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1.1Definition of Construction:. Is the process by which material, equipment, machinery are assembled into a permanent facility. Is the process by which.

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Presentation on theme: "1.1Definition of Construction:. Is the process by which material, equipment, machinery are assembled into a permanent facility. Is the process by which."— Presentation transcript:

1 1.1Definition of Construction:

2 Is the process by which material, equipment, machinery are assembled into a permanent facility. Is the process by which material, equipment, machinery are assembled into a permanent facility.

3 Management: Process of planning, directing and controlling resources to achieve the desired goal. Process of planning, directing and controlling resources to achieve the desired goal.

4 Construction Industry Characteristics: It reacts rapidly to external economic pressures, tight money or national recession. It reacts rapidly to external economic pressures, tight money or national recession. Widerange of activities, methods and manufacture. Widerange of activities, methods and manufacture. Remote site with changing conditions. Remote site with changing conditions.

5 Construction contractor often enjoys high incomes but due to the competitive nature, result in a high bankruptcy rate. Construction contractor often enjoys high incomes but due to the competitive nature, result in a high bankruptcy rate. Personnel are not permanent and skilled workers earn high wages, but due to interruption of season reduces the annual income of money. Personnel are not permanent and skilled workers earn high wages, but due to interruption of season reduces the annual income of money. Compose of large number of independent suppliers and contractor. Compose of large number of independent suppliers and contractor.

6 The Construction Contractor: Is that party who brings together all of the diverse elements and input of the construction process into a single, coordinated effort. Is that party who brings together all of the diverse elements and input of the construction process into a single, coordinated effort.

7 Classification of Contractors: a. PrimeGeneral where he is responsible for construction of the entire project. a. PrimeGeneral where he is responsible for construction of the entire project. b.SubcontractorSpecialitywhere he is responsible for construction a limited aspect of the project etc.. b.SubcontractorSpecialitywhere he is responsible for construction a limited aspect of the project etc.. Plumbing,Heating,Electrical etc. Plumbing,Heating,Electrical etc.

8 Classification of Constuction Industry 1.By Size($) 1.By Size($) Small Medium Large Mega Small Medium Large Mega 5M 15M M 200M 5M 15M M 200M 2.By Ownership; 2.By Ownership; Private, Public, Military Private, Public, Military 3.By Use; 3.By Use; Residential Residential Commercial Can be expanded to more Commercial Can be expanded to more Industrial Industrial Utility Utility 4.By Scope (Preferred) 4.By Scope (Preferred)

9 Building: Building: (Vertical Construction) (Vertical Construction) 1.Residential (Emphasis on Architects) 1.Residential (Emphasis on Architects) 2.Nonresidential 2.Nonresidential Engineering: Engineering: (Heavy construction or horizontal construction) (Heavy construction or horizontal construction) Highway _ Airfield Highway _ Airfield Railroad Railroad Bridges Bridges Utility Utility Dams Dams Industrial: Industrial: Emphasis on production. Emphasis on production.

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12 1.2 The Development Process: Project development: major steps in the process are: Project development: major steps in the process are: 1.Recognition of need and initial concept for the facility. 1.Recognition of need and initial concept for the facility. 2.Feasibility studies (economic & technical) for the project. 2.Feasibility studies (economic & technical) for the project. 3.Detailed plans, specifications & cost estimates. 3.Detailed plans, specifications & cost estimates. 4.Approval of the project by regulatory agencies. 4.Approval of the project by regulatory agencies.

13 5.Advertizing the project for bid or negotiating with potential contractors. 5.Advertizing the project for bid or negotiating with potential contractors. 6.Award of prime construction contrac (or various subcontracts, if owner- managed) 6.Award of prime construction contrac (or various subcontracts, if owner- managed) 7.Facility construction and construction contract administration. 7.Facility construction and construction contract administration. 8.acceptance of completed facility by owner. 8.acceptance of completed facility by owner.

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16 Parties involved in the construction process: Owner Owner Designer (A/E) Designer (A/E) Contractor Contractor General (Prime) General (Prime) Subcontractor (Specialty) Subcontractor (Specialty) Construction Manager : Construction Manager : Agent of owner provides services to owner. Agent of owner provides services to owner.

17 How Construction is Accomplished?

18 1. Owner construction force.(fig.1-5) Owner Construction staff Project director Construction forces

19 2. Owner management of construction. (fig.1-6) Owner Construction staff Project director Hired labor force Contractor (s) (a)*(b)* Project director Hired labor force Contractor (s)

20 3. Construction by a general contractor.(fig.1-7) Design FirmPrime Contractor Owner Sub contractor (s) Contractor work force inspection

21 4. Construction using a design/build contract(turnkey).(fig.1-8) Design/build firm Owner Design force Construction force Subcontractors)

22 5. Construction utilizing a construction management contract.(fig.1-9) Design/build firm Owner Design firm Construction firm (s) Construction manager

23 Construction Management:

24 Objective: Contract approach Contract approach Is to treat the project planning, design and construction as integrated task within a construction system in order to serve the owner interests in optimum fashion. Is to treat the project planning, design and construction as integrated task within a construction system in order to serve the owner interests in optimum fashion. However, in a more general sense, it refers to the control of the four basic resources of Men (labor), Material, Machinery and Money in executing a construction project on time and within the budget with acceptable level of quality. However, in a more general sense, it refers to the control of the four basic resources of Men (labor), Material, Machinery and Money in executing a construction project on time and within the budget with acceptable level of quality.

25 $ = Cost T = Time Q=Quality $ = Cost T = Time Q=Quality $ Q=QUALITY MACHINE Direct control Plan MATERIAL MEN MACHINE MONEY $=Cost

26 Reasons for construction company failure: Lack of capital Lack of capital Inadequate cost accounting Inadequate cost accounting Poor cost estimating Poor cost estimating Lack of general management ability Lack of general management ability

27 (Poor management represents 90% of failure) $ = Cost $ = Cost T = Time T = Time Q = Quality Q = Quality

28 CONTRACTING METHODS

29 Contract Types (Classification) Contracts may be classified in several ways: 1.Award point of view Contracts may be classified in several ways: 1.Award point of view a. Competitive: - Open (same proposal bids open in public) a. Competitive: - Open (same proposal bids open in public) - Closed (same negotiation) - Closed (same negotiation) b. Negotiated contracts (common in housing, industrial) b. Negotiated contracts (common in housing, industrial) 2.Multiplicity view point 2.Multiplicity view point a. No contract (Force account) a. No contract (Force account) b. Single contract (General/Prime) b. Single contract (General/Prime) c. Separate Contracts c. Separate Contracts 3.Design & Construction relation 3.Design & Construction relation a. Only construction a. Only construction b. Design & Construction (Turnkey) b. Design & Construction (Turnkey)

30 Overlapping Design & Construction is called Fast Tracking or Phase Construction. Overlapping Design & Construction is called Fast Tracking or Phase Construction. 4.Cost point of view 4.Cost point of view a. Lump sum a. Lump sum Or combination Or combination b. Unit price b. Unit price c. Cost plus – can be as follows: c. Cost plus – can be as follows: 1. Cost plus percentage of cost 2. Cost plus fixed free 3. Cost plus with guaranteed max, cost 4. Cost plus incentive fee.

31 Reasons of using Cost-plus contract: Reasons of using Cost-plus contract: The owner may want a particular contractor The owner may want a particular contractor When plans & specifications cannot be completed before the starting of the project, because: When plans & specifications cannot be completed before the starting of the project, because: Nature of project. Nature of project. Urgency. Urgency. Many changes are expected to be involved. Many changes are expected to be involved.

32 When cost-plus is used, Contractor and Owner should establish: 1. Procedures of subcontracting (Unit, lump or negotiable) 1. Procedures of subcontracting (Unit, lump or negotiable) 2. Determination of the contractors payment 2. Determination of the contractors payment 3. Book keeping and Accounting methods 3. Book keeping and Accounting methods 4. Determination of requirement of reimbursable costs: 4. Determination of requirement of reimbursable costs:

33 Labor wages Labor wages Field office personnel Field office personnel Cost of material, equipment, tools for the use in the project (Equipt. – salvage value) Cost of material, equipment, tools for the use in the project (Equipt. – salvage value)

34 Costs not reimbursed. 1. Office overhead (unless the office functions are done in the field office) 1. Office overhead (unless the office functions are done in the field office) 2. Cost due to negligence of contractor. (correction of defective work) 2. Cost due to negligence of contractor. (correction of defective work)

35 1.Cost plus % of cost Used when project is poorly defined or cost is immaterial and the owners desire the best materials and workmanship. Used when project is poorly defined or cost is immaterial and the owners desire the best materials and workmanship. Disadvantage : No incentive for cost to go down. Disadvantage : No incentive for cost to go down. (Government agency may not use it) (Government agency may not use it)

36 2. Cost plus fixed- fee contract Popular. Popular. Project is fairly defined Cost estimate Fixed fee. Project is fairly defined Cost estimate Fixed fee. Contractor is encouraged to run efficient operation since fee is fixed. So, OH has to (go Contractor is encouraged to run efficient operation since fee is fixed. So, OH has to (go down) so profit (go up) down) so profit (go up) OH (go down) Efficiency (go up) OH (go down) Efficiency (go up)

37 3. Cost-plus fixed fee with guaranteed max. cost Advantage : Owner knows his maximum cost in advance Advantage : Owner knows his maximum cost in advance Only additional costs will be absorbed by contractor profit Only additional costs will be absorbed by contractor profit You need fairly decent plans and specifications. You need fairly decent plans and specifications.

38 4.Cost-plus incentive fee Incentive to keep cost (duration) down Incentive to keep cost (duration) down Contractor & owner agree on established cost target (fair plans and specifications) Contractor & owner agree on established cost target (fair plans and specifications) Fee = x + y Fee = x + y x = fixed (base fee) x = fixed (base fee) y = f (target cost – actual cost) y = f (target cost – actual cost)


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