensure that the bidders for a trade are including the

same items. For this purpose, the contractor shouldquestion each of the bidders, when necessary, andfrom the answers received tabulate the exact itemsthat are included in or excluded from each bid.Although this may seem obvious, it should bereiterated that a good construction manager mayalter the division of work among subcontractors toreceive the most cost-efficient completion of work.If a subcontractors proposal indicates that aportion of the work is being omitted, the contractorshould cross-check the specifications and othertrades to be purchased to determine if the missingitems are the province of other subcontractors.

Various forms are available for use as subcon-tract agreements. The standard form, Contractor-Subcontractor Agreement, A401, American Insti-tute of Architects, is commonly used. A subcontractrider tailored for each job usually is desirable andshould be initialed by both parties to the contractand attached to all copies of the subcontract. Therider should take into account modificationsrequired to adapt the standard form to the job. Itshould cover such items as start and completiondates, options, alternatives, insurance and bondingrequirements, and special requirements of the

owner or leading agency.To achieve a fair distribution of risks and

provide protective techniques for the benefit ofboth parties, it is necessary for subcontracts to becarefully drawn. The prime contractor wishes to beassured that the subcontractor will perform in atimely and efficient manner. On the other hand, thesubcontractor wishes to be assured of beingpromptly and fairly compensated and that noonerous burdens of performance or administrationwill be imposed.

Basic problems arise where parties fail to

agree with respect at least to the essentials of thetransaction, including the scope of work to beperformed, price to be paid, and performance.The subcontract must include the regulatoryrequirements of the prime contract and appropriatearrangements for price, delivery, and specifica-tions. It is insufficient to assume that writing asubcontractor a purchase order binds that sub-contractor to the terms of the prime contractors

4.10 n Section Four




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agreement. Subcontracts should be explicit withrespect to observance of the prime contract. Also,subcontractors should be fully informed by beingfurnished with the prime-contract plans, specifica-tions, and other construction documents necessaryfor a complete understanding of the obligations to

which they are bound.Although prime contracts often provide forapproval of subcontractors as to fitness andresponsibility, the making of a subcontract estab-lishes only indirect relationships between ownerand subcontractor. The basis upon which subcon-tract agreements are drawn on fixed-price work isof no concern to the owner because the primecontractor, by terms of the agreement with theowner, assumes complete responsibility. Undercost-plus prime contracts, however, subcontractsare items of reimbursable cost. As such, their terms,particularly the monetary considerations involved,are properly subject to the owners approval.

Subcontract agreements customarily define thesequence in which the work is to be done. They alsoset time limits on the performance of the work.Nevertheless, prime contractors are reluctant todelegate by means of subcontracts portions of aproject where failure to perform might have seriousconsequences on completion of the whole projectfor example, the construction of a tunnel fordiversion of water in dam construction.

In the heavy-construction industry, the greaterthe risk of loss from failure to perform, the less

work is subcontracted. Such damages as may berecovered under subcontract agreements for lack ofperformance are usually small recompense for theoverall losses arising out of the detrimental effecton related operations and upon execution of theconstruction project as a whole.

This situation has given rise to a common tradepractice in the heavy-construction industry: Theprime contractor builds up a following of subcon-tractors known for their ability to completecommitments properly and on time and generallyto cooperate with and fit into the contractors job

operating team. The prime contractor often nego-tiates subcontracts or limits bidding to a few suchfirms. As a result, the same subcontractors mayfollow the prime contractor from job to job.

Retainage n Prime contracts require, as arule, that a percentageusually 10%of thecontractors earnings be retained by the owner

until final completion of the job and acceptance bythe owner. Unless otherwise arranged, the pro-visions of the prime contract regarding paymentand retainage pass into the subcontract. This isdone with the usual stipulation in the primecontract that makes the subcontract subject to all

the requirements of the prime contract.Subcontractors whose work, such as site clear-ing, access-road building, or excavation, is per-formed in the early construction stages of a projectmay be severely impacted financially by thisretainage. The standard retainage provisions mayresult in their having to wait a long time aftercompletion of their work to collect the retainedpercentage. So the retainage on the general run ofsubcontracts, particularly those for work in theearly phases of a project, often is reduced to anominal amount after completion of the subcon-tractors work. Justification for waiting until finalcompletion of the job and acceptance by the ownermay exist, however, under subcontracts for instal-led equipment carrying performance guarantees orfor other items with vital characteristics.

An agreement may be negotiated, however, forearly release or reduction of retainage. The sub-contract should be specific in the matter of pay-ment and release of retained earnings.

4.6 Prebid Site Investigations

and Observations

A contractor should never bid a job without firstthoroughly examining the site. This should be doneearly enough for the owner to have sufficient timeto issue addenda to the plans and specifications, ifrequired, to clarify questionable items.

Before visiting the site, the contractor shouldprepare a checklist of items to be investigated. Thechecklist should include, where applicable, thefollowing: transportation facilities, electric powersupply, water supply, source of construction

materials, type of material to be encountered inrequired excavation or borrow pits, possibleproperty damage from blasting and other opera-tions of the contractor, interference from traffic,available labor supply (number and length of shiftsper week being worked in the vicinity), areasavailable for construction of special plant, locationof waste-disposal areas and access thereto, andweather records if not otherwise available.





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It is sometimes helpful to take pictures of criticalareas of the site at the time the investigation ismade. Frequently, questionable items that were notcovered on the original visit can be cleared up byreferring to the photographs. They are sometimes ofgreat value to the estimators doing the takeoff work

and can help explain the job to others reviewing theestimate who have not visited the site.

4.7 Estimating Construction

Costs

The two most important requisites for success in theconstruction business are efficient management ofwork in progress and correct estimating. Costscannot be forecast exactly. But the contractor whocan approachmost nearly an accurate forecastof costwill bid intelligently a high percentage of the time

and will be most successful over a period of years.Construction estimates are prepared to deter-

mine the probable cost of constructing a project.Such estimates are almost universally prepared bycontractors prior to submitting bids or entering intocontracts for important projects. To be of value,an estimate must be based on a detailed mentalpicture of the entire operation; that is, it is neces-sary to plan the job and picture just how it is goingto be done. Accordingly, it is wise to have thegeneral construction superintendent or projectmanager who will be in charge of the job take part

in the preparation of the job estimate.

4.7.1 Relationship of Estimating

to Cost Accounting

Estimating andcost accounting shouldbe very closelytied together. Theestimateshould be prepared in sucha way that if the bid is successful, the estimate can beused as the framework for the cost accounts.

Estimating should be based on cost records towhatever extent may be reasonable in the particularcase. But, prominently in the picture, there should

also be a continuous study of new equipment,methods, and cost-cutting possibilities. The datamost valuable, when used with due considerationof surrounding conditions and possible improve-ment, are cost records of the details of operationsrather than of operations as a whole. Cost recordsand estimated costs for the labor portion of anoperation should be expressed in both man-hoursand dollars. A clear and complete narrative des-

cription of all the circumstances affecting the workshould be made a part of the cost records preparedfor use in future bidding. Otherwise, the usefulnessof the data is greatly reduced.

The need for good production and cost recordsis emphasized by an increasing reluctance of some

engineers and owners to make decisions andadjustments on the job. The resulting tendency is tothrow the settlement of ordinary business itemsinto arbitration or into court, where basic infor-mation is a fundamental requirement.

Normally, cost records in full detail are notavailable with sufficient promptness to be ofsubstantial value on the job on which the costsare incurred. It is very desirable, however, that acurrent check on operating costs be maintained.This may be done by less formal procedures andstill be adequate to provide timely information onundesirable deviations in progress and cost.

4.7.2 Forms for Estimating

Preparation of estimates is facilitated by standardi-zation of forms. These are used for recording con-struction methods, equipment, and procedures thatthe estimator proposes as best adapted to thevarious items of work; to record calculations of theestimated cost of performing the work; and tosummarize the estimated cost of the project. It isunnecessary and impractical to provide detailed

printed forms for all types of work. A few simpleforms are all that are needed. The mechanicalmakeup of an estimate must be simple, becauseconditions usually require that it be prepared in ashort timesometimes only two or three dayswhen the estimator would like to have a month.These conditions do not change; it will always benecessary to make estimates quickly.

4.7.3 Steps in Preparation of an

Estimate

It is advisable to have the routine to be followed inpreparing cost estimates and submitting bids wellestablished in a contractors organization. Forexample:

1. Examine the contract documents for com-pleteness of plans and specifications, and for theprobable accuracy that an estimate will yield fromthe information being furnished.

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2. Prepare a tentative progress schedule (Art.4.9.1).

3. Prepare a top sheet based on an examinationof the specifications table of contents. If there are nospecifications, then the contractor should use as aguide top sheets (summary sheets showing each

trade) from previous estimates for jobs of a similarnatures or checklists.

4. Decide on which trades subcontractor bidswill be obtained, and calculate prices on work ofthose trades where the work will be done bythe contractors own forces. Then, prepare a de-tailed estimate of labor and material for thosetrades.

5. Use unit prices arrived at from the contrac-tors own past records, from estimates made bythe members of the contractors organization, or

various reference books that list typical unitprices. It is advantageous to maintain a compu-terized database of unit prices derived from pre-viously completed work. The data can be up-dated with new wage and material costs,depending on the software used, so that pricescan be adjusted nearly automatically.

6. Carefully examine the general conditions ofthe contract and visit the site, so as to have a fullknowledge of all the possible hidden costs, suchas special insurance requirements, portions of site

not yet available, and complicated logistics.7. Receive and record prices for materials and

subcontracts. Compute the total price (see Art.4.7.4).

8. Review the estimate and carefully note ex-clusions and exceptions in each subcontract bidand in material quotations. Fill in with allowancesor budgets those items or trades for which noprices are available.

9. Decide on the markup, weighing factors suchas the amount of extras that may be expected, thereputation of the owner, the need for work onthe part of the contractor, and the contractorsoverhead.

10. Submit the estimate to the owner in the formrequested by the owner. It should be filled incompletely, without any qualifying language orexceptions and submitted at the time and placespecified in the invitation to bid.

4.7.4 Constituents of a Cost

Estimate

The total price of a construction project is the sum ofdirect costs, contingency costs, and margin.

Direct costs are the labor, material, and equip-ment costs of project construction.

Contingency costs are those that should beadded to the costs initially calculated to take intoaccount events, such as rain or snow, or a probableincrease in the cost of material or labor if the jobduration is lengthy.

Margin (sometimes called markup) has threecomponents: indirect, or distributable, costs; com-panywide, or general and administrative, costs;and profit.

Indirect costs are project-specific costs that arenot associated with a specific physical item. Theyinclude such items as the cost of project manage-

ment, payroll preparation, receiving, accountspayable, waste disposal, and building permits.

Companywide costs include the following:(1) costs that are incurred during the course of aproject but are not project relatedfor example,costs of some portions of company salaries andrentals; (2) costs that are incurred before or after aprojectfor example, cost of proposal preparationand cost of outside auditing.

Profit is the amount of money that remains fromthe funds collected from the client after all costshave been paid.

4.7.5 Types of Estimates

Typical types of estimates are as follows: feasibility,order of magnitude, preliminary, baseline, defini-tive, fixed price, and claims and changes. There issome overlap from one type to another.

Feasibility estimates provide rough approxi-mations of the cost of the project. They usuallyenable the owner to determine whether to proceedwith construction. The estimate is made beforedesign starts and may not be based on a specific

design for the project under consideration. Suchestimates are not very accurate.

Order-of-magnitude estimates are more de-tailed than feasibility estimates, because more in-formation is available. For example, a site forthe project may have been selected and a schematicdesign may have been developed. Generally made

by the designer, these estimates are prepared afterabout 1% of the design has been completed.





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Preliminary estimates reflect the basic designparameters. For the purpose, a site plan and aschematic design are required. Preliminary esti-mates can reflect solutions, identify unique con-struction conditions, and take into accountconstruction alternatives. Usually, this type of esti-

mate does not reveal design interferences. Gener-allyprepared by the designer, preliminaryestimatesare made after about 5 to 10% ofthe design has beencompleted. Several preliminary estimates may bemade for a project as the design progresses.

Baseline estimates and preliminary estimates.Identifying all cost components, the estimate pro-vides enough detail to permit price comparisons ofmaterial options and is sufficiently detailed toallow equipment quotations to be obtained. The

baseline estimate, generally prepared by thedesigner, is made after about 10 to 50% of thedesign has been completed.

Definitive estimates enable the owner to learnwhat the total project cost should be. The estimateis based on plan views, elevations, section, andoutline specifications. It identifies all costs. It issufficiently detailed to allow quotes to be obtainedfor materials, to order equipment and to commit tomaterial prices for approximate quantities. Gene-rally prepared by the designer, it represents the endof the designers responsibility for cost estimates. Itis made after about 30 to 100% of the design has

been completed.Fixed-price estimates, or bids, are prepared by

a general contractor and represent a firm commit-ment by the contractor to build the project. A bid is

based on the contractors interpretation of thecontract documents. To be accurate, it should be insufficient detail to enable the contractor to obtainquotes from suppliers and to identify possiblesubstitutes for specific items. It is made after 90% to100% of the design has been completed.

Claims and changes estimates are preparedwhen a difference arises between actual construc-tion and the requirements of the contract. This typeof estimate should identify the changes clearly and

concisely. It should specify, whenever possible, theadditional costs that will be incurred and providestrong support for the price adjustments required.

4.7.6 Estimating Techniques

In preparing an estimate of the construction cost ofa project, an estimator may use the parametric, unit-price, or crew-development technique. During the

course of a project, any combination of these maybe used. In general, the parametric technique is theleast expensive, least time consuming, and leastaccurate. The crew-development technique is themost expensive, most time consuming, and mostaccurate. Of the three techniques, the parametric

requires the most experience, and the unit-pricetechnique the least.Parametric estimating takes into account the

strong correlation of project cost and project com-ponents that because of size, quantity, installationexpense, or purchase price represent a very largeportion of project cost. A parameter need not pertainto a specific design or to an item incorporated in thedrawings; for example, it could be the number of

barrels to be processed in a refinery project to beestimated. For an office building, the parametercould be floor area. For a warehouse, the parametercould be the size and number of items to be storedand theexpected length of time each item is expectedto be stored. The parametric technique obtains datafrom experience with completed work, standardtables, or proprietary tables that compile data frommany projects of different types and are updated atfrequent intervals.

Unit-price estimating is based on data containedin the contract documents. The project cost estimateis obtained by adding the products obtained bymultiplying the unit cost of each item by the quantityrequired; for example, cubic yards of concrete, tonsof structural steel, number of electric fans. The

information needed is obtained from databases ofquantities per work item and unit prices.

Crew-development estimating is based on thecosts for personnel and equipment required foreach item during each construction phase. Employ-ment of these resources varies with project status,site conditions, and availability of labor, materials,and equipment. For example, for a tight completionschedule, the estimate might be based on a largecrew and multiple shifts or overtime. For a site withlimited access or storage area for constructionmaterials and equipment, the estimate may assume

that a small crew will be used. Furthermore,utilization of personnel and equipment may haveto be varied as the work progresses. Data for theestimate may be obtained from production hand-

books, which usually are organized by trades or inaccordance with the use of a facility. Since it is

based on the sequence of construction for theproject, crew-development estimating is the mostaccurate of the estimating techniques.

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Indirect Costs. When parametric estimating isused, indirect costs may be determined as apercentage of the direct cost of the project or as apercentage of the labor cost, or they may be basedon the distance and the volume of materials thatmust be moved from source to site. For the other

two methods of estimating, the estimator deter-mines the various project activities, such as ac-counting, project management, staff overhead, andprovision of temporary site offices, that are notassociated with a specific physical item. In unit-price estimating, these activities are expressed insome unit of measurement, such as linear feet orcubic yards, and multiplied by an appropriate unitprice to obtain the activity cost. The total indirectcost is the sum of the costs of all the activities. Increw-development estimating, the estimator deter-mines the starting and ending dates and salaries forthe personnel needed for those activities, such asproject engineer, project manager, and payrollclerks. From these data, the estimator computesthe total cost of personnel. Also, the estimatordetermines the length of time and cost of eachfacility and service needed for the project. Thesecosts are added to the personnel costs to obtain thetotal indirect cost.

Margin, or Profit. The amount that a contractorincludes for profit in the cost estimate for a projectdepends on many factors. These include capitalrequired and capital risks involved, anticipatedtroublesome conditions during construction,

locale, state of the industry, estimated competitionfor the job, general economic conditions, need ofthe firm for additional work, and disciplines re-quired, such as structural, mechanical, and elec-trical. When a contractor is very anxious to obtainthe job, the bid submitted based on the costestimate may not include much, if any, margin.This may be done because of the prestige associ-ated with the project or the expectation of profitsfrom changes during construction.

Normally, to establish margin for an estimate,the estimator consults handbooks that express

gross margin as a percent of project cost for variousgeographic regions and industries. Also, the esti-mator consults periodicals to obtain the currentprice for specific work. These data, adjusted for theeffects of other considerations, form the basis forthe margin to be included in the estimate.

Quantity Surveys. A quantity survey is a listingof all the materials and items of work required for aconstruction project by the contract documents.

Together with prices for these components, thequantities taken off from these documents are the

basis for calculation of the direct cost of the project.In the United States, it is customary, except forsome public works, for contractors to makequantity surveys at their own expense. The con-

tractors may prepare the surveys with their ownforces or contract with professional quantitysurveyors for the task. Often, a contractorsestimator will take off the quantities and pricethem either simultaneously with or after com-pletion of the quantity survey.

Preparation of a quantity survey requires thatthe project be resolved into its components, workclassifications, and trades. Because of the largenumber of items involved, professional quantitysurveyors and estimators generally use checkliststo minimize the chance of overlooking items. Wheneach item in a checklist is assigned a code number,the list serves the additional purpose of being acode of accounts against which all expenses arecharged to the benefiting item. It is good practice inrecording an item on a quantity survey sheet orestimate form to indicate this step with a checkmark on the checklist next to the item and to placeitems in the same sequence as they appear on thechecklist. This will help ensure that items are notoverlooked. Furthermore, when a search has to bemade for an item, it will always appear in thesame place.

Computer Estimating. Several types of compu-

ter software are available for facilitating construc-tion cost estimating. The most common may beclassified as utilities, databases, and expert systems(artificial intelligence).

Utilities compile information and performarithmetic on the data, for example, in spreadsheetprograms. Enabling quick extraction and presen-tation of needed information in convenient formfor analysis and reporting, utilities supplement theexpertise of estimators.

Databases are listings of unit prices for materials,equipment, fixtures, and work items. They are

usually designed for use with a specific utilityand may be limited to a specific type of estimate orestimating technique.

Expert systems should ideally, when fedcomplete, appropriate data, prepare an estimateautomatically, with a minimum of assistance from ahuman estimator. In practice, they question theestimator and use the answers to produce theestimate.





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(N. Foster et al., Construction Estimates fromTake-Off to Bid, 3rd ed., G. E. Deatherage,Construction Estimating and Job Preplanning,McGraw-Hill, Inc., New York (books.mcgraw-hill.com); J. P. Frein, Handbook of ConstructionManagement and Organization, Van Nostrand

Reinhold, New York.)

4.8 Bookkeeping and

Accounting

Contractors must maintain financial records formany purposes. These include tax reporting,meeting requirements of government agencies,providing source data for indispensable supportservices, serving the purposes of company man-agement, and submission of financial statementsand reports to bankers, sureties, insurance compa-

nies, clients, public agencies, and others. Companymanagement is especially concerned with financialaccounts. Without complete, accurate records,management would find it impracticable to, amongother things, estimate construction costs accurately,keep the firm in a fluid cash position, make sounddecisions regarding acquisition of equipment, orcontrol costs of projects under way.

4.8.1 Bookkeeping

Bookkeeping is the art of recording business trans-

actions in a regular, systematic manner so as toshow their relationship and the state of the

business in which they occur. General practice incontractor bookkeeping is to divide every trans-action into two entries of equal amount.

One entry, called a debit, indicates the income,materials, and services received by the contractor.The other entry, called a credit, is entered in acolumn on the right. Balancing and checking thefirst entry, it records outflow, such as payments.

Usually, bookkeepers maintain at least two setsof books, a journal and a ledger, both with debit

and credit entries. In the journal, transactions areposted chronologically as they occur. For eachtransaction, the date, nature or source of trans-action, purpose, and amount involved are recordedin successive entries. The amount received by thecontractor (debit) is recorded one line above theoutgoing amount (credit).

A second book, a ledger, is used to grouptransactions by type. It allots a page or two for each

kind of transaction posted in the journal, such assalaries, or taxes, or rent. Every debit entry in the

journal is recorded as a debit entry in the ledger.Every credit entry in the journal is posted as acredit entry in the ledger. Consequently if nomistakes are made, the two books must balance:

The sum of the money recorded in the ledger mustequal the sum of the money posted in the journal.

4.8.2 Accounting Methods

Accounting includes bookkeeping but also otherservices that provide more detail and explanationsaffecting the financial health of a business. Themain objective is job costing or the determinationof income and expense from each constructionproject. The cost estimate for each project serves asa budget for it. Costs, as reported, are charged

against the project that incurs them.General practice for contractors is to use an

accounting procedure known as the accrual method.(It differs from the alternative cash method in whichincome is recognized as received, not when billed.Expense is posted as incurred.) For the accrualmethod, income is recorded in the fiscal periodduring which it is earned, even though paymentmay not have been received. Also, expenses areposted in the period in which they incur.

A procedure known as the straight accrualmethod is used for accounting for short-term

contracts (projects completed within a singleaccounting period). For long-term contracts (pro-jects started in one taxable year and completed inanother), contractors usually use the completed-contract or percentage-of-completion methods,which are variations of the accrual method.

Percentage-of-Completion Method n Inthis procedure, income and expenses are reportedas a project progresses, thus on a current basisrather than at irregular intervals when projects arecompleted. The method also reflects the status of

ongoing projects through current estimates ofpercent completion of projects or of costs tocomplete. Profit is distributed over the fiscal yearin which the project is under construction. Thepercentage of the total anticipated profit earned tothe end of any period is generally estimated as thepercentage that incurred costs to that date are of theanticipated total cost, with allowances for revisedestimates of costs to complete.

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Completed-Contract Method n In thisprocedure, income and expenses are reported onlywhen the project is completed. This method offersthe advantage that income is reported after finalfinancial results are known rather than beingdependent on estimates of costs to complete the

project. It has several drawbacks, however, one ofwhich is the inability to indicate the performance todate of long-term contracts. Also, it may result inirregular reporting of income and expenses andhence, sometimes, in larger income taxes.

Because the percentage-of-completion and com-pleted-contract methods have advantages and dis-advantages, particularly with respect to income taxes,a contractor may elect to use percentage-of-com-pletion method for financial statements and thecompleted-contract method for reporting incometaxes. Or, a contractor may use one method forsome projects and the othermethod forother projects.But once a methodhasbeen adopted fortax-reportingpurposes, approval of the Internal Revenue Service isneeded before the contractor can change it.

Financial Reports n Several types of finan-cial reports are derived from business records. Twoof the most important are the income statement andthe balance sheet.

Income, or profit and loss, statements summa-rize the nature and amounts of income and expenseover a specific period. A statement expresses profit

or loss as the difference between income receivedand expenses paid out during the period.

Balance sheets, also known as financial state-ments or statements of assets and liabilities,summarize assets, liabilities, and net worth as ofa specific date, such as the end of a fiscal year.These statements are intended to indicate thefinancial condition of a business on that date.Balance sheets derive their name from the require-ment that total assets equal total liabilities plus networth. Assets include anything of value accruing tothe business, such as all property owned by the

business (less depreciations), cash on hand or in thebank, receivables, and prepaid expenses. Liabilitiesinclude financial obligations, such as notes andaccounts payable; accrued expenses, includingwages and interest accrued; deferred taxes; andlong-term debt. Net worth represents the contrac-tors equity in the business.

(G. E. Deatherage, Construction Office Admini-stration, W. E. Coombs and W. J. Palmer,

Construction Accounting and Financial Manage-ment, 5th ed., and M. Millman, GeneralContracting: Winning Techniques for Starting andOperating a Successful Business, McGraw-Hill,Inc., New York (books.mcgraw-hill.com); Con-struction Cost Control, ASCE Manuals and

Reports of Engineering Practice No. 65, AmericanSociety of Civil Engineers (www.asce.org).)

4.9 Project Scheduling

One of the first things to be done by a contractorwhen beginning the preparation of an estimate is tomake a time schedule of the proposed operationand set up a tentative plan for doing the work. It isnecessary for the contractor to study the plans andspecifications in detail before visiting the site of theproject. This study should proceed far enough to

establish a tentative progress schedule for the moreimportant or governing items of work.

4.9.1 Job Progress Schedule

This schedule should show all items affecting theprogress of the work and consider the length of theconstruction season (if applicable) or seasonalweather influence at the particular site. Whereapplicable, the schedule should note the mostadvantageous date or the required date for early-stage work, such as river diversion for a dam; when

deliveries of new or specialized construction plantor equipment can be obtained; possible deliverydates for critical items of contractor-furnishedpermanent materials; delivery dates of major itemsof permanent equipment to be furnished by theowner; and other controlling factors. Based on thepreceding dates, production rates for the control-ling items of work should be determined. Also, thetype, number, and size of the various units ofconstruction plant and equipment needed tocomplete the work, as required by this schedule,should be tentatively decided upon. Progress

schedules can be prepared in several forms.Figure 4.5 shows a form that can be adapted to fitmost conditions.

Based on the progress schedule, a brief narrativedescription of the job should be written. Thedescription should call attention to indefinite,hazardous, and uncertain features as well as toitems likely to increase and decrease in quantity.Also, the description should include a statement of





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Fig. 4.5 Bar-chart progress schedule. Start and end of a horizontal line indicate, respectively, start andfinish of an activity.

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the total man-hours of labor and the total machine-hours for important equipment estimated as re-quired for doing the work. In addition, thedescription should include peak labor requirementsand controlling delivery requirements for importantmaterial and equipment items. Finally, the descrip-

tion should contain a statement of cash requirementsderived from scheduled income and expenditures.

4.9.2 Scheduling to Save Money

Time is less tangible an ingredient of constructionthan labor or material but nonetheless real andimportant. Money and time are related in manyways.

For the owner of revenue-producing facilities,such as electric generating installations, processingplants, and rental buildings, reduction in time

required for completion of construction results inless interest expense on investment over the periodof construction. Also, increased income accrues tothe extent that completion time is shortened, therebypermitting earnings to begin at an earlier date.

To the contractor, reduction in time for com-pleting the job means, likewise, a reduction ininterest charges on cash invested during construc-tion. Also, the shorter the time to complete the job,the less the supervisory, administrative, and over-head expense. In addition, benefits accrue fromshortened time because it permits earlier release of

equipment for use on other work.Construction scheduling consists essentially ofarranging the several operations involved in theconstruction of a project in the sequence required toaccomplish completion in the minimum period oftime consistent with economy. To ensure com-pletion within the contract time limit and toattempt to reduce the time required to do the job,it is necessary to program each unit of the projectwithin itself and properly relate each unit to all theothers.

4.9.3 Scheduling with a

Rectangular-Bar Chart

Progress schedules show starting and completiondates for the various elements of a project. For unit-price work, the bid-item breakdown is normallyused. On lump-sum contracts, subdivision accord-ing to that used in estimating the work is common.Schedules may be prepared in either tabular or

graphical form, although the graphical form isgenerally used because of ease in visualization.

The most widely used graphical representationof the work schedule is the rectangular-bar chart(Fig. 4.5). It shows starting and completion datesfor each item of work. Also, it indicates the items on

which work must proceed concurrently, the itemsthat overlap others and by how much, and theitems that must be completed before work onothers can begin.

Progress schedules should be prepared at theoutset of the job as an aid in coordinating work byall departments of the contractors organization(Art. 4.9.1). For instance, the progress schedule is aconvenient way to advise the purchasing agent ofcritical material delivery dates.

Construction contracts often require the con-tractor to submit a progress schedule to the ownerfor approval within a specified time after award ofthe contract and before construction is started. Theimportance of this requirement often is empha-sized in the contract by provisions to the effect thatfailure to submit a satisfactory schedule shall be

just cause for annulment of the award and for-feiture of the proposal guarantee.

For comparing performance of work with thatscheduled, a bar is often placed above the schedule

bar to show actual start and completion dates. Thechart in Fig. 4.6 indicates that excavation started onthe date programmed and was completed ahead oftime, whereas formwork began late. At the close of

December, formwork was 60% complete. Thismethod has the advantage of simplicity. It fails,however, to disclose the rate of progress required

by the schedule or whether actual performance isahead of or behind schedule.

4.9.4 Triangular-Bar Chart

The concept of rate of progress is introduced inFig. 4.7, which deals with the same items charted inFig. 4.6. In Fig. 4.7, horizontal distances representtime allotted for doing the work and vertical

distances represent percentage of completion.Therefore, the sloping lines indicate the rate ofprogress.

For example, Fig. 4.7 indicates that excavationwas scheduled to proceed from start to finish at auniform rate (straight sloping line). Work startedon time, progressed slowly at first, and tapered offat the end (crosshatched area). Greater productionscheduled midway in the operation was sufficient,





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however, to bring the item to completion 15 days

early. The date on which formwork would havebegun was advanced by reason of the acceleratedrate of excavation from October 1 to September 15(dashed lines).

Instead of being stepped up to take advantage ofthe time gained on excavation, formwork was latein getting started and progressed slowly untilDecember 1. Then it was speeded up, but the 60%completion reached at the close of December fallsshort of scheduled requirements. (In practice, thetime gained on excavation would doubtless have

been captured and put to beneficial use by ar-

ranging start of formwork on September 15, half amonth ahead of schedule.)Time gained or lost on any one work item affects

many others. As a result, frequent revision is

necessary to keep progress schedules currently

accurate in all respects. Formalized revision of theoverall progress schedule, however, is often ren-dered unnecessary because contractor dependencyon it is gradually supplanted by such intimateacquaintance with the operations that controllingfactors become common knowledge and all con-cerned know what must be done and when.

Critical items often are subjected to detailedanalysis and scheduling. This may take the form ofthree-dimensional schematics, expanded views,stage-construction drawings, concrete-pouringdiagrams, and similar devices as aids to visualiza-

tion. After that, further scheduling, such asconcrete-pouring programs, earthwork-quantitymovement schedules, or programming of pipingruns may be devised and utilized as required.

Fig. 4.7 Triangular-bar progress schedule.

Fig. 4.6 Rectangular-bar progress schedule.

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4.9.5 Critical-Path Method of

Scheduling (CPM)

The critical-path method has been developed as atool of management useful in specialized situ-ations. It is required by several federal and stateagencies on some contracts. CPM is based on

planning and job analysis going far beyond thatnecessary for bidding a job. In addition to the step-

by-step breakdown of the job into its componenttasks and subtasks, and the plotting of sequentialrelationships, the planner must know how longeach task will take. For instance, the constructionand installation of a large air handler inside themechanical room requires shop drawings to bedeveloped by the HVAC subcontractor. The HVACcontractor must calculate the time needed toprepare the shop drawings, have them reviewed

by the engineer, allow time for any subsequent

revisions after the review and then time for re-review and approval. All of these subtasks wouldneed to be completed prior to manufacturing of theair ducts. All of the lead time for any otheradditional equipment needed inside the ducts,such as smoke detectors or dampers, would alsoneed to be known. Some projects such as cleanrooms or drug manufacturing facilities requirelengthy testing periods of the HVAC equipmentprior to acceptance. Even on the simplest ofconstruction projects each task can have manysubtasks. Most computer programs will allow a

large number of subtasks to be shown, but for easeof reading, the subtasks can be hidden orrepresented by a task line.

After the project has been broken down into all itsactivities, the activities are listed or plotted in such away that all sequential relationships are shown.Activities may be represented by arrows (Fig. 4.8a) or

by circles, or nodes, connected by sequence lines(Fig. 4.8b). Analysis, by examination or computer,should guide establishment of a realistic time sche-dule and pinpointing of the operations whose com-pletion times are responsible for establishing the

overall project duration. Also, the analysis shouldfacilitate settling change orders by determining theoperations affected and the effect on project duration.In addition, it should help in establishing the propersequence of work operations and determining thestatus of work in progress in relation to the number ofdays behind or ahead of schedule.

An arrow diagram (Fig. 4.8a) is drawn by settingthe tail of an arrow representing an activity, such as

placing concrete, at the tip of an arrow representingthe immediately preceding activity, such as placingelectrical conduit and junction boxes. The nodes(tips and tails) are assigned unique numbers toidentify the activities (12, 23, etc.). Each noderepresents the completion of the preceding activi-

ties and the start of the following activities. Some-times, a dummy arrow is needed to complete thenetwork.

A precedence (PERT) diagram (Fig. 4.8b) isdrawn by setting the node for an activity to theright of the node representing an immediatelypreceding activity. Each node is assigned a num-

ber greater than that of any preceding activity.The nodes are connected by lines to indicate thesequence of the work. Precedence diagrams aresimpler to draw and analyze than arrow diagrams.

In either type of diagram, the critical path is thesequence of operations requiring the most time tocomplete. The critical path determines the durationof the project. To shorten the project, it is necessaryto decrease the time required for one or moreactivities on the critical path (critical activities).These activities have zero total float.

Total float is the difference between timerequired and time available to execute an activity.It is equivalent to the difference between earliestand latest start (or finish) times for an activity.Table 4.1 shows the calculation of float for thesimple network in Fig. 4.8. Float is determined intwo steps: a forward and a backward pass over the

network.The forward pass starts with the early start (or

scheduled) date for the first activity, Erect Forms. Inthis case, the date is 0. Addition of the duration ofthis activity, 2 days, to the early start time yields theearly finish date, 2, which is also the early start datefor the next activity, Place Reinforcing. The earlyfinish date for this activity is obtained by adding itsduration, 1 day, to the early start date. The forwardpass continues with computation of early start andfinish times for all subsequent activities. Where oneactivity follows several others, its early start date

is the largest of the early finish dates of thoseactivities.

The backward pass determines late start andfinish dates. It begins with the late finish date of thefinal activity, Place Concrete, which is set equal tothe early finish date, 6, of that activity. Subtractionof the duration, 1 day from the late finish dateyields the late start date, 5, which is also the latefinish date of preceding activities, Place Mechanical





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and Place Electrical, and their late start dates arefound by subtracting their durations from the latefinish dates. Where one activity precedes severalothers, its late finish date is the smallest of the latestart dates of those activities. The backward passcontinues until late start and finish dates are

computed for all activities. Then, the float can befound for each activity as the difference betweenearly and late start times. Critical activities (thosewith zero total float) are connected by heavyarrows in Fig. 4.8a and by double lines in Fig. 4.8bto indicate the critical path.

Table 4.1 Float Calculations for Critical-Path Method

Activity Number

ArrowDiagram

PrecedenceDiagram

Duration,days

Early StartDate

Early FinishDate

Late StartDate

Late FinishDate

Total Float,days

12 1 2 0 2 0 2 023 2 1 2 3 2 3 034 3 1 3 4 4 5 135 4 2 3 5 3 5 056 5 1 5 6 5 6 045 0 4 4 5 5 1

Fig. 4.8 Representation of activities in a CPM network: (a) arrows; (b) nodes.

4.22 n Section Four




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4.9.6 Scheduling for Fast

Tracking

CPM, described for application to construction of aproject in Art. 4.9.5, can also be used for design, whichusually is completed before the start of construction.In addition, CPM is useful for integrated scheduling

of fast tracking, a procedure in which design andconstruction proceed simultaneously. When CPM isused for this purpose, it requires input from bothdesign and construction personnel.

When a project is fast-tracked, final design andconstruction begin shortly after groundbreaking.Field work on components of the project proceedsas soon as applicable portions of the design have

been completed. Thus, what would be the normalduration of the project is shortened by settingdesign and construction on separate but paralleltracks instead of in sequence, as is traditional.

One disadvantage of fast tracking is less controlover costs than with projects where design has beencompleted before bids are taken. This disadvantage,however, can be partly overcome if a professionalconstruction manager is employed for constructionmanagement or a cost-plus-fixed-fee or cost-plus-percentage-of-cost contract is awarded to a reputablegeneral contractor. Another disadvantage of fasttracking is that coordination of the work is moredifficult and the input from various consultants may

be lacking. As a result, some work in place may haveto be removed or redone. Because of the lower

efficiency of fast tracking and the necessity of redoingwork, construction costs may be larger than theywould be when constructionstartsaftercompletionofdesign. Despite this, the total cost of the project to theowner may be less, because of savings in interest onconstruction loans, revenues from earlier use of theproject, and decreased effects of monetary inflation.

4.10 Role of Project Manager

A project manager, in brief, has responsibility for

all construction functions for a project, includingcoordination of the work of job superintendents,crew supervisors, and subcontractors. For a smallorganization, the proprietor may serve as projectmanager. For a large firm, an experienced projectmanager may be assigned responsibility for onelarge project or several smaller ones.

Success of a construction project dependsheavily on the abilities of the project manager.

This individual should have administrative andmanagerial skills and be familiar with all details ofthe contract documents. Knowledge of all phasesof construction is essential. From daily inspectionof projects assigned, the construction managershould keep abreast of the current job status.

4.10.1 Duties of a Project

Manager

Among the duties of a project manager are thefollowing:

Coordination of contact with clients

Allocation of workforce to projects and organi-zation of units for project operation

Coordination of the work of all units and divisions

Periodic review and analysis of project costs,schedule, progress, and other construction data

Insure timely submittal of pay requests to owner

Purchasing

Arranging for surveys and construction layout

Instituting and supervising job safety programsand compliance with all environmental programs

Securing permits from government agencies

Maintenance of files of labor agreements

Representing the contractor in jurisdictionaldisputes

Dealing with changes and extras

Submitting and obtaining approval of shop draw-ings and samples, and material certifications

Conducting conferences and job meetings with keypersonnel and following up on decisions made

After construction starts, the project managershould continually compare field performance withthe established schedule. When the schedule is not

being met, the corrective actions taken and reschedul-ing phases are known as project time management.

The monitoring phase of time managementinvolves periodic measurement of actual job pro-gress and comparison with the planned objectives.This should be done by determining the workquantities put into place and reporting thisinformation for comparison with work quantitiesanticipated in the job schedule. Then, a determi-





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nation can be made of the effect of the currentstatus of the job on the completion date for theproject. Any corrective actions necessary can then

be planned and implemented. After that, theschedule can be updated.

CPM provides a convenient basis for measuring

progress and for issuance of reports (Art. 4.9.5).The network diagram should be corrected asneeded so that the current job schedule reflectsactual job

Documents

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