VOLUME 1

Proceedings of the International Conference in the Built Environment

in the 21st Century (ICiBE 2006)

13-15 JUNE 2006

Editors:

Professor Dr. Johan Victor Torrance, Dr. Hamimah Adnan and Dr. Roshana Takim
Universiti Teknologi MARA, Shah Alam, Selangor

Published by:

ISBN:

©2006

Cover Design:

ii
 ORGANISING COMMITTEE

Patron Conference Materials

Yg.Bhg. Dato Seri Professor Dr Ibrahim Prof. Dr Johan Victor Torrance Abdullah
Abu Shah Dr Hamimah Adnan
Dr Roshana Takim
Advisor Associate Prof. Dr. Abdul Hadi Nawawi
Associate Professor Dr Mohamed Dr Mohd Nidzam Rahmat
Yusoff bin Abbas Che Bon Ahmad
Ezlina Mohd Ahnuar
Conference Chairman Hajah Azlina Omar
Dr Hamimah Adnan Siti Zawiyah Idris

Conference Secretary Protocol and Opening Ceremony

Dr Roshana Takim Abu Hassan Wahab
Dr Noriah Othman
Treasurer Associate Professor Zaiton Yaacob
Ani Saifuza Abdul Shukor Norbaya Ab. Rahim

Publicity, Promotion and Conference Secretariat

Advertisement Assoc. Prof. Dr. Abdul Hadi Nawawi
Hamidon Abdullah Ezlina Mohd. Ahnuar
Mohd Nasrudin bin Ayub Dr Mohd Nidzam Rahmat
Norbaya Abdul Rahim
Logistic, Transportation and Dinner Associate Professor Zaiton Yaacob
Nasyairi Mohd Nasir Ani Saifuza Abdul Shukor
Ellemy Iskandar Khalid Y.M Raja Norashikin Raja Othman
Dr. Ar. Mariam Jamaludin Hafiszah Ismail
Mohamad Sufian Hasim Hajah Faridah Ismail
Mazlan Abu Bakar Mohd Zamreen Mohd Amin
Hajah Azlina Omar
Technical Committee- Seminar & Siti Zawiyah Idris
Colloquium
Dr Hamimah Adnan
Hajah Faridah Ismail
Hafiszah Ismail

Certificate & Momentos

Hajah Faridah Ismail
Hamidon Abdullah
Hafiszah Ismail
Ellemy Iskandar Khalid

iii
INTERNATIONAL ORGANISING COMMITTEE FOR ICiBE 2006

Professor Dean Kashiwagi, Arizona State University, USA

Professor Martin Betts, Queensland University of Technology, Brisbane, Australia
Professor Deo Prasad, The University of New South Wales, Australia
Assoc. Professor Dr. Peter J. Edwards, Royal Melbourne Institute of Technology
(RMIT), Australia
Professor Dr. Derek Walker, RMIT, Australia
Professor Dr. Charles Egbu, Glasgow Caledonian University (GCU), United Kingdom
Professor Dr. Akintola Akintoye, GCU, UK
Professor Dr. James Sommerville, GCU, UK
Dr. Esra Kurul, Oxford Brookes University, UK
Professor Dr. Alan Griffith, Sheffield Hallam University, UK
Professor Roy Morledge, Nottingham Trent University, UK
Dr. David Greenwood, University of Northumbria, Newcastle-upon Tyne, UK
Dr. Francis Edum-Fotwe, Loughborough University, UK
Professor Dr. Heng Li, The Hong Kong Polytechnic University, Hong Kong
Assoc. Prof. Dr. Cheung Sai-Onn, City University of Hong Kong
Professor Dr. George Ofori, National University, Singapore
Professor Dr. Stephen Ogunlana, Asian Institute of Technology, Pathum Thani, Thailand
Professor Dr. Irtishad Ahmad, Florida International University, Miami, USA
Professor Dr. Francisco Loforte Ribeiro, Departmento de engenharia Civil
Arquitectura, Lisbon, Portugal
Professor Dr. Arq. Silviade Schiller, Faculty of Architecture, Design & Urbanism,
University of Buenos Aires, Argentina

iv
LOCAL ORGANISING COMMITTEE FOR ICiBE 2006

Professor Dr. Khairuddin Abdul Rashid, International Islamic University (UIA), Kuala
Lumpur Malaysia
Professor Dr. Hamzah Abd. Rahman, University Malaya (UM), Kuala Lumpur
Professor Dr. Johan Victor Torrance, Universiti Teknologi Mara (UiTM) Shah Alam,
Selangor
Professor Bill Hamilton, UiTM Shah Alam
Professor Dr. Zainal Mat Saat, UiTM Shah Alam
Professor Dr. Mohammad Awang, UiTM Shah Alam
Assoc. Prof. Dr. Abdul Hadi Nawawi, UiTM Shah Alam
Assoc. Prof. Dr. Faridah Yusuf, UiTM Shah Alam
Assoc. Prof. Dr. Dasimah Omar, UiTM Shah Alam
Dr. Mohamad Nidzam Rahmat, UiTM Shah Alam
Assoc. Prof. Dr. Wan Mohd Naim Wan Mohd, UiTM Shah Alam
Assoc. Prof. Ir. Dr. Zainab Mohammad, UiTM Shah Alam
Assoc. Prof. Dr. Jamalunlaili Abdullah, UiTM Shah Alam
Assoc. Prof. Dr. Ismail Rahmat, UiTM Shah Alam
Assoc. Prof. Dr. Mohammad Halmi Kamaruddin, UiTM Shah Alam
Assoc. Prof. Kamariah Kamsah, UiTM Shah Alam
Assoc. Prof. Dr. Ahmad Ezanee Hashim, UiTM Shah Alam
Assoc. Prof. Dr. Wan Salleh Wan Ibrahim, UiTM Shah Alam
Assoc. Prof. Dr. Mizan Hitam, UiTM Melaka, Melaka
Assoc. Prof. Dr. Abdul Rashid bin Abdul Aziz, University Sains Malaysia (USM),
Penang
Assoc. Prof. Dr. Rodzyah Hj. Mohd. Yunus, UiTM, Shah Alam
Assoc. Prof. Wan Ahmad Halawah Wan Hariri, UiTM, Shah Alam

v
FOREWORD BY ICIBE 2006 CONFERENCE ADVISOR

Assalamualaikum and Warahmatulahi Wabarakatuh,

First and foremost, I wish to welcome all of you to the International Conference
in the Built Environment (ICiBE) 2006 and “Selamat Datang” everyone. I am
greatly honored and glad that the Faculty of Architecture, Planning and Surveying
(FAPS), UiTM is organizing this conference. Faculty of Architecture, Planning
and Surveying wishes to thank the university and supporting bodies for their trust,
confidence and continuing support towards us.

This conference with the theme “Bringing Industry and Academia Together for
the Built Environment in the 21st Century” is an important opportunity of bringing
together so many experts from around the world. Not only, does it interact with
the many facets of this faculty but it comes at a time when the modernising of the
Malaysian construction industry is under close scrutiny. This is contained in the
10 year Master Plan produced by the Construction Industry Development Board
Malaysia (CIDB). Furthermore, the enforcement of the built environment and
related infrastructure is underlined in the policies contained in the recently
published 9th Malaysian Plan. With this as a backdraft to your deliberation, I am
certain that your contributions of knowledge and debate in the conference will be
extremely valuable.

Lastly, I would like to thank all the committee members for their hard work and
excellent job in ensuring the success of this conference.

Thank you

ASSOCIATE PROFESSOR DR MOHAMED YUSOFF BIN ABBAS

Dean, Faculty of Architecture, Planning & Surveying (FAPS)
Universiti Teknologi MARA

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FOREWORD BY ICIBE2006 CONFERENCE CHAIRMAN

Assalamualaikum
Welcome
Selamat Datang

It is with great pleasure that I welcome all distinguished guests, keynote speakers, and
delegates to The International Conference in the Built Environment in the 21st Century
(ICiBE 2006) at The Rennaisance Kuala Lumpur Hotel, Kuala Lumpur, Malaysia. To the
foreign delegates, WELCOME TO MALAYSIA! The ICiBE 2006 provides a forum for
interaction and exchange of ideas on the most appropriate ways of building bridges
across universities, research institutions, government and industry.

I would like to express my appreciation to all the presenters for their cooperation and
patience in providing the papers on schedule for the production of the proceedings on a
compact disc. Apart from the Malaysian speakers, delegates have come from all around
the globe as far as The United States of America, Netherland, France, India, Nigeria,
United Kingdom, Taiwan, Australia, Singapore, Dahran and Dubai.

The conference represents the outcome of a lot of work by many people over the last one
year. I would like to extend my personal thanks to the Organising Committee for the
commitment and sustained enthusiasm for the planning tasks. Each one of them has
worked extremely hard in making the Conference a success. I would also like to express
my thanks, particularly to Associate Professor Dr Mohamed Yusof bin Abbas (Dean,
Faculty of Architecture, Planning and Surveying) for the suggestions and continous
support for the conference. To all my colleagues at the Faculty of Architecture, Planning
and Surveying, you have proven that ‘TEAMWORK is the fuel that allows common
people to produce uncommon results”

Conferences are not just about papers and vigorous discussion, but are importantly, for
networking and renewing friendships. I trust that all attendees enjoy a good mix of
intellectual and social activities in the 2 ½ day conference and that the experience will
motivate you to return to Malaysia again in the future.

Thank you.

DR. HAMIMAH ADNAN

Chairman
Organising Committee (ICiBE 2006)

vii
 TABLE OF CONTENTS

VOLUME 1

KEYNOTE SPEECH
1 PRIVATE FINANCE INITIATIVE – A FRIEND OR FOE 3

2 KNOWLEDGE MANAGEMENT OF EDUCATION, ARCHITECTURE AND 15

ARCHITECTURAL HERITAGE IN A DEMOCRATIC SOCIETY

3 THE PLANNING OF PUTRAJAYA: CREATING THE ESSENCE OF CITIES 31

4 THE SUSTAINABILITY OF CONSTRUCTION RESEARCH/ GRADUATE EDUCATION 39

5 BILLS OF QUANTITIES – A TIME FOR CHANGE? 49

CONSTRUCTION PROJECT MANAGEMENT

1 NIGERIAN CONSTRUCTION PROJECT MANAGERS EDUCATIONAL LEVEL 59
AND NEED IN PROJECT MANAGEMENT

2 KNOWLEDGE MANAGEMENT OF OIL AND GAS CONTRACTORS IN 71

MALAYSIA

3 CONTINUING PROFESSIONAL DEVELOPMENT REQUIREMENTS OF BUILT 85

ENVIRONMENT PROFESSIONS – A UK PERSPECTIVE

4 CONQUERING THE CONSTRUCTION BATTLE: OVERCOMING THE PROBLEMS 97

ON LARGE CONSTRUCTION PROJECTS IN A DEVELOPING ECONOMY

5 THE IMPACT OF CONTRACTORS’ PREQUALIFICATION ON CONSTRUCTION 111

PROJECT DELIVERY IN NIGERIA

6 THE ‘A’ TEAM ENVIRONMENT 121

7 PARTICIPATION DETERRENTS IN CO-CURRICULUM ACTIVITIES OF 133

BUILDING AND CONSTRUCTION MANAGEMENT STUDENTS AT A
MALAYSIAN UNIVERSITY

8 ANALYSIS OF EFFICIENCY AND EFFECTIVENESS MEASURES OF 147

CONSTRUCTION PROJECT SUCCESS IN MALAYSIA
9 EMPOWERMENT OF CONSTRUCTION PROJECT TEAM
161
IN SINGAPORE CONSTRUCTION INDUSTRY
10 COLLABORATIVE WORKING VIA INNOVATIVE PAYMENT SYSTEMS 181

viii
11 KNOWLEDGE MAPPING IN THE CONSTRUCTION INDUSTRY: AN 181
EXPLORATORY STUDY

12 THE POTENTIAL OF APPLYING PASSIVE PROCUREMENT AS ONE OF THE 195

MEANS OF ACHIEVING SUSTAINABILITY IN THE BUILT ENVIRONMENT

13 MINIMIZING SPECIFICATIONS BY PERFORMANCE BASED SELECTION OF 205

SPECIALTY CONTRACTORS (SYSTEM DESIGN AND BUILD)

14 IMPERATIVES OF CONSTRUCTION WORKFORCE TRAINING: IMPROVING THE 217

PROVISIONS WITH TRAINING BEST PRACTICE
15 HOW READY ARE WE FOR E-TENDERING? 227
A MALAYSIAN CASE STUDY IN THE PREPARATION FOR IMPLEMENTING OF
E-TENDERING FOR THE CONSTRUCTION INDUSTRY
16 TOWARDS REDEFINING PERFORMANCE MEASUREMENT SYSTEM SYSTEMS: 237
A MULTIDIMENSIONAL CONCEPT

17 CLIENT PROJECT/CONSTRUCTION MANAGEMENT: THE COUNTERINTUITIVE 247

APPROACH

18 TEACHING ETHICS TO CONSTRUCTION DEGREE STUDENTS 259

19 SERVICES PROVIDED BY PROJECT MANAGEMENT CONSULTANT IN 267

MALAYSIAN CONSTRUCTION INDUSTRY

20 THE IMPACT OF CLIENT AND MANUFACTURERS’ ROLE AND INDUSTRIAL 277

RELATIONSHIPS ON CONSTRUCTION INNOVATION.

21 MALAYSIAN CONTRACTORS’ OPINIONS TOWARDS INTERNATIONAL 287

MARKET EXPANSION

22 RELATIONSHIP BETWEEN DURATION AND COST OF MALAYSIAN 299

CONSTRUCTION PROJECTS

23 SELECTION AND EVALUATION CRITERIA UNDER DECISION MAKING 311

ANALYSIS OF CO-FINANCED PROJECTS

PROCUREMENT, VALUE, FACILITIES AND RISK

MANAGEMENT
24 VALUE OR COST: TOWARDS A PROFICIENT CONTRACTOR ELECTION 329
PROCESS FOR CONSTRUCTION WORKS IN DEVELOPING COUNTRIES –
NIGERIA A CASE STUDY

25 THE IMPACT OF SEQUENTIAL THINKING IN THE RISK MANAGEMENT 341

PROCESS

26 CHALLENGES IN INTEGRATING SUSTAINABLE ISSUES INTO VALUE 353

MANAGEMENT PRACTICES

ix
27 DETERMINING THE ROLE OF INNOVATION MANAGEMENT IN FACILITIES 361
MANAGEMEN

28 THE OPERATIONAL RESEARCH FRAMEWORK FOR SAFETY CULTURE OF 373

THE MALAYSIAN CONSTRUCTION ORGANISATION
29 ADAPTATION STRATEGIES OF CONTRACTING FIRMS: 387
AN ANALYSIS BY FIRM SIZE
30 COMPARISONS OF EVALUATION TECHNIQUES IN VALUE ENGINEERING 395

31 DEVELOPING STRATEGIC SYSTEM PLANNING FRAMEWORK FOR 405

FACILITIES MANAGEMENT (SSPFFM) IN THE HEALTH SECTOR

32 POTENTIAL BEST VALUE CONSTRUCTION IN CHINA 421

33 EFFICIENT RISK ALLOCATION IN PROJECT FINANCE: ANALYSIS OF 431

LITERATURE REVIEW

STRATEGIC ISSUES IN CONSTRUCTION INDUSTRY

34 INVESTIGATING ON THE SUPPLY CHAIN MANAGEMENT 441

35 LABELLING CONSTRUCTION COMPANIES AS DOMESTIC, INTERNATIONAL, 451

MULTINATIONAL, GLOBAL CORPORATIONS: HOW FEASIBLE IS IT?

36 FUTURE RESEARCH MODEL OF THE NEW UNIVERSITY 463

LAW AND CONTRACTS

37 THE RELEVANCE OF LIQUIDATED DAMAGES CLAUSE IN CONSTRUCTION 475
CONTRACTS

38 ABANDONED HOUSING PROJECTS IN MALAYSIA: ITS LEGAL CAUSES AND 487

LEGAL SUGGESTIONS

39 THE IMPACT OF EDUCATION OF CONSTRUCTION CLIENTS 513

x
 VOLUME 2

INFORMATION TECHNOLOGY, SAFETY AND QUALITY

MANAGEMENT
40 IMPROVING SAFETY AND SUSTAINABILITY OF AFFORDABLE HOUSING 525

41 SELECTION PROCESS OF CONSTRUCTION MANAGEMENT SERVICE 539

PROVIDER

42 A SYSTEM VIEW OF FACTORS AFFECTING THE PERFORMANCE OF 551

CONSTRUCTION FIRMS

43 ANALYSING THE INFLUENCE OF NED FACTORS ON CONTRACTORS’ 565

PERFORMANCE

44 APPLYING HERITAGE TOURISM MODEL TO CITY OF TAIPING, MALAYSIA: 579

LESSONS FOR THE CITIZENS AND STAKEHOLDERS

45 AN ANALYTICAL APPROACH FOR EXPLOITING CONSTRUCTION HEALTH 589

AND SAFETY INFORMATION: CONCEPTUAL FRAMEWORK

46 TOWARDS A CULTURE OF QUALITY IN THE NIGERIAN BUILT 601

ENVIRONMENT: A CHALLENGE TO COMMUNITY STAKEHOLDERS

47 CONSTRUCTION SAFETY BENCHMARKING 611

48 ASSESSING THE PERFORMANCE OF PUBLIC HEARING AS PARTICIPATION 623

TOOL FOR EFFECTIVE GOVERNANCE IN PROJECT MANAGEMENT

49 REDUCED INFORMATION FLOW MAXIMIZES CONSTRUCTION 643

PERFORMANCE
50 DEVELOPING CONSTRUCTION NETWORK-BASED 653
EXPERIENCE MANAGEMENT SYSTEM
51 ISSUES OF SUB-CONTRACTING IN THE SINGAPORE CONSTRUCTION 663
INDUSTRY

INTEGRATION OF DESIGN AND ARCHITECTURAL

ISSUES
52 INFLUENCE OF SHADING SLAT’S FRONT & REAR EXTENSION ON THE WIND 675
FLOW

53 MANAGING THE COMPLEXITY OF COLLABORATIVE DESIGN CONCEPTION 685

IN ARCHITECTURE

xi
54 INTEGRATION OF OLD AND NEW SUSTAINABILITY IDEAS INTO 697
ARCHITECTURE

55 INTEGRATIVE MECHANISMS IN THE DESIGN PROCESS OF REFURBISHMENT 699

PROJECTS

56 URBAN RENEWAL OF AN HISTORIC CITY CORE: CASE-STUDY OF AN 709

HISTORIC INDIAN CITY

57 AN APPROACH FOR INTEGRATING UNCERTAINTIES IN THE ASSESSMENT OF 715

GREEN BUILDINGS

58 EMERGING COMPLEXITIES AND THE NEW ARCHITECTURE 727

59 DEVELOPMENT OF TOP-LIT ATRIUM DESIGN IN KUALA LUMPUR WITH 739

RESPECT TO DAYLIGHTING AND THERMAL COMFORT

60 STRAIN MEASUREMENTS AROUND WINDOW OPENING IN MASONRY 751

PANELS UNDER COMPRESSION

61 EVALUATING THE SPEECH INTELLIGIBILITY OF CLASSROOMS WITH 763

DIFFERENT REVERBERATION TIME AND BACKGROUND LEVELS

62 A STUDY ON THE LIMITING DEPTH OF DAYLIGHT AND PERMANENT 773

SUPPLEMENTARY AR TIFICIAL LIGHTING IN HEIGH-RISE OFFICE OF KUALA
LUMPUR

63 BARRIER FREE ARCHITECTURE FROM ISLAMIC PERSPECTIVE AND 787

ARCHITECTURE FOR ALL

64 VALUABLE RESOURCES OF MALAYSIAN HOUSING DEVELOPERS: CROSS- 799

EXAMINATION USING FIRM-RELATED AND MARKET-RELATED
CHARACTERISTICS

65 DEMOGRAPHIC CHANGE, SHIFT IN HOUSING DEMAND & FUTURE OF HONG 809

KONG’S PUBLIC HOUSING: A LCA APPROACH TO EVALUATE BETWEEN
REFURBISHMENT AND COMPREHENSIVE REDEVELOPMENT

LAND SURVEYING AND GEOMATICS

66 USING SATELLITE DERIVED AEROSOL OPTICAL THICKNESS IN MAPPING OF 821
AIR POLLUTION DISPERSION FOR URBAN AREAS

67 HYPER SPECTRAL REMOTE SENSING 833

68 ACADEMIC FISHERMAN COLLABORATIVE IN THE FISHING GROUND 843

FORECAST SYSTEM

69 TOWARD A CENTRALISED SPATIAL DATA INFRASTRUCTURE FOR KARIAH 853

ADMINISTRATIVE

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70 POTENTIAL OF PULSE LASER TOTAL STATION FOR STRUCTURE 857
MEASUREMENT

71 GREENING CITY LIKE YOURS 867

BUILT-ENVIRONMENT
72 A SYSTEM VIEW OF THE LABOUR PROFILE STRUCTURE OF THE 881
CONSTRUCTION INDUSTRY IN THE DEVELOPING COUNTRIES: NIGERIA, A
CASE STUDY

73 DESIGN AND CONSTRUCTION OF PRECAST HOLLOW CORE SLABS IN MULTI- 893

STOREY BUILDINGS

74 LAND USE CONFLICTS IN JELUTONG AREA OF GEORGETOWN, MALAYSIA: 905

ISSUES FOR SUSTAINABLE URBAN DEVELOPMENT

75 AIR POLLUTION IN AN ENCLOSED VEHICULAR PARKING: A CASE STUDY 915

76 FROM ASHES TO RICHES SOIL STABILIZATION UTILISING WASTEPAPER 925

SLUDGE ASH

77 MANGROVE AND TSUNAMI: BETWEEN MYTH AND REALITY 935

78 SUSTAINABILTY OF BUILT ENVIRONMENT IN NIGERIA: SELF HELP 943

TRANSFORMATION OF PUBLIC HOUSING OPTION

79 THE ECONOMIC AND ENVIRONMENTAL IMPACT OF SUSTAINABLE 953

CONSTRUCTION - THE UK EXPERIENCE
80 SUSTAINABLE DEVELOPMENT PLANNING: PUBLIC PARTICIPATION 963
PROGRAMME IN THE DEVELOPMENT PLAN PREPARATION PROCESS (CASE
STUDIES OF SABAK BERNAM DISTRICT LOCAL PLAN AND KUALA LUMPUR
STRUCTURE PLAN)
81 RISK MANAGEMENT IN INDONESIA’S BOT PROJECT 973

82 CLEAN CONSTRUCTION BY USING LEAN PRODUCTION SYSTEM 985

83 A STUDY OF SERVICE QUALITY IN PROPERTY MANAGEMENT OF PURPOSE 995

BUILT OFFICE BUILDINGS: A CONCEPTUAL FRAMEWORK

84 LOGICAL AND PHYSICAL DESIGN OF THE DEVELOPMENT OF WEB-BASED 1011

GIS PROPERTY MARKETING INFORMATION SYSTEM (WGPMIS)

xiii
 KEYNOTE SPEECH

THE PRIVATE FINANCE INITIATIVE – A FRIEND OR FOE 3

KNOWLEDGE MANAGEMENT OF EDUCATION, ARCHITECTURE AND 15

ARCHITECTURAL HERITAGE IN A DEMOCRATIC SOCIETY

THE PLANNING OF PUTRAJAYA: CREATING THE ESSENCE OF CITIES 31

THE SUSTAINABILITY OF CONSTRUCTION RESEARCH/ GRADUATE 39

EDUCATION

BILLS OF QUANTITIES – A TIME FOR CHANGE? 49

1
333

2
 THE PRIVATE FINANCE INITIATIVE – FRIEND OR FOE

Professor Cliff Hardcastle

Glasgow Caledonian University

G4 0 BA

Abstract: The procurement of public facilities and services under arrangements involving
partnerships between the public and private sectors is claimed to provide a wide variety of
benefits to the public sector and to the private sector participants. In the project development
process, the parties have to engage in decision-making based on suitable evaluation criteria.
At the early stage of preparing a business case, perceptions of the positive and negative
factors surrounding PPP/PFI procurement influence decisions. It is perceived that PPP/PFI
project procurement is most attractive in terms of positive factors relating to better project
technology and economy, greater public benefit, public sector avoidance of regulatory and
financial constraints, and public sector saving in transaction costs. Negative factors, relating
to the inexperience of the participants, the over-commercialisation of projects, and high
participation cost and time, make PPP/PFI procurement less attractive.

Keywords: Procurement systems; PPP; PFI; project management.

1. INTRODUCTION
In the UK, public/private partnerships (PPP), in the guise of the Private Finance Initiative
(PFI), have become an integral part of national government policy in the delivery of
public facilities and services (HM Treasury, 2000). Despite the increasing use of PFI and
other PPP schemes in the UK, there are still aspects of PPP/PFI which are not clear to all
of the participants leading to the potential for lack of clarity in decision making. The
Institute of Public Policy Research (IPPR) collected “evidence calling for Public Private
Partnerships” across the UK in 2000 (IPPR, 2000a). The aim of the IPPR survey was to
produce a set of authoritative guidelines which would inform the use of such partnership
arrangements in future public policy. A similar understanding is required for PPP/PFI
construction projects.

Public and private sector responses to PPP/PFI have been mixed. Some participants
actively welcome the policy (Allen, 1999; Middleton, 2000). Other reactions have been
largely negative (Owen and Merna, 1997). Complimentary reviews about PPP/PFI note
the benefits it brings in terms of its effect on economic development strategy. It is argued
that PPP/PFI procurement allows government and the private sector to learn from each
other and create synergistic effects for both parties. It is even claimed that PPP/PFIs will
become a cornerstone of the UK Labour Government’s modernisation programme,
through the delivery of better quality public services, by bringing in new investment and

3
improved management; and will provide a major boost to the construction industry (HM
Treasury, 2000).

Critics, on the other hand, suggest that PPP/PFI/PFI is a controversial and problematic
approach to capital development in the public sector (Ruane, 2000). In the UK, the trade
unions, especially UNISON, have been trenchant critics of PPP/PFI and call for re-
nationalisation, particularly for UK rail transport systems.

These contrasting perceptions of the attractiveness of PPP/PFI as friend or foe (as a

means of delivering public facilities and services) complicate the task of decision-makers
involved in preparing the business case for a PPP/PFI project. They can also influence
policy development for public sector project procurement generally. While some aspects
of PPP/PFI projects will clearly make them more attractive to one stakeholder than to
another (or indeed to one region or another), it is important to explore the concept of
attractiveness at greater depth. This is done by first expounding the factors which may
positively and negatively influence the attractiveness of PPP/PFI projects and then
identifying an agenda for further research into these issues. The PFI research team at
Glasgow Caledonian University have spent many years researching the subject of
PPP/PFI and with the growth in these types of projects it is becoming increasingly clear
that there is a need for much more empirical research than has historically been the case.
Such research will allow greater confidence in decisions concerning the appropriateness
of the use of the PPP/PFI approach to procurement to specific circumstances.

2. PPP/PFI AS FRIEND

The transfer of risk is a primary objective in PPP/PFI project procurement. The public
sector partner seeks to divest itself of the risks associated with the delivery and operation
of desired public facilities and services. Many of these risks relate to the time, cost and
quality objectives of projects. Will the project be completed on time? Will it be
completed according to budget? Will it be fit for its intended purpose? While risk transfer
may be an obvious positive feature of PPP/PFI for the public sector, it is less clear how
private sector parties might also share this view. However, under current guidelines in the
UK, the public client provides explicit information about risk allocation to confirmed
private sector bidders during the contract procurement process for a project (NAO, 1999;
NHS, 1999). Since this must yield greater clarity about project risk, it is likely that the
private sector would agree that risk transfer is also a positive factor in its participation in
PPP/PFI. The fact that risk and reward go hand in hand also suggests that private sector
participants may be enthusiastic about securing opportunities to profit from the risk
transfer that occurs, providing the view is taken that the risk can be managed.

4
Traditional public provision sector responsibility for the delivery of public facilities and
services inevitably carries with it the view that not only must government in its various
forms deliver these but they should do so through the ‘illusory’ bottomless public purse.
Regardless of unforeseen increases in the capital costs of projects, or higher than
expected ongoing service delivery and maintenance costs, it is expected that money will
be available to resolve matters. PPP/PFI attempts to correct this image, since it seeks to
subject capital expenditure decisions to the ruthless scrutiny of private sector commercial
practice. Furthermore, the public sector partner is able to cap its final service costs at pre-
determined levels through the concessional agreement made with its private sector
counterpart (Tiong and Anderson 2003).

In addition to gaining the capacity to cap final service costs, the public sector in PPP/PFI
should be able to substantially reduce administration costs, since it will no longer have
day to day responsibility for service delivery. Instead, the public client takes on a less
intensive role of monitoring the performance of the private concessionaire and receiving
periodic reports (Bennett 1998).

PPP/PFI reduces the amount of public money tied up in capital investment since it
relieves government of a substantial proportion of public debt. It also slows unsustainable
growth in the acquisition and maintenance of public assets that would otherwise occur at
the expense of compromising the delivery of essential services (Jones et al 1996).
Private sector involvement in public service provision means that the private investment
tackles the problem of bottlenecks in infrastructure demand and supply. Even in some
wealthy European Union countries, for the purpose of ensuring that the general
government deficit is not more than 3% of Gross Domestic Product (GDP) and gross
public sector debt not more than 60% of GDP, governments are forced to consider other
sources of investment. The public liabilities involved in PFI projects do not appear as
public sector borrowing in annual financial reporting, in the sense that the loans are taken
out by private sector companies. By contrast, when public sector bodies borrow for
investment purposes, the full value of the capital raised counts towards the public sector
borrowing and other measures of government deficit. The “off balance sheet” accounting
possibilities offered by PPP/PFI are therefore attractive to financial administrators in the
public sector. The exemption of PFI transactions from the public sector borrowing
requirements isolates such schemes from centrally controlled budgetary allocations and
the usual cash limits that accompany public sector expenditure (Akintoye et al., 2001b).

PPP/PFI procurement is seen as attractive to public and private sector participants

because it forces a project to service any financial debt from the revenue streams derived
from the project itself. There is normally no recourse to public funding, nor can the debt
be secured by the underlying asset value since for most projects ownership reverts to the
public client after a pre-determined period. The revenue streams may comprise fees paid
directly to the concessionaire by users (e.g. toll road fees), or fees paid by government on
behalf of all potential users (e.g. fees per hospital patient serviced, or per school pupil

5
accommodated). This non-recourse or limited recourse public funding is an important
ingredient of PPP/PFI procurement (Carrick 2000; Akintoye et al 2001b). It is thought
that, since PPP/PFI approaches encourage private sector commercial efficiency to replace
public sector bureaucratic inefficiency, it is reasonable to expect that total project cost
can be reduced. (Hambros 1999).

An attractive feature of PPP/PFI procurement method is that it offers both the public
client and the private contractor more freedom to select innovative methods in the
provision of assets and services. This should lead to time saving by accelerating project
development and by avoiding delays in project delivery (Downer and Porter, 1992; Hall,
1998; Utt, 1999). By taking over the responsibility for design, construction, operation
and maintenance, private contractors have to consider design suitability and convenience
for future construction and operation practice, by placing emphasis on improving the
buildability and maintainability of projects (Hambros, 1999). With PPP/PFI
procurement, the project scope is capable of expansion to reflect a broader context. This
might permit the development of an integrated solution, such as binding several small
projects formerly dealt with under different departments (for example: a school, library,
and recreation centre) into a single project, thus achieving economies of scale (Utt, 1999;
NS, 2000).

PPP/PFI is seen as attractive in terms of the potential benefits it may bring to local
economic development in the region(s) where the facility is built or the services are
delivered. It is further claimed that local employment opportunities are enhanced, not
only for the direct construction and operational activities associated with the project, but
also for ancillary services and businesses established by entrepreneurs eager to exploit the
opportunities created by its location NAO 2001).

Internationally, and particularly in developing countries, PPP/PFI is seen as attractive in

terms of its capacity to achieve the transfer of technological knowledge to local
enterprises. Project procurement is arranged so that private sector partners with the
desired technological expertise from more developed nations are enticed into joint
venture type agreements with local companies (Nielsen, 1997; Trim, 2001).

3. PPP/PFI AS FOE

A lack of PPP/PFI experience and appropriate skills exists not only in the public sector
but also in the private sector. Public project developments under the concept of PPP/PFI
remain relatively new, especially in core public services areas such as schools and
hospitals. The concept of PPP is comparatively less well understood in countries with a
strong public welfare policy; and even more so in terms of operational service delivery.
Regulatory policy in this area may be very strict concerning public finance and
expenditure. In such countries, governments have less experience in alternative ways to
6
finance their projects. The lack of understanding and the need for better training by
public officials involved in PPP/PFI projects is a major issue identified by Morledge and
Owen (1998). The private sector also lacks appropriate skills in PPP/PFI projects
(Ezulike et al., 1997). Financing, operating, maintaining and investing in a long-term
asset are not familiar activities to construction contractors. For example, a short while
after the facility opened, the concessionnaire for a toll road project in Australia
experienced a breach of security in its electronic tolling system for the credit card account
details of several thousand customers. The ensuing publicity reflected adversely on the
competence of the concessionaire and its state government partner in the BOOT project.
Indeed, the consequence of the failure of what is almost always a high profile project in a
single jurisdiction can affect its ability to attract investors for many years.

In the toll road project example noted above, the concession deed allows the private
operator to increase tolls every six months by an amount based upon a capped limit to the
prevailing inflation rate. This substantially protects the operator’s real income, and
further protection (by way of minimising any fall-off in traffic volumes for the toll road)
was entrenched in the deed by removing clear-way restrictions on local roads in the
vicinity. The removal of clearway restrictions on local roads increased the amount of
parking on them, consequently slowing traffic and thus discouraging ‘rat-run’ behaviour
by motorists trying to find alternative routes to the toll-way. Additionally, adjoining local
authorities were barred (by the state) from undertaking road improvements that could
directly impact adversely on the toll road traffic volumes. Effectively, therefore, the
revenue streams of the private concessionaire have been protected at the cost of greater
traffic inefficiencies in adjoining areas. In this situation, the ‘user pays’ principle has
been partly subverted by a ‘non-user also pays’ effect, although neighbouring localities
have anecdotally reported lower overall traffic volumes on local roads. Under a
traditional wholly public sector procurement approach, the project would probably have
been undertaken on a toll-free basis with a combination of federal and state funding, and
public borrowing, with loan repayments made from general tax revenues. Even if tolls
had been imposed in a public scheme, it is doubtful that they would have been allowed to
escalate every six months. Effectively, therefore, the PPP arrangement in this case has
resulted in higher direct charges to the users. However, this is clearly not a simple
conclusion to be drawn in every instance.

At the present time there is no standard contract in the UK for PPP/PFI projects.
Procurement relies on HM Treasury’s Project Review Group criteria or National Audit
Office best practice guidance (NAO, 1999), which require a great deal of work for an
individual project operation. Most PPP/PFI projects cover not only the design and
construction of the project, but also operation and concessionary ownership over a long-
term period. The complexity of project requirements results in high participation costs to
interested private sector parties. Birnie (1999) discovered that the cost of tendering for
PFI projects in the UK is considerably higher than for other procurement systems.
Furthermore, there is no apparent reduction in participation costs for a commensurate
increase in the scale of the works. Other costs associated with PPP/PFI bids include the
cost of assembling and setting up a consortium, and the cost of investing equity in the
7
corresponding business entity that is created (Ezulike et al., 1997). Under current UK
government guidelines, it is considered that the cost of developing a PPP/PFI project can
be higher than that of an equivalent publicly funded approach (Saunders, 1998).

This situation can be exacerbated where there is a perception that the contractual
framework in any particular country is insufficiently robust to provide security to
potential foreign investors. At a time when numerous countries may be seeking to
procure facilities and services through the PPP/PFI approach this contractual framework
risk factor will place certain countries at a disadvantage when seeking the economic
efficiencies claimed for this procurement approach as the private sector expects returns
related to country risk.

The above factors themselves give rise to others that negatively affect the attractiveness
of PPP/PFI projects. Lack of critical experience, coupled with high participation costs,
mean that participation to date in such schemes has been restricted to relatively few
private sector partners. Grimsey and Graham (1997) have noted problems with
complexity and affordability. It is likely that too many scheme proposals are chasing too
few private players (PRSU, 2000). The nature of PPP/PFI, with its emphasis on complex,
large scale long term projects and substantial elements of risk transfer, means that a
mature and sufficient private sector market has not yet been established, at least in the
UK. Despite the capacity to form project consortia, there are comparatively few private
sector organisations, with sufficient confidence in their own ability to make them
successful, capable of taking on such projects. In turn, this restricted participation has
resulted in fewer schemes reaching the contract stage (PSRU 2000).

As yet there is little reliable evidence that a situation of over-reliance on the private
sector is beginning to occur in the provision of public facilities and services. However,
there must be a chance that the private sector partner in a project will fail, leaving the
public client to pick up the pieces and maintain essential service delivery. In 2003, an
international transport conglomerate, a concessionaire for privatised delivery of public
rail services in Victoria, Australia, walked away from its obligations overnight, leaving
the state government to resume the public responsibility that, through privatisation
policies, it had managed to divest itself from some 6 years previously. Despite substantial
experience with PPP, it took over a year for the government to form a new partnership
with another private sector company which was already operating another section of the
same rail system.

A PPP/PFI project is normally proposed in order to achieve several objectives. In the UK,
the government uses the PFI and other types of PPP to complement additional public
sector investment and to ensure that genuine economic benefits are shared between the
public and private sectors. It is possible for conflicting objectives to arise and cause
confusion in terms of their assessment criteria for both private contractor and public
participants. Many advisors (specialists, lawyers, and financiers) are involved in the
8
evaluation of PPP/PFI projects. The evaluation criteria are often very diverse. Any
confusion will affect the ability of all the parties to operate efficiently.

Although the contrary was suggested earlier as a positive factor, it has been argued that
some PPP/PFI projects have had a higher project cost than comparable projects delivered
under traditional procurement. The cost of a PFI/PPP/PFI project itself is claimed to be
generally higher than the comparable public sector facility provision through traditional
procurement (Ezulike et al., 1997; Birnie, 1999). High project cost might have been
caused by the private sector adding a larger profit margin to cover unfamiliar risks, and
such premiums may subside as experience is gained. PSPRU (2000) claims that PFI costs
more than conventional procurement, since the private sector could not borrow capital to
finance projects as cheaply as the public sector, which suggests that private finance
organisations have taken a more pessimistic risk view. PSPRU (2000) also notes that
escalating costs are common in PFI schemes, due to open-ended contracts. For example,
the first large-scale hospital contract in Norfolk is said to be worth £193 million,
compared to £90 million at its start-up time.

Some PPP/PFI projects are the subject of lengthy political debate before they go to
tender, causing further delay in their execution. The London Underground PPP/PFI
project, where conflict arose between the London Lord Mayor and the central
government, is an example (IJ, 2001a). UK Members of Parliament joined forces to
demand that the National Audit Office took a fresh look at the PPP/PFI arrangement
before contracts with private companies were signed. The Liberal Democrat party urged
the Parliamentary Public Accounts Committee to order an NAO investigation. The NAO
was mandated to decide whether PPP/PFI meets the key value-for-money criteria over
other means of funding, such as the public bonds scheme favoured by London Lord
Mayor, Ken Livingstone, and Bob Kiley (IJ, 2001b). Political debate may also extend
beyond the project tender. In New South Wales, Australia, planning and decision-making
for a motorway project dragged on for nearly one and a half decades. When construction
on the PPP project finally commenced, the state government was forced to deal with the
environmental concerns of community groups that were being led and co-ordinated by a
group whose advocacy for public transport alternatives continued to show up in anti-
motorway messages and lobbies. Community relations cannot be ignored and failure to
recognise this can lead to significant difficulties both for the project delivery and its long
term future.

PPP/PFI imposes a new and more complex procurement process on the public sector. It is
part tendering and part contract negotiation among public bodies, private sector consortia
and their advisers. Ezulike et al. (1997) found that there is an extensive amount of time
used in contract transactions such as bidding for PPP/PFI projects, coupled with much
negotiation time between the public sector client, its project advisers, and the private
sector consortia and their advisors, over the terms and conditions of the contract.

9
Critics of PPP/PFI believe that it reduces project accountability (IJ, 2001b; Pollock and
Vicker, 2001). In contrast with the transparent accountability of virtually all public sector
projects procured under traditional procurement arrangements in westernised
democracies, information disclosure and reporting requirements for many PPP/PFI
projects must at best be regarded as patchy. As part of the contract agreements, a great
deal of information is treated as “commercial-in-confidence”. Not only does this remove
it from public scrutiny, it also protects it from the exercise of disclosure powers under
freedom of information legislation. Although the public and private partners in some
projects proclaim their “openness” with extensive web-publication of information, in
reality this more often than not comprises truncated extracts of documents, with much of
the sensitive detail excised. Project accountability under traditional forms of public sector
procurement is usually a straightforward application of public audit procedures carried
out under administrative terms of reference that have been established through
democratic processes of legislation. It is possible for PPP/PFI procurement to avoid such
procedures. Performance reporting for most PPP/PFI projects is limited to what has been
agreed beforehand between the parties. If reporting on particular matters (e.g. evolving
environmental issues, or emerging trends in use patterns) is not required by the contract,
it is difficult, if not impossible, for the public sector partner to subsequently demand such
information. In traditional public procurement no such difficulty arises.

Another contradiction with a positive factor proposed earlier is that PPP/PFI may result
in fewer employment opportunities in the local area (PSRU, 2000). The shift in
responsibility for provision and delivery of public facilities and services, from the public
sector to the private sector, does not automatically mean that all public sector staff
previously employed dealing with them will then take up opportunities to continue their
work with the new private sector partners. Economics does not work this way in practice.
Any shrinkage in the size of public bureaucracies is unlikely to be matched by parallel
growth in private sector employment opportunities. The former will occur far too slowly,
while the latter will be subject to the cost saving, efficiency and productivity expectations
of the private sector.

Furthermore, in the delivery of projects it has been found that this does not necessarily
result in the use of local contractors where the skill base and experience may not be
available. Alongside this the knowledge transfer associated with joint ventures does not
always occur leaving little skills development with the local partner. Alongside this
concept many contractors and in particular local contractors believe that there are real
barriers to entry into this market. Similarly, in the manner in which skills may be
imported to deliver the PPP/PFI and then removed, there is the contentious issue of
migration of profits out of the country within which the project resides. The positive and
negative features that are perceived to influence the attractiveness of PPP/PFI in the
delivery of public facilities and services are summarised in Table 1 (Bing et al 2005). In
the study by Bing et al (2005) it was also reported that the four most important positive
attractiveness factor groupings are associated with better project technology and
economy, greater benefit to the public, public sector avoidance of regulatory and
financial constraints, and public saving in transaction costs. The three most important
10
negative factor groupings are related to the inexperience of the public and private sectors,
the over-commercialisation of projects, and high participation cost and time for
participants.

These factor groupings, representing the positive and negative characteristics exhibited in
PPP/PFI procurement, should be considered by public sector clients, and by potential
private sector business case developers, in the process of selecting PPP/PFI options for
construction projects

Table 1: Positive and negative factors about PPP/PFI procurement.

Factor
Positive
Transfers risk to the private partner.
Caps the final service costs.
Reduces public sector administration costs.
Reduces public money tied up in capital investment.
Solves the problem of public sector budget restraint (Akintoye et al., 2001b).
Non-recourse or limited recourse public funding.
Reduces the total project cost.
Improves build ability.
Accelerates project development.
Saves time in delivering the project.
Improves maintainability.
Benefits local economic development (HM Treasury, 2000).
Transfers technology to local enterprises.
Facilitates creative and innovative approaches (Birnie, 1999; NS, 2000).
Enhances government integrated solution capacity (Sohail, 2000).

Negative
Few schemes reach the contract stage.
Threatened by lack of experience and appropriate skills (Morledge and Owen, 1998; Ezulike et al.,
1997).
Leads to higher direct charges to users.
Imposes excessive restriction on participation.
High participation costs are incurred (Ezulike et al., 1997; Saunders, 1998; Birnie, 1999).
High risk relying on private sector.
Confusion can arise over government objectives and evaluation criteria.
May lead to high project costs (Ezulike et al., 1997; Birnie, 1999; PSPRU, 2000).
Lengthy delays caused by political debate (IJ, 2001a; 2001b).
Much management time is spent in contract transaction (Ezulike et al., 1997).
Lengthy delays can arise in negotiation.
Reduces project accountability.
Offers fewer employment opportunities.

4. CONCLUSIONS

There remains considerable debate about the advantages and disadvantages of a PPP/PFI
approach to the procurement of public assets and services. None the less there remains

11
every likelihood that the significant drivers which are transfer of risk and the removal of
the capital expenditure from the public purse and its replacement with an approach which
sees returns to the private sector for the provision of a service over time will result in
continued growth in this type of procurement. In the light of this it is imperative to not
only seek out improvements to the process but also to understand in more detail how the
benefits can be weighed against the costs. The growth in PPP/PFI projects in
construction related field is such that an opportunity now exists for such research to be
founded on the basis of completed and live projects with a view to moving away from
studies based upon public and private sector perceptions to studies which seek to
determine whether those perceptions are reflected in reality.

The research opportunities here are great and the returns to society from such research are
potentially greater, for it may be that when this research programme begins to bear fruit
we will find that PPP/PFIs are not the panacea for public projects they are often claimed
to be. Indeed there is every likelihood that what will emerge is that it is only in particular
circumstances and particular situations that the PPP/PFI approach is desirable. It is for
the research community to attempt to determine what the elements of these circumstances
and situations are.

5. REFERENCES

Akintoye, A., Beck, M., Hardcastle, C., Chinyio, E. and Asenova, D. (2001a). Framework for Risk
Assessment and Management of Private Finance Initiative Projects. http://www.fst.gcal.ac.uk/bne.
Access in Oct 2002.
Akintoye, A., Beck, M., Hardcastle, C., Chinyio, E. and Asenova, D. (2001b). The Financial Structure of
Private Finance Initiative Projects. Proceedings: 17th ARCOM Annual Conference. Salford. Vol.1.
pp.361-369.
Allen, J. (1999) Securing the Future for Bovis. Construction Management. Vol.5, No.4, pp.22-25.
Bennett, E. (1998), “Public-private cooperation in the delivery of urban infrastructure services (water and
waste)”, PPUE Background Paper, UNDP/Yale Collaborative Programme, available at;
www.undp.org/ppue/
Bing, L., Akintoye, A., Edwards, P.J., Hardcastle, C., (2005) Perceptions of Positive and Negative Factors
Influencing the Attractiveness of PPP/PFI Procurement for Construction Projects in the UK:
Findings from a Questionnaire Survey. Engineering, Construction and Architectural Management.
Vol.12, No.2, pp. 125-148.
Birnie, J. (1999). Private Finance Initiative (PFI) – UK Construction Industry Response, Journal of
Construction Procurement, Vol.5, No.1, pp.5-14.
Carrick, M. (2000), Commercial Debt Raising for PFI Projects, Ernst & Young UK, Corporate Finance,
London, available at: www.budget.news.co.uk/Template1.nsf/Homepages(accessed June).
Downer, J.W. and Porter, J. (1992), “Tate’s Cairn Tunnel, Hong Kong: South East Asia’s Longest Road
Tunnel”, Proceedings: 16th Australian Road Research Board Conference, Part 7 , Perth, pp. 153-
165.
Ezulike, E. I., Perry, J. G. and Hawwash, K. (1997). The Barriers to Entry into the PFI Market.
Engineering, Construction and Architectural Management. Vol.4, No.3, pp. 179-193.
Grimsey, D. and Graham, R. (1997). PFI in NHS. Engineering, Construction and Architectural
Management. Vol.4, No.3, pp.215-231.
Hall J. (1998), “Private opportunity, public benefit?”, Fiscal Studies, Vol. 19 No.2, pp.121-40.

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HM, Treasury (2000). Public Private Partnerships – The Government’s Approach. The Stationery Office,
London. http://www.hm-treasury.gov.uk/docs/2000/ppp.html.
IJ. (2001a a. Infrastructure Journal, May 4, 2001. http://www.infrastructurejournal.com.
IJ. (2001b). Infrastructure Journal, October 18, 2001. http://www.infrastructurejournal.com.
IPPR (2000a). Summary of responses to call for evidence - Consultation on Public Private Partnerships.
http://www.ippr.org.uk. Access in Dec 2000.
Jones, I, Zamani, H. and Reehal, R (1996), Financing Models for New Transport Infrastructure, OPEC,
Luxembourg.
Middleton, N. (2000). Public Private Partnerships – A Natural Successor to Privatisations?
http://www.pwcglobal.com/uk/eng/about/svcs/pfp/ppp.html. Access in Oct 2000.
Morledge, R. and Owen, K. (1998). Critical Success Factors in PFI Projects. In Proceeding of 14th ARCOM
Annual Conference, University of Reading. Pp.565-574.
NAO (1999). Examining the Value for Money of Deals under the Private Finance Initiative. National Audit
Office, London.
National Audit Office (2001), The Re-negotiation of the PFI-Type Deal for the Royal Armouries Museum
in Leeds, National Audit Office, London
NHS, (1999). Public Private Partnerships in National Health Service: The Private Financial Service: Good
Practice. The Stationery Office, London.
Nielsen, K.R. (1997), “Trends and evolving risks in design-build BOT and BOOT projects”, The
International Construction Law Review, Vol. 14 No. 2, pp.188-97.
NS, (2000). Review of Public Private Partnership Processes. http://www,gov.ns.ca/finance/index.htm.
Access in Aug 2001.
Owen, G. and Merna, A. (1997). The Private Finance Initiative. Engineering, Construction and
Architectural Management. Vol.4, No.3, pp.163-177.
Pollock, A. and Vickers, N. (2001). Private Pie in the Sky. Public Finance.
http://www.cipfa.org.uk/publicfinance. Access in Dec 2001.
PSPRU (2000). Private Finance Initiative: Dangers Realities Alternatives. UNISON, London.
Ruane, S. (2000). Acquiescence and opposition: the private finance initiative in the National Health
Service. Policy & Politics. Vol.28, No.3, pp.411-424.
Saunders, A. (1998). Aspects of Funding for BOO Projects. Engineering, Construction and Architectural
Management. Vol.5, No.1, pp.22-30.
Tiong,R, and Anderson, J.A. (2003), “Public-private partnership risk assessment and management process:
the Asian dimension”, in Akintoye, A., Beck, M. and Hardcastle, C (Eds), Public Private
Partnerships: Managing Risk and Opportunities, Blackwell, Oxford, pp 225-43.
Trim, P.R.J. (2001). Public-Private Partnerships and the Defence Industry. European Business Review.
Vol.13, No.4, pp.227-233.
Utt, R.D. (1999), How Public-Private partnerships Can Facilitate Public School Construction, available at
www.heritage.org/library/backgrounder/bg1257.htm (accessed August 2000).

13
14
 KNOWLEDGE MANAGEMENT OF EDUCATION,
ARCHITECTURE AND ARCHITECTURAL HERITAGE IN
A DEMOCRATIC SOCIETY

Professor Dr. Mohamad Tajuddin Haji Mohamad Rasdi

Center for the Study of Built Environment in the Malay World, KALAM
Faculty of Built Environment, Universiti Teknologi Malaysia, Skudai, Johor

1.1 INTRODUCTION

The main purpose of this paper is to present some thoughts on rethinking the ideas of
education and managing the knowledge of architecture and its building heritage. The
issue which I wish to raise is that in a democratic country there is a different way that we
must perceive the management of these three items. At this point in time education of
architecture is simply interpreted within a trade school mindset whilst the academics are
still trapped within a ‘practice’ mindset on the one hand and a civil servant mindset on
the other. In this paper I will outline how much of these efforts have to change in order to
meet the challenges of the future in Malaysia.

The last few years culminating in the year 2003 can be said to be a ‘keramat’ or ‘sacred’
period where political awakening among the middle class Malaysians marked an
unprecedented increase in the country’s young history. The call for a greater civil society
or ‘masyarakat madani’ over that of ‘directed democracy’ can be heard clearly.
Democracy and civil consciousness simply means that the society is self aware and is
able to react critically to challenges now and in the future. In a feudal society, it is a top-
down affair and the masses hardly have any opinion or say in matters determining their
lives. But in a democracy it is suppose to be a bottom-up affair with the idea that
knowledge be made available to the masses and not just to the few administrative elite
because it is the majority of people who would have a say in decision making process.

2.1 EDUCATION AND KNOWLEDGE MANAGEMENT

The first act of knowledge management is to overhaul our educational curriculum
towards a more human and humane oriented strategies that would benefit the greater
masses. I have chosen to write about the thoughts of Frank Lloyd Wright on education
from a speech which he had given in 1957. Although he had never graduated from any
15
university Wright had received seven Honorary Doctorates and one Honorary Masters
throughout his illustrious career as an architect, a writer, a critic of art and society. His
greatest dream was to see the idea of Democracy permeating the very life of the
American continent and to thus be a part of creating an architectural environment steeped
with the notions of human freedom and organic oneness to Nature

2.1.1 The Development of the Idea of the Profession Called ‘Architect’

The Werkbund and the Art and Craft movement produced two different ideas of what the
architect’s responsibilities were. The Werkbund saw the architects role as the craftsmen
with high technology with art being the aesthetic ingredient. The Bauhaus eventually
became the technocratic evolution of the Werkbund graduates and they began the heroic
period of designing for the new political power which was the Workers. The idea of
‘building for the masses’ and large generous gestures of housing schemes came into play.
The architect saw its communist role of building technocrats looking after the health and
spirit of the huge masses. On the other hand, the Art and Craft rebelled against the idea
of industrialization and all its overly capitalistic intentions and also the standardized
philosophy of communist mass housing. It was more than just an artistic revolt but a
serious political one. The movers such as John Ruskin and William Morris saw that their
role was to bring about a real sense of human dignity to the idea of living architecture
that entails an organic response to settlement and the building craft. They saw their roles
as nation builders in a society that allows for individual variations of freedom of life. The
ultimate evolution of this idea came with the thoughts of Frank Lloyd Wright fashioned
much from those of Louis Sullivan. From the poetic visions of society, Wright
formulated the idea of the architect to be a democratic individual ready to design for the
different needs of individuals and societies alike.

Thus, this idea of the architect, in a democratic society, gave room for the development of
such approaches in contemporary architects like the work of Charles Moore and Ralph
Ernskine. The idea of community participation in a design process seems to me the
ultimate form of the ‘democratic architect’. In a democratic society, the architect must
have greater understanding of the people’s needs and aspirations and thus calls more for a
human based curriculum rather than a technological based of one. It was this human
based ideaology that Wright expounded in his speech in 1957.

2.1.2 The Present Problem in Architecture Education

There are two major problems facing architecture education in this country. The first is
the problem related to the issue of a ‘trade school’ mentality. The other problem of
education is the issue of mass conditioning as opposed to enlightenment.

16
The main underlying problem with the development of architectural education in this
country is that the powers-that-be could not shake off their trade school mentality in the
curriculum. Three decades down the road to the present time, one can discern clearly that
this ‘trainer mentality’ among so called ‘academics’ in universities teaching architecture
is still prevalent among the more senior staff. I would like to hypothesise that Malaysia’s
situation was not unique in this regard as Wright had observed in his cutting criticism of
American universities in the following excerpt of his speech:

“Now what does ‘university’ mean? Our state university is chiefly a trade school.
You go down there for some specialized training. You are there just in line to
learn to make a living. You don’t go to the university to learn about the verities of
nature, the truths of the ‘universal’ for which ‘university’ is the name. True
education is a matter of ‘seeing in’ , not merely ‘seeing at’. (Wright, 1957:269)

Wright believed that students ought to be taught how to ‘see in’ not merely to ‘see at’.
This implies an idea of independent thinking and creative summation of the issues at
hand rather than the simplistic notion of ‘problem solving’. Although I do not believe in
the ‘finished product’ approach to architecture education, I will agree with the fact that
the curriculum can be split into the diploma or certificate holder who would be trained as
any ‘skilled worker’ would whilst the degree and post graduate courses should be tuned
into those that produce students with ‘more questions’ in their minds than simplistic
ready made answers. At the risk of being ridiculed by many, I maintain that it is only the
thinking student , the one who is self aware, that can form questions. The ability to
formulate questions usually lead to a critical formulation of a problem in which, once
achieved, can find the solution half solved within the clearly defined problem itself.

The other problem of education per se concerns the problem of ‘conditioning’ and not
enlightenment as Wright succinctly points out in the following statement:

“What is education without enlightenment? It’s a mere conditioning. And what is

mere conditioning but maintaining mass ignorance, the poisonous and poisoning
end of what we call ‘civilization’. There is nothing more dreadful, more
dangerous, nothing to be more feared in this world, than plain or fancy ignorance.
We can see this today in the drift toward conformity. We can see it in the
education of modern mass-society. You can blame education for much of this
because education has not seen what we have needed as a free people. It has not
provided enlightenment. It has provided conditioning instead.” (Wright,
1957:269)

This statement is true not only for architectural education in this country but to all levels
of education right down to the elementary school. Conditioning in education especially at
the university level is the surest formula to destroy any civilization. It would ensure the
production of mindless individuals going about activities as they are told. The human
spirit has been created with a natural ‘rebellious’ attitude for inherent in this aspect is the
key to a progressive civilization. How many times have we read about such and such a

17
persons idea contradict the ‘norm’ of society. These strange ideas have come from those
whom finally history calls prophets, philosophers, leaders and thinkers who leave an
indelible mark upon the pages of man’s history. A feudalistic political mind usually does
not have the best intentions to those who are ruled since the ability to continue the
political dominance for personal gratification is the actual reason for being. On the
campus, a slightly different phenomena exists other than the usual conditioning as a tool
of political dominance. I speak of ‘progressive’ Vice Chancellors or Deans who wish to
look good with students scoring a high grade point average. This is done by requiring
‘notes’ to be given to students so as the students can ‘score’ a high mark. Gone are the
days of students actually having to sieve through information or find any themselves for
that matter. The act of deciding which information is better and how to make sense of the
information for one’s own understanding is of paramount importance to a society that
need to chart its own destiny in this world and not be subjugated under any political or
economic control. We must strive to create students who a ‘rule makers’ and not just
‘rule followers’

2.2.3 Formulating New Objectives in the Architectural Curriculum: Philosophy

and a Perspective of Values

There are two fundamental things missing in our tertiary education and that of
professional instruction. The profession of architecture is supposed to provide human
beings with a physical built environment that would suit not only the idea of individual
needs but also that of community considerations. It is a terribly difficult task indeed when
we neglect to teach these students what being a human being entails, other than breathing
and going to the bathroom. In his statement Wright alluded to the idea of having a
philosophy as a foundation on any decision making process to determine the kind of
architecture that should be produced:

“To enlighten the young education must at least teach philosophy. Without a true
philosophy there is no understanding of anything. Without you own philosophic
resolution and analysis of pretended knowledge, as applied to life, what and
where are you? Philosophy is the only realm wherein you can find understanding.
Religion and the arts are all part of philosophy. There has never been a creative
artist or poet, for instance, who wasn’t deeply religious…My work is great in so
far as its philosophy is sound, and if my philosophy is unsound my work will not
endure. The fact that it has endured, and now has a chance to continue beyond any
lifetime, is simply due to the fact that the philosophy behind it all was a sound one. If
that philosophy didn’t inspire my work, it wouldn’t exist very long.” (Wright, 1957:271)

Philosophy is considered by some to be a dirty word in the sense that it is a thing much
talked about but have little use anywhere. It’s the old you-can- talk but-cannot-do attitude
among practitioners and teachers of architecture. Without such an awareness of the

18
individual self and the collective one how can a student of architecture decide which kind
of building type and in what manner are the space distribution and not to mention the idea
of language expression in the design proposal? We assume that the students come in with
a set philosophy of life drummed in by society, the political leadership and what tradition
has to offer, but we fail to recognize that such traditional upbringing no longer exist. The
old village cultural and socio-physical environment that was the bastion of cultural and
value transfer no longer exist in a unified and clear manner. We have students from a
pluralistic context of culture that hinges only on the perception of sense and what tickles
its fancies only. There is no big agenda for students in the realm of nation building,
religious strife or family commitment anymore but comic book fantasies as the
underlying software that these students grow up with. Thus, the first hurdle of
architectural education is simply this: the rediscovery of being human.

To be human, means to have values of right and wrong. The sense of right and wrong is
not a prescriptive process but a creative journey of discovering what the meaning of
existence is all about. Wright had alluded to this in his statement about the necessity of
searching for Truth and the idea of spirituality:

“The real body of our universe is spiritualities – the real body of the real life we
live. From the waist up we’re spiritual at least. Our true humanity begins from the
belt up , doesn’t it? Therein comes the difference between the animal and the
man. Man is chiefly animal until he makes something of himself in the life of the
Spirit so that he becomes spiritually inspired – spiritually aware. Until then he is
not creative. He can’t be. But education doesn’t better him in that connection. It
confuses him, tends to make him more of a thing than he really is, keeps him on
the level of a thing instead of permitting him to become more of a divinity. What
makes a man a divinity rather than a mere thing? Not only his intelligence , but
his apprehension of what we call truth, and passion in his soul to serve it. That
passion is what the universities should cultivate- culture of that sort instead of
education. Isn’t that it?” (Wright, 1957:271)

I have always remarked that students lack the drive to read simply because they do not
have any direction in life. With Wright, it was the discovery of democracy as the new
modern religion of Christianity. With me it was the understanding of many religions and
the rediscovery of Islam as a way of life. It is incredulous to find that after five years of
architectural education, the student finally wakes up in the sixth year and, apart from
completing the final project-thesis, he or she has to discover within a semester, the
meaning of life for him or her. It is only then the question of the community self begins
to dawn as so many questions. By the time the students graduated, he or she was just
formulating a few threads of in the meanings to life.

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2.1.4 The Curriculum Approach: The study of Nature and the Unity of Disciplines

The present emphasis on skill training even to the graduate level must be reexamined in
the light of understanding ourselves as a spiritual as well as a biological entity. When all
of our human values are lost, what else is there but to simply design a biological zoo?
Our values define our culture which in turn determines our behavioral patterns which
then translates into patterns and meanings of built form. The curriculum should answer
this question of the values of humanity in the context of nature since both comes as pairs
and one cannot live without the other.

In his approach to education Wright had outlined the importance of studying Nature in
order to be able to ‘see in’ and not merely to ‘see at’:

“Now when popular education uses the word nature, it means just the out-of-
doors; it may mean the elements; it may mean animal life; it means pretty much
from the waist down; whereas nature with a capital ‘N’ – I am talking about the
inner meaning of the word Nature.;. Nature is all the body of god we’re ever
going to see. It is practically the body of God for all of us. By studying that
Nature we learn who we are, what we are and how we are to be.” (Wright,
1957:269)

As early as the late 19th century, when Walter Gropius and Le Corbusier were dazzled by
what humanity can achieve from industrialization and scientific technology, Wright was
one of the few Art and Craft diehards who joined the bandwagon of so called romantics
with William Morris, John Ruskin, Louis Sullivan and Walt Whitman to call for living
with nature and not about overpowering nature to mans unending needs. The romantics
understood the age old religions that placed nature as a sacred entity to be respected and
even ‘worshipped’. The reverence to nature is not irrational since it holds not only the
path to man’s spiritual well being but also to his biological existence. Where one part of
architecture in the Bauhaus sought to dominate it, the other in the art and Craft sought to
understand and co-exist with it. Such terms as ‘sustainability’ was unheard of in those
time but that particular term is now a buzz word in architecture. We speak now of
economic sustainability, ecological sustainability and even of social sustainability. If we
were to turn the pages of history, we would find these ‘sustainable’ concepts being
discussed widely in the late nineteenth century as a totality of experience in life and the
built environment. Thus, the idea of ‘Nature Worship’ should be a core element in our
curriculum objective. If our students graduates with a sense of respect for the frailty of
the Nature-Human Life web then and only then our future is assured as more than a mere
biological existence.

Wright had even suggested a modus operandi to carry forward his thesis on education as
he remarkably forces the issue of art, religion and science;

20
 “If our education-called conservative- is ever going to do anything for us it has to
provide enlightenment by means of art, religion and science. But until art, religion
and science stop disregarding each other, until they realize their interest is one
and the source of their inspiration is one, and realize that they can’t live apart, that
union will not be possible. We teachers must teach men to seek enlightenment by
means of the poetic principles of art, religion and science. We must manifest these
to them as spiritual guideposts as true measures of understanding.” (Wright,
1957:269)

Those scholars who are researching about the idea of Islamic Architecture or the
islamization of academic and professional disciplines should take note that this is exactly
what they should be looking for. Let us understand fully the real message that Wright had
expounded. Firstly, Religion is the bastion of man’s idea of values and therefore cultural
pattern. Science is but a tool to be used to answer this need. Art, is that sense of unity of
technology (which is science) and purpose (which is Religion) that ultimately produces a
workable and meaningful environment. That is the unity of approach. Anything else is
inadequate or just plain wrong.

2.1.5 Implications on Pedagogy and Curriculum Design

In the studio design exercise, I believe we must use the anthropological method of ‘site
analysis’. In the usual design scenario, the few weeks of site analysis is what I term as the
‘hit and run’ method or the old ‘ I came, I saw and then I start to design’ approach. In the
present pluralistic society and global connectivity, I feel that students should spend time
being in the communities which they are designing for. It is disheartening for me to tell
the graduating thesis student that he has to spend two weeks on a farm if he is thinking of
designing a modern one or that a student who was doing something about women care
center having to work part time there in order to get the feel of the situation. It seems that
in the lower years, we are too busy chasing the completion of the designed objects that
we actually fail in designing competently.

We must identify such communities that we deem still possess the age old tradition of
what a community entails. The community should have some characteristics of a sense of
belonging and of many common activities. This is hard enough to find in the modern
housing estate. However, if we look hard enough, we may find villages such as where the
kampung people resides that can be used as the classroom for our students. Students must
spend at least a forthnight to a month at these kampungs in an ‘anak angkat’ or foster
children program. We, at UTM has such experiences in the Mesured Drawing programs
where there was a ceremony to assign students to families. It was wonderful to note that
some Chinese students still visit their ‘foster Malay parents’ until this day when they
have married and are with children. Perhaps the students can be made to do some sort of

21
wakaf construction or the repairs of Surau and even the documentation of the daily
patterns and activities of the kampung people.

Next comes the horror of any architecture student…reading. Somehow the students have
the impression that design is simply flipping through the fancy architecture magazines or
web sites in order to get the most unique and interesting one. The cult of novelty usually
hit the student very early in the training. This is a disaster in turn of inculcating the
eternal creed of design. There is no other powerful tool that I know of that can teach
humans better than reading. It is not at all surprising to find that a student, until the fifth
year, had never read a whole book about architecture history or theory. They would only
discover books to be read only during the Topical Study or the Design-Thesis studio. At
this stage, the game is already lost. Thoughts and philosophies must be given a
germinating period and that is about a year or two. When I read the book Master
Builders, A Testament and Kindergarten Chats in my third year, I had only resorted to
them at the end of my fifth year. Now, 20 years later, I am formulating new theories of
architecture based partly on those readings of the past two decades. Such is the time lag
in understanding the thoughts of others recorded via writing.

The other thing that I feel a student should be introduced to is what I term the ‘Crusader
Mentality’. It saddens me greatly to find that the visionary aspects of architecture has
degraded into nothing more than a production artist. It is within the nature of the art of
design to argue and advocate design ideas in an aggressive manner since architects are
the only creature imbued with the power to see all things of society (past, present and
future), technology (past, present and future) and environment (past, present and future).
Architecture is the most humanistic of the arts and the sciences. For this reason, students
should be given encouragement to form societies and clubs and to fight for a cause. They
may perhaps join non governmental organizations and pursue some social issues to
fruition. It is sad that a student once remarked to me that although they wished to join the
social activities of the campus, ‘there is too much work’ seems to be the excuse of the
day. The curriculum designers must study this phenomena and find out whether it is true.
If it is so then there must be serious reduction in workload in order to allow such social
and even political activities to be taken up by students. It is funny to think that
architecture being the most public of professions find the students, architects and
lecturers being the least involved people in the public!!

3.1 MANAGING ARCHITECTURE KNOWLEDGE

We seem to be doing well in many aspects of architecture with respect to basic functions
and technology in the form of buildings to house many purposes of the city and
recreation. The most outstanding pieces of architecture are the resorts and rest areas
within the perspective of leisure architecture. However, I feel there is still much that we

22
can improve upon in aspects of community architecture, housing and of course the
perennial question of a ‘Malaysian Architecture’.

3.1.1 Issues in Design

Let us take the simple problem of privacy violations in our housing estates. When we
place the multi-cultural races in a single housing estate in order to forge some sense of
unity or muhibbah we have ignored the political and architectural implications of Malays,
Chinese and Indians living in a community. A Chinese may burn his joss sticks in an act
of prayer and the smoke would get into the Malay neighbour’s house. What have we done
architecturally to reduce this privacy violation which is sowing hatred between races?
Another case in point is how I ask my Fourth Year students to research on Modern Malay
rituals in the terrace houses and they reported that they could not find any writing on the
subject. When I ask my Chinese students about certain aspect of Malay culture related to
housing, the response was a blank stare. The same thing happened when I ask some
Malay students about a particular Indian or Chinese rituals related to modern houses.
How can we build a nation without each race understanding one another’s culture? How
are architects to design if raw data on cultural response to architectural spaces are
virtually non-existent? I have drawn many interests from different race groups when we
exhibit our measured drawing works on traditional architecture. I enjoy telling the
Malays how many of the houses, mosques and palaces were built by Chinese craftsmen. I
noted how some Chinese are completely embarrassed at their total ignorance of certain
carvings on a door panel or a temple’s roof ridge.

3.1.2 The Three Tasks of Knowledge Management

I think the country is heading in a wrong direction in relation to building a knowledge

culture. We seem to be dumping much money in research as oppose to very little money
in publishing books. We seem to think that we Malaysians are smarter than other
civilizations in the sense that we want a short cut version to nurturing a civilization. We
buy lots and lots of computers in schools but the libraries are empty of good exciting
books to read. We seem to think we can skip the reading-writing culture that great
civilizations have gone through and jump straight on to the internet and mp3. We seem to
think that we can learn to cycle without falling down and learn to swim without getting a
mouthful of water. In order to be a real civilized nation it is not to the tallest buildings or
to the largest flag that we have to be proud of and look upon but we must seriously
engage ourselves in three important activities of Knowledge Documentation, Knowledge
Dissemination and Knowledge Transfer to the masses.

3.1.2 Knowledge Documentation

The first role of the academic, after a state of understanding has been achieved, is to
preserve the existing knowledge around him or her. This knowledge exists in the raw in
the form of written information, practices, attitudes, visual materials, measurements,

23
physical objects and thoughts. This information must be gathered and categorized
systematically in a manner that it can easily be understood. It is only upon the foundation
of this descriptive work that the passing on and the generation of new knowledge can
occur. In Malaysia, we are badly in need of such studies. We have built thousands of
buildings and yet there exists little work in understanding how well these buildings have
performed or served whether from the behavioral, constructional, economic and even
aesthetic perspective. It is sad to find that although there have been many case studies
done on buildings in the course of completing the final degree project and the topical
study but very few have access to this information simply because this works are lying
dormant in the university archives. It must be the task of lecturers to organize a system of
editing and preparing them for publication so that the information will be readily
available to those who need them.

Generating new knowledge and expanding its boundary are actually not as difficult as
one would imagine particularly if one has understood and compiled a significant amount
of information on a particular subject. We may be awed by the new forms of modern
architecture but it’s principles have been around for half a century before the glass
skyscrapers of Mies van der Rohe was even conceived. The Organic Theory of Wright
owed much to the thoughts of poets and architectural critics such as Walt Whitman and
John Ruskin. In its simplest form, new knowledge can be a fresh perspective of existing
compilation of information. Something new in the serious world of academia can even be
a reclassification of existing information. New ways of categorizing, measuring and
testing procedures, philosophies and technology are also considered as significant
contribution. Using an existing framework or model to look at out history, behavior and
cultures constitute important development in society’s quest for utopia. Although other
people can also generate new knowledge, it falls upon the shoulders of the academician
to personally generate it, be a catalyst for its generation or organize its happening.

3.1.3 Disseminating Knowledge

The role of disseminating knowledge is as essential to an academic as breathing is to life.

Ceasing to breathe terminates life and ceasing to disseminate knowledge guarantees the
shortness of its life span. It is only through knowledge dissemination that the body of
knowledge can be available for all who need it. It is only through dissemination of
knowledge that it gets built up after being used, tested, commented, innovated and
sometimes even rejected. A School of Architecture can spend 50 years teaching subjects
and studios and still be where it once was, back to square one, if there is no
documentation of the experience and subject matter taught throughout those years..

Until we may be able to communicate through such means as telepathy, words and
writings are all the academician has to ensure that the experience of a generation
persevere through time. It is, therefore, most unfortunate and sad to find that many
lecturers belittle writing. In my 12 years at UTM I can safely say that writing is not a
priority when it comes to the definition of a ‘job well done’. It is one thing to discover
that Professors and Associate Professors in architecture produce very little writing and

24
documentation of their experience, it is another to discover that many consider it a trivial
affair. It should have been the task of academicians to ensure the continuity and
development of knowledge.

3.1.3 Knowledge Transfer

Knowledge transfer simply means the events, thoughts and ideas of far off lands and of
different times of history must be translated and transferred into the mother tongue of a
nation. In this manner, the experiences of others now and hen can be shared collectively
and we can build on old ideas and avoid the ones that are unsound.

A case in point as regards the issue of knowledge transfer is that of Islamic architecture.
Islamic Architecture and Malay Architecture have one thing in common. They have had a
long development period but their growth were stunted because of colonialization and
internal social decadence. Both cultures were on the wane when European Enlightenment
came into being. When industrialization and religious reform came to Europe, the
traditional architectural practice and philosophies were shaken by the early modernists
which questioned the role of ornaments, the search for an optimum form for the new
building materials, the strong socialist morals of an architecture of equality and the
question of mass production. The traditional architectural vocabularies were reexamined
in the light of the social, economic and intellectual forces. These questioning of the
traditional philosophies of revivalism and eclecticism in the light of new found
technology and moral values had not developed fully in Malaysian Architecture and
Islamic Architecture. When independence came to Malaysia and most Islamic countries,
modernist philosophies were imported indiscriminately. The chance for questioning
traditional architectural aesthetics and approaches could not happen for two important
reasons; firstly, because of lack of documentary works and analysis of traditional
architecture and secondly, no serious attempts were made by local architects and
academicians to understand the roots of the modernist philosophy which has much
potential for cultural assimilation. Before any attempts were made concerning these two
important researches, Post-Modernism arrived and opened the doors to 'any architecture
that does not look like the modernist block'. In non-Western countries the modernist
philosophies were hanged before any trial was performed.

I believe that is why the search for an Islamic Architecture and a Malaysian Architecture
have resulted in many awkward design solutions bordering on eclecticism, revivalism and
loose adaptation of the traditional heritage. There is therefore a serious gap in the
development sequence of Islamic Architecture and Malay Architecture from the past to
the present. I believe that there are many good philosophies that came out of the early
period of modernism inherent in the discussion on structural rationalism, relationship
between form and function, the role of ornament, the 'spirit of the times', the Art and
Craft Concerns and Wright's Organic Architecture. There is a lot of moral questions
raised and also that of examining Nature's Wealth of forms and aesthetic. The secular and
pluralistic nature of mid 20th century Westerners found difficulty in accepting the moral

25
and 'religious' overtones of these philosophies. We, the Easterners who still hold to a
theo-centric idea of life can benefit from some of these theories.

There are three areas of work necessary in filling the gap in the intellectual discourse of
architectural theory in the Malaysian context. The first is a crucial need in documenting
the modern works of architecture in order to identify serious attempts at creating an
appropriate architecture for Malaysia. Secondly, there is an important need to explain the
selected theories of modernism such as those mentioned above to the local students,
architects, potential clients and policy makers. Finally, there is the important work of
integrating the knowledge of traditional architecture with the proper modernist
philosophies.

4.1 MASTERMINDING THE ARCHITECTURAL HERITAGE IN

MALAYSIA
The basic question someone who is in charge of preserving the architectural heritage of
Malaysia would simply ask is ‘which one to preserve?’. In a nutshell, the question simply
implies that whatever we see in front of us day in and day out, is actually our heritage.
From the monumental statements of Putrajaya to the DBKL Petaling Flats, architecture
refuses to lie and stands out amidst the babble of praises and excuses. This essay sets out
to send the message that such a question can only be fathomed and answered with the
proper documentation of the architectural heritage.

4.1.1 The Heritage Dilemma

As man cannot live a full life without his own sense of ‘the past’ in order to derive his
rituals, thoughts and values and thus, so does a nation fail to prosper in the fullest sense
of the term without her history. As intelligent citizens of a nation, we need to understand
our past in order to do three things, to emulate it, to adapt it or to discard it. Which ever is
the task, you cannot not know your history. Too many heritage management have based
their identification criteria or framework on sentiment brought about by hasty decisions.

The first case is the Parliament Building of Malaysia. My first visit to this important
heritage of Malaysia’s First Democracy was about two months ago during a research trip
to find out about this particular building. As I was trained in the Modernist ethos and
being a student of architectural history, I could appreciate the echoes of socialism and
non-feudalistic statements as seen in the exterior composition of the building. The
pristine white and gray language speaks of the days of a hundred year old revolution
against the over ornamentalised aristocratic architecture of the Ecole de Beaux arts. The
political struggle of the Western world against the chains of feudalism over two centuries
ago can be felt strongly in this monument to democracy in Malaysia. But travesty awaits
as I step into the building. The Parliament was being renovated. And what do I find?
26
Post-modern monumentalism! Fat classical pillars, ornate mouldings adorn the simple
walls and ceilings of the parliament building. To me it was like Malaysia was reverting to
the pre-colonial days of feudalism! As with the cemetery in Taiping, there was no
research concerning the forces which shaped this modern heritage.

The second case concerns the JKR quarter housing. Recently, in the course of doing
research on the Colonial-Malay hybrid quarter houses of Taiping, I met up with some of
my former students who are now JKR architects. One of them proudly showed a medium
rise apartment which he designed for the new line of government quarters. I noticed that
the design is the typical cluster type with a central stair core and masonry in-fill walls
over reinforced concrete frame. I showed him the Colonial-Malay Hybrid quarter housing
which I was researching and also some pictures of the JKR Police Barrack in Taiping
where I used to live. I explained how the lessons of the past concerning timber louvered
panels being used in both types of schemes which made good ventilation sense rather
than his full masonry walls and non-louvered windows. The JKR Police Barrack had two
other advantages in that every unit has a storage room on the ground floor to keep
bicycles and other things. I told him that his quarter housing would be filled with bicycles
on the stair landings. Furthermore, the design of the long corridor of the JKR Police
Barrack speaks of a serambi idea in which children can play safely under the theme of
‘defensible space’. His quarter housing contains only a stair landing and the door to door
face off would create havoc when families quarrel. When asked about why he failed to
learn from the past, he simply shrugged his shoulders and said that ‘reinventing the
wheel’ is how JKR does its work because there is no study and proper documentation
done on the modern heritage of this country. Simply put, progress means that anything
new must necessarily be good.

4.1.2 The Traditional Heritage

The documentation of the traditional architectural heritage can be said to be well

established. What is needed is financial sponsorship. The Universiti Teknologi Malaysia
started the subject of Measured Drawing in the early seventies modeled at first from the
simplistic surveys and sketches of the English tradition. It then slowly developed into a
full fledge investigation of the history and a complete drawing of the building in a
manner that reconstruction is a possibility. The Institut Teknologi MARA followed suit
and later on the Universiti Sains Malaysia. The latest addition of institution is Universiti
Malaya and Lim Kok Wing Institute of Creative Technology. KALAM or Pusat Kajian
Alam Bina Dunia Melayu which stands for Center for the Study of Built Environment in
the Malay World came into being in 1996 to spearhead development in the
documentation and the dissemination of South East Asian architectural heritage in this
region.

27
To date there is an approximate total of over 700 buildings measured and documented in
all the institutions. Most of these activities, to date do not have any funding except a
meager amount provided by the institution, small tokens of research grants and even
lecturer’s pockets. KALAM is lucky to have evolved a center and struggle to make ends
meet by selling some of the work and undertaking research contract. I have seen the
documented drawings strewn across a lecturer’s room because the institution does not
recognize this intellectual heritage of the nation. In USM my colleague sponsors his
student himself because of his commitment to the study of traditional and colonial
architecture. It is high time the works of all these institutions be recognized as an
important endeavor that documents the scientific, artistic and cultural heritage of the
nation which is contained in the buildings of the past. The time is nigh that the National
Museum under the Ministry of Arts and Heritage coordinate this important work and help
to finance the research. The financing can come either in the form of government grants
or the ministry can be the coordinating body that pools corporate sponsorship for the
research and publication of this historical documentation.

4.1.3 The Modern Architectural Heritage

Unlike the traditional and colonial architectural heritage which is getting more popular
everyday, the modern heritage is shunned because of its bland and ‘uninteresting’ or
undecorated forms. In a pragmatic and sense oriented culture with visual electronic
effects bombarding us every minute, it is hard to dwell on the issue of ‘intellectual’
beauty or the idea of ‘architectural honesty’. The effort of documenting the modern
heritage is almost nil in the present time in Malaysia. What this effort needs is not money
but a revamp of attitude. The burning question of the day is what is so important about
the modern heritage of architecture? In a nut shell, I would say that the modern
architectural heritage is important on the discourse of National Identity and an
environmentally sensitive architecture.

With respect to the idea of national identity in architecture, such effort is of prime
importance in creating a harmonious society. Despite what has been written about how
the modern architectural revolution in the West later became the ‘International Style’, the
fathers of modernism questioned soundly the validity of aping historical and foreign
precedence in architecture. I refer to this discourses on redefining architecture in the late
19th century as a ‘clash of values in architecture’. The moralistic values of Christianity
and socialism clashed against the values of scientific technology, economy and art.
Architecture then was a product of philosophical discourses and moralistic values.

After three decades of these discourses, the aping of forms and mediocrity of intelligence
took the easy way out of copying rather than critical adoption or rethinking of ideas. In
the sixties, when the first generation of Malaysian architects came back from overseas to
practice and replace the expatriate architects, there was a call for a national identity in
28
architecture by the leaders. The period that gave birth to buildings like the Parliament
House, the National Mosque, the Negeri Sembilan Sate Mosque, were the product of a
rich experimentation which saw the clash of modernistic and Malaysian values against
that of the climate, economy and available technology. These experimentations of
architectural forms, material assemblage and expressions were the puritanistic versions of
architecture that was not hindered much by political authoritarianism. It reflected an
identity that did not play on obvious and single ethnic reference but used new motifs and
response to the climate within the understood technology. Thus the Parliament building
became the Malaysian symbol of a progressive culture that respected the values of all
ethnicity by its refusal to let one ethnic architectural element dominate all others. The
National Mosque reflected the idea of Islam in Malaysia not subjugated by any inferiority
complex notion of middle-eastern grandeur. The asymmetrical massing, single minaret
and generous serambi or verandah remarks of the image of Islam as a religion abhorring
waste and a way of life which speaks a humble and non imperialistic language to the
users. The JKR Police Barrack which was probably designed in the late sixties was the
superb culmination of energy passive design and cultural understanding of the modern
Malaysian community. Much of these important contributions is already lost amidst the
grandiose statements of Turkish and Iranian Mosques alongside imperial architectural
statements and low ceiling full masonry terrace houses and apartment building made
convenient for the air-conditioned dealer.

5.0 CONCLUSION

Democracy is not just a system of organization but it is also an attitude of governance. A

country like Malaysia may have inherited the system but its attitude is still in the process
of maturing. Education has achieved the goals of producing workers but now it is
important for us to produce entrepreneurs and nation builders. A drastic change in
attitude of education, its intentions, curriculum and pedagogy is needed to spiral
ourselves into a true sense of civilization and not a false sense of ‘development’.
Education does not consists of university and college students alone but it includes the
‘rakyat’ also. Knowledge is the staple food of education and its production and
management are two crucial items in this concoction of civilizing process. The process of
documentation, dissemination and transfer of knowledge must be seriously attempted if
we are to see a prosperous and peaceful nation. The traditional and modern architectural
heritage are the building blocks of architectural knowledge in this country and its is
through this foundation that education can grow in a constructive manner.

6.0 REFERENCES

Wright, F.L. (1957) Truth Against The World, a compilation of speeches by Mr. Wright, New York: A
Wiley-interscience Publication
Sullivan, L.H. (1918) Kindergarten Chats, a compilation of Mr. Sullivan’s writings, New york: the Eakin
Press

29
Jencks, Charles, (1977) The Language of Post-Modern Architecture, New york: Rizoli International
Publication Inc.
Curtis, William J. R. (1983) Modern Architecture since 1900, Oxford: Phaidon Press Limited
Mohamad Tajuddin, Malaysian Architecture: Crisis Within, Utusan Publications, 2005
Mohamad Tajuddin, Identiti Senibina Malaysia: Kritikan Pendekatan, Penerbnit UTM, 2002
Mohamad Tajuddin, Housing Crisis in Malaysia, KALAM Books, 2003
Mohamad Tajuddin, The Mosque as a Community Development Center, Penerbit UTM 1999
Mohamad Tajuddin, Sejarah, Teori dan Kritikan Senibina, KALAM Books, 2003

30
 THE PLANNING OF PUTRAJAYA:
CREATING THE ESSENCE OF CITIES

Dato’ Jebasingam Issace John

Director, City Planning Department

Perbadanan Putrajaya

1. INTRODUCTION
The creation of a new Federal Government Administrative Centre at Putrajaya marks a
new chapter in the development history of modern Malaysia. The development of this
new administrative centre was prompted by the need to balance and disperse
development to areas outside of Klang Valley. It is a decision motivated by the
government’s desire to improve the urban environment and quality of life, and to ease the
pressure on the infrastructure in Kuala Lumpur and the Klang Valley in general.

In city planning terms, it provides a golden opportunity and a challenge to embark on

something new and innovative representing Malaysian values and culture. Putrajaya the
new Federal Government Administrative Centre, is to be equipped with the latest
facilities and technologies for improved effectiveness and productivity, as well as,
amenities that shall contribute to quality living and working environment. But the
challenge also lies in fostering the spirit, sense of purpose and identity for the new city.
This short paper provides an insight to some of the basic principles and concepts behind
the endeavor towards realizing this planning vision.

2. PLANNING BACKGROUND

2.1 Background to The Planning Process

On 2nd June 1993 the Federal Government decided on an area in Perang Besar, Sepang,
Selangor Darul Ehsan to be the site for the new Federal Government Administrative
Centre. Thereafter, the planning process for Putrajaya went into full swing with the
setting up of Putrajaya Development Committee and the Putrajaya Development Unit
within the Prime Minister’s Department.

In 1994, five alternative concept schemes by local consultants and a group of government
agencies led by the Federal Department of Town and Country Planning and the Public
Works Department were presented to the Cabinet. Of the five schemes, the Government
selected the “Garden City” concept as the guiding theme for the new city. A master plan
was subsequently developed based on this theme. The Putrajaya Master Plan was given

31
Government approval in February 1995. It later underwent a review upon which a final
approval was obtained in April 1997. To implement the plan, Perbadanan Putrajaya was
established 1996 with the main role of developing, managing and administration of the
city area. Putrajaya Holdings Sdn Bhd, a government-owned company, was also formed
to act as the master developer responsible for construction of government offices,
commercial areas, residential premises and the main infrastructure.

2.2 Putrajaya Master Plan

The Putrajaya Master Plan covers an area of approximately 4,600 hectares. The Garden
City concept is clearly evident in the amount of land area dedicated to open space within
the city, which is 1,721 hectares (37.6 %). In brief, the major features of the Master Plan
are as follows:

A large proportion of the city area is designated as green open space;

A large water body (man-made lake) and wetlands was formed by utilizing the small
rivers which run through the area;
The lake created a 38 kilometers long waterfront area;
The city is divided into 20 precincts with the ‘core employment and commercial
precincts’ (Core Area) located on an island within the man-made lake;
‘Peripheral’ (residential) precincts planned based on the neighbourhood planning concept
to accommodate a mix of residential, local level commercial, and public amenities areas;
A 4.2 km long boulevard forms the central spine of the city;
Projected residential population of 330,000; with 67,000 housing units;
The Master Plan is supplemented with urban design guidelines, policy documents, and
local plans prepared to meet statutory requirements.

Table 1: Master Plan Land Use Components

Land Use Hectares %
Government 241.9 5.3
Commercial 132.7 2.9
Housing 1,169.1 25.5
Civic & Cultural 10.2 0.2
Public Facilities 446.4 9.7
Utility & Infrastructure 859.2 18.8
Open Space 1,721.6 37.6
Total 4,581.1 100

3.0 CREATING THE ESSENCE OF CITIES

The main function of town planning as argued by Foley is to provide a good physical
environment, essential for the promotion of a healthy and civilized life. Given that
improvement in quality of life is the Government’s underlying aim for developing
Putrajaya, the city planners have been quick to take the cue by making “quality urban
living” as the basic objective for planning Putrajaya. This explains the adoption of the

32
Garden City concept for guiding its physical development. The intention is not only to
create a city where social activities take place within an ideal landscape where nature
permeates into all aspects of life, but also one which would display a combination of the
following features:

Accessibility to facilities, services and place of work

Neighbourliness and community atmosphere
Close to nature
Amenities for recreation
Dynamic and lively
A city with identity and character

Through careful planning – supported by good urban management and governance –

these concepts are translated physically, and in the process create the essence of the city
that is Putrajaya.

3.1 Quality Urban Living Through Neighbourhood Planning

Quality urban living involves more than just providing places of work and residence. If
we cast our views on other cities with reputation for high urban quality of life, essential
ingredients would include facilities and amenities for individual fulfillment and
community life, i.e. for cultural, recreation, social interaction and other activities. In
Putrajaya, the planners have been ever mindful of the fact that we are not just building an
administrative centre. But rather, we are also trying to build a new community. Meeting
the various socio-cultural needs of the inhabitants are therefore a top priority.

Foremost in priority is of course adequate and suitable housing. A broad mix of

residential development type is planned for the city including luxury bungalows, semi-D
and terrace-type housing, apartments and affordable housing for the lower income group.
This is supported by a variety of urban amenities such as health, libraries, sports and
recreational. Within residential neighbourhoods, community facilities such as schools,
convenience shops, multi-purpose halls, suraus and local parks are provided.

In line with the Garden City theme, a large proportion of the city area is designated as
parks and open space ranging from metropolitan parks to local neighborhood
playgrounds. Reinforcing these facilities are urban features such as landmarks, squares,
plazas and bridges that form part of the cityscape, providing a wide range of spatial
experiences that further enhance the spatial quality of the city.

What is significant in Putrajaya is that all these amenities and facilities are found in close
proximity to the residents which is achieved through the adoption of the neighbourhood
concept in the planning of its residential precincts. The size of the neighborhood is such
that a majority of the population is within a five-minute walking distance of its center
(1/4 mile) and where the needs of daily life are mostly available within this area.

33
3.2 Revisiting the Traditional Essence: Fostering The Spirit and Purpose of the
City

If there was a difference between the traditional kampung way of life of yesteryears and
the present day city life-style, it is in the citizen’s spirit and sense of togetherness. In
Putrajaya, there is an attempt to foster the essence of cities by reference to past land use,
spatial relationships and urban form as they might be influenced by local history and
culture. It seeks to rediscover and recreate the interactive and spatially efficient qualities
of a coherent public realm that earlier urban environments, small towns and villages
exhibited most oftenly characterized by an informal, organic layout, a strong sense of
community and close proximity to the surrounding natural environment.

Whilst it is not practical to recreate the kampung within the constraints of our cities
today, we can still establish the planning principles to foster social and community values
associated with traditional kampung living. The objective is to encourage a more
pervasive involvement of the residents in activities contributing to the well being of the
community. The neighbourhood concept of planning plays a great role here whereby the
layout of residential areas and location of amenities can encourage greater interaction and
a sense of neighbourliness among residents.

This may be achieved by influencing the scale, density, form, and structure of urban
development. For example streets can be designed to be narrower and equitable for both
vehicles and pedestrians where people can interact on the streets. Urban spaces in the
form of public squares or public parks and fields should become a meeting place and
centres for various community related activities. And needs of daily life should be
available at the neighbourhood centre within the residential area where people congregate
and meet up with their neighbours. This approach to planning is adopted in most of
Putrajaya residential areas, most notably in the design of the Diplomatic Enclave.

3.3 The Caring City

Building a city is not just about bricks and mortars. To complement the promotion of the
‘traditional essence’, pro-active efforts are also necessary to consolidate the sense of
community and belonging. For this, consensus through public engagement and outreach
activities are carried out in Putrajaya. Programs based on the ‘Caring City’ and ‘Safe
City’ concepts are being explored and applied.

This is further aided through conscious design efforts as reflected in the Putrajaya
Fencing Design Guideline which draws on our culture to create a safe city. This is by
encouraging interaction and a caring society through community-policing and
“permeability” in development, i.e. the breaking down of walls.

In general, solid fencing along streets and other boundary frontages is discouraged. In its
place, permeable fencing options are preferable. This shall be mainly through the use of
landscape demarcations such as hedges, shrubs or trees. These solutions contribute to the
aesthetic, social and built form character of Putrajaya. More importantly, it enhances

34
security through increased interaction and proactive community involvement and
responsibility, as opposed to perpetuating an individualistic island mentality.

City Image and Character Through Urban Design and Landscape

Architecture

Building a new city is a monumental task requiring the input of various groups of people
with diverse disciplines. Guided by the Garden city concept, and with the aim of
achieving a strong image for the city, urban design and landscape architecture are
established as essential ingredients complementing good town planning practices.

Urban design is the art of city building (Moughtin et al) It deals with the way places work
and how urban spaces are organized and structured. Closely related, landscape
architecture is concerned with the design and shaping of external spaces, treating the
‘public realm’ as part of the total built environment and city experience. In Putrajaya,
effort towards good urban design and landscape planning is achieved through the use of
the Detailed Urban Design guidelines (DUD).

The DUD is prepared at the precinct level. It outlines the general character and ambience
of each particular development plot, but always at the same time, tying it back to the
surrounding development parcels and the precinct as a whole. By this, the DUD promotes
an urban fabric and language through the composition of its many elements, combining
them to reflect a unique sense of place and character.

The DUD achieves this by focusing on elemental guiding principles such as urban
structure, urban form and character. Parameters like details on land use, building massing
and typology, horizontal and vertical controls of building, provision for pedestrian
linkages, open space coverage, streetscape control and so on feature highly in this
guideline. The aim is towards an urban form that projects visual unity and coherence,
affording a distinctive image for the city and quality spatial experience for citizens and
visitors alike.

The DUD is now used to create identifiable urban spaces and corridors such the Putrajaya
Boulevard and the Dataran Putrajaya where the National Day Merdeka Parade was held
this year. The Boulevard is a 4.2 km long 100 m wide thoroughfare running from north to
south of the Core Island forming the central spine of the city and providing the setting for
the main commercial and civic area. The design parameters for the buildings along and in
proximity to it are guided by the DUD so that they contribute to a cohesive spatial
composition and experience of the Boulevard.

As an extension to the effort of creating an image and character for the city, the Putrajaya
Lighting Master Plan has also been formulated to establish the visual and practical
architectural lighting criteria that will ensure the night time ambience of Putrajaya is
attractive and appropriate of a city of its status and function. It is a unique effort, and it is

35
hoped that this will contribute to bringing more visitors and tourists to come and enjoy
Putrajaya during night the night.

3.5 Respect for Pedestrians

The advent of the motor car signaled the overriding importance given to the convenience
of the motor traffic over that for pedestrians. This, despite the fact that motor car users –
upon reaching their destination, would themselves become pedestrians. This was the
scenario which perhaps led Mumford2 to lament “As soon as the motor car become
common, the pedestrian scale of the suburb disappeared, and with it, most of its
individuality and charm”.

Putrajaya has been designed to respect pedestrians. Provision for pedestrians and cyclists
increase independence of movement and accessibility to the numerous facilities in the
city without resorting to motorized vehicles. It is also compatible with planning for public
transport systems. Pedestrian routes in Putrajaya are laid out across the city in an
integrated manner. They link major activity centres and nodes such as commercial
centres, public parks, plazas, community centres and schools together. They also provide
clear and direct access to transit stops as well as connections between residential and
retail areas.

Supportive urban design is the key to encouraging the usage of pedestrian and cycling
facilities. DUD guidelines for core areas identify pedestrian routes and connections
throughout each precinct and at each parcel development level. Pedestrian paths are
supported by facilities such as arterial crossings where necessary. Landscape treatments
are specified for each development parcel to provide shade and comfort for pedestrians.
Particular emphasis is given to ease of movement of pedestrians and cyclists through
careful consideration to gradient of the paths, ‘barrier free’ designs and coordinated
network of paths.

3.6 Urban Ecology: Nature in The Urban Fabric

One of the requisites for a quality urban living environment is to create a city in harmony
with nature, i.e. a city which contains natural elements within its urban fabric and one
which imposes minimum stress onto the ecosystems. This will not only ensure the long-
term sustainable development of the city, but it brings opportunities for recreation and for
being close with nature.

Perhaps the most significant effort towards this in Putrajaya is the creation of a water
body in the form of the lake and wetlands systems. About 650 hectares or 14% of
Putrajaya’s area is lake and wetlands. The lake is formed by damming Sg. Chuau and Sg.
Bisa which passes through the city. The wetland is the first man-made wetlands in
Malaysia and one of the largest fully constructed freshwater wetlands in the tropics.

36
Among others, it functions as a natural filtration system removing nutrients and
pollutants from the river water before it enters the lake.

The lake and wetlands have turned out to be one of the most valuable assets for
Putrajaya. It has brought about intangible values in the unique waterfront image and
character of the city. In fact Putrajaya can be considered as a waterfront city bearing the
following features and opportunities:
Development opportunity in prime waterfront location affording a rich mix of
development;
Existence of wetlands, green corridors, parks, and wildlife at the door step of urban
dwellers; and
A varied range of water recreation and sports activities opportunities.

The 38 kilometers of waterfront area created with the formation of the lake is utilized for
development of parks and promenade, i.e. – an integrated network of green spine which
connects all the lakefront parks together. It is provided with a whole range of facilities to
enhance their enjoyment by the public such as landscaped walkways, seating areas,
public beaches, fishing piers, and viewing decks.

With the parks and greenery come wildlife and nature experience. Certain stretches of
the promenade and walkways – such as those within the Taman Wetland – have been
designed as nature trails providing for people to reconnect with nature. The lakefront
parks, including the wetlands, have been successful in introducing a range of habitats for
fish, invertebrates, frogs, turtles, as well as, birds such as swifts, moor hens, water hens,
wild ducks and kingfishers.

4.0 CONCLUDING REMARKS

Town planning is about urban quality of life. In our surge towards a developed nation
status, it is crucial that we do not lose sight of the very objectives of planning and the
basic principles of good city planning that go with it. This is important, lest we become
an affluent yet faceless society, devoid of self-fulfillment, no sense of community, and
with the ever-present physical and social problems. This is why in the planning for
Putrajaya, we have strived to go back to identifying and creating the essence of cities and
trying to answer: what is essential in town-making?

This short paper has illustrated that town planning has played a vital role in Putrajaya in
not only providing for the space, but also by recognizing and facilitating the inter-
relationship between the various urban elements and human activities.

ACKNOWLEDGEMENT
This paper is prepared with the assistance of En. Azizi Ahmad Termizi, Senior Assistant
Director (Town Planning), City Planning Department, Perbadanan Putrajaya.

37
38
 THE SUSTAINABILITY OF CONSTRUCTION
RESEARCH/GRADUATE EDUCATION

Dean Kashiwagi

Director, Professor, Professional Engineer

Performance Based Studies Research Group (PBSRG)
Del E Webb School of Construction
Arizona State University

1. REQUIREMENTS OF SUSTAINABILITY

The world or academia is being revolutionized by the driving force of information and
globalization. President Michael Crow is leading this contemporary transformation at
Arizona State University, identifying the change needed as the model for the “New
American University.” This new model combines the requirements of education,
research, industry impact, and community investment. It is a business model that
replaces the “status quo” government funded education model. No longer can
educators/researchers teach the same material over and over. No longer can teachers be
successful without interfacing their expertise with the industry they are representing. No
longer can professors take their jobs for granted. The crushing of the bureaucracy has
finally reached the universities.

Initially, universities were established in order to encourage the advancement and

evolution of modern ideas and practices. They were institutions that pushed development
and change, leading the progression of innovation. In order to be competitive in today’s
market for education, professors must be able to defend this role. They must be research
oriented, capable of providing the students with the latest education in processes, models,
and methodologies that add value and maximize efficiency to their respective area. The
education must match the lightening speed of change. Those that are able to learn how to
quickly process information to bring efficiency and become change agents will enervate
those that rely on the memorization of “tool box” skills. The speed of change combined
with the worldwide competitive marketplace has ironically turned “tool boxes” and
“technical skills” into commodities with limited shelf lives and competitive advantage.

The new university model is patterned after the economic free enterprise model. If it has
value, it will be funded. If it has value, it will be implemented. If it has value, it will be
sustainable. If it has value, it will be strategic. The new model requires:

1. Basic research that uses “out of the box” concepts.

2. Validation through prototype testing (hypothesis testing).
3. Implementation in practice to show the long term viability of the concepts and
prototype models.

39
Professors are no longer needed for what they know, but for what they generate. These
professors have the fire and passion to instigate change and attract innovators, as well as
an affinity for research. In order to remain a fundamental influence in the industry, the
academic world needs professors who are leaders. Individuals that can identify, define,
and pass on value to the community. Individuals who know that “it is what we do not
know” which is of most value. Individuals who can influence others while, “running
against the wind.” These are the professors who are comfortable with accountability,
who are no longer satisfied to limit their environment to the academic sphere, but view
the industry as their laboratory.

The new model will impact the entire academic system which currently depends on the
“knowledge and subjectivity” of professors who have earned their stripes through “time
in grade” without passing the fire of repeated hypothesis testing and implementation. It
requires their research to push the industry changes, rather than the opposite. In this way,
professors become an active source of credibility, where concepts are cultivated before
industry execution. The new model creates an uncomfortable feeling among the “status
quo” professors who have built their research around government funding, where success
is identified by the age and amount of funding and publications rather than significant
contributions. The new structure will threaten the idea that value is based on who you
know, networking, who you quote, and which publications you publish in (where the
gatekeepers are determined by relationships.) It brings into question the value of the
current structure and everyone who has used it to create professionalism among
professors.

In the future, sustainable research in construction will be determined by the following

questions:

1. Does the industry come to academia, or does academia have to cater to the industry?
2. Is the research government directed and funded, or is the research funded by industry
that is using the research to solve their problems?
3. Does the research simultaneously include basic research, prototype testing, and
implementation simultaneously?
4. Does the research have depth, longevity, change, and transfer to other areas?
5. Is the direction of the research controlled by funding or by the research program?

2. MANIFESTATIONS OF SUSTAINABLE RESEARCH

The new model leads to the following conditions:

1. The Industry (clients, contractors, designers, engineers, and manufacturers) comes to

the University to solve problems.
2. The Industry is drawn to the University because of their proven expertise in solving
problems.
3. The Industry comes to university because there are no better sources to solve their
problems.
4. The Industry will take direction from University professors.

40
5. The Industry experts are professors who have chosen to reside at the University,
making it the center of innovation and change.
6. Professors could work in the industry, but choose to be researchers/educators because
of the greater potential to influence the industry.
7. Successful researchers will minimize their directed research and maximize self-
developed research in areas of their expertise.

This will create a bastion of expertise and innovation. No longer will education/research
be considered as academic concepts that cannot be implemented. The line between
research and implementation will be blurred as the time to implement will be immediate.
Prototype testing and implementation may happen concurrently. Professors will be in
demand, their time requested by the industry on a continual basis. Their work will feed
back to the research programs, and their research will become the paramount feature of
their students’ education. Textbooks become unrealized potential, references for new
ideas. Graduate students have the opportunity to create new knowledge and solve
problems that the professors have not previously addressed. It brings the research alive.
It transfers risk to professors and graduate students, forcing them to minimize risk
through innovation.

This new model also supports an environment of leadership, freedom, and high
achievement. The successful results create more research, increase demand for the
education of the new concepts, and provide greater funding. The environment minimizes
the impact of bureaucratic university structures where employees perform solely staff
work, and professors are encumbered with excessive administrative duties. Instead,
professors can now be successful as researchers in order to be considered a successful
university employee. They can create centers of excellence which require very little
university support, have strategic plans focused on their research and expertise, and
operate as a “business” within the bureaucratic university setting.

However, this new model requires an environment where incubation as well as early birth
and growth can occur. Without the proper environment (bureaucratic, excessive control,
new professors forced to do administration duties, and research prowess is not rewarded
with freedom), great researchers can die before they even begin. The author proposes
that great researchers are different from stagnant, administrative professors. From the
very beginning, they exhibit different characteristics. They are:

1. Visionary and strategic.

2. Passionate, to the point where it is almost viewed as a religion.
3. Driven and hard working, to the extent that they make others feel uncomfortable.
4. In control of their own destiny. They find a way.
5. Business oriented.
6. Focused on making an impact.
7. Have very little fear of failure.
8. High achievers who like to measure themselves.
9. Do things differently.
10. Do not like large groups where the status quo is maintained.

41
11. Move with lightening speed.
12. Easily noticed and usually feared, even though they pose no threat to their peers.
13. Have outstanding communication skills.

Academic/research units tend to select and culture their own. Professors in a bureaucracy
usually work too hard, have too many responsibilities, and have a difficult time doing
productive work. These are all manifestations of environments of inefficiency and no
accountability, where who you know is more important than what you do. To foster a
climate where academic research can become value added, the following must happen:

1. Academic units must select new professors who are not like them.
2. There must be a leader in the existing faculty in a position of authority who can
mentor the new professors.
3. There must be an environment of freedom and change.

3. REQUIREMENTS OF SUSTAINABLE RESEARCH

There are very few construction research programs in the United States that have a
sustainable research program which is not built on directed government funding. These
are government grants where the research and professor are directed by the grant. Some
of the institutions will affect the agencies that created the research funding direction, and
in that manner their research environment is similar to what has been described as a
sustainable research environment. However, when research funding is directed, it is
often difficult to get an industry to buy into the research, take ownership of running the
tests and implement the results. In the author’s experience over the past 13 years of
attending both of the Associated Schools of Construction meetings, having my Director
work with the Peer Six (Virginia Tech, Auburn, Arizona State, Purdue, Colorado State,
and Clemson), the Construction Industry Institute (CII) out of the University of Texas at
Austin, and the American Society of Civil Engineering (ASCE) Construction Congress,
Arizona State University is one of the few construction programs which has the
environment which meets all the requirements of Sustainable Research as outlined in this
paper.

The requirements include:

1. Correct model (based on business and research model that has worked previously)
2. Environment of leadership and freedom
3. Leadership and support to be different, to resist the status quo, to resist the opposition
of the masses
4. Visionary professors who are willing to take risk and be measured
5. Strategic plan
6. Technology that changes behavior, structure, and results
7. Continual basic research, prototype testing, hypothesis testing at the same time

42
8. Short testing cycle
9. Graduate education is the research
10. Partnerships with industry to continually implement new concepts
11. Measured performance
12. Outsourcing attitude (Research is run like a business unit with enclosed financial,
marketing, presentations, documentation, education and research components. All
research decisions are made solely by the professor and the research unit)
13. Emphasis in research, all other components are secondary
14. Masters degree program which all the courses and the foundation is built on the
research
15. Ability to change current University structure within the structure
16. More than one professor in the research area for redundancy and depth
17. Power to license the technology

4. DEVELOPMENT OF SUSTAINABLE RESEARCH

The case study of Arizona State University (ASU) will be used in this presentation. The
success in implementing the new model was made possible by the Director of the Del E
Webb School of Construction, Dr. William Badger, being a visionary leader. He had the
following characteristics:

1. He did not have a personal agenda. His whole goal was to service the school and
assist the professors become great.
2. He set no rules. All rules were set by the professors.
3. He allowed professors to have all the freedom, but held them accountable to perform.

Dr. Badger created a path for innovation. He reduced the professor’s teaching load to
two classes a semester, and encouraged the buying out of one of the classes through
research funding. He then encouraged the professor to teach a graduate class in the area
of the funded research. He created avenues where a professor could initiate research
without paying overhead. These methods worked within the rules of the university, but
were creative enough to assist the professor. The director created a research climate.

This environment allowed the professor to start the research with funding from
construction clients, manufacturers, and contractors. The professor did the following:

1. Created a strategic plan.

2. Developed a foundation for the research with theoretical concepts that were
counterintuitive, given the current industry best practices.
3. Ran prototype tests immediately based on the theoretical concepts by finding clients
who bought into the concepts.
4. Built a staff: business manager, marketing coordinator, full time researcher, and
support staff made up of undergraduate and graduate students.
5. Fashioned a team out of the staff, where everyone was responsible for the success of
the business.

43
The professor then developed a performance barcode, or measurement of performance,
for the team. One of the drawbacks of these measurements is the differentiation and
separation of the successful researchers from the “status quo” researchers who
concentrate on teaching, training, and academic administration (which is needed and a
requirement of the University). The new economic model rewards researchers.
Academic researchers who do not recognize this will find themselves defending an
unrealistic model in changing times.

The professor was not encouraged by his peers at the DEWSC. Instead, the peers were
very uncomfortable with the new “behavior” of a consulting, expert, business oriented
professor. The professor was not supported by the school’s personnel committee for
early promotion to both associate professor and full professor due to his unusual
approach. In the end, it was the professor’s research success and measurements that led
to his promotion through a very competitive College of Engineering and University
promotion system. The professor’s current performance line is listed below in Table 1
and Table 2 (pbsrg.com):

44
 Table 1

Publication Overview
Number of referred journal articles (published and approved) 23
Number of referred conference papers 85
Number of different referred journals that were reviewed 5
Number of editorial boards served on 3
Number of published books 11
Invited Presentations
Number of total invited presentations 381
Number of presentations given in 2003 calendar 54
Number of attendees in 2003 1,506
Number of presentations given in 2004 calendar 44
Number of attendees in 2004 1,357
Number of presentations given in 2005 calendar 28
Number of attendees in 2005 1,474
Overall performance of presentations (maximum is 5.0) 4.7
Percent of attendees that would attend another presentation 96
Grant Overview
Number of grants 121
Total amount of research /educational grants ($) 5,500,000
Average grant per year since 1993 ($) 420,000
Total grants for 2004 ($) 554,000
Total grants for 2005 ($) 704,000

45
 Table 2

Research Impact
Total cost of procured construction in research $296,000,000
Total number of research procurements 406
Total number of different research partners (public & private) 29
Total number of licenses (DAGS, UH, USCG, FAA, US Army) 5
Percent of users that would use PIPS to procure another project 100
Percent of satisfied customers 99
Percent of projects completed within budget 99
Percent of project complete on time 98
Average contractor post project evaluation (maximum is 10) 9.7
Average rating of their current process (maximum is 10) 3
Average rating of the PIPS process (maximum is 10) 9
Teaching Overview
Number of classes taught 54
Average course evaluation (maximum is 5.0) 4.5
Number of chaired master thesis 23
Number of Ph.D. students 1
Last Updated: 12/29/05

The professor’s strategic plan included:

1. Putting the team together that would release the professor from performing
administrative functions. Anything that could be done by the staff was taken away
from the professor.
2. Removing obstacles to doing research through creative arrangements.
3. Instituting a strategic plan or schedule with performance measurements.
4. The research group’s changing hypothesis, value, and influence as the major
objectives of the research program.
5. The professor understanding that the client was the most influential factor in changing
the industry, and not the contractors.
6. Speed in theoretical development. The professor turned hypothesis testing results
around with speed. The speed of the evolution of basic concepts with documented
evidence would have more credibility than best practices whose results were not
measured or validated.
7. Maximization of the hiring of dedicated, talented staff instead of research
assistants/student workers. Even if undergraduate students were hired, they were
quickly offered staff positions to award performance and integrate them into the team
concept.
46
8. Ensuring that the entire staff was visionary and highly motivated to add value in any
way they could.
9. Having funding for the entire team for a year and a half into the future at all times.
The marketing coordinator’s objective is to maintain $450K per year, every year.
10. The director of the research group (54 year old full professor) has become a mentor of
the future director (27 years old assistant professor).
11. Mentoring other schools and professors to transition into the new research model.

Research Group’s Continual Development

The research group’s current tactical/strategic plan includes:

1. Having influence at the federal level, the state level, city level, and in the private
industry.
2. Run hypothesis testing in the major construction markets (pharmaceuticals, hospitals,
power companies, and government)
3. Run hypothesis testing over the entire delivery process (designers, engineers,
surety/bonding/insurance companies, procurement, contractors, and construction
managers)
4. Change the functions of the different components to increase efficiency, value, and
profits at the same time.
5. Integrate all components of the research, the efforts of all the different research
partners, and the visions of all research partners.

Recent results of the research efforts include:

1. The presenting of The Corenet Global’s Innovation of the Year award for 2006 for
testing/results of PIPS at Harvard University.
2. Annual education/training conference drew 120 industry participants (twice the
normal 60)
3. Testing at one of the most acknowledged hospitals (the FM is the leader of the
prestigious Health Roundtable group that is composed of 25 of the most prestigious
hospitals across the US)
4. Testing at two established cities in the US (City of Miami Beach, FL, and City of
Peoria)
5. Request to test in the state Department of Transportation group.
6. Moving technology into Information Technology arena to deliver IT systems and
support.
7. Request by International Facility Manager Association (IFMA) chapters, Project
Management Institute (PMI) chapters, Supply Chain Management (ISM) chapters,
and Association of State Hospital Engineers (ASHE) chapters, and surety/bonding
companies and independent agents to present and test the technology.
8. Request to head up the CIB TG on benchmarking performance information
worldwide.
9. Request to transfer technology to Glasgow Caledonian University (GCU), in
Scotland, UK.

47
10. Request by European government agency to test technology in their delivery system.

5. CONCLUSION
The new worldwide marketplace is fast changing. The goal of the successful parties is
efficiency, performance, and value. The construction research groups need to be lean,
fast moving, results oriented, and the foundation of change. Construction research units
can no longer depend on government grants to create sustainable, productive, and cutting
edge research programs. Research programs can no longer depend on joining networking
groups whose main focus is to form social relationships and opportunities to travel and
present papers. Research has to be innovative, fast moving, results oriented, and well
measured.

48
 BILLS OF QUANTITIES – A TIME FOR CHANGE?

Roy Morledge and Stuart Kings

1
School of Architecture, Design and the Built Environment,
Nottingham Trent University UK
2
Docté Consulting, Hull, UK

Abstract: This paper reviews the effectiveness of pricing documents – bills of quantities -
used to identify the extent of the work to do during competitive construction tendering. This is
considered from the perspective of the contractors’ estimator as primary user of these
documents. The paper compares the requirements of the estimators with the format of pricing
documentation they receive. The findings suggest that, from the perspective of the
contractor’s estimator current documentation is not effective. Current methods adopted by the
industry may have a detrimental affect on the pricing process by increasing the measurement
workload, causing ambiguity, increasing the level of price and quantification risk, increasing
cost (through duplication of the measurement task and priced risk), reducing its accuracy and
increasing the likelihood of post-tender dispute. As central coordinator of the pricing process
the main contractor is exposed to the majority of this price and quantification risk. The client
is also exposed to increased cost and price risk.

This paper identifies the shortcomings of current practice and suggests potential changes.

Keywords: bills of quantities; effectiveness

1. INTRODUCTION

Traditionally in the United Kingdom a construction client has initiated the production of
a bill of quantities for a building project of any size. This document is provided as one of
the contract documents along with the tender drawings and the contract itself. This bill of
quantities (BQ) ensures that all those submitting tenders do so on the same basis, thus
providing consistency of effort and avoiding duplication. Bills of quantities are prepared
in accordance with an agreed convention – usually a standard method of measurement (In
the UK a document referred to as SMM7).

The consequence of this practice is that the extent of work to be done to complete the
contractor’s obligation is that identified by the BQ. If more work is required to be done to
achieve the designed project then this will attract further payment. As the result the extent
of the contractor’s tendering risk is reduced to the tender price and not the extent of the
work. If the contractor is left to measure the work the risk for the extent of the work rests
with the contractor and there is no assured consistency in the measurement process.

49
The use of established methods of preparing pricing documentation, including BQ’s, has
fallen substantially in the UK over the last fourteen years (RICS, 2002 b, p.5) although
competitive tendering still dominates the procurement strategies adopted.

Although the trend for the client-side to initiate the measurement of building work has
reduced over time (RICS, 2002 b, p.5; Pasquire, 1992, p.11) it is argued that the total
burden of measurement has remained constant (Birchal & Coffey, 1994, p.36; Coffey &
Watson, 1992, p.7; Eccles, 1992, p.7).

Until electronically generated design drawings can create consistent information suitable
to be priced by contractors the skill of quantification – measurement from drawings – will
remain important as it is necessary to ensure that two-dimensional design can be
converted into a form which can be both understood and priced.

Most contracted work in the UK is subcontracted but their measurement needs appear to
have been largely ignored. This has been long recognised by previous work (Skinner,
1979, p.214; Pasquire, 1991, p.221).

Estimators are the primary users of BQ’s as they have the responsibility of pricing these
documents to establish a tender price. This paper focuses on the current approach to the
preparation of BQ’s and their relative effectiveness as a tendering document for the
contractor’s or subcontractor’s estimator.

The opinion of contractors’ estimators was sought through interview and survey to
establish their views on the effectiveness of pricing documentation. An understanding of
current practice was obtained and proposed solutions generated.

2. LITERATURE REVIEW

A literature review established that the opinion of the end-users of the BQ (the
contractors’ estimator) had never been comprehensively addressed and there was no
evidence of subcontractors’ views being previously tested.

3. INTERVIEWS
Semi structured interviews were used to develop an understanding of the processes
currently adopted.

The objectives of the interviews were to:-

50
 • Identify the processes commonly adopted by contractors to prepare the tender.
• Establish what problems are encountered by contractors during pricing.
• Establish the extent of risk taken by the constructor.
• Identify the clients’ exposure to risk as a result of the above.

Sample and Selection criteria for interviews

It was recognised that a complex array of types of contractor and subcontractor exists
within the building industry and that their characteristics differ, inter alia, in terms of the
types of clients for whom they predominantly work, their turnover levels, the type of
work undertaken, their experience, their location and their usual position within the
supply chain.

Attempts were made to presuppose what these groupings could be, but it was considered
that by attempting to pre-define the types of contractor to be selected for interview, this
could potentially introduce bias. Bias could be introduced by assuming that
characteristics such as turnover level number of employees affected their problems they
encountered in pricing (Yin, 1989, p.65). Instead of presupposing groups of contractors
that should be selected therefore a cross-section of contractors was identified to ensure
that a reasonably representative sample was obtained.

Interviews undertaken
In total, forty-seven contractors were interviewed.
When approximately forty of the interviews had been completed it was felt that the
results were becoming predictable, different types of contractors could be forecast to
respond in a certain manner. The findings from previous interviews were also being
tested out and found to hold true. It was considered at this point that ‘saturation’ had
been achieved (Stake, 1994, p.243).

To confirm whether saturation had occurred a further seven contractors were interviewed.
This allowed the findings that were specific to different types of contractor to be tested
out further. These additional interviews did confirm that responses were predictable.

4. ANALYSIS AND FINDINGS

Following analysis it became apparent that in the context of this study two groups of
contracting organisation were identified. The dividing factor between them was their
behavioural response when presented with quantified pricing information. It was found
that specialist trades (such as building services/ mechanical & electrical contractors) did
not want pricing information to be quantified for them (as could be inferred from the
requirements of the SMM) but instead preferred to quantify the work themselves.

51
Conversely, non-specialists trades (all other trade contractors & main contractors)
preferred the work to be quantified for them and were found to be satisfied when the
established principles were adhered to.

Both groups of contractor were found to behave adversely when their desired format of
pricing documentation was not complied with. The estimator’s position within the pricing
chain was also seen to affect how they would deal with the risks imposed. For example,
despite both being classified as non-specialists, the non-specialist subcontractors’
response was found to differ to that of the main contractor if no quantities were provided.
Non-specialist subcontractors would often qualify non-quantified work as “re-
measurable upon completion” forcing the main contractor to take on the risk of
quantification if they wished to appoint the particular subcontractor.

Only about 30% of the total industry workload was estimated to be in BQ format and the
balance in a non-quantified format (either Design & Build or Plan & Specification).

As anticipated, all specialist work was subcontracted and the non-specialist work divided
between the main contractor and subcontractor. The majority of non-specialist work was
also subcontracted.

5. INDUSTRY SURVEY

A survey was carried out to test the validity of the results from the interviews on a larger
audience. In total, 546 questionnaires were distributed to randomly selected contractors
and subcontractors across a broad range of construction trades and geographical locations
across the UK.

The survey achieved a 32% return rate equating to 172 responses.

Additionally the opinion was sought of representative bodies from both previously
identified types of contractor – specialists (represented by the Electrical Contractors
Association, (ECA) and Heating and Ventilating Contractors Association, (HVCA) and
the non-specialists(represented by the National Federation of Builders,(NFB)

Findings

The value of work in bill format was confirmed at approximately 30% by value for the
non-specialists and 6-7% for the specialists.

Both the ECA and HVCA were critical about the quality of BQ’s and their lack of
usefulness for pricing. Overall they suggested that a cheaper price could be returned
without the expense of trying to quantify this for them and that this would enable the
tenders to be evaluated more fairly.
52
The NFB were positive on the quality and usefulness of quantified information in terms
of ‘accuracy of quantities’, ‘knowledge of construction’ and whether this enabled them to
‘compete on a similar basis.’ If BQ’s were absent the results suggested that this would
increase the overall price for these firms.

The differing views of the two types of contractor were evidenced more explicitly by the
industry survey:

The specialists regarded bills as inaccurate, illogical, in less detail than their internally
produced information and requiring a substantial amount of additional work if they were
to be used to generate a price. Of concern was the inadequacy of the measured items to
reimburse the specialist contractor (via interim valuations, the Final Account and for
variations). . Furthermore, specialists did not consider that their prices were compared
on a like-for-like basis – a fundamental aim of the tendering documentation was therefore
not being achieved.
The specialists also considered that the tasks of planning, ordering materials and internal
cost controlling could not be achieved by using bills.

Conversely, non-specialist contractors encountered significant problems when their work

was not quantified for them. Unnecessary duplication was experienced as each of the
competing main contractors would have to quantify the same work themselves. Further
problems were encountered with non-specialist subcontractors. Their need to obtain
work was found to dictate their behavioral response to pricing information passed on by
the main contractor. If they were in great need of work they would have little choice but
to quantify the work themselves but in other conditions were unwilling to take the risk of
the amount of work to be done.

Based on a review of industry processes, the usefulness of quantified information for the
non-specialists was confirmed and preference by the specialists to rely on their own
pricing documentation better understood.

6. SUMMARY
A high proportion of pricing documentation currently prepared in the UK is at odds with
the identified needs of contractors’ estimators. In this respect, current pricing
documentation is not effective nor is it consistent.

Contractors, as a result of current practice, endure substantial levels of risk. As central

coordinator of the pricing process, the main contractor takes on the majority of this risk
where formal quantities are not presented. Most apparent is the demand placed on the
main contractor to take on the responsibility of subcontractors’ quantities (either through
subcontractor tender qualifications or their refusal to price unless the main contractor
quantifies the work on their behalf). These results in duplication, and competing
subcontractors will then be faced with a number of permutations of the same job to price
form different contractors tendering for the project.

53
The potential for post-tender disputes and the level of risk are consequently heightened.

A key finding of this research is the identification of two classifications of contractor

based on their preferred source of pricing documentation. One group, the specialist (e.g.
building services contractors) prefers to prepare their own quantities. In contrast to
conventional practice, they do not require the work quantifying on their behalf by the
quantity surveyor.
The other group, referred to as the non-specialists (i.e. all other contractors and
subcontractors), prefer that pricing documentation is prepared on their behalf. The non-
specialists expressed dissatisfaction when the work was not quantified for them.

Current pricing documentation rarely complies with those primary needs of each
contractor type identified above. Substantial problems are encountered as a result. The
current format of documentation increases the overall cost of the tendering process, the
overall level of risk endured by the contractor and the potential for post-tender dispute.
The accuracy of the tendered price is also potentially impaired.

In making reference to the group identified as specialists the interviews and survey took
a traditionalist approach to the definition of the term ‘specialist’. This was to enable this
group to be clearly identified due to the precisely defined nature of their work or the
representative body to which they belong. Clearly there is an increasing proportion of any
built structure which is actually specialist in nature but treated as non-specialist in
approach. This might include specialist cladding, partitioning, fitted furniture, suspended
ceilings, raised flooring etc., all of which may, or may not wish for a quantified approach.

7. THE FUTURE FOR BQ’S?

The Royal Institution of Chartered Surveyors (RICS) is currently considering the case for
reviewing or the case for a renewal of the (current) Standard Method of Measurement.
The Institution by this process will set the practice standard in the UK for the future.
There is both a case for no change, allowing existing measurement principles to be
confirmed or simply slightly adapted, and also a case for substantial change, bearing in
mind the extent of advanced technology in modern buildings and concerns such as those
identified in this paper.

Consultant quantity surveyors have already expressed their concern that a lack of detailed
BQ’s will reduce the extent of cost information available for analysis for the purpose of
future estimates. Paradoxically the results from this research suggest that they have

54
already moved away from the comprehensive adoption of the use of BQ’s which would
provide this data.

Alternative approaches for use in relation to specialist work, such as the concept of a
contract sum analysis can probably provide a better document both for tendering and cost
control purposes. The contract sum analysis breaks down the work to be done into its
elements enabling the specialist to employ their own quantification techniques but also
forming the basis for interim payments and the valuation of post contract changes. They
would also provide consistent cost data. Where work has traditionally been nominated
this is not unusual practice, where such work is included in a BQ a requirement to
provide information consistent with the practice of contract sum analysis can be applied
as a section of the document.

8. CONCLUSION

There is dysfunctional between current practice and effectiveness in terms of tender

documentation in the UK. This may, or may not, be replicated in other countries, but this
paper seeks to illustrate how practices adopted in the procurement of construction
projects can fail to be adapted consistent with market changes or advances in technology.
In this case two categories of need have emerged from this study, each of which can be
better served in a way in which duplication, risk and dispute can be reduced and
effectiveness and consistency improved.
It is therefore contended that [a] quantity surveyors and construction consultants should
seek to ensure that the documents which they present meet the needs of the tendering
parties and [b] that any standard method adopted should prescribe the approach to be
adopted but also enable flexibility.

9. REFERENCES
Birchal, S. & Coffey, M. (1994). “Mastering the art: a competency approach to learning measurement”
Chartered Surveyor Monthly. May. p.36-37.
Coffey, M & Watson, B. (1992). Trends in the measurement of mechanical and electrical services. 1992.
NTU conference.
Eccles, K. (1992). “Is there a future for measurement.” Conference held at the Nottingham Trent
University. 22/04/92. “The future of measurement” p. 6/1-15.
Mechanical and Electrical Engineering Services Group RICS (2000) Building Services Procurement –
RICS Guidance Note. RICS Books.
Pasquire, C.L. (1991). Builders Quantities for Contractors’ Management. PhD Thesis. Loughborough
University of Technology.
Pasquire, C.L. (1992). Quantities – Who needs them. Nottingham Trent University conference paper.
Royal Institution of Chartered Surveyors (1998) Standard Method of Measurement (SMM7) revised 2000.
RICS Books.

55
RICS. (2002 b). Contracts in Use – A survey of Building Contracts in Use.
Skinner, D.W.H, (1979). An analysis of the utility of bills of quantities in the process of building
contracting. PhD Thesis. University of Aston.
Stake, R.E. (1994). “Case studies.” SAGE Publications Ltd.
Yin, R.K. (1989). “Case study paper - design and methods” Volume 5. SAGE Publications. London.

56
 CONSTRUCTION PROJECT MANAGEMENT
NIGERIAN CONSTRUCTION PROJECT MANAGERS EDUCATIONAL LEVEL 59
AND NEED IN PROJECT MANAGEMENT

KNOWLEDGE MANAGEMENT OF OIL AND GAS CONTRACTORS IN 71

MALAYSIA

CONTINUING PROFESSIONAL DEVELOPMENT REQUIREMENTS OF BUILT 85

ENVIRONMENT PROFESSIONS – A UK PERSPECTIVE

CONQUERING THE CONSTRUCTION BATTLE: OVERCOMING THE PROBLEMS 97

ON LARGE CONSTRUCTION PROJECTS IN A DEVELOPING ECONOMY

THE IMPACT OF CONTRACTORS’ PREQUALIFICATION ON CONSTRUCTION 111

PROJECT DELIVERY IN NIGERIA

THE ‘A’ TEAM ENVIRONMENT 121

PARTICIPATION DETERRENTS IN CO-CURRICULUM ACTIVITIES OF 133

BUILDING AND CONSTRUCTION MANAGEMENT STUDENTS AT A
MALAYSIAN UNIVERSITY

ANALYSIS OF EFFICIENCY AND EFFECTIVENESS MEASURES OF 147

CONSTRUCTION PROJECT SUCCESS IN MALAYSIA
EMPOWERMENT OF CONSTRUCTION PROJECT TEAM
161
IN SINGAPORE CONSTRUCTION INDUSTRY
COLLABORATIVE WORKING VIA INNOVATIVE PAYMENT SYSTEMS 181

KNOWLEDGE MAPPING IN THE CONSTRUCTION INDUSTRY: AN 181

EXPLORATORY STUDY

THE POTENTIAL OF APPLYING PASSIVE PROCUREMENT AS ONE OF THE 195

MEANS OF ACHIEVING SUSTAINABILITY IN THE BUILT ENVIRONMENT

MINIMIZING SPECIFICATIONS BY PERFORMANCE BASED SELECTION OF 205

SPECIALTY CONTRACTORS (SYSTEM DESIGN AND BUILD)

IMPERATIVES OF CONSTRUCTION WORKFORCE TRAINING: IMPROVING THE 217

PROVISIONS WITH TRAINING BEST PRACTICE
HOW READY ARE WE FOR E-TENDERING?
227
A MALAYSIAN CASE STUDY IN THE PREPARATION FOR IMPLEMENTING OF
E-TENDERING FOR THE CONSTRUCTION INDUSTRY
TOWARDS REDEFINING PERFORMANCE MEASUREMENT SYSTEM SYSTEMS: 237
A MULTIDIMENSIONAL CONCEPT

CLIENT PROJECT/CONSTRUCTION MANAGEMENT: THE COUNTERINTUITIVE 247

APPROACH

TEACHING ETHICS TO CONSTRUCTION DEGREE STUDENTS 259

57
SERVICES PROVIDED BY PROJECT MANAGEMENT CONSULTANT IN 267
MALAYSIAN CONSTRUCTION INDUSTRY

THE IMPACT OF CLIENT AND MANUFACTURERS’ ROLE AND INDUSTRIAL 277

RELATIONSHIPS ON CONSTRUCTION INNOVATION.

MALAYSIAN CONTRACTORS’ OPINIONS TOWARDS INTERNATIONAL 287

MARKET EXPANSION

RELATIONSHIP BETWEEN DURATION AND COST OF MALAYSIAN 299

CONSTRUCTION PROJECTS

SELECTION AND EVALUATION CRITERIA UNDER DECISION MAKING 311

ANALYSIS OF CO-FINANCED PROJECTS

58
 NIGERIAN CONSTRUCTION PROJECT MANAGERS
EDUCATIONAL LEVEL AND NEED IN PROJECT
MANAGEMENT
K.T Odusami and O. John Ameh
Department of Building
University of Lagos
Akoka, Yaba, Lagos
Nigeria + 234

E-mail: eronini2002@yahoo.com

Abstract: This paper examines the background education of Nigerian construction project
managers and assess the extent to which they are educated in relevant knowledge and skills
necessary to perform the role of a construction project manager. Sixty construction project
leaders who were based in the Nigerian cities of Lagos and Abuja were selected for the study.
A questionnaire was designed to collect data on eight variables pertaining to the project
manager including professional grouping, age, educational and professional qualifications,
industrial experience, overseas training, overall training, and extent of coverage of core
project management courses in their curricula of study. Descriptive statistics were used for the
analysis of the data obtained. Variations in the training levels (in terms of project management
related courses) of the different professionals engaged in project leadership are presented.

Keywords: construction, project manager, knowledge, skills, education.

1. INTRODUCTION
The chartered institute of building in the United Kingdom defines project management as
the overall planning, control and coordination of a project from inception to completion
aimed at meeting a clients requirements and ensuring completion on time, within cost and
to required quality standards (CIOB,1988). The project management institute (PMI) in
the United States defines project management in a more generic sense as the application
of knowledge, skills, tools and techniques in order to meet or exceed stakeholders
requirements from a project (PMI, 1996). Meeting or exceeding stakeholders
requirements means balancing competing demand among:

-scope, time, cost, quality and other project objective

-stakeholders with differing requirement
-identified requirements and unidentified requirement (expectation).

59
2. PROJECT MANAGERS’ ROLE AND RESPONSIBILITIES
The project managers’ principal responsibilities is to deliver the project end-item within
budget and time limitations, in accordance with technical specifications, and when
specified, in fulfilment of profit objectives. Roman (1986) suggests that the project
management’s responsibilities include:

i. Planning project activities, tasks, and end results, including work breakdown,
scheduling and budgeting.
ii. Organising, selecting and placing the project team, coordinating tasks and
allocating resources.
iii. Interfacing with constituencies: negotiating with the integrating functional
managers, contractors, consultants, users, and top management.
iv. Effectively using project team and user personne.l
v. Monitoring project status.
vi. Identifying technical and functional problems.
vii. Solving problems directly or knowing where to find help.
viii. Dealing with crises and resolving conflicts.
ix. Recommending termination or redirecting efforts when objectives cannot be
achieved.

Researchers (Covert, 1995; Harvey, 1989; Chan, 1994; Kerzner, 1998) summarised the
responsibilities of project managers into five areas:

- Planning: planning and scheduling so that the efforts are integrated.

- Organising: identifying, selecting and defining responsibility of the project team.
- Coordinating: identifying interfaces between the activities of functional
departments, subcontractors, and other project contributors.
- Controlling: monitoring progress, identifying problems, communicating the status
of interfaces to contributors, and initiating and coordinating corrective action.
- Motivation: develop in each participant the will to succeed to overcome difficulties
and to cooperate with others.

3. EDUCATION NEED OF PROJECT MANAGERS

A review of the reference materials of the Chartered Institute of Building- CIOB (1988),
Association of Project Managers-APC (1995), Project Management Institute- PMI
(1996), and several other organisations that provide training services in project
management to corporate establishment presents knowledge area required by project
managers for practice. To enhance the chance of successful outcome, a project manager
should have competencies in managerial skills, behavioural skills as well as technical
skills (Nicholas, 1990). Managerial skills – the project manager should have sound
general business skills. These should include:

60
 - An understanding of the organisation and the business.
- An understanding of general management marketing, control, contract work,
purchasing, law, personal administration, and the general concept of profitability.
- An ability to translate business requirement into project and system requirement.
- A strong active continuous interest in teaching, training, and developing
subordinates.

Behavioural skills – project managers needs strong behavioural and interpersonal skills.
In particular, they must be an active listener, active communicator, and able to capitalise
on informal communication channels. To be an active listener, project managers must
master the act of questioning for clarification and paraphrasing to insure they understand
verbal messages. They must know how to build trust, promote team spirit and reward
communication through praise and credit.

Technical skills – to make informed decision, project managers must be able to grasp the
technical aspects of project. Although project managers seldom do technical analysis,
they must be technically qualified and have the initiation to formulate and make technical
judgements. The project manager must be capable of both integration and analysis, and
must understand the rigorous training of professional technologists with its emphasis on
analysis sometimes impairs their integrative ability.

4. OBJECTIVES OF THE STUDY

The objective of the paper is to present the level of education and need of the different
professionals (architects, builders, civil engineers, estate surveyors and quantity
surveyors) in project management discipline.

5. RESEARCH METHOD

The level of education of project managers was obtained through a survey conducted
among 60 selected project managers. The questionnaire used for the survey included
(among other items) 16 courses for the respondents to choose from. The project managers
were asked the extent to which certain courses pertinent to project management were
covered in the curricula of their post secondary and post qualification education. About
16 of such courses are identified. These courses are obtained from CIOB (1982), Fisher
(1985) and Wahab (1981). Each project manager was asked to check each course on the
continuum of 1 (not covered) ----5 (well covered). The total score for each course was
computed on a maximum possible score of 25.

61
6. RESULTS AND DISCUSSION

Table 1: Demographic Characteristics of the Project Managers

Frequency Cumulative % Cumulative

Frequency %
1. Professional Group (N = 60)
i. Architects 12 12 20 20
ii. Builders 12 24 20 40
iii. Civil Engineers 12 36 20 60
iv. Estate Surveyors 12 48 20 80
v. Quantity Surveyors 12 60 20 100
2. Age (in years) N=60)
i. 21 – 30years 4 4 7 7
ii. 31 – 40 years 34 38 56 63
iii. 41 – 50 years 16 54 27 90
iv. 51 – 60 years 6 60 10 100
v. Above 60 years 0 60 0 100
3. Level of Education (N=60)
i. HND 4 4 7 7
ii. Professional Diploma 5 9 8 15
iii. Bachelor’s Degree 17 26 28 43
iv. PGD/Master’s Degree 32 58 53 96
v. Doctorate Degree 2 60 3 100
4. Professional Qualification
(N=60)
i. Graduate Member 6 6 10 10
ii. Corporate Member 48 54 80 90
iii. Fellow Member 6 60 10 100
5. Industrial Experience (N=60)
i. Less than 10 years 10 10 17 17
ii. 10 – 19 years 35 45 58 75
iii. 20 – 29 years 12 57 20 95
iv. 30 – 39 years 3 60 5 100
v. Above 40 years 0 60 0 100
6. Overseas Training (N=60)
i. No 48 48 80 80
ii. Yes 12 60 20 100
7. Training Level (N=60)
i Low 1 1 2 2
ii Moderate 32 33 53 55
iii High 27 60 45 100

62
7. DEMOGRAPHIC CHARACTERISTICS OF THE PROJECT
LEADERS

Profession

The study sought to find out the professional background of the project leaders. Five
construction related professionals that act as project leaders were identified:

(1) Architect
(2) Builder
(3) Civil/structural Engineer
(4) Estate Valuer and Surveyor and
(5) Quantity Surveyor.

Any of these professionals can be engaged as a project leader on a building project. All
the five professionals are equally represented in the survey.

Age

The study sought to find out the age of the project leaders. Five categories were selected
to measure the range of the age of the project leaders in years as at their last birthday.
Few (Seven percent) of the project leaders were between 21 and 30 years old. This
category of leaders was in the minority. They have just left school compared to other
categories. Majority of the leaders (56%) were in the 31 – 40 years age bracket. Another
27% of the leaders were in the age bracket of 41 – 50 years. This category was older and
probably has been in the industry for some years. Few of the leaders (six percent) were
between ages 51 and 60 years. None was above 60 years. From this analysis it can be
inferred that project leadership is practised between ages 31 – 60 years. At the age of 60
years and above professionals either go into other ventures that are less stressful or retire
from practice.

Academic qualification

Five stages of academic qualifications were identified and used for the study. Seven
percent of the leaders have Higher National Diploma, eight percent have professional
Depla, 28% have bachelor’s degree while only two percent (minority) have doctorate
degree. It can be observed that the project leaders were well educated academically as
majority of the respondents (about 75%) have bachelor’s degree and above.

63
Professional Qualification

This variable indicates the professional qualifications of the project leaders and might
show that membership of professional body would make for more competent project
leaders. They are supposed to be members of one of the following professional bodies in
the Nigerian construction industry or foreign equivalents – The Nigerian Institute of
Architects (NIA), the Nigerian Institute of Building (NIOB), The Nigerian Society of
Engineers (NSE), the Nigerian Institution of estate Valuers and surveyors (NIEVS) and
the Nigerian Institute of Quantity Surveyors (NIQS). Three cadres of professional
membership were identified from the study, ten percent of the leaders were graduate
members, 80% were corporate members while another ten percent were fellow member.
Since 90% of the leaders were corporate or fellow members of their respective
professional institutes it can be inferred that they were equipped professionally to be
engaged in project team leadership.

Industrial Experience

This variable represents the total number of years which the project leader has spent in
the construction industry. Ten percent of the respondents have spent less than ten years
while majority (about 58%) have spent between ten and 19 years in the industry. About
20% of the project leaders have industrial experience ranging between 20 and 29 years
while few (about five percent) have spent between 30 and 39 years in the industry. No
respondent have spent more than 40 years. The modal class for the industrial experience
is between ten and 19 years.

Overseas Training

In the early 70s up till late 80s the demand for construction professionals increased
tremendously because of the oil boom which resulted in high demand for construction
products. As a result, many Nigerian travelled abroad to study construction related
disciplines. The research sought to find the number of project leaders who benefited from
overseas training. Only 20% of the project leaders had overseas training while 80% were
trained locally.

Training Level

The amount of training received by project leaders may likely be an indication of their
knowledge in project management. The project leaders were asked to indicate the extent
to which certain courses pertinent to project management education and training were
covered in the curricula of their post secondary and post qualification training. About 16
of such courses were identified. These courses were obtained from CIOB (1982), Fisher
(1985) and Wahab (1981). Each project leader was asked to check each course on the
continuum of 1 (not covered) – 5 (well covered). Two percent of the leaders scored low
training, 53% scored moderate training while 45% scored high training. Further analysis
64
was carried on the training needs of each professional group and will be reported later in
this paper.

Table 2 shows the overall score in each course for all the project managers surveyed.
From table 2, it can be seen that the project managers were deficient in information
technology with a score of 13.30. This is followed by marketing (13.86), accounting and
finance (14.00), and human and industrial relations (14.85). From the survey the project
managers are proficient in construction technology with the highest score of (21.20)
followed by project planning and control (20.61), contract administration (20.17).

In this era of information technology, project manager needs to be proficient in

information technology to be effective. Marketing is also very important for him to
survive.

General training level in project management discipline

Information Technology 13.3

Marketing 13.86

Accounting and Finance 14

Human and Industrial Relations 14.85

Land Management and Development 16.18

Quantitative Methods 17.35

Organisational Behaviour 17.56

Courses

Legal Aspects 17.77

Series1
Procurement Methods 17.84

Structural Analysis and Design 18.33

Estimating and Cost Control 18.51

Management Principles and Practice 19.07

Construction Economics 19.78

Contract Administration 20.17

Project Planning and Control 20.61

Construction Technology 21.2

Mean scores

Figure 1: General education/training level in project management related courses

The level of education/training of each professional group in project management

courses

The total scores for each course for each professional group were computed. These total
scores were then divided by the sample size for each professional group to obtain mean
score for each course. The mean scores obtained were ranked in descending order from 1

65
to 5 to show the training level of each professional group in the project management
related courses. (See Table 2).

Table 2: Overall level of education of each professional group in project management courses
Profession Score Rank
Quantity Surveyors 76.77 1
Builders 73.85 2
Estate Surveyors 70.83 3
Architects 66.15 4
Civil Engineers 63.13 5

Those professional groups who scored highly in any course show that they were well
grounded in that course. Those who score low are adjudged to be deficient in those
courses. The total scores and mean scores were also computed for all the professional
groups. The quantity surveyors group scored the highest with the mean score of 76.77;
the builders group with the mean score of 73.85 follows this. The estate surveyors group
came third with the mean score of 70.83 followed by the architects group with the mean
score of 66.15. The civil engineers group was the least with mean score of 63.13

66
 Table 3: The Mean Score and Ranking of the Level of education of each professional Group in Project
Management Related Courses
ARC BLD CE ES QS
Courses
Accounting and Finance 2.42 3.00 1.83 3.42 3.33
Rank 2 3 1 5 4
Construction Technology 4.33 4.92 3.83 3.67 4.45
Rank 3 5 2 1 4
Construction Economics 3.67 4.36 3.50 3.58 4.67
Rank 2 4 1 3 5
Contract Administration 4.17 4.00 3.83 3.50 4.67
Rank 4 3 2 1 5
Estimating and Cost Control 3.58 4.09 3.17 3.17 4.50
Rank 3 4 2 1 5
Human and Industrial Relations 2.92 3.18 2.50 3.25 3.00
Rank 2 4 1 5 3
Information Technology 2.42 2.55 3.08 2.33 2.92
Rank 2 3 5 1 4
Land Management
and Development 2.92 3.18 2.30 5.00 2.75
Rank 3 4 1 5 2
Legal Aspects 3.17 3.27 2.83 4.58 3.92
Rank 2 3 1 5 4
Marketing 2.08 2.45 2.08 3.92 3.33
Rank 2 3 1 5 4
Management Principles
and Practice 3.50 3.91 3.33 4.00 4.33
Rank 2 3 1 4 5
Organizational Behaviour 3.50 3.64 3.17 3.75 3.50
Rank 2 4 1 5 3
Procurement Methods 3.25 4.09 2.92 3.33 4.25
Rank 3 4 1 2 5
Project Planning and Control 4.08 4.36 3.75 3.92 4.50
Rank 3 4 1 2 5
Quantitative Methods 3.17 4.18 3.50 3.00 3.50
Rank 2 5 4 1 3
Structural Analysis and Design 3.75 3.91 4.83 2.42 3.42
Rank 3 4 5 1 2

ARC = Architect, BLD = Builder, CE = Civil Engineer, ES = Estate Surveyor, QS = Quantity Surveyor.

As stated in Table 3, on individual courses the architects’ group is deficient in the areas
where it scored the lowest or the second lowest. They are (1) accounting and finance (2)
human and industrial relations, (3) information technology (4) legal aspects (5)
marketing, (6) management principles and practice (6) organizational behaviour (7)
procurement method and (8) quantitative method.

The builders’ group is deficient in (1) accounting and finance (2) contract administration;
(3) information technology and (4) marketing.

67
The civil engineers’ group is deficient in all the areas except information technology,
quantitative method and structural analysis and design.

The estate surveyors’ group is deficient in (1) construction technology (2) contract
administration (3) estimating and cost control (4) information technology (5) quantitative
method and (6) structural analysis and design. Wahab (1981) has pointed out course
numbers 2, 3 and 6 as the areas where estate surveyors are deficient.

The quantity surveyors’ group, even though it has the highest overall mean score, is
deficient in (1) human and industrial relation (2) land management and development and
(3) structural analysis and design.

8. RECOMMENDATIONS

Having highlighted the areas of deficiency of each professional group in project

management related courses it is also important to look at various means of acquiring
knowledge in the areas identified. First, some of these courses can be included in the
curriculum of studies of each discipline at undergraduate level. Second, professional
bodies like the Nigerian Institute of Architects (NIA), the Nigerian Institute of Building
(NIOB), the Nigerian Institution of Estate Surveyors and Valuers (NIVS), the Nigerian
Society of Engineers (NSE) and the Nigerian Institute of Quantity Surveyors (NIQS) can
include some of these courses in their professional competence examinations. The third
option is for the would-be project manager to go for postgraduate diploma course or
master of project management degree after graduation. Individual professional can also
seek knowledge in some of these courses through private study under Continuing
Professional Development (CPD) programme which is now mandatory for members of
some professional bodies.

Presently, University of Lagos is the only university in Nigeria offering project

management at master’s level for construction professionals. Three sets have graduated
between 2003 and 2005. Federal University of Technology, Owerri’s (FUTO) master’s
programme in project management is general and is being run under Business
Administration. Other Universities, especially the first generation universities like
Ahmadu Bello University (ABU), Obafemi Awolowo University (OAU), University of
Ibadan (UI) and University of Nigeria, Nsukka (UNN) should also start the programme in
either their Faculty of Engineering or Faculty of Environmental Sciences, specifically for
construction professionals at postgraduate level.

As at now there is no professional body that regulates the practice of project management
in Nigeria. It is recommended that a professional body to be named Institute of
Construction Project Managers (ICPM) should be established with legal backing from the
National Assembly. Such Institute will regulate the practice of project management in the
Nigerian construction industry. Or in the alternative a larger body to be named Institute
of Project Managers (IPM) like Association for Project Management (APM) of UK or
Project Management Institute (PMI) of USA can be established with many divisions
68
including construction. This body will regulate the practice of project management in all
the relevant industries including construction.

9. REFERENCE

APC, (1995) Association of Project Managers Body of Knowledge. High wycomb: APC.
Chan, A (1994) managerial responsibility of project managers. Australian Institute of Building papers, vol.
5, 109 – 120.
CIOB (1982). Project Management in Building Chartered Institute of Building, London
CIOB (1988) Project Management in Building Chartered Institute of Building, Ascot
Covert, R. E. (1995) Introduction to building management, 6th edition, U.K. Butterworths.
Fisher, N. (1985). Project Management Education in the 1990s Building Technology and Management
September, 10-12.
Harvey, R. D. (1989) Project management: a reference for professionals, 97 – 107, New York, Mercel
Dekker, Inc.
Kerzner, H. (1998) project management: a system approach to planning, scheduling and controlling. 3rd
edition, New York, Van Nostrand, Reinhold.
Nicholas, J. M. (1990) managing business and engineering projects. Printence-Hall International, Inc.
PMI (1996) A guide to the project management body of knowledge (PMBOK), upper Darby, pa: project
management institute.
Wahab, K. A. (1981). The roles of Estate Surveyors in project management in K. A.Wahab (ed.) Building
Technology seminar papers on Management of Building Projects II Department of Building,
University of Ife, Ile-Ife.

69
70
 KNOWLEDGE MANAGEMENT OF OIL AND GAS
CONTRACTORS IN MALAYSIA

Lee Kim Zoo¹ and Abdul Rashid Abdul Aziz²

¹MSc. By Research Candidate,

School of Housing, Building and Planning,
Universiti Sains Malaysia

²Associate Professor ,
School of Housing Building and Planning,
Universiti Sains Malaysia

Abstract: Knowledge management plays a dominant role in the k-economy era. Knowledge
asset is critical in any business operation since there is a shift from natural resources to
knowledge assets. Oil and gas contracting has been experiencing positive growth over the
years in Malaysia, largely due to the thriving oil and gas industry. This study looks into how
knowledge is acquired, stored, transferred, applied and protected by the companies that
operate in this sector. Questionnaires were to the sample population to determine whether
they manage their knowledge assets actively or passively. The study came across four
companies that manage their knowledge actively. It was found that organisational culture and
organisational structure can act as the main impediment as well as the main impetus for the
success in knowledge management, especially in knowledge transfer. High levels of
interaction and application of ICT are also the features of the four case study companies.
Strategic alliance with technology partners was found to be a major vehicle for acquiring
knowledge. Besides that, the primary concern of the four companies is to employ the ‘right’
people for the projects secured. Thus, managing human resources is a critical aspect in
leveraging the fast growing opportunities in the oil and gas sector.

Keywords: culture and structure, knowledge management, oil and gas contractors, strategic
alliance, human resource asset

1. INTRODUCTION
Knowledge is an asset for an organisation. The concept of treating organisational
knowledge as a valuable strategic asset has been widely conferred over the years (Brown
and Duguid, 1991; Davenport, Jarvenpaa and Bee, 1991; Kogut and Zander, 1992;
Ordóňez, 2004). In order to remain competitive, an organisation must efficiently and
effectively create, locate, capture, and share knowledge and expertise. Knowledge
management (KM) is a key vehicle for an organisation to compete in this k-economy era.
KM is defined as a vehicle to enhance organisational performance by explicitly designing
and implementing tools, processes, systems, structures, and cultures to improve the
creation, sharing, and use of different type of knowledge (human, social, structural) that
are critical for decision-making (De Long and Fahey, 2000). With the explosion of
information in oil and gas industry (Isheawood, 2000), and bearing in mind that the oil
and gas industry deals with intellectual capital, KM is an essential tool to maximise the
firm competitive advantage.

71
The research on KM has been conducted by a few reseachers (Toh, 2003; Rahman, 2004)
on a sample of various categories of organisation in Malaysia. However, in this paper, we
test the concept of KM on Malaysian oil and gas contractors. This study arose out of a
curiosity over the extent to which KM have been practised by oil and gas contractors in
Malaysia. Specifically, this study looks into how knowledge is acquired, stored,
transferred, applied and protected by the companies that operate in this sector.

The paper begins by providing a brief literature review followed by methodology. The
four case studies are then discussed in some detail before concluding.

2. LITERATURE REVIEW
KM encompasses a broad range of tools, technologies,and managerial practices intended
to produce bottom-line benefits by making better use of an organisation’s intellectual
capital (Davenport and Prusak, 1998). Vast literature on KM has described the ways to
create, disseminate, reuse, embed and store knoweledge (e.g. Hansen et.al, 1999; Cross
and Baird, 2000; Mohrman et.al, 2002 and etc).On the other hand, quite a number of
literature in the field of KM describe how an organisation’s culture (Nonaka and
Takuechi, 1995; Albert and Picq, 2004) and organisation’s structure (Brown and Duguid,
2001; Storck and Hill, 2000) influence knowledge processes.

It is widely accepted that there are two types of knowledge: tacit knowledge (hard to
communicate) and explicit knowledge (easy to communicate and share) (Nonaka and
Takuechu, 1995). Generally, knowledge is lost when employees exit (McCann and
Bucker, 2004). Thus, proper human resource management systems should be instituted to
ensure that valued personnel do not leave the organisation (Mohrman et al., 2002).

Strategic alliance is a primary tool for acquiring knowledge from beyond a firm’s
boundaries (Jackson et al., 2003; Soekijad and Andriessen, 2003), while retaining core
competencies, is the model that most organization follow to sustain competitive
advantage (Gils and Zwart, 2004; Yih-Tong and Scott, 2005).

Several studies have been done by relating the implementaton of ISO standards toward
KM. Lin and Wu (2005) explored the interrelationship between KM and ISO standard in
their study while Molina et al. (2004) stated ISO standard does have a positive impact on
organisation’s knowledge transferability.

3. METHODOLOGY
Two complementary ways have been employed for this study. First, 90 questionnaires
were posted to Oil and Gas contractors in Malaysia. 18 completed questionnaires were
returned, noting the response rate of 16.7%. For in-depth investigation, case studies were
conducted on 12 companies. Face-to-face interviews were conducted on nine companies
while for the other three, telephone was used due geographical constraint. Six companies
chose to not participate in the interviews due to time unavailability.
72
The interviews took between 20-75 minutes, depending on the length of the responses.
Consent to tape record for the whole interview session was requested before the start of
each interview. All respondents permitted the discussion to be taped. Some written notes
were also taken during the interview. The tape recordings were then transcribed into a
Microsoft Word document and verified from the notes taken during the interview. For
anonymity, the names of the companies are withheld in this paper. The table below shows
the response rate for the research.

Table 1. Response rate

State No. of sending No. of returned No. of interview

out questionnaire
questionnaire
Face- Telephone
to-face
Kuala Lumpur 49 11 7 1
Selangor 27 4 2
Sarawak 3 2 2
Johor 3 0
Terengganu 3 1
Pahang 2 0
Negeri Sembilan 2 0
Perak 1 0
Sub-total 9 3
Total 90 (population) 18 (16.7% of 12 (66.7% of population)
population)

From the data collected in the interview sessions, four companies in oil and gas sector are
said to manage their knowledge actively. In this paper, we focus the discussion on these
four companies.

4. CASE STUDY 1: COMPANY A

Background
Company A, which was founded in 1984, is a fully owned subsidiary of public listed
group with the majority bumiputra shareholders. It is one of Malaysia’s leading
integrated specialist technical services provider to the oil, gas and petrochemical industry
with approximately 300 engineers in the group. The group’s headquarters is in Kuala
Lumpur, with offices and facilities in Singapore, Thailand and Indonesia. The company
provides a range of business activities oil and gas industry especially in the downstream
area.

Open corporate culture

Corporate culture at the company has been described by the interviewee as open and less
hierarchical. There is free flow of knowledge due to the openness of the culture in the
company. The two-way free flow of learning, either from top to bottom or bottom to top,
73
has created a good environment for knowledge sharing. For example, the top
management accepts and utilises the good ideas that are proposed by those at the bottom,
even by fresh graduates or junior staff, especially for engineering calculations. Once a
short-cut and reliable method has been found, it is quickly shared and used by others.
With this equal sharing atmosphere, the time frame for the job can be optimised as well
as increasing the efficiency of the performance.

The Processes for Managing Knowledge in Company A

Lotus Notes Application and Storing and retrieving from Data bank
Company A utilises the intranet approach with Lotus Notes application hosted by a server
in the company. This approach (Lotus Notes or intranets) is at the heart of KM efforts
(Cross and Baird, 2000). It is available to the staff members who are dispersed around the
world, especially those working on offshore sites. By linking to the site, it facilitates
problem-solving on location.

All staff members contribute to the knowledge base for the benefit of the company and
the customers. Employees are encouraged by the top management to write their own
spreadsheet in order to enrich the content of the databank. There are some procedures
before the spreadsheet is stored in the databank, e.g. checking by head of department.

All the documented knowledge is maintained and controlled by the documentation

engineer. The role of the documentation engineer is to update the knowledge and
information constantly. Data is updated every week and disseminated to all staff
including those on site. Every staff member can access the databank but with some
restrictions for commercially-sensitive information.

Code of standard/practices: disseminate best practice

Code of standard or practices is one of the vehicles to disseminate best practice in the
company. For Company A, following a set of code of standards is partly client-driven. By
achieving the stringent requirement in oil and gas work, Company A has ensured that it
follows the code according to the requirement of the clients. For example, SHELL
utilizes DEP (Design Engineering Practices) whereas Petronas follows Technical
Specification. These documents are stored in soft and hard copies. During the visit to the
company, the hard copy documents, approximately 3 inches thick, can been seen on
several rows of shelves outside the meeting room. At the same time the company has
established own in-house code of practices. One of the strengths of the company lies in
catalyst loading. To ensure the highest technical standards, standard operating procedures
were drawn up to ensure all employees follow the same best practices.

With rapid changes in the technology, the protocol and practices constantly change or
vary. This is what the interviewee commented:
“Code of practices constantly changes. We have to spend hundreds of dollars to buy
a new version of the practices, even if there is only a little change. The cost is very
high.”

74
Technology partner: acquire new knowledge
Strategic alliances with technology partners are a crucial strategy to acquire new
knowledge or to further develop the services in the oil and gas industry. Company A
continues to focus on technology acquisition and partnership in order to handle multi-
tasks in the region. Recently, the company signed a memorandum of understanding with
a wholly state-owned enterprise in Indonesia with the purpose of sharing expertise for the
maintenance of the tank age terminal in Indonesia.

The role of human resource

New employees are trained by the project manager. During the training period,
newcomers are instilled with the company’s corporate culture. This helps them to adapt
to the operations of the company. Company A carries out the mentoring system, whereby
one senior engineer guides up to a maximum of three newcomers. There is a special
training system in the company. Engineers will be assigned to different departments (e.g.
engineering, procurement or construction) to expose them to different tasks. From this,
the employees will subsequently be allocated to certain departments depending on their
talents and capabilities. The human resource department plays an important role in
arranging this system.

5. CASE STUDY 2: COMPANY B

Background
Company B, a Malaysian-French joint venture company, was founded in 1982. With over
1,000 technical and experienced staff, it serves as the largest engineering contractor in
South East Asia. Company B, which is situated in Kuala Lumpur, is the headquarter
office for Asia Pacific region with other offices being located in Brunei, Thailand,
Indonesia, China, Singapore, Vietnam and Oceania. Company B is an expert in design
engineering and turnkey construction in oil and gas industry.

Open Culture
Company B adopts an open corporate culture where it eases the knowledge sharing
processes. It can be considered as having an autonomous operation where they operate
separately from the parent company.

The processes for managing knowledge in Company B

Lesson-learned meet-up in Company B

Lesson-learned meet-up is an important instrument to identify the success and failure
stories for a completed project. All the key participants for the project are gathered
together to discuss and evaluate in detail about the projects. The meeting takes around
one day to finish. Mistakes are highlighted during the meeting so that they will not occur
in the future. All the knowledge and experiences gained from the past project are
captured and documented in both hard and electronic copy.

75
Anyone working on a new project can access the relevant past project successes or
failures stories in the database so that he can adopt innovative ideas. These actions help to
reflect a more efficient project management practices. As found by Cross and Baird
(2000), learning from the experience of others and reusing materials that have been found
to be effective elsewhere improve the quality and speed of problem solving.

Documentation
Being a company that implements ISO 9001, the interviewee pointed out that the
company has its own standard manuals. Knowledge and experiences gained from each
project are documented. A specific department called the ‘document portal’ department
was borne out of the need to sort out all the documentation to achieve consistency and
uniformity for the codified knowledge. The interviewee highlighted the importance of
quality assurance and quality of control in documentation. As such, the company
organises a Best Documentation Procedures competition each year. Every department
takes part in the competition. The interviewee clarified that the purpose for this
competition is to instill the need to have proper documentation in every department. It is
a way to train the staff to pursue the right procedures or protocol as fixed by the
company. For example, Issue for First Revision (IFR) has to come before Issue for
Approval (IRA) then followed by Issue for Construct (IFC), explained by the
interviewee.

Knowledge sharing through networking

One way in which knowledge is shared is through networking. The interviewee
elucidated that the staffs share knowledge actively in the department. Top management
encourages knowledge sharing. Everyone has the right to voice out their opinions, either
in formal or informal meetings, as long as it is done in the right manner. People-to-people
communication is an important element for fostering knowledge sharing in Company B.
Thus, developing good relationships between employees is a necessity to enhance
knowledge sharing. However the interviewee pointed out that knowledge sharing has its
downside, the employee stands to lose his ‘value’ in the company and also the ownership
and control of knowledge. Both these points have been observed by Dell & Grayson
(1998) and Yih-Tong and Scott (2005) respectively. However, the interviewee went on to
say that the staff at Company B does not feel threatened by sharing knowledge. Everyone
tends to share their knowledge together in order to minimise their time frame to meet
client’s requirement. A database called i-share is established, with which the participants
for certain project get the chance to exchange and spread tacit knowledge between
themselves.

Staff turnover: main issue for knowledge sharing

Not all knowledge can be explicated especially tacit knowledge embedded in human
(Zack, 1999; Carrillo et al., 2004). Thus, the employee will take away the knowledge that
is embedded in them when they leave the company. Staff turnover is the biggest
challenge encountered by Company B when it comes to knowledge transfer. “Money is
the main issue that leads to staff turnover”, explained the interviewee. In order to retain
talented personnel, a reward system is practiced in the organisation. Quite a number of

76
initiatives have been implemented by Company B to improve staff retention (e.g. training
programmes, bonus, etc).

High investment in technology

The interviewee perceived that the investment in technology for the company is heavy.
Company B utilises intranet, databases, in-house program or software and networking to
manage data, information and knowledge. The IT system in company B can be
considered as being at a satisfactory level, added the interviewee. One thing that needs to
improve though is to get higher capacity hardware and server.

E-mail is widely used for knowledge acquisition and transfer from the French parent
company. Whenever an employee faces some problems and that they need advice and
assistance from experts, they can e-mail to the relevance persons at the other offices or
parent company. At one time, Company B was awarded a contract that is situated in
earthquake region. As it has no knowledge-based in this field, it obtained assistance from
the office in Houston though e-mails.

6. CASE STUDY 3: COMPANY C

Background
Company C is a company with its main headquarters in United States, with its Asia
Pacific region headquartered in Singapore. Company C was established in 1972 locally
with a local partner to fulfill the bumiputra status in order to get projects in Malaysia.

Organisational structure
Company C is a foreign-based company with offices all over the region. Each office has
its own style and systems in managing their processes which can be said to be
autonomous. The interviewee indicated that such an approach has led to non-standardised
process which sets back the transferring of knowledge.

The processes for managing knowledge

The operation department is at the heart of the company. This department handles all the
planning and scheduling, which require input from all the project managers and
employees. Weekly meetings are compulsory in order to keep track of project progress
and exchange ideas or solve any problems. Project meetings at the Malaysian office are
held every Monday, while operation meetings which involve all Asia Pacific offices are
held every Wednesday. Core team engineers meet each other once a week to
communicate and transfer knowledge by using teleconferencing.

Open door policy

With only five technical and experience staffs in Malaysia office, Company C can be
regarded as a small entity. Being a relative small organisation, Company C has no office
politic crisis. With this cozy working environment, employees interact well with each
other. Free flow of interaction between superior and subordinate makes no constraint in

77
hierarchy level. This again enhances a more conducive mode for knowledge sharing
within Company C. The interviewee indicated routine operations are not tied to hierarchy
level.

The ‘open door policy’ implemented by Company C promotes knowledge sharing among
the employees. This policy refers to a culture open for ideas and criticism. De Hooff et al.
(2003) stated that one of the preconditions for effective management is an open culture
that promotes the sharing of opinions and knowledge. On the other hand, it can increase
the innovation capability. The latter is used strategically by Company C to ensure that the
skills or technical knowledge are not replicated or imitated by competitors. Free flow of
ideas and knowledge occur in a natural way with this policy.

Lesson-learnt workshop and document

One way in which knowledge is shared and transferred is through lesson-learnt workshop
(as in the case for Company B). Once a project is completed, lesson-learnt workshop
which gather all the project personnel is held. During the workshop, all the success and
failure of the project are highlighted to prevent reinventing the wheel for future projects.
All the failures are taken as experience to avoid in the future. Then, all the knowledge
will be documented and placed in the central operations office in the regional
headquarters in Singapore. A division called ‘chief engineer division’ is set up to handle
these documents. After refinement by the department, all the documents are sent back to
the operation manager. If any employee wants to retrieve any relevant information,
permission must be obtained from the secretary of operation manager who handles all the
refined documents. For the past eight years, all the documents are in hard copy. However,
over the last three years, all the documents are being stored electronically.

Database
In early 2004, Company C established a database that is called Project Modules. The
implementation of this module is still in its infancy stage. But, the interviewee found that
it helps a lot in their operation management by reducing the time frame for the
preparation of a project. The interviewee described the database as a ‘recipe’ where you
can mix and match to produce a ‘tasty food’ for the project.

The Role of Human Resource

Company C just started its training programme two years ago for the benefit of new
employees. Other than that, it has developed policies that encourage employees to share
knowledge, e.g. mentoring programs for newcomers. The policy is tailored according to
different countries due to different laws and regulations.

7. CASE STUDY 4: COMPANY D

Background
Company D is a subsidiary company of a foreign organisation. Company D with eighteen
technical and experienced staff was established in Malaysia in 1991. The regional office

78
in Asia Pacific is shifting from Bangkok to Malaysia, but it will take approximately one
year to complete. This is because the projects in Bangkok are diminishing.

Organisational Structure
The operation in Asia Pacific is separated from the parent company. Hence its operations
can be said to be autonomous. The operation is split into different continents consisting
of the US, Southern Africa, India and Asia Pacific (Singapore, Indonesia). The parent
company provides all the policies and regulation.

Corporate Culture: learning organisation

Corporate culture of the company is keep learning no matter what level or management
you are in. Training is compulsory for everyone in the company, including the senior and
director level. The trainings are held once every two months constantly. Training is given
by outside consultants or other departments in the company. The knowledge is updated
and gained during training. The infrastructure of the company is upgraded at the same
time. Learning processes within the department and with others country offices occur
now and then. For example, managers from other departments will give training
regarding their department’s operation. If the companies in other regions obtain some
certification such as ISO, the manager comes over others offices to provide training.
Sometimes, HR managers with great achievements conduct such training all around the
world. This is how they share, learn and acquire knowledge from each other. This culture
which started in the 1980’s has become a unique characteristic of the company.

Having provided a culture of learning and training, Company D finds it hard to retain
talented people, more so those who have been provided with ample knowledge. Rival
companies will try to hire it staff by attracting them with high salary. Leaders need to
design reward systems that can achieve the twin objectives of attracting and retaining key
technology workers and encouraging them to share their knowledge (Mohran et al.,
2002). Due to this situation, the company is bringing out compensation packets to retain
skilled and trained personnel in this few years.

The processes for managing knowledge

The respondent stated that meetings are held twice a week. The purpose of the meetings
is to give suggestions, ideas and report everything that happens in the department. If there
is any complaint, it is solved during these meetings. E-mails are used to connect with the
Bangkok’s department.

Specific Department: determining the pattern of the knowledge in organisation

The company has a specific department called separate business development and
strategic operation that determines the pattern of the knowledge. This department is
divided into 2 groups:
• Business development unit that is responsible to get projects for the company
• Analysis team that analyses the capacity, capability of the company in order to
streamline and know their competitors well.

79
Reporting all the operation and daily jobs are the routine work of every manager.
Operational successes and problems are reported though a reporting system where the
statistical personnel analyses them. This reporting system monitors the whole process.
The statisticians review and follow with a series of analysis especially engineer’s job to
determine suitable knowledge. The parent company keeps an eye on this department as it
acts as a strategic advantage to the company. It is unique to the company. The company
also learns from mistake by using this system.

Project history files: storing knowledge

The company is project oriented. So, it stores all the information and detail reports
submitted by the managers. A centralised database in the US headquarters collects data
every single day about operations around the world. Information and knowledge are
retrieved from the central database and disseminated to all relevant parties around the
world. For example, if an employee from the administration department needs some
information from the engineering department, he or she should firstly ask permission
from the statistician for retrieval. The nature of the enquiry is reviewed and analysed by
the statistician. Company D can be said to have a learning loop.

Expert team
Project manager with good track records are sent all around the world to conduct
seminars. It is a way to disseminate best practices and knowledge. The company tends to
acquire knowledge within their employees (talented employee) rather than seeking
knowledge outside.

Technology limitation: barrier for managing knowledge

Technology limitation is a barrier to manage the knowledge in the company. Usually, the
parent company implements new technology before disseminating it to other regional
offices. Due to the geographical distance, Malaysia is one of the country that face delay
of updating and upgrading of the IT. The time for the implementation is lengthening
because they have to source the IT facilities (e.g. hardware) from Australia.

The role of human resource

It is common for an employee from one department to transfer to another department. For
example, IT personnel may get transferred to project management team. This is because
of the learning loop and the encouragement to share knowledge in the company. Training
is given in order to enhance the human resource development.

8. DISCUSSION

Company A is a local based organisation while company B, C and D are foreign based
organisations. Company A is not tied to the hierarchy as far as work processes go.
Company B, C and D has autonomous operations. However, in Company C, the
autonomous structure leads to non-standardised processes. For this reason, there is a
setback in knowledge transfer with offices in other region. Contradictorily, Company B
and D do not encounter this problem even though they adopt the same autonomous

80
approach. From observation, Company C has a higher level of autonomy compared to
Company B and D (e.g. reporting system in Company D is controlled by the parent
company). Therefore the two companies experience less problems in knowledge transfer.
Graham and Pizzo (1996) believe that effective KM is most likely to occur in businesses
that find the right balance between organisation systems which are sufficiently open and
flexible, but on the other hand, possess enough formality and discipline.

Company A and C practise open corporate culture, creating a good environment for
knowledge sharing. Learning organisation is a unique culture for Company D. Hence all
four companies have the right culture, albeit unique in their own ways, to promote KM.
This culture provides a platform that support learning environment and processes that
foster people’s learning (Armstrong and Foley, 2003).

From observation, all four case study companies rely on high level of social interactions.
The observation on high social interactions for knowledge transfer concur with past
studies done by Lesser and Storck (2001) and McDermott (1999). They also rely on ICT
to manage their knowledge. Company A utilises Lotus Notes while Companies B, C and
D utilise databases. Also, Company D adopts a reporting system. Besides that, all four
companies widely use e-mail to communicate with their employees. The application of
ICT to facilitate knowledge dissemination was also noted by Mohrman et al. (2002),
Armistead and Meakins (2002) and Huysman and Wit (2004).

People are the important asset in any organisation. All the interviewees concurred that
their companies face problem in retaining skilled and trained personnel. For that reason,
Company B focuses on human resource development (e.g. having engineering workshop
and Inter-Office Assignment), the logic being that those who want to learn stay put in the
company. Training programmes are also provided to the staff at Companies A, C, and D.
This HR practice (i.e. training and development) could manage the knowledge base in the
organisation (Robertson and O’Malley, 2000). Company D provides compensation
packet to the staff that encourage them to share knowledge. This compensation system
focuses on knowledge exchange and group collaboration (Yahya and Goh, 2002).
Company A is actively involved in strategic alliance with technology providers. It is
working with a number of companies, acquiring and learning their services for best
results for the industry. This process is a primary tool for acquiring knowledge from
beyond a firm’s boundaries (Jackson et al. 2003).

Different company uses different strategy in the knowledge processes. Code of practice is
important for disseminating best practice in Company A while Company D uses expert
team to dissiminate knowledge. Company D uses project history files as a tool to store
and dissiminate knowledge. However, Company B use networking for knowledge
sharing. Besides that, Company B and C implement lesson-learnt meet-up to document
and disseminating their knowledge.

Does the implementation of ISO affect the company to manage their knowledge actively?
From observation of the four ISO-registered companies, the motive to document or
codify best practices is an act in compliance to ISO. Company C highlights one drawback

81
of documentation, that is, a person may get excessive studies or histories of past
experiences that may or may not be of use to the current project situation. To shift
through the conundrum takes time and may require further refinement.

9. CONCLUSION
From the four case studies, it can be concluded that various strategies and tools have been
used by the companies to proactively manage knowledge. At the same time, proper
human resource management which fits in with the organisational structure and culture
should be implemented to be truly effective in facilitating KM. This study is still at the
exploratory stage. Hence, we would like to suggest that a further comprehensive research
be carried out in the oil and gas industry so that some useful framework for the
implementation of KM in the industry can be formulated.

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of Knowledge Management. Knowledge and Process Management,. Vol 11, No 2, pp 81-92.
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Management Issue),. pp 6-8.

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Kogut, B. and Zander, U. (1992) Knowledge of the Firm, Combinative Capabilities, and the Replication of
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Storck, J. and Hill, P. (2000) Knowledge Diffusion Through ‘Strategic Commmunities’. Sloan
Management Review,. Vol 41, No 2, pp 63-74.
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84
CONTINUING PROFESSIONAL DEVELOPMENT
REQUIREMENTS OF BUILT ENVIRONMENT
PROFESSIONS – A UK PERSPECTIVE

Tim Howarth
School of Built Environment
Northumbria University
Ellison Building
Newcastle upon Tyne
NE1 8ST
United Kingdom

E-mail: tim.howarth@unn.ac.uk

Abstract: ‘Continuing Professional Development’ (CPD) is concerned with the ongoing

process of lifelong learning for the maintenance of professional practice. Built environment
professional institutions recognise the necessity for CPD in their ‘codes of practice’. Such
codes commonly require members to maintain a currency of knowledge and practice through
the undertaking of regular CPD. The paper outlines and compares the CPD requirements of 5
UK built environment professional institutions. Together the 5 professional institutions
represent a significant diversity of built environment professions, hold a substantial
membership and accredit numerous degree programmes. The 5 professional institutions
studied within this CPD review paper are:

• The Association of Building Engineers (ABE);

• Chartered Institute of Building (CIOB);
• Royal Institute of British Architects (RIBA);
• Royal Institution of Chartered Surveyors (RICS); and
• The Royal Town Planners Institute (RTPI).

In considering CPD within the built environment, the paper presents each of the 5
professional institutions’:
• definition of CPD;
• minimum CPD requirements of membership;
• considerations as to what qualifies as CPD; and
• activities to monitor CPD undertaking.

Keywords: Continuing Professional Development, Professional Institutions

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1. INTRODUCTION

The built environment is both complex and dynamically changing. In order to maintain a
currency of knowledge and practice, built environment professionals must undertake
regular ‘continuing professional development’ or ‘CPD’. Such CPD can be considered to
provide lifelong learning for sustained professionalism.

This paper provides a consolidated review of the CPD requirements of UK Built

Environment Professional Institutions and serves as a reference source for the
undertaking of inter-professional and international built environment CPD comparison,
and for the informing of professionals undertaking CPD activities, novice professionals
working towards professional membership and academics, students and graduates of built
environment courses.

2. CPD DEFINITIONS OF UK BUILT ENVIRONMENT

PROFESSIONAL INSTITUTIONS
‘Continuous Professional Development’ has no single, universal definition. Substantial
similarity and agreement in definition does exist though. This is highlighted by the
author’s review of the CPD definitions supported by 5 UK Built Environment
Professional Institutions. This review is summarised and presented in Figure 1.

Professional CPD Definition

Body
ABE “systematic maintenance, improvement and broadening of knowledge and skills, and
the development of personal qualities necessary for the execution of professional and
technical duties throughout the practitioner’s working life” (ABE 2005).
CIOB “the process of regularly assessing current and future skill and knowledge requirements
relevant to your responsibilities, and then planning and implementing an ongoing
programme of training and development to address those needs” (CIOB 2004).
RIBA “any relevant study or activity that enhances a member’s professional development and
ability to practice architecture is valid CPD” (RIBA 2005).
RICS “systematic maintenance, improvement and broadening of professional knowledge,
understanding and skill and the development of professional and technical duties
throughout the practitioner’s working life” (RICS Rules of Conduct).
RTPI “those activities which help[ed] you to gain new, or to strengthen existing, knowledge
and skills” (RTPI Professional Conduct Advice).

Figure 1: Professional Institutions’ Definitions of Continuing Professional Development (CPD)

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3. THE MINIMUM CPD REQUIREMENT OF EACH UK
INSTITUTION’S MEMBERSHIP CLASS
The minimum CPD requirement for members of UK Built Environment Professional
Institutions varies. This can be seen from the comparison presented in Figure 2.

Professional Minimum CPD Requirement for Member

Body
ABE 35 hours per year OR 105 hours over 3 years
CIOB No set number of hours per year – the amount will ‘depend on your circumstance, and be
appropriate for your responsibilities and ongoing development’
RIBA 35 hours per year AND complete 100 points each year (of which 50% should be structured
CPD) AND complete and annual Professional Development Plan (PDP) AND keep
records of CPD activity
RICS 60 hours in any 3 year period – with at least 10 hours each year
RTPI 50 hours minimum in any 2 year period

Figure 2: The Minimum Continuing Professional Development (CPD) Requirements of the Professional
Institutions

4. THE MONITORING OF CPD ACTIVITY BY 5 UK BUILT

ENVIRONMENT PROFESSIONAL INSTITUTIONS
The means by which the 5 UK Professional Institutions monitor membership CPD
activity is presented in Figure 3.

Professional Monitoring Activity

Body
ABE The Association conducts random audits to ensure that members are fulfilling their CPD
obligations
CIOB The CIOB checks the CPD records of a random selection of members. Such randomly
selected members are required to produce their CPD records for the past year.
Members of CIOB boards, committees and panels have their CPD records checked once
every 3 years as proof that their knowledge and understanding is up to date.
Applicants for corporate membership are required to produce CPD records for the past 3
years as well as a forward development plan for the next year.
RIBA At the end of every year the RIBA monitors a random sample of chartered members’ CPD
record sheets. Randomly sampled members who refuse to comply could, after a series of
warnings, be suspended from the RIBA.
RICS In accordance with Rule 38 (c) of the Rules of Conduct, when requested for evidence of a
development plan and a record of lifelong learning activities a member shall “send to the
Institution within 28 days of being required by the Institution so to do a copy of his
records” Record of lifelong learning activities are to be kept by members “for a period of
three years after the qualifying activity has been undertaken” (Rule 38(2)).
RTPI The Institute confidentially monitors CPD records and Professional Development Plans.
This is carried out on an annual basis with members being selected randomly. Those
members selected are require to submit a CPD record and a PDP for the previous 2 years.

Figure 3: The Monitoring of CPD Activity by the Institutions

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5. ASSOCIATION OF BUILDING ENGINEERS
The ABE’s Codes of Professional Conduct require every member to “strive to maintain
and improve their professional knowledge and to contribute to the best of their ability to
the knowledge and understanding of their profession as a whole”.

Members’ CPD Requirement

ABE members are obliged to record the time spent on CPD and to participate in a
minimum of 35 hours CPD per year or 105 hours spread over 3 years.

The Association publishes CPD Guidance Notes within the “Seminar and Workshop”
insert section of their monthly journal ‘Building Engineer’. This guidance states that
members are required:

• to participate in CPD;
• to keep up with developments in their delivery of professional services and the
construction industry in general;
• to provide evidence of CPD as an essential element of career advancement and
should assist members in enhancing their profile within their organisations and
assist in mobility;
• to recognise the increasingly important role in meeting professional liability,
consumer protection, and other legal safeguard requirements;
• identify the trends that are to be clearly seen in a way EC Directive affect future
working practices;
• to be aware that clients are seeking quality assurance from their professional
advisers.

The Association’s CPD Guidance Notes further state that CPD activities should relate to:
• Some part of the theory and practice of the member’s professional services
offered;
• Reinforcement of the knowledge reflecting new technologies and legislation;
• Other aspects related to a member’s current or potential employment;
• Future development and diversification of services provided;
• Personal or business skills designed to increase a member’s management or
business efficiency;
• Other activities which directly or indirectly assist in ensuring the best possible
advice.

What constitutes CPD?

The ABE suggests the following (non-exhaustive) list of possible CPD activities:

Events - lectures, seminars, conferences and technical visits;

Courses - short residential courses, evening courses, degree or
diploma course etc;
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 Distance learning - CPD packages, correspondence courses, Open
University, open tech. etc;
Personal Study - Properly directed aims with measurable outcomes. eg.
learning a technique up to specifiable standard; producing
a book or technical article;
Professional Affairs - Voluntary work for your profession. Participation in
special working parties, reports, relevant committee
meetings of professional bodies;
Personal Development - Any activity which is intended to help the member be a
more effective person. Eg. Public speaking, ‘make the
most of yourself’ courses; interviewing skills; speed
reading; leadership and offices held.

6. CHARTERED INSTITUTE OF BUILDING

The CIOB (2004) define CPD as “the process of regularly assessing current and future
skill and knowledge requirements relevant to your responsibilities, and then planning and
implementing an ongoing programme of training and development to address those
needs” .

Rule 13 of the CIOB Rules of Professional Competence and Conduct places an obligation
on every member to “keep themselves informed of current thinking and developments
appropriate to the type and level of their responsibility. They should be able to provide
evidence that they have undertaken sufficient study and personal development to fulfil
their professional obligations in accordance with the current guidelines for Continuing
Professional Development (CPD)

The CIOB outline the advantages of CPD by stating that CPD allows a person to:
• Progress your career
• Maintain your professional status;
• Reflect on personal achievements and invest in future development;
• Learn from others and exchange knowledge and ideas;
• Benchmark your performance;
• Demonstrate to colleagues and clients that you are a self-starter and motivated to
learn;
• Develop the skills you need to do your job more effectively;
• Learn in a flexible style, identifying and making the most of available
development opportunities.

Members’ CPD Requirement

Members are not required to complete a set number of hours per annum. The amount of
CPD a member does will “depend on your circumstances, and be appropriate for your
responsibilities and ongoing development” (CIOB 2004).

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Members are responsible for developing their own annual CPD plan, evaluating CPD
activity and keeping a record of activities.

What constitutes CPD?

In its webpage ‘What constitutes CPD?’ the CIOB suggests that CPD activities might
include:
• Open distance learning (video packages, the Internet, slide/tape packages,
correspondence course);
• Private study, including systematic study of appropriate literature or research, or
even learning a relevant language;
• Technical and professional conferences, lectures, seminars, workshops, study
tours, technical visits and short courses;
• Courses leading to professional qualifications or academic awards;
• Writing articles for publications;
• Teaching (for those not in teaching posts);
• Practice (for those in teaching post);
• Preparing papers and contributing to technical meetings and study groups;
• Examining, tutoring and mentoring.

The current CIOB-recommended approach to CPD is illustrated in Figure 4. Here CPD is

considered as a cyclical process.

Review, analyse and

appraise current
Record evidence of skills and knowledge Profile current and
competence gained future competence
needs

Assess and evaluate Plan development

achievements activities

Maintain a Personal Prepare

Development development action
Record plan
Carry out
development
activities

Figure 4: The Cyclical CPD Process (CIOB 2004)

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7. ROYAL INSTITUTE OF BRITISH ARCHITECTS
All chartered Members of the RIBA are required to carry out CPD, no matter where in
the world they live and work, an no matter what work they do. Only fully retired
members are exempt from CPD activities.

Members’ CPD Requirement

Chartered members of the RIBA (2005) are each year required to:
• carry out 35 hours of CPD;
• fulfil 100 points of CPD;
• keep track of CPD activity via the RIBA’s CPD record sheet.

Further to this, chartered members are recommended to plan training via the RIBA’s
professional development plan

Calculating the RIBA ‘point value’ of a CPD activity

For every CPD activity undertaken – from reading to MSc study - a rating of between 1
and 4 is awarded by the RIBA member. The rating relates to the perceived personal
value of the CPD activity and is a reflection of ‘what was personally got out of the
activity’. RIBA explain the rating as thus: “A ‘1’ rating would mean that you didn’t get
much out of it: a ‘4’ would mean that the activity will help change the way you work”.

To arrive at an overall rating for an activity the points rating assigned by the members is
multiplied by the hours spent on the activity. A member can award an automatic 75
points for a CPD activity that leads to a qualification in a relevant professional discipline
or for attending any course of 5 days or more duration.

What constitutes CPD?

The RIBA considers that any relevant study or activity that enhances a member’s
professional development and ability to practice architecture is valid CPD. The RIBA
describes two types of CPD: ‘structured’ and ‘general’.

• Structured CPD is viewed as “any activity done in a classroom or lecture setting,

whether with other people in a room or via online learning, with specific stated
learning outcomes;
• General CPD is viewed as any other CPD activity.

The RIBA recommends that members should aim for 50% of their CPD to be ‘structured’
in nature. In support of this the RIBA offers a CPD programme and a free “RIBA CPD
Providers Network”.

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8. ROYAL INSTITUTION OF CHARTERED SURVEYORS
The RICS view CPD as ‘a life-long learning approach to planning, managing and getting
the most from your own development’. Rule 35 of the RICS Rules of Conduct
Regulation 2004 defines lifelong learning as ‘systematic maintenance, improvement and
broadening of professional knowledge, understanding and skill and the development of
professional and technical duties throughout the practitioner’s working life’.

Members’ CPD Requirement

RICS members must have a structured learning plan and complete a minimum 60 hours
of CPD or lifelong learning activity in any three-year period, with at least 10 hours
conducted each year.

The key features of CPD are described by the RICS in ‘What is CPD?’ as:
• Ownership of CPD by the individual.
• Emphasis on learning from a wide range of activities.
• Integration of learning and work - the concept of work as a learning experience.
• Emphasis on "outcomes" - answering the questions "what did you learn?" and
"how do you plan to apply this learning?" - rather than "what learning event did
you experience?"
• CPD should not be seen as an additional task to your normal duties.

Recording Lifelong Learning Activity (CPD) and Personal Development Planners

RICS members are obliged to undertake lifelong learning and to review and up-date their
development plan at least once a year (Rules of Conduct (2004) Rule 38 (a)). Each
member’s must record qualifying life long learning activities (Rule 38 (b)). Rule 38 (b) of
the Code of conduct states that the record shall include “dates, subject-matters, speakers,
total time…. and brief evaluations of the effectiveness that [the member’s] participation
in such qualifying activity has had”.

The important factor is to show that some significant learning has taken place. The RICS
requires members to choose one of the following recording formats:

• RICS personal development planner (PDP) (downloadable in either PDF or

Microsoft Word formats) ;
• In-house electronic recording system (must reflect aims of RICS PDP);
• RICS web-based planner known as "My CPD" accessible from the members'
homepage.

92
Online recording is compulsory for
• members admitted on or after 1 January 2004; and
• members who have entered into an undertaking as required by the RICS
Professional Conduct Panel.

What constitutes Lifelong Learning (CPD) ?

RICS recognises that many activities can qualify as lifelong learning and that lifelong
learning activity is not limited to formal training courses, seminars and workshops. The
RICS also recognises that the individual member is best placed to personally assess and
determine relevant lifelong learning activity.

Activities that ‘qualify’ as lifelong learning are detailed in the Institution’s Rules of
Conduct (2004) Rule 35 (a – d). Rule 35 of the Rules of Conduct defines lifelong
learning ”qualifying activity” as meaning the study of:

a) Some part of the theory and practice of surveying as defined in the Royal Charter;
b) Other professional and/or technical surveying topics related to a Member’s
current or potential occupations;
c) Topics relating to the acquisition of personal, business management or
consultancy skills; and/or such other topics considered by the Institution to be
within the purview of one or more of its Faculties, or as may be advised or
promoted as qualifying by the Institution from time to time, intended to increase a
Member’s management or business efficiency and effectiveness.

In further support of lifelong learning activity, the RICS provides a comprehensive list of
potential activities and events from which members may be able to obtain suitable and
worthwhile learning outcomes. The list is entitled “Qualifying Learning Activities” and
is sub-divided into four categories:

1. Professional work-based activities

2. Self-directed and informal learning
3. Personal activities outside work
4. Courses, seminars and conferences

9. ROYAL TOWN PLANNING INSTITUTE

Paragraph 1 of the RTPI’s Code of Professional Conduct (2003) states “Members shall
take all reasonable steps to maintain their professional competence throughout their
working lives and shall comply with the council’s continuing professional development
regulations as amended from time to time”.

Further to this the supplementary regulations to the Code of Professional Conduct define
CPD as:
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“The systematic maintenance, improvement and broadening of knowledge and skill and
the development of personal qualities necessary for the execution of professional and
technical duties throughout the practitioner’s working life.”

Members’ CPD Requirement

Annex A to the Code of Professional Conduct requires that:

“Every Corporate Member, Legal Associate, Technical Member and academically

qualified Student shall

a) at least once a year prepare a professional development plan for the next two
years identifying his or her personal professional development needs;
b) in any two year period undertake a minimum of 50 hours CPD activity related to
the undertaking or managing of town planning;
c) maintain a written record of his or her CPD activity;
d) submit to the Institute on request and in such form as may be prescribed by the
Institute:

i. a copy of his or her professional development plan or plans covering the

previous two years;
ii. a written record of his or her CPD activity over the same period of two years,
with an assessment of the value to him or her of each activity recorded and an
explanation of the relationship between the CPD undertaken and the
professional development plan or plans covering the period in question, taking
into account any revisions to the plan made during the two year period;
iii. a copy of his or her current professional development plan if not already
submitted under ‘i.’ above;
iv. where appropriate, an explanation of his or her reasons for not having complied
with any part of this regulation. ”

The RTPI provides its members with further detailed guidance regarding CPD in the
“Professional Conduct Advice Note No 1 – Continuing Professional Development,
(2003).

In summary this documents provides:

• Information about the CPD obligation of RTPI members

• Advice – concerning ‘the professional development plan’, implementation of the
plan, what counts as CPD and each member’s own CPD record;
• Monitoring CPD and sanctions;
• How CPD obligations affect particular groups of members;
• Employers’ and managers’ CPD responsibilities to others;
• Examples of professional development plans; and
• A CPD record form

94
What counts as CPD?

Section ‘3.20’ of the RTPI’s Professional Conduct Advice Note No 1 identifies CPD as
“those activities which helped you to gain new, or to strengthen existing, knowledge and
skills. Nothing should be automatically accepted as CPD. Even a training course on a
mainstream planning topic may not be CPD for you personally…if you got nothing out of
it.

The Advice Note continues with the following ‘is it CPD?’ guidance:
“To decide whether a particular piece of CPD is likely to be (or actually was) appropriate,
ask: “Is it likely to make me (or has it in fact made me) more competent?” As long as
you can demonstrate that your CPD is related to the undertaking or managing of town
planning, it will be acceptable.“

The RTPI’s Professional Conduct Advice Note (2003) -further identifies a significant
variety of ways of carrying out CPD. The following are all considered acceptable CPD,
“provided they are related to planning work, relevant to your needs and effective in
making you more competent”:

• home-based learning such as distance learning packages, systematic study or

structured reading on particular themes or topics (but not routine reading of the
technical press, which the Institute considers should form part of members’
everyday professional activities);
• action-based learning (there are various definitions of action-based learning. In
this context it means a learning process involving a systematic, structured
approach to the identification of problems in the work place and the search for
solutions, with clear benefit to the individual member in terms of meeting the
personal CPD needs identified in his or her PDP);
• the preparation of material for courses, technical meetings or publication in the
technical press;
• supervised and academic research;
• background reading, research or preparation required in order to tackle a new area
of work, such as teaching, for those in practice; practice, for those in teaching; or
secondments and job exchanges (but not the day to day work in these new areas);
• RTPI activities of a technical or professional nature, e.g. involvement in specialist
working parties or panels, planning aid work, or acting as a consultee on topics of
professional interest (membership of a branch executive committee or of the
Institute’s Council would not normally count in themselves, but preparation of or
participation in discussion of professional issues related to the needs identified in
your PDP could do so);
• conferences, seminars, workshops and other technical and professional events and
meetings, including in-house training;
• courses leading to a qualification, including for example an N/SVQ.

95
10. CONCLUSION
This paper has reviewed and presented the Continuous Professional Development (CPD)
requirements of 5 UK Built Environment Professional Institutions.

The five professional institutions considered within this review encompass a significant
and diverse range of UK built environment professions. In reviewing CPD the paper has
outlined each Institution’s definition of CPD, minimum Membership class requirements
for CPD, means of monitoring CPD activity, and what activities each Institution
considered to constitute CPD.

This paper provides a consolidated review of the CPD requirements of UK Built

Environment Professional Institutions and serves as a reference source for the
undertaking of inter-professional and international built environment CPD comparison,
and for the informing of professionals undertaking CPD activities.

11. REFERENCES
Association of Building Engineers F.A.Q.s Available at:
<URL:http://ww.abe.org.uk/viewFaq.jsp?faqId=189> [Accessed 28 November 2005]
CIOB (2004) Continuing Professional Development. Underpinning your commitment to your career.
Available at <URL:http://ciob.org.uk/ciob/siteRoot/Careers/CPD_Information.aspx> [Accessed 28
November 2005]
CIOB, CPD. What Constitute CPD? Available at:
<URL:www.ciob.org.uk/ciob/siteRoot/Careers/CPD_Information.aspx)> [Accessed 28 November
2005]
RIBA (2005) CPD How to Comply. Available at:
<URL:http://www.riba.org/go/RIBA/Member/CPD_4322.html> [Accessed 28 November 2005]
RICS: Personal Development Planners Available at:
<URL:http://www.rics.org/Careerseducationandtraining/Lifelonglearning/Continuingprofessionalde
velopment/online_recording_pdp.htm> [Accessed 28 November 2005]
RICS Qualifying Learning Activities. Available at:
<URL:http://www.rics.org/Careerseducationandtraining/Lifelonglearning/Continuingprofessionalde
velopment/cpd_explanation.htm> [Accessed 28 November 2005]
RICS Rules of Conduct. Available at <URL:http://www.rics.org/NR/rdonlyres/9D15406D-81CB-434E-
8A2E-861A8148FFEB/0/rules_conduct_2004.pdf> [Accessed 28 November 2005]
RICS, What is CPD? Available at:
<URL:http://www.rics.org/Careerseducationandtraining/Lifelonglearning/Continuingprofessionalde
velopment/what_is_cpd.htm> [Accessed 28 November 2005]

RTPI (2003) Professional Conduct Advice Note No 1, Section 3.20, Available at:
<URL:http://www.rtpi.org.uk/careers-and-membership/cpd/pcan1.pdf> [Accessed 28 November
2005]

96
 CONQUERING THE CONSTRUCTION BATTLE:
OVERCOMING THE PROBLEMS ON LARGE
CONSTRUCTION PROJECTS IN A DEVELOPING
ECONOMY
Shamas-ur-Rehman Toor¹ and Stephen O. Ogunlana²

¹Department of Building, School of Design and Environment

4 Architecture Drive
National University of Singapore
117566 Singapore

²School of Civil Engineering

Asian Institute of Technology
P.O. Box 4 Klong Luang
12120 Pathum Thani
Thailand

E-mail: shamas@nus.edu.sg

E-mail: ogunlana@ait.ac.th

Abstract: Research has yet to address the problems on mega construction projects in Thailand.
The current research is an endeavor to categorize several problems into different classes and
finding the most significant problems faced on truly international and large construction projects
(LCPs) where several participants gather to accomplish the project objectives. Target group of
current research is major participants directly involved in construction. Client, consultants,
designers and contractors, working either independently or in consortiums and joint ventures on
the Second Bangkok International Airport (SBIA) were surveyed. Respondents belonged to over
ten nationalities which depicts that the SBIA, a project of national priority in Thailand, is hosting
diverse cultures of construction industry as the largest construction project in Thailand history.
Results have shown that different groups of respondents have shown a general agreement on their
perception of problems on LCPs. Also, problems related to human factors and management in
organizations (client, consultants and contractors) were rated higher as compared to other
problems (finance, contract, communications, site and environment, and labor). Research also
establishes recommendations to overcome the problems on LCPs.

Keywords: Problems, LCPs, Thai Construction Industry

1. INTRODUCTION
There have been few studies relating to the identification of problems in managing
multiple projects (Elonen and Artto, 2003). The construction industry comprises several
parties, and each one has their own perceptions and objectives on a project. Everyone has
their own definitions of success of project. However, in general terms, a successful
project means that the project has accomplished its technical performance, maintained its
97
schedule, and remained within budgetary costs (Frimpong et al., 2003). Williams (2003)
states that projects are classically defined by the need to complete a task on time, to
budget, and with appropriate technical performance/quality.

It is understandable that no project can be completed successfully without facing

problems. Problems are obvious due to complex nature of construction industry resulting
in conflicts between the participants. Also, construction industry is known for its
adversarial working relationships among several participants [Phua and Rowlinson,
2003]. Li and Love (1998) have argued that construction problems are ill structured and
“the theory of construction problem solving must consider the nature of construction
problems, the problem solvers, as well as the construction industry within which
problems transpire and individuals seek solutions”. Though there are multiple solutions to
a problem, it is important to first appreciate that problem exists. After problem has been
identified, solutions can be put to trials to solve the problem.

Al-Khalil and Al-Ghafly (1999) have reported that delay of project is a major problem in
construction that leads to disputes and hostile relationship among different participants.
Ofori (2003) states that international construction firms face numerous problems which
include physical, technological, financial, legal, socio-cultural and political. Several
researchers have stated that majority of construction projects face delays due to numerous
reasons. These reasons may change from project to project but time and budget over run
are inevitable in common construction projects. Predicting and understanding the
problems before they occur, doing careful planning to avoid any potential problems and
adopting appropriate solutions when problems actually come into existence is possible
when we know which kind of problems are most likely to occur in large construction
projects. This assessment would help in combating with the problems with more
preparedness even before the problem actually occurs.

Construction is like a battle field and problem solving is one of the crucial tools to
conquer this battle. In modern world, solutions on site can not always be improvised, they
have to be precisely calculated and carefully thought about. If problem can be perceived
and anticipated, it would be easier to manage the risk of delays, cost overruns and any
other potential impacts a particular problem might result in. This study attempts to
categorize several problems into groups and then finding the significance of these
problems in point of view of various construction participants.

2. LITERATURE REVIEW

There have been countless benefits of globalization, which have profited the construction
as well. New concepts of engineering were introduced to the world. Wang (2000) has
analyzed that the introduction of foreign designers to the Chinese construction industry
has given the local engineers a good opportunity to catch up with the worldwide
technology development. This multinational conception of new construction era has
taught many lessons to the parties involved during all stages of projects from design to
handover. Ogunlana et al. (1996) present the notion from the context of Thai industry that
98
local engineers do benefit from the importation of experienced technical and managerial
personnel.

Cooperation with foreign companies not only increases the competency level of local
designers, contractors, suppliers, and manufacturers, but also teaches them the concepts
of modern world construction through a considerable exchange of information. Raftery et
al. (1998) is of the view that expansion of international trade would push companies in
less developed countries to comply with international standards which will be helpful in
increasing their competitiveness in terms of cost, quality and project delivery. Local
companies learn the routines and practices of international standards of construction.
Through this learning process, they get a training of international atmosphere and then
implement it on their own companies to win big contracts in other countries. Moreover,
diverse project teams can be more innovative and creative than teams in which everyone
is alike. Manifold standpoints are very supportive in solving complicated problems
[Miller, 2000].

In parallel, internationalization of construction has given birth to numerous problems,

especially for developing countries. These problems may relate to different interests of
different participant organizations, inter-organizational interaction, lack of
communication between several organizations, site factors, labor, finance and other
factors which have direct or indirect impact on project. Such problems may include
cultural and language differences of participants, lack of standardization in design due to
different local practices, lack of designers’ involvement during construction, legal issues
due to local government rules and regulations, unavailability of local labor, inadequate
experience of local staff, contractors, sub contractors and consultants, lack of necessary
machinery, tools and automation and inappropriate method of dispute resolution.

Whatever the problems may crop up on projects, they lead to either overruns of project or
poor quality. The overruns may be time overrun or cost overrun. Arditi et al. (1985) in
their study of delays in Public funded construction projects in Turkey concluded that
delays occurred due to: shortage of materials, difficulty in receiving payments from
agencies, contractor's difficulties and organizational characteristics of contracting
companies and public agencies. Elonen and Artto (2003) studied the problems in
managing multiple internal development projects and found the following six relevant
problem areas: (1) Inadequate project level activities, (2) Lacking resources,
competencies and methods, (3) Lacking commitment, unclear roles and responsibilities,
(4) Inadequate portfolio level activities (5) Inadequate information management and (6)
Inadequate management of project-oriented organization. Study of Lim and Mohamed
(2000) revealed that most of the problems on construction projects can be considered as
‘management problems'.

Among one of the initial studies of problems on projects, Baldwin and Manthei (1971)
have cited 17 delay factors which result in delays on construction projects in United
States: weather, labor supply, subcontractors, design changes, shop drawings, foundation
conditions, material shortage, manufactured items, sample approvals, jurisdictional
disputes, equipment failure, contracts, construction mistakes, inspections, finances,

99
permits and building codes. Respondents also mentioned some other factors including
labor-management relations, strike, poor organization, scheduling, co-ordination,
deteriorating quality of workmanship, productivity, lack of skills in craftsmen, quality of
training, delivery delays and the high cost of financing.

Problems on construction project vary from place to place, country to country and region
to region. Problems on construction projects arise due to very special aspects associated
with various features such as: location of project, nature of project, availability of
materials, availability of local labor, availability of expertise and technology, competence
of local contractors and suppliers, socio economic conditions of area, site environment
and numerous other factors which may include vulnerability of natural disasters, political
stability in the region etc. Therefore, problems of all construction projects are not alike
and do not have similar solutions as well.

This is important to understand what should be done if a particular problem actually

occurs on a project. Cheung et al. (2000) have ascertained that if the problems and/or
obstacles are not solved swiftly, they can cause delays and cost overruns in projects, harm
cooperative relationships, reduce efficiency, lead to claims and disputes, and probably
invoke litigation proceedings. There are always several possible outcomes due to
occurrence of particular problems on projects. One must remind that there are seldom
unique solutions to solve specific problems and one size does not fit all. Therefore, the
important step after a problem has occurred is to find various suitable alternatives and
eventually selecting the most appropriate one.

3. PROBLEMS LEADING TO COST AND TIME OVERRUN OF

PROJECTS
Delay and cost overruns occur in both preconstruction and construction phases, however,
major causes of project overruns usually take place in the construction stage. Frimpong
et al., (2003) is of the view that cost overruns are common in construction projects. In a
study of groundwater construction projects in Ghana, they found that main causes of
delay and cost overruns in construction of groundwater projects included: monthly
payment difficulties from agencies; poor contractor management; material procurement;
poor technical performances; and escalation of material prices. In study of overruns of
construction projects in Nigeria, Dlakwa and Culpin (1990) have found that the major
underlying problems are the lack of prompt payment by agencies to contractors and
fluctuations in material, labor and plant costs. Project cost overruns often derive from
disruptions and delays to project progress. The streams of disruptions usually delay
progress and make extra labor demands [Eden et al., 2005]. Aibinu and Jagboro (2002)
argue that associated delay problems can also result in dispute, arbitration, total
abandonment and protracted litigation by the parties.

In survey of Odeh and Battaineh (2002), contractors and consultants agreed that owner
interference, inadequate contractor experience, financing and payments, labor

100
productivity, slow decision making, improper planning, and subcontractors are among the
top ten most important factors for delays in construction projects with traditional type
contracts. Mansfield et al. (1994) studied the causes of delay and cost overrun in
construction projects in Nigeria. The results showed that the most important factors are
financing and payment for completed works, poor contract management, changes in site
conditions, shortage of material, and improper planning. approval of shop drawings,
delays in payments to contractors and the resulting cash problems during construction,
design changes, conflicts in work schedules of subcontractors, slow decision making and
executive bureaucracy in the owners' organizations, design errors, labor shortage and
inadequate labor skills were the most important problems causing delays in project in
Saudi Arabia [Assaf et al.., 1994].

In a study of large construction projects in Vietnam, Long et al. (2004) have concluded
that problems under the purview of consultants, contractors and coordination were highly
ranked in terms of degree of occurrence. They also grouped the top ranked problems in
terms of occurrence as: (1) incompetent designers and contractors, (2) poor estimation
and change management, (3) social and technological issues, (4) site related issues, and
(5) improper techniques and tools. Another study of construction delays in Indonesia by
Kaming et al. (1997) concludes that design changes, inadequate planning, poor labor
productivity and resource shortages were predominant factors for time delays. While cost
overruns were mostly caused by inflation, inaccurate material estimating and degree of
project complexity. Chan and Kumaraswary (1997) found the that significant delay
factors of construction projects in Hong Kong were: poor site management and
supervision, unforeseen ground conditions, low speed of decision making involving all
project teams, client-initiated variations, necessary variations of work.

4. RESPONDENTS’ DETAILS
The data was collected on site of Second Bangkok International Airport which is the
largest ever construction project in history of Thailand. Project managers, deputy project
managers, project engineers, and line managers were approached to give their response to
the questionnaires after a small interview. A majority of respondent was extremely
cooperative and helpful in answering the questionnaires. As a result, 76 questionnaires
were collected back out of the total of 80 distributed questionnaires giving a turnover of
95%. Following five groups were approached for study:

Group 1: Client
Group 2: Project Management Consultants (PMC)
Group 3: Construction Supervision Consultants (CSC)
Group 4: Design Consultants (DC)
Group 5: Construction Contractors (CC)

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5. METHODOLOGY
Different problems related to large construction projects were derived from the literature
review and a list was prepared under different categories of problems. This list was then
presented to professionals and experts in construction industry for initial review. Final list
of problems was presented to different respondent groups for their response on a five
point Likert scale (where 1= not at all a problem and 5= very big problem).

Seventy five different problems most commonly encountered on construction projects

were classified under following ten groups:

1. Problems Related to Client

2. Problems Related to Designers
3. Problems Related to Project Management/Consultants
4. Problems Related to Contractors
5. Problems Related to Labor
6. Problems related to Finance
7. Problems Related to Contract
8. Problems Related Communication
9. Problems Related to Site and Environment
10. Other Factors (miscellaneous)

6. DATA ANALYSIS AND RESULTS

Table 1 shows various categories of problems, their rating of importance done by
different groups of respondents and respective ranking obtained by numerous problems.
The table demonstrates that top five problems for the overall sample remain similar most
of the time for different groups of respondents. Very clearly, delay of payments,
inadequate experience of staff, lack of standardization of design and lack of contractor’s
experience and control over the project have been ranked as the top problems in
categories related to individual organizations. Similarly, shortage of funding, poor
contract management, unclear lines of responsibility and authority, poor site access or
availability, availability of local labor and poor quality control over the project have been
ranked the top problems in categories relevant to overall system.

It is obvious from the means scores that contractors have tendency to give higher mean
scores to problems as compared to other respondent groups. Out of seventy five
problems, contractors have given highest mean score to more or less half of the problems.
On the other hand, group of client has shown the reverse trend for mean scores of
problems by giving relatively low mean score among all groups to more than half of them
problems. This shows that the contractors perceive the problems in a more severe manner
as compared to the client.

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 Table 1: Different problems and their ranking
Overall Client PMC CSC DC CC
Description (76) (7) (10) (38) (5) (16)
Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank
Problems related to Client
Delay of payment by client 4.28 1 4.00 2 4.00 8 4.24 1 4.20 6 4.69 2
Confusing and ambiguous
4.26 2 3.43 6 4.30 1 4.21 3 4.40 1 4.69 1
requirements
Slow responses from the client 4.25 3 3.71 4 4.20 5 4.24 2 4.20 7 4.56 3
Wrong choice of contractor or
4.18 4 3.71 5 4.10 7 4.13 5 4.40 3 4.50 5
consultant
Too many scope changes and
4.14 5 3.43 8 4.20 4 4.18 4 3.60 8 4.50 4
constructive change orders
Lack of Owner’s representative
4.11 6 3.71 3 4.10 6 4.08 6 4.20 4 4.31 6
experience and knowledge
Improper project feasibility study 4.07 7 4.00 1 4.20 2 4.05 7 4.40 2 3.94 8
Lack of clear bidding process 3.93 8 3.43 7 4.20 3 3.87 8 4.20 5 4.06 7
Problems related to Designers
Lack of standardization in design 4.59 1 3.71 5 4.20 3 4.08 1 4.00 4 4.13 5
Errors and omissions in design 4.28 2 4.00 2 4.30 1 4.21 3 4.20 3 4.56 2
Low constructability of design 4.26 3 4.00 1 4.10 4 4.11 4 4.40 1 4.81 1
Impractical design 4.24 4 3.43 6 4.30 2 4.29 2 3.80 5 4.56 3
Lack of involvement during
4.04 5 4.00 3 3.80 6 3.89 6 4.40 2 4.44 4
construction stage
Over design increasing overall cost 3.89 6 3.71 4 4.10 5 3.95 5 3.40 6 3.88 6
Problems related to Consultants
Inadequate experience of staff 4.39 1 4.29 1 4.20 2 4.45 1 4.20 5 4.50 1
Unrealistic project schedule 4.36 2 3.86 7 4.20 3 4.42 3 4.60 3 4.44 4
Lack or responsibility 4.34 3 4.00 3 4.10 5 4.42 2 4.80 1 4.31 6
Lack of timely decisions and
4.26 4 4.00 5 4.10 6 4.29 4 4.00 9 4.50 2
corrective actions
Slow response 4.17 5 4.00 2 4.00 8 4.18 8 4.20 6 4.31 5
Poor project planning and control 4.17 6 3.86 8 4.20 4 4.24 6 4.20 7 4.13 7
Poor leadership of on part of PM 4.14 7 4.00 4 4.30 1 4.18 7 4.60 2 3.88 11
Lack of project manager’s
4.14 8 3.43 11 4.10 7 4.29 5 4.20 8 4.13 8
experience
Lack of consultation with client 4.04 9 3.71 9 3.80 10 4.13 9 4.40 4 4.00 9
Lack of top mgmt. commitment 3.99 10 2.86 15 4.00 9 4.00 10 3.80 12 4.50 3
Unreasonable risk allocation 3.79 11 4.00 6 3.50 13 3.71 12 4.00 11 4.00 10
Failure to utilize tools to manage
3.66 12 3.43 10 3.50 11 3.76 11 3.60 13 3.63 13
the project symmetrically
Bureaucracy at the work place 3.59 13 3.00 14 3.30 15 3.61 14 4.00 10 3.88 12
Large number of participants 3.49 14 3.14 13 3.50 12 3.63 13 3.00 15 3.44 14
Involvement of several foreign
3.42 15 3.29 12 3.30 14 3.53 15 3.40 14 3.31 15
designers and contractors
Problems related to Contractors
Lack of contractor’s experience and
4.47 1 4.00 4 4.70 1 4.47 1 4.40 2 4.56 2
control over project
Lack of competent
4.38 2 4.43 1 4.20 4 4.32 3 4.40 1 4.63 1
subcontractors/suppliers
Contractor’s financial difficulties 4.34 3 3.71 6 4.70 2 4.32 4 4.20 5 4.50 3
Poor efficiency of supervisor or
4.32 4 4.29 2 4.40 3 4.34 2 4.00 6 4.31 5
foreman
Lack of necessary machinery, tools,
and automation available for 4.22 5 4.00 3 4.20 5 4.21 5 4.20 4 4.38 4
project
In appropriate construction methods 4.08 6 3.71 7 4.10 6 4.11 6 4.00 7 4.19 6
Poor relations with client/consultant 3.99 7 3.57 8 3.90 8 4.03 7 4.40 3 4.00 7
Using the obsolete technology 3.74 8 3.71 5 3.90 7 3.76 8 3.60 8 3.63 8

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 Table 1: Different problems and their ranking (Cont..)

Description Overall Client PMC CSC DC CC

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank
Problems related to Labor
Unavailability of local labor 4.07 1 3.71 3 4.00 3 3.92 3 4.60 1 4.44 1
Poor labor productivity problems 4.01 2 3.43 6 4.30 2 4.00 2 3.60 4 4.25 2
Non cooperation from labor
3.99 3 3.43 4 3.70 6 4.55 1 3.20 6 3.31 6
unions
Absenteeism problems 3.95 4 4.00 1 4.40 1 3.87 4 3.80 2 3.88 4
Unskilled labor 3.84 5 4.00 2 3.90 4 3.79 5 3.40 5 4.00 3
Severe overtime and shifts 3.64 6 3.43 5 3.90 5 3.63 6 3.80 3 3.56 5
Problems related to Finance
Shortage of funding 4.28 1 3.57 5 4.40 1 4.26 1 4.60 1 4.44 1
Interference of financier in
4.09 2 4.00 1 4.00 2 4.03 2 4.00 4 4.38 2
owner’s decisions
Unforeseeable financial and
4.07 3 3.71 4 3.80 3 4.00 3 4.60 2 4.38 3
economic crises
Increased cost due to high
3.87 4 3.71 3 3.70 4 3.84 4 4.00 3 4.06 4
inflation during the project
High interest rate 3.78 5 3.71 2 3.60 5 3.82 5 3.60 5 3.88 5
Problems related to Contracts
Poor contract management 4.33 1 4.00 1 3.90 1 4.37 1 4.40 2 4.63 1
Incomplete contract documents 4.20 2 3.43 5 3.90 2 4.34 2 4.60 1 4.25 2
Inappropriate method of dispute
3.86 3 3.43 4 3.50 5 4.00 3 3.80 4 3.94 3
resolution
Legal issues arising due to local
3.80 4 4.00 2 3.60 3 3.82 4 3.60 5 3.88 4
government rules and regulations
Lack of cooperation from local
3.74 5 3.71 3 3.50 4 3.79 5 4.00 3 3.69 5
authorities
Problems related to
Communication
Unclear lines of responsibility
4.24 1 4.14 1 4.20 1 4.26 1 4.20 2 4.25 4
and authority
Lack of effective inter-
4.16 2 4.00 3 4.00 3 4.18 2 4.00 4 4.31 3
organizational communication
Lack of communicating the
4.14 3 4.00 2 4.00 2 4.13 4 4.20 3 4.31 2
requirements
Lack of coordination among
4.11 4 3.14 6 4.00 4 4.16 3 4.40 1 4.38 1
project team members
Multicultural and multilingual
3.50 5 3.43 4 3.50 6 3.50 6 3.40 6 3.56 5
environment
Lack of IT use for information,
coordination and interface 3.50 6 3.43 5 3.70 5 3.58 5 3.60 5 3.19 6
management
Problems related to Site and
Environment
Poor site access or availability 4.33 1 4.00 4 4.10 1 4.34 1 4.80 1 4.44 1
Poor safety conditions on site 4.01 2 4.29 1 3.50 6 4.03 3 4.60 3 4.00 7
Inaccurate site investigation 4.01 3 4.00 3 3.70 2 4.00 4 4.60 2 4.06 5
Poor site management and slow
3.91 4 3.43 8 3.70 3 3.97 5 3.80 9 4.13 4
site clearance
Lack of temporary facilities on
site (buildings, phones, electricity 3.91 5 3.14 9 3.50 5 4.05 2 4.20 4 4.06 6
etc.)
Unforeseen ground conditions 3.89 6 4.00 2 3.60 4 3.82 6 4.00 6 4.19 2
Poor site storage capacity 3.75 7 3.71 6 3.30 10 3.76 7 4.20 5 3.88 8
Severe weather problems 3.68 8 2.86 11 3.40 7 3.76 8 3.20 11 4.19 3
Poor site layout 3.68 9 3.71 5 3.40 8 3.68 9 3.80 8 3.81 10
Site pollution and noise 3.49 10 3.71 7 3.30 9 3.61 10 3.80 7 3.13 11
Difficult site terrain to work 3.46 11 3.14 10 3.20 11 3.42 11 3.40 10 3.88 9
Problems related to other
factors
Poor quality control over project 4.05 1 3.71 2 3.90 1 4.24 1 4.00 3 3.88 2
Lack of available resources 4.00 2 3.14 5 3.80 2 4.05 2 4.00 2 4.38 1
Fraudulent practices and
3.79 3 4.00 1 3.40 5 3.92 3 4.20 1 3.50 3
kickbacks
Non-value added works 3.41 4 3.43 3 3.40 4 3.53 4 3.00 5 3.25 5
Force majeures and acts of God 3.18 5 3.14 4 3.60 3 3.00 5 3.00 4 3.44 4

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The list of additional problems shows that major issues were related to budget, time and
management of project. Moreover, most of the issues were human related and could be
resolved with more understanding, flexibility, education and experience of the staff.

Table 2 gives the ranking of problems under their own categories. But to find out the
overall rating and ranking of total 75 problems, analysis was carried out and top twenty
problems were selected. Table 3 present these problems with their mean scores, ranks and
relative importance indices.

Table 2: Overall top 20 problems ranked by the respondents

Problem Mean RII Rank Problem Mean RII Rank
Lack of standardization in
4.59 0.92 1* Delay of payment by client 4.28 0.86 11*
design
Lack of contractor’s
experience and control over 4.47 0.89 2* Shortage of funding 4.28 0.86 12^
project
Inadequate experience of Errors and omissions in
4.39 0.88 3* 4.28 0.86 13*
staff design documents
Lack of competent Confusing and ambiguous
4.38 0.88 4* 4.26 0.85 14*
subcontractors/suppliers requirements
Low constructability of
Unrealistic project schedule 4.36 0.87 5* 4.26 0.85 15*
design
Lack of timely decisions
Lack or responsibility 4.34 0.87 6* 4.26 0.85 16*
and corrective actions
Contractor’s financial Slow responses from the
4.34 0.87 7^ 4.25 0.85 17*
difficulties client organization
Poor contract management 4.33 0.87 8^ Impractical design 4.24 0.85 18*
Poor site access or Unclear lines of
4.33 0.87 9^ 4.24 0.85 19^
availability responsibility and authority
Lack of necessary
Poor efficiency of machinery, tools, and
4.32 0.86 10* 4.22 0.84 20*
supervisor or foreman automation available for
project
*Human related problems in individual organizations
^Other problems

The above table describes that most of the problems were related to individual
organizations and few were related to overall system. Moreover, problems related to
client, designers, contractors and project management/consultants were ranked higher.
Only few problems related to labor, site and environment, finance, communication and
other factors could achieve higher ranks. Among the top ranked problems, four problems
were related to design and designers. It illustrates that complete and comprehensive
design is an important factor for success on large construction projects. Also, before
starting the design, it is necessary for designers to get acquaintance with local practices.
Particular design standards on projects should also be followed to obtain a standardized
design from all design organizations involved in the project. Competence of contractors
and subcontractors has also been considered a big problem. Out of total eight problems
related to contractors, five were ranked among the top twenty problems. Contractors’
competence in terms of experience of staff, management of project and financial

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 difficulties were considered more important problems. Problems related to project
management/consultants were also given higher ranks and four such problems were
ranked among top twenty problems. Confusing requirements, slow responsiveness and
delayed payments by the client were also ranked among the top problems. It is to be
noted that slow response of client and consultants to needs of project have been ranked
higher. These results also match with the results of previous study done by Ogunlana and
Promkuntong (1996) on problems causing delays on large construction projects in
Thailand. Though current study is not targeted to explore the problems causing delays,
rather it investigates the problems in general, comparison of results is logical as the
current project is also facing problems of time and cost overruns. Both of the studies
reveal that most of the problems on large construction projects relate to organizations of
the client, designers, consultants and contractors. Very few problems related to other
factors which may include finance, contract, site and environment and communication.
Results of the current research also match with study of Long et al. (2004). Many of the
top twenty problems in current research can be found in top twenty problems of in study
of Long et al. (2004) in Vietnam.

Table 3: Overall bottom 10 problems ranked by the respondents

Problem Mean Rank RII Problem Mean Rank RII
Severe overtime and
3.64 66 0.73 Site pollution and noise 3.49 71 0.70
shifts
Bureaucracy at the
3.59 67 0.72 Difficult site terrain to work 3.46 72 0.69
work place
Multicultural and
multilingual
Involvement of several foreign
environment causing 3.50 68 0.70 3.42 73 0.68
designers and contractors
ineffective
communication
Lack of IT use for
information,
3.50 69 0.70 Non-value added works 3.41 74 0.68
coordination and
interface management
Large number of
3.49 70 0.70 Force majeures and acts of God 3.18 75 0.64
participants of project

The above table presents the ten problems which were rated to be least important among
75 problems. The results are noticeable in many terms. The results show that respondents
have ranked the problems related to communication and multicultural environment as
less important. Even during the interviews, many of the respondents said that
communication was a problem on project but not to an extent to harm the quality and
targets of the project. Also, working in joint ventures is not new for Thai companies in
construction industry. There have been many projects in Thailand construction industry
which were executed by international joint ventures. Probably previous working
experience of Thai construction companies with foreign designers and contractors has
taught them to work in a cross cultural environment with people from different part of the
world. It is important to note that ‘force majeurs or acts of God’ has been ranked as 75th
in order. The reason may be that Thailand is less vulnerable to most of the natural
disasters like earthquakes, floods, typhoons and storms. Furthermore, the site is located in
106
a flat terrain, which is easy to work with, resulting in a low ranking of ‘difficult site
terrain to work’. Because site of the SBIA is clean and away from noise and pollution,
‘site pollution and noise’ has also been ranked as a less important problem in the
prevailing conditions. Lack of IT use for communication, coordination and interface
management’ has been ranked low; the reason could be the traditional way of working
where people are more comfortable with use of computers whenever necessary. They use
IT to the degree of e-mails, telephones, faxes and data saving which is sufficient on the
project.

7. CONCLUSIONS
Total seventy five problems belonging to ten different classes were presented to the
respondents. Lack of standardization in design, lack of experience of contractors and
other staff, lack of competent subcontractors and suppliers, lack of responsibility,
unrealistic schedule, poor contract management, poor site accessibility, poor efficiency of
supervisor and foremen, delay of payments by client and shortage of funding were the top
ranked problems. Whereas, multicultural and multilingual environment, lack of IT use,
large number of project participants, site pollution and noise, difficult site terrain,
involvement of foreign designers, non value added works and force majeures and acts of
God have been ranked to the bottom.

It is very evident that problems related to participant organizations have been given
higher ratings as compared to problems related to other issues like site and environment,
finance and contract. Problems related to client and designers were also considered
relatively more important. Lack of competence in terms of staff’s, foremen’s,
subcontractor’s and contractor’s experience was also highlighted in the top rated
problems. Again, it is noted that the findings confirmed previous studies that most of
problems in construction projects are human and management problems, not technical in
nature.

It is noteworthy that large construction projects expect the participation of experts and
workforce from all over the world and therefore, problems related to cultural diversity
and involvement of foreign designers have been ranked less important. Since SBIA
project site is on a plain area and away from excessive pollution and noise in Thailand,
problems related to such issues have also been ranked as less important as compared to
others.

There are problems which occur on most of the construction projects regardless of their
location—in developed or developing countries. For example problems related to project
stakeholders, contract, site and environment, communication and acts of God can occur
on any project apart from the project location. However, there are few problems which
occur only in developing countries. For example, problem of incompetent, financially
weak and less experienced contractors and consultants is very common in developing
countries. Also, problems related to finance and design are mostly seen in less developed
countries having limited resources in terms of money and expertise. It looks logical that

107
construction industry in growing economies face more or less similar problems due to
having certain similarities in socio-economic structure. These problems may not be much
severe in economically advanced countries.

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109
110
THE IMPACT OF CONTRACTORS’ PREQUALIFICATION
ON CONSTRUCTION PROJECT DELIVERY IN NIGERIA

D.R. Ogunsemi1 I.O. Aje2

1
Department of Quantity Surveying
Federal University of Technology
Akure, Nigeria.
2
Department of Quantity Surveying
Federal University of Technology
Akure, Nigeria.

E-mail: dejifeyi@yahoo.com

Abstract: Prequalification of contractors has gained popularity in the Nigerian construction

Industry in recent times with the advent of “Due Process”. Therefore a system of investigating
if there has been commensurate improvement in the success rate of construction projects is
desirable. This paper investigated the relationship between contractors’ prequalification and
construction project performance in Nigeria by means of questionnaire survey of seventy-five
major actors of the construction industry. Archival data relating to completed projects
indicating the prequalification scores of winning contractors and the project delivery variables
for projects executed prior to and after the introduction of “Due Process” as well as projects
executed without prequalification were also sourced directly from consultant Quantity
Surveyors. Data collected were analysed using simple percentiles and correlation analysis.
The result showed that construction projects executed without prequalification lacks the
requisite performance in terms of cost, time and quality while a strong relationship exist
between contractors’ prequalification performance and project delivery in Nigeria. The study
therefore recommended that contractors should continue to be prequalified based on some
important criteria significant to the achievement of project objectives so that projects could be
delivered to time, cost and required quality standard.

Key words: Prequalification, due process, project delivery, Nigeria

1. INTRODUCTION
Selecting a capable contractor is one of the most important tasks faced by a construction
client who wishes to achieve successful project outcomes (Fong and Choi, 2000). This is
because contractors are one of the major players in the construction industry and the
services they render are critical to the quality of the end product as well as meeting cost
and time targets. A good contractor is expected to complete a project on time, within
budgeted cost and to the desired level of quality. Unfortunately, this is not always the
case in Nigeria; construction projects are mostly characterized by delays, substandard
works, cost overruns, disputes, claims, and in extreme cases abandonment. On the other
hand, it has been argued that the quality of a product to a large extent depends on the
skills and experience as well as the competence of the producing agents.

111
Over the years the procurement system in Nigeria has been grossly abused, leading to
huge lost of resources. Odeyinka and Yusif (1997) observe that there has been almost
universal criticism of failures of the construction industry to deliver projects in a timely
manner. Corroborating this view, Ogunsemi (2002) asserts that cost and time overruns
have become common occurrences in the Nigerian construction industry and have
continued unabated. Apart from the failures of the industry in the areas of cost and time
targets, quality of construction works generally have also continued to decline while
some projects are being abandoned because of inability of the contractor to perform. The
proliferation of the construction industry by different categories of contractors has no
doubt created problems in selecting suitable and competent contractors by clients and
construction professionals.

Krammer and White-McCurry (2002) suggest that one method of improving construction
performance is to prequalify contractors prior to the bidding process so as to ensure
that contractors are able to execute the assigned project in accordance with client and
project objectives. One of the Federal Government reform agenda in Nigeria in year 2001
is the introduction of the “Due process” of contract award which is defined as the
mechanism for ensuring strict compliance with openness, competition and cost accuracy,
rules and procedures that should guide contract award within the Federal Republic of
Nigeria (Budget Monitoring and Price Intelligence Unit((BMPIU),2004). Wong et al
(2000) confirm that as more recent approaches in the contractor selection process have
emerged, there has been a trend away from a lowest price wins principle to a multi
criteria selection approach. Based on these facts therefore, an investigation into the
impact of contractor’s prequalification on construction project delivery would be
desirable at this time when construction projects have become more sophisticated in
terms of cost and complexity not only in Nigeria but worldwide.

2. “DUE PROCESS”, PREQUALIFICATION AND PROJECT

DELIVERY
A diagnostic study conducted in year 2001 into the state of Federal Government public
procurement revealed that Nigeria have lost several hundred billions of naira over the last
two decades because of flagrant abuse of procedures for award of public contracts,
inflation of contract costs, lack of transparency, competence based competition and merit
as the fundamental criteria for award of public contract (BMPIU, 2004). The findings of
the study therefore made it imperative that there was an urgent need to reform the
procurement system if the large scale corruption and waste is to be reduced. Hence, the
“Due Process” mechanism was introduced to re-establish and sustain an open, transparent
and competitive federal procurement system that is integrity driven, upholds spending
within budget and ensures speedy implementation of projects in order to achieve value
for money outcomes without sacrificing quality and standards. The achievement of these
objectives therefore require the formulation of the selection process that can identify a
contractor to whom the client can confidently entrust the responsibility to execute the
project satisfactorily as against the former procedures where contracts are awarded on
whom you know basis and not whether the contractor can perform.

112
Most clients leave the task of contractor selection to consultants. Therefore, Drew and
Skitmore (1993) advise consultants not to lose sight of the clients’ basic requirements of
procuring construction work of the best quality at the lowest cost that provides the best
value for money and that is built as quickly as required within budget whilst exposing
clients to minimum risk. This implies that consultants select contractors who are likely to
be prepared to undertake and complete the work at a competitive price; complete the
work on time; construct the work to the required quality standards and execute the work
without a significant risk for extra financial burden on the client. Hatush and Skitmore
(1997) and Krammer and White-McCurry (2002) define prequalification as the process
by which candidate contractors are screened to assess the capabilities of contractors to
carry out a contract satisfactorily should it be awarded to them. According to Taraweh
(2004), the aim of prequalification process generally is to ensure that clients obtain a
number of competitive, reasonable and easy to evaluate bids submitted by equally
suitable and experienced contractors.

Results of previous researches indicate that clients and consultants expectations are
shaped by a number of factors. These prequalification criteria include contractors’ track
record and past experience; status of current work programmes; financial stability;
technical expertise; managerial and communication skills; and health and safety
performance (Hatush and Skitmore, 1997; Russell and Skibniewski, 1988; Ng et al.,
1999; Lam et al. 2001). The prequalification criteria under the “Due process” in Nigeria
according to BMPIU(2005) and Mshelbwala(2005) are categorized into two major groups
namely basic/fundamental criteria whereby the criteria under this group are those with
zero score yet the absence of any one of them automatically disqualifies a candidate
contractor from participating in the prequalification exercise and the main criteria which
are usually rated with scores and will normally include most of the criteria already
enumerated above. In determining the prequalified bidders, the guideline for the
implementation of the due process stipulates that the lists of all respondents with 70%
and above are the qualifiers referred to as the competent bidders. However, different
government parastatals vary this benchmark in some circumstances.

Sanvido et al. (1992), Liu and Walker(1998) and Odusami(2001) note that there were
somewhat conflicting views of project success in literature. They contend that success as
it relates to a construction projects depend on project participants, size of project, scope
of services, type of client and the technological implications. However; cost, time, quality
standard, safety, maintenance and promotion of harmonious relationships among project
stakeholders and participants’ satisfaction have been widely accepted as the main indices
for measuring the overall success of construction projects (Pitagorsky, 1998; Chual et al.,
1999; Dissanayaka and Kumaraswamy, 1999; Oladapo, 2000; Ogunsemi,2002).

3. DATA COLLECTION, ANALYSIS AND RESULTS

The data for the study consisted of both primary and secondary data. The primary data
were collected via a structured questionnaire administered on clients and professionals in

113
both the private and public sector of the construction industry. The secondary data
comprised of the scores of winning contractors on prequalification for completed projects
based on criteria used in rating these contractors as sourced directly from the personnel
involved. This is further classified into two categories: prequalification scores of winning
contractors before the introduction of “Due process” and also prequalification score of
winning contractors under the “Due process” policy. Projects executed between 1993 and
2004 without prequalification were adopted for analysis and compared with the projects
executed through prequalification between 1993 and 2004 as prequalified projects
executed before the advent of the “Due Process” policy, while 2004 to 2005 was
considered for prequalified projects under “Due Process” policy. Table 1 shows the list of
some of the projects executed without prequalification before the advent of “Due
Process” policy, while table 2 shows the list of prequalified projects executed before the
advent of “Due Process” policy and table 3 considers another list for executed projects
through prequalification after the advent of “Due Process” policy.

Using simple percentiles, it is evident from the data in Tables 1, 2, and 3 that there is
indiscriminate variance in the budgeted contract parameters and the actual results in the
construction project delivery with respect to the competence of the contractors used.
There were frequent cases of cost overrun, delay in delivery period and the tendencies
that clients were consistently dissatisfied with the quality of projects delivered were more
evidenced. The rare case of fair performance is the possibility that some competent
contractors can be lucky during selection. In the data shown in Table 1, 9% of the
executed projects without prequalification has 100% cost performance in delivery, 12%
has 100% time performance and about 6% of the executed projects has 100% quality
performance. However, the case is better with prequalified projects executed before the
advent of “Due Process” policy. There were rare cases of changes in the budgeted
parameters. For instance, about 55% of the projects have 100% time performance in
delivery, more than 60% has over 95% cost performance in delivery and over 50% of the
analyzed data have 100% quality performance in delivery. Further analysis shows that the
prequalified projects executed after the advent of “Due Process” policy have 100% cost
performance in delivery because the policy does not allow for any change in cost for any
reason once a contract is signed. About 60% of the recorded cases have 100% quality
performance, while a few of the contractors were able to deliver before the stipulated
contract period.

The inability of contractors to achieve 100% quality performance may be as a result of

the fact that most contractors under the “Due process” deliberately quotes low prices in
order to secure the project since price is the only discriminating factor after
prequalification and because it is not possible to claim for additional cost they may
decide to cut corner through lowering of quality in order to compensate for their
inadequacies in pricing. Furthermore, the development process of the implementation of
the “Due Process” policy in Nigeria is still lacking some stringent characteristics and that
is why there are few cases of poor time and quality performance of construction project
delivery in Nigeria.

114
In addition, considering Tables 2 and 3, further correlation analysis reveals that there is
strong relationship between prequalification and project delivery. The correlation
coefficient between the prequalification scores and percentage increase in construction
cost, time and quality are 0.1672, 0.1152 and 0.1204 respectively before the introduction
of “Due process”. This shows that the higher the prequalification scores, the lower the
increases in cost and time overruns as well as quality variance. After the introduction of
the policy, the correlation coefficient are negligible, 0.1430 and -0.0666 for cost, time
and quality. In essence, the higher the prequalification score the better the performance of
contractors in project delivery. It is also very obvious that the significant improvements
in cost and quality after the introduction of the policy could not be realized in the case of
duration of the projects. This is because most contractors quote unreasonable figures as
project duration knowing fully well that most clients consider cost as the only criteria for
tender evaluation after prequalification. In fact, the only motivating factor for early
completion of projects under the policy is the fixity of the cost of projects. However, it is
the view of the researchers that the lowest tender syndrome in the award of contract is
still the major factor limiting the attainment of the expected high standard in project
delivery under “Due Process” in Nigeria.

4. CONCLUSION AND RECOMMENDATIONS

This study has been able to compare the performance of construction projects executed
through prequalification both before and after the adoption of “Due Process” policy in the
Nigerian procurement system and also construction projects executed without
prequalification. It was discovered that construction projects executed without
prequalification lacks the requisite cost, time and quality performance with respect to
success in construction project delivery in Nigeria while prequalified projects especially
with the adoption of “Due Process” policy shows a very strong performance in terms of
cost, time and quality. Based on the findings of this research and the conclusion already
drawn, the following recommendations are proposed:
1. Accountability procedure of the “Due process” policy of the Federal Government
should be embraced in all tiers of government so that prequalification can be given the
balanced consideration and concentration it demands.
2. Prequalification exercise should not be handled theoretically by considering only the
documents submitted by the contractors. The prequalifying team should take time to visit
the acclaimed site and client of the contractors so as to ascertain the genuiness of their
prequalification documents.

3. Apart from contractors, it is expedient that consultants should also be prequalified in

order to provide a balanced medium of overall accuracy and competence in the whole
construction process to avert possible negligence or professional evils through lapses in
professional contributions to the construction process.

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 Table 1: Projects Executed Before the Advent of “Due Process” Policy without Prequalification

Initial Final % Quality

Contract Contract achieved based % % %
Year of Initial Contract Period Value of Claims Value of Final contract Period on respondents’ Increase Increase Deviation in
S/N Execution Sum (Naira) (Weeks) approved (Naira) Variation (Naira) Sum (Naira) (Weeks) assessment in Cost in Period Quality
1 1993 63,802,723.00 32 1,092,669.86 0.00 64,895,392.86 45 60 1.71 40.63 40
2 1993 100,000,000.00 40 0.00 8,750,000.00 108,750,000.00 52 70 8.75 30.00 30
3 1993 198,577,748.88 104 17,287,586.12 0.00 215,865,335.00 104 100 8.71 0.00 0
4 1993 61,100,000.00 40 3,920,500.00 2,581,431.00 65,020,500.00 52 50 6.42 30.00 50
5 1993 185,240,000.00 104 19,760,000.00 0.00 205,000,000.00 112 80 10.67 7.69 20
6 1993 50,180,452.03 32 9,207,635.60 0.00 59,388,087.63 39 65 18.35 21.88 35
7 1994 177,000,000.00 121 6,575,000.00 0.00 183,575,000.00 130 75 3.71 7.44 25
8 1994 76,913,472.00 40 6,586,528.00 0.00 83,500,000.00 44 65 8.56 10.00 35
9 1996 179,000,000.00 52 0.00 4,750,000.00 183,750,000.00 40 100 2.65 -23.08 0
10 1997 185,240,000.00 104 19,760,000.00 0.00 205,000,000.00 114 65 10.67 9.62 35
11 1997 93,234,241.00 104 15,265,759.00 0.00 108,500,000.00 114 80 16.37 9.62 20
12 1997 24,286,410.27 48 54,555,233.38 0.00 78,841,643.65 260 50 224.63 441.67 50
13 1998 75,020,531.00 52 1,162,832.00 0.00 76,183,363.00 61 70 1.55 17.31 30
14 1999 18,563,271.28 30 6,228,953.72 0.00 24,792,225.00 208 40 33.56 593.33 60
15 2000 57,490,196.47 28 1,421,269.80 0.00 58,911,466.27 35 60 2.47 25.00 40
16 2000 84,031,747.00 36 2,918,944.61 0.00 86,950,691.61 52 50 3.47 44.44 50
17 2000 55,190,649.44 24 2,392,744.95 0.00 57,583,394.39 34 65 4.34 41.67 35

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 Table 1: Projects Executed Before the Advent of “Due Process” Policy without Prequalification (Cont’d)

Initial Final % Quality

Contract Contract achieved based % % %
Year of Initial Contract Period Value of Claims Value of Final contract Period on respondents’ Increase Increase Deviation in
S/N Execution Sum (Naira) (Weeks) approved (Naira) Variation (Naira) Sum (Naira) (Weeks) assessment in Cost in Period Quality
18 2000 400,000,000.00 95 0.00 15,850,000.00 415,850,000.00 95 80 3.96 0.00 20
19 2000 215,000,000.00 68 0.00 3,385,000.00 218,385,000.00 68 75 1.57 0.00 25
20 2000 150,000,000.00 104 18,755,633.00 0.00 168,755,633.00 121 80 12.50 16.35 20
21 2002 12,915,630.00 44 80,694.38 0.00 12,996,324.38 56 70 0.62 27.27 30
22 2002 2,854,940.00 12 0.00 0.00 2,854,940.00 12 85 0.00 0.00 15
23 2002 19,355,780.50 16 0.00 0.00 19,355,780.50 28 100 0.00 75.00 0
24 2002 12,814,000.00 30 1,406,000.00 0.00 14,220,000.00 38 80 10.97 26.67 20
25 2002 4,241,895.00 16 3,149,200.00 0.00 7,391,095.00 24 65 74.24 50.00 35
26 2002 33,000,000.00 34 35,324,118.76 0.00 68,324,118.76 78 80 107.04 129.41 20
27 2003 2,166,355.00 4 0.00 0.00 2,166,355.00 7 85 0.00 75.00 15
28 2003 61,372,385.00 71 25,208,977.76 0.00 86,581,362.76 92 65 41.08 29.58 35
29 2003 46,293,381.86 63 50,028,047.00 0.00 96,321,428.86 112 70 108.07 77.78 30
30 2003 49,728,118.32 52 1,556,673.79 0.00 51,284,792.11 71 60 3.13 36.54 40
31 2003 145,382,881.17 116 5,972,044.83 0.00 151,354,926.00 136 80 4.11 17.24 20
32 2004 71,277,635.00 36 2,547,321.00 1,381,726.00 73,824,956.00 51 90 3.57 41.67 10
33 2004 108,338,761.03 87 5,242,630.97 4,891,693.72 113,581,392.00 91 95 4.84 4.60 5

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 Table 2: Projects Executed Before the Advent of “Due Process” Policy with Prequalification

%
Quality
Initial Value of Final achieved
Contract Claims Value Contract based on % % %
Year of Initial Contract Duration approved of Variation Final contract Duration respondents’ Increase in Increase in Increase in Prequalification
S/N Execution Sum (Naira) (Weeks) (Naira) ( Naira) Sum (Naira) (Weeks) assessment Cost Duration Quality score %
1 1993 88,222,000.00 80 11,812,638.00 2,567,362.00 102,602,000.00 80 95 16.30 0.00 5 83
2 1994 97,461,853.00 87 489,625.54 1,832,171.46 99,783,650.00 87 100 2.38 0.00 0 29
3 1996 200,000,000.00 104 0.00 725,635.00 200,725,635.00 104 100 0.36 0.00 0 67
4 1996 71,900,000.00 87 1,995,000.00 2,655,000.00 76,550,000.00 87 100 6.47 0.00 0 85
5 1997 98,220,000.00 78 0.00 1,630,000.00 99,850,000.00 87 100 1.66 11.54 0 77
6 1998 44,793,118.37 32 2,505,010.66 0.00 47,298,129.03 32 98 5.59 0.00 2 76
7 1998 82,240,000.00 78 1,779,000.00 0.00 84,019,000.00 78 92 2.16 0.00 8 79
8 1999 93,784,550.00 87 2,000,085.00 0.00 95,784,635.00 90 65 2.13 3.45 35 80
9 1999 54,300,000.00 72 1,000,000.00 4,350,000.00 59,650,000.00 72 80 9.85 0.00 20 74
10 2000 23,631,471.70 32 1,120,896.77 0.00 24,752,368.47 35 100 4.74 9.38 0 75
11 2001 168,573,281.62 86 3,765,509.65 0.00 172,338,791.27 101 95 2.23 17.44 5 89
12 2002 87,635,000.00 104 11,093,535.00 0.00 98,728,535.00 104 95 12.66 0.00 5 64
13 2002 96,341,386.71 48 11,980,356.09 0.00 108,321,742.80 50 100 12.44 4.17 0 86
14 2002 320,000,000.00 40 0.00 4,620,012.00 324,620,012.00 78 100 1.44 95.00 0 77
15 2003 33,892,742.00 16 2,990,999.00 0.00 36,883,741.00 19 85 8.82 18.75 15 68

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 Table 3: Projects Executed After the Advent of “Due Process” Policy with Prequalification

Percentage
Quality
Initial Value of Final achieved
Year Contract Claims Value of Contract based on % % %
of Initial Contract Period approved Variation Final contract Period respondents’ Increase in Increase in Increase in Prequalification
S/N Execution Sum (Naira) (Weeks) (Naira) (Naira) Sum (Naira) (Weeks) assessment Cost Duration Quality score %

1 2004 132,884,321.00 87 0.00 0.00 132,884,321.00 56 70 0.00 -35.63 30 63

2 2004 39,421,118.00 48 0.00 0.00 39,421,118.00 56 70 0.00 16.67 30 72
3 2004 202,361,924.00 64 0.00 0.00 202,361,924.00 87 85 0.00 35.94 15 69
4 2004 61,813,997.00 52 0.00 0.00 61,813,997.00 72 90 0.00 38.46 10 85
5 2004 45,871,650.71 42 0.00 0.00 45,871,650.71 69 60 0.00 64.29 40 79
6 2004 30,130,000.00 36 0.00 0.00 30,130,000.00 48 100 0.00 33.33 0 66
7 2005 32,345,786.90 26 0.00 0.00 32,345,786.90 50 85 0.00 92.31 15 64
8 2005 127,881,176.00 27 0.00 0.00 127,881,176.00 41 100 0.00 51.85 0 77
9 2005 96,582,418.00 38 0.00 0.00 96,582,418.00 31 85 0.00 -18.42 15 86
10 2005 12,138,604.00 25 0.00 0.00 12,138,604.00 52 100 0.00 108.00 0 83
11 2005 72,362,924.00 28 0.00 0.00 72,362,924.00 32 75 0.00 14.29 25 71
12 2005 172,361,392.00 12 0.00 0.00 172,361,392.00 16 100 0.00 33.33 0 67
13 2005 196,324,186.00 35 0.00 0.00 196,324,186.00 35 80 0.00 0.00 20 81
14 2005 72,681,488.71 20 0.00 0.00 72,681,488.71 21 90 0.00 5.00 10 74
15 2005 43,872,592.16 18 0.00 0.00 43,872,592.16 16 65 0.00 -11.11 35 69
16 2005 49,375,862.00 28 0.00 0.00 49,375,862.00 32 100 0.00 14.29 0 72
17 2005 36,881,468.37 26 0.00 0.00 36,881,468.15 26 100 0.00 0.00 0 71

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5. REFERENCES
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 THE ‘A’ TEAM ENVIRONMENT

Dean Kashiwagi1, Kenneth Sullivan1, Nathan Chong2, and Michele Pauli3

1
Performance Based Studies Research Group,
Arizona State University,
PO Box 870204, Tempe, AZ 85287-0204

E-mail: Dean.kashiwagi@asu.edu
E-mail: Kenneth.Sullivan@asu.edu
2
US Army Medical Command, 2050 Worth Road, Suite 22,
MCFA, Ft Sam Houston, TX 78234-6022
3
HFS Company, 124 Oakwell Farms Pkwy.,
San Antonio, TX 78218-1786

Abstract: The US Army Medical Command (Medcom) (responsible for US Army healthcare
facilities) is concerned with the history of construction risk to schedule, budget, and quality in
their medical facilities for the past three years. Construction performance in medical facilities
has a greater importance due to increased health and safety requirements. Medcom has
entered into a research program with Arizona State University (ASU) to increase construction
performance. The objective is to be achieved through the facilitation of an environment or
contractual framework which transfers risk to the contractors and motivates them to minimize
project risks. This hypothesis is based on research tests conducted within the last two years
with major federal agencies (FAA, Medcom, and the USCG), and follows the assumption that
the current construction industry does not have a sufficient number of ‘Type A’ or forward
thinking personnel. ASU has proposed creating a structure that is based on performance
information that predicts the future outcome by simplifying the delivery process, giving the
competitive advantage to “Type A” oriented contractors and personnel, and forcing the
identification of risk, preplanning, and quality control as enforceable contractual elements of
the process.

Keywords: Facility management, pre-construction, construction performance, procurement

industry environment.

1. INTRODUCTION
Hospital renovation projects are complicated due to numerous external factors that impact
construction. It is the objective of hospital construction/facility management groups to
keep facilities maintained and operational during the renovations, with minimal impact to
the patients and visitors. The Medcom staff has been impacted by poor construction
performance (not completing projects on time, on budget, with a high customer
satisfaction.) This problem has plagued all sectors of the construction industry (Post
1998, PSC 2003, Butt and Clinton 2005, Armendariz 2004). The major issues identified
by the Medcom construction leadership has been the non-transfer of risk and identifying
the Medcom professionals as the experts on the project. Despite using the Indefinite
Delivery, Indefinite Quantity (IDIQ) delivery system, which moves the construction
design and construction to an “outsourced” IDIQ contractor, the Medcom project
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integrators (responsible for planning and programming personnel) have taken on the
following construction management roles:

1. Design and construction technical expertise.

2. Involvement in technical direction (means and methods technical specifications).
3. Becoming the most important component (management and inspection) in the
delivery process.

In the current Medcom construction delivery structure, the project integrator has become
the key element, the contractors have been relegated to being a commodity (delivering
what is ordered) and the risk and cost is being passed back to Medcom. The best value
has become the lowest priced option. The contractors have responded by:

1. Seeking for greater direction.

2. Not taking on risk, but passing it back to the client.
3. Not preplanning, and doing work inefficiently.
4. Becoming accustomed to the inefficient work environment which has resulted in poor
performance.

The environment has proliferated inefficiency. Toleration of the environment has implied
that inefficiency is acceptable. This has increased the need for management and
inspection, and has further justified the importance of getting the lowest price. At a recent
meeting of project integrators, a major concern identified was that project integrators
(who define and plan out the requirements) have been utilized in construction
management roles due to the deteriorating situation. The deterioration has occurred
despite the requirements for quality control and preplanning.

2. HYPOTHESIS OF RESEARCH: STRUCTURE THAT HIRES

EFFICIENT AND EXPERIENCED CONTRACTORS
The hypothesis of this study is that it is much more efficient to hire high performance
contractors who:

1. Have high technical expertise.

2. Preplan.
3. Minimize risk before design or construction.
4. Minimize communication to avoid confusion and getting too many participants
involved.
5. Identify and priortize risks based on cost, time, and quality.
6. Use a quality control plan to minimize risk.
7. Measure and document their performance.
8. Minimize the need for management and inspection by the client’s representatives.
9. Minimize change orders and unforseens by preplanning.
10. Identify the delivered product before contract award to the client to avoid
misconceptions about what is being delivered.

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In order to move from a system where the client retains the risk to a relationship where
the contractor minimizes the risk (see Figure 1), the following must be overcome:

1. The current delivery system’s inability to differentiate performance information.

2. The diminishing pool of contractors and construction personnel who preplan, quality
control, and minimize risk.
3. An environment that embraces a lack of accountability due to the non-transfer of risk,
the resulting complexity, and increased management and inspection requirements.
4. The shrinking number of design and management professionals who use efficient
practices of preplanning, quality control, and measurement and continuous
improvement.

Figure 1: Relationship Between the Client’s Professional and the Contractor

The problem is twofold: First, how does the client identify, attract, and award projects to
high performers or Type “A” contractors and personnel? Secondly, with the minimized
number of performers, how does a hospital owner sustain an effort to result in increasing
efficiency and performance over time? Tests have shown that there are ‘Type A’ entities,
or high performance contractors, that have “A” teams. In order to sustain their “A” teams
they require:

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1. An efficient environment to do their work. Profit cannot be maximized in an
inefficient environment.
2. A client who will select based on value (performance and price).

3. REQUIREMENTS TO HAVE TYPE “A” CONTRACTORS

AND CONSTRUCTION PERSONNEL
The US Medcom research program is to understand and implement a structure that:

1. Defines and identifies Type “A” contractor and construction individual.

2. Promotes an environment that attracts Type “A” entities and allows Type “A” entities
to be more competitive.
3. Moves from the status quo management, control, and inspection environment to a
preplanning, quality control, performing, and efficient environment where a Type “A”
contractor and key personnel can be successful.

4. METHODOLOGY: IDENTIFYING THE “TYPE A” ENTITY

A construction event has a unique set of initial constraints. Experienced and successful
personnel can recognize the risk of a project, the steps to minimize the risk, and
accurately predict what the outcome of the project will be. The more information that a
person perceives and processes before an event occurs, the higher the probability that the
solution will be efficient and performing. Individuals have different levels of perceiving
and processing information. The authors are using Kashiwagi’s definition of a Type “A”
person as one who perceives and processes relatively more information with a greater
efficiency than a Type “C” person. A Type “A” person has been identified by the
following “LS” (left side) characteristics (Figure 2) (Kashiwagi, 2004, PSC 2003):

1. Preplans
2. Minimizes risk before the event
3. Perceives and uses more information
4. Knows their constraints
5. Controls their project - does not need directions to act
6. Accountable - trusts their knowledge of the “event”
7. Continuously improves
8. Win-win - has concern for the welfare of everyone on the project
9. Leads instead of manages
10. Assigns accountability by passing the minimum amount of information required
11. Creates wealth instead of spending wealth
12. Works efficiently (minimizes communications and documentation)
13. Documents their own performance

A Type “C” person “RS” (right side) characteristics include:

1. Lacks information and experience

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2. Inefficient
3. Cannot predict future occurrences of risk
4. Wants to be controlled with rules and directions
5. Resists change
6. Views change as a risk
7. Likes to make decisions
8. Does not plan ahead
9. Does not know how to identify and minimize risk
10. Feels constrained in their job
11. Depends on their expertise to make decisions instead of finding the required
information
12. Passes responsibilities to others
13. Are more concerned about themselves than the organization
14. Constantly manages and needs to be managed
15. Communicates excessively
16. Forces others to document their nonperformance

Figure 2 displaying the Kashiwagi Solution Model (KSM) is a two way “ying yang” chart
that shows the Type “A” and Type “C” as extremes. The simplistic KSM is used to
identify that the left hand side characteristics (Type “A”) are related and the right hand
side characteristics are related (Type “C”). A Type “A” contractor will be more
comfortable in a Type “A” environment (left hand side) than in a Type “C” environment
(right hand side). The solid lines show the relative amounts of the characteristic.

Another major assumption of the hypothesis is that it is inefficient for one individual to
control another individual. Even though there have been many attempts for one party or
individual to control another (create change in the individual), there is no proof that an
individual can be changed beyond their constrained rate of change (Kaplan 2004, Maddox
2005).

Figure 2: Kashiwagi Solution Model (KSM)

5. METHODOLOGY: MAKING THE TYPE “A” CONTRACTOR

COMPETITIVE
Value must be identified for Type “A” contractors and their best personnel who will
minimize risk before construction, perform efficiently, finish on time, within budget, and
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meet the client’s expectations. In an environment were total information cannot be
efficiently and accurately collected, value can only be identified in terms of relative
values. If the relative value can be identified, the Type “A” contractor/individuals will
have a competitive advantage. There are three ways that this can be done. First, by
requiring the contractor and key personnel to identify past projects that demonstrate
where they have performed. Secondly, by making the contractors ability to identify and
minimize risk a part of the selection process. Thirdly, the best value contractor (only one
contractor) will be required to put together a quality control plan (schedule, decisions,
measurement and risk minimization), which addresses all the identified risks for the
identified project. Lastly, the skill of efficient Type “A” personnel to minimize
communications and client documentation will be made a requirement of the delivery
process.

Therefore, proven past performance for the contractor, the key personnel (site
superintendent and project manger) and subcontractors will be required. This forces the
contractors to know their performance as measured by their past clients. Type “A”
individuals gravitate toward measurements, differentiation, and continuous improvement.

Asking contractors to identify and explain how they will minimize future risks forces
contractors/individuals to:

1. Know what will happen on a project before it happens and how it will be handled.
2. Preplan.
3. Understand how to minimize risk.

These are characteristics of Type “A” individuals. Type “A” individuals will be more
efficient in this environment. Besides these characteristics, the third structural piece is to
have the best value contractor/individuals create a quality control plan for all the risks that
have been identified (by the client, by the competing contractors, and by themselves.)
This forces the following as a contractual requirement:

1. Preplanning.
2. Control of the project (contractor will minimize the risk)
3. Accountability and transfer of risk.
4. Factoring in the cost of running a project efficiently.
5. Considering the risk in the project as a part of the cost.

The environment being proposed is an information based environment that requires the
contractors to either exhibit or gain characteristics of a Type “A” company. The
environment also will also emphasize two practices of Type “A” individuals (Figure 1
and 2):

1. Minimizing communication.
2. Minimizing the client’s representative’s documentation.

These two concepts are used in the required Risk Assessment Plans (RAP.)
Requirements include:

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1. Conciseness (two pages allowed)
2. The identification, prioritization, and minimization of risks in terms of cost, time, and
quality
3. Differentiation in terms of risk minimization.

The risk assessment plan impacts the selection of the best value, and if the contractor is
selected, their risk assessment plan is a part of their contract. If the contractor cannot
meet the requirements of their own risk assessment plan, and minimize risks that were
identified by others, they are eliminated, and the next best value replaces them. Through
a simple system of competition and forcing the contractor to accept the responsibility for
minimizing risk, the Type “A” contractor becomes far more competitive.

The Type “A” environment is reinforced by the questioning of the contractor’s key
personnel, who will have to control the project. Type “A” attributes of vision, change,
continuous improvement, measurement, accountability, and experience and information
are rated using the following questions:

1. Why were you selected to lead this project?

2. What are the most critical components of the project?
3. What are the largest risks on the project?
4. How do you prioritize and how would you minimize the risk?
5. How do you know that they are risks?
6. How did you choose the subcontractors for this job?
7. What will you do differently on this job based on past experiences.
8. What do you expect from the owner’s representative?
9. How is this project different from other projects you have worked on?
10. What are your company and individual goals for this project?
11. How will you measure your performance?
12. What are your weaknesses and how will you minimize the impact of the weaknesses
on this project?
13. Draw out the major tasks on this project. Identify critical items, the major risk
elements, the relative time periods, and the points of decision making.

If the Type “A” characteristics are not clearly identifiable, a secondary set of questions
can be asked:

1. Do you feel that if given the chance to do whatever you want, you could do more than
you have achieved before?
2. Do you feel that you were being controlled at your last job?
3. Do you work best in an environment with rules or one with little or no rules? (Many
people say they work well in both, but you must ask the person to pick one or the
other.)
4. What external constraints were being put on you?
5. What has stopped you from achieving in the past?
6. Given a chance, could you make a difference?
7. What are your weaknesses?
8. How do you plan to overcome them?
9. How could you have done better on your last job?
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Tests over the past ten years have identified that Type “A” personnel will respond
quickly, concisely, and confidently. Studies have also shown that clients who use this
interview format can easily identify the companies that they want to or do not want to
work with. This interview format makes high performers competitive. The interview
also differentiates between those who have performed and those who haven’t.

The Type “A” environment motivates contractors to send their best qualified due to the
efficiency of the environment. Because this environment is best value, and not lowest
price, the Type “A” contractor can:

1. Be the best value without being the lowest price.

2. Maximize their profits.
3. Become an opportunity for more potential high performance work.

6. PREPLANNING/QUALITY CONTROL

The best value contractor is forced to do preplanning and quality control. High
performing Type A contractors do preplanning and quality control. Preplanning is to
minimize the risk to optimize contractor profits. Preplanning includes:

1. Coordinating with all key personnel (suppliers, subcontractors, client’s

representatives, users, and inspectors)
2. Performing a constructability review and clarifying any non-constructable items.
3. Confirming schedule and prices.

This is what is called a Quality Control plan. It is done ahead of award and construction
of contract. It includes:

1. Risks identified in their Risk Assessment Plan.

2. Risk minimization processes stated in the contractor’s interview.
3. Risks mentioned by competing contractors.
4. Risks mentioned by the client.

Time, costs, and quality are related. Quality control is the control of quality or the
control of risks that can impact quality, time, and costs. A quality control plan is a plan to
minimize risks, and defines what will be done if the risks occur. A quality control plan is
created by the contractor to control quality and minimize risks. Quality control is how a
contractor manages their project. It should include a schedule, and risk minimization
processes. A quality control plan allows the transfer of risk from the client to the
contractor, and makes the contractor responsible for meeting the requirements (time, cost,
and quality expectations of the client)

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7. IMPLEMENTATION PLAN
As more implementations are run by PBSRG, the results reveal that the majority of
contractors have very few Type “A” personnel. The results also indicate that there are not
many client’s professionals that are natural Type “A” personnel either. To implement the
environment and overcome the existing way of doing business, a structure has to be
developed that will guide the lower performing contractors and personnel to emulate
working structure of the performers, and learn how to become more efficient.

The purpose of the structure is to force:

1. The transfer risk to the contractor.

2. Preplanning by the contractor.
3. Identification and minimization of risk before construction by the contractor.
4. The minimization of risk by the contractor.
5. Simplification of accountability.

The structure will assist in these tasks if:

1. Communication is minimized between the construction managers and the contractors.

2. The contractors are held responsible for measuring their performance.
3. The contractors create their own quality control plan.

The method of implementation in this research is to measure the performance of

Medcom’s project integrators and procurement officers in terms of relative performance
of the contractors. The project integrators will become responsible for their performance
in terms of the performance of contractors under their responsibility. Their performance
requirement can be optimized if they:

1. Outsource to best value contractors.

2. Use the Type “A” environment to deliver construction.
3. Transfer risk to the best value contractors.

The performance measurements that they will be responsible for include:

1. % jobs that best value is being offered.

2. % of jobs that have preplanning (checklist defined).
3. % of jobs that have a quality control plan.
4. Performance rating of the quality control plan.
5. Performance rating of the design and construction work.
6. % of projects on time.
7. Change order rate.
8. Change order number.
9. Change order amounts.
10. Number of projects.
11. % of projects on time and on budget.

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As each personnel is measured, and their performance compared to other personnel, the
personnel will be motivated to improve their performance by becoming efficient. The
relational comparison will be done using a fuzzy logic model, the Displaced Ideal Model.
The model is used because of several information based characteristics:

1. Identifies the best number in each category and measures all other numbers in terms
of a distance from the best number.
2. Sets no standard, gives credit to the best number, but does not penalize any number
unless it is away from a mode or majority.
3. Identifies and penalizes outlying numbers.
4. Minimizes subjective interpretation of each performance number.

The modeling scheme fits the Type “A” environment that recognizes those who are top
performers motivate themselves, and those who are lower performers and need more
motivation. The motivation is the identification of poor performance. As performance is
measured, performance will increase. The Type “A” construction delivery structure is
conducive to obtaining Type “A” contractors and their “A” team. Both prosper in an
environment of efficiency. The success of a hospital renovation project, in the eyes of the
client/owner, is measured by whether the project was completed on time, within budget,
and meets the customer’s expectation.

8. CONCLUSION
Hospital project/construction managers must attract Type “A” contractors and the best
construction personnel. An environment must be designed that allows the “A” teams to
be competitive. Due to the lack of Type “A” contractors and personnel, the hospital
PM/CM can increase performance by setting up a structure that motivates contractors to
perform like a Type “A” contractor. The major objectives of hiring Type “A” contractors
or forming a Type “A” delivery structure include to:

1. Identify Type “A” contractors.

2. Make the Type “A” contractors more competitive.
3. Set up a structure that forces all contractors to become more Type “A.”
4. Implement the process by making the client’s managers responsible and graded by
performance information.

In conclusion, hire the best performers, set up a structure to motivate others to become
top performers, keep performance information, transfer risk by forcing contractors to
minimize the risk, and minimize the management of the performers. The USA Medcom
has been implementing this process for two years. They are in there first full year of
testing the use of the Type “A” structure. Early conclusions validate the concepts of the
Type “A” contractor and their “A” teams.

130
9. REFERENCES
Armendariz, Y (2004) Regulating contractors. Arizona Republic.
http://www.azcentral.com/business/articles/0721contractor.html. {Accessed 2005}
Butt, T and J Clinton. (2005). Limiting Construction Failure Losses- A Challenge for the Insurance
Industry. Interactive Resources: Publications.
Kaplan, L Springtime for Realism. http://web.lexis-nexis.com.library.lib.asu.edu/universe/ document.
{Accessed 8/9/2004}
Kashiwagi, DT (2002) Application of Information Measurement Theory (IMT) to Construction.
Association of Researchers in Construction Management (ARCOM) 18th Annual
Conference,Northumbria, UK, Vol 2, pp511-521.
Koch, Richard (2003) The 80/20 Individual, Doubleday.
Maddox, M (2005). The Doh! Effect. Industrial Engineer. Vol 37, No. 9.
Post, NM (1998) Building Teams Get High Marks. Engineering News Record, Vol 240, No. 19, pp32-39.
PSC( 2003) PSC Working Paper Best Value Procurement for Professional and Technical Services. Where
we stand, www.pscouncil.org/westand/Best_value.htm. {Accessed 2004}
Ramirez, R, Luis Fernando C. Alarcon, and Peter Knights. (2004). Benchmarking System for Evaluating
Management Practices in the Construction Industry. Journal of Management in Engineering:
ASCE.

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132
 PARTICIPATION DETERRENTS IN CO-CURRICULUM
ACTIVITIES OF BUILDING AND CONSTRUCTION
MANAGEMENT STUDENTS AT A MALAYSIAN
UNIVERSITY

Mohd Hisham Ariffin

Department of Building
Faculty of Architecture, Planning and Survey
Universiti Teknologi MARA
40450 Shah Alam
Selangor
Malaysia

E-mail: hisham_ariffin@yahoo.co.uk

Abstract: Co-curriculum programmes in Malaysian public universities to their students are

intended to upgrade the students’ non-academic competencies. These programmes are either
mandatory or voluntary, and are offered to all university students or specific to hostels
students or students of a faculty or an academic programme. This study describes the findings
of a census on the deterrents of a particular group of students to participate in a series of co-
curricular activities organized by a faculty at the Universiti Teknologi MARA, Shah Alam.
The cohorts were full-time students enrolled in the Building diploma and Construction
Management degree programmes. Factor analysis of the deterrents generated five deterrent
factors. These were deterrents related to discomfort, autonomy, disengagement, academic
obligations and lack of social support. The mean and median of the deterrent factor of the
participants mean factor scores and that of the non-participants generally showed that the
participants were facing stronger deterrents. This suggests that deterrent negotiation is present
and thus participation may be a decision-making process.

Keywords: Participation deterrents, co-curriculum activities, construction education,

Malaysia.

1. INTRODUCTION
Employers are constantly faced with choosing the right employees from a pool of
university graduates with limited working experience. The chosen graduates are often
those who are perceived by the employers to have the ‘hard’ skills as well as ‘soft skills’
and values (Khoo, 2004). Many of these soft skills can be acquired through participating
in co-curriculum activities on the campus. Co-curriculum activities can be defined as
planned activities outside of coursework and classes by any university sanctioned body
such as the faculty administration, student associations and the hostel administration.
Yet, when students have completed their compulsory co-curriculum courses that are part

133
of the university requirements during their first year, their participation in non-
compulsory co-curriculum activities in subsequent years generally reduce drastically. It is
desirous to know that despite the university students knowing that the soft skills are much
desired and beneficial, their participation in such activities is low. Thus, this paper details
the study on the deterrents of construction students to participate in a series of voluntary
co-curriculum activities organized by a faculty at a Malaysian university.

2. ENTRY PARTICIPATION DETERRENTS

The participation deterrents of an adult in a voluntary activity such as education can be

divided into two phases: firstly, deterrents to the initial or entry participation i.e. the
deterrents to enter into the activity; and secondly, deterrents to continuing participation
i.e. the deterrents to remaining in that activity (adapted from Pieters, 1994, p.4821;
Simpson, 1997, p.70). The study that formed the basis of this paper had focused on the
entry participation deterrents.

University students are generally in the range of eighteen years to their early twenties and
are thus young adults. There had been many studies on the deterrent to the “entry
participation” of adults into educational (including continuing professional development),
leisure and sport activities. Unfortunately, there seem to be little mutual
acknowledgement by researchers of the similarities between the studies of entry
participation in the adult education and continuing professional development activities
and those on sports and leisure activities.

Participation deterrent factors have been popularly used in studies on entry participation
in activities especially those of adult education. In this approach, the cohorts are generally
asked to grade ordinally a list of deterrents. The ordinal values of deterrents are then
factor analyzed or cluster analyzed to provide deterrent factors. Scholars have categorized
participation deterrents to adult learning activities into three or more groups:
informational, situational, financial, dispositional, socio-cultural and institutional (Cross
1981, pp.97-108; McGivney, 1993, pp.17-22; Blair and McPake; 1995, p.636),
O’Mahoney and Sillitoe, 2001, pp.22-23).

Informational deterrents reflect the lack of awareness of available learning opportunities.

Situational deterrents are generally time and cost related. Both time and cost not only can
be legitimate but also socially acceptable or face-saving deterrents for most persons
(Merriam and Caffarella, 1999, p.56; McGivney, 1993, p.18). Dispositional deterrents are
concerned with the beliefs, attitudes, expectations, and perceptions of an individual that
deter participation (Darkenwald and Merriam, 1982, p.137). Socio-cultural deterrents
arise from a social or cultural environment where acts of visible, conscious learning are
perceived as unimportant or not useful. Lastly, the institutional category of deterrents
arises from the biases in the provision of learning opportunities to certain groups of
adults.

134
In the field of leisure, such studies also abound. Crawford and Godbey (1987) and
Crawford et al (1991) classified leisure participation deterrents as intrapersonal,
interpersonal and structural. Intrapersonal deterrents are internal and related to individual
psychological states and attributes. This seems similar to dispositional deterrents.
Interpersonal deterrents are those resulting from interpersonal interactions such as
inability to find partners and social pressures. This deterrent seems similar to socio-
cultural and situational deterrents. Structural deterrents are external constraints related to
the unavailability of resources needed to participate in the leisure activities. This is
similar to financial deterrents.

Despite mixed evidence towards deterrent factors explaining actual entry non-
participation into the activities, many providers of these activities had found this type of
findings useful. These deterrent factors provided a practical picture on how the providers
could increase participation.

3. OBJECTIVE AND COHORTS

The cohorts of the study were students enrolled full-time the three-year diploma in
Building and the two-year bachelor degree in Construction Management programs at the
Faculty of Architecture, Planning and Surveying of Universiti Teknologi MARA at Shah
Alam. The diploma in Building program is a feeder to the degree in Construction
Management. Qualified graduates from the diploma program continue their studies in the
degree program either immediately after graduation or after a minimum of one year
employment in industry.

4. CO-CURRICULUM ACTIVITIES

The co-curriculum activities concerned were those belonging to the “Minggu Mesra
Fakulti” (Faculty Friendship Week) organized by the Faculty of Architecture, Planning
and Surveying (FSPU) from 9th to 11th December 2003. The goals of the activities were to
inform the students especially the freshmen students about FSPU, provide opportunities
for social intra-class, inter-class and inter-program interaction among the students and
teaching staff of FSPU and to welcome both new and old students. It was compulsory for
the freshmen of all the full-time programs at FSPU to attend the activities but there were
no punitive outcomes by the faculty on student absentees. Non-freshmen students were
also encouraged to attend the activities. A lecturer was entrusted to supervise the
activities. Student teams representing all the programs in FSPU organized and conducted
the activities. The publicity on the activities was via notices posted at student bulletin
boards on the faculty premises, a banner at the road entrance of the faculty and through
the efforts of the student leadership of program-based student associations of the faculty.
There were six activities organized and their venues were the premises of FSPU. The
activities were (1) a gotong-royong (mass co-operation) clean-up of FSPU premises, (2)
mass aerobic workout, (3) a talk on the UiTM students’ Mount Everest climbing
135
expedition, (4) a “yasin-and-tahlil” (Koranic recitation and prayer) session, (5) a closing
and presentation ceremony, and (6) a blood donation drive. All the activities each lasted a
few hours except for the blood donation drive that was held over two days.

5. RESEARCH METHODOLOGY

The instrument used for the study was a self-reporting questionnaire developed from
interviewing the supervising lecturer and ten FSPU students randomly selected from the
Building and Construction Management programs. A draft instrument was pre-tested for
validity and response characteristics on ten students, also randomly selected from the
Building and Construction Management programs. The comments of the students were
used to devise and later amend the instrument. The students were included in the actual
survey.

The language of the finalized instrument was Bahasa Malaysia and the instrument
consisted of five parts. The front cover of the questionnaire contained an explanation of
the survey, instructions on completing the questionnaire, and a guarantee of
confidentiality of the information provided by the respondents. Part A contained an
ordinal scale of the degree of influence of possible participation reasons and is called the
Co-Curriculum Participation Reason Scale (CPRS). The results of this scale are not
included in this article. Part B had an ordinal scale on the degree of influence of possible
participation deterrents (i.e. reasons for non-participation) and is called the Co-
Curriculum Participation Deterrent Scale (CPDS). The ordinal scale used in the CPDS
variables had a 1 to 7 rating where 1 referred to “no influence” of the variable and 7
referred to “highest influence” of the variable on the respondents’ non-participation in
any of the activities. The amounts of participation in the activities of the “Minggu Mesra
Fakulti” (MMF) by the cohorts were surveyed in Part C. Finally, Part D polled the
demographics of the cohort.

6. SURVEY AND ANALYSIS METHOD

The finalized instrument was delivered by hand to the cohorts during class. The
population consisted of 311 students excluding those students who were undergoing
industrial training (internship) during the period of the study. The number of diploma
students was 180 persons and the number of degree students was 131 persons. The
response was 250 cohorts (80.39%). However, 31 questionnaires containing either
incomplete answers or generally suspect responses were discarded. Thus, the analysis was
conduct on 219 respondents (70.42%). This is considered sufficient for factor analysis to
be done on the responses to the CPDS (19 variables or statements). Gorsuch (1983, c.f.
Bryman and Cramer 1999, p.273) suggested that there must be an absolute minimum of
five participants per variable and not less than 100 individuals per analysis.
136
Factor analyses were conducted on the responses on the responses to CPDS. Varimax
rotation with Kaiser normalization was used. The retention of the factors were based on
eigenvalues of one and factor loadings of more than 0.5 In order to obtain conceptually
clear rotated matrices for both cases, factor analyses were repeated by constraining the
factors to 2, 3, 4, 5, 6, 7, 8 factors. According to George and Mallery (2000, p.283-284)
the basis of retaining of factors from a factor analysis included theoretical validity,
mathematical criterion and conceptual rationales. The chosen factor matrix for either
reasons or deterrents was the one that was conceptual clear. A number of generated
factors and some variables loading on the retained factors of the chosen factor matrices
were discarded on this basis.

A mean score for each deterrent factor of each cohort was calculated. This value is the
factor mean score. Then, the mean of the factor mean scores for each deterrent factor was
calculated for the purpose of comparing the mean and median of the deterrent factor of
the participants and that of the non-participants. A further statistical test was conducted
using t-tests on the factor mean scores among the participants and non-participants in
each activity type.

7. FINDINGS

The respondents consisted of 109 diploma students (49.8%) and 110 bachelor degree
students (50.2%). The male students numbered 106 (48.4%) persons. The number of
respondents who resided in hostels was 126 (57.5%) persons while the rest lived off-
campus. The majority of the respondents (196 or 89.5%) resided five kilometers and less
from the venue of the activities. The home residences of 76 (34.7%) respondents were
located in Shah Alam itself and the nearby capital city of Kuala Lumpur.

The percentage of respondents’ participation in the various activities in descending order

were the closing and presentation ceremony (62.1%), gotong-royong cleanup (35.6%),
mass aerobics (26%), “yasin-and-tahlil” session (24.2%), the Mount Everest climbing
expedition talk (12.8%) and blood donation (4.1%).

There was a concern that using the diploma and degree students’ responses together in the
factor analyses would lead to misleading findings because the degree students would tend
to have different deterrents that reflect their work experiences. However, the t-tests on the
four factors’ mean scores indicated that there were no significant differences in the scores
between the bachelor and diploma students.

The Cronbach alpha of the respondents’ scores for the PDS was 0.859. Table 1 shows the
mean and standard deviation values of the respondents’ deterrents. It also shows the
ranking of the deterrents based on the mean scores. The top two deterrents had an
137
academic theme. These two deterrents referred to the clash of the MMF activity with
academic activities inside and outside of the classroom.

The deterrents scores were factor analyzed (by factor constraining approach) to produce
seven factor matrices. The factor matrix loaded with seven factors was considered to give
the least ambiguous factor matrix compared to the other factor matrices generated.

The following tables show the details of the deterrent factors of the chosen participation
deterrent matrix. Two factors from this seven-factor matrix were discarded due their
conceptual ambiguity. A third factor was discarded because of its low Cronbach alpha
value. Thus, the four factors generated that were acceptable were the (a) Discomfort
deterrents, (b) Autonomy-related deterrents, (c) Disengagement deterrents, and (d)
Academic Obligations deterrents.

The Discomfort factor refers to deterrents that involve feeling of discomfort that would
arise from participation. Table 2 shows the reason variables that loaded onto this factor
and their respective loading values. At first glance, variable no. 14 (I had to do routine
tasks (e.g. wash clothes, buy food) that loaded on this factor appeared to be inconsistent
with the concept of Discomfort. However, it was to decide to retain this variable in the
factor because the prospect of postponing routine tasks would result in uncomfortable
feelings of personal dirtiness and hunger. The Cronbach alpha of this factor is 0.789.

The Autonomy factor refers to feelings of being in control that result in non-participation.
Table 3 shows the deterrent variables that loaded onto the Autonomy factor and their
respective loading values. One variable ‘I was not aware of the event’ was discarded
because it was inconsistent with the concept of Autonomy. The Cronbach alpha of this
adjusted factor is 0.646.

The Disengagement factor refers to feelings of ambivalence towards such activities. The
deterrent variables that loaded onto the factor and their respective loading values are
provided in Table 4. The factor has a Cronbach alpha of 0.649.

The Academic Activities factor refers to non-participation due to clashing with academic
related activities. The details of this factor are shown in Table 5. The value of its
Cronbach alpha is 0.681.

The fifth factor was loaded with two variables that were inconsistent with each other.
Therefore, the factor was discarded. Table 6 shows the details of this factor. The next
factor i.e. Lack of Social Support refers to the lack of social encouragement to participate.
Table 7 shows the variables of this factor. However, this factor is discarded because its
Cronbach alpha of 0.488 was relatively low. Finally, Table 8 shows the seventh factor.

138
Like the fifth factor, the variables of the seventh factor were inconsistent with each other.
Thus, this last factor was discarded.

The comparison of median and mean of the participants and non-participants mean factor
score for each deterrent factor gave surprising results. Tables 9 and 10 show the mean and
median score of each deterrent factor. The participants seemed to be facing stronger
deterrents than the non-participants in most of the comparisons of the means. Only the
academic obligation deterrents for three types of activities (aerobic workout, expedition
talk and yasin-and-tahlil session) and discomfort deterrents for the blood donation were
stronger in the non-participants. The comparison of the factors’ medians showed there
were mostly no difference in the strength of the deterrents between the participants and
non-participants.

However, t-tests conducted on the factor mean scores among the participants and non-
participants in each of the activities showed no significant differences (p<0.05).

8. DISCUSSION

The Discomfort and Academic Obligations deterrent factors could be classified as

situational deterrents. Autonomy and Disengagement deterrents could be classified as
attitudinal. This is congruent with a review of research by Merriam and Caffarella (1999)
on participation deterrents in adult education that indicated the existence of situational
and attitudinal deterrents.

The top ten deterrents according to their mean rankings had loaded onto the Academic
Obligations, Discomfort and Autonomy deterrent factors. This suggests that the
respondents are less likely to attend when they had a high academic work burden and
when they perceived that participation would increase their discomfort. In addition,
although the findings suggest that the respondents do not favor forced participation, they
were more likely not to attend when participation was voluntary.

Three implications to the organization and conduct of co-curriculum activities could be

projected with regard to maximizing the participation of Building and Construction
Management students in co-curricular activities. Firstly, the co-curriculum activities
should be held at convenient and comfortable venues. However, this may not always be
possible because some activities involve physical activities in the open. Finally, the
lecturers should be flexible as to not to over-burden the students with academic
coursework during the duration of the co-curriculum activities. They could also consider
postponing their classes during those times. However, this suggestion may be difficult to
implement due to the shortening of the semester (on the directives of the Ministry of

139
Education), and the high number of public holidays during the semester in the first half of
a year.

The comparisons of the mean and median of the cohorts’ mean scores of each deterrent
factor showed that the participants generally faced greater deterrents than the non-
participants. Despite the stronger deterrents, there was still participation. Yet t-tests of the
factor mean scores between the participants and non-participants for all the deterrent
factors showed no significant different. However it must be noted that the cohorts are
from a census and not from a sample. It seems to indicate that the participants had found
ways to overcome their deterrents to participate in the activities. This is congruent with
the concept of “constraints negotiation” that has been put forth by researchers in leisure
participation (Crawford and Godbey, 1987; Jackson, Crawford and Godbey, 1993; Gilbert
and Hudson, 2000). They argued that participation constraints are not absolute predictors
of non-participation. Rather, the participants may have successfully negotiated (or
circumvent) the constraints and thus participated in the leisure activity. Consequently, the
findings of this study seem to indicate that deterrent negotiation is also present for
participation in co-curriculum type activities. It also further supports the decision-making
theoretical model for explaining participation.

There are two limitations to this study. The first limitation is that the findings could only
be generalized to students enrolled in the Building and Construction Management
programs at Universiti Teknologi MARA in Shah Alam. Secondly, the activities cited in
the study did not include university required co-curricular activities. Nonetheless, it
should be noted that many students at other faculties in UiTM and other Malaysian public
universities face approximately the same demands on their time as the cohorts. Hence, the
recommendations could be useful for organizers of co-curriculum for the other students.

9. CONCLUSION

The cohorts of this study did not participate in the co-curriculum activities due to
discomfort, autonomy, disengagement and academic obligations related deterrents. The
findings only concur partially with the past findings of adults’ participation deterrents.
The comparison of the means and medians of the deterrent factor scores of the
participants and non-participants indicate that the participants had stronger deterrents.
This suggests the presence of deterrent negotiation and thus provides further evidence for
the decision making model in explaining participation in activities such as co-curriculum
activities.

140
 Table 1: Means, Standard Deviations and Mean Ranks of Participation Deterrents

Mean Std.
Variable No. Participation Deterrent variable Mean
Ranking Deviation
2 I was busy with academic work outside of the classroom 5.02 1 1.81
The time of the event clashed with my class or mandatory
1 4.90 2 1.94
university co-curriculum sessions
12 I was too tired 4.44 3 1.92
8 I dislike being forced to attend the event 4.44 4 2.09
14 I had to do routine tasks (e.g. wash clothes, buy food) 4.13 5 1.86
11 The weather was uncomfortable (e.g. rain, too hot) 4.02 6 1.99
10 I had other recreational activities planned (e.g. play football3.84 7 2.09
9 It was not compulsory for me to attend 3.83 8 2.00
My past experiences with these types of activities were not
4 3.79 9 1.94
enjoyable
6 My residence or hostel was too far from the venue 3.78 10 2.09
15 I had no friends to accompany me to the event 3.70 11 1.89
13 I was not feeling well 3.67 12 1.98
The timing of the event clashed with activities organized by
18 3.62 13 2.02
hostel, student societies or sport societies in the university
7 I was not aware of the event 3.56 14 1.92
5 I forgot that the event was being held 3.47 15 1.87
19 There was no support from the lecturers 3.34 16 2.01
17 I am not interested to be involved with such events 3.26 17 1.90
3 I have already too many of such activities 3.14 18 1.64
16 The event was against my religious beliefs 2.48 19 1.79
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

Table 2: Participation Deterrent Factor no.1: Discomfort

Variable no. Participation deterrent variable (statement) Loading Comments

value
13 I was not feeling well 0.75 Retained
12 I was too tired 0.71 Retained
11 The weather was uncomfortable (e.g. rain, too hot) 0.65 Retained
14 I had to do routine tasks (e.g. wash clothes, buy food) 0.59 Retained
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

141
 Table 3: Participation Deterrent Factor no. 2: Autonomy
Loading
Variable no. Participation deterrent variable (statement) Comments
value
8 I dislike being forced to attend the event 0.67 Retained
9 It was not compulsory for me to attend 0.66 Retained
10 I had other recreational activities planned (e.g. play football) 0.63 Retained
7 I was not aware of the event 0.59 Discarded
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

Table 4: Participation Deterrent Factor no.3: Disengagement

Loading
Variable no. Participation deterrent variable (statement) Comments
value
My past experiences with these types of activities were not
4 0.77 Retained
enjoyable
3 I have already too many of such activities 0.70 Retained
17 I am not interested to be involved with such events 0.56 Retained
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

Table 5: Participation Deterrent Factor no.4: Academic obligations

Loading
Variable no. Participation deterrent variable (statement) Comments
value
The time of the event clashed with my class or mandatory
1 university 0.83 Retained
co-curriculum sessions
2 I was busy with academic work outside of the classroom 0.80 Retained
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

Table 6: Discarded Participation Deterrent Factor no.5

Variable no. Participation deterrent variable (statement) Loading valueComments

5 I forgot that the event was being held 0.85 Discarded

6 My residence or hostel was too far from the venue 0.63 Discarded
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

142
 Table 7: Discarded Participation Deterrent Factor no.6: Lack of Social Support
Variable no. Participation deterrent variable (statement) Loading valueComments
19 There was no support from the lecturers 0.77 Discarded
15 I had no friends to accompany me to the event 0.67 Discarded
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

Table 8: Discarded Participation Deterrent Factor no.7

Variable no. Participation deterrent variable (statement) Loading valueComments

16 The event was against my religious beliefs 0.79 Discarded

The timing of the event clashed with activities organized by the h

18 0.51 Discarded
student societies or sport societies in the university
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

Table 9: Comparison of Mean and Median of Deterrent Factor 1 and Factor 2 Mean Scores
Non Non
Participants’ Participants’
Participants’ Participants’
Type of activities (number of discomfort autonomy
discomfort autonomy
participants) factor 01 factor 02
factor 01 factor 02
mean score mean score
mean score mean score
Gotong royong (Participants n=77/218)
Mean 4.2684 3.9474 4.2035 3.3712
Median 4.2500 4.0000 4.3333 3.3333
Aerobic workout (Participants n=56/218)
Mean 4.2143 4.0077 4.3095 3.9403
Median 4.0000 4.0000 4.3333 4.0000
Talk (Participants n=27/218)
Mean 4.1481 4.0484 4.0247 4.0366
Median 4.0000 4.0000 4.3333 4.0000
Yasin-and-tahlil (Participants n=52/218)
Mean 4.2115 4.0136 4.3077 3.9498
Median 4.0000 4.0000 4.3333 4.0000
Ceremony (Participants n=135/218)
Mean 4.2012 3.8323 4.1531 3.8434
Median 4.0000 4.0000 4.0000 4.0000
Blood donation (Participants n=8/218)
Mean 3.0313 4.1000 4.2917 4.0254
Median 3.0000 4.0000 3.6667 4.0000
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

143
 Table 10: Comparison of Mean and Median of Deterrent Factor 1 and Factor 2 Mean Scores
Non
Non Participants’ Participants’
Type of activities (number of Participants’ Participants’ academic academic
participants) disengagement disengagement obligation obligation
factor 03 mean factor 03 factor 04 factor 04
score mean score mean score mean score
Gotong royong (Participants n=77/218)
Mean 3.4416 3.3712 5.0195 4.9326
Median 3.3333 3.3333 5.5000 5.0000
Aerobic workout (Participants n=56/218)
Mean 3.5655 3.3374 4.7679 5.0309
Median 3.3333 3.3333 4.7500 5.5000
Talk (Participants n=27/218)
Mean 3.5802 3.3700 4.7593 4.9921
Median 3.3333 3.3333 5.0000 5.5000
Yasin-and-tahlil (Participants n=52/218)
Mean 3.4615 3.3755 4.9423 4.9699
Median 3.3333 3.3333 5.2500 5.5000
Ceremony (Participants n=135/218)
Mean 3.4049 3.3815 5.0667 4.7952
Median 3.3333 3.3333 5.5000 5.5000
Blood donation (Participants n=8/218)
Mean 3.5417 3.3905 5.6875 4.9357
Median 3.6667 3.3333 6.0000 5.5000
Ordinal scale of 1 to 7 where 1 is “no influence” and 7 is “highest influence”

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146
 ANALYSIS OF EFFICIENCY AND EFFECTIVENESS
MEASURES OF CONSTRUCTION PROJECT SUCCESS IN
MALAYSIA
Roshana Takim and Ezlina Mohd. Ahnuar
Department of Building,
Faculty of Architecture Planning and Surveying
Universiti Teknologi MARA

E-mail: rtakim88@yahoo.co.uk

Abstract: This paper provides an analysis of measures of success in terms of efficiency

(outputs) and effectiveness (outcomes) in the development of construction projects in
Malaysia. A survey was conducted in Malaysia among the four project stakeholders: the
Government, private clients, consultants, and contractors. In total 93 respondents completed
the questionnaire. Lists of measures of success were identified for the respondents to identify
their level of success criticality to Malaysian construction projects.

The first section of the analysis primarily deals with the ranking of variables, based on the
mean values to determine their level of importance. Hypothesis testing by means of the
Kruskal -Wallis test of One-way ANOVA (analysis of variance) was used to examine the
significant difference in opinion between the four groups at the 5% significance level.
However, based on the mean ranking technique, all the variables appeared to be significant
which is superfluous and meaningless. Factor analysis technique was then applied to these
variables to identify the principal factors based on the cluster of relationships for the
‘efficiency’ and ‘effectiveness’ measures. Four principal factors for ‘efficiency’ measures
were identified, which include: conflict resolution skills, process improvement programmes,
management of resources, and goals of achievement. The ‘effectiveness’ measures, however,
were comprised of five principal factors: learning and growth, appreciation of benefits,
achievement of objectives, commissioning and assurance, and intended users’ aims. It is
anticipated that the findings reported in this paper could be important for future strategies and
guidelines for the development of projects in Malaysia.

Keywords: analysis of variance (ANOVA), factor analysis, success measures, Malaysia

1. INTRODUCTION

Since the beginning of the 1980s a widespread movement in many countries has been
trying hard to reform client organisations, particularly public clients responding to the
mounting pressure to increase the quality of the management of their development
projects. The fundamental objective is to eliminate the length of time spent and excessive
budgets, and instead increasing the quality of the final product and services provided.
This perspective is logical for the reason that after the completion of the project, the
occupiers will successfully use and operate the completed buildings and facilities and
gain pleasure from them. This movement has been a driving force for clients’
organisations, whether public or private, to revise their procedures and business
techniques in managing construction projects that comply with the principles of economy,

147
efficiency and effectiveness, as suggested by Arnaboldi et al (2004). A similar trend can
be seen in the Malaysian construction industry. In Malaysia, a general concern has been
shown for the difficulties of managing projects in the Government sectors. The possible
reasons are due to the inappropriate business methodologies adopted, failure to determine
the critical success factors across project phases, failure to identify the element of success
in the form of efficiency and effectiveness measures, and failure to adopt systematic
performance measurement systems conclusively for benchmarking projects.
Nevertheless, through the intervention of the Construction Industry Development Board
(CIDB, Malaysia), the level of quality consciousness in implementing public projects has
been emphasised among industry players especially in large scale projects (Tang and
Ogunlana, 2003). Although a quality assessment system called QLASSICS (CIDB, 2001b)
has been introduced as a measure of assessing the quality of a project, the system is not
conclusive enough to embrace the whole project management strategy in managing public
projects which appear to be different from project to project.

This empirical study explores and documents the criteria for measuring project success in
the form of efficiency and effectiveness measures in the development of construction
projects in Malaysia by the four groups of project stakeholders, namely: Government,
private clients, consultants and contractors. The statistical analysis initially deals with the
mean values of responses and ranks them based on their level of importance. Detailed
comparisons of ranking order were made between the groups. The second stage of the
analysis deals with hypothesis testing by means of the nonparametric method of Kruskal-
Wallis One-Way ANOVA (Analysis of Variance) test for a k independent sample. The
purpose is to examine the significant difference in opinions of individual factors among
the four groups at the 5% significance level. However, based on the mean ranking
technique, all the variables appeared to be significant which is superfluous and
meaningless. Factor analysis technique by means of principal component analysis (PCA)
was then employed to these variables (efficiency and effectiveness measures) to identify
the principal factors and to enable a more in-depth understanding of factor grouping
techniques to underpin the success measures.

2. CRITICAL SUCCESS FACTORS AND SUCCESS MEASURES

The concept of success in a construction project according to some researchers (Baker et

al, 1983; Slevin and Pinto, 1986; Morris and Hough, 1987, and Turner 1993) can indeed
be evaluated only when the evaluation dimensions are adequately defined. Generally, in
any projects the evaluation dimensions correspond to the traditional constraints of time,
cost, and quality parameters. This perception, however, is further refined by Pinto and
Sleven (1994); Abdel-Razek (1997); Waterridge (1998); Smith et al (1998); Atkinson
(1999); Nyhan et al (1999) and Cooke-Davies (2002) who noted that the dimensions of
project success refer to the efficiency and effectiveness measures. More specifically,
according to them, the efficiency measures correspond to the strong management and
internal organisational structures (adhere to schedule and budget, and basic performance
expectation) which means getting the project out on time, on budget and meeting a
quality threshold. On the other hand, the effectiveness measures refer to the achievement
of objectives, users’ satisfaction and the use of the project. The above perceptions are
also in line with the opinion of Concerdo (1990) who proposes a model of performance
measurements in terms of outputs and resources to be measured at different levels.

148
Outputs are measured to determine whether they help to accomplish objectives
(effectiveness) and resources are measured to determine whether a minimum amount of
resources are used in the production of outputs (efficiency). Given the above, when
considering exactly what defines a ‘successful’ project, it is essential to emphasise both
the aspects of project outputs (efficiency) and outcomes (effectiveness).

Furthermore, the ideas were adopted and used as guidelines in establishing performance
indicators for measuring the efficiency and effectiveness of a project in the Malaysian
construction industry. Measuring the efficiency performance of a project means
measuring the efficiency of the ‘processes’ in terms of strategic planning and
management and utilisation of resources which relates to the project outputs. Whereas,
the effectiveness performance measures the project ‘results’ in terms of accomplishing
the core businesses and project objectives, users’ satisfaction and the use of the project
which relates to the project outcomes. In order to encourage a meaningful return as
suggested by Nachmias and Nachmias (1996), these definitions were incorporated in the
questionnaire survey. The purpose is to assist respondents with possible clues while
answering the questions, in judging the most critical indicators for success measures that
should be used in the development of construction projects.

3. RESEARCH METHODOLOGY

A questionnaire survey is one of the most cost effective ways to involve a large number
of people in the process in order to achieve better results, as recommended by McQueen
and Knussen (2002) and Andi and Minato (2003). The methodology adopted for this
research was based on a structured questionnaire survey of four principal target groups
within the Malaysian construction industry, focusing on the states of Selangor and Kuala
Lumpur in Malaysia. The data collection exercises were held in Malaysia over a period of
three months (3rd March to 25th of May, 2003). A fourteen-page structured questionnaire
was distributed to the four targeted groups, representing a mixture of professionals,
including those dealing with policy-formulation, design, construction, quantity surveying,
and clients of construction projects. The four targeted groups were: Government; private
clients (developers); consultants (architects, quantity surveyors, civil & structural
engineers, mechanical & electrical engineers) and contractors. Samples were randomly
selected from the listing provided by their respective professional institutions. The target
population for contractors was based on companies that are registered with the CIDB of
Malaysia under the Class G7 (projects greater than Ringgit Malaysia 10 Million)
categories and were identified from the CIDB directory. The two states of Selangor and
Kuala Lumpur, Malaysia, were chosen because they were larger groups of professionals
and Class G7 contractors registered in these regions, which brings the total percentage of
the two states to around 61% (CIDB, 2003a).

Based on a comprehensive literature review, lists of thirty significant factors of both

efficiency and effectiveness measures, respectively, were produced for the respondents to
identify their level of success criticality to the Malaysian construction projects.
Respondents were required to rate each question on a five-point Likert scale that required
a ranking (1-5), where one represented ‘not important’ and 5 represented ‘extremely
important’, as the case might be. The questions were of the ‘close-ended’ type aimed at
149
simplifying completion, thus enhancing the response rate, as suggested by Dlakwa,
(1990). The results were analysed using the Statistical Package for the Social Sciences
(SPSS) software.

Response Rate
As shown in Table 1, a total of 446 questionnaires were sent to the different target groups
in the Malaysian construction organisations. Ninety-three questionnaires were returned
within two months of being sent out, making the total response rate 20.9 percent. This
response rate was finally achieved after several efforts were made in terms of personal
contacts and follow-up calls. All the questions were satisfactorily completed. The
respondents had an average construction experience of approximately 16 years. The
majority of them were in senior positions in their firms.

Table 1: Response Data

Type of organisations Number of questionnaires Percentage return
Sent Return (%)
Government 71 21 29.5
Private clients 81 15 18.5
Consultants 191 34 17.8
Contractors 103 23 22.3
Total 446 93 20.9

Twenty-one (29.5%) respondents were from the Government, followed by 15 (18.5%)

from private clients, 34 (17.8%) from consultant organisations, and 23 (22.3%) from
contractor companies. The response rate of 20.9 percent is not uncommon and acceptable
and is in line with the opinions of Akintoye (2000) and Dulami et al (2003). They
reported that the norm response rate in the construction industry for postal questionnaires
is around 20-30 percent. Ofori and Chan (2001) received a 26 percent response rate,
Vidogah and Ndekugri (1998) received a 27 percent response rate and Shash (1993)
received a 28.3 percent rate. Moreover, the current questionnaire survey of Joint Venture
projects in Malaysia, conducted by Adnan and Morledge (2003) in August 2002, has also
received a 20 percent response rate. Although the volume of the questionnaire (14-pages)
is essential to capture the issues involved in project success in Malaysia, it might also
have been responsible for the seemingly low response rate. Nevertheless, these
questionnaires were completed by the various project stakeholders in Malaysia and, thus,
gives us some confidence that the responses are reliable

4. DATA ANALYSIS, RESULTS AND DISCUSSION

As suggested by Tabachnick and Fidell (1996) and Pallant (2001), a Kolmogrov-Smirnov

test was used to evaluate whether the data on quantitative variables was normally
distributed or otherwise. In this case, the test indicated significant results (Sig.value
<0.05), suggesting that a non-parametric technique would be more suitable for the
analysis. In addition, to ensure an accurate result was obtained, validity and reliability
150
were important aspects in the construction of scale (Leedy et al, 2001). The reliability of
the 5-point Likert scale measured was determined by using Cronbach’s alpha coefficient
on the samples. According to Pallant (2001), the value for alpha should be greater than
0.7 for the scale to be reliable, whereas Nunnally (1978) suggests that the modest
reliability scale is in the range of 0.50-0.60. Hence, the results were in the range
of.0.9590-0.9660, indicating that the data collected from the survey was interrelated and
that the scale was consistent with the sample.

In addition, the objective of the data analysis was to test the hypothesis that ‘the criteria
used to measure project success in terms of efficiency and effectiveness performances do
not vary based on the perceptions of the different project stakeholders (Government,
private clients, consultants, and contractors) in Malaysia’

Efficiency Measures

The thirty variables considered for the efficiency measures are shown in Table 2. The
overall mean scores were ranked based on their level of importance. Out of these 30
factors, 4 factors were rated as ‘very critical’ by the groups. These were: meets time
(overall mean value=4.32), meets budget (overall mean value=4.27), meets technical
specifications (overall mean value=4.11), and fast decision-making process (overall mean
value=4.06). The remaining 26 factors were also significant and rated as ‘critical’ with
the mean scores in the range of 3.20 (zero variation) to 3.93 (high quality of
workmanship) which is above the mid-point score of 2.5 (Cheung and Yeung, 1998).

When comparisons were made between sectors, consultant groups agreed to rank 1st
‘meets time’ (mean value=4.41), whilst the Government, private clients, and contractors
ranked it 2nd with the mean values of 4.05, 4.40 and 4.35, respectively. Meanwhile,
private clients and contractors had a similar perception in choosing ‘meets budget’ as the
most crucial (ranked 1st) with the mean values of 4.60 and 4.57, correspondingly. In
contrast, the Government sector ranked ‘meets technical specification’ 1st, whilst ranking
‘meets time’ (mean value=4.05) 2nd, ‘high quality of materials and components used’
(mean value= 4.05) 3rd, and 4th ‘high quality of workmanship’ (mean value=3.90). These
results suggest that the Government sectors in Malaysia are currently putting a great deal
of emphasis on ‘quality’ measures apart from ‘time’ and ‘safety requirements’. The
factor ‘meets time’ become secondary and, amazingly, the factor ‘meets budget’ goes up
to 10th position in the list. The probable reason may be due to the intervention of the
CIDB, Malaysia, among industry players to implement quality measures in their projects
(CIDB, 2000). To a certain extent, some project clients in Malaysia require a quality
assurance system as a pre-requisite for tender in any construction project.

In the meantime the consultant groups believed that the ‘efficiency of approval authority’
(ranked 5th –mean value 4.00) should also be given a great deal of attention with regard to
the success criteria apart from time, budget, and quality parameters. This aligns with
Abdul-Rashid and Morledge’s (1999) finding that the efficiency of technical approval is
the subject matter for most project implementers in Malaysia, especially for consultant
architects and Design & Built contractors. On the contrary, the contractors’ group was
perceived to assess factors on high project productivity (mean value=4.35), efficiency in
utilisation of manpower (mean value=4.21), and maximum utilisation of resources (mean

151
value=4.15) as ‘very critical’. In the ASEAN region, the availability of cheap foreign
workers has been seen to be one of the main reasons for the low level of productivity in
the construction industry (Dulami and Hwa, 2001). The low cost mentality and
availability of a cheap labour force would discourage the industry from investing in new
technology and processes. Thus, to indicate good project productivity, sufficient
measures need to be incorporated in factors such as utilisation of manpower, resources
and construction site daily programmes as they are inter-related.

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 Table 2: Efficiency Measures
Overall Rank Criticality GOV Private CONS CONT Chi- Kruskal Efficiency Measures Component
Mean Sc Client Square Wallis (Factor Analysis)
value Sig.p Factor 1 Factor 2 Factor 3 Factor 4
3.55 19 Critical 3.33 3.67 3.43 3.84 3.043 0.385 Absence of any legal claims & proceedings 0.749
3.61 18 Critical 3.50 3.36 3.60 3.86 3.403 0.334 Minimum amount of disputes 0.722
3.93 5 Critical 3.90 4.00 3.96 3.85 0.288 0.962 High quality of workmanship 0.677
3.71 14 Critical 3.71 3.43 3.71 3.89 2.309 0.511 Minimum amount of risks 0.677
3.37 26 Critical 3.19 3.29 3.50 3.44 3.102 0.376 Meets social obligations 0.660
3.91 7 Critical 4.05 3.79 3.93 3.82 1.497 0.683 High quality of materials and components 0.638
3.48 23 Critical 3.47 3.43 3.33 3.76 1.722 0.632 Minimum impact from external forces 0.581
3.51 21 Critical 3.21 3.50 3.59 3.65 1.357 0.716 No tremendous hassles and arguments 0.533
3.42 24 Critical 3.29 3.29 3.37 3.88 6.807 0.078 Good quality of work life 0.505
3.66 16 Critical 3.38 3.50 3.80 3.86 4.656 0.199 Minimum scope changes -
3.20 30 Critical 3.44 3.54 3.37 2.50 9.938 0.019* Zero variation -
3.53 20 Critical 3.25 3.43 3.57 3.53 3.149 0.369 Comprehensive briefing process 0.748
3.70 15 Critical 3.57 3.57 3.82 3.60 1.568 0.667 Meets facilities requirements 0.636
3.37 27 Critical 3.29 3.29 3.41 3.59 2.365 0.500 Meets adequate training programme to users 0.620
3.38 25 Critical 3.31 3.36 3.42 3.40 0.176 0.981 Meets plant servicing & maintenance prog. 0.612
3.33 28 Critical 3.13 3.38 3.40 3.38 0.599 0.897 Minimum effect to the environment 0.601
3.24 29 Critical 3.92 3.69 3.08 3.38 4.777 0.189 Integration of design and construction 0.545
3.71 13 Critical 3.89 3.73 3.64 3.64 0.872 0.832 Meets safety requirements 0.510
3.49 22 Critical 3.00 3.36 3.42 3.59 7.543 0.056 No plant standing idle 0.775
3.62 17 Critical 3.29 3.36 3.77 3.89 7.094 0.069 Maximum utilisation of plant & equipment 0.750
3.92 6 Critical 3.47 3.80 3.93 4.35 8.651 0.034* High project productivity 0.658
3.76 11 Critical 3.44 3.71 3.70 4.15 4.901 0.179 Maximum utilisation of resources 0.645
3.78 9 Critical 3.64 3.64 3.79 4.21 6.826 0.078 Efficiency in utilisation of manpower 0.569
3.73 12 Critical 3.50 3.50 3.90 3.82 2.820 0.420 Minimum amount of wastages 0.567
4.32 1 V.Critical 4.05 4.40 4.41 4.35 5.817 0.121 Meets time 0.802
4.11 3 V.Critical 4.10 4.00 4.15 4.14 0.327 0.955 Meets technical specification 0.741
4.27 2 V Critical 3.62 4.60 4.33 4.57 12.706 0.005* Meets budget 0.700
3.83 8 Critical 3.79 3.79 4.00 3.63 2.307 0.511 Efficiency of technical approval authority 0.575
4.06 4 V.Critical 3.85 3.93 4.19 4.14 2.223 0.527 Fast decision-making process 0.504
3.76 10 Critical 3.41 3.64 3.80 4.11 6.292 0.098 Minimum disturbance to main flow of work -
Eigenvalue 5.579 5.333 4.568 4.015
Percentage of variance explained 18.598 17.777 15.227 13.385
Cumulative percentage variance 18.598 36.375 51.602 64.987

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 Table 3: Effectiveness Measures
Overall Rank Criticality GOV Private CONS CONT Chi- Kruskal Effectiveness Measures Components
Mean Sc Client Square Wallis (Factor Analysis)
Value Sig.p Factor1 Factor 2 Factor 3 Factor 4 Factor 5
3.76 13 Critical 3.54 3.79 3.75 3.94 1.058 0.787 Develop new knowledge & expertise 0.807
3.80 12 Critical 3.43 3.64 3.96 4.00 5.459 0.141 Increase levels of profess. develop. 0.792
3.75 15 Critical 3.69 3.79 3.50 4.21 4.633 0.201 Generate positive reputation 0.788
3.38 29 Critical 3.00 3.43 3.27 3.79 3.942 0.268 New market penetration 0.698
3.75 14 Critical 3.55 3.86 3.58 4.00 2.942 0.401 Develop new business relationship 0.693
3.94 7 Critical 3.26 3.93 4.25 4.11 6.489 0.090 Value for money 0.537
3.84 11 Critical 3.50 3.93 3.77 4.14 4.171 0.244 Exploitation of technology 0.528
3.62 24 Critical 3.29 3.57 3.69 3.87 4.007 0.320 Usable life expectancy 0.518
3.33 30 Critical 3.09 3.21 3.26 3.77 3.506 0.261 Lower depreciation cost -
4.06 5 V.Critical 3.80 4.14 4.17 4.13 2.669 0.440 Benefit to users 0.807
4.09 3 V.Critical 3.80 4.07 4.17 4.29 5.868 0.118 Benefit to client 0.802
4.01 6 V.Critical 3.90 4.00 4.11 4.00 1.588 0.662 Project functionality 0.765
3.67 22 Critical 3.50 3.57 3.68 3.94 4.814 0.189 Aesthetic value 0.755
4.27 1 V.Critical 3.89 4.27 4.34 4.48 7.252 0.064 Meets client satisfaction on service 0.675
4.17 2 V.Critical 3.75 4.36 4.22 4.40 7.711 0.052 Meets users’ satisfaction on product 0.657
3.63 23 Critical 3.64 3.50 3.76 3.50 1.335 0.721 Pleasant environment 0.537
3.90 8 Critical 4.11 3.87 3.83 3.82 1.803 0.614 Easy to maintain 0.508
3.74 16 Critical 3.47 3.93 3.56 4.19 8.387 0.039* Accomplish core business needs 0.807
3.71 17 Critical 3.38 3.67 3.52 4.35 9.624 0.022* Meets stakeholders' needs & expect. 0.775
3.68 21 Critical 3.24 3.80 3.74 3.89 3.933 0.269 Meets corporate missions 0.715
3.71 18 Critical 2.50 4.00 3.59 4.38 24.905 0.000* High profit margin 0.635
3.89 10 Critical 3.58 4.00 3.79 4.25 7.480 0.058 Meets pre-stated objectives 0.624
3.53 26 Critical 3.50 3.71 3.61 3.27 1.963 0.580 Supported by warranty programme 0.792
3.69 19 Critical 3.57 3.79 3.67 3.73 0.322 0.950 Excellent commissioning programme 0.676
3.56 25 Critical 3.31 3.57 3.61 3.67 0.817 0.845 Excellent Close-out process 0.629
4.07 4 V.Critical 3.84 4.20 4.04 4.24 3.868 0.276 Fitness for purpose 0.597
3.89 9 Critical 3.56 4.14 4.00 3.82 4.010 0.260 Fast rectification of defects 0.595
3.68 20 Critical 3.63 3.79 3.56 3.87 0.920 0.821 Early occupation 0.820
3.53 27 Critical 3.20 3.36 3.67 3.79 4.367 0.224 Minimum cost of ownership 0.563
3.52 28 Critical 3.47 3.64 3.43 3.63 0.690 0.876 Flexible for future expansion 0.551
Eigenvalue 6.151 6.045 3.856 3.645 2.379
Percentage of variance explained 20.503 20.151 12.854 12.151 7.929
Cumulative percentage variance 20.503 40.654 53.508 63.659 73.588

154
Further analysis by means of the Kruskal-Wallis One-Way ANOVA test for a k-
independent sample confirmed that 3 out of 30 variables exhibited statistically significant
difference in opinions at the 1% and 5 %significance levels. As a result, the null
hypothesis related to this segment could not be accepted. To determine the demarcation
point between the 30 variables, a Wilcoxon Signed Rank Test of 2 related samples was
employed. The overall rating of 3.73 (minimum amount of wastage) was slightly lower
than 3.76 (maximum utilisation of resources) at the 0.05 level of significance (p=0.025).
Therefore, the two sets of scores were significantly different. However, based on the mean
ranking technique, all the variables appeared to be significant, which was superfluous and
meaningless. Factor analysis was then employed, as shown in Table 2, to the thirty
variables to reduce the large number of variables to a few meaningful factors, based on the
cluster of relationships among them by means of a Principal Component Analysis (PCA).

In this study, the value of the Kaiser-Meyer-Olkin (KMO) statistic was 0.784, which
according to Kaiser (1974) is satisfactory for factor analysis. Secondly, the value of the
Barlett test of Spherecity was 1320.796 and the associated significance level was small
(p=0.000), suggesting that the population correlation matrix was not an identity matrix.
Moreover, according to Tabachnick and Fidell (1996), the value of the MSAs (Measure of
sampling activity) of all the factors was to be greater than 0.3. In this case, the value of the
MSA was 0.444-0.887, suggesting that there was no need to eliminate any variable from
the analysis. As shown in Table 2, four-factors were extracted with eigenvalues greater
than one explaining 64.987% of variances. The four principal factors and associated
variables were interpreted as follows: Factor 1 represented quality and conflicts resolution,
Factor 2 represented a process improvement programme, Factor 3 represented resources
management, and finally Factor 4 represented project objectives. The four principal factors
were seemingly associated with the classification of efficiency measures as defined above.

Effectiveness Measures

Table 3 presents the thirty variables considered for the effectiveness measures of project
success. The analyses primarily deal with the ranking of variables based on their mean
values to determine their level of importance. Out of 30 factors, 6 factors were rated to be
‘very critical’ by the groups. These were: meets client satisfaction on service (overall mean
value = 4.27), meets users’ satisfaction on product (overall mean value=4.27), benefit to
client (overall mean value=4.09), fitness for purpose (overall mean value=4.07), benefit to
users (overall mean value=4.06), and project functionality (overall mean value=4.01).
Although the results appeared to include both the users’ satisfaction and the use of the
project, it failed to include factors on accomplishing core business objectives and corporate
missions as vital factors in achieving the successful project outcomes as classified above.

The remaining 24 factors were also significant and classified under ‘critical’ with mean
scores in the range of 3.33 (lower depreciation cost) to 3.94 (value for money). As
expected, private clients and contractors selected important variables which revolved
around the issues of ‘meeting client satisfaction on service’, ‘meeting users’ satisfaction on
product’, ‘high profit margin’ and ‘meeting pre-stated objectives’. Similarly, consultants’
respondents also showed themselves to be inclined to the above perceptions by giving
excellent grades to ‘meeting client satisfaction on service’, followed by ‘value for money’,
‘meeting users’ satisfaction on product’ and ‘benefit to client’. Once again, the
Government respondents were seen to be diverse by choosing factors on ‘easy to maintain’

155
(mean value=4.11) to be the most critical factors (ranked 1st) out of the list, whilst the
factor on ‘project functionality’ (mean value=3.90) was ranked 2nd, meets client satisfaction
on service was ranked 3rd, and fitness for purpose (mean value=3.84) was ranked 4th. The
results indicated that the Government sectors in Malaysia are currently switching their
priority needs to the level of maintenance and functionality of the finished product. When
the Kruskal-Wallis test for a k independent sample was applied; the test confirmed that 3
out of 30 effectiveness variables indicated a statistically significant difference in opinion
between the groups at the 1% and 5 % significance levels. This implied that the null
hypothesis related to this segment could not be totally accepted.

To determine the demarcation point between the 30 variables of effectiveness measures, a

Wilcoxon Signed Rank Test of two related samples was employed. The overall rating of
4.01 (project functionality) was slightly lower than 4.06 (benefit to users) at 0.10 level of
significance (p=0.088). Therefore, the two sets of score were significantly different at the
10% level of significant. In this case, although the two sets of scores differed, it was
unlikely that the factor on ‘project functionality’ had been omitted, in view of the fact that
the Government sector had ranked it 2nd in the list of 30 as discussed previously. Factor
reduction technique was then employed to reduce the large number of variables into a few
sensible factors based on their group of relationship, as shown in Table 3. As a result, five
factors were extracted with eigenvalues greater than one, explaining 73.588% of variances.
The value of Kaiser-Meyer-Olkin (KMO) statistic was 0.826 and the Barlett test of
Spherecity was 1487.852 and the associated significant level is small (p=0.000).

The five principal factors and associated variables were interpreted as follows: Factor 1
represented learning and exploitation, Factor 2 represented benefits and rewards, Factor 3
represented corporate objectives, Factor 4 represented operational assurance, and Factor 5
represented users’ satisfaction. These principal factors were reckoned to be strongly
associated with the classification of effectiveness measures as defined above.

5. CONCLUSIONS
This paper has produced detailed analyses of project success measures in the form of a mean
ranking of variables and factor reduction techniques in order to unveil few empirical findings.
The first finding revealed that the level of success criticality in the development of
construction projects in Malaysia is according to the specific requirements and priorities of
different project stakeholders. In the efficiency measures, the Government and consultants
sectors are focussing on the high project quality, fast approval and decision-making process,
whilst private client and contractors are putting more emphasise on budget and productivity
issues. In the effectiveness measures, however, the Government and consultants groups are
stressing on the issues of project functionality and operational programmes, whereas private
client and contractors are concentrating on meeting pre-sated objectives and high profit
margin. Since there is a slight conflict of interests between these groups of stakeholders, it is
suggested that project clients is required to adopt adequate strategies and methodologies and to
set firm priorities prior embarking on to the project in order to sustain the excellent
performance of the construction projects as suggested by Gareis (1992).

Secondly, project success measures in terms of efficiency and effectiveness measures revealed
four and five principal factors, respectively as shown in Table 4. The four principal factors and
associated variables in terms of efficiency measures are represented by: Quality and Conflicts

156
Resolution, Process Improvement Programme, Resources Management, and Project
Objectives. Given that efficiency measures are related to the ‘processes’ involved in the
development of construction projects, excellent quality and conflicts resolution skills are
essential for project success. These are reflected in the absence of legal claims and
proceedings, and avoiding unnecessary disputes and hassles, as pointed out by Kumaraswamy,
(1997). The ability of a project manager in managing conflicts will subsequently lead a good
quality of work life (Maloney, 1990). Consequently, the good quality of work life will play a
major role in the organisation success in retaining a skilled work force and its ability to
complete the work with high quality of workmanship.

Table 4: Project Success Measures-Empirical Findings

Efficiency Measures Effectiveness Measures
Principal Factors Principal Factors
1 Quality and Conflicts Resolution 1 Learning and Exploitation
2 Process Improvement Programmes 2 Benefits and Rewards
3 Resources Management 3 Corporate Objectives
4 Project Objectives 4 Operational Assurance
5 Users' Satisfaction

Projects are subjected to external forces, including political, economic, social, technical,
legal and business environment influences on the parties involved. External influences are
a primary cause of many project over-runs, raised political issues and require political
support (Morris and Hough, 1987). Nevertheless, strong political influences are seen to have
a great deal of support in terms of project funding. Excessive funding will ultimately helps to
speed up the progress of the construction work, utilizing good quality of materials and
components for the project, and could eventually influence the performance of the project in
terms of quality standard (Pandia, 1994). In addition, the implementation of process
improvement programmes in the form of a comprehensive briefing process, integration of
design and construction, safety requirements, environmental requirements, adequate training
programmes etc, will act as pivotal strategies to successful construction project performance
(Construction Industry Task Force, 1998). Construction management is also concerned with
efficient resources management to complete a cost effective project in the quickest possible
manner with a high quality standard. As such, the conscious efforts to maximise the utilisation
of plant and equipment, material, and manpower while minimizing the amount of wastage is
paramount, in order to increase project productivity (Tan 1996). Eventually, to ensure that
projects are initiated and completed successfully, it requires strategic project objectives, in
terms of meets time, cost, quality, the fast decision-making process, and efficiency of the
respective approval authorities as recommended by Abdul-Rashid and Morledge (1999).
Thirdly, project success in terms of effectiveness measures revealed five principal factors and
associated variables which are represented by: Learning and Exploitation, Benefits and
Rewards, Corporate objectives, Operational Assurance, and Users’ Satisfaction. The
effectiveness measures are associated to project ‘results’ which are strongly related to the
‘learning and exploitation’. These experiences will provide an opportunity to diversify the
construction portfolio by exploring the services to foreign construction market and develop
new business relationship, Pandia (1994). In the meantime, benefits and rewards for the client
and users as a result of any projects development could be achieved through the client’s
acceptance of the project, and the feeling of pleasure and satisfaction (Walker and Liu, 1998).
Moreover, construction needs ought to be aligned with the corporate objectives in terms of
core business needs, corporate mission and project objectives (Male, 1991). The achievement

157
of an objective is also accomplished when the project is profitably delivered by a contractor
(Morris and Hugh, 1987). Furthermore, the effectiveness of a project is also measured through
the systematic implementation of the operational assurance programmes so as to ensure that
all building and facility systems perform interactively in accordance with the design
documentation and the client’s operational needs (Rothacker, 2003). Finally, users’
satisfactions in terms of the early occupation of a property, the minimum cost of ownership
and flexibility for future expansion are constantly demanded by most clients, users and
purchasers in Malaysia (Tan, 1996).

The research presented in this paper will hopefully offer an insight to project-oriented
companies in Malaysia for future strategies and guidelines for the development of construction
projects.

6. REFERENCES
Abdel-Razek, R.H. (1997). How Construction Managers would like their Performance to be evaluated.
Journal of Construction Engineering and Management, ASCE, 123(3), pp. 208-13
Abdul-Rashid, K. and Morledge, R. (1999). Strategies to Remove or Alleviate Constraints Affecting the
Processes of Construction Procurement in Malaysia. Journal of Construction Procurement. Vol. 5 (1),
pp 27-41
Adnan, H. and Morledge, R. (2003). Joint venture projects in Malaysian construction industry factors critical
to success. In: Greenwood, D (ed) Procs 19Th Annual ARCOM Conference, September 3-5, Reading:
ARCOM, Vol. 2: 765-74
Akintoye, A. (2000). Analysis of factors influencing project cost estimating practice. Construction
Management and Economics, 18, pp 77-89
Andi and Minato, T. (2003). Design document quality in the Japanese construction industry: factors
influencing and impacts on construction process. International Journal of Project Management, 21,
pp537-46
Arnaboldi, M., Azzone, G., and Savoldelli, A. (2004). Managing a public sector project: the case of the Italian
Treasury Ministry. International Journal of Project Management, 22, pp213-23
Atkinson, R. (1999). Project management: cost, time and quality, two best guesses and a phenomenon, its
time to accept other success criteria. International Journal of Project Management, 17(6), pp. 337-42
Cheung, S., and Yeung, Y. (1998). The effectiveness of the dispute resolution advisor system: a critical
appraisal. International Journal of Project Management, 16(6), pp 367-374
CIDB (2000) Technology Foresight Report, Construction Industry Board, Malaysia. Kuala Lumpur : CIDB
Publications
CIDB (2001b). QLASSIC (Quality Assessment System in Construction), Construction Industry Board,
Malaysia. Kuala Lumpur: CIDB Publications
CIDB (2003a) CIDB Contractors Registration Report, Construction Industry Development Board, Malaysia.
Kuala Lumpur: CIDB Publications
Construction Industry Task Force (1998). Rethinking Construction. Department of the Environment,
Transport and the Regions, London
Cooke-Davies, TJ. (2002). The “real” success factors on projects. International Journal of Project
Management, 20, pp.185-190
Cordero, R. (1990). The measurement of innovation performance in the firm: an overview. Research Policy,
Vol. 19, pp 185-92
Dlakwa, M.N. (1990). Bureaucracy: Key Obstacle to Project Success. AACE International Transaction;
ABI/INFORM Global, pp. F. 4.1
Dulami, M.F. and Hwa, T.F (2001). Developing world class construction companies in Singapore.
Construction Management and Economics, 19, pp 591-99
Dulami, M.F., Ling, F.Y.Y., and Bajracharya, A. (2003). Organisational motivation and inter-organisational
interaction in construction innovation in Singapore. Construction Management and Economics, 21, 307-
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Kumaraswamy. M.M. (1997). Conflicts, claims and disputes in construction. Engineering, Construction and
Architectural Management, 4(2), pp. 95-111

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Leedy, Paul D., Ormrod, Jeanne Ellis (2001). Practical research: planning and design. Merrill: Prentice Hall
Liu, A.M.M. and Walker, A. (1998). Evaluation of project outcomes. Construction Management and
Economics, 16, pp 209-19
Male, S. (1991). Strategic management and competitive advantage in construction. In: Male, S., and Stocks,
R. (eds), Competitive Advantage in Construction. London: Butterworth-Heinemann Ltd, pp. 45-100
McQueen, R.A., and Knussen, C. (2002). Research Methods for Social Science: A Practical Introduction.
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Morris, P.W.G. and Hough, G.H. (1987). The Anatomy of Major Projects: A study of the reality of project
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Nachmias, C. and Nachmias, D. (1996). Research Methods in the Social Sciences. Fifth edn. Arnold
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Management, 16 (1), pp 59-63

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160
EMPOWERMENT OF CONSTRUCTION PROJECT TEAM
IN SINGAPORE CONSTRUCTIONINDUSTRY

Wong Wai Fan

School of Civil and Environmental Engineering

Nanyang Avenue
Nanyang Technological University
Singapore 639798
Singapore

Abstract: This paper focuses on addressing two main concerns - identifying the existing
predominant management styles pertaining to the Singapore construction industry and their
respective influence on the organizational performance. The content of this paper is based on
the results a study derived from field data obtained from questionnaire surveys of
empowerment study conducted on major construction companies registered in Singapore. The
paper discusses and analyses some of the key results obtained from this study and identified
that construction organization tends to adopt three predominant forms of management style -
the directive, supportive and the empowering model. Characteristically, the study noted that
on a continuum scale of management profile, the industry prefers to adopt a moderate
approach of supportive management style over the other two models. The study also reveals
that the general perception of respondents is that if companies can allow greater freedom of
empowerment in their project team, it should lead to better organizational performance.

Keywords: Construction Management, Leadership Styles, Empowerment, Motivation,

Communication

1. INTRODUCTION
The contribution to a nation's economy by the construction industry is generally
considered significant. For Singapore, the construction sector has been contributing
around 6-10% per annum to the gross domestic products (GDP) during the last decade
and despite of the financial crisis in 1997-98; the sector has contributed an average of
8.2% in the nation's GDP even during the last five years (Ministry of Manpower 1999).

Management involves the process of leading and working with organizational resources
for reaching a better organizational goal. The organizational goals which include
profitability, growth and corporate identity, reputation and market leadership would also
encompass the personal goals of employees to mobilize greater motivation allowing the
overall goals of the company to be met with harmony.

The performance of a company's management can be gauged by its effectiveness and

efficiency. Management effectiveness usually refers to the ability of management to meet
organizational goals, while management efficiency can be generally defined as work

161
performed with a given set of input organizational resources.

The construction industry, on the other hand, is a sector made up of different and
fragmented parties who only group together in a specific project for a limited duration of
time. Hendrickson & Au (1989) described the construction industry as a conglomeration
of diverse fields and participants that have been loosely lumped together as one sector of
the economy. To a certain extent, this unique nature of the industry requires parties of
work to be adequately empowered for operational efficiency and timely decision making.

2. LITERATURE REVIEW

Management can be characterized by its four basic functions comprising planning,

organizing, influencing and controlling as depicted in Figure 1. Collectively, it entails the
fulfillment of different management functions within the hierarchy of the organization. At
each of these levels, the emphasis on the type of skills required varies accordingly.

Figure 1: The Four Basic Functions of Management

(Source: Albanese, R., 1988. Management)

In term of nature of work, one can see that management serves to perform the three main
roles: informational, decisional and interpersonal (Boone & Kurtz, 1992). In general,
company management fulfils these roles by way of applying various means and tools
commonly used in the process of work. The organization, led by the management, would
display the specific dominant managerial profile as portrayed by the predominant
leadership style of the management. Leadership has been profoundly discussed and
measured using the Change-Production-Employee (CPE) model (Ekvall & Arvonen,
1991), which embraces three types of leadership centring on change, production and
employees, respectively. In general, it is assumed that different leadership behaviours
affect organizational outcomes in different ways (Arvonen & Pettersson 2002).

3. RESEARCH FRAMEWORK & METHODOLOGY

Likert's (1967, 79) system approach identifies four main types of management depicted
as exploitative authoritative management, benevolent authoritative management,
consultative management and participative management. Robert Tannenbaum and
Warren Schmidt (1958), on the other hand, proposed leadership as a continuum of
behavior encompassing a complete range of leadership styles, as opposed to the
authoritarian/democratic dichotomy suggested by McGregor (1960) and Likert (1967). It
is also generally established that there is a transition of leadership styles across the

162
spectrum.

Focusing on the employee side of the CPE model, this study adopts a management
continuum model comprising three management styles of directive, supportive and
empowering management. This continuum model assumes that these three management
styles are genenelly arranged in the ascending degree of empowerment in the order of
directive management, followed by supportive management and ending with
empowerment management and there is overlapping of leadership characteristics
frequently occurs in the areas between any two profiles.

Application and perceived importance of management tools:

Motivation Communication Empowerment

Classification of Management Profile

(Directive, Supportive, Empowering)

ORGANISATION PERFORMANCE

Figure 2: Proposed Research Model of Study

This model has been proposed to identify the dominant management profile within the
local construction industry by examining the application of management tools, the
organizational performance and culminate them into the classification of management
profiles as shown in Figure 2. Management tools that are commonly used by a
construction company management are grouped into three main constructs comprising
the motivation, communication and empowerment. These three constructs are further
developed and operationalised into variables of measurement as listed in Figure 3 to form
the main structure of the questionnaire. Noting that the way these tools are used and
perceived by each company should reveal traits that portray the dominant management
profiles of the company, the statistics derived from the data gathered were used to
correlate and identify the predominant management profiles in the industry.

The study employed a set of questionnaire developed from Figure 3 as the mean to gather
data from a sample frame of about 226 short-listed Singapore registered medium to large
construction companies. Employing a Likert scale of 1 to 5, the questionnaire is made up
of three sections with clear instructions, and was sent to each targeted company with
attention of general manager to gather the opinion from the senior management of
organizations.

163
 Management/ Leadership Model

Motivation Communication Empowerment

• Monetary rewards • Accessibility of Leader • Employees’ participation

• Recognition • Honesty in feedback
• Prospects • To facilitate conflict resolution
• Fringe incentives • Employee identification with
• Employee-centred Organisation
policies • Frequency of communication
• Breaking down of barriers
• Trust between employees &
Management
• Willingness to accept ideas
from employees (open-
minded)
in decision making
• Employers’ beliefs in
employees’ capabilities
and responsibilities
• Belief in authority of
leader
• Create compelling vision
of self-leadership
• Transfer of ownership
• Willingness of leaders to
accept change

Figure 3: Research Variables Captured In Management Tools

4. DISCUSSION AND ANALYSIS OF RESULTS

The accredited return gathered in two batches in 2004 and 2005 gives a sample size of 58
respondents from the targeted organizations. Five case interviews were also conducted
from the sample pool in search of further in-depth information. Table I gives the content
summarizing the performance indicators and the distribution of the various management
styles

164
 Table 1: Summary of Management Style vs Performance

Percentage of Sample
Management Style Average Performance Size (%)

Empowerment 4.00 12.1%

Contingency 3.65 31.0%

Supportive 3.55 51.7%

Directive 3.45 6.2%

n=58

Note that though contingency profile was not originally inclur d in the proposed model of
study, the return from respondents, has however shown that some company management
styles do not belong to the three classified main profiles. From the way that management
tools are applied and their perception of importance, they clearly do not belong to a fixed
single classified profile; these companies are thus more appropriately classified as
belonging to the contingency profile.

As shown in the content of Table 1, Supportive Leadership is most widely practiced in

the local construction industry. This finding shows that Singapore construction firms are
more comfortable in adopting the middle path in its management philosophy. Thus, even
though consultation with the subordinates is practiced widely, the final decision remains
largely with the senior manager. Case interviews conducted revealed that this can be a
result of the fear of being held answerable for decisions made by junior staff. In this
aspect, it is to be noted that the management's decision might not be the one proposed by
his subordinates as he retains the right to veto any proposals made by his subordinates.

Directive leadership proves to be the least popular among the listed management profiles
with a performance score of 3.45. It is noticed that the adoption of directive leadership in
the industry has declined slightly based on the second batch of data obtained in early
2005. Contrasting this with findings made in cultural dimensions by Hofstede's (1980)
and leadership styles by Hansen (1999), this result could indicate that though the society
is frequently cited as having a reasonably high power distae, people in the industry with a
better-educated work force and a trend which gradually place greater emphasis on
individuality, are increasingly resistant to the dictatorial style of management.

The statistics also shows that respondents generally perceived that an empowering style
of management should yield the best performance. This is not surprising as the
empowering leadership style emphasizes the optimal synthesis of employee potential and
job requirements for operational efficacy. It dedicates ample power to the project team
and allows room for creative thinking and problem solving. Characterized by a higher
degree of empowering their project team, subordinates are encouraged to take up
responsibility for the decisions that they make. This in turn motivates them to give their
best, as they are directly responsible for their work. It gives an opportunity for the
employees to identify themselves with the organization. Unfortunately, the study also

165
shows that only a limited number of construction companies chose to practice this style
of management.

With a performance score of 3.65, the contingency style of management is practiced by a

total number of 18 companies, which constitutes 31% of the sample size. This is a
relatively significant implication as it indicates that the heuristic subject of management
has many followers that do not believe in a fixed set of principles when dealing with
subordinates. Followers of this style recognize that there is no one golden rule when
managing their staff and the company. Different situations that involve problems with
varying degrees of complexity will require significantly different approaches in reaching
for better solutions. Indirectly, this may serve to attest that the industry employees belong
to a more matured group of people as the situational theory regards the maturity of the
followers as the crucial situational factor (Hersey & Blanchard, 1982).

5. CONCLUSIONS
The study identifies the distribution of dominant management styles in the construction
industry based on a management leadership continuum model theorized with a
continuous spectrum of equally distributed pattern. With the statistics obtained, the
defining traits entailed by these different forms of leadership styles were explored,
analyzed and discussed.

Supportive management style is preferred and generally practiced by most construction

organizations and the industry has viewed this option as a right balance between retaining
supervisory rights by management and allowing boom for creative problem solving by
their employees.

The study shows that directive style is having east followers in the industry. Empowering
management style is perceived as one that promised to deliver best organizational
performance yet practiced only by few companies. This could suggest that the local
construction environment is still not convinced of the practical
advantages that can be derived from adopting this management style.

A significant percentage of respondents have shown to prefer the contingency approach

instead of the three traditionally classified models. The results of the study give evidence
to suggest that the supportive and empowering styles of leadership are more closely
intertwined with each other as compared with directive leadership. This may implies that
dominant management profiles in construction industry do not distribute evenly across
the continuum model, there is perhaps a spectrum with a stand alone directive style
isolated at one end, a situational approach, then followed by supportive and empowering
styles coupling at the other end.

6. REFERENCES
Arvonen, J. & Pettersson, P. (2002). "Leadership behaviours as predictors of cost and change
effectiveness". Scandinavian Journal of Management Vol 18, Issue 1, pp. 101-112. Albanese, R
(1988). Management, Western.

166
Boone, L.E. and Kurtz, D.L. (1992). Management, 4~' edition, McGraw-Hill.
Ekvall, G. and Arvonen, J. (1991). "Change centred leadership. An extension of the two-dimensional
model". Scandinavian Journal of Management 7, pp. 17-26.
Hendrickson, Chris & Au, Tung. (1989). Project management for construction: fundamental concepts for
owners, engineers, architects and builders, Prenctice Hall, p. 18-22.
Hansen, H. (1999). "Leadership in the red: Applying western leadership theory in Rassia". Working Paper,
University of Kansas School of Business.
Hersey, B. & Blanchard, K. (1982). Management of organizational behaviour, 4`b editionn, Englewood
Cliffs, NJ, Prentice-Hall.
Hofstede, G. (1980). Culture's consequences, Sage, Newbury Park, CA.
Liken, R. (1967). The Human organization, McGraw-Hill, New York.
Likert, R. (1979). "From production and employee-centredness to system 1-4". Journal of management 5,
pp. 47-56.
McGregor, D. (1960). The Human side of enterprise, McGraw-Hill, New York.
Ministry of Manpower (Singapore), (1999). Construction Report 21, Hong Boon Printing Co., Singapore,
pp. 1-5.
Tannenbaum, R. and Schmidt, W.H. (1958). "How to choose a leadership pattern". Harvard Business
Review 36, pp.95-101.

167
168
 COLLABORATIVE WORKING VIA INNOVATIVE
PAYMENT SYSTEMS

Gibril Njie1, David Langford1, Ammar Kaka2 and Chris Fortune2,

1
School of the Built and Natural Environment,
Glasgow Caledonian University,
City Campus,70 Cowcaddens Road,
Glasgow G4 0BA, UK

E-mail: gnj1@gcal.ac.uk
E-mail: dia1@gcal.ac.uk

2
School of the Built Environment,
Heriot-Watt University,
Edinburgh EH14 4AS, UK (email:

E-mail: A.p.Kaka@sbe.h.ac.uk
E-mail: C.J. Fortune@sbe.h.ac.uk

Abstract: The construction industry is infamous for its adversarial and conflicting nature.
This has detrimental effects to the industry as projects are not being delivered to the
satisfaction of clients and even project teams themselves. Reports such as those of Latham
(1994) and Egan (1998) have in recent times led the way for the industry to look at itself,
compare itself with other industries and eventually re-engineer itself by overhauling its
methods of contracting and management. This paper uses data gathered from case studies to
explore the potentials of using innovative methods of payment so as to promote effective
collaborative working relationships. The data is from the first phase of a research project that
has been commissioned by the Engineering and Physical Science Research Council (EPSRC)
to consider innovative payment systems that are in use in the building industry. The research
aims to highlight good practice features that can then be used to develop a decision aid tool
that building industry professionals can engage to provide better advice to their clients. The
relevant conference sub-theme is procurement, value, facilities and risk management.

Keywords: project teams, payment systems, collaborative working, building industry.

1. INTRODUCTION

The traditional method of contracting has been identified as the root cause of many of the
problems facing the construction industry (Latham, 1994). Major clients who are
dissatisfied continue to look away from the traditional methods (Egan, 1998). As such,
alternative procurement approaches have arisen as a response to deficiencies in
traditional systems of contracting (Rougvie, 1987). The traditional monthly payment
system of the lump-sum and unit-price has many faults which are detrimental to the
operations of the construction industry. These serious faults include delays in payments,

169
withholding of contractors and subcontractors cash, imposing of unfair terms on
contractors and subcontractors, lack of protection of project participants from others’
financial failures, the use of undesirable techniques/terms by one party to protect its own
interest, claims, adversarial attitudes, and that the impartiality of the contract
administrator may be compromised resulting in conflict of interest. The traditional
payment system neither guarantees nor encourages performance.
Partnering, as a collaborative working strategy, is now very commonly used in the
construction industry as a process of procuring construction projects more effectively.
Many reports, most notably, Latham (1994) and Egan (1998), have showed that
partnering can lead to reduction in project time and cost and construction facilities of
better quality standards. Indeed, local government and housing associations in the UK
are often required to adopt partnering strategies to procure social projects as a
prerequisite to securing public funds. This management process would involve bringing
together a project team who are wholly committed to the cause(s) of the project or series
of projects. Partnering, as noted by Black et al. (2000), involves the parties to a
construction project working together in an environment of trust and openness to realise
the project efficiently and without conflict.
Over the years the construction industry has been challenged to find and adopt ways to
help it in improving its productivity and effectiveness. As such, as noted by Packham et
al. (2003), it was argued that the partnering of consultants, contractors, subcontractors
and manufacturers could reduce the ex post costs associated with conflicts and disputes
within the construction process. Reports such as Latham (1994) and Egan (1998), have
showed that partnering has the potential to reduce project time by about 10% and wastage
by up to 20% every year. Partnering contracts stipulate payment options that avoid
confrontation and focus on accomplishing common objectives so as to achieve win-win-
solutions. This paper considers five case studies that adopt and foster effective
collaborative working relationships with the use of innovative methods of payment.

2. COLLABORATIVE WORKING IN CONSTRUCTION

Egan (1998) suggests that partnering implies selection on the basis of attitude to
teamworking, ability to innovate and to offer a much more satisfying role for most people
engaged in construction. Winch (2002) suggests that unless team building takes place in
the context of a partnering type arrangement, then there is a danger that all that will result
is a pseudo team which performs less well than if they had been honest about being a
representative group. He recommends the use of five ways including partnering
relationship to manage conflict within the project coalition before it reaches outside the
coalition and moves through the familiar escalator of adjudication, arbitration and
litigation. On entering into a partnering relationship he points out that the need to work
together in the future greatly encourages the spirit of compromise in the present. This
approach suggests a move away from the traditional method of cut-throat price
competition, which together with the potential of inadequate profitability are to no-one’s
benefit. As reiterated by Ng et al. (2002), the concept of partnering overhauls the ethics
of traditional contracting with the attendant paradigm shift towards co-operative and
caring environments. This is a move to a ‘supply chain system’ of construction

170
production process (see Figure 1) more commonly found in the manufacturing industry
for example car manufacturing. It is increasingly being used on construction projects
(Black et al., 2000).
Unlike other systematic approaches to management, partnering focuses upon the
importance that all parties have to play in the construction process as opposed to the ‘top
down’ approach. Latham (1994) concurs with this suggestion and recognises that
partnering arrangements should have the principal objective of improving performance
and reducing costs to clients. The existence of good relationships based on mutual trust
assist the construction process, which is in existence to satisfy the client. Private sector
clients such as the British Airport Authority (BAA), Railtrack, major supermarket chains
and similar organisations, who were the focus of the Egan Report have been said by
Naoum (2003) to have reported positive, measurable and identifiable results.

Figure 1: Partnering in practice (The Construction Industry Board, 1997)

3. INNOVATIVE PAYMENT SYSTEMS

Njie et al. (2004a, 2004b) highlighted payment systems that are said to be innovative and
encourage collaborative working. Some of these systems are associated with partnering
contracts, most notably, the NEC Option C (ICE, 1995) and the PPC2000 (ACA:
PPC2000). These systems, namely, cost-reimbursable, incentives, open-book pricing
approach, mobilisation advance payments, milestone payments and direct payments, are
being used in the five case studies. They are briefly explained below.
Cost-reimbursable is where the client undertakes to reimburse the contractor for the total
amount of the construction cost as well as pay a stipulated fee for the services of the
contractor (Clough & Sears, 1994; IChemE, 2003; Lock, 2003). The cost-reimbursable

171
(or cost-plus) and the target-cost are treated under this study as among approaches under
cost-reimbursable contracts (this is in line with Perry & Thompson, 1982; Perry et al.,
1982; CIRIA, 1985; Masterman, 2002; IChemE, 2003). The major differences among the
various types of these arrangement are the provisions concerning the compensation of the
contractor such as a fixed percentage of the cost of the work, a sliding-scale percentage of
the cost of the work, a fixed amount, a fixed amount with a guaranteed top price or with
bonus or with an arrangement for sharing any cost savings.
Incentives: incentive and disincentive contracting is an approach for rewarding or
penalising the contractor judged on performance (Clough & Sears, 1994; Arditi &
Yasamis, 1998; Bubshait, 2003). Clients usually give schedule incentives to achieve
early completion, quality incentives to achieve high quality work and occasionally safety
incentives to achieve compliance with the safety rules and regulations of the company.
Contractors can also be offered other incentives, for example to achieve innovations that
result in a cost saving for the client. However, disincentives are also established to
penalise the contractor for poor performance.
Open-book pricing approach: under a contract that specifies payment based on agreed
rates, the client will require to verify the claims for payment from the contractor. As
noted by Lock (2003), this might entail access to the contractor’s books of account by the
customer, or auditors acting for the customer. Records of the project’s finances are either
submitted to the client’s professional adviser or are kept for inspection at any time. It is
usually the responsibility of the independent quantity surveyor to act on behalf of the
client and certify claims from construction contractors so as to verify that items of work
claimed has actually been done. This procedure helps to avoid misunderstanding and
facilitate the final audit. According to Clough & Sears (1994), cost-plus contracts with
public agencies customarily impose special conditions on the contractor pertaining to
form of payment, payment application, affidavits, and preservation of records.
Mobilisation advance payments: as an alternative payment method, Abeysekera (2002)
recommends clients to move to a payment regime that aims to minimise the ‘time-lag’ to
virtually nothing. One strategy that clients can adopt to achieve this is to make all
payments in advance. This is very common in international contracts where a contractor
is required to submit to the client an acceptable ‘on-demand’ advance guarantee bond for
the sum to be advanced (or a multiple of it) along with his request for the advance
payment. As noted by The World Bank (1995), the contractor is to use the advance
payment only to pay for equipment, plant, materials, and mobilization expenses required
specifically for execution of the contract. If the arrangement is on a multiple basis,
further advance payment will be released without a detailed measurement of work done
as long as the value of the previous work done exceeds the previous advance payment(s).
At completion, payments will only be released following an actual measurement of work
done.
Milestone payments: Hughes (1997) reiterates that interim payments to trade contractors
could be based on valuations of work done at regular intervals, or on stage payments tied
to milestone events. The client’s quantity surveyor often indicates the milestones.
Tenderers are allowed to propose extra or alternative milestones that would be
compatible to their proposed programme of works and forecasted cash-flow during the
execution of the works. Tenderers are also allowed to propose values for each defined
stage.

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Direct payments: require the client to make periodic payments to an escrow account from
which subcontractors and material suppliers are paid directly in amounts approved by the
main contractor (Clough & Sears, 1994). The client will then omit the sum involved
from payments due to the main contractor. One common reason for taking this cause of
action is the client’s desire to ensure subcontractors and suppliers are paid promptly and
in full for their contributions to the project. This can safe guard the client against claims
and liens. Another reason for making direct payment could be to improve the
performance of the subcontractor where there is a strained relationship between the main
contractor and subcontractor.

4. THE STUDY

This paper is based on the preliminary findings of a study carried-out under a research
project which adopted a case study research strategy using the personal interview method
which comprised of feedback from construction companies. This involved visits to five
companies or building sites all of whom are located in England to have perspective of
practitioners’ experiences. All, but one, of the case studies were selected from a list of
demonstration site based projects that are being, or have been, implemented using
innovative strategies that satisfy the Constructing Excellence agenda. The fifth case
study replaced another demonstration site based project for which it proofed impossible
to collect all the relevant details or bring the project team together in time for the agreed
interview date.
All five case studies are from the building industry and the public sector, they are each
specifically being implemented to a client’s specification and they all involve
collaborative working. However, as shown in Table 1, they have significant differences
in the nature, type, value, duration and complexity of the work, and participants,
involved. The projects range from the medium-value one-off school extension (Case
Study V) which also involved relocating large underground gas mains carried-out by a
single main contractor to the higher-value social housing (Case Study W) which involved
a series of refurbishment works undertaken by a multiple of main contractors. Case
Study V is also the only education project and the only project with cost overrun due to
its extensive additional works arising from the continual changing nature of the project
whilst Case Study W is one of three social housing projects (along with Case Studies Z
and X).

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 Table 1: Case Studies Details: Project and Team Characteristics

Z Y X W V
Client Industry: Local Authority Central Government Housing Association Arms Length School
Department Management
Organisation
Site Location: North West South West West Midlands South East South East
Project Sector: Public Public Public Public Public
Project Product: Social Housing Mixed: Office, Social Housing Social Housing Classroom &
Technical Facility, Laboratory
Mess, Gatehouse,
Creche & Landscaping
Work Type: Repairs & Maintenance New Build Refurbishment Refurbishment Extension &
Refurbishment
Site Type: Refurbishment / Greenfield / Refurbishment / Refurbishment / Refurbishment /
Repairs & Maintenance Brownfield Repairs & Maintenance Repairs & Maintenance Repairs & Maintenance
Project Value: £20.0M £39.0M £240.0M £700.0M £1.0M
Project Duration: 5years 1year, 9months 5years 14years 39weeks
Status of Project: Active Completed Active Active Active
Procurement System: Collaborative Prime Contracting & Collaborative Collaborative Collaborative
Procurement (Strategic Collaborative Procurement (Strategic Procurement (Strategic Procurement (Project
Partnering) Procurement (Project Partnering) Partnering) Partnering)
Partnering)
Form of Contract: NEC Option C Bespoke ACA: PPC2000 Bespoke ACA: PPC2000
Form of Contract 2: Prime Contract ACA: PPC2000
Consultant Type: In-house External In-house External External
Subcontractor in In-house M&E M&E
Team:
Partnering Team – Tenants Residents Residents
Others:

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Despite the case studies involving partnering as a collaborative way of working, there are
fundamental differences in the manner they go about achieving this main objective.
Whilst three of the projects (Case Studies Z, X and W) involved long-term strategic
arrangements and mainly larger-scale development programs, the remaining two (Case
Studies Y and V) involved short-term project arrangements so as to provide specific one-
off additional or supplementary or replacement facilities. Different partnering contracts
are also in used. There is the NEC Option C (Case Study Z) and the ACA: PPC2000
(Case Studies X, W and V), as the preferred partnering form of contracts. These
contracts include the names of the affected interested parties such as tenants or residents
and the local school. Case Study Y uses a Prime Contract and, like Case Study W, a
bespoke contract as its main contract. It is the only project which is completed, although,
there is an on-going Compliance contract which is part of the package and implemented
under the same principles. It is also the only new construction project and located on a
greenfield site. The other four projects are refurbishment and/or extension works
involving work in existing occupied facilities. For the rehabilitation schemes (Case
Studies Z, X and W), in particular, there is always uncertainty in that they will encounter
a type of property that they have not been into before. Since the works is on an existing
building, the consultants could not establish the exact nature of the unknowns and
unforeseen. The uniqueness of any of these schemes, as noted by the Client to Case
Study X, is its logistics size, not its complexity. There are also restrictions (which also
affects Case Study V) on the contractor, for example, the very restricted site access to the
contractor due to the working or occupied nature of the houses or school. All the
projects, with the exception of Case Study V, involved clients who are continuously
engaged in commissioning construction projects. So although, the clients for Case
Studies Y and V, are providing one-off projects (a headquarters construction and a school
extension, respectively), the former is similar to the other three clients (Case Studies Z, X
and W) in that they carry out a series of projects throughout the year.
The composition of the project teams varies in all these projects. Case Study V involved
a single main contractor, whilst the other case studies involved a multiple of main
contractors: Case Study W - the highest-value and longest-duration project - involved a
series of refurbishment works undertaken by seven main contractors, both Case Studies X
and Y involved two main contractors and Case Study Z involved a main contractor and
an in-house direct labour organisation who carries out two-thirds of the whole works.
Case Studies Z and X engage their own staff to provide consultancy design and
supervision services. Case Study W, as noted by the Client, is different from many local
authorities in that it is purely a strategic client and has no direct labour organisations or
in-house design teams. Case Study Y is the only project which is consultant led, and
therefore, unique. The Prime Contractor assembled and managed a Virtual Organisation
for the construction works. The single, one-off, short-term projects (Case Studies Y and
V) seemed to have involved more services work, and thus, unlike the other three projects,
included the M&E subcontractor as part of the partnering team. Case Study Y also
involved the provision of a technical facility and external lighting to the 34 acres site,
whilst Case Study V also involved the provision of a science laboratory facility.

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5. THE PAYMENT SYSTEMS IN USE

As shown in Table 2, all five case studies are using innovative pricing and payment
systems. Although, these systems are used as prescribed in the preferred contracts, some
of the Clients have been creative in modifying the terms to specifically suit their project
requirements.
All five contracts allow for reimbursement of the contractor’s actual cost with pre-agreed
profit, payment of incentives and the use of the open-book pricing approach. It is,
however, only Case Study V that did not enforce the cost-reimbursement procedure
during the progress of the works because the agreed maximum price was not agreed to
until when the works reached 70% completion. Although Case Studies Z, Y and X are
using the term ‘guaranteed maximum price’, the contract value that is agreed is not a
guaranteed maximum price but rather an agreed maximum price because, as noted in
Case Study W, it cannot be guaranteed because of the likelihood of changes in
requirements along the way due to the uncertain items in the risk register and the
possibility that a tenant may not want works to continue as planned. The agreed
maximum price is also the terminology used in the PPC2000. The target cost method is
the other cost-reimbursable method that is adopted but only by Case Studies Z and Y.
Case Study X, for example, does not have a target cost because the Client regards a
proper monitoring and measuring process for target cost against actual cost to require
four or five quantity surveyors to provide services such as checking and monitoring cost
which, according to the Client, would mean that any savings that would accrue from that
are lost in the cost of actually administering it.
Table 2: Pricing and Payment Systems in Use
Z Y X W V
Cost reimbursable
Guaranteed maximum price √ √ √
Agreed maximum price √ √
Target cost √ √
Incentives
Performance incentives √ √
Shared savings √ √ √ √
Open-book pricing approach √ √ √ √ √
Mobilisation advance payments √ √
Milestone payments √
Direct payments √

Plus:
Performance bonds √ √ √ √ √
Zero Retention √ √ √ √

Two types of incentive schemes are allowed for in these projects. There is the
performance incentive scheme in Case Studies Z and W to be paid out when performance
targets have been achieved. There is also the shared saving scheme used by Case Studies
Z, Y, X and V to share savings/loses made below/above the target cost as a means of

176
encouraging the partnering team to value engineer the project so as to make cost savings.
It is, however, unlikely that incentivisation provision written into the signed partnering
contract of Case Study V will be used. This is because an impasse was reached in the
contract and consequently, an agreed maximum price was only established around the
time of this survey by which time 70 per cent of the works has been completed.
Furthermore, the incentivisation scheme for Case Study X, which does not have a target
cost, is only a gain sharing option - there is no pain sharing and the Client even go further
in assisting the Contractor with its cost where it decides that the claim for extra works is
significant and unforeseen. Both these incentive schemes provide a legitimate source of
income to the project team, especially the Contractor.
Nonetheless, another source of financial assistance, that is the mobilisation advance
payment method, is however, only given in two Case Studies (X and W) who even go
further in not demanding the Contractor to provide a mobilisation advance guarantee or
bond. Although, Case Study X (like the other four projects) requires the contractor to
provide a performance security or bond - this involves financial charges which are
eventually passed on to the Client. Furthermore, Case Study Z is the only project that
deducts retention from the interim payments.
The milestone/stage and direct payment methods are only used by Case Study Y. This is
the only new construction project which might perhaps give weight to the reasoning of
the Client of Case Study X that the stage payment is not applicable to refurbishment
works where stages are repetitive and more difficult to predict. The direct payment
method is, however, only limited to the core Subcontractors in Case Study Y. This
means that the rest of the subcontractors and suppliers, just like the Subcontractors and
Suppliers in the other four projects, have to receive their payments through the main
Contractors. However, three of the case studies (that is Case Study Z, W and V) that do
not have a direct payment arrangement provide some form of safeguard to Subcontractors
by requiring Contractors to demonstrate that they are not delaying payments to their
Subcontractors and that they are paying them accordingly. So to protect Subcontractors,
the Contractor has to pay the Subcontractors first, and then claim it back from the Client.
Subcontractors are then happy to work in these projects as they are protected from some
main Contractors’ unwanted traditional practice of withholding Subcontractors’ payments
as a way of maximising their income. Case Study X, on the other hand, offered back-to-
back subcontract payment terms to its Subcontractors but only the Electrical
subcontractor accepted it and is then paid in the same manner as the main Contractors.
The rest are, however, said by the Client to be having no payment difficulties as the main
Contractors are honouring their obligations in the spirit of partnering and because they
want to secure future contracts from the Client. Overall, though, it is only those who are
part of the partnering team who can benefit from the provisions of the partnering
contract. It is, however, also seen that even the core Subcontractors, except in the case of
Case Study Y, are not benefiting from the direct payment arrangement. The Consultant
can still, nonetheless, demand access to the books, for example, to review the
Subcontractor’s tenders, payments and invoices. The open-book approach is in use in all
the projects to essentially allow the Consultants to be able to review the Contractor’s, as
well the Subcontractor’s books.

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6. OUTCOME OF COLLABORATIVE WORKING STRATEGY
All five projects have given the impression that they have incorporated collaborative
working and buildability into the works and that they have developed supply chain
management. Whilst works have been delivered within cost in four Case Studies, Case
Study V has had cost overruns of 30%. Works have also been delivered much quicker in
Case Studies Z, Y and W but there has been delays of about 8% in Case Study V.
Stakeholder (that is the client, project team and residents) satisfaction has been registered
in Case Studies Y, X and W. The main contractors supply chain is also said to be happy
in Case Study Z because of the protection given to them to guarantee their payment.
Subcontractors have also been protected in Case Studies Y and W. However, Case Study
X does not approve with this practice, by some clients, of insisting on not paying the
main contractor until the main contractor satisfies them that he has paid his
subcontractors. He believes that smaller contractors need to be protected from the big
contractors but then doing it that way would mean that the contractors are expected to
pre-finance the whole job which would come at a cost. There is also minimal or no
claims in Case Studies Y and W. Whilst Case Studies Z and W claims to start works
earlier on site.
In addition, each of the five projects has achieved varying levels of successes and
failures. For instance, it is claimed that there are no secrets between the Contractor and
the Client in Case Study X and has, thus, achieved success with the open-book pricing
approach. Whilst Case Studies Y and W claim to have achieved high quality works, and
zero liquidated and ascertained damages, respectively. Perhaps, the biggest failures are
more evident in Case Studies Z and V where there has been lack of trust and
understanding between the Contractor, in both cases, and the Client and Consultants,
respectively. In Case Study Z, there has been delays in settling the Contractor’s
payments because the Client suspected that the Contractor has been using “creative
accounting practices” under the guise of the open-book approach to maximise his
payments. The Contractor has also not helped by failing to cooperate to allow the Client
and his auditors to review his books, and has threatened to pass financial charges to the
Client for the delays in payment. Case Study V has suffered significant costly changes
and the Contractor is said to have been uncooperative and risk averse. As such, the
agreed maximum price could not be established until when the works reached 70%
completion and no value engineering exercise was carried out. Furthermore, for both
these projects, more consultancy resources and paperwork are said to have been
generated due to the demands of the open-book accounting approach. Both these
projects, especially Case Study V, seemed not to have achieved the normal benefits
associated with partnering.
In contrast, the more successful projects, namely, Case Studies W, Y and X show that the
active involvement of the entire supply chain in the design development and value
engineering workshops will allow them to use their buildability knowledge and technical
expertise in the decision making process. The management of both the Client and Project
team forms an integrated team which is co-located on site. Decisions about these projects
are made jointly and where disagreements occur both sides have worked proactively
together to resolve them without the need for recourse to more formal contractual
remedies.

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7. CONCLUSION
Collaborative working, with partnering as an example, has gained high importance as a
way of delivering projects and is more commonly adopted now a days as the preferred
method by the UK government and local governments to deliver social projects. Its
success, however, is not always guaranteed. It needs to be worked at to gain from its
many and varied benefits. This is evidently the case in some of the case studies. Even
Case Study Y has showed that the potential benefits of partnering are also attainable in
one-off projects if the partners work hard at it. The mistrust and misunderstanding
between the Client/Consultant and the Contractor in Case Studies Z and V show lack of
partnering spirit and perhaps why the open-book approach is not working in these two
projects. These parties suspect each other and demonstrate very different opinions about
the arrangements they are working under. The Contractor in Case Study Z is even not
allowing full access to all their books even for the Client to fulfil its public auditing role.
This shows a lack of cooperation which is required for the open-book approach to be a
success.
On the other hand, the more successful projects, namely, Case Studies W, Y and X
demonstrate the significance of gaining the full commitment and participation of the
entire supply chain so as to achieve win-win situations. These projects have
demonstrated trust and understanding - the appropriate approaches to successfully using
the pricing and payment arrangements under the partnering approach. The arrangements
in these three successful projects seemed to have worked in scenarios where the core
project team is made up of like-minded organisations and individuals within those
organisations who practice what they preach by working collaboratively right from the
start to find solutions.
This study focuses on issues occurring during the site activities and the results of the
partnering strategy. The case studies have showed how to succeed or fail in delivering
projects. The payment systems adopted in these projects have allowed the parties to the
contracts to work in unison and deliver projects to the satisfaction of their clients and the
project team themselves and other relevant stakeholders. The proper use of payment
systems such as the open-book approach allows for real cost to be gathered and more
flexibility. The case studies have demonstrated that if clients start by trusting contractors,
contractors are going to trust clients. Where there is trust the contractors are more
contended with the systems in place and are working more collaboratively with the
clients. These projects seem to be more successful as well, as a result.

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(ACA: PPC2000) PPC2000: ACA standard form of contract for project partnering. Kent: ACA.
Arditi, D. & Yasamis, F. (1998) Incentive/disincentive contracts: perceptions of owners and contractors.
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Bayliss, R., Cheung, S., Suen, H.C.H. & Wong, S. (2004) Effective partnering tools in construction: a case
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 KNOWLEDGE MAPPING IN THE CONSTRUCTION
INDUSTRY: AN EXPLORATORY STUDY

Egbu, C; Hari, S and Olomolaiye, A

School of the Built & Natural Environment
Glasgow Caledonian University
Cowcaddens Road
Glasgow
G4 0BA
Scotland
United Kingdom

E-mail: C.egbu@gcal.ac.uk

Abstract: Knowledge-intensive construction organisations, intending to effectively exploit

their knowledge assets, might need to map their internal and external knowledge resources to
the processes they feel will help them achieve sustainable and competitive advantage. This is
the principal purpose of “knowledge mapping”. Knowledge mapping techniques aim to track
the acquisition and loss of information and knowledge. It explores personal and group
competencies and illustrates how knowledge flows throughout an organisation or ‘network’.
This paper is based on some of the findings from an Engineering and Physical Sciences
Research Council (EPSRC), UK funded project that investigated knowledge mapping within
the construction industry and its effectiveness to stakeholders. This research project examined
the different types of knowledge mapping techniques used in the construction industry.
Architects, contractors, engineers and software developers were interviewed as part of the
research project. The data collected from the participants in the semi-structured interviews
highlighted the challenges associated with knowledge mapping implementation. The paper
also provides recommendations on the strengths and benefits of knowledge mapping
techniques in construction industry. However, knowledge mapping is not an end in itself. It is
a tool, like a map, that helps construction organisations get from point A to point B more
effectively. It is a precursor activity to designing a knowledge management initiative. This
paper concludes that if chosen and used effectively, knowledge mapping is useful for decision
makers in the construction industry. Such benefits include: improved ability to locate
knowledge in processes, policies, people, and repositories; and improved awareness of
organisational cultural issues, reward systems, knowledge sharing and value, legal processes
and protection (patents, trade secrets, trade marks) associated with knowledge exploitation in
organisations.

Keywords: Decision making, knowledge management, knowledge mapping, sustainable

urban environment.

1. INTRODUCTION

Many industries are facing pressure to increase the sustainability of their practice (Parkin,
2000). This pressure, in many cases, imply significant change of an industry’s
understanding of the demands of society and of its clients, as well as its own corporate
social responsibility, and can imply major changes in its work practices. The awareness
of the impact of sustainable development is growing around the globe. It is also firmly on
the political agenda of most countries in both developed and developing countries. The

181
Brundtland Report (Brundtland, 1987), the UN summit in Rio de Janiro (1992), the
World Summit on Sustainable Development in Johannesburg 2002 and the UK National
Sustainable Development Strategy (HM Government: 1999) are just a few initiatives
which have provided additional impetus for this. In order to be successful, sustainable
development must promote economic, social and environmental needs and benefits;
focusing on inevitable trade-offs as well as synergies between these needs and benefits.

Sustainability therefore means thinking in terms of whole systems, with all their
interconnectedness, consequences, feed-forward and feedback loops. Sustainability
issues inherently cut across many boundaries; and are trans-disciplinary and trans-
organisational. This brings to the fore issues of how individuals, groups and organisations
make knowledgeable interpretations for sustainability within organisations and
professional structures and, in industries based on multi-firm and multi-professional
projects, across these boundaries. The above discourse would suggest that the vagaries of
different industrial sectors are likely to impact on how knowledge for sustainability is
created, transferred and applied. Knowledge in the field of sustainability is also subject to
ideological pressures that can be at odds with what makes both business and ecological
sense. Under these pressures, from many sources at many different levels of power,
decision-making can be either paralysed or pushed into unsatisfactory directions.

The challenge of knowledge management is to understand how to create practical

solutions to support individuals and groups as they generate or acquire this multi-faceted
knowledge so as to suit the particular requirements of their application context (Gurteen
1998, Armistead 1999, Alexander et al 1991, Storey and Barnett 2000, Despres and
Chauvel 1999, and Coulson-Thomas 1997). Organisations must also grow the capability
to share knowledge between specialisms and across internal and external boundaries
(Quintas 2002). The ability to generate new technological knowledge is now viewed to
be linked to a specific learning capability which draws from diverse knowledge bases and
is able to activate a systemic recombination process (Antonelli, 1999). In all these,
identifying the sets of knowledge that will make the greatest difference, where they reside
and how they can be accessed and exploited for team, organisational and communal
benefits are fundamental. This is integral to the issue of knowledge mapping.

The principal purpose and clearest benefit of a knowledge map is to show people in an
organisation or within a network/supply chain where to go when they need expertise. A
knowledge map can also serve as an inventory. It is a ‘picture’ of what exists in an
organisation or a ‘network’ of where it is located. It therefore can be used as a tool to
evaluate the corporate knowledge stock (e.g. knowledge for sustainability) revealing
strengths to be exploited and gaps that need to be filled (Davenport and Prusak, 1998).
The dynamics of knowledge management can be just as important, particularly where
change is an important issue. Dynamic approaches to modelling and mapping consider
the flow of knowledge - how it is created, distributed and accessed - as much as the
knowledge itself. To this end, the transition work sought to appraise the options for
knowledge mapping tools which would meet this need. The results would then be used as
the basis for selection and implementation of tools in the main study if successful. At the
same time, a structured method to assess and evaluate the efficacy of these knowledge
mapping tools against some identified criteria was developed.

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2. AIM, OBJECTIVES AND RESEARCH METHODOLOGY
This paper describes the findings of a 6-month Transition Project entitled “Knowledge
Mapping and Bringing About Change for the Sustainable Urban Environment”, involving
five universities in the United Kingdom. The aim of the project is to support an integrated
approach to the creation, identification, accessing, transfer, mapping and the exploitation
of sustainable urban environment (SUE) knowledge in bringing about change by the
provision of tools, protocols, guidelines, benchmark indicators and training.

The six main objectives (A – F) this project were achieved using the following
methodologies as listed below.

A. Appraise the options (i.e. tools) for dynamic approaches to modelling and
mapping knowledge

Research Methodology: Review of relevant literature, documents specific criteria for

appraising different k-mapping tools, discuss with experts in the field
Deliverable: Document the different k-mapping tools, indicating the strengths and
weaknesses of each in differing contexts

B. Develop a structured assessment to evaluate knowledge mapping tools

Research Methodology: Review of relevant literature, analysis of assessment

options for evaluating knowledge mapping tools, discussions with experts in the field
Deliverable: A structured assessment protocol for evaluating knowledge mapping tools

C. Produce, test and refine generic model of knowledge mapping for SUE- To form
the basis for the main study

Research Methodology will involve interviews and the use of suitable case studies; and
testing using focus groups. Appropriate Knowledge mapping software will also be
employed.
Deliverable: A tested generic model on KM for SUE to form the basis for the main
programme (Core-Plus)

D. Arrange and host a workshop for knowledge exchange among users and
producers of sustainability knowledge

Deliverable: A constructive and well attended workshop.

E. Select appropriate case projects needed to be investigated during the main bid

Research Methodology: The use of discussions, interviews and workshops involving

industrial collaborators would allow appropriate case studies to be identified.
Deliverable: Appropriate case studies/projects to be used for the main programme (core
and plus)

F. Produce a 5-page pamphlet on “The Role of Knowledge Communication and

Knowledge Mapping in SUE.

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Research Methodology: A thorough review of literature, analysis of data from
interviews, case studies and focus groups

Deliverable: A 5-page pamphlet which should be useful in disseminating the importance

of sustainable knowledge to the wider SUE consortia and to the users and producers of
sustainable knowledge.

The overall research process used in the Transition Project is given in Figure 1. The
project was given direction through its ‘research aims and identifiable objectives’.

Research Semi – Develop a Develop a structured Test generic model; Revise K-Mapping
aims and Structured generic model assessment method to and efficacy of a model & the Write up
objectives Interviews on knowledge evaluate the efficacy of structured method structured Transition
mapping knowledge mapping for evaluating k- assessment method project final
tools/techniques Mapping tools/ to evaluate K- report
techniques Mapping tools/
techniques

Literature review
Primary data

Data analysis

Dissemination

Figure 1: Research Methodology

A combination of research strategies (literature review, semi-structured interviews, and

workshop) was adopted as proposed. Semi-structured interviews were conducted with
fourteen (14) construction industry actors (architects, developers, and main contractors)
and four (4) software developers to identify ‘successful’ knowledge mapping tools. The
interviews with the software developers investigated the types of knowledge mapping
tools in the market, focusing on their dynamism and potential effects for the users. The
data collected from the eighteen (18) interviews were analysed using content analysis.

Simister (1994 cited in Soetanto et al. 2002) describes content analysis as a technique for
extracting and categorising information from the text. Neuman (1997) describes content
analysis as a technique for gathering and analysing the content of text. Guthrie et al.
(2004) describe content analysis as a technique for gathering data, involves codifying
quantitative and qualitative information into pre-defined categories in order to derive
patterns in the presentation and reporting of information.

Content analysis according to Neuman (1997), (1998), Soetanto et al (2002) is a research

tool used to determine the presence of certain words or concepts within the texts or sets
of texts Researchers quantify and analyse the presence, meanings and relationships of
such words and concepts, and making inferences about the messages within the texts,
interviews, discussions, essays, book chapters, articles, speeches or any occurrence of
communicative language.

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According to Guthrie et al. (2004), for content analysis to be effective, certain technical
requirements should be met. First, the categories of classification must be clearly and
operationally defined. Second, the objective of the study should be clear. Third, the
information needs to be able to be quantified and finally, a reliable coder is necessary for
consistency.

To conduct a content analysis of any such text, the text is initially transcribed, generalised
and coded or broken down into manageable categories of levels using one of the content
analysis’ basic methods: conceptual analysis or rational analysis (Guthrie et al. 2004). In
conceptual analysis method, a concept is chosen for examination, and the analysis
involves quantifying and tallying its presence. In rational analysis method, like
conceptual analysis, it begins with the act of identifying concepts that are present in a
given text or set of texts but seeks by exploring the relationships between the concepts
identified.

Conceptual analysis begins with identifying objectives and the text must be coded into
manageable content categories. By reducing the text to categories consisting of a word,
set of words or phrases, the researcher can focus on, and code for, specific words or
patterns that are indicative of the pilot study objectives. The researcher decides on how
many different concepts to code for. This involves developing a pre-defined or interactive
set of concepts and categories. After a certain numbers, set of concepts are chosen for
coding. The data was put in a form that was easy to work with. The response of each
individual interviewees of a particular topic was put together

Of these, fourteen (14) were with Construction industry personnel (architects, main
contractors and developers) and four (4) were with software developers. The data from
the interviews were primarily analysed using content analysis.

3. ANALYSIS
The interviews highlighted that knowledge mapping was deemed to be important and that
the organisations had some (simple) knowledge mapping tools and techniques in place.
The distinction between knowledge mapping tools and techniques is that the former is IT
enabled. All the construction organisations interviewed use a combination of different
knowledge mapping tools. For instance, in terms of tools:

• In-house created intra-nets – A combination of idea and casual maps were employed
by ten (10) organisations to create the so-called “linchpin” of knowledge capture and
diffusion, including both internal knowledge (e.g. facilitating ‘communities of
practice’ – often through an interactive virtual bullet board – and promoting ‘top tips’
and highlighting ‘best practice’) and external knowledge (e.g. new regulations, new
technologies, links to relevant external magazine articles, external websites,
conference proceedings). Interviews revealed that company intranets are often
administered centrally but information can be uploaded de-centrally. Also, intranets
are often group-wide but contain mini-intranets organised by function or location.

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• In-house created on-line database libraries – A combination of concept, cognitive and
casual maps were identified in the entire organisation interviewed. But these are seen
as less interactive than intranets, more a repository for structured material, but
advanced (and ICT enabled) in terms of search facilities (e.g. 7500 search terms in
one instance) and decentralised in terms of allowing the uploading of information
from projects and site managers. These often contained end of project reports,
documents describing new in-house procedures, profiles of persons with
knowledge/experience in a particular area.

4. TECHNIQUES
In terms of techniques, a combination of social mess and knowledge-flow maps were
identified in eight (8) organisations with much emphasis placed on the diffusion of
knowledge through human interaction (“the most effective method of transferring
knowledge”, argued one respondent). This is used mainly within the organisation but it
sometimes involves the occasional use of experts from outside the organisation (from
industry organisations e.g. CIRIA and cross industry organisations). Other knowledge
mapping techniques identified are:

• The use of semantic/ perceptual maps by teams dedicated to visiting sites, capturing
ideas and best practice and diffusing them via on-site demonstrations: the teams
included ‘environmental consultants’ or ‘continuous performance engineers’;
• technical help lines, where calls are monitored and trends (common issues, problems)
identified;
• coaching from people with recent experience or expertise in industries, products,
concepts (again, sometimes external experts were involved);
• regular meetings between senior management and divisional/project managers a form
of knowledge flow map (to diffuse information across and up/down the organisation)
or between experts e.g. environmental advisors (to share specific knowledge);
• ‘working party’ groups to investigate common problems and diffuse knowledge;
• training programmes including lunch-time seminars on specific topics (again,
sometimes with external consultants);
• peer reviewed and externally published papers a depiction of process map;
• technical newsletters, which raise issues, describe best practice, advertise seminars
and promote top tips.

Most of the tools and techniques described above were implemented in an attempt to
improve efficiency (productivity) and sustainability (often environmental and health and
safety knowledge). In one instance, tools were implemented in response to an employee
leaving the organisation.

Interviews revealed that some organisations had attempted to measure the success of the
tools. Tangible measures, such as KPIs on health and safety, design, were used to
monitor the success of tools (i.e. an ‘output’ measure) but more often the interviewees
described the more intangible benefits of the tools e.g. encouraging a group spirit (across
decentralised and diversified contractors), embedding a gender of sustainability in the
organisation, lowering risk (by providing ‘digestible’ information). In most cases, tools

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had been in place for a number of years and had teams dedicated to keeping the tools up-
to-date (including correcting problems).

Most tools did not require staff training requirements and were designed with user
friendliness in mind. However, issues of user friendliness were identified as a hindering
factor by a number of organisations. Other factors hindering the effectiveness of the
tools were problems with recording or codifying/visually representing the information
(e.g. transferring it from people’s minds to the page), software quality (e.g. inadequate
keyword searches), targeting information to relevant users, and over-coming routines (i.e.
“the way we do things around here”).

The knowledge mapping products marketed by the software developers were closer to
some of the more sophisticated knowledge mapping tools identified in the review of
literature. However, notwithstanding the experience of one large contractor, these were
not used by the interviewees; in fact, the knowledge mapping tools offered by the
interviewees were designed in-house and were considerably simpler than those described
by the software developers. Those offered by the software developers were platforms for
visualising and organising ideas (Axon Idea Processor, Mind Technologies’ Visual Mind,
Mindjet Corporation’s MindManager X5, CoCo Systems’ Visi Map Professional). These
tools are electronic versions of some of the knowledge mapping tools such as concept
maps/mind maps/cross boundary causality maps (Axon Idea Processor; Mind
Technologies, CoCo Systems) and process maps/causal maps (Mindjet Corporation).

5. KNOWLEDGE MAPPING IN THE CONSTRUCTION

INDUSTRY
In order for organisations to effectively exploit their knowledge assets, it is important that
they effectively identify where knowledge resides. This is at the heart of “knowledge
mapping”. A knowledge map describes what knowledge is used in a process, and how it
flows around the process.

It is the basis of determining knowledge commonality, or areas where similar knowledge

is used across multiple processes. It describes:

• Who has what knowledge (tacit),

• Where the knowledge resides (e.g. infrastructure), and
• How the knowledge is transferred or disseminated.

Knowledge mapping also aims to track the acquisition and loss of information and
knowledge. It explores personal and group competencies and illustrates how knowledge
flows throughout an organisation or ‘network’. This chapter investigates the different
types of knowledge mapping techniques that could be used to bring about change from a
sustainable urban environment (SUE) perspective. Egbu and Suresh (2005) define
sustainable urban environment (SUE) as “a complex integrated urban system (a mix of
natural elements and the built environment) with an ability to absorb changes to key
sustainable urban development variables (environmental, economic and social), while
answering the needs of the present and future urban users (business and citizens)”.

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Knowledge mapping in a sustainable urban environment context is in its infancy and has
the potential to address a number of challenges that organisations are currently facing
(Suresh and Egbu, 2004). This research project investigated, inter-alia, the different types
of knowledge mapping techniques to bring about change from a sustainable urban
environment (SUE) perspective. This paper also discusses the challenges associated with
their use and implementation.

A thorough literature review leads to the identification of seventeen knowledge mapping

techniques. These knowledge mapping tools and techniques are: concept maps, mind
map/idea map, concept circle diagram, semantic map, cognitive map, process map, social
mess map or cross boundary causality map, conceptual map and knowledge flow map.
Others are ontology, Petri-net, cluster vee diagram, thesauri, visual thinking network,
topic map and perceptual map.

Many of these tools and techniques are not widely used in the construction industry. The
market solutions (off the peg tools /techniques) are perceived not to offer added value;
and are likely to exceed the company’s requirements. Many organisations prefer instead
to invest in in-house development of intranets and other IT enabled tools. Most
construction organisations also rely on techniques long established in the firms. Table 1
presents the most used knowledge mapping tools/ techniques and which are perceived to
be most successful by construction industry actors and software developers.

Table 1: Most Used Knowledge Mapping Tools/ Techniques in the Industry and which are Perceived
to be Successful
S/NO Knowledge Mapping Construction Industry Software Developer
Tools/ Techniques Actors
1. Casual Map 9 9
2. Cognitive Map 9
3. Concept Map 9 9
4. Knowledge Flow Map 9
5. Mind/ Idea Map 9 9
6. Perceptual Map 9
7. Process Map 9 9
8. Semantic Map 9
9. Social Mess Map 9

The study also revealed that the industry actively uses different combinations of nine
out of the seventeen. The descriptions and applications of these knowledge mapping
tools/ techniques are given in Table 2.

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 Table 2: Description and Application of the Most Used Knowledge Mapping Tools/ Techniques
Knowledge
S/NO Mapping Tools/ Description Application
Techniques
Structure of people's causal To explore beliefs of individual or
assertions and generation of groups in order to establish cause &
1. Casual Map
consequence following those effect relationships; 'what-if scenarios'
assertions
Mapping of thoughts a person
Refer to the mental models that people
has about a particular situation
uses to perceive, contextualise,
2. Cognitive Map or problem of interest; from
simplify, and make sense of otherwise
concept mapping to word
complex systems
webbing
Express a particular person's knowledge
Node-link structure in which about a given topic in a specific
nodes denote concepts and links context; explore prior knowledge and
3. Concept Map
show the relationship between misconceptions; problem-solving tool,
these concepts shorthand form for organising and
sequencing ideas
Used to map and measure relationships
Knowledge Flow High-level knowledge models in and flows between people, groups,
4.
Map a transparent graphical form organisations and information/
knowledge processing entities
Begin with one central theme or
Note-taking technique; a way to capture
concept and radiate
and reflect the processes in the brain;
5. Mind/ Idea Map hierarchically outwards as sub-
used for training scheme manual
concepts/additional ideas
emerge
Standard way to visually summarise the
Simply way of taking
dimensions that customers use to
complicated results from
perceive and judge products and
6. Perceptual Map research surveys and presenting
identify how competitive products are
them on a clear and informative
placed on those dimensions
map
Blocks of activities or tasks Define the sequence of tasks which link
sequenced in a logical way to the actions of people within & across
7. Process Map achieve a specific goal/ functions in order to achieve a specific
objectives include factors like goal
timescale, resources etc.
Similar to mind, idea and
Used for artificial intelligence and
concept maps; 6 different types:
machine translations but also previously
8. Semantic Map definitial, assertional,
used in philosophy and languages
implicational, executable,
learning and hybrid networks
Problems are situated in a
Summarise a particular group's
tangled mess of causal factors
understanding of the problems, causes,
9. Social Mess Map that cross the boundaries of
influences and relevant data about the
stakeholders, processes,
mess
industries and social arenas

Some of benefits of knowledge mapping tools/ techniques as perceived by the

participants includes the stimulation of creativity by knowledge mapping tools/
techniques, the allowance for employees to see the big picture, the organisation of
employees’ time and the sharing of their thoughts and improve understanding. One large
contractor has adopted ‘mind mapping’ software and has used it to facilitate workshops,
brainstorming sessions and meetings (e.g. communicating more effectively agendas for
meetings, business planning, goals and objectives).

According to one interviewee, it has made meetings more productive (e.g. notes are taken
during the meeting and exported directly into a minutes’ template) and helped overcome
problems of individuality (i.e. making the outcome of meetings a group effort). Adoption
of the mind mapping software in this instance stemmed from a ‘champion’ in the
organisation: the current Knowledge Manager has experience of using the software at
University and is trying to encourage its adoption across the organisation.

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The key factors considered by users of knowledge mapping tools and techniques in the
construction industry are robustness, cost, user friendliness, dynamism, the low level of
training needed before their use, the degree of positive impact the tool/technique is likely
to make on their businesses (processes, services and products) as well as their level of
flexibility and adaptability.

The study also sought to ascertain the efficacy of the knowledge mapping tools and
techniques; document what factors are being considered by users in choosing and using
knowledge mapping tools/techniques. The distinction between knowledge mapping tools
and techniques is that the former is IT enabled.

Table 3 summarises the perceptions of those interviewed with regard to how they
evaluated the nine most used tools/techniques. The three scales of ‘High’, ‘Medium’ and
‘Low’ were used in the evaluation. For example, the Social Mess Map technique was
rated high in terms of robustness, cost, user friendliness but low in terms of how
adaptable or flexible it is.

The project found that most knowledge mapping tools/ techniques are static and there is a
need to make them more dynamic for effective organisational use. The dynamic mapping
of knowledge requires the identification of temporal properties of the content elements
and of ways to map them in a dynamic manner. Examples of temporal properties of maps
are time, duration, or behaviour. All the tools and techniques investigated might present
dynamic characteristics (adaptable to change) however, the cost of adjustment to change
(time) may prove prohibitive in some cases. It is therefore necessary to consider the cost
benefit analysis prior to designing or choosing the tool/technique.

190
 Table 3: Structured Assessment for Knowledge Mapping Tools / Techniques – Construction Industry Perspective
K- Evaluation Criteria
Mapping
S/NO Tools/ User
Technique Robustness Cost Friendl Training Impact Adaptability
s iness
1. Casual
Medium Low High Low Medium Medium
Map
2. Cognitive
Low Medium Medium Low Medium Medium
Map
3. Concept
High Low Medium Medium Low Low
Map
4. Knowledge
High Low High Low Medium Low
Flow Map
5. Mind/ Idea
High Medium Medium Medium High Low
Map
6. Perceptual
Medium Low High Low Medium Medium
Map
7. Process
High Low Medium Medium High Low
Map
8. Semantic
High Medium High Low Medium Medium
Map
9. Social
High Medium High Low High Low
Mess Map

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Knowledge mapping activity needs to constantly re-evaluate the location of actors within
the network of firms, their relative importance and significance within the
interdependences and hierarchies of the division of labour. Firms and institutions need to
find out if the individuals with higher stocks of technical and tacit knowledge have a
relevant place in the social organisation of the firm/institution, and this relevant place is a
central role in the network. The mapping instrument has to fulfil three needs to achieve a
satisfactory level of dynamic modelling. Firstly, the need to depict over time the relations
that are most representative or central; secondly, the need to make relative assumptions as
to the “richness of the social interactions” since individuals with high technical ability
might not have, at the same time, a superior stock of social interventions. Thirdly, the
need to evaluate the capabilities that for a given moment are more relevant to the firm,
and are usually associated with global strategies (integrated in relative competitive
positioning) such as profit maximisation, cost minimisation subject to environmental,
social and financial constraints.

6. CONCLUSIONS AND RECOMMENDATIONS

Knowledge mapping techniques can be applied successfully in order to facilitate the
change in sustainable urban environment by mapping best practices and identify the gaps
in process of sustaining the urban environment. Knowledge mapping forms a key
technique for knowledge management initiatives, since key competitive decisions can be
taken based on the resulting transparent overviews of knowledge maps. The construction
industry stakeholders interviewed accept that knowledge mapping is important and have
initiated or improved mechanisms (tools/techniques) to capture and diffuse information,
particularly with respect to sustainability. However, generally speaking, they have not
adopted off-the-peg knowledge mapping software solutions. The market solutions are
not seen to be cost effective, do not offer the firms added value and they prefer instead to
invest in in-house development of intranets and other IT enabled tools and the rely on
techniques long established in the firm (meetings, briefing notes, seminars, ‘coaching’
schemes, newsletters, etc). This study revealed that the industry actively uses different
combinations of nine out of the seventeen knowledge mapping tools identified in the
literature. These allow the organisations to be able to adapt the tools for their own
internal uses.

When creating knowledge maps within the context of SUE, the following two factors
need to be considered:

• During the development of knowledge maps, a three dimensional approach is

required which maps the knowledge within the economic, social and environmental
context.
• Most knowledge maps tend to include technical knowledge for processes and
skills but it is recommended that knowledge maps should also include the ‘generic
processes and skills’ which are required to facilitate the change in sustainable urban
environment.

It is also recommended that within the context of SUE, we may have to come up with an
innovative way in terms of representation of knowledge maps. Sustainability can be seen

192
as a socio-political process and to represent the knowledge within this context, we cannot
wholly rely on computer based representation of the knowledge. Human factor is
essential to representing the knowledge within the SUE context. One way to capture in
capturing the socio-political tacit knowledge is to establish a community of practice for
sustainability knowledge sharing and perhaps representations.

Knowledge mapping tools have the ability to effectively identify and coordinate
organisational knowledge. Knowledge mapping tools also aim to track the acquisition
and loss of information and knowledge. It maps how knowledge flows throughout an
organisation or ‘network’. This report has shown the different types of knowledge
mapping techniques that could bring about change from a sustainable urban environment
perspective. The most important challenge associated with the use and implementation of
knowledge mapping tools is the need for a dynamic approach to knowledge mapping.
This is due to the dynamic characteristics of sustainability and knowledge itself.

The strategic implementation of knowledge mapping tools within a sustainable urban

environment is very useful for decision makers. Some of the benefits of knowledge maps
are improved ability to locate knowledge in processes, people, repositories and context;
and improved awareness of islands of expertise and evaluation of intellectual and
intangible assets, improved decision making and problem solving by providing applicable
information, and effective knowledge sharing associated with knowledge exploitation in
organisations. The full exploitation of knowledge mapping techniques is also dependent
on a variety of factors and the main purpose of their use. While knowledge mapping for a
sustainable urban environment has been deemed important this has been relatively under
studied by researchers. Research in this area has the potential to contribute to an
improved understanding of how to continue to exploit knowledge mapping for improved
performance.

7. REFERENCES

Alexander P A, Schallert DL and Hare VC (1991) Coming to terms: How researchers in learning and
literacy talk about knowledge. Review of educational research, Vol. 61(3) pages 315-343
Antonelli, C (1999) Communication and innovation: the evidence within technological districts,
International Conference: Knowledge Spillovers and The Geography of Innovation, A
Comparison of National Systems of Innovation July 1—2.
Armistead C (1999) Knowledge management and process performance, Journal of Knowledge
Management, vol. 3 no.2, 143-154
Bruntland, G. (1987) Our common future: The World Commission on Environment and Development,
Oxford, Oxford University Press.
Coulson-Thomas C J (1997) The future of the organisation: selected knowledge management issues.
Journal of Knowledge Management, vol. 1, no.1, 15-26
Davenport, T. H. and Prusak, L. (1998) Working Knowledge. How Organisations Manage What They
Know. Harvard Business School Press. Boston, Massachusetts, USA.
Despres C and Chauvel D (1999) Knowledge management(s), Journal of Knowledge Management,
vol. 3, no. 2 110-120
Egbu C O and Suresh H R (2005) “Integrating Knowledge Management and Six Sigma in Addressing
a Sustainable Urban Environment Issues: Critical Success Factors, Tools and Techniques”
3rd International Conference on Innovation in Architecture, Engineering and Construction
(AEC), 15-17th June, S. Sariyildiz and B. Tuncer, Rotterdam, the Netherlands, ISBN:
9085590574, pp 395-405.
Gurteen D (1998) Knowledge, creativity and innovation, Journal of Knowledge Management, Vol. 2,
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method to inquire unto intellectual capital reporting. Journal of Intellectual, Vol. 5, No. 2, pp.
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Neuman, W.L. (1997). Social Research Methods: Qualitative and quantitative approaches (3rd
Edition). Boston: Allyn and Bacon.
O’Donell, A.M (1993), “Searching for information in knowledge maps and texts”. Contemporary
Educational Psychology. Vol.18, No. 2, 222-39
Parkin, S. (2000) “Context and Drivers for Operationalising Sustainable Development. Institution of
Civil Engineers (ICE), November, pp. 9 – 15.
Quintas, P. (2002) ‘Implications of the Division of Knowledge for Innovation in Networks’, in J. de la
Mothe and A.N. Link (eds.) Networks, Alliances and Partnerships in the Innovation Process,
Kluwer Academic Press, Boston, pp 135-162.
Storey J and Barnett E (2000) Knowledge management initiatives: learning from failure, Journal of
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Suresh H R and Egbu C O (2004) "Knowledge Mapping: Concepts and Benefits for a Sustainable
Urban Environment". 20th Annual Conference Association of Researchers in Construction
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Watt, Edinburgh, UK. ISBN 0953416194, pp 905 - 914.

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 THE POTENTIAL OF APPLYING PASSIVE
PROCUREMENT AS ONE OF THE MEANS OF
ACHIEVING SUSTAINABILITY IN THE BUILT
ENVIRONMENT

Khairuddin Abdul Rashid

International Islamic University Malaysia

Jalan Gombak, 53100, Kuala Lumpur

Email: khairuddin@iiu.edu.my

Abstract: The paper reports the outcome of a study on the potential of applying the concept
of passive procurement as one of the means of achieving sustainability in the built
environment of Malaysia. The methodology for the study is a combination of desk research
and on-line survey among Architects and Quantity Surveyors. The outcome of the study
implied that passive procurement will be among the strategies to be used in the future in
efforts towards sustainability in the built environment. In addition, the study identified the key
attributes of passive procurement applicable currently and in the near future both in practice
and in teaching and learning. The paper concludes by proposing that key players of the built
environment of Malaysia should consider applying the key attributes of passive procurement
in efforts towards achieving sustainability in the built environment.

Keywords: Construction and Development, Malaysia, Policy, Procurement, Sustainable

1. CONTEXT
This paper deals with the concept of passive procurement in the context of sustainable
development1.

The interest on passive procurement gains prominent through efforts made by the United
Nations (UN) and a number of non-governmental organizations whereby in 2001 these
organizations identified passive procurement as the process of buying supplies or services
that should take into account (Lei Zhou et. al 2004) the following:

1. The best value for money considerations such as price, quality, availability,
functionality, etc;
2. Environmental aspects (such as the effects on the environment that the product
and/or services has over its whole lifecycle);
3. The entire lifecycle of the product; and
4. Social aspects: effects on issue such as poverty eradication, international equity in
the distribution of resource, labor conditions and human rights.

1
Sustainable development and procurement in general has been discussed by many including Khairuddin
2000; 2004a; 2004b; 2004c; 2006; Khairuddin and Abdul Azeez, 2004, etc

195
Elsewhere, the application of the concept of passive procurement in the context of
sustainable development has been promoted by the European Union2 and the UK
Government3 (Lei Zhou et. al 2004).

However, in the context of Malaysia the author is yet to find published government paper
or circular that outlines definite policies on passive procurement4.

2. PLAN OF THE PAPER

This paper reports the outcome of a preliminary study assessing the potential of applying
the concept of passive procurement as one of the means of achieving sustainability in the
built environment. The focus of the study is the application of passive procurement in
building projects and in teaching and learning. The study forms part of the author’s on-
going work on passive procurement in the built environment of Malaysia (other aspects
of the study have been reported in Khairuddin, 2004).

Initially, this paper reviews the concept of passive procurement in relation to sustainable
development. The concept has been considered by others (for example Lei Zhou, et al,
2004; Hossain and Lachemi, 2004; Khairuddin; 2004a; 2004b) as fundamental in efforts
by the construction sector (of many countries) towards achieving sustainable
development.

Thereafter, key principles / attributes of passive procurement proposed by others and

their potential application in the Malaysian context will be identified and examined. The
principles / attributes considered having the potential for application form the basis of a
questionnaire survey to identify attributes of passive procurement in building projects and
in teaching and learning. Key findings of the survey will be presented and discussed
towards the end of this paper.

This study is preliminary in nature. Consequently, the relatively simple methodology –

combining review of recent literature with the researcher’s own knowledge and
experience, and a simple questionnaire survey among the author’s colleagues at the
International Islamic University Malaysia – is considered appropriate and sufficient to
form basis for future and in-depth study.

3. PASSIVE PROCUREMENT
Lei Zhou et. al (2004) contend that there is no universally accepted definition on the
concept of passive procurement. To Lei Zhou et. al passive (or green) procurement refers

2
For example the Green Purchasing Practice Guide – How Local Authorities spend their budgets
responsibly.
3
For example The Green Guide for Buyers published by the DETR and the Procurement Circular (2000).
4
The study is on-going. The author acknowledges the Government’s efforts to promote sustainability in
general. Sustainability is featured in development policies such as Vision 2020, the Local Agenda 21,
Town and Country Planning Act 1976, Environmental Quality Act 1974, 7th Malaysia Plan (1997-2001)
whereby some RM1.9 billion was allocated for the improvement and protection of the environment,
CIDB’s Industrialized Building System (IBS) and Modular Coordination, etc and the Malaysia NGOs have
been very vocal in voicing issues and strategies on sustainability.

196
to the procurement of all goods, materials or services that are consistent with the
principles and guidelines of sustainable development. The fundamental issue in passive
procurement is to identify and reduce environmental impact and to maximize resource
efficiency.

In addition, Lei Zhou et. al (2004) proposed the following aspects as the essence of
passive procurement:

1. Careful consideration of the good’s, material’s or service’s impact on the

environment, economy, and human health and well-being;

2. Consideration of market factors, such as specifications, quality, delivery date and

price of good, material or service; and

3. Preference being given to the purchase of environmentally preferable goods and

materials whenever they perform satisfactorily and are available at a reasonable
price.

According to P2ric (2003, in Lei Zhou et. al, 2004) there are three principles of passive
procurement, i.e. (i) pollution prevention, (ii) life-cycle perspective, and (iii) resource
efficiency. Details of these principles are given in Box 1.

Box 1 : P2ric’s 3 Principles of Passive Procurement

1. Pollution prevention
9 Avoiding the creation of waste from the start of a process
9 Reducing or eliminating toxicity, air and water emissions
9 Preventing the transfer of pollution from one environmental medium to another
9 Includes source reduction and waste reduction which prevent the creation of waste rather
than waste management after it is created

2. Life-cycle perspective
9 Looking at cost beyond the purchase price
9 Considering costs and environmental impact over the lifetime of a product or service

3. Resource efficiency
9 Giving preference to reusable content and recycled materials over virgin materials, as well
as to the conservation of water and energy

Source: Lei Zhou et. al (2004) quoting the works of P2ric (2003).

Upstream (2004) identified 14 key attributes of a sustainable built environment. These

key attributes can be considered appropriate for incorporated into the concept of passive
procurement (Khairuddin 2004b). All 14 attributes is reproduced in Box 2.

197
 Box 2 : Upstream’s 14 Attributes of a Sustainable Built Environment

1. Public participation in decision making

2. Planning to reduce the need for travel and its related impacts
3. Effective and efficient use of land – including land re-use
4. Use of building materials from sustainable sources
5. Efficient use of energy and water in the production, manufacture and transportation of materials, in
the construction process and in the operation and management of buildings
6. Integration of biodiversity plans in layout and design
7. Encouragement of diversity (i.e. mixed uses, different age groups, different ethnic groups and
religions, etc.)
8. Promotion of local employment and economic development
9. Provision of healthy, safe and secure environments
10. Equitable access to facilities and services
11. Sufficient size, scale, density and the right layout to support basic amenities
12. Provision of public open spaces including green spaces
13. A balance and mix of uses to support social, economic and environmental objectives
14. Design for sustainable flexibility
Source: Upstream (2004), p4.

Khairuddin (2004b)5 in his attempt to identify attributes of passive procurement

appropriate for application in the built environment of Malaysia synthesizes the attributes
proposed by Lei Zhou et al (2004), P2ric (2003) and Upstream (2004). The outcome of
the synthesis is a list of 18 attributes (see Box 3). All 18 attributes relate to the supply
chain of procuring a building project: from inception to completion, contract and dispute
resolution.

In addition, Khairuddin (2004b) assessed the potential of these 18 attributes to be applied

when procuring for building projects both current and in the near future (within 5 years).
The result of the assessment is as shown in Box 3.

However, the findings from the Khairuddin’s study (2004b) are not considered reliable.
This is because the findings were non-empirical: he applied his own knowledge and
experience as the principal source of reference6. No attempt was made to seek views from
experts or to validate the model through empirical means.

Box 3 : Khairuddin’s 18 Attributes of Passive Procurement for the

Malaysian Construction Sector
No Key attributes of passive procurement for construction Cr Fr
1 Public participation in decision making 8 9
2 Planning to reduce the need for travel and its related impacts 8 9
3 Effective and efficient use of land – including land re-use 9 9
4 Use of building materials from sustainable sources 8 9
5 Efficient use of energy and water in the production, manufacture and transportation 8 9
of materials, in the construction process, and during the life of the completed
facility
6 Integration of biodiversity plans in layout and design 8 9

5
Khairuddin’s 18 attributes of passive procurement were presented and well received by participants of an
international seminar on ‘Passive Design Considerations in the Built Environment’ held at the International
Islamic University Malaysia in December 2004 (see Khairuddin, 2004).
6
See Khairuddin (2004b)

198
7 Encouragement of diversity (i.e. mixed uses, different age groups, different ethnic 9 9
groups and religions, etc.)
8 Promotion of local employment and economic development 9 ,
9 Provision of healthy, safe and secure environments 9 9
10 Equitable access to facilities and services 8 9
11 Sufficient size, scale, density and the right layout to support basic amenities 8 9
12 Provision of public open spaces including green spaces 9 9
13 A balance and mix of uses to support politics, social, economic and environmental 9 9
objectives
14 Design for sustainable flexibility 8 9
15 Life-cycle perspective and value engineering 8 9
16 Co-operative or integrated systems of procurement including partnering 9 9
17 E – Procurement (design, submission, tender, contract administration) 8 9
18 Alternative dispute resolution (ADR) 9 9

Cr = Current application 9the attribute is being applied;

8 the attribute is not in use.
Fr = Potentials for future application 9 the attribute can be applied in the future;
8 the attribute may not be appropriate for future
application.
, uncertain / unsure
Source: Khairuddin (2004b)

4. THE POTENTIAL OF APPLYING THE CONCEPT OF PASSIVE

PROCUREMENT IN MALAYSIA
In furthering his efforts to asses the potential of applying the concept of passive
procurement in the built environment of Malaysia, the author considers it appropriate for
the study by Khairuddin (2004b) to be extended.

Consequently, the model on the 18 attributes of passive procurement proposed by

Khairuddin (2004b, see Box 3) was adopted as a basis for a questionnaire survey carried-
out by the author. No further modification to the model was made due to the fact that the
model has been piloted (through a presentation to participants of an international seminar
‘Passive Design Considerations in the Built Environment’ held at the International
Islamic University Malaysia in December 2004).

The survey targeted academics currently serving the Faculty of Architecture and
Environmental Design at the International Islamic University Malaysia. Budget and other
constraints were the key factors that prevented the survey to include other experts and
practitioners of the built environment of Malaysia7.

In addition, considering that the survey aims to solicit data to validate or otherwise the
Khairuddin’s model of 18 attributes of passive procurement (Khairuddin, 2004b) for
building projects it is deemed appropriate to target respondents from the architecture and
quantity surveying backgrounds. Further more in efforts to assess the application of the
concept of passive procurement in teaching and learning in architecture and quantity
surveying, targeting these academics is considered appropriate.

7
The entire study is funded and carried out entirely by author.

199
The survey, carried out on-line, was conducted between June and July 2005. The
faculty’s email address containing addresses of all academics from the architecture and
quantity surveying backgrounds were compiled and the questionnaires emailed to them.
All together a total of 27 set of questionnaires were emailed comprising 16 architects and
11 quantity surveyors. All 27 academics are currently involved in delivering courses in
architecture and quantity surveying at undergraduate and postgraduate levels and in
research and consultancies.

The respondents were presented with a brief explanation on the concept of passive
procurement and presented with a list comprising the 18 attributes of passive
procurement as proposed by Khairuddin (2004b). They were asked to indicate their view:

A. In relation to the practice of architecture and quantity surveying in Malaysia;

1. Identify whether currently the attributes are being applied in the procurement of
buildings projects; and
2. Assess the potential of their application in the future (in the medium term, i.e. up to
five years); and

B. In relation to teaching and learning architecture and quantity surveying in Malaysia;

3. Identify whether currently the attributes are in the course outlines / being taught in the
program(s) that they are teaching (now or before) or know of; and
4. Assess the potential of their inclusion in future course outlines of program(s) that they
are teaching (now or before) or know of.

After two reminders, the response to the survey remained poor; only 8 returns were
received (29.62%. Key background details of the respondents are given in Box 4. On the
basis of the respondents’ qualifications, age, and experiences in practice and in teaching
backgrounds, the data collected may be considered appropriate and sufficient to meet the
aims and objectives of the current study (being preliminary in nature).

Box 4 : Respondents’ background

1. Professional backgrounds 4. Qualifications

Architect 4 Bachelor degree 1
Quantity surveyors 4 Bachelor and Master 6
Total 8 Bachelor, Master and PhD 1
Total 8
2. Gender
Male 4 5. Experience (professional)
Female 4 Not exceeding 5 years 4
Total 8 >5 but but n.e. 10 years 2
>10 years 2
3. Age (years)
20 – 29 2 6. Experience (teaching)
30 – 39 3 Not exceeding 5 years 3
40 – 49 3 >5 but n.e. 10 years 5
Total 8 > 10 years 0

Total respondents = 8

200
In the analysis of data only attributes identified by 4 or more respondents (50%; n = 8)
can be considered as (i) currently being applied in the procurement of buildings projects;
or (ii) having the potential of their application in the future (i.e. up to five years). The
results of the analysis are given in Box 5.

The analysis of data on the identification of attributes of passive procurement for

application in teaching and learning architecture and quantity surveying, similar simple
approach was applied. Thus, only attributes identified by 4 or more respondents (50%; n
= 8) can be considered as (i) currently being applied in the course outlines / being taught
in the program(s); or (ii) having the potential of their inclusion in future course outlines
of program(s) (i.e. up to five years). The results of this analysis are given in Box 6.

Box 5 : Key Attributes of Passive Procurement Applied Currently and Has Potential for Application in the
Future (up to 5 years)
No Key attributes of passive procurement for construction Cr Fr
1 Public participation in decision making 8 9
2 Planning to reduce the need for travel and its related impacts 8 9
3 Effective and efficient use of land – including land re-use 8 9
4 Use of building materials from sustainable sources 8 9
5 Efficient use of energy and water in the production, manufacture and transportation 8 9
of materials, in the construction process, and during the life of the completed
facility
6 Integration of biodiversity plans in layout and design 8 9
7 Encouragement of diversity (i.e. mixed uses, different age groups, different ethnic 8 9
groups and religions, etc.)
8 Promotion of local employment and economic development 8 9
9 Provision of healthy, safe and secure environments 8 9
10 Equitable access to facilities and services 8 9
11 Sufficient size, scale, density and the right layout to support basic amenities 8 9
12 Provision of public open spaces including green spaces 9 9
13 A balance and mix of uses to support politics, social, economic and environmental 8 9
objectives
14 Design for sustainable flexibility 8 9
15 Life-cycle perspective and value engineering 8 9
16 Co-operative or integrated systems of procurement including partnering 8 9
17 E – Procurement (design, submission, tender, contract administration) 8 9
18 Alternative dispute resolution (ADR) 8 9

Cr = Current application 9the attribute is currently being applied;

8 the attribute is not in use.
Fr = Potentials for future application 9 the attribute has potential for application in the
future;
8 the attribute may not be appropriate for future
application.

201
 Box 6 : Key Attributes of Passive Procurement Applied Currently and Has Potential for Application in the
Future in Teaching and Learning (up to 5 years)
No Key attributes of passive procurement for construction Cr Fr
1 Public participation in decision making 8 9
2 Planning to reduce the need for travel and its related impacts 8 9
3 Effective and efficient use of land – including land re-use 9 9
4 Use of building materials from sustainable sources 9 9
5 Efficient use of energy and water in the production, manufacture and transportation 9 9
of materials, in the construction process, and during the life of the completed
facility
6 Integration of biodiversity plans in layout and design 9 9
7 Encouragement of diversity (i.e. mixed uses, different age groups, different ethnic 9 9
groups and religions, etc.)
8 Promotion of local employment and economic development 9 9
9 Provision of healthy, safe and secure environments 9 9
10 Equitable access to facilities and services 9 9
11 Sufficient size, scale, density and the right layout to support basic amenities 9 9
12 Provision of public open spaces including green spaces 9 9
13 A balance and mix of uses to support politics, social, economic and environmental 9 9
objectives
14 Design for sustainable flexibility 9 9
15 Life-cycle perspective and value engineering 9 9
16 Co-operative or integrated systems of procurement including partnering 8 9
17 E – Procurement (design, submission, tender, contract administration) 8 9
18 Alternative dispute resolution (ADR) 8 9

Cr = Current application 9the attribute is currently being applied;

8 the attribute is not in use.
Fr = Potentials for future application 9 the attribute has potential for application in the
future;
8 the attribute may not be appropriate for future
application.
5. DISCUSSION
The findings of the study suggest that currently passive procurement is not being
practiced in the procurement of building projects: from the results, out of 18 attributes of
passive procurement, only 1 attribute, i.e. provision of public open spaces including green
spaces, is currently being applied.

However, the findings suggest that all 18 attributes (see Box 5) of passive procurement
have high potential for application in the future (i.e. up to five years). This aspect of the
findings implied that there is potential for passive procurement to be applied in the future
in the procurement of building projects. This therefore augurs well for the built
environment of Malaysia in its endeavors towards sustainable development.

In relation to teaching and learning architecture and quantity surveying (at the
International Islamic University Malaysia) the findings of the study suggest that currently
passive procurement is incorporated into the course outlines / being taught in the
programs. From the 18 attributes of passive procurement, 13 are inside the course
outlines and / or being taught to architecture and quantity surveying students (see Box 6).
In addition, the findings suggest that passive procurement will become a feature to be
taught to architecture and quantity surveying students in the future i.e. up to 5 years): all

202
18 attributes (see Box 6) have high potential for incorporation into the course outlines / to
be taught in the future. Similarly, this aspect of the findings augurs well for the built
environment of Malaysia in its endeavors towards sustainable development.

The author acknowledges that the attributes of passive procurement identified in the
study are worthy of detailed discussions, particularly on their theories and modes of
application. However, these aspects of the report are currently being compiled and
therefore could not be included in this paper. In the meantime interested participants may
consult literature on construction procurement management or sustainability in the built
environment (some listed in the references) to seek information on those attributes. This
shortcoming is regretted.

6. CONCLUSIONS
The paper reports the outcome of a preliminary study assessing the potential of applying
the concept of passive procurement as one of the means of achieving sustainability in the
built environment of Malaysia. The study found that:

1. Currently, passive procurement is not being practiced when procuring building

projects; but passive procurement has high potential for application in the future
(i.e. up to five years);

2. In relation to teaching and learning architecture and quantity surveying, currently

the concept of passive procurement are already incorporated into the course
outlines and being taught in the programs; and the concept of passive procurement
will continue to be incorporated in the course outlines and to be taught in the
architecture and quantity surveying programs in the future (i.e. up to five years);

3. In addition, 18 attributes of passive procurement considered to be appropriate for

future incorporation into the practice of procuring building projects and for use in
teaching and learning architecture and quantity surveying have been identified.
They are:

1. Public participation in decision making

2. Planning to reduce the need for travel and its related impacts
3. Effective and efficient use of land – including land re-use
4. Use of building materials from sustainable sources
5. Efficient use of energy and water in the production, manufacture and transportation of materials, in the
construction process, and during the life of the completed facility
6. Integration of biodiversity plans in layout and design
7. Encouragement of diversity (i.e. mixed uses, different age groups, different ethnic groups and religions,
etc.)
8. Promotion of local employment and economic development
9. Provision of healthy, safe and secure environments
10. Equitable access to facilities and services
11. Sufficient size, scale, density and the right layout to support basic amenities
12. Provision of public open spaces including green spaces
13. A balance and mix of uses to support politics, social, economic and environmental objectives
14. Design for sustainable flexibility
15. Life-cycle perspective and value engineering
16. Co-operative or integrated systems of procurement including partnering
17. E – Procurement (design, submission, tender, contract administration)
18. Alternative dispute resolution (ADR)

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The findings mentioned above augur well for the built environment of Malaysia in its
endeavors towards sustainable development.

It is recommended that key players of the built environment of Malaysia should consider
applying the key attributes of passive procurement in efforts towards achieving
sustainability in the built environment.

However, it must be acknowledged that the application of passive procurement for

construction is not to be taken as the panacea for all woes of the built environment; but it
is contended that sustainable development may be difficult to achieve or may even be un-
attainable if passive procurement are ignored.

The study is preliminary in nature and is constrained by many factors – time, financial
and human resources, and limitation associated with the methodology used for the study.
The attributes for passive procurement identified herein should therefore be evaluated in
the light of these constraints. Further and in-depth study is required.

7. REFERENCES
Department for Environment, Food and Rural Affairs, UK (2002). Sustainable Development. On line:
http://www.defra.gov.uk/environment/sustainable/index.htm. accessed on 23 June 2002.
Hossain, K.M.A., and Lachemi, M., (2004). Sustainable Construction Using Construction and Demolition
Wastes. Proceedings, World of Construction Project Management, Toronto, Canada, 27-28 May
2004, pp212-224.
Khairuddin Abdul Rashid, (2000). A Framework for Implementing the Concept of Partnering in JKR.
Proceedings, Introducing the Concept of Partnering in the Construction Industry. Putrajaya, 22
April, 2000, Jabatan Kerja Raya Malaysia.
Khairuddin Abdul Rashid and Abdul Azeez Kadar Hamsa, Editors, (2004a). Sustainable Built Environment
through Management and Technology. Kuala Lumpur: KAED, IIUM.
Khairuddin Abdul Rashid (2004b). Passive Procurement. The way Forward for Sustainable Development
for Malaysia. Proceeding, International Seminar ‘Passive Design Considerations in the Built
Environment’ held at the International Islamic University Malaysia in December 2004, IIUM and
Kyoto University of Japan.
Khairuddin Abdul Rashid, (2004c). Smart Partnering: An Integrated Approach Towards Achieving
Sustainable Development in the Built Environment of Malaysia. In Khairuddin Abdul Rashid and
Abdul Azeez Kadar Hamsa, Editors, (2004). Sustainable Built Environment through Management
and Technology. Kuala Lumpur: KAED, IIUM, pp37-44.
Khairuddin Abdul Rashid (2006). Sustainable Project Delivery Systems in Developing Economies – Case
Studies on the Procurement of Mega Infrastructure Facilities in Malaysia. Abstract accepted for
presentation to the First Built Environment Conference, Johannesburg, South Africa, 18-21 June
2006; CIOB Africa.
Upstream, (2004). Sustainability and the Built Environment – An Agenda for Action. London: RICS.
Zhou, L., Lowe, D., and Morton, B., (2004). Incorporating ‘Green Procurement’ into the UK Construction
Industry. Proceedings, World of Construction Project Management, Toronto, Canada, 27-28 May
2004, pp200-211.

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 MINIMIZING SPECIFICATIONS BY PERFORMANCE
BASED SELECTION OF SPECIALTY
CONTRACTORS (SYSTEM DESIGN AND BUILD)

Teppo Salmikivi 1, Kenneth Sullivan 2, Dean Kashiwagi 3 and Juhani Kiiras 4

1
Senior owner representative, MSc, Lic.Sc., PhD candidate,
University of Helsinki, Technical Department,
P.O Box 33, FIN-00014 University of Helsinki,
Finland,
E-mail: teppo.salmikivi@helsinki.fi

2
Assistant Professor, Facility Management Research Center (FMRI),
Arizona State University, PO Box 870204, Tempe,
AZ, 85287-0204, USA,
E-mail: Kenneth.sullivan@asu.edu

3
Professor, Performance Based Studies Group,
Arizona State University, PO Box 870204, Tempe,
AZ, 85287-0204, USA,
E-mail: Dean.kashiwagi@asu.edu
4
Professor, Helsinki University of Technology,
Construction Economics and Management (TKK/CEM),
P.O. Box 2100, FIN-02015 TKK,
Finland,
E-mail: juhani.kiiras@tkk.fi

Abstract: Clients can use different procurement strategies and performance based selection
methods in order to improve the performance of all counterparts of the building project. In the
traditional low-bid and general contracting environment the selection of designers, main
contractor and sub-contractors is normally based on price only. However, the low-bid process
in construction projects is the source of the poor performance and dissatisfaction in the
industry. As a part of the Finnish design management system (FinSUKE) the Special systems
contracting (SSC) (also called as System Design and Build, SDB) is referred to as
combination of the design, manufacturing, delivery, and installation of the building systems
and elements by various specialty contractors. Through the SSC, a true competitive tendering
based on know-how and quality as well as on life-cycle-costs can be arranged. Selection of
any service, including CM and subcontract vendors, is best achieved in an environment that
forces high competition and high performance. In order to select the best vendor for the
contract, the process of procurement must be adapted to quantify best value. It requires the
ability to compete potential vendors on price and performance, where performance includes
not only past capability but the capability for the current project. This process has been
achieved with the Performance Information Procurement System (PIPS). With the principles
of SSC and PIPS the best performance is achieved with less specification.

Keywords: Procurement strategy, special systems contracting, performance, Finland

1. INTRODUCTION
Procurement strategies can be implemented with balanced benefits for key parties in
building projects. In Finland, the Special Systems Contracting (SSC) (or System Design

205
and Build, SDB) is developed to advance the adoption of extended building contracts
with the design, manufacturing, delivery, and installment of building systems or elements
by various specialty contractors. In the SSC, tendering is based on the know-how of
contractors and selection criteria include performance, quality, price, and life cycle costs.
Various subcontractors, service providers, and suppliers can adopt a new enlarged role of
a special system contractor with incentives for system development, innovations, and
new delivery packages. The penetration of the SSC will, in turn, advance effective
networking within the building industry and possibilities for contractors with life cycle
services. In addition, markets for new service profiles are being created.

On the other hand, selection of any service, including CM and subcontract vendors, is
best achieved in an environment that forces high competition and high performance. In
order to select the best vendor for the contract, the process of procurement must be
adapted to quantify best value. It requires the ability to compete potential vendors on
price and performance, where performance includes not only past capability but the
capability for the current project. This process has been achieved with the Performance
Information Procurement System (PIPS) (Kashiwagi 2005).

Poor performance (on-time, on-budget, meeting quality expectations) has troubled the
construction industry for the past twenty years (Post 2001). The owners are not able to
succeed in building projects despite of their efforts to attain a set of objectives by
drawing up the overly exact descriptions of the tasks of the various project actors and
arranging low-bid competitions for the execution of the detailed tasks (Kashiwagi 2005).
Under traditional main contracts in Finland, the general contractors procure subcontracts
based on prices only. Building design documents are not reviewed before awards are
given. Project parties possess diverging interests. When problems occur, a general
contractor passes them on to clients with change orders (Kruus and Kiiras, 2005).

This paper is partly based on the ongoing study for a new model, the FinSUKE model,
for managing building design processes as part of construction management (CM)
projects in Finland (Kruus and Kiiras 2005). The FinSUKE model is being developed
within the unit of Construction Economics and Management (TKK/CEM) at the Helsinki
University of Technology. The study as a whole aims at developing a new design
management system, which will in part ensure the attainment of project specific (or
building specific) objectives in terms of performance, quality, costs, and schedules.

The purpose of the paper is to introduce owner’s procurement strategy and performance
based selection method in special systems contracting. In this paper the US-based
principles of the Performance Information Procurement System (PIPS, Kashiwagi 2005)
are incorporated into the SSC in FinSUKE model. With the principles of SSC and PIPS
the best performance is achieved with less specification. The goal is to force parties to
use tendering documents in order to both recognize and minimize risk and take into use
supplier’s design know-how before actual construction takes place. The article proposes
true teamwork between the parties involved with the goal of producing optimum results
for the builder.

With case projects it will be demonstrated how the implementation of the performance
based procurement strategies can help the owner to achieve project objectives. Therefore,
the use of performance based methods is herein emphasized for selection of all CM
contractors or consultants, designers, contractors, and subcontractors.

206
2. MAIN ELEMENTS OF SPECIAL SYSTEMS CONTRACTING

The owners’ possibilities to influence processes or to make changes during construction

stages in traditional general or main contract forms are limited. Any change in design
involves negotiations between a client and a contractor concerning costs and a schedule.
The implied lack of competition infers that changes during later stages are expensive for
the owner. A general contractor arranges competitive bidding among second-tier
subcontractors, and so on. All these competition stages are based onthe cheapest products
that meet owner’s requirements. Designers try to avoid a decrease in quality in these
competition chains by specifying ever increasing detailed product requirements. All
available suitable products and good operational performance cannot be obtained through
this low bid chain. Instead, owners are left alone with all low bid problems such as weak
quality, chained price competition, decisions made prematurely, and low flexibility for
design changes (Kiiras et al. 2005).

On the contrary, it is argued herein that an owner’s possibilities concerning the

procurement of the best design and supplies should be emphasized in every project. In
order to divide responsibilities owners must make several choices in different phases of
construction project, such as feasibility study, conceptual design, detailed engineering,
project management, construction and start-up of continuous use (Huovinen and Kiiras
1998). Owners can consider a flexible set of procurement methods and apply these
methods more extensively. Separate trade contracts, different CM contract forms, main
contracts, and DB contracts are the basic alternatives. There is also a vast scope of
alternatives in regard to a pricing system, the division of responsibilities, a way to obtain
tenders, the type and accuracy of documents, and terms for a contract (Pernu 1998).
When the CM forms of contracts are adopted, better performance is achieved through the
selection procedures as well as a freedom of contractors and suppliers to offer their
solutions and assume the responsibilities for the same as part of actual contracts (Kiiras et
al. 2005).

Specialty contractors in performance based SSC

In the building market in Finland, the use of the SSC model results into contracts in
which subcontractors (or suppliers) take the responsibility for the system design and
detailed engineering, the manufacturing, and the installation of the building systems or
elements in question including the in-use-performance of the system as defined by the
owner (client). The SSC transfers a part of design responsibilities to a system contractor
who couples this with its product design and production planning (Laurikainen 1991).

When competition is based on design solutions, material choices, and production

efficiency, the SSC model does not discriminate construction techniques and materials.
Competition expands from production know-how to system know-how and from details
to wholeness. In competing with solutions, it is possible for system contractors to come
up with more innovations and develop their production. In the SSC, it is possible to
compete only based on production technologies, but, as in the cases, competition can
include also the system and technical solutions (Salmikivi 2005).

207
In comparison, these special system contractors are responsible for a wider scope of work
than traditional specialty contractors do in the USA or in Finland. The traditional
contractors are mainly interested in the design phase of products, but the SS contractors
are actually responsible for designing and engineering their systems, too.

Classification of systems in SSC

An abstraction ‘system’ is herein seen as an entity, which is independent from other
entities, i.e. building elements (Laurikainen 1991). The definitions for the term system
vary in the literature. At its widest, a system contains a total building as an individual
system. At its smallest, a system includes only, for example, the mounting and planning
of a small part of construction work, like concrete reinforcing.

In the FinSUKE model, the SSC is limited to encompass only larger systems where a SS
contractor is responsible for the system design, the production planning, and the
installation as a functional element of the building in question. The SSC is also limited to
deal with entire design packages only (Kruus and Kiiras, 2005). A SS contractor’s input
into the project specific design of the system element is essential. This differs from the
common CM way of procurement in which suppliers’ solutions are included in the final
design.

According to the principles of open building, a building is divided into the systems of the
permanent base building (support, shell, and core) and the flexible space in-fills. The
flexible space in-fills are further divided into the interior areas (or departments), the
design and the realization of which are accomplished in accordance with the users’
complementary requirements. The fixed spaces are carried out either in connection with
the permanent base building or the flexible spaces.

Procurement process of special systems contract

In the design programme, the designers' tasks for the procurement of special systems are
defined. The same tasks are presented also in design agreements (i.e. the content, the
scope, and the schedule of the procurement and the requirements to the accuracy of the
tender documents). After the overall design phase, in a project master plan the division of
design packages and a design schedule is presented and also the particular design
packages are marked to be procured through the SSC procedure.

The design documents within the calls for tenders of special systems are also taken into
account in other design packages. Furthermore, the special system contracts are
scheduled in a way that allows, if necessary, the adoption of normal procurements. In call
for tenders, design packages for special system contracts are presented as a set of
requirements and specifications.

In the FinSUKE model, only the independent building elements, which are designed as
one design package, can be procured as a special system contract. Thus, the model
emphasizes the shared design and the enlarged responsibility of a system contractor. At
the same time, the aim is to emphasize the position of the architect and the duty of
specialized engineers to check and combine the separate designs (documents) (Salmikivi
2005).

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Procurement vis-à-vis delivery
In building project markets, owners’ (clients’) extended procurement strategies find their
counterparts in contractors’ strategies for offering special systems also with life cycle
services. By anticipating and analyzing clients’ needs, service providing SS contractors
can develop attractive service packages and depict how their service portfolios contribute
to clients’ strategic objectives.

A balance between demand orientation and supply orientation is necessary for both
owners and contractors. Therefore, the determination of the contract scopes is the most
significant decision before a choice of the procurement method. Naturally, both parties
are taking into account how designers can be involved to their procurement and delivery
strategies, respectively.

Long-lasting customer relationships can be beneficial in two ways. They give incentives
for contractors to develop better services and owners (clients) can develop their ways to
arrange competitions based on performance etc., besides price. In building projects,
owners expect more and more services from contractors (and suppliers). Owners are
involved in the production process and they perceive not only the output of that process
but parts of the process as co-producers.

3. HIGH PERFORMANCE BY PIPS PROCESS IN THE USA

Selection of any service, including CM and subcontract vendors, is best achieved in an
environment that forces high competition and high performance. To realize this
environment a client must operate in an outsourcing mindset where risk is completely
transferred to the vendor. With the risk transfer the vendor now has the risk of meeting
the performance requirements of the contract: cost, schedule, and client
expectations/requirements. The transfer of risk is accompanied by the minimization of
client management and control of the project. Indeed, client involvement is required but
only to the extent that the client’s needs, expectation, and requirements are understood
and fulfilled by the vendor(s) (CM, designer, sub, whomever). In the transfer of risk and
control, the vendor now has the ability to conduct the work with enhanced efficiency and
maximize its profit. (Kashiwagi 2005)

In order the select the best vendor for the contract, the process of procurement must be
adapted to quantify best value; the lack of this process in the current construction
environment is the source of the poor performance and dissatisfaction in the industry. To
quantify best value requires the ability to compete potential vendors on price and
performance, where performance includes not only past capability but the capability for
the current project. This process has been achieved with the Performance Information
Procurement System. (Kashiwagi 2005)

The fundamental hypothesis of PIPS: “Construction non-performance is a process based

problem” has not been altered over the twelve year research effort. The hypothesis
includes:
- Construction performance is mainly a process issue.
- The critical element is identifying and competing performing vendor.
- Management/control by the owner should be minimized.

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- An efficient environment will lower cost, deliver best value for the owner, and
maximize the contractor’s profit.
- Risk should be minimized by vendors rather than client’s representatives.

Under the above hypothesis, PIPS was formed and is composed of five major filters of
procurement (vendor selection) that seek to test the hypothesis. These major components
or filters of performance based procurement are:
1. Identification of past performance.
2. Project specific capability.
3. Competition based on performance (past performance and ability to minimize risk)
and price.
4. Pre-award phase.
5. Construction.
6. Measurement of performance.

Figure 1 shows the PIPS process as the user moves through each of the filters. When a
client requires a service, past performance information of interested vendors is collected
and entered into a performance database (DB). The requirements of client are then given
to the vendors, a which point the vendors develop a risk assessment plan that identifies,
prioritizes, and minimizes the project risks in terms of cost, time, and expectation. The
vendors are further competed through an interview process that forces key project
personnel (e.g. site superintendent and project manager) to demonstrate their ability to
add value to the job. The past performance information, risk assessment rating, interview
ratings, and price are entered into the decision making model. The identified best value
vendor then enters the pre-award period. Once the best value vendor has minimized all
risks according to the client’s satisfaction, the contract is awarded and construction
commences. During construction the project is managed in terms of risk through a
weekly risk reporting tool. Once construction is complete the client rates the vendor
based on the ability to control cost, time, and meet expectations. This rating becomes
50% of that vendor’s past performance rating in the performance DB for the next time the
vendor competes in the PIPS cycle.
Business / Operations
Requirements

R Risk Assessment Plan

Value identified through
V
competition
R Pre-award phase
Performance DB
M

Construction
M R

50%
V Identify Value

R Minimize Risk

M Self Measurement M 50% M Post Project Rating

Figure 1: PIPS. Six-Sigma Solution to Construction Delivery (Kashiwagi 2005)

210
PIPS differs from other best value processes due to its ability to compete performance
levels. It uses no performance standards or requirement other than the intent of the owner
or client. The process competes and identifies the best value, which before the process is
run, cannot be identified. Stated differently, the specifier cannot identify the best value,
because they do not know what the best value is. The best value process must therefore
compete and identify the best value. PIPS differs from the traditional best value processes
due to the following (Sullivan et al, 2006):

1. Forces contractors to identify and produce past performance from past clients and
compete based on the ratings, which are not translated into a subjective number.
2. Forces contractors to identify risks along with methods of risk minimization, as well
as a preplan as a part of the competitive award.
3. Forces competing contractors to regulate the winning contractor by identifying risks
that need to be minimized to be within budget, time, and client expectations.
4. Forces the best value contractor to minimize the risk of construction through a quality
control plan that complements the specification and that becomes a part of the
contract before being awarded the project.
5. Places the burden of differentiation and proving value on the competing contractors.
6. Minimizes the decision making and requirement of expertise of the client’s
representatives.

In the following case examples the Finnish performance based selection of special
systems contractors is described first and then analyzed according to the main steps of
PIPS method.

4. PERFORMANCE BASED SELECTION OF SPECIALTY

CONTRACTORS IN CASE PROJECTS IN FINLAND VIS-à-
VIS PIPS METHOD IN USA

The objectives of achieving better and improving performance are striven for by avoiding
pure price competition and cutting off unproductive surplus of supervision and
management. The Performance Information Procurement System (PIPS) is proved to be a
process that minimizes risk and optimizes the value of procured construction (Kashiwagi
2005).

On the other hand, the case projects of SSC have proved the strength of the “pulled” co-
operation between specialty contractors and designers. With the suggested SSC model,
the advantages of the DB method can be attained by avoiding at the same time the
disadvantages of the full scale DB of all construction works. From an owner’s point of
view, the SSC allows both to make performance based choices and to influence design
solutions. By connecting the SSC and the CM forms of contracts, the owner gets the
greatest flexibility for its procurement strategy.

The selection of a Finnish CM contractor using FinSUKE model is presented, discussed

and also compared with the PIPS-method in an other paper (Kruus et al, 2006)

211
In the following examples the performance based selection of special system contractors
is presented and compared with PIPS principles. On these case projects the PIPS-method
can’t be implemented totally because of the lack of the collected past performance
information database. But, in the small Finnish construction market the past performance
information can be attained from previous clients.

As a client and facility owner the University of Helsinki uses construction management
(CM) methods widely in projects because of their flexibility. In particular, open building
ideology, new construction methods, life cycle cost (LCC) competitions, and partnership
contracts are being co-pioneered and tested under CM projects and, thereafter, through
the facility management (FM) tasks carried out by the University of Helsinki. The
following case projects are examples of performance based procurement of special
systems contracts.

The frame and shell of bioscience laboratory building, Biocentre 3

Viikki Biocentre 3 is a new laboratory building of the University of Helsinki. The
university as the client had requested in the design competition that the architectural
solutions be open to different frame solutions, which were to be contracted separately. In
the same way, the competitive tendering for the building service systems was organized
after the commissioning of the frame.

The determination of the scope of a construction contract is one of the salient decisions
for choosing the procurement method. In this case, the scope of the contract was studied
against the open building frame of reference. The main contractor was responsible only
for the shell and the core of the building, and the subcontracts were nominated
(Lohikoski and Pernu 1999).

In the tendering competition, the five general contractors teamed up with their structural
engineers. All the teams offered their own frame solutions and other support structures
(foundations, facades, upper floor, roof, and insulation of the structures) with the fixed
tender price (Table 1). The tender plans were based on the architectural overall design
and the requirements of the performance of the frame, facades, roof, etc. The building
service systems were excluded in spite of the necessary space reservations and the shell
of the engine rooms.

Table 1: Selection Criteria of the Frame and Shell Contract in the Order of Preference
1 Fulfilling of the technical
requirements
2 Fixed tender price
3 Technical solutions of the frame and
facades
4 Flexibility of the frame to future
changes
5 Adaptability of the frame to the
building service systems

Each of the five frame solutions fulfilled the basic technical requirements. Thus, the
criterion for selecting the winner could be based on the tender price and the technical
solutions of the frame and shell. The compatibility of the architectural design and the

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technical plans was confirmed in the negotiations between the owner, the architect, and
the special systems contractor before the signing of the frame contract with the fixed
price. Thereafter, the competitive tendering on building service systems was organized
according to the selected frame system.

The frame and shell of Biocentre 3 was also a pilot project for procuring a system based
on the requirements and the overall drawings. The tendering documents included the
general layout of the structures, the key details, and the short specification. All the five
tendered frame solutions were different and fulfilled the requirements. The proposals
included the steel and concrete structures, different pre-cast concrete solutions and one
cast-in-situ concrete frame. Also one entirely new pre-cast concrete frame solution was
offered with a fixed price. After procuring the permanent systems, the flexible space in-
fills were procured through the six contracts. During the construction period, the number
of the change orders could be minimized.

The actual selection process can be analyzed according to the major components of PIPS-
performance based procurement as follows:

1. Identification of past performance. There was no accurate past performance record

on frequency of on-time completion, minimal change orders, and high customer
satisfaction of critical project performance elements. The customer satisfaction
information could be obtained from recent clients.
2. Project specific capability. The selection of the tendering teams was based on the
references and on clients’ experiences of the contractors for recent years. According
to that information the five best teams were selected to the competition.
3. Competition based on performance (past performance and ability to minimize risk)
and price. The competition was based on technical solution of the building frame and
shell and on the fixed price. The past performance was not selection criteria, but the
ability to minimize risk was presented in contractors’ project plans.
4. Pre-award phase. After the best value contractor was identified according to their
offer designs, project plan and price, they clarified how they are going to manage the
project and after that the construction contract was signed.
5. Construction. Before construction work started the contractors’ designers produced
final working drawings according to the contractors’ instructions in order to minimize
the non-constructability risk during the construction phase.
6. Measurement of performance. The project and the contractor were not rated
officially after completion of the project, but the team (contractor and designer) was
assessed by the owner, and the information will be used in future projects.

Air conditioning plants of medical laboratory building, Biomedicum

The medical laboratory building, Biomedicum, is the core building of medical research
at the University of Helsinki. The construction project was carried out under the CM
form. One of the subcontractors was responsible for the design, the manufacture, the
delivery, and the installation of 20 air conditioning plants in the engine rooms.

The invitation for tenders was arranged based on the functional and technical
requirements. The tenders included the description of the air conditioning plant and its
properties. The criterion for selecting the winner was based on the life cycle cost analysis
and the tender price (Table 2).

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 Table 2: Selection Criteria of the Air Conditioning Plants in the Order of Preference
1 Investment and life cycle costs
2 Technical properties of the plants, a
calculation with simulation program
3 Flexibility in the use of air
conditioning and possibilities for
future changes
4 Utilization of the duplex air
conditioning units
5 Maintainability from personnel’s
point of view

The properties and the energy consumption of the machines were calculated before the
contract and tested after the delivery as the complete units. The compatibility of the
technical plans was confirmed during the negotiations between the owner and the
contractor before the signing.

The air conditioning plants were delivered to the building site as the complete and tested
pre-fabricated units. Thus, the time for the assembly works was minimized. When the
properties of the plants were tested before the delivery to the site, the plant adjustment
times were short which eased and speeded up the adjustment of the air conditioning
system as a whole.

The air conditioning plants of Biomedicum offered a good chance for the air conditioning
machine suppliers to enhance their service profiles. At the same time, the project required
some product development according to the specifications. The number and the size of
the plants were big enough to create a competitive environment for suppliers. A new
simulation program was created to analyze the offered plants. The supplier was chosen
mainly based on the technical properties and the life cycle costs. The very short
installation period and the short adjustment times for the pre-tested air conditioning
plants helped a lot to manage the master schedule of the project. During the past four
years, the plants have functioned properly at the low energy consumption level.

Also in this project the actual selection process can be analyzed according to the major
components of PIPS-performance based procurement as follows:

1. Identification of past performance. There was no accurate past performance record

on frequency of on time completion, minimal change orders, and high customer
satisfaction of critical project performance elements. The customer satisfaction was
attained from the owner’s previous experiences of the contractors.
2. Project specific capability. Also in this project the selection of the tendering teams
was based on the references and on different clients’ experiences of the contractors
for recent years. According to that information the best teams were selected to the
competition.
3. Competition based on performance (past performance and ability to minimize risk)
and price. The competition of air conditioning plants was based on technical solution,
functionality, maintainability, calculated energy consumption, and on the fixed price.
The past performance was not selection criteria, because there was no past
performance of such deliveries. The risks were minimized by a delivery of plants as
complete and pre-tested units and by a fixed price.

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4. Pre-award phase. After the best value contractor was identified according to their
offer designs, delivery plan and price, the energy consumption calculations were
analyzed by a new simulation program.
5. Construction. Before manufacturing of the plants the designers produced final shop
drawings according to the contractor’s instructions in order to ensure the properties of
the plants and delivery functions. The first one of the plants was tested as a complete
unit before delivery.
6. Measurement of performance. The project and the contractor were not rated officially
after completion, but the performance of the plants has been monitored carefully
during recent years and there has not been any non-performance of the plants.

5. CONCLUSIONS

In the suggested special systems contracting (or system DB) model, each contractor is
responsible for the design, the manufacturing, the delivery, and the installation of the
distinct building systems or elements. Possibilities for performance based quality
competitions and competitions for life cycle deliveries and long-term guarantees are
created. The SSC model makes it possible to manage a project by independent and
causally interrelated entities instead of details.

With the SSC it is possible to move from the low-bid environment to best value
procurement. For example, in a traditional fixed price full-scale DB contract, a DB
contractor gains all advantages from developing the designs and through the competitive
bidding of subcontractors. On the contrary, in the SSC the system contractors can utilize
their know-how in a way that is beneficial from the perspective of both the owner and the
contractors.

On the other hand PIPS method is created for selection of any service needed during the
construction project. The aim of PIPS is to create an environment that forces high
competition and high performance in order to select the best vendor for the contract. It
has an ability to compete potential vendors on price and performance in order to create
best value.

On selection of a specialty contractor the best results can be gained when the methods of
SSC in the FinSUKE and PIPS are combined. It has also been shown that the satisfaction
to the procurement have been advanced significantly by integrating new service packages
with the traditional ones. Especially the after-sales services such as maintenance services
can be analyzed in performance based procurement.

In the case projects selection of the contractor was based on limited amount of
requirements and specifications given by the owner. Even if the selection processes did
not totally follow the PIPS method and the best value process (Sullivan et al, 2006), both
selections were performance based and they resulted to good satisfaction of the owner,
and also the projects did meet on-time and on-budget expectations.

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The future challenges on broader implementing of the ideas the PIPS method to Finland
are mainly in creation and updating of past performance databases and continuous risk
assessment during the construction work.

6. REFERENCES

Huovinen, P. and Kiiras, J. (1998). “Procurement methods as determinant for interactions and networking
within the EU building industry.” In Halinen-Kaila, A. and Nummela, N., Eds., Interaction,
relastionships, and networks: Visions for the future. Proc. of 14th IMP Annual Conference. Vol. 2:
Work-in-progress papers. Turku School of Economics and Business Administration, Turku, 557-
578.
Kashiwagi, D. (2005). Best Value Procurement: How to Use Information Systems to Minimize Risk,
Increase Performance, and Predict Future Success. Performance Based Studies Research Group,
Arizona State University, Tempe.
Kiiras, J., Kashiwagi, D., Huovinen, P., and Kruus, M. (2005). “Better buildings by performance based
Construction Management (CM) contracts.” In Sullivan, K. and Kashiwagi, D. T., Eds.,
Proceedings of CIB W92/T23/W107 International Symposium on Procurement Systems: The
Impact of Cultural Differences and Systems on Construction Performance. CD-Rom.
PBSRG/ASU and SBNE/GCU, Las Vegas, Nevada, USA. 8-10 Feb 2005, 125-132.
Kruus, M. and K iir as , J. (2005). “Advanced Design Management as Part of Construction Management
(CM).” In Kazi, A. S., ed., Systemic innovation in the management of construction projects and
processes. Proc. of the 11th Joint CIB W55, W65 International Symposium on Combining Forces,
Advancing Facilities Management and Construction through Innovation, June 13-16,2005,
Helsinki. Book Series, VTT and RIL, 272-283.
Kruus, M., Sullivan, K., Kashiwagi, D. and Kiiras, J.: “Selection process of construction management
service provider”. A presentation to be held at the International Conference in the Built
Environment in the 21st Century ” ICiBE 2006”, 13-15 June 2006, Kuala Lumpur, Malaysia
Laurikainen, J. (1991). Owners’ special system contracting. RAKLI Finnish Association of Building
Owners and Construction Clients, Helsinki. (In Finnish)
Lohikoski, R. and Pernu, P. (1999). Competitive tendering for technical solutions in construction – Pilot
Biocenter 3. TKK/CEM Report 178. Helsinki University of Technology, Construction
Economics and Management, Espoo. (in Finnish)
Pernu, P. (1998). Analyzing Procurement Methods. TKK/CEM Report 192. Helsinki University of
Technology, Construction Economics and Management, Espoo. (In Finnish)
Pernu, P. (2005). “Delivery Systems as Service Processes in Building Projects.” In Kazi, A. S., ed.,
Systemic innovation in the management of construction projects and processes. Proc. of the 11th
Joint CIB W55, W65 International Symposium on Combining Forces, Advancing Facilities
Management and Construction through Innovation, June 13-16,2005, Helsinki. Book Series. VTT
and RIL, 315-325.
Salmikivi, T. (2005). “Advancing Building in Finland Trough Special Systems Contracting.” In Kazi, A.
S., ed., Systemic innovation in the management of construction projects and processes. Proc. of
the 11th Joint CIB W55, W65 International Symposium on Combining Forces, Advancing
Facilities Management and Construction through Innovation, June 13-16,2005, Helsinki. Book
Series. VTT and RIL, 284-295.
Sullivan, K., Kruus, M., Kashiwagi, D. and Egbu, C.: “Comparison of the risk minimization ability of best
value with that of low bid procurement”. A presentation to be held at the International Conference
in the Built Environment in the 21st Century ” ICiBE 2006”, 13-15 June 2006, Kuala Lumpur,
Malaysia

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 IMPERATIVES OF CONSTRUCTION WORKFORCE
TRAINING: IMPROVING THE PROVISIONS WITH
TRAINING BEST PRACTICE
Fadzil Hassan and Ruslan Affendy Arshad

Faculty of Architecture, Planning & Surveying,

Universiti Teknologi MARA,
40450 Shah Alam, Selangor Darul Ehsan, Malaysia

Email: padzil_hassan@yahoo.co.uk

Abstract: Imbued with the conviction that continuous improvement of the workforce is vital
for the sustainability and competitiveness of construction, various training initiatives have
been introduced to promote the improvement of workforce performance within construction
industries. The failure to contend with fragmented nature of construction exacerbated further
by change have often been quoted as leading to mismatches between the training offered and
the workforce training needs. Consequently, many initiatives have fallen short of its intended
objective and the challenge of meeting the needs for improved performance of the workforce
continue to persist.

In recognition of the need to circumvent this phenomenon, this paper which was drawn from
the findings of a research on the UK construction industry posits that the way forward is to
critically rethink the training and by assimilating best practice concepts within the training
processes. In concluding, it suggests a best practice training framework to underpin the
effective design, delivery and outcomes of training.

Keywords: Construction Workforce, Training, Best Practice, Training Best Practice

1. INTRODUCTION

Training has been recognised as the fundamental approach to assist construction

industries meet the increasing demand for adequately trained and qualified workforce.
Despite the numerous initiatives introduced to promote and improve the training of the
construction workforce, success has often been limited.

A research investigating the approaches for improving the framework for training site
managers within the UK construction industry was undertaken, and a significant part of
the research was devoted to investigate the context within which training should be
conceived. This paper presents the findings from part of the research. It suggests that
for training to be effective, it must be underpinned with a sound appreciation of human
resource management concepts augmented with a firm understanding of the factors that
affect training processes. To enable this, a framework for perceiving training based on
best practice was proposed to aid the provision of effective training.

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2. THE TRAINING FRAMEWORK
The research training conceptual framework was developed by drawing data from current
and key concepts on training from literature, research papers and examples from other
successful industries. The themes drawn culminated were as follows:

Training

Training spawns from the realms of learning. Within the context of human resource
management, it is recognised as one of the most effective vehicles for promoting learning
of people that will in-turn benefit organisations. Training should be aimed at promoting
as much continuing learning and re-learning of people as possible as it can be very
significant in contributing to their performance improvements (Handy, 1999); Mullins,
2002)

Successful training initiatives, which can be measured through its effectiveness, pivots on
the basis from which the training is developed (Gravan, 1997; Pickett, 2000; Bennett and
McCoshan, 1993; Appelbaum and Reichart, 1997). They are hallmarked by positive
outcomes where the benefits can be derived collectively by the trainee, the employer, the
job (Wills 1994; Beaton and Richards 1997; Bechtel and Squires 2001; Davis and Davis
1998; Johnson 1997; Martin 1998; Bentley 1991). For this to happen, the paradigm in
managing the organisation and its people must be correct. Training must be a key
element of the organisational philosophy and the organisation must place adequate
emphasis on the appreciation and development of its people.

Training Best Practice

The absence of other recognised tool developed for managing change coupled with the
concern that training provisions must to be able to satisfy the ever-changing needs at the
workplace has made best practice thinking dominant in training (Hassan, 2005). Best
practice operates within a flexible framework that encourages rethinking of the present
approach, the exploration of different methods and/or processes in different
circumstances while maintaining focus on continuous learning and adoption of
innovation into the management process (Zairi, 1996; Bogan and English, 1994; Dooley
et al, 1998).

Within this context, training was conceived as an evolving cyclic process. This was
drawing views from renowned scholars on training (Anderson, 1994; Bentley, 1991;
Wilson, 1999) which suggest that the process of training which comprise of: (i) Training
needs and Training Needs Analysis (TNA);(ii) Training Design; (iii) Training Design;
(iii) Training Implementation; and (iv) Training Evaluation must be a dynamic process.
Findings derived from the evaluation of a training process needs to be considered within
the next training cycle to ensure a continuously improving training provision. These
stages were adopted to structure the research investigations and the findings emerge as
follows:

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Training needs and Training Needs Analysis (TNA)

Training needs analysis (TNA) is a vital part of the training design process which
endeavors to investigate the performance ‘gaps’ of people in their job to identify what
needs to be learnt (Anderson 1994; Bentley 1991; Reid and Barrington 1994; Garavan
1997). Without TNAs, there can be no way of knowing if the training process is
correctly designed (Bee and Bee, 1998; Wills, 1994; Anderson, 1994). For TNAs to be
holistic, the three processes of: (i) identifying the range and extent of training needs from
business needs; (ii) specifying the needs precisely; and (iii) analysing how best training
can be carried out must be observed. This should be carried out at the organisational
level, job-level and person level within the organisation to be accurate (Bee and Bee,
1998; Wills, 1994; Anderson, 1994; Bramley, 1996; Truelove, 2001). Observations,
questionnaire surveys, fact-finding interviews or Delphi techniques are the common
methods for collecting TNA data whilst line-managers, training consultants, trainees
and/or trainers should be the key parties to the TNA (Reid and Barrington 1994; Fletcher
1997).

TNA approaches need to be carefully articulated. The ‘supply-led’ approach which is

usually trainer-driven can be inaccurate as trainers could lack management experience or
knowledge on real operational issues; the ‘demand–led’ approach is often too business
orientated and usually emphasise on bottom-line which often leads to neglect of
employees needs; the ‘process-led’ approach tends to be too localised for divisions or
departments for the training processes to be introduced in an effective manner; and
‘trainee-centred’ approach, which relies on self-assessment, has drawn strong criticism as
they often reflect employee wants instead of needs. An integrated approach combining
these methods to annul out any weakness would be ideal but can be expensive and time-
consuming (Chiu et al, 1999).

Training Design
The design stage of the training follows the TNA stage. During this stage, it is very
important that training method/s selected must match the training needs, and the training
strategy and planning must be appropriate to the training objective and circumstances
(Johnson, 1997; Reid and Barrington, 1999). A structured training programme design
would normally include: (i) review of training objectives; (ii) determine learning
activities; (iii) assess training times; (iv) construct timetable; and (v) briefing the trainers,
organisation and the preparation of training materials and equipment.

The key parties that must be involved in the training design should include: (i) the
organisation; (ii) the line management; (iii) the training manager and/or the training
officer; and (iv) the trainee (Rae, 1995). Training ‘interventions’ which entails a
deliberate intentional learning (Abdullah, 2001; Nedler and Nedler, 1999) must match the
organisational culture, management style and motivation (Osborne, 1996). The
application of the training procedures must be in the hands of personnel who are able to
apply a variety of competences in flexible ways to mesh with the organisation’s
operational considerations (Adamson and Caple, 1996)

219
It is imperative that the training ‘alignment’ must be correct with the right parties to the
training forum appointed. The training department’s mission needs to be clearly outlined
to establish the training policies and standards (Wills, 1994). The decision to determine
the appropriate training strategy should be based on the training compatibility with the
objectives, estimated likelihood of transfer of learning to the work situation, available
resources and trainee related factors. From this, the training can be designed to be; (i) on-
the-job; ii) planned organisational experience; (iii) in-house programmes; (iv) planned
experience outside the organisation; (v) external courses; (vi) self-managed learning;
and/or a combination of these approaches (Reid and Barrington, 1999). In contrast to
traditional training, the design of competence-based trainings must be based on explicit
and measurable performance because it needs to reflect the actual expectations and
performance in the work role (Johnson, 1997; Fletcher, 1997).

Training Implementation
Training implementation is putting the training design into practice. The mechanistic
‘traditional’ training approach has now greatly changed, replaced with the modern
approach that emphasise more of coaching and facilitating (Rae, 1995). The training
spectrum may varying from highly directive to free-learning, guided-learning,
lecture/discussion, presentation, instruction and conditioning for individuals or as a group
(Johnson, 1997; Bentley, 1991).

The training needs to be different for different people but concurrent with the different
kinds of tasks they undertake (Mathews et al, 2001; Bee and Bee, 1995). In most
situations, formal training entails deliberate and structured presentation of experiences
and must be related to its purpose (Thomson, 1990). The training policy and plan must be
the key reference for implementing training (Anderson, 1994). Task force exercise, case
discussion, simulation and games; role-play exercise, group discussion, individual
exercise, presentation/lectures and behavior modelling are the common training methods
(Abella, 1987), and may be carried out through external or internal providers (Bee and
Bee, 1995; Anderson, 1994). The trainer must be committed and equipped with wide-
ranging toolkit of ideas, techniques, methods and approaches which can be adopted as
when most appropriate.

On-the-job training is often very effective, flexible and relatively low-cost (Rae, 1995),
but can be ineffective if it is too detached from the actual job-environment or if it does
not follow guidelines of standard training programmes (Mathews, 1995).

Competence-based training is often modular outlines. It must take into account

occupational constraints such as availability of target groups, training premises, possible
need for several programmes and the atmosphere at the job location. The training
activity must be realistic to the preferred learning styles of the target group (Fletcher,
1997). The delivery of training or learning needs to be clearly focused on what happens at
the job place and not just what happens during the learning/training events (Adamson and
Caple, 1996).

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Training Evaluation

Training evaluation is the assessment of the total value of a training system, which
considers the training course or programme in social as well as financial terms. It
attempts to measure the overall cost benefit of the course (Bee and Bee, 1998; Anderson,
1994). It must encompass a systematic collection of data relevant to the selection,
adoption or modification of training and developmental activities, and must be an on-
going process from which continuous corrective action can be introduced to ensure an
ever-improving training (Goldstein, 1989; Wade, 1995; Johnson, 1997).

There are differing views as to who should be evaluating the training, but most views
tend to agree that senior managers, line managers, training manager, trainer and learner
must be included (Odini, 2000; Torrington and Hall, 1991). There has also been some
contention as to the extent of the training evaluation but the four popular training
evaluation models developed by renowned scholars on training as shown in Table 1 are
the most commonly referred.

Table 1. Levels at which evaluation objectives can be set (Adapted from Bramley, 1996)
* For the purpose of this paper the references above are not provided

Kirkpatric Warr, Bird Glossary Hamblin

Areas Components k Rackham (1971) (1974)
(1959) (1970)

• Judgments of the Reaction Reaction Reaction

Within the
quality of the trainees’
training
experiences
• Feedback to trainees’
about learning
Learning Intermediate Internal Learning
At the job after • Measures of gain or validation
training change
• Feedback to trainers
about methods Behavior Intermediate External Job behavior
validation
• Relevance of the
learning goals
• Measures of use of
learning or change of
behavior
• Retrospective feedback
to trainers

Organisation • Measures of change in Results Ultimate Evaluation Organisation

al organizational
Effectiveness performance
• Implementation of
individual/action plans
or projects

Social or • Measures of social cost - - Evaluation Ultimate

Cultural and benefits
values • Human resources Ultimate
accounting

221
It is imperative that evaluations must be impartial (Torrington and Hall, 1991).
Evaluation should be done before training starts. A baseline data must be established to
measure the training programme response, on-the-job action, business-focus results and
the organisational impact of the training (Wade, 1995). Post-training evaluation is very
important as the training itself is wasted if employees cannot transfer what they have
learned (Read and Kleiner, 1996).

There is a general acknowledgement that training effectiveness is the sub-set of

evaluation and that training effectiveness is the desired outcome of the training evaluation
(Anderson, 1994; IES, 1995; Truelove, 2002; Fletcher, 1997; Wade, 1995; Rae, 1995).
The explicit and implicit goals of training should be laid down in the cost and benefits
analysis. However, the criteria for determining the extent of indirect and social cost or
benefit is be very subjective and is a subject of much debate. This is seen to evolve
around the central question of what constitutes to training effectiveness.

Parallel to the views of Anderson (1994) and Wade (1995), it was drawn that training
effectiveness is a value judgment, which is contingent upon the context of training; the
baseline criteria set as the explicit and implicit training goals; and the accomplishment of
these goals. The criteria and the degree that is reasonable and worthwhile to measure the
impact of what should be evaluated to determine training effectiveness goes back to the
core of evaluation, its purpose. The professional way to determine training effectiveness
is often to validate training holistically by taking into account outcomes from both the
organsiation and the individual (Hassan, 2005).

3. A FRAMEWORK OF TRAINING BEST PRACTICE

It was conceived that training is essential if performance improvements are to be

achieved. Within the context of the construction industry, this must be appreciated
within the context of the industry, organisational setting and the surrounding project
environment. Training lies at the core of creating, maintaining and developing the
construction workforce, who contribute significantly in part, to the achievement of
construction projects objectives. In line with the nature of construction projects, much of
the construction workforce training needs to be designed at the workplace environment
where their effectiveness can be judged by their capability to deliver and contribute to the
project success.

To aid the holistic conception of training based on best practice, a framework was drawn
from the culminating training concepts discussed. This was augmented by the conviction
that it is most appropriate in dealing with the changing practices within construction to
sustain the provisions for training its workforce. Underpinning this is the confidence
that the research investigation has been thorough, encompassing the fundamental
concepts of best practice, change, human resource development, management and
organisations, which incidentally are also the key features of the construction industry.
The absence of other proven approaches management further augment this proposition.

222
The emerging themes drawn for the Best Practice Training Framework shown in Figure 2
are culminated and reaffirmed as follows:
• the holistic conceptualisation of the whole training process is fundamental
for understanding the training process;
• training is a dynamic cyclic process and the approaches within each
training element are continually evolving;

TNA process: (i) identifying
TNA from business needs, (ii)
specify needs precisely, (iii)
analyse how best training needs
can be met
TNA as the diagnostic part of
the training
Associated with skill,
performance or competency
‘gaps’
TNA classified as supply-led,
demand –led and trainee-
centered approach but research
suggests an integrated approach
by learning from training
experience.
Managers should discuss with
the trainee concerned in
competency-based training.
Training Needs
Analysis (TNA)
Determine the appropriate
training strategy: (i)
review training objectives,
(ii) determine training
activities, (iii) assess
training times/time table,
(iv) briefing parties to the
training
Training methodology: task
force exercise, case
discussions, simulations,
games, role-play, group
discussions, presentations,
lectures
Must match training needs,
organisation culture and
management style
Design
Must match training needs,
organization culture and
management style
Design of competence-based
training must be based on
explicit and measurable
performance.
Application of well-
developed procedures to
mesh with the organisation’s
operations

Need to be carried out at the

organizational level, job level
and person level
Encompass a systematic Line managers, training Current approach has shifted
collection of data, and must manager, training officer from ‘mechanistic’ to
be an on-going process to and trainee are key flexible poor-active
improve training approach

The popular training evaluation TRAINING BEST Importance of getting the

models: Kirkpatrick (1995), training function
Warr, Bird & Rackham (1970), Post-training is most May be carried out by
‘alignment’ correct
important & must be internal or external
Glossary(1971), Hamblin
(1974) providers

Training effectiveness is value

judgment & the sub-set of
evaluation. It is the
accomplishment of explicit &
implicit goals
Senior managers, line
managers, training manager,
trainer, trainees and consultants
are key parties to the training
evaluation
Competence-based training –
what to be assessed must be
clear and indicate application of
skill & knowledge evaluation
E l ti I l t ti Training policy & plan
must be the key reference
Trainers must be well equipped
Differing views to the
extent of evaluation by Many methods of
scholars and training conducting training: free
d l Competency based training are learning, guided learning,
often modular, needs to consider lectures/discussions,
occupational constraints and must presentations & induction.
be realistic
Extent of evaluation to be
based on what degree it is
worthwhile to measure
i t Approaches can be on-the-
job, planned organizational
Off-the-job training is ineffective if experience, in-house
it is too detached from the job, on-
Should be done across the programmes, planned
the-job training is ineffective if it experience outside
whole training process
does not follow guidelines of organization, external
standard training programmes
courses and self-managed
learning.

Figure 1. The Best Practice Training Framework

• each stage of the training process is inter-related and the outcome from the
evaluation stage must be considered in the next TNA stage of the training
cycle;
• each training stage is comprised of sub-elements and these sub-elements
must be approached systematically if the usefulness of the training
initiative is to be maintained;
• continuous learning of the factors that shape each training element is key
to the whole training process;
• the key information that needs to be identified in considering the approach
to each training stage are: (i) the objectives of each of the training activity,
(ii) the underpinning factors of each of the training element (iii) the

223
 alternatives and the best approach to carry out the process, and (iv) how
the training process could be best managed;
• base-line data are important to establishment ‘performance indicators’ to
measure performance within each training element;
• best practice must be applied within the context of the
organisation/industry and no one training approach is dominant; and
• although evaluation of the training effectiveness can be relative, the
holistic evaluation based on its outcome to the organisation and the
individual is recommended.

4. CONCLUSION

Whilst the findings outlined in this paper is limited to the review of literatures, it has
provided key understanding of the underpinning concepts from which effective training
initiatives should be initiated. Notwithstanding the variables of the background of the
workforce, organisational and project setting within which they perform, and the
fragmented nature of the construction and the industry; appreciation of the fundamentals
of training is essential for the provisions of effective training. The research posits that
this should be the principal starting point for the consideration of such provisions.

5. REFERENCES
Abdullah, F. (2001). The Strategic Learning Organisation of Construction Firms in Malaysia in Sustaining
Global Competitiveness. Unpublished MSc Thesis. Universiti Teknologi MARA, Malaysia.
Abella, K.T. (1987). Building Successful Training Programmes: A Step-By-Step Guide. Addison-Wesley
Publishing Company, Wokingham, England.
Adamson, P. & Caple. J. (1996). The Training and Development Audit Evolves: Is Your Training and
Development Budget Wasted? Journal of European Industrial Training, Vol. 20, No. 5, pp. 3-12.
Anderson, A.H. (1994) Successful Training Practices. Oxford: Blackwell Publishers.
Appelbaum, S.H., & Reichart, W. (1997). How to Measure an Organisation’s Learning Ability: A Learning
Orientation Part 1. Journal of Workplace Learning, Vol. 9, Issue 7. pp. 1-15
Beaton, L. & Richards, S. (1997) Making Training Pay. London: Institute of Personnel and Development
(IPD).
Bee, F. & Bee, R. (1998) Training Needs Analysis and Evaluation. London: Institute of Personnel &
Development (IPD).
Bechtel, L.R. & Squires, J.K. (2001) Tools and Techniques to Facilitate Change. Industrial and
Commercial Training, .33 (7), 249-255.
Bennet, R.J., & McCoshan, A. (1993). Enterprise & Human Resource Development. Paul Chapman
Publishing, London.
Bentley, T. (1991) The Business of Training. Berkshire: McGraw Hill.
Bogan, C.E. & English, M.J. (1994). Benchmarking for Best Practices. McGraw Hill. London.
Bramley, P. (1996) Evaluating Training Effectiveness; Benchmarking Your Training Activity against Best
Practice. 2nd edn. London: McGraw Hill Training Series
Chiu, W., Thompson, D., Mak, W., Lo, K.L. (1999) Re-thinking Training Needs Analysis. Personnel
Review. 28 (1), 77-90.
Davis, J.R. & Davis, B.D. (1998) Effective Training Strategies. San Francisco: Barrett-Koehler Publishers.
Dooley, J.K, Subra, A. & Anderson, J. (1998). Adoption Rates and Patterns of Best Practice in New
Product Development. International Journal of Innovation Management, Vol. 6. No. 1, pp. 85 –
103.
Fletcher, S. (1997). Designing Competency Based Training. London: Kogan Page.
Goldstein, I. (1989). Training in Organisations. 3rd Edn. Jossey Bass, San Francisco.

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Gravan, T.N. (1997). Training, Development, Education & Learning: Different or the Same? Journal of
European Industrial Training, 21 (2), 1-14.
Handy, C. B. (1999). Understanding Organisations, 4th Edn. Penguin Books, Middlesex.
Hassan P.F, (2005). A Best Practice Framework for Training UK Construction Site Managers,
Unpublished PhD Thesis, Sheffield Hallam University
Institute of Employment Studies, IES, (1995). Measuring the Effectiveness of training. IES. University of
Sussex. Brighton.
Johnson, R.S. (1997) Quality Training Practices. Kuala Lumpur, Malaysia: Synergy Book International.
Martin, J. (1998) Organisational Behavior, London: International Thompson Business Press.
Mathews, S. (1996). Training and Development: Analysing the Need, Developing the Plan and
Implementing The Strategy. Best Practice Management Report, Technical Communications
(Publishing) Ltd, Hertfordshire, England
Mathews, B.P., Ueno, A., Lopez, Z., Pereira, L., Silva, G., Kekal, T. & Repka, M. (2001). Quality
Training: Findings from a European Survey. The TQM Magazine. Vol. 13. No. 1. pp. 61-71.
Mullins, L.J. (2002). Management & Organisational Behaviour. 6th Edn. Prentice Hall. London.
Nadler, L. & Nedler, Z. (1990). The Handbook of Human Resource Development. 2nd Edn. Wiley, New
York.
Odini, C. (2000). Book Review: Using Evaluation in Training and Development. International Journal of
Manpower. Vol. 21, No. 6, pp. 511-515.
Osborne, D. (1996) Staff Training and Assessment. Wiltshire: Cassell-Redwood Books.
Read, W.R. & Kleiner B.H. (1996). Which Training Methods is Effective? Management Development
Review. Vol. 9. No. 2, pp. 24-29.
Reid, M. & Barrington, H. (1994) Training Interventions. Wiltshire: Cromwell Press.
Thomson, G. (1990). The Textbook of Human Resource Management. Institute of Personnel Management.
London.
Truelove, S. (2001) Training in Practice. Oxford: Blackwell Business.
Wade, A. P. (1995). Measuring the Impact of Training. Kogan Page Ltd. London.
Wills, M. (1994). Managing the Training Process: Putting the Basics into Practice. Journal of European
Industrial Training. Vol. 18. Issue 6. pp. 4-28.
Wilson P. (1999). Human Resource Development. Kogan Page Ltd. London.
Zaini, M. (1996). Benchmarking for Best Practice. Butterworth Heinemann, Oxford.

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226
 HOW READY ARE WE FOR E-TENDERING?
A MALAYSIAN CASE STUDY IN THE PREPARATION
FOR IMPLEMENTING OF E-TENDERING FOR THE
CONSTRUCTION INDUSTRY

Syed Alwee Alsagoff , Eric Lou Choen Weng and Nurshuhada Zainon

Nurshuhada Zainon
Analyst
CIDB E-Construct Services Sdn. Bhd.
Suite 16.04 Bangunan AMDB
No.1 Jalan Lumut
50400 Kuala Lumpur
03-404177551

alwee@econstruct.com.my
zshuhada@gmail.com

Abstract: This paper examines the validity of the claim through an analysis of an IT-led
construction tendering initiative soon to be implemented in Malaysia. The National
ETendering Imperative (NETi) is a national initiative that integrates and bridges every process
and component of the entire construction tendering supply chain onto an electronic or digital
medium in the hope that it can then transcend geographical, time, economical and people-
based error and inefficiency barriers, making it faster, more efficient and more profitable for
all the players in the industry. Online or e-tendering is a good test subject for validating the
IT/Business connection, because it has met with a mix of responses in real-life implementation
recently like in the USA, UK, Japan, Singapore, Hong Kong and other countries. Are we
ready? A question pondered many global leaders in Government, business and social
organizations around the world to considered how best to harness the power of information
and communication technology (ICT) for development. Malaysia is no exception. The
Government is moving towards electronic tendering or e-tendering for the construction
industry at the national level. This report outlines and measures the level of e-readiness of
Malaysia, focused on the construction industry from international surveys and reports, self-
assessments, case studies and questionnaires. Our world today presents no technological
barriers – perhaps the only barriers are the people and process itself – using ICT to suite
everyday work and practices.

Keywords: E-Readiness, E-Tendering, I.T. in Construction, Malaysia

1. INTRODUCTION
Much of the literature concerning IT in the construction industry deals with integration,
programming and innovation issues without linking them to the construction enterprise
itself. New research initiatives are starting to explore new and strategic areas in the
construction business. Betts (1992), Brochner (1990), Bjornsson and Lundegard (1992) and
others are beginning to investigate the strategic potential for IT in the business context for
the industry. Various base models were used predominantly from the competitive strategy
stable (Porter, Mintzberg, etc), IT strategists (McFarlan, Ives and Learmonth) and IT
strategic planners (Earl, etc).

227
However, these research tended to concentrate on:

1. Established systems within organisations without robust measures of IT success or

otherwise.
2. Arbitrary implications about organisational and structural dynamics caused by the IT
revolution in the industry.
3. Looking at and adopting models of business strategy and IT technology strategy as
stand-alone models.
4. Adapting established models of competitive strategy and organisational theories
(e.g. transaction cost) without any significant modifications for construction.
5. Covering potentials rather than more elaborate factors of business and IT success in
the construction industry such as implementation, organisational and human factors.
6. "Successful" organisational implementation without also investigating
"unsuccessful" IT projects to compare factors and attributes of both.

Nevertheless, implementation is key. And in order to successfully implement IT

strategies, readiness factors must be tackled first. What is “readiness” then. One can say
that readiness is preparation; the state of having been made ready or prepared for use or
action. In this case, electronic readiness or e-readiness forwards the message and
indication of the preparedness of the public and private sectors in providing services and
participating in the networked world. E-readiness demands the adoption of important
applications of ICTs in offering interconnectivity between Governments, businesses and
citizens. However, the definition of e-readiness has caused much confusion, stirred by the
great interest shown in e-readiness by the public, multinational corporations, international
bodies and nations. One may ask, why must we be ready? How to get ourselves ready?

A general perception – the construction industry is well known as being a traditional and
fragmented industry; an information and communication reliant industry. The taught of
introducing the industry to the advantages of ICT generated a lukewarm response, what
more trying to implement it. Transforming the construction industry to accept ICT into
day-to-day responsibilities is a big shake-up. How do we change their mindsets? Here we
sample the human issues; how ready is the construction sector workforce ready to receive
ICT?

2. UNDERSTANDING LEGACY PROBLEMS IN TENDERING

FACING THE MALAYSIAN CONSTRUCTION INDUSTRY

The term electronic tendering or e-tendering brings together the idea of entering and
conducting a tender or a tendering process electronically. More fundamental, it could be
defined as the electronic conduct of tender exercises from advertisement through to
contract placement, including the exchange of all relevant documentation throughout the
tender stage. Electronic processes involve the use of ICT as well as the internet.
Construction conservatives will point out – its easier the old way. How do we change an
informative and paper environment into an electronic format? Will this change the
tendering process?

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Preparing tendering documentation and conducting tenders for employers and obtaining,
processing and submitting tenders for contractors are costly. For contractors, the costs
associated with preparing and submitting a tender will go to waste if their tenders are
rejected. Studies conducted by Holt, etc. (1996) and Pasquire and Collins (1996) further
showed that contractors would have invested their own resources in preparing and
submitting items like brochures, presentation materials, estimating resources, administration
and clerical assistance. These can be significant. They would put an extra strain against
contractors’ finances, especially on those whom already would have to cut down their profit
margins when tendering competitively for a project (Williamson (1981), Alsagoff (1996),
Walker and Chau (1999), Bridge (1999)). Sometimes, in order to ensure selection in the
face of the risks of abortive tender costs, some contractors may even go as far as conducting
themselves in underhanded and sometimes illegal practices (CBM Construction Sdn. Bhd.
v. Buildcon And Development Sdn. Bhd.).

For employers, factors other than tendering costs may be important. Apart from the
employer’s belief that the lowest prices can be only obtained through a competitive
process, there are other aspects that must be considered in selecting a contractor for his
project. For some employers, especially those linked with government authorities or
large corporations, accountability may be paramount. If tenders are assessed through
negotiations only, it is difficult for the employer’s agents or his employees to show that
the negotiations have been conducted purely objectively and that the best package has
been secured through this process. Transparency becomes more important in situations
where the contract has been substituted or novated, or where there are further
requirements to show that the employer has discharged an unprejudiced selection of
replacement contractors (see circumstances in Government Of The State Of Selangor v.
Central Lorry Service & Construction Ltd.)

In addition to these legacies, there have great difficulties to restrict uncompetitive tactics
practiced by contractors themselves. For contractors, the submission of a cover price and
bid peddling is as much a norm as it is a strategic maneuver. An industry study in
Australia conducted by Ray et. al (1999) concluded that a majority of employers
considers bid peddling as important to obtain a competitive price from a preferred
contractor. In another study in the UK, Pasquire and Collins (1997) found a similar
majority showing support for cover pricing practices and concluded that this majority felt
that it was necessary to avoid “offending” the employer or prejudice the contractors’
future opportunities.

3. INDUSTRY BACKGROUND: IS THE WORLD READY?

Now is a good time as any for a revival of enhanced levels of transparency, efficiency
and collaboration in construction. There is beginning to be a gradual liberation of global
trade in this industry brought out by the new developments in the General Agreement on
Tariffs and Trade (GATT) and the General Agreement of Trade in Services (GATS) from
1993 onwards. There have also been new developments in easing trade restrictions like a
reform in construction procurement by over 20 countries agreeing towards a
“Government Procurement Agreement” initiative which came into force in 1996.
Nevertheless, the objectives of the tender system in construction even in the global
context remains unchanged, that is to devise a most efficient framework to select capable

229
contractors who can complete the construction project within set parameters of time,
money and quality.

There have been some initiatives worldwide for e-Tendering in construction, as

illustrated in Table 1. Some has been successful while others have fallen prey to poor
implementation results. For Malaysia, it is no different. Whist there have been many
private-based initiatives but nevertheless, the implementation of information and
communication technologies by businesses in the construction industry has been very
slow relative to other industries. Statistics show (MER, 2000) that the construction sector
have not improved its capitalisation of such new technologies to bring about more
productive outputs. For the moment the capital-to-output ratio had risen from 3.0 in 1988
to 6.5 in 1997, suggesting that the use of capital, including I.T. related spending has been
increasingly less efficient. There has been little implementation of I.T. related cutting-
edge advances in design and manufacturing systems locally.
Table 1: International Comparison Of Government Electronic Construction Procurement Systems
(Adapted from Liao, et. al 2002)
Government electronic
Country procurement system Functions

USA FACNET • Announcing governmental procurement

FACNET applies to open
procurement processes if
simplified procurement
process requirement is met
opportunities
• Providing related governmental procurement
information
• Accepting bidding electronically
• Processing online payment towards contractors
• Collecting related governmental procurement
information

Canada MERX • With built-in procurement matching system,

MERX applies to open
procurement processes and
some limited procurement
processes
contractors can be informed immediately with
appropriate procurement cases and receiving
related information
• Accepting bidding electronically
• Providing documents to contractors,
confirming orders online and inquiring buyers’
ordering history

Australia Transigo
Transigo applies to open
and limited procurement
processes

R.O.C Electronic tendering Electronic tendering system: digitalising

(Taiwan) system procurement and bidding submission documents,
This system applies to open which can be retrieved and submitted online
selective and limited
procurement
Government procurement information system
:providing information about government
procurement announcement, classification,
procurement entity and address, deadline for
requesting tender documentation and bidding means
requesting tender documentation, contractor
requirement, contact deadline, budgets, winning bid
price winning contractors and debarred contractors

230
Within this changing environment, construction procurement needs to be modernised to
face its new challenges. The usual way of choosing, selecting and appointing a
contractor through a tendering process, (that is simply the acceptance of an offer of price
along some prescribed project conditions) must be streamlined. Also termed as
“bidding” or “bid process”, the common process is that contractors will be invited to
place their offer after reviewing the details of the project (drawings, specifications,
requirements, etc.) and conditions attached (time, security, performance, etc.). The
employer will then be in a position to choose between the contractors' bids, in turn
accepting the tender offered to him.

4. NeTI AS A GOVERNMENT LED INITIATIVE

Following the needs of the industry, a clear direction, for instance the issue of A
GOVERNMENT DIRECTIVE from the government is necessary. For its successful
implementation, initiatives shall then take the micro-projects approach as a strategy, to
leverage on an implement-via-use and produce a quick benefit return model. This not
only ensures support, ownership and relevance, but also produces maximized and
immediate returns for the effort.

With these objectives, a taskforce under patronage by the Ministry of Works (MoW or
“KKR”) Malaysia conceived an initiative for e-tendering or NeTI (National ETendering
Initiative). Taking stock of the industry’s needs and national aspirations and armed with
case studies from similar government backed initiatives, the National eTender initiative
(NeTI) promises to integrate and greatly improve on the tedious and multi-faceted
tendering process into a streamlined, progressive and 'intelligent' one by use of
procedural streamlining and technology empowerment. What distinguishes NeTi from
her other international counterparts is that it is designed to integrate with the Malaysian
eGovernment Flagship as a 2nd tier infrastructure to like up and interface with all other
agencies for construction procurement and tenders as well as project management. By
doing this, as illustrated in Diagram 2, NeTi synthesizes all aspects of pre, during and
post tender processing for government projects as well as private-based projects;
providing not only integration but also streamlined processing of all data and payment
directly.

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 Diagram 1: Model for an Effective e-Tender National Programme

New awareness for a closer examination into IT success has prompted work from
different perspectives instead of mainstream strategic areas. Technology adoption and
utilization in construction for Malaysia is evolving from the infancy stage and poised to
enter the ‘growth’ stage in the coming years. According to an IT Masterplan for
Malaysia (ISIS, 2002), as the Malaysia government progress to the new phase of ICT
deployment, it is focusing more and more on the systematic alignment of people, policies,
processes and technology. The technology investment constitute only the small portion of
the total investment in the initiative, as more resources and time are needed for the soft
elements e.g. policies, skills, culture, governance. Therefore we are left with policy,
process, people and technology variables in the hunt for the three main objectives of
construction tendering (Diagram 1). IT “solutions” typically focus on the process
(Workflow re-engineering) and Technology (security, architecture, etc.) but not the
qualitative measures of Policy (laws, regulations, standards, etc) and the People (users,
knowledge implementation, trust factor, etc.)

Mind The Gap

Malaysia ranks among the top-40 countries in the area of national e-readiness – not an
encouraging result. Lets remember that every report have different methodologies and not
specifically dedicated to the construction industry. We must build on our strengths and
improve on our weaknesses.

The internet penetration and connectivity is poor; the uptake of internet broadband is also
poor. Penetration in the urban areas are average, while the uptake in the rural areas are
poor; the gap alarmingly wide. There are only two Malaysian broadband internet services
providers (ISP) – Malaysia is one of the countries with high demand for ICT household
indicators but low demand. Internet users in the nation is recorded at 10 million users in
2005 (Internet World Statistics, 2006).

232
Electronic business is not widely accepted in Malaysia, mentally, we are not prepared to
let go the traditional ways. This is also reflected by the low information security, thus,
reflecting low confidence in e-business. Electronic services in the country are also below
par.

Despite placing much priority, effort and money into various mega ICT projects, the
county still has its loopholes. Many countries have used ICTs as a development enabler
and Government policies have helped them reach an impressive level of ICT access. This
includes major ICT projects such as the Dubai Internet City in the United Arab Emirates,
Cyber City in Mauritius and the Malaysian Multimedia Super Corridor (MSC) – being
the pulse of the Malaysian ICT industry. Only the Government is pushing towards
construction automation systems, thus, resulting to low public awareness and poor
response from the private sector.

People and process, not technology are the barriers. Today, we are in the world of
borderless and unlimited technology. Unlike in the past few decades, there are now no
barriers in the research, development and manufacturing of technology – corporate and
personal computing are easily available, internet broadband connects us to anywhere in
the world, artificial intelligence software and applications simplifies our day-to-day
responsibilities – technology is changing the world; technology is shaping a global
village. Focus now must be on the people, ICT users in this case. How can be benefit
from ICT? How can we use ICT as a competitive tool? The Malaysian National E-
Tendering Imperative (NETi) presents the ideal case to demonstrate that the Malaysian
construction community is ready to brace ICT, with focus on the people and the tender
process, whilst technology is not a barrier.

233
 Table 2: E-readiness ranking for Malaysia.

Report title Organization Year Top Malaysia's Total

performer ranking countries
assessed

e-ASEAN Readiness ASEAN 2001 Singapore 2 10

Assessment 2001

Measuring Globalization AT Kerney 2005 Singapore 19 62

The 2005 E-Readiness Economist 2005 Denmark 35 65

Ranking Intelligence Unit

Information Society Index IDC 2003 Denmark 36 53

Digital Access Index International 2002 Sweden 46 178

Telecommun-
ication Union

Monitoring the Digital Orbicom 2003 Sweden 45 139

Divide ...and Beyond

Global E-Government United Nations 2005 US 43 179

Readiness Report 2005.
From E-Government to E-
Inclusion

The 2006 World e- Waseda University 2006 US 14 32

Government Ranking

Knowledge Assessment World Bank 2002 Sweden 46 128

Methodology

The Networked Readiness World Economic 2005 Singapore 27 104

Index Ranking 2004 Forum
(Source : Various)

5. CONCLUSION
Our study shows that the Malaysian construction industry is ready to adopt ICT for e-
tendering, at least in a simplified form – the NETi NetAds and BQ Editor has been
readily received in all focus group tests. This is reinforced by the e-readiness study
carried out in three phases; environment enablement analysis; national policy analysis;
ICT implementation strategies. The study is further reinforced by multiple lines of
evidence from focus groups, key interviews and in-depth desk research.

234
Among lessons learnt from NETi are the 8Cs : connectivity, content, community,
commerce, capacity, culture, cooperation and capital. There is a need to increase
broadband penetration among the public; focus on content, knowledge and intelligence
management through two or more languages; cultivate a more IT-savvy culture in the
community; encourage further uptake and higher volume of e-commerce transactions;
create closer cooperation between the Government, private and citizen relationships for
better private sector services to the public; higher ICT capital injection by private sector
and guidance from the Government is the recipe to boost ICT development in the
country.

6. REFERENCES
Alsagoff, S.A. (1996), Construction Transaction Cost Conflicts in The Origin, Incidence And Resolution Of
Conflict In Construction (Heath, B. editor), International Council For Building Research
Publishers, Rotterdam.
Betts, M (1992), “How Strategic Is Our Use Of Information Technology In The Construction Sector”,
International Journal of Information Technology in Construction, 1, 1, pp 79-97.
Bjornsson, H. and Ludegard, R. (1993), “Strategic Use Of IT In European Construction Firms”,
Management of Information Technology for Construction, World Scientific and Global
Publication Services, pp 17-33.
Brochner, J. (1990), “Impacts Of Information Technology On Structure Of Construction”, Construction
Management and Economics, 8, 2, pp 205-208.
Bridge, A. (1999), The Procurement Of Facility Services: A Transaction Cost Approach And Beyond,
COBRA Conference Proceedings, Royal Institution Of Chartered Surveyors.
Holt, G, Olomoyaiye, P. and Harris, F. (1996), Tendering Procedures, Contractual Arrangements And
Latham: The Contractors’ View, Engineering, Construction and Architectural Management, Vol.
1 No. 2, pg. 97-115.
Internet World Statistics (2006), Malaysia Internet Usage Stats and Marketing Report.
http://www.internetworldstats.com/asia/my.htm Date accessed 30 March 2006
ISIS (2002), Institute of Strategic and International Studies, Knowledge-based Economy Master Plan,
Institute of Strategic and International Studies, Malaysia (unpublished)
Liao, et. al (2002), “A framework of electronic tendering for government procurement: a lesson learnt from
Taiwan”, Automation in Construction, Vol. 11 pp. 731-742,
MER (2000), The Malaysian Economic Report 2000, Ministry of Finance, Malaysia
Pasquire, C. and Collins, S. (1996), The Effect of Competitive Tendering on Value in Construction,
COBRA Conference Proceedings, Royal Institution of Chartered Surveyors.
Porter, M (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Wiley
Publications, US.
SIRIM (2003), Pilot Study for the Malaysian SISP For Construction Industry, Study for the Economic
Planning Unit, Prime Minister’s Department, Malaysia (unpublished)
Ray, S.R., Hornibrook, J., Skitmore, M. and Zarkada-Fraser, A. (1999), Ethics in Tendering: A Survey of
Australian Opinion and Practice, Construction Management and Economics, Vol. 17, pg. 139 -
153.
Walker, A. and Chau, K.W. (1999), The Relationship Between Construction Management Theory And
Transaction Cost Economics, Engineering, Construction And Architectural Management, Vol. 2
Issue 6, pg. 166 – 176.
WEF (1999), The Global Competitiveness Report, World Economic Forum Publications, Switzerland.
Williamson, O. (1981), "Contract Analysis: The Transaction Cost Approach", The Economic Approach to
Law (ed. Burrows and Veljanovski), Oxford University Press.
Wood, T. (2002), “Dutch Auctions Ruins E-Tendering for ECA”, Contract Journal, 19 April 2002.

235
236
 TOWARDS REDEFINING PERFORMANCE
MEASUREMENT SYSTEM SYSTEMS: A
MULTIDIMENSIONAL CONCEPT

D. K. Ahadzie, D. G. Proverbs and P. Olomolaiye

School of Engineering and the Built Environment, University of Wolverhampton

Wulfruna Street, WV1 1SB, Wolverhampton, UK

E-mail: D.K.Ahadzie@wlv.ac.uk

Abstract: The proliferation of Performance Measurement Systems (PMS) has generated a

new thinking in the assessment of project success and the management of performance on
future projects. Alternatively, this proliferation has also generated some contentious issues
over the scope, potential application and viability of existing frameworks. Following an in-
depth review of PMS literature, it has been reported elsewhere that one of the major
weaknesses of PMS is the lack of behavioural measures, which have the potential of
supporting continuous improvement programmes during the whole lifecycle of projects.
Furthermore, there has been no attempt to categorise which project types the PMS are
applicable. Here, the importance of behavioural measures towards engendering superior
performance levels is re-emphasised. Subsequently, it is argued that redefinition of the
performance domain to include behavioural measures represents a potentially robust concept.
It is therefore recommended that emerging research should strive towards understanding the
operational measures involved towards engendering superior measurement and improvement
of performance
Keywords: Behavioural measures, performance measurement, performance measurement
systems, overall performance outcome and redefinition

1. INTRODUCTION
The proliferation of performance measurement Systems (PMS) has generated a new
philosophy in the assessment of project success and the management of performance on
projects. Subsequently, there is a new thinking in the understanding and use of the
parameters for assessing project success and also for improving performance and the
performance management of future projects (see for instance, Kagioglou et al, 2001).
Nevertheless, the scope, potential application and viability of existing PMS have recently
been contested (see for instance Bassioni et al, 2003; Takim et al, 2003; Costa et al,
2003) Subsequently, there have been several calls and attempts towards improving PMS
to help engender superior measurement and improvement of performance (see, for
example Takim et al, 2003; Bassioni et al, 2005). Among these, the expansion of the
performance dimension to include behavioural measures has also been argued (see for
example Dainty et al, 2003: Ahadzie et al, 2005b). Here, the proposal for including
behavioural measures in PMS is revisited. Subsequently, drawing from an in-depth
review of applied psychology literature, the importance of behavioural measures in the
performance domain is re-emphasised. Given the importance that psychology plays in
the construction management research genre, the discussion should be of interest to
construction managers and practitioners involved.
A working definition of performance measurement including PMS is presented. This is
followed by a description of the key features of the major PMS including their major

237
strengths and weaknesses, in particular, the lack of behavioural measures. Thereafter, the
significance of behavioural measures towards endangering superior performance
measurement is discussed. The penultimate section argues for the need and potential
benefit of redefining the performance domain to include these measures. In conclusion,
the final section summarises the key issues arising from the discussion.

2. PERFORMANCE MEASUREMENT
Performance measurement may be defined as a systematic way of evaluating the
production process within an organization for the purposes of benchmarking (Mbugua et
al,1999). Neely (1998) also defines performance measurement as the process of
quantifying past actions to determine the current way forward. Thus, performance
measurement provides opportunities for organizations to constantly review their
production process to help keep pace with change in the business environment (see Fryer,
1990; Camp, 1995; Neely, 1998). In order to measure performance, one must first
determine the appropriate performance indicators (Cox et al, 2003). It is by identifying
these performance indicators that one can focus on them to measure their impact. In so
doing, management are then able to evaluate employee and business performance against
pre-determined standards. Thus, here, performance indicators are the measurable
evidence necessary to prove that estimated or planned efforts meets the actual or desired
results in the performance measurement process (Mbugua et al, 1999; Takim et al, 2003).

3. PERFORMANCE MEASUREMENT SYSTEMS

Performance Measurement Systems (PMS) become operational when performance

indicators can be measured with certainty or without ambiguity (Mbugua et al, 1999).
However, while research towards the improvement of PMS continues, the issues of
certainty and ambguity remain largely unresolved (see for instance Dainty et al, 2003).
Consequently, in the construction management research genre (as in other management
disciplines) the definition and conceptualization of PMS is shrouded in confusion (see
Yasamis, 2002). Typically, PMS can be classified as one or more of the following; hard
or soft, financial or non-financial and inputs or outputs measures (Wegelius-Lethonen,
2001). Further classifications are based on the potential use of the measures (i.e. whether
improvement is measured or measures are monitored) or the focus of the measures (i.e. at
different levels or phases within an organization (see Wegelius-Lethtonen, 2001). As a
result, the tendency is often for one or more of these classifications to apply dependent on
the concept adopted by the researcher. Here, the definition provided by Austin and
Vallinova (1992) that, PMS should embrace a composite measure of performance
behaviours and outcomes is adopted. This incorporates quantitative and qualitative
measures both of which are arguably necessary towards developing holistic PMS (see
Ahadzie et al, 2005b)

238
4. KEY FEATURES OF THE MAJOR PMS
Drawing from Ahadzie et al (2005a), Table 1 presents the key features of the major PMS.
Additionally, the major strengths and weaknesses, in particular, the lack of behavioural
measures is highlighted. The major PMS listed are Traditional Measures (TM), System
of Quality and Productivity Indicators for the Construction Industry (SISIND), Analytical
Hierarchy Project (AHP), National Benchmarking for the Chilean Construction Industry
(CDT), Blueprint (BP), Key performance Indicators (UK), Critical variables (CV),
Innovative Computerised Productivity Measurement Based on Activity Sampling
(CALIBRE), Quality Assessment Systems in Construction (QLASSIC), Integrated
Performance Index (IPI) and Construction Industry Institute Benchmarking and Metrics
(CIIBM) (see also Takim et al, 2003; Costa et al ,2004). The background of these
projects suggests that whereas the CDT, Blueprint, KPI (UK), CALIBRE, QLASSIC and
CV are based on data from general construction work, Traditional Measures emerged
from heavy industrialised and power plant construction (see Thomas and Kramer, 1987)
and the CIIBM from heavy industrial, building and general infrastructure. The AHP is
also linked to industrial buildings. Finally whereas the IPI is based on data from Research
& Development engineering projects, the SISIND emerged from housing and commercial
projects. Generally the trend suggests that a majority of the PMS have been derived from
data from projects of varied backgrounds and in most cases the literature is silent as to
what type of projects they are applicable.

5. STRENGTHS AND WEAKNESSES OF PMS

Many writers have reported on some of the main strengths and weaknesses of the major
PMS (see for example Takim et al, 2003; Costa et al, 2004; Kagioglou et al, 2001).
However, here, the emphasis is on the lack of behavioural measures (see table 1). Thus,
whilst researchers concur that there is the need for a redefinition towards further
improvement in PMS, the performance domain remains conceptualised and
operationalised on overall performance outcomes. However, the evidence suggests that
performance evaluation is not only about meeting overall performance outcome but also
the action or behaviour used in achieving the outcome (McCloy et al, 1995). This
reinforces the definition of Austin and Vallinova (1992) earlier adopted. In the present
circumstances, the implication is that, existing PMS do not provide individuals the
opportunity to benchmark appropriate management mechanisms for achieving project
goals or outcomes. Yet the evidence also suggests that it is the management mechanisms
rather than particular project goals that directly influences stakeholders’ satisfaction of
projects (Leung et al, 2004).

6. THE CASE FOR BEHAVIOURAL MEASURES

In recent times, the centrality of people towards helping to achieve the goals of
organizations has been highlighted (see Dainty et al, 2003). Cooke-Davies (2002) has
also argued that it is people and not systems that deliver projects. In contrast,
traditionally, PMS have been conceptualised on the premise that it is systems that deliver
projects. It is therefore not surprising that the governing variables of interest have long
since been considered in terms of output quantity and quality (see Austin and Vallinova,

239
1992). Thus, whilst systems may be important towards helping to achieve overall
performance levels, there is no doubt that, what people do within the systems are most
significant (Dainty et al, 2003). In effect, job performance is essentially the degree to
which an individual helps the organizations reach its goals (Campbell, 1983). This brings
to the fore what people do while at work. Thus, performance is behaviour with an
evaluative component, and outcomes are things or conditions that are changed by
performance and consequently either contribute to or detract from organizational goal
accomplishment (Borman et al, 1997). It is interesting to know that, in the broader sense
of human resource management (HRM) research (specifically applied psychology), the
early 1960s marked a significant departure from these output measures to behavioural
measures. Thus, this acknowledgement of the centrality of people towards the
performance measurement process has long since been recognised in the HRM research
genre. That is, behavioural measures represent the appropriate opportunity because: they
provide the psychological understanding of selecting and predicting human performance;
they provide individual answers to what makes them effective or ineffective and also
accountable. Subsequently, they provide opportunities for staff development towards
achieving organizational goals.

240
 Table 1: Key Features of PMS
PMS Traditional SISIND AHP (Saudi CDT (Chile, Blueprint KPI (UK, CALIBRE CV (Hong QLASSSIC IPI (India, CIIBM (USA,
measures (Brazil, 1993) Arabia, 1996) 1996) (USA, 1996) 1998) (France/UK, Kong, 2001) (Malaysia, 2002) 2003)
(Since 1950s) 2001) 2001)
Stakeholder Contractor Contractor Project Main Client mgmt Client, Trade Client, mgmt Main Client, mgmt Owner and
being contractor team, supplier, contractor, contractors team, contr., contractor team, Contractor
measured customers mgmt team, suppl., customer companies
end-user ext..factors
Source or Heavy Housing and Industrial General General const. General Industrial General const General R & D Generally
projects industrial and commercial const. works works works engineering heavy
information power plant projects industrial
construction
Performance Time, cost and 28 number Project Deviation of Business Design cost Productivity, Client Quality of Benefit/merit, Project cost
indicators quality viability cost by objectives, Design time, variables, workmanship, Risk, Project, growth,
project, Project Construction Project Quality preference/ Project budget
Deviation of objectives, cost, variables, between category bias, factor, Project
construction Project inputs Construction Project projects, Project status, schedule
due date, ,outputs and time, environment Standards and Decision factor, Total
Change in targets, Productivity, variables, specifications, effectiveness, project
amount Customer profitability, Project Contractor Production duration,
contracted focus, Safety, management performance, preparedness, Change cost
Rate of Leadership, Defects, Client variables, Productivity Cost factor,
subcontract, Delivery satisfaction Project team level of effectiveness, Recordable
Cost client process, on product and variables project Customer Incident Rate,
complains, Employee service expectations Low workday
Efficiency of empowerment Sponsor Case incident
direct labour, expectations, rate, Total
Accident rate, Project field rework,
Risk rate, management, Factor phase
Effectiveness expectation cost Factor,
of planning, phase cost
Urgent orders, growth, Phase
Productivity duration
performance Factor,
construction
phase duration
Major Validity Validity Validity Validity Validity Validity Validity Validity Validity Validity Validity
Strength
Major No No No No No No No Some No No No
Weaknesses behavioural behavioural behavioural behavioural behavioural behavioural behavioural indication of behavioural behavioural behavioural
measures measures measures measures measures measures measures behavioural measures measures measures
measures but
not robust

241
Indeed, what makes these traditional measures very appealing is that they are relatively
objective and easy to determine. However when used alone, they suffer from quite
significant weaknesses. For instance, they are often in conflict with the larger corporate
objectives and ethics especially when it comes to achieving cost targets; they contain
elements beyond control of the individual; they frequently make accountability of the
individual redundant; and most importantly they do not tell the individual what it is that
he/she is actually doing that is effective or ineffective (Latham et al, 1979). Thus, Latham
et al (1979) concludes that, output related variables are particularly troublesome for
defining, developing and/or maintaining managerial excellence. Indeed as shown in
table 1, there is a general acknowledgement that these traditional measures fail to
consider the current demands of construction projects. Therefore, new and emerging
criteria now include health and safety, technology transfer, environmental friendliness,
risk containment and satisfaction of project stakeholders (table 1). However, the
introduction of these new criteria does not necessarily overcome some of the inherent
problems associated with relying on overall performance outcome. In contrast,
behavioural measures as the evidence already suggests have the potential of mitigating
these deficiencies. Furthermore, the approach provides potential opportunity for initiating
staff training programmes and the development of comprehensive job descriptions;
facilitates decision regarding manpower planning and staffing; and is very useful for goal
setting (see Latham et al, 1975, 1979; Dainty et al, 2003, 2004). It is for these reasons
that it is paramount for organizations interested in developing PMS to include explicit
behavioural terms that have the potential of inspiring individuals to improve their
competency towards achieving project success.

7. TOWARDS REDEFINING PMS

Figure 1 is the conceptual framework for redefining the PMS. As shown in table 1,
presently the PMS are conceptually based on overall performance outcomes. However,
given the potential of behavioural measures towards engendering superior performance
levels, the framework proposes that PMS should be conceptualised based on both
performance behaviours and performance outcomes. Thereafter, it is intended to map the
behavioural actions to the specific project objectives or performance outcome expected.
The framework depicts an iterative process, and in that sense it becomes a learning
process for continuous improvement. Thus, whilst recent attempts by other researchers
towards improving PMS have been acknowledged (see Ahadzie et al, 2005), the current
weaknesses leaves further scope for improvement. Given that the main thrust of
benchmarking in organizations is to improve human performance at all project levels
towards achieving organizational goals, it is contended that the framework presented
provides a potentially robust approach if included in the performance domain.

As noted by Motowidlo et al (1997), these behavioural measures are multidimensional in

perspective. These behavioural measures have been the subject of discussion in earlier
publications presented by the authors, in regards to task performance behaviours and
contextual performance behaviours (see for instance Ahadzie et al, 2005b; Ahadzie et al,
2006). Task performance behaviours among others include for example the
transformation of raw materials into goods and services, operating a production machine
and providing management and administrative functions. Thus, in the construction
industry for instance, task performance behaviours may involve operating a production

242
machine or laying bricks. Alternatively, task performance behaviours may consist of
activities that service and maintain the technical functions through the supply of raw
materials, distributing finished products or providing managerial functions such as
planning, programming, coordinating, delegating and controlling (Motowidlo et al, 1997)
Thus, Whilst task performance behaviour bears a direct link to an organizations technical
core, contextual performance behaviours must be present within the social/psychological
environment for the successful completion of the technical functions.

PERFORMANCE MEASUREMENT SYSTEM

Behavioural Overall
measures performance
outcome
Behavioural actions

Iterative process

Figure 1: Conceptual Framework for Redefining PMS

Thus, while task performance behaviours will arise from job descriptions and work
assigned to individuals, contextual performance arises out of volition and predisposition.
Subsequently, it is contended that understanding the construct of these performance
concepts in the overall performance outcome may potentially be useful towards
developing robust and rigorous PMS. This would require an understanding of the
operational measures involved and a process of mapping these onto the appropriate
overall performance criteria. Presently, the framework is being adopted in a research
seeking to develop a model for predicting the performance of project managers in mass
house building projects (MHBPs) (see for instance Ahadzie et al, 2006)

243
8. CONCLUSION
The potential benefits of incorporating behavioural measures towards developing
rigorous and robust PMS have been described. The key features of existing PMS have
been discussed and their weaknesses have been highlighted. The PMS include those that
rely on traditional measures, that is, the System of Quality and Productivity Indicators for
the Construction Industry (SISIND), National Benchmarking System for the Chilean
Construction Industry (CDT), Quality Assessment System in Construction (QLASSIC),
Blueprint, Key Performance Indicators (UK), Critical Variables, Integrated Performance
Index (IPI) and Construction Industry Institute Benchmarking and Metrics (CIIBM) and
others such as the CALIBRE approach, the Analytical hierarchy Project (AHP) which are
linked to productivity and project viability respectively. Drawing from the applied
psychology literature it is argued that behavioural performance measures represent a
more robust approach towards benchmarking, which represents one of the key functions
of PMS. The framework adopted proposes that PMS should be conceptualised on both
performance behaviours and outcomes. It is recommended that construction management
researchers and practitioners should strive to understand the operational measures
involved and how they could be mapped towards engendering superior performance
measurement and improvement.

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246
 CLIENT PROJECT/CONSTRUCTION MANAGEMENT:
THE COUNTERINTUITIVE APPROACH
Dean Kashiwagi1, Kenneth Sullivan1, John Savicky1 and Matti Kruus2
1
Performance Based Studies Research Group,
Arizona State University,
651 E. University Dr. Tempe, AZ, 85281

E-mail: Dean.kashiwagi@asu.edu
E-mail: Kenneth.Sullivan@asu.edu
2
Indepro Construction Management Consultants Ltd. Helsinki,
Finland, Helsinki University of Technology,
P.O.Box 2100, 02015 HUT, Finland.

Abstract: Construction management education/research is oriented to highlight construction

management as the focal point of increasing construction performance. The professional
(owner’s engineer, construction manager, quantity surveyor) is the key individual. Their
function is to manage the construction through more efficient scheduling, cost control,
decision making, and coordination. The authors propose that this is inefficient and has an
overall impact of confusing responsibility and lowering construction performance. As
project/construction management is embedded as a part of an overall delivery process, no
research has identified the current paradigm as a major source of construction
nonperformance. This paper proposes that, based on research results of the Performance
Information Procurement System (PIPS), the optimal practice of the client’s
project/construction management is when the manager performs before the construction
event, and sets in place a structure that forces experienced contractors to practice quality
control before construction to minimize risk. The authors also propose that the more
construction management functions are performed during construction, the more inefficient
and problematic the project manager becomes. Other results of the new paradigm include the
minimization of information flow between the contractor and client’s representative,
minimization of decision making and inspection by the project manager during construction,
and minimization of project management documentation.

Keywords: Facility management, construction management, outsourcing, control, leadership.

1. INTRODUCTION
Over the last twenty years, management positions have consistently grown as managers
have made decisions, directed, controlled, and regulated the operations for which they
were responsible (Canback 1998). With the advent of the efficiency movement, clients
and owners of businesses realized that the inefficient of their operations was directly
correlated to the amount of management needed (Womack et al. 2000, Womack et al.
2003). Management thus became a sign of inefficiency. The more inefficient an
operation became, the more managers were required. The resultant paradigm then
considered management as a cost, and in response clients and owners began to minimize
management (Welch 2001). Managers reacted by making management a profession, a
career, and a technically oriented occupation. Technical training, certification, and
continuous education followed (US Department of Labor 2003). However, in order to be
sustainable, management must meet the following requirements:

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 1. Increase efficiency (do more work with less effort).
2. Add value (increase profits, minimize costs and increase the performance of non-
commodity items).
3. Minimize risk (surprises, unexpected outcomes, not meeting expectations).

By definition, companies with more management are inefficient. Companies that allow
the CEO to have lucrative salaries which are not based on performance do it because they
are inefficient. Inefficient companies lack critical performance information that would
make them more efficient. Instead, they depend on managers who make subjective
decisions, and direct technical personnel on how to do their work. If the information was
known by key individuals in the company, inefficiencies would be minimized.
Therefore, management is usually accompanied by an environment which the key
performance information is not being perceived, tracked, and utilized.

2. DEDUCTIVE LOGIC AND SIMPLICITY

Concepts that are simple are easy to understand, easy to communicate, and receive wide
scale acceptance. For example, gravity is easily understood, communicated, and
accepted by the majority of the population. However, the Heisenberg Uncertainty
Principle is not. One is more simplistic, the other is more technical, complex, and not
known by the majority of the population, and only individuals with specialized training in
physics and quantum mechanics are more likely to understand it. When addressing
complex concepts, it is complex because we lack a full understanding of the concept.
Therefore, when we lack full information, we must use our subjective decision making.
Things that are complex often require highly specialized technical knowledge,
education/training, and decision making to use and understand.

Therefore, it is proposed that the following terms and concepts are linked, related, and
may co-exist: complexity, technical knowledge, a lack of information and perception by
individuals, concepts not easily understood or explained, and the requirement of technical
education and training. Anytime something requires technical training, it is not well
understood. This not only includes the personnel being trained, but the personnel
providing the technical training. Because if it was simplistic, it would be easily
understood, easily communicated, and accepted by all. Therefore, when hiring
contractors/vendors with highly technical skills, it would not seem logical to manage and
direct them on how to do their work. If they need management, they should not be hired.

This paper will employ the principles developed in a technology called the “Information
Measurement Theory” or IMT, to create simplistic models that illustrate how leadership
and an information environment can:

1. Optimize project management.

2. Transform “managers” who control, direct, and regulate to managers who can get
the same results as leaders.

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 3. Minimize the need for managers to have technical knowledge and replace it with
a structure of logic and performance information.

By combining the concepts of leadership and an information environment, a new model

or paradigm of a project manager is created. This new construction/project manager will
be more efficient and increase the performance of construction.

3. EFFICIENCY AND THE EVENT

The foundation of IMT is the event (Figure 1). An event has the following:

1. Initial conditions (laws which explain why things happen and conditions with
relative measurements).
2. Final conditions (the same laws with conditions with different or changed relative
measurements).
3. Changing conditions (relative measurements) through the event.

Figure 1: Event

If the initial conditions are the same as the final conditions, no time has elapsed, and there
was no change, and no event. The following deductive concepts are characteristics of the
event:

1. The more information one perceives of the initial conditions (IC), the more
accurate is their prediction of the future outcome or final conditions (FC).
2. The more information one perceives of the IC, the shorter or simpler the event
looks.
3. If one had all the information of the IC (which is impossible), one could
accurately predict the final outcome.
4. If the final outcome is predictable with all information, the event can happen only
one way.
5. All events have only one outcome.
6. No one has ever proved that with a unique set of initial conditions, two final
outcomes can happen at the same time.

If the six deductive concepts are correct, it would mean that events are predictable,
deterministic, and uncontrolled once a unique set of conditions are set. Therefore, any
attempt to control or change the event once the unique conditions are set, will lead to the
inefficient use of resources.

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One who perceives more information during the IC, they will always be able to more
accurately predict what the outcome and therefore make far fewer decisions. Decisions
are made when information is lacking. Decisions result in risk, because no one can be
certain of the outcome (the information and outcome were not easily perceived).

This conclusion is supported by two deductive concepts. The first is that if an entity
sought to minimize risk (not meeting expectations, usually in terms of time, cost, and
buyer expectation), they would attempt to minimize their risk before the event instead of
during the event. For example, a person planning to be successfully married will be
much more efficient if they obtain performance information on their spouse and
themselves before they are married, rather than during the actual marriage. A buyer in
need of a difficult service would be more effective at minimizing risk by contracting a
vendor with proven past performance, understanding, and vision, over a vendor satisfying
minimum standards, bidding with a low price, and expecting user management during the
project.

The second supporting concept is from IMT. The Cycle of Learning (Figure 2) shows
that people perceive information that is already present, process the information, and, if
they understand it, they will apply the information. By definition, the application of a
newly perceived concept will result in change. The change always results in the
perception of more information. As an individual goes through more and more cycles,
the speed of the cycle increases (unless physical characteristics interfere with the learning
cycle). Figure 3, the Rate of Change Chart, shows the results of Figure 2. The individual
with more information, changes faster. Figure 4, the Kashiwagi Solution Model (KSM),
uses extremes to show that the Type A individual uses more information, and makes
fewer decisions (they know what the outcomes are and understand that the outcome can
happen just one way), and therefore understands that the event and individuals are
difficult to control. Therefore the Type A person practices less control and, instead,
attempts to influence others.

Figure 2: Cycle of Learning

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 Figure 3: Rate of Change

The Type A person uses information to differentiate before the event in order to minimize
risk during the event. It is well known leadership principle that people cannot be
controlled or changed, and therefore must be placed in an environment where they can be
successful. The Type A person also knows that what a person perceives and
accomplishes is more indicative of what a person can do instead of what is expected of
the person.

The most important proof of the concept is that one person cannot control another person
or event in history or reality. This proof includes:

1. Marriage counseling does not have an impact on the successfulness of marriage

(Gilbert 2005).
2. Individuals who break the laws of society cannot be controlled or changed
through psychotherapy or incarceration. There is a high record of repeat
offenders (Carey 2004, Dayton 2004).
3. Regardless of the United States’ desire to transform a foreign government into a
democratic system, a cultural transition producing immediate results is not
realistic without a significant and sustainable amount of time and funding (Lacey
2003, Sanger 2005).
4. Giving an individual money will not make them think and act like a Type A
person (Goodstein 2003).

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 Figure 4: Kashiwagi Solution Model (KSM)

The only drawback to the above concepts is that a tremendous amount of information is
needed. When cases are considered where there is an absence of information, it may
seem as if someone has successfully controlled and changed another individual. It is
definitely not the norm, and there is no evidence that the person themselves is changing.

Based on the proposed concepts of IMT, the following concepts are proposed:

1. It is important for individuals to know who they are and what they can do.
2. It is also important for others to know who the individual is.
3. The difference between people is easily measured in terms of their ability to see a
the future event, and identify and know how to minimize risk.

It is also proposed that in order to create efficiency, the following must be accomplished:

1. People who produce or perform the actual work should make decisions on quality,
should compete against others, and should be held accountable for their own level
of quality (quality control.)
2. Those who have no control over quality (not doing the actual work) should not
make decisions on quality.
3. Those who do not produce or perform the actual work should allow those who do
(the vendors) to compete based on value, and should minimize their decision
making on who is the best value by using performance information.
4. To increase efficiency, there should be fewer managers, and more workers who
are measuring their performance, continually improving, and minimizing risk
through preplanning.
5. Management functions by the client should be minimized.
6. Project managers should become more like leaders: use information at the right
time (before the event) to minimize risk, minimize their decision making,
minimize management functions during the event, and influence others to be more
efficient, and put the right individuals in the right place based on their relative
capabilities.

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4. OUTSOURCING WHILE MAINTAING CONTROL AND
INCREASING VALUE
A new technology has been developed which allows project managers to:

1. Minimize the risk before the event.

2. Minimize control, direction, and inspection functions during the event.
3. Minimize decision making and the need to understand the technical functions of
what they are managing or procuring.
4. Allow workers, suppliers, and services to compete based on value (performance
and price).
5. Allow project managers to increase value by being efficient.
6. Allow managers who may not have all the characteristics of a leader (perception,
vision, ability to influence and lead, and efficiency) to get the same result as a
leader by using a process or technology that delivers the same results of a leader.

The process is called the Performance Information Procurement System (PIPS). It is not
only a procurement system, but it is also a management system. PIPS is a process that:

1. Minimizes risk before the event of construction.

2. Minimizes the amount of information required by setting up an information
environment which forces measurement, preplanning, minimization of risk before
construction, and quality control.
3. Minimizes decision making by forcing the selection of the best value, which uses
self evaluation, self measurement, and preplanning.
4. Increases value by differentiation.
5. Minimizes the need to direct and control by transferring risk to those who can
understand and minimize the risk.

The process has been tested for the past 12 years on over 400 tests in the delivery of
construction services ($280M of construction services). The results have been (with
industry results in parenthesis):

1. On time, on budget, and high customer satisfaction: 98% (60%)

2. Contractor generated change order rate: 0% (10%)
3. Minimization of client’s need to control, direct, and inspect: Up to 80%
4. Relationship between performance and price: None

The results have shown that there is no relationship between performance and price.
Sometimes it is a lower price, sometimes it is a higher price, and sometimes the price is
the middle or average price.

The process is made up of the following filters (Figure 5 and Figure 6):

1. Measurement of supplier or worker past performance in quantitative and

qualitative criteria by the supplier’s clients.
2. Competition of the suppliers’ ability to differentiate, see the future event in terms
of risk and risk minimization.

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3. Competition of the key personnel elements of the suppliers to identify Type A
characteristics and their ability to minimize risk before the event.
4. Competition between the alternatives using a Displaced Ideal Model, which
minimizes the need for subjective decision making and can use the past
performance information (PPI), their ability to see and understand the future
project, and their key personnel’s ability to act as a Type A individual who
minimizes risk before the event.
5. Supplier development of a Quality Control (QC) plan that minimizes risk before
the award.
6. Incorporation of the QC plan, schedule, and owner requirement into the contract.
7. Contract award and transfer of risk to the supplier.
8. Forcing the high performance supplier to manage the project by risk
minimization.
9. Grading the supplier’s performance and using it to alter their future competitive
nature by counting towards 50% of their future performance ratings.

Figure 5. PIPS Filters

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 Figure 6. Six Sigma Approach, DMAIC

The process is shown using two different schematics: the filters approach (Figure 5: PIPS
Filters) and the Six Sigma, Define, Measure, Analyze, Improve, and Control (DMAIC)
approach (Figure 6: Six Sigma: DMAIC). The process has resulted in the following
observations:

1. Suppliers or people who cannot meet the requirements, may voluntarily withdraw.
2. High performance people and suppliers have the competitive advantage.
3. The performers efficiently communicate to the buyer information that the buyer
could not know.
4. The performance levels are regulated by the suppliers and results in a self
motivated continuous improvement.
5. The system is more efficient and maximizes the buyer’s value and the supplier’s
profit at the same time.
6. The environment minimizes the amount of information, while maximizing the
value of the supplier’s product.
7. The less the buyers understand about what they are buying, the more effective
they will be in buying value.

The use of PIPS or similar best value process minimizes the risk of performance by
outsourcing to a contractor who preplans, identifies and minimizes risk before
construction, implements a quality control plan which has predetermined actions if risks
occur, and has proven performance that they can minimize the risk. The contractors will
also maintain documentation, manage and control their project according to prearranged
processes with high performance project managers and site superintendents.

This moves a highly efficient project manager’s functions to the selection of the best
value (minimizing the risk before the event.) Once the project/construction manager
awards the project, the amount of management performed is a measurement of the

255
manager’s efficiency. If they have done their management of the initial conditions, they
will have minimal management during the event. The efficient project manager therefore
does their work before construction and not during. Therefore, once construction begins,
the amount of information they receive, the amount of documentation they create, and the
amount of decisions they make determine their performance as a project manager. The
efficient project manager can manage more projects, manage less, and deliver higher
performance.

This conclusion was proven by project managers in the 400+ projects over twelve years.
Management functions were reduced from 50% to 80%. The project manager at the
University of Hawaii, was one of the best tests. The project manager was responsible for
the procurement, the construction, and the finished product. The project manager did five
times the number of projects usually assigned to project managers, and estimated his
management requirements were reduced by 80%. Unlike his peers, the construction
finished on time, with no change orders, and high customer satisfaction (100%.) The test
was ended when the procurement agent convinced the client’s lawyers that the process or
project management style was illegal (State of Hawaii 2002.)

5. CONCLUSION
The information worker of the future (project manager, procurement manager,
construction manager, manager, designer, and engineer), will have the following
characteristics:

1. Skills in leadership, performance information, and processes.

2. Non-technical expertise.
3. Ability to delegate to performers.
4. Minimized decision making.
5. Efficiency.

The concepts the information worker will use is:

1. Self regulation.
2. Self motivated continuous improvement and change.
3. Minimized amount of information flow from the contractor.
4. Efficiency (increase of 500%) (State of Hawaii 2002)
5. Outsourcing. There will be no distinction between partnering companies in the
future.
6. Performance measurements.
7. Best Value selection (minimization of risk before the event.)

The PIPS is currently being developed and tested at Arizona State University. The
biggest challenge to run PIPS is to identify and educate project and construction
managers to modify their paradigm and become a information/leadership based
project/construction manager. The technology is being used in the public and private
sectors in the United States. It is also being tested in the Netherlands, and being taught in
both the UK and Finland. ASU is currently looking for research partners to expand the

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testing into the procurement of different technical areas including Information
Technology (IT) systems.

6. REFERENCES
Canback, S (1998) The Logic of Management Consulting, Henley Management College,
http://canback.com/mclogic1.pdf, {Accessed: 2005, September}.
Carey, B (2004) Anger Management May Not Help at All, New York Times,
http://www.gracesmithhouse.org/041124_angermanagement.htm, {Accessed: 2004, November}.
Dayton, K (2004) Psychiatrists have proved unsuccessful at changing behavior. Advertiser Big Island
Bureau.
Gilbert, S (2005) Married With Problems? Therapy May Not Help, The New York Times,
http://www.psyfin.com/Reader%20service/0505RS.htm, {Accessed: 2005, April}.
Goodstein, A (2003) 8 lottery winners who lost their millions, www.bankrate.com {Accessed: 2005,
September}.
Lacey, M (2003) The Lesson of Somalia: Just a Humpty Dumpty Story. Letters from Africa.
Sanger, D (2005) Bush Says Iran's Elections Ignore 'Basic Requirements,’ New York Times,
www.nyt.com {Accessed: 2005, June}.
State of Hawaii (2002) DAGS/PWD Draft Audit Report.

US Department of Labor (2003) Occupational Outlook Handbook, 2002-03 Edition: Construction

Managers, http://www.bls.gov/oco/print/ocos005.htm, {Accessed: 2005, September).
Welch, J and Byrne, J (2001) Straight from the gut. New York: Warner Books Inc.
Womack, J, Jones, D, and Roos, D (1991) The Machine that Changed the World: The story of Lean
Production. Harper Perennial: New York.
Womack, J and Jones, D (2003) Lean Thinking: Banish Waste and Create Wealth in Your Corporation,
Revised and Updated. Free Press: New York.

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258
 TEACHING ETHICS TO CONSTRUCTION DEGREE
STUDENTS

Kevan Heathcote and Ross Trembath

University of Technology Sydney

PO Box 123
Broadway 2007
Australia

Abstract:This paper looks at the introduction of a segment on professional ethics into an

undergraduate subject relating to the financial management of construction companies. Third
year students from the Bachelor of Construction course at the University of Technology
Sydney were surveyed as to their attitudes to fifteen ethical situations. The results were
aggregated and categorised into two age groups, students over 24 years and those under 24
years of age. The results demonstrated significant differences between the two groups on
several questions and clearly indicated a trend towards more “undecided” responses in the
older age group.

Keywords: Ethics, Business Ethics, Construction Industry Ethics

1. INTRODUCTION
The importance of ethical behaviour in the building and construction industry has often
been under question and in Australia was recently the subject of a Royal Commission in
the State of NSW (Cole Royal Commission, 2003).

“During 12 months of hearings, the Royal Commission into the Building and
Construction Industry gave the wider community a glimpse into the dark side of the
potentially great Australian industry. Revealing these insiders’ secrets to the general
public is an important step towards reform because it should help to reset the industry’s
ethical compass” (Abbott, 27/2/2003)

Whilst this paper does not comment on the politics of the process or outcome of this
Royal Commission it would be fair to say that in would generally be recognised in
Australia that there was room for improvement in the construction industry in relation to
ethical behaviour. A logical starting point is the attitude and views of students enrolled in
construction related courses.

Given that the Royal Commission identified some particular areas of concern relating to
the behaviour of construction companies, and that the majority of undergraduate
construction students will tend to gravitate to management positions in their companies, a
decision was made to incorporate some lectures on business ethics into a business related
subject (Building Company Performance) in the Bachelor of Construction course at UTS.
Although the subject of ethics is touched on in earlier Law subjects in the course it was
felt that a more extensive exposure to the study of ethics later on in the course might be
beneficial to the students.

259
As part of this process it was decided to survey the students prior to and after lectures to
a) examine students attitudes to various ethical scenarios and b) to re-examine the
students attitudes to the same ethical situations following some exposure to ethical
concepts to see whether there was any change in their attitudes. This paper presents the
results of the first of these objectives for the class of 2005.

2. BRIEF OVERVIEW OF ETHICAL THEORIES

The introduction of business and professional ethics and the theory that underpins it
needs little justification. Familiar business ethics topics include justice and economic
efficiency in relation to capitalism, social and environmental responsibility, job
discrimination, whistle blowing and civil rights to name a few, and there is growing
literature on professional ethics including ideas such as professional responsibility and
codes of practice. While any discussion on ethics and their place in the profession will be
seen in the context of these (and many other) topics, a brief overview of ethical theories
and behaviour is most useful.

Philosophical theories of ethics can generally be divided into four main streams (Martin
& Schinzinger, 1983). They are

1. Virtue Ethics as initially espoused by Aristotle (964-967). Aristotle believed that

moral virtues (eg generosity) are those which favour the mean between extremes
of behaviour (In generosity’s case wasteful indulgence and miserliness)
2. Human Rights Ethics as initially espoused by John Locke (1632-1704).
According to Locke actions which respect the rights (to life, liberty and property)
of individuals are by their nature ethical.
3. Duty Ethics as initially espoused by Emmanuel Kant( 1724-1804). According to
Kant, “right actions are those required by a list of duties such as : be honest, keep
your promises, don’t inflict suffering on other people, be fair, make reparation
when you have been unfair, show gratitude for kindness extended by others.
........seek to improve one’s own intelligence and character, develop one’s talents,
don’t commit suicide” (Martin & Schinzinger, 1983, p 36).
4. Utilitarianism Ethics as initially espoused by John Stuart Mill (1806-1873). Mill
deemed an act to be moral if it produces the most good for the most people.

Psychological theories of ethics look at the moral development of individuals. Kohlberg

(1971) looked at three levels of moral development

1. Preconventional Level. Here individuals moral actions are determined by a

desire to avoid punishment and to satisfy their own needs.
2. Conventional Level. At this stage an individuals’ moral behaviour is determined
by the standards and norms of society.
3. Postconventional Level. This is the stage where individuals start to exhibit
“moral autonomy”, i.e., the ability to think clearly and critically about moral
issues.

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3. TEACHING ETHICS TO STUDENTS
The issue of development of a students capacity for moral autonomy is considered by
Martin & Schinzinger (1983, p16) to be central to the teaching of ethics – “the unifying
goal should be to increase one’s own moral autonomy in developing, expressing and
acting on reasoned moral views”

There remains the question however as to whether moral behaviour is a requisite for
success in the business world. (Friedman, 1970) discusses ethical complexity in the
context of the theories outlined above and offers a simple and straight forward solution.
He says that “there is one and only one social responsibility of business and that is to
increase profits so long as it stays within the rules of the game, which is to say, engages
in open and free competition without deception and fraud”. This view is built on the
belief that if the managers act in a way in which profits are maximised than this will be
best for all concerned and further that if one focuses on profits then that will provide a
focus and yardstick for efficiency. This is clearly not the case and profits alone will not
guarantee a sound ethical platform. For example he is prepared to suggest that it would be
a good idea to provide child care and community activities as part of the workplace but
he only supports these activities if they make a profit. Basically he is saying that business
should be ruthlessly selfish in the rush for profits so long as they stay within the law. This
view seems to be at odds with a more reasoned and socially responsible attitude.

It is our view that in teaching ethics to students, a balanced view is desired. In Friedman’s
world the government ensures the good of society through developing appropriate laws
and the manager’s job is to maximise profits within these boundaries. This view is just
too simplistic and not real. The links between the law, the good of the community and
morality are far more complex and when matched up against maximising profit create
tension.

Boylan and Donahue (2003) suggest that the idea of professional ethics is grounded in a
fundamental understanding of what a profession is and what a professional does. They
say that there are certain qualities that define a professional and these include the need to
develop a high degree of specialized knowledge; the ability to apply the special body of
knowledge to the profession and to exhibit strong self discipline and accept personal
responsibility for actions and decisions. They go on to suggest that a professional is more
concerned with services rendered that with financial reward. This seems a more balanced
view that Friedman and takes into account the critical issue of the degree to which the
professional acts in the service of others or is motivated by self interest and self gain.

4. SURVEY METHODOLOGY
The subject in which this study was conducted is called “Building Company
Performance” and it is undertaken by third year full-time and fifth year part-time students
in the Bachelor of Construction course at UTS. 59 students were involved in the survey
with 37 in the under 24 age category and 22 in the 24 and over age category. The
questions asked were based on the experience of the researchers and are given in Table 1.

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 Table 1- Survey Questions
S c e n a r io
Y o u h a v e b e e n in v ite d to a n in d u s tr y g o lf d a y . T h e c o u r s e is lo c a l, th e r e is
a s m a ll fe e in v o lv e d a n d lu n c h is p r o v id e d . D o y o u a tte n d ?
Y o u a r e a L e c tu r e r a t U T S . O n e o f y o u r s tu d e n ts a s k s y o u to d o a p a id jo b
1
fo r h im . Is it O K to d o it?
A s u p p lie r in v ite s y o u to a tte n d a fo o tb a ll g a m e in th e ir b o x . It is a p u b lic
2
e v e n t a n d m a jo r te s t m a tc h . Is it O K to g o ?
A fa m ily f r ie n d h a s a p p lie d fo r a p o s itio n in y o u r fir m a n d h a s a s k e d to ta lk
3 to y o u a b o u t th e p o s itio n p r io r to th e ir fo r m a l in te r v ie w . Y o u a r e o n th e
in te r v ie w p a n e l. Is it O K to a s s is t th e m ?
Y o u a r e te n d e r in g fo r a p r o je c t th a t y o u d o n 't r e a lly w a n t to d o b u t fe e l th a t
4 if y o u d o n 't p u t in a p r ic e y o u m a y n o t g e t a s k e d to te n d e r fo r o th e r
p r o je c ts . Is it O K to p u t in a n a r tific ia lly h ig h te n d e r ?
Y o u r c o m p a n y is s e e k in g w o r k in a f o r e ig n c o u n tr y a n d y o u a r e to b e th e ir
r e p r e s e n ta tiv e th e r e . O n in v e s tig a tio n y o u fin d th a t th e o n ly w a y to d o
5
b u s in e s s in th a t c o u n tr y is b y g iv in g " k ic k b a c k s " to o ffic ia ls . W o u ld y o u b e
a p a r t o f th is ?

Y o u a r e a b u ild e r d o in g a c o n tr a c t fo r th e g o v e r n e n m e n t. Y o u a r r a n g e
6
y o u r c o n tr a c t p r ic e s o th a t ite m s o f w o r k th a t o c c u r e a r ly a r e a p p o r tio n e d
a ll o f th e p r o fit in o d e r to im p r o v e y o u r c a s h flo w . Is th is a c c e p ta b le ?
Y o u a r e a c o n tr a c t h o m e b u ild e r o p e r a tin g o n tig h t m a r g in s . Y o u g iv e a
q u o te to a C lie n t w ith a p r o v is io n a l s u m ite m f o r fo o tin g s . W h e n th e
7
fo o tin g s a r e b ille d y o u lo a d th e b ill u p a s m u c h a s y o u c a n g e t a w a y w ith in
o r d e r to in c r e a s e y o u r p r o f it o n th e jo b . Is th is a c c e p ta b le ?
Y o u a r e w o r k in g o n a c o s t p lu s c o n tr a c t. T h e jo b is g o in g b e tte r th a n
e x p e c te d a n d y o u a r e g o in g to fin is h e a r ly . Y o u r n e x t jo b w ill o n ly s ta r t
8 m u c h la te r . If y o u s lo w w o r k o n th e c o s t- p lu s c o n tr a c t s o a s to fin is h in tim e
fo r y o u r n e x t jo b th e C lie n t w ill s till e n d u p p a y in g le s s th a n th e b u d g e t. Is it
a c c e p ta b le to d o th is ?
Y o u a r e d e s p e r a te f o r w o r k a n d a B u ild in g In s p e c to r h a s th e a b ility to s lo w
9 d o w n y o u r p r o je c t a p p r o v a l. H e h in ts th a t h e n e e d s s o m e w o r k d o n e o n
h is h o u s e . D o y o u o ff e r to h e lp h im o u t?

A m a jo r G o v e r n m e n t C lie n t h a s d e c id e d to s to p g iv in g B ills o f Q u a n titie s to

te n d e r e r s . Y o u k n o w th e o th e r te n d e r e r s a n d a g r e e w ith th e m to p u t a n
10
a llo w a n c e in y o u r te n d e r fo r th e c o s ts o f e a c h te n d e r e r p r e p a r in g
q u a n titie s . T h e o n e w h o w in s th e te n d e r w o u ld th e n r e im b u r s e th e o th e r
te n d e r e r s fo r th e ir c o s ts in p r e p a r in g th e ir q u a n titie s . Is th is a c c c e p ta b le ?
Y o u a r e a n e m p lo y e e tr a d e s p e r s o n o n a jo b . T h e r e a r e th r e e b a g s o f
c e m e n t le ft o v e r o n a c o s t p lu s c o n tr a c t. Y o u a s k th e fo r e m a n if it is O K to
11
ta k e th e m h o m e . H e s a y s " S u r e " a n d y o u ta k e th e m h o m e . Is th is
a c c e p ta b le ?
Y o u a r e a r e s e a r c h e r a t a u n iv e r s ity a n d a r e o f fe r e d a $ 1 0 0 ,0 0 0 g r a n t to
12 r e s e a r c h a n e w b u ild in g te c h n o lo g y b y a c o m p a n y th a t is e x p lo itin g c h e a p
la b o u r in a fo r e ig n c o u n tr y . Is it a c c e p ta b le to ta k e th e ir m o n e y ?
Y o u a r e b u ild in g a s la b o n g r o u n d e x te n s io n to y o u r h o u s e . Y o u fin d a
b o ttle o f a n o w b a n n e d te r m ite r p r o te c tio n c h e m ic a l th a t w a s u s e d o n th e
13
m a in p a r t o f th e h o u s e . T h is c h e m ic a l is f a r m o r e e ffe c tiv e th a n th e o n e
p r e s e n tly u s e d . W o u ld y o u u s e it ?
Y o u a r e a w a r e th a t y o u r c o m p a n y is e n g a g e d in b r ib in g g o v e r n m e n t
o ffic ia ls to g e t jo b s . If y o u r e p o r t th is to th e a u th o r itie s it is m o r e th a n lik e ly
14 th a t th e c o m p a n y w ill c o lla p s e a n d y o u w ill lo s e y o u r jo b . Y o u h a v e a w ife
a n d th r e e k id s to s u p p o r t a n d h a v e a b ig m o r tg a g e . W o u ld y o u r e p o r t y o u r
com pany ?
15 "E th ic a l b e h a v io u r is in c o m p a tib le w ith p r o fit s e e k in g " . D o y o u a g r e e ?

It was decided to break the students into two groups, those under 24 years of age and
those over 24 years. The split was based on the desire to separate the “mature” students
from the younger ones and at the same time ensuring that the two groups were not vastly

262
dissimilar in size. Students were asked to respond on a five point Lickert scale ranging
from “Strongly Agree” to “Strongly Disagree” as shown in Figure 1. However for the
purpose of this exercise results were processed on a three point scale with “Strongly
Agree” and “Agree” lumped together (similarly with “Strongly Disagree” and
“Disagree”)

SurveyNo: Age: <=24 >24

SURVEYOF BUILDINGINDUSTRYPRACTICE Response

Strongly Strongly
Scenario Agree Uncertain Disagree
Agree/Yes Disagree/No
You have been invited to an industry golf day. The course is local, there is
a small fee involved and lunch is provided. Do you attend?

Figure 1 – Detail of Survey Form

Students were surveyed prior to receiving any instruction on ethical behaviour although
the subject was briefly touched on in the law subjects previously undertaken by the
students. The students were advised not to undertake the survey if they did not take it
seriously and anonymity was assured. By and large it was felt that the students took the
survey seriously. Surveys were collected at the end and then processed using an “Excel”
spreadsheet.

5. SURVEY RESULTS
a. Students Under 24 Years of Age

The results for the group of students who were under 24 years of age are given in Table
2.

Table 2: Responses for Students Under 24 Years

Yes No Total
Question Essence of Question
Agree Uncertain Disagree Responses
"Starter" 18 5 5 28 Golf Day
1 19 11 7 37 Student Job
2 37 0 0 37 Box at Football
3 21 6 10 37 Family Friend
4 23 5 9 37 Artificially High Tender
5 8 13 16 37 Foreign Work
6 20 9 8 37 Early Profit for Cash Flow
7 9 5 23 37 Loading Prov Sum Item
8 20 7 10 37 Slowing Cost Plus Job
9 20 5 12 37 Work for Building Surveyor
10 9 12 16 37 Bill of Quantities
11 20 4 13 37 Bags of Cement
12 11 9 17 37 Researcher/Dubious Donor
13 8 1 28 37 Termite Chemical
14 4 9 24 37 Bribe/Lose Job
15 13 3 20 36 Ethical Behaviour/Profit
18% 582

263
The highlighted values in Table 2 indicate that the response obtained was not due to
chance. This was based on the assumption that equal Yes and No responses would be
indicative of a chance relationship. A 5% acceptance criteria was then used in a Chi-
square test.

5.2 Students Greater than 24 Years of Age

The results for the group of students who were 24 years of age or over are given in Table
3. As for the former group the highlighted values indicate that the response obtained was
not due to chance.

Table 3 Responses for Students Greater than or equal to 24 Years

Yes No Total
Question Essence of Question
Agree Uncertain Disagree Responses
"Starter" 15 0 2 17 Golf Day
1 11 2 9 22 Student Job
2 20 0 2 22 Box at Football
3 12 3 7 22 Family Friend
4 18 1 3 22 Artificially High Tender
5 7 3 12 22 Foreign Work
6 16 2 4 22 Early Profit for Cash Flow
7 5 1 16 22 Loading Prov Sum Item
8 11 2 9 22 Slowing Cost Plus Job
9 14 4 4 22 Work for Building Surveyor
10 9 0 13 22 Bill of Quantities
11 15 1 6 22 Bags of Cement
12 10 4 8 22 Researcher/Dubious Donor
13 5 2 15 22 Termite Chemical
14 4 5 13 22 Bribe/Lose Job
15 7 2 13 22 Ethical Behaviour/Profit
9% 347

DISCUSSION OF RESULTS
a. Discussion of Significant Responses

The following questions received significantly different responses between Yes and
No in one or other or both of the age groups

• Question 1
You are a Lecturer at UTS. One of your students asks you to do a paid job for
him. Is it OK to do it?
For this question significantly more students answered yes in the under 24
category whereas in the over 24 category the responses were fairly evenly split.
This is to be expected as one would expect the more mature students to be a bit
more cautious in such arrangements based on their life experiences.

• Question 2
A supplier invites you to attend a football game in their box. It is a public event

264
 and major test match. Is it OK to go?
There was almost an unanimous yes response in both age groups for this question,
with no students “uncertain”.

• Question 3
A family friend has applied for a position in your firm and has asked to talk to you
about the position prior to their formal interview. You are on the interview panel.
Is it OK to assist them ?
Students under 21 responded almost 2 to 1 in favour of assisting the family friend
whilst in the over 24 group the response was not significant either way.

• Question 4
You are tendering for a project that you don't really want to do but feel that if you
don't put in a price you may not get asked to tender for other projects. Is it OK to
put in an artificially high tender?
Both age groups were significantly in favour of putting in an artificially high
tender , more so with the students over 24. This may be due to their increased
exposure to current practices in the workplace.

• Question 6
You are a builder doing a contract for the government. You arrange your
contract price so that items of work that occur early are apportioned all of the
profit in order to improve your cash flow. Is this acceptable?
The response to this question was similar to that for Question 4, with the majority
in both groups deeming this practice to be acceptable.

• Question 7
You are a contract home builder operating on tight margins. You give a quote to
a Client with a provisional sum item for footings. When the footings are billed
you load the bill up as much as you can get away with in order to increase your
profit on the job. Is this acceptable?
The majority of students in both groups felt that this was unacceptable practice.
Significantly more students in the under 24 age group were “uncertain” but the
number was still low compared to those who disagreed.

• Question 11
You are an employee tradesperson on a job. There are three bags of cement left
over on a cost plus contract. You ask the foreman if it is OK to take them home.
He says "Sure" and you take them home. Is this acceptable?
Students under 24 were divided on this question with slightly more saying yes. A
significant majority of the over 24 year group agreed that this practice was
acceptable. One might conclude here that they possibly justified their action in
the belief that the foreman’s reply legitimises it.

• Question 13
You are building a slab on ground extension to your house. You find a bottle of a
now banned termite protection chemical that was used on the main part of the
house. This chemical is far more effective than the one presently used. Would
you use it ?

265
 This question was answered in the negative by both groups on roughly a three to
one basis

• Question 14
You are aware that your company is engaged in bribing government officials to
get jobs. If you report this to the authorities it is more than likely that the
company will collapse and you will lose your job. You have a wife and three kids
to support and have a big mortgage. Would you report your company ?
In this question their was a significant no response in both groups but a fairly
large “uncertain” response (roughly 25% in both groups). Students under 24
showed less inclination to report their company.

6.2 Variation of Responses Between Different Age Groups

In general the responses between the different age groups was fairly similar , with some
minor exceptions noted above. There was however a significant overall difference in the
number of “Uncertain” responses between the two groups, with those students over 24
(9% “uncertain” responses) being far less uncertain in their responses than those under 24
(18%). This is seen to be a reflection of the reduced exposure to the work environment of
the younger students, many of which would have completed at least part of the course
full-time.

7. CONCLUSIONS
The ability of students to be aware of the dimensions of ethical problems and to think
through ethical dilemmas is a skill that will stand them in good stead throughout their
career. This preliminary study has shown that the construction students at UTS are
possibly more ethically advanced than people might give them credit for, particularly in
matters of the environment (Question 13). In general the survey results would seem to
indicate that the majority of students were at Kohlberg’s Conventional level. There was
however considerable uncertainty for some questions, particularly amongst the younger
students, and the general spread of results over contractual matters (such as outlined in
Questions 8 & 10), would seem to indicate that the students would benefit from further
study in this area.

8. REFERENCES
Cole Royal Commission into the Building and Construction Industry, 2003, NSW Parliament.
Abbott, A, 27/3/2003, Ministerial Statement, NSW House Hansard.
Friedman, M, 1970, The Social Responsibility of Business is to Increase Its Profits, New York Times
Magazine, 13 Sept, pp 239-244.
Martin,M.W. & Schinzinger,R, 1983, Ethics in Engineering, McGraw Hill Publishing Company.
Boylan,M & Donahue,T., 2003, Ethics Across the Curriculum: A Practice Based Approach, Lexington
Books.
Lisman, C.D., 1996, The Curriculum Integration of Ethics: Theory and Practice, Praeger.
Kohlberg, L., 1971, The Philosophy of Moral Development, vol 1, Harper & Row.

266
 SERVICES PROVIDED BY PROJECT MANAGEMENT
CONSULTANT IN MALAYSIAN CONSTRUCTION
INDUSTRY

Dzulkarnaen Ismail1 , Ir Dr. Rosli Mohamad Zin2, Hafizah Mohd Latif3.

1
Building Department, UiTM Sri Iskandar, Perak
2
CTMC, Universiti Teknologi Malaysia
3
Building Department, UiTM Sri Iskandar, Perak

Abstract: Project Management Consultant (PMC) has become an important entity in the
construction industry and the use of its services has increased significantly in recent years.
Even though PMC concept is relatively new in Malaysia, applied only after Malaysia had
successfully completed the Petronas Twin Tower Project and the KL International Airport
(KLIA Project), several issues related to failure of the PMC concept have been raised by the
public and government. As a result of the many PMC failures highlighted by the
mainstream media, the success of completed projects handled by Project Management
Consultant had been overshadowed. This study is carried out to investigate the services
provided by Project Management Consultant (PMC) in the Malaysian construction industry.
A framework of PMC Services that suits the local construction environment was developed
from the combination of three Project Management Consultant’s Contract based on the case
studied carried out. The study found that most of the services listed by the author were
regarded by the respondents as “important” services and should be carried out by the
Project Management Consultants. The results of the survey for the level of satisfaction on
the services provided by Project Management Consultant (PMC) show that the respondents
had categorized the level of satisfaction under two main factors which are satisfied and
fairly conducted.

Keywords: Project Management; Malaysian Construction Industry

1. INTRODUCTION

The construction industry is often known as a very highly fragmented industry with a
large number of activities involving different parties and professionals such as
architects, engineers, quantity surveyors, contractor teams, suppliers, financiers and
others. By being a fragmented industry, management efficiency and competency in the
industry is needed to gain a higher level of competitiveness. The needs for such an
approach has become more important and more pronounced, not only due to the
increased size and complexity of building projects but also as a result of growing
participation by international contractors. One of management solutions that has been
widely used to improve efficiency of a project is through the use of Project
Management Consultant (PMC) services. The use of its services has increased in every
construction industry throughout the world. Even though the practice of using PMC
services is new in Malaysia, more widely applied only after Malaysia had successfully
completed the Petronas Twin Tower Project and the KL International Airport (KLIA
Project), there are more than 100 private companies of various sizes and track records
registered under the Treasury that have procured Project Management Consultancy
(PMC) services since 1999. The question is whether the services provided by PMC is
adequate in ensuring that projects are completed accordingly within the budget or

267
cheaper, are of high quality and meet the client needs. Hence, this study was carried out
to investigate the services that are currently and should be provided by Project
Management Consultants (PMC) in the Malaysian construction industry as well as to
measure the level of satisfaction on the services provided by Project Management
Consultant in the construction industry.

1.1 Problem statement

Most individual companies and organizations, which require the Project Management
Consultancy services, do not have enough resources and expertise to carry the role of
PMC. By considering these factors, the government of Malaysia under the Ministry of
Finance had entrusted the Project Management Consultant (PMC) to manage
government projects with the intention that these projects are completed efficiently on
time, within budget and of the specified quality. However, the government’s good
intention to obtain services provided by Project Management Consultants has recently
raised several issues and problem that are discussed by the public and government.
From the issues of computer labs and 16 “sick” schools and five community colleges
with structural defects, the closing of Sultan Ismail Hospital in Johor Bahru due to
fungal outbreak caused by faulty air-conditioning and the latest issue where the key
Middle Ring Road in Kuala Lumpur had to be closed after cracks were found. As a
result of these issues, the government has decided to no longer use the services of PMC
and reverted to the relevant agencies such as Public Work Department (PWD) and
ministries to oversee new projects. Are the services provided by the Project
Management Consultant as agreed in the agreement not sufficient enough? However,
the issues of Project Management Consultant Firm highlighted by the media have not
been fairly delivered and have influenced the government’s decision to stop the
services of PMC Firms. Therefore, it is important for Project Management Consultants
to define the services that they provide, so that their scope of work is clear in order to
prevent any prejudice and misunderstanding on their services in future. It is also
important for Project Management Consultants to define the scope of services they
need to carry out in such circumstances due to the increased size and complexity of
building projects and to be more competitive in the era of globalization. In line with
this view, Morris (1994) has seen the need of project management services to be
defined in the context of the increasing magnitude of projects undertaken around the
world and the requirement for owners to be more competitive in their execution.

1.2 Objectives Of The Study

The main objectives of the study can be documented as follows:-

i) To develop a framework of Services that should be provided by Project
Management Consultant (PMC)
ii) To identify the type of services that should be provided by Project Management
Consultant (PMC)
iii) To determine the level of satisfaction regarding the services provided by Project
Management Consultant (PMC)

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1.3 Scope of Research

This research was carried out with a careful study based on cases study and data
collected from the questionnaires. The scope of research will focuses on the private and
government projects using Project Management Consultant (PMC) services. This study
focused on the types of services that provided by Project Management Consultant of the
project. The study is limited to project management of construction and infrastructure
projects undertaken by Project Management Consultant in Klang Valley and Putrajaya.

2. LITERATURE REVIEW

2.1 Malaysian Scenario

Malaysia's rapid economic development and the transformation process from an

upper middle income developing country towards the industrialized and developed
nation status as envisaged in Vision 2020 has created the environment for the
development of the construction industry. The construction industry has played an
important role in establishing the infrastructure required for socio-economic
development and contributing directly to economic growth (Abdullah, 2004). By
considering these factors, the government of Malaysia under the Ministry of Finance
had entrusted the Project Management Consultant (PMC) to manage government
projects with the intention that these projects under PMC can be delivered efficiently on
time, within budget and of the specified quality. The Malaysian government good
intention to obtain services provided by Project Management Consultant had turned
into several issues and problem that have been discussed by the public and government
recently. As a result of highlighting the issues that PMC faced by the mainstream
media, the government of Malaysia had terminate the services of PMC. Hussein (2003)
added that while some, if not a majority cases, the PMC have fared quite well. But there
are also some that have totally gone awfully wrong and these have caused great concern
and anxiety to some quarters in the government due to its impact to the government
socio-economic drive. It is imperative to all concerned that this ‘abnormality’ has to be
address. To understand project management, you must first recognize what a project is
(Harold, 2004).

2.2 Definition of project

A “Project” can be defined loosely as an item of work which requires planning,

organizing, the dedication of resources and the expenditure funds, in order to produce a
concept, a product, or a plant (James and Albert, 1994). B.S. Dhillon (2002) on the
other hand, define project as a plan of work job assignment, or task (it is also referred to
as job or task). Harold (2003), however, defines project to be any series of activities
and task that have a specific objective to be completed within certain specification,
have defined start and end dates, have funding limits, consume human and non human
resources, and are multifunctional.

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2.3 Definition of Project Management

The Charted Institute of Building (2002) define project management as, “the overall
planning, control and coordination of project from inception to completion aimed at
meeting a client’s requirements and ensuring completion on time, within cost and to
required quality standards”. There are various definition of project management reveals
in literature review, but the closest that can be used for proposed of this research is one
defined by Walker (2002), “Project management as the planning, control and co-
ordination of a project from conception to completion (including commissioning) on
behalf of a client. It is concerned with the identification of the client’s objectives in
terms of utility, function, quality, time and cost, and the establishment of relationships
between resources. The integration, monitoring and control of the contributors to the
projects and their output, the evaluation and selection of alternatives in pursuit of the
client’s satisfaction with the project outcome are fundamental aspects of construction
project management”.

2.4 Project management consultant

There is no specific definition of project management consultant. Most of the writers

and researchers described the management consultant by their roles and responsibility
and services that they provided using tools and skills they have in delivering a task
assigned by the client or the owner of the project. Ernest (1988), in his books stated that
the management consultant often serves in several ways, many of which assist in
keeping the project confidential until time for public release. The management
consultant also provides an outside, imperial sources of information and appraisal of the
entire project feasibility. Unfortunately, there is some confusion among us with the
terms we used to describe “consultant”. Martin (2001), in his research paper title “What
client employees say about consultant” states that organizations use consultants to help
accomplish significant goals, such as facilitating organization change. Consultants may
be hired to advise or design the plan for change, but they are often not asked to
participate in the implementation of their designs.

2.5 Types of Services provided by Project Management Consultant

Project management services are not a substitute for top management’s own
reporting structure. They are the independent sources of objective information that
prudent management demands from a situation involving risk (Philip, 2000). In line
with Philip (2000) views, CIOB in 1988 clarified that the intention of the
appointment of a Project Manager is to relieve the client of responsibility of
providing an organization to deal with the design and construction of the project.
The client retains the degree of control necessary for him to satisfy his wishes and
preferences and will be required to make key decisions.

2.6 Client Satisfaction and Factor influencing the success of consulting

management project

From the study carried out by Lim (2000), it was found that the need to construct
projects effectively was the modus operandi of the industry in the past, the need to
provide effective service is now the model of successful contractors / builders today.

270
We shall be more service based than product based. This statement is supported with
the survey carried out by Jaafar (2005) which concluded that the level of client’s
satisfaction did depend on the services rendered by the project consultant, contractors,
time, quality, cost and the most important criteria to the clients were that the project
delivered met with the specified requirements of the client. On the other hands, Tang et.
al (2003) stated that client satisfaction, both internal and external, is a function of
quality services, quality of product, and quality of manner to customers. William
(2002) added that Customers will distinguish their satisfaction with a particular
encounter from their overall satisfaction with the firm’s services.

3. RESEARCH METHODOLOGY
The study forms Research methodology for this research consists of four steps as
below.
1. Literature review
2. Case Study
3. Questionnaire survey
4. Analysis of data

3.1 Literature Review

Literature review was undertaken to get the general view of the investigation carried
out by the author that are relevant to the research as well as to help the researcher meet
the objectives highlighted.

3.2 Case Studies

Case studies of actual Project management contracts had been carried out with the
objective to identify the scope of services provided by Local Project Management
Consultancy. The case studies were carried out to meet the first objective of this
investigation which to identify the services that should be provided by Project
Management Consultant (PMC). There are four (4) projects undertaken by both private
and government firm had been selected randomly to fulfill this objectives. From the
four projects, the writer of this report had only managed to get three (3) projects due to
its private and confidential document and tight policies that the firm had to follow.

3.3 Questionnaire Survey

An industry survey had been carried out by the author and distributed to the parties who
liaised with the Project Management Consultant services respectively. In order to
distribute the questionnaire to the target population, the questionnaire was piloted. A
pilot questionnaire, drafted from the findings of literature and case studies had been
used prior to developing of the final questionnaire. The purpose of piloting was to make
sure that the questions will provide the required data, clearly and easy to understand.
The questionnaire first had been tested to different groups, which include researcher
supervisor, colleague whom related to the disciplines and some of the potential groups
of respondent. Some adjustment and correction had been made based on the comments
received by the researcher. The total numbers of 150 questionnaires then distributed to

271
the potential respondent in Klang Valley (which include Kuala Lumpur and Klang) and
to some respondent in Putrajaya. Out of 150 questionnaires, only 41 questionnaires
were returned which represent 27.3 % of the total questionnaire distributed. The
parties’ responds to the questionnaires included the clients, contractors, architect,
project engineer, project manager, project executives and the consultants.

3.4 Data Analysis

All the collected data from the questionnaires are analysed in two steps or methods.
There are Frequency and Average Index. Frequency analysis is used as preliminary
analysis. This method will show the frequency and the percentage. The frequency
represented in the form of table and pie chart. In order to generate the result, the
researcher had used the Statistical for Social Science (SPSS), version 11.0. The average
index is calculated as follow (Al-Hammad et al., 1996).

Based on the assumed values stated earlier, x1 = frequency of the “very important” or
“vary satisfy” and corresponding to a1 = 1, x2 = frequency of the “important” or
“satisfy” and corresponding to a2 = 2, x3 = frequency of the “moderately important” or
“fair” and corresponding to a3 = 3, x4 = frequency of the “Less important” or “Less
satisfy” ” and corresponding to a4 = 4, = frequency of the “Not important” or “Not
satisfy” ” and corresponding to a5 = 5.

4. RESEARCH FINDINGS AND ANALYSIS

Three (3) PMC’s contract had been reviewed to generate the framework which suites to
Malaysian Construction Industry. All the collected data from the questionnaires are
analysed in two steps or methods which are Frequency and Average Index. Frequency
analysis is used as preliminary analysis. This method will show the frequency and the
percentage for both results on level of importance and level of satisfaction on PMC’s
services.

4.1 Framework of Services that should be provided by the Project

Management Consultant

The combination of this three (3) consultants contract will developed the actual services
which need to be carried out by the PMC in practice. The writer had combined the
description of services of the three contracts and had developed a framework of
services which is listed as one of the objectives in this study. From the framework, the
writer had conduct an industry survey using the questionnaires to measure the level of
importance and level of satisfaction of each service listed in the case study. Table 4.1
below shows the framework of services that should be provided by the Project
Management Consultant in Malaysia.

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 Table 4.1; Framework of Services that should be provided by the Project Management Consultant in
Malaysia
N
List of Services Description of services
o
Client’s To analyse the project definition in functional terms to meet the performance objectives and
1 Requirements and advising the clients with respect to the definition, consistency, practicability and
Scope of Works controllability of all aspect of the project
To carry out feasibility studies, appraisal and ensuring that it is feasible functionally,
2 Feasibility Study
technically and financially
Site visit and planning of site layout and arranging of early site arrangement and
Preliminary arrangements for geological investigations, site survey and analyzing the soil investigation
3
Requirements reports and to prepare in brief project summary which include ‘Schedule of Accommodation’
for every building
Contract and Advising on the terms and conditions of contracts, Preparing the contract document, To
4 Legal prepared Letter of Offer (LO) and Letter of Acceptance (LA) and assist the client on terms
Considerations and condition inside both contract
Preparing various levels of project schedules for planning and implementation and
5 Scheduling monitoring all the activities, provide input to the project schedule regarding construction
activities and examining and analyzing the project planning
Convening meetings on a fortnightly basis or more frequently as the need arises, meeting
6 Meetings with consultant, client, and contractor at least once a month, and acting as Chairman of such
Project Management Meeting
7 Reporting Prepare Meeting report and Monthly progress report
Management of Coordinating the services of the Design Consultants and other professional Consultant,
8 Design and Other Examining and considering all plans produced by the Design Consultant, examine and
Consultants controlling all designs and plans, and liaise to the relevant authorities for approval
Appropriate documents for calling for tenders or proposal, assisting client in calling for
prequalification of tenders, submitting a report on tenders received and make
9 Procurement
recommendations, preparing and submitting of ATDA (As Tendered Detail Abstract), and
analyzing and examining all proposed tender rate
1 Budgeting and
To prepare budget and business plan, and assist the client on the price negotiating
0 Estimating
Control of Variation works, minimising wastage of materials and financial control over all
1 payments, analyzing and controlling of costing and analyzing any application made for
Cost Control
1 changes of work, monitoring of changes in scope and the preparation of required budget
variation
To ensure timely completion of the Project and instructing the Contractors on any
1 Management of incomplete works and defects, monitoring of project progress, take reasonable measures to
2 Construction control progress, arrange for site inspection, monitor any defect, and arrange for repair
works
To coordinate the Contractor's work in accordance with his programme and site planning and
1 progress chasing in the event, taking immediate action on the construction issues, solving
Expediting
3 problem on site, dealing with local authority on application for approval for ‘Certificate of
Fitness’ and preparation of Certificate of Practical Completion
Arranging for Financial Statements showing expected final costs and preparing and
1 Payment
recommending the certification of all final accounts, and assisting the client on payment to
4 Certification
the contractor
To ensure that the building plant installations and all services operate in conformity with the
1 requirements and design specifications, supervise and controlling of all test on site, As a
Quality Control
5 witnesses of all test carried out by the contractor, to arrange for inspection, to ensure the
quality of works when necessary and to prepare the report before handling over to the client
To assist client to obtain the issuance of the relevant Certificate of Fitness, to provide client
1
Commissioning a maintenance, operating and service manual, to assist and ensure that client receives a full
6
set of as-built drawings and preparing a programme for maintenance

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Services Provided by PMC
Table 4.2: Degree of Importance of services that should be provided by Project Management Consultant
in Malaysian Construction Industry
1 = Very Important 5 = Not Important
List of Services Average
1 % 2 % 3 % 4 % 5 %
Index
Client’s Requirements
28 68 13 32 0 0 0 0 0 0 1.32
and Scope of Works
Feasibility Study 23 56 10 24 7 17 0 0 1 2 1.68
Preliminary
12 29 22 54 7 17 0 0 0 0 1.88
Requirements
Contract and Legal
19 46 18 44 4 10 0 0 0 0 1.63
Considerations
Scheduling 16 39 20 49 5 12 0 0 0 0 1.73
Meetings 13 32 23 56 5 12 0 0 0 0 1.80
Reporting 7 17 25 61 7 17 2 5 0 0 2.10
Management of Design
19 46 18 44 4 10 0 0 0 0 1.63
and Other Consultants
Procurement 14 34 18 44 9 22 0 0 0 0 1.88
Budgeting and
17 41 16 39 7 17 1 2 0 0 1.80
Estimating
Cost Control 20 49 17 41 4 10 0 0 0 0 1.61
Management of
24 59 15 37 2 5 0 0 0 0 1.46
Construction
Expediting 10 24 26 63 4 10 1 2 0 0 1.90
Payment Certification 12 29 18 44 9 22 2 5 0 0 2.02
Quality Control 22 54 16 39 2 5 1 2 0 0 1.56
Commissioning 15 37 18 44 7 17 1 2 0 0 1.85

The respondents to the question were asked to rate the degree of satisfaction on the list
of services provided by the PMC which is included in the table provided in the
questionnaires. The results of the survey for the level of importance on the list of
services that should be provided by Project management Consultant (PMC) shows that
most of the services listed by the author were approved by the respondent as
importance services and should be carried out by the PMC.

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Level of Satisfaction on Services Provided by PMC
Table 4.3: Degree of satisfaction on services provided by Project Management Consultant in construction
industry in Malaysian Construction Industry
1 = Very Satisfy 5 = Not Satisfy
List of Services Average
1 % 2 % 3 % 4 % 5 %
Index
Client’s Requirements
4 10 23 56 14 34 0 0 0 0 2.24
and Scope of Works
Feasibility Study 3 7 22 54 16 39 0 0 0 0 2.32
Preliminary
3 7 23 56 14 34 1 2 0 0 2.32
Requirements
Contract and Legal
4 10 18 44 18 44 1 2 0 0 2.39
Considerations
Scheduling 4 10 15 37 22 54 0 0 0 0 2.44
Meetings 6 15 20 49 12 29 2 5 1 2 2.32
Reporting 3 7 13 32 19 46 5 12 1 2 2.71
Management of Design
3 7 14 34 24 59 0 0 0 0 2.51
and Other Consultants
Procurement 2 5 18 44 20 49 1 2 0 0 2.49
Budgeting and
3 7 16 39 19 46 3 7 0 0 2.54
Estimating
Cost Control 2 5 17 41 15 37 6 15 1 2 2.68
Management of
6 15 15 37 15 37 5 12 0 0 2.46
Construction
Expediting 1 2 16 39 19 46 3 7 2 5 2.73
Payment Certification 3 7 22 54 14 34 2 5 0 0 2.37
Quality Control 5 12 8 20 20 49 8 20 0 0 2.76
Commissioning 2 5 18 44 18 44 3 7 0 0 2.54

The respondent were asked to rate the degree of satisfaction on the list of services
provided by the PMC which is included in the table provided in the questionnaires. The
results of the survey for the level of satisfaction on the services provided by Project
management Consultant (PMC) shows that the respondent had categorized the services
provided by the Project Management Consultant under two main factor which are
“satisfy” and “fair”.

5. CONCLUSION
From the case study carried out by the author in Chapter 5 of this report, the writer had
combined the description of services of the three contracts and had developed a
framework which consists of 16 lists of services that need to be carried out by PMC.
This study is not intended to be specific or limiting in scope but is intended to define
what would normally be done in actual project management contract. This study is
primarily intended to serve as a guide to Project Management Consultant Firm in
respect of the suggested scope and extent of services and also for the guidance of the
clients who may wish to engage a PMC Firm offering project management services.

From the results of the survey for the level of importance on the list of services that
should be provided by Project management Consultant (PMC) it can be concluded that
most of the services listed by the author were approved by the respondent as
“importance” services and should be carried out by the PMC. The results of the survey

275
also found that the level of satisfaction on the services provided by Project management
Consultant (PMC) had been categorized under two main factor which are “satisfy” and
“fair”. It can be concluded that most of the PMC did performed in their services
whereas only some of the PMC failed to execute the responsibility assigned.

6. REFERENCES
Abdullah, Fadhlin (2004), “Construction Industry & Economic Development: The Malaysian Scene”,
Johor, Malaysia, Penerbit Universiti Teknologi Malaysia.
Al-Hammad, A-Mohsen and Assaf, S. (1996) “Assessment of Work Performance of Maintenance
Contractor in Saudi Arabia”, Journal of Management in Engineering, ASCE, Vol. 16, No.1.
B. S. Dhillon, (2002), “Engineering and Technology Management Tools and Applications” Boston,
London, Artech House.
Charted Institute of Building (CIOB) (1988), “Project Management in Building”, United Kingdom (UK),
CIOB.
Charted Institute of Building (CIOB) (2002), “Code of Practice for Project Management for Construction
and Development”, United Kingdom (UK), CIOB.
Ernest E. Ludwig (1988), “Applied Project Engineering and Management 2nd Edition”, Houston, Texas,
Gulf Publishing Company.
Harold Kerzner (2003), “Project Management, A System Approach to Planning, Scheduling, and
Controlling 8th Edition”, New Jersey, John Wiley & Sons, Inc.
Harold Kerzner (2004), “Advanced Project Management, Best Practices on Implementation, 2nd Edition”,
New Jersey, John Wiley & Sons, Inc.
Hussein, Jamilus, Tan Sri Dato’ Ir. (2003), “Emerging Challenges of Project Management in Malaysia”,
Project Management Beyond: Facing the Challenges of Globalisation, 8-9 September 2003,
Palace of The Golden Horses, Mines Resort City.
James A. Bent and Albert Thumann (1994), “Project Management for Engineering and Construction 2nd
Edition”, United States of America, The Fairmont Press, Inc.
Jaafar, Aini (2005), “An Assessment of Satisfaction and value management Application in the Malaysian
Construction Industry: A Client perspectives”, Proceedings of the 4th MICRA Conference, 4th –
5th May, Faculty of The Built Environment, University Malaya, Kuala Lumpur, Malaysia.
Lim Fang Keong (2000), “Project Management in Malaysia – Strategies, Techniques and Implementation
for Project Success”, Seminar on Project Management in Malaysia: Strategies, Techniques and
Implementation for Projects Success, 10th March 2000, Hilton Hotel, Kuala Lumpur.
Morris P.W.G. (1994), “The management of projects”, London, Thomas Telford Services Ltd.
Martin E. Smith (2001), “What client employees say about consultants”, Leadership & Organization
Development Journal, November 2001, pp. 93 – 103.
Philip Bell-Booth (2000), “Project Management Services”, Project Management in Malaysia–Strategies,
Techniques and Implementation for Project Success, 10th March 2000, Hilton Hotel, Kuala
Lumpur
Tang S. L., Ming Lu, and Y. L. Chan (2003), “Achieving Client Satisfaction for Engineering Consulting
Firms”, Journal of Management in Engineering, ASCE, October 2003.
Walker, A. (2002), “Project Management in Construction”, 4th Edition, Britain, Granada Publishing.
William F. Maloney (2002), “Construction Product/Service and Customer Satisfaction”, Journal of
Construction Engineering and Management, November/December, 2002, pp.522 – 529.

276
 THE IMPACT OF CLIENT AND MANUFACTURERS’
ROLE AND INDUSTRIAL RELATIONSHIPS ON
CONSTRUCTION INNOVATION

F. A. Abdul Nifa1, M. N. Mohd Nawi1 and N. Hamzah2

1
Faculty of Technology Management
Universiti Utara Malaysia
06010 Sintok, Kedah, Malaysia.
2
Faculty of Engineering
Universiti Kebangsaan Malaysia
43600 Bangi, Selangor, Malaysia.

Abstract: Using a suitable shading device’s slats, venturi effect can be induced to increase air
velocity. In the preliminary experiment, three different variables of widths of the shading
device, aperture sizes, and angle of slats have been tested. In this experiment, extensions are
attached to the front and rear of the slats. Based on the L9 orthogonal array of the Taguchi
method of Design of Experiment, the effect of front and rear extension, and aperture size on
the wind flow velocity are studied. A design of experiment (DOE) is the simultaneous
evaluation of two or more factors for their ability to affect the resultant average or variability
of a particular product or process characteristic. The results of the experiment shows similar
trend of velocity profile as in the preliminary experiment. The wind velocity increases
significantly at the constriction but drops rapidly as it flows away from the slats. Analysed
using the Analysis of Variance (ANOVA), the influential variables and interactions between
variables that affect the wind flow velocity, and the optimum conditions are determined. The
aperture sizes are found to have greater influence on the result at the point of constriction.

Keywords: Shading Device, Venturi Effect, Wind Flow Velocity, Taguchi Method of Design
of Experiment, Analysis of Variance.

1. INTRODUCTION
Innovation is a field receiving a great deal of attention from companies in today’s fast-
changing business environment. Realizing that most firms and competitors within their
industry have acquired the same level of competence in other areas of management, such
as operations, human resources, marketing, and strategy, firms nowadays are beginning
to look at innovation as a key differentiating factor for competitive advantage.

Innovation and its importance in the construction industry

The word innovation appears to have its origins in the Latin innovare, which means
simply “to renew, to make new, or to alter”. Cumming (1998) had reviewed the definition
of the term innovation throughout 1960s to date. In his paper it can be seen that the
definition of the word innovation has subtly changed over the last 3 to 4 decades. Initially
innovation was thought as a process, as the introduction of change or the generation of a
new idea. Then it was refined to include implications that a new concept had to be

277
brought into use before innovation could be said to have taken place. At the moment most
definition of innovation revolves around the idea of a new concept being brought into
successful use before innovation has occurred, normally including the words
“effectively”, “profitably” or “satisfied customers”. However, innovation should not be
viewed solely as an output of the process but rather inclusive of the processes involved.
This is best described in the following definition provided by Narayanan (2001):

“Innovation refers both to the output and the process of arriving at a

technologically feasible solution to a problem triggered by a technological
opportunity or customer need.”

It is a common understanding that the higher the levels of innovation in the construction
industry, the more likely that it will increase its contribution to economic growth.
Unfortunately in many parts of the world, there is a perception that the industry is not
generally innovative and there is little room for improvement (Blayse and Manley, 2004).
The construction industry is dynamic in nature as it encompasses a large number of key
players. The key players in the construction industry are governments, building materials
suppliers, designers, general contractors, specialist contractors, the labour workforce,
owners, professional associations, private capital providers, end users of public
infrastructures, vendors and distributors, testing services companies, educational
institutions, certification bodies and many others. This can be depicted in Figure 1, to
show the broad range of parties involved in the construction industry, based on Gann and
Salter (1998).

Role of client and manufacturing firms in promoting innovation

According to Barlow and Jashapara (1998), several bodies have suggested that the
industry could be more innovative if:
ƒ It adopted “partnering”- collaborative relationships between clients,
contractors, sub-contractors and suppliers more widely.
ƒ There was closer involvement of clients in research and if an innovation
culture and improved mechanisms for knowledge access could be
developed.
ƒ If appropriate “learning networks” were established

Their study showed that currently the main driving force in typical construction industry
partnering relationships is efficiency improvement, but clients and suppliers are
beginning to recognize the role partnering can play in promoting innovation.

In their paper, Smith and Love (2001) made a comparison of past and present
construction industries. In the 1950s, the trend was to have no client involvement in the
decision making within construction projects. The construction process was led by design
teams and government was a significant client back then. At the beginning of the
millennium, the construction industry underwent changes where clients are encouraged to
have closer involvement in the construction process and are viewed as the key driver of
change. There are also clients with financial and organizational advisers that focused on
cost, time and quality. In this age, the initial stage of project initiation and briefing
receives more attention than other stages. The clients come from many other parties, and
the government is becoming a less significant client.

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 Regulatory Framework
Government agencies, firms, industry and professional associations

Supply Network Project-based firms Users

Suppliers of materials, On-site service providers: Clients, owners, ultimate users

products, fasteners, tools, general/specialist contractors
machinery, equipment
Client service providers:
Hirers/leasers of machinery consultants, property
and equipment operators/developers, real
estate agents

Technical Support Infrastructure

Government agencies, educational institutions, R&D institutions, industry and professional associations

Figure 1: Participants in the Building and Construction Project System (adapted from Gann and Salter, 1998).

The clients have to be sufficiently aware to maintain the flexibility and adaptability of
their organization to respond to market forces and innovation. Smith and Love (2001)
further concluded that the constant in the future is that clients will reign supreme and
their demands must be reflected by the way in which processes are used to procure
facilities and the quality of the final product.

Slaughter (2000) in her paper concluded that owners or clients can consider the potential
benefits in the improvement of both the construction process and the completed facility
through clearer specification of desired objectives, rather than a simple acceptance of the
standard available designs or technologies. These prominent client desires can be a
significant catalyst for the development, consideration and use of construction-related
innovations.

In the same manner, manufacturers can also plan their innovation utilization activities
adjacent to the fulfillment of specific project objectives and also by achieving their
strategic objectives in the long term. Resource interfaces are primarily concerned with the
technical interdependencies that arise when the resource bases of buyer and supplier are
connected through exchange activities. In the case of the construction industry, these
relationships exist between the key players, namely in between contractor, consultant,
client and suppliers. Araujo et al (1999) stated that interactive interfaces (relationships)
provide significant direct and indirect learning opportunities. Joint development is the
cornerstone of direct learning and at the same time increases the potential for making use
of what the supplier learns in activities with other customers as well as with its own
suppliers. The open-ended nature of the exchange provides room for an overview of
resource utilization and the pooling of “best practice” experience across all interfaces. In

279
this view, it is apparent that the nature of the situation allows the transmission of
knowledge and ideas between the parties involved and this encourages the process of
innovating in the construction industry.

Although many authors had stated that the construction industry is particularly unique in
terms of innovation management, where what precedes during innovation management in
other industries does not necessarily apply in the construction industry, the manufacturing
sector (suppliers) of this industry does follow suit the general principle of innovations.
The manufacturers of construction based products also follow the general steps of
product development and life cycle of products, and will introduce new enhanced
features on their product, just as any manufacturers. The innovation in these construction
based products will in turn promote the use of new ways and system in the existing
methods of construction. Araujo et al (1999) in their paper had concluded that
productivity and innovativeness are not internally determined but a result of how
companies activate their resources in relation to suppliers and customers. The ability of
supplier to agree to the request of the customer is contingent on what resources that
supplier has developed over time and how these resources are currently being deployed.
The critical issue in this matter is how the key players in the construction industries
recognize the interdependence amongst interfaces or relationships with both clients and
manufacturers.

Industrial relationships in the construction industry

According to Holmen et al (2005), a relationship can be viewed as a set of connected

exchange episodes (or business transactions). Such episodes are limited in time and may
concern the production of deliveries, joint development projects, and product tests,
negotiations of long term contracts, education and exchange of personnel. An analytical
framework developed by Håkanssen and Snehota in 1995 explained about three layers
contained in relationships, which are activity links, actor bonds and resource ties. Holmen
et al (2005) further stated that technological innovations is considered not to be the
outcome of the efforts of single firm or innovator, but rather the result of an interplay
between a number of different firms. Blayse and Manley (2004) stated that the
importance of relationships lies in their capacity to facilitate knowledge flows through
interactions and transactions between individuals and firms.

In describing the nature of relationships in construction and partnering, Jones and Saad
(2003) discussed that performance and innovation in construction are significantly
impeded by the adversarial relationships and fragmented processes that continue to
dominate much of construction. Figure 2 shows the wide range of relationships and
contracts available to clients and their advisers with the introduction to strategic
partnering.

280
 Strategic alliance

Range of inter-organizational relationships

Optimum relationships
between inter-organizational
Strategic relationships and forms of
partnering contract for specific clients
and market sectors

Project-specific
partnering

Two-stage with
negotiations

Single-stage
arm’s length

Oral contract or none

Unamended standard

charter & agreement

partnering charter &
Amended Standard

Partnering contract
Binding partnering

such as PPC 2000

Non-binding

agreement
contract

contract

Range of contractual options

Figure 2: The Wider Range of Contractual Options and Relationships (adapted from Jones & Saad (2003)
p.197)

The vertical axis portrays the range of possible relationships from arm’s length through a
number of increasingly closer and collaborative relationships to a strategic alliance (the
closest relationship possible short of a merger of the organizations involved or a friendly
takeover). The horizontal axis represents the range of contractual relationships from a
firm standard contract, amended (almost invariably) to benefit the client and to shift risk
to the contractor, through to a memorandum of understanding or an oral contract. The
main idea is to match the form of contract to the closeness and openness of the
developing business relationship and the degree of competence trust which exists.

Looking at industrial relationships in the construction industry, there is a significant

increase in the number of literatures discussing the advantages of partnering in
construction. Bresnen and Marshall (2002) raised a question of whether or not partnering
actually does reflect a deep-seated change on attitudes within the industry in terms of
relationships. They found out that it is unlikely that successful partnering can simply be
engineered by formal means, or it simply evolves purely on the basis of informal
relationships. Instead, partnering involves a combination of formal and informal
processes and any attempt to develop a partnering approach needs at least to be aware of
the potentially complex and dynamic interplay between them. They further concluded
that partnering enabled problems like lack of responsiveness to user needs, lack of user
and/or contractor input to the design and problems of design-construction co-ordination
can be dealt with more collaboratively, efficiently and effectively.

281
Humphreys et al (2003) also noted the nature of relationships in the construction industry,
where it is often associated with an inappropriate traditional culture based on adversarial
relationships and the unique features of the inter-organizational structure involving
clients, main contractors, and sub-contractors. In implementing partnering efforts to reap
its many benefits related to increased learning which in turn will lead to innovations, a
major change of mindset is required. Humphreys et al (2003) in their paper proposed a
route in which main contractors can adopt in order to embrace the advantages of
partnering, as shown in Figure 3.

Strategic
Partnering
Increased Learning

Project
Partnering

Semi-project
Partnering

Traditional
Approach

Relationship Development Over Time

Figure 3: Partnering progress through increased learning (adapted from Humphreys et al, 2003)

Godfrey et al (2003) had also noted the benefits of partnering in terms of construction
industry relationships. If full potential of partnering is realized, there will be fundamental
changes in many organizations. Companies will evolve from the current environment of
tightly held power, linear authority hierarchies, and the mindset of doing things the way
they had always done them to a more open environment in which flexibility, empathy for
others and a willingness to try new ways of doing things are the standard mode of
operation. When project teams are created in companies with this attitude, the potential
for major improvements will be excellent. These teams will be the ones that will not
accept “normal” performance. They will constantly be looking for new ways or in other
words to innovate in order to improve their project and will risk trying radically different
ideas. These teams will also have the potential to make dramatic changes in schedule
duration, cost of the work, and customer satisfaction. Because of this significant potential
gain companies that do not embrace it could lose their competitiveness. Companies that
work effectively with others will be the low-cost, high-quality producers.

There are many examples in industries other than construction of companies developing
partnering relationships to improve their competitive position and innovativeness in the
marketplace. The construction industry can learn a lot about partnering relationships by
looking at others outside our industry and learning from their experiences.

282
Clients, manufacturers and industrial relationships and how they affect innovation

The relationship between clients and manufacturers can lead to innovation. According to
Godfrey et al (2003), by identifying trends in the construction industry and recurring
problems, the two groups can jointly develop more effective products that respond to the
needs identified by these relationships. Presently, new products are not readily accepted
in the construction industry because of concerns about durability, compatibility with
other materials, production quality control, production capacity etc. If client, designers,
contractors and manufacturers were in more interactive relationship, they would have a
clearer understanding of the answers to these questions through participation in defining
the problems and the solutions.

Smith and Love (2001) concluded that the construction industry is responding to the
demands being imposed on it by its clients. Consultants and contractors must re-examine
the services they provide so as to correspond to the changing economic and social
demands of clients and stakeholders. They further predicted that the constant in the future
is that clients will reign supreme and their demands must be reflected by the way in
which processes are used to procure facilities and the quality of the final product.

In most cases Singh (2004) reported that designers and consultants have new innovative
ideas, but are hesitant to implement them simply because the clients did not want it as it
could be risky or too expensive. This reflects the power that the client has on the
construction project and innovation outcome.

Manufacturers can also pursue partnering relationships with research universities and
government agencies, with the goal of developing new products. Many people will be
anxious to share their ideas and support new product development or innovation ideas if
they are made aware of specific needs and if support is available. In order to foster
fruitful relationships, focus is needed on effective interpersonal relationships, joint work
plans, and collective problem identification and solving, encouraging creativity and
innovation within each project team in the construction industry.

Barlow and Jashapara (1998) in their paper concluded that it seems unlikely that there are
at least potential benefits in the regular use of external organizations which bring
different experiences and knowledge bases. The emergence of trust arising from the
partnering process and industrial relationships may be a key factor in transferring
knowledge between organizations.

Issues that hindered construction innovation

There are considerable barriers to innovation inherent in construction’s specificities and

culture which has been identified by Jones and Saad (2003) as the following:
ƒ Lack of appropriate leadership
ƒ Insufficient learning
ƒ Lack of investment in people
ƒ Inappropriate organizational structures
ƒ Misalignment and fragmentation of upstream and downstream processes
ƒ Adversarial relationships
ƒ Emphasis on price competition

283
 ƒ Exclusion of many key participants due to irregularities

They stated that most of the above inhibitors can be addressed by ensuring better
management and development of people, including:
ƒ Greater and more inclusive participation of specialist and trade
subcontractors and their suppliers.
ƒ More effective leadership throughout the project process and the
organizations involved.
ƒ Appropriate and continuous learning at the individual, project and
organizational level.
ƒ New culture to support, promote, implement and sustain innovation in
construction, and
ƒ More effective external support.

In their paper, Sexton and Barrett (2003) summarized the three main themes of factors
that hindered innovation which are:
ƒ The project-based nature of the construction industry is a significant
barrier to innovation.
ƒ The potentially adverse effect on innovation of the structurally fragmented
nature of the construction industry.
ƒ The market conditions and innovation debate that information from the
environment is presented in the form of ‘precipitating events’ that
stimulate or hinder innovation activities.

2. CONCLUSION
This paper presents an observation study based on the review current researchers of
impact of relationship among the industrial key players. It is also outlines key factors and
trend of nature relationship in organization to enhance construction innovation.

Basically, innovation is a process of chance the generation of a new idea and normally it
refer to the output and process with technologically solution to realize costumer need.

Early 1950, the construction process was lead by design team however now days, client is
the closer as the key driver of change. The construction industry can be more innovative
by implementing the concepts of partnering, involving in research and establishing
learning networks with some universities and government agencies especially to develop
a new method in doing things or products.

In conclusion, the three principal factors that affect of relationship among client,
manufacturers and industry are summarized below:
o Client and manufacturers must identify trends in construction industry to
recurred problem by develop effective product.
o Consultant and contractor must re-examine the services according to the
economic and social demands to procure facilities and quality of the find
product.
o Designer and consultant must creative reflects to implement the product which
not too risky or expansive for the client.

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3. REFERENCES
Blayse, A.M. and Manley, K. (2004) Key influences on construction innovation. Construction Innovation
4, 143-154.
Narayanan, V.K. (2001) Managing Technology and Innovation for Competitive Advantage, Prentice Hall,
New Jersey.
Gann, D.M. and Salter, A.J. (2000) Innovation in project-based, service-enhanced firms: the construction of
complex product and systems. Research Policy 29, 955-972.
Gann, D.M. and Salter, A.J. (1998) Learning and innovation management in project-based, service-
enhanced firms. International Journal of Innovation Managemen, 2(4), 431-454.
Barlow, J. and Jashapara A. (1998) Organisational learning and inter-firm “partnering” in the UK
construction industry. The Learning Organization 5(2), 86-98.
Smith, J. and Love, P.E.D. (2001) Adapting to clients’ needs in construction – a dialogue. Facilities
19(1/2), 71-78.
Slaughter, E.S. (2000) Implementation of construction innovation. Building Research and Information
28(1), 2-17.
Araujo, L., Dubois, A. and Gadde, L.E. (1999) Managing interface with suppliers. Industrial Marketing
Management 28, 497-506.
Holmen, E., Pedersen, A.C. and Torvatn, T. (2005) Building relationships for technological innovation.
Journal of Business Research 58, 1240-1250.
Jones, M. and Saad, M. (2003) Managing innovation in construction, Thomas Telford, UK.
Bresnen, M. and Marshall, N. (2002) The engineering or evolution of co-operation? A tale of two
partnering projects. International Journal of Project Management 20, 497-505.
Humphreys, P., Matthews, J. and Kumaraswamy, M.(2003) Pre-construction project partnering: from
adversarial to collaborative relationships. Supply Chain Management: An International Journal
8(2), 166-178.
Godfrey, K.A. Jr (1996) Partnering in Design and Construction, McGraw-Hill, New York.
Singh, I. (2004) Lead users concept in building designs: its applicability to member selection in
technologically innovative projects. The TQM Magazine 16(5), 359-368.
Sexton, M. and Barrett, P. (2003) A literature synthesis of innovation in small construction firms: insights,
ambiguities and questions. Construction Management and Economics 21, 613-622.

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286
 MALAYSIAN CONTRACTORS’ OPINIONS
TOWARDS INTERNATIONAL
MARKET EXPANSION
Che Maznah Mat Isa1 , Hamimah Adnan2, Intan Rohani Endut3 & Noraliza
Basrah4

¹Faculty of Civil Engineering

Universiti Teknologi MARA
40450 Shah Alam
Selangor
Malaysia

²Faculty of Architecture, Planning and Survey

Universiti Teknologi MARA
40450 Shah Alam
Selangor
Malaysia

³School of the Built & Natural Environment

Glasgow Caledonian University
Cowcaddens Road
Glasgow G4 0BA
Scotland
United Kingdom
4
Faculty of Architecture, Planning and Survey
Universiti Teknologi MARA
40450 Shah Alam
Selangor
Malaysia

E-mail: chemaznah@hotmail.com

Abstract: Globalization of construction industry in developing countries is very important

for their socio-economic development. Therefore, globalization of construction market does
not only provide huge opportunities by opening up new market but also bring along
challenges in the form competition. Malaysia is developing to become one of the Asia
Pacific region’s finest infrastructure and world class facilities construction service provider.
In recent years, Malaysian construction companies were increasingly involved with
international engineering projects. According to Malaysian Construction Industry
Development Board’s record recently, more than eighty (80) registered global contractors
have marked their journey into the international market and majority of them have won
civil engineering and building contracting activities in one or more countries. Therefore, it
is timely for more local contractors to take brave steps to export their expertise beyond the
Malaysian border to seize the opportunities in the global markets.

The aim of this paper is to seek the response of Grade 7 and Class A, Malaysian contractors
on their willingness to expand into overseas market. Preliminary results show that majority
of local contractors were not interested in overseas business. However, some of them who
have shown interest preferred Asian region if they were to undertake any contracting
opportunities. It is identified that the most recognized anticipated factors for the reasons
why Malaysian contractors were reluctant to venture in the international market were due to

287
 high political risk and inadequate financial resources. Nevertheless, majority of the
“Disinterested” contractors were found to be positive in reconsidering their decisions and
willing to learn the proven strategies adopted by the successful Malaysian contractors
overseas. The study has shown that the possibility for more Malaysian contractors to
penetrate international market and recognized as global players are expected to be higher in
the near future.

Keywords: Globalization, Malaysian Contractors, International Market, Reasons for Not

Venturing

1. INTRODUCTION
Recently, the world economy has experienced major changes due to globalization.
Studies carried by International Council for Research and Innovation in Building and
Construction, (CIB, 2004), globalisation refers to the increasing integration of
economies around the world. Driven by the search for increased efficiency and lower
costs, companies in manufacturing and other industries have merged and globalised
their activities. This is most noticeable in the construction industry.

For centuries, the construction market has played a key role in the socio-economic
development of all countries. Its role ranges from providing infrastructure support to
factors of production for other sectors of the economy. According to Gubago (2000),
construction is an essential sector of any economy. It is especially so in the case of
developing countries, as it is responsible for provision of infrastructure; roads, bridges,
water, sewerage, electricity, telecommunications and even shelter. International
contracting organizations are occupying an increasingly dominant role in the
international construction markets. The international construction sector consists
mainly of contractors that are based in the major industrialized countries but have
operations in a number of countries.

The construction markets are particularly unpredictable, making planning to move to

new construction markets not only more difficult but also more necessary. There is also
need to know about the correct combination of company strength and market analysis
of potential markets for a company to survive and keep up with its competitors.

Global marketing is becoming more and more important along the years with the
increasing trend in internationalization. Having too many choices, marketers face the
challenge of determining which international markets to enter and compare and capture
the opportunities across the countries they are planning to penetrate. Solimano (2000)
stated that the main opportunities of globalization for developing countries lie in the
potential for wealth-creation through export led growth and the benefits of expanded
international trade of goods, services, access to new technologies, ideas, and
institutional designs in the global market place. However, globalization brings along
also serious problems and challenges that need to be managed in appropriate ways.

Globalization of construction markets on one hand, bring along challenges in the form
of greater competition, while on the other form, provides very huge opportunities by
opening up new markets. In the global economy, no market is forever safe from foreign
competition. Even when companies stay at home, they eventually have to face foreign

288
competition. Market expansion is known as one of the strategies reasons behind any
company’s move into the international market and Malaysian contractors must realize
the opportunities available within North and South America, Europe, Africa and
especially in Asia-Pacific region.

International market offers great contracting opportunities for Malaysian contractors.

Unfortunately, Malaysia is ranked long way behind other foreign investors especially
United States, United Kingdom, Europe, China, Japan, Thailand, Hong Kong and even
Singapore. The poor ranking indicates low exportation of construction services among
major construction industry players from Malaysia. There exist several reasons for
construction companies to expand their business into international market including
stagnant domestic markets, spreading risk through diversification into new markets,
competitive use of resources, and taking advantage of the opportunities offered by the
global economy.

Asia Pacific region is undergoing the tremendous period of economic growth. India
and China, in particular, offer major business opportunities and an increase in revenue
growth for construction companies. Key drivers in the current construction in China are
inexpensive labor and manufacturing costs, coupled with plentiful land for building
factories, plants and supporting infrastructure. Government infrastructure projects in
India for building roads, railroads, bridges and power lines across the continent are
creating tremendous business opportunities for the construction industry. The rapid
development in many developing countries, particularly in the African and Gulf regions
has paved the way for urbanization where infrastructure projects are beginning to
feature as significant priorities for development in these nations. The global economic
slowdown will continue to limit demand for construction projects in the United States
and Western Europe for the short term.

2. OBJECTIVE
Despite the worldwide trend towards globalization, on a small portion of Malaysian
contractors actively involved in the international markets due to various factors. There
are obviously problems and challenges which contribute to reasons Malaysian
contractors did not expand into overseas market. The aim of this paper is to examine
the reasons behind the slowness of Malaysian contractors in realizing the opportunities
available and choose not to expand their business in the international market.

3. METHODOLOY
The research methodology involves questionnaire surveys which were sent to 582
registered contractors all over Malaysia. The list was provided by the Construction
Development Board of Malaysia (CIDB) under Grade 7 and Class A categories. These
construction companies undertake of one or more contracting activities in buildings,
infrastructures, branches of engineering and industrial and process plant. This study
excludes:

289
 1. The companies whose operations were only restricted to property development,
consultancy, and project management services; geotechnical services, trading
and licensing of piling and other patent systems were excluded.
2. The companies, which merely undertook trading of building systems and
components.

4. ANALYSIS OF DATA AND DISCUSSIONS

Out of 582 companies, 106 responses were received giving a success rate of 18.2
percent. From the 106 responses used in the analysis, 25 had oversea experience and
the remaining 81 had no experienced in overseas job. From the 80 inexperienced
contractors, 39 were interested to take part in securing jobs overseas while the
remaining 42 contractors were not interested to take part. Thus, the respondents
analysed can be classified as shown in Figure 1.

Respondents Analysed

106

Experienced Contractors Inexperienced Contractors

25 81

Interested Contractors Disinterested Contractors

39 42

Figure 1: Classification of the Respondents

290
 Percantage of Response Contractors Approached

4.30%
13.90%

Experienced Contractors
Inexperienced Contractros
Non Response

81.80%

Figure 2: Percentage of Response Contractors Approached

Reasons for Choosing Not to Expand into International Market by the

“Inexperienced “and “Disinterested” Contractors

The total number of “Inexperienced” respondents, 42 respondents or about 53 percent

is classified under “Disinterested” contractors. Figure 3 shows the frequency of
responses on the reasons for these contractors choosing not to do business in the
international market.

Reasons For Choosing Not to Do Business in International

Market by "Disinterested" Contractors

30
25
20
15 Frequency of response
10
5
0
A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P.

Reasons

Figure 3: Reasons for Choosing Not to Do Business in International Market

The reasons indicated in Figure 3 are as shown in Table 1 below.

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 Table 1: Reasons and Their Ranking
Reasons Percentage Ranking
A Distance from Malaysia 38.1% 3
B Lack of Awareness of the Opportunities 26.2% 4
C High Political Risk 66.7% 1
D Low Return on Initial Costs Anticipated 19.0% 6
E Inadequate Financial Resources 57.1% 2
F Anticipation or Tough and Difficult Negotiation 19.0% 6
G Lack of Information and Difficult to Obtain Information 19.0% 6
H Unable to Establish Relationship with Overseas Partner 14.3% 8
I Poor Relationship among Experienced Contractors (Lack of 11.9% 9
Networking)
J Lack of Overseas Experience in Trading 38.1% 3
K Language or Cultural Barriers 11.9% 9
L Poor Understanding & Lack of International Market 38.1% 3
Study
M Stiff Competition 21.4% 5
N Lack of Country Visit 10
O Unaware of the Current Position of Malaysian Contractors in 16.7% 7
the International Market
P Others 7.1% 11

It is identified that the main reason obtained from the responses was C, “High Political
Risk” with a frequency of 28 out of 42 respondents or 66.6 percent. It is followed by
reason E, “Inadequate Financial Resources” with 57.1 percent. Reasons A (Distance from
Malaysia), J (Lack of Overseas Experience) and L (Poor Understanding & Lack of
International Market Study) collected same value with 38.1 percent respondents, reason
B at 26.2 percent, reason M at 21.4 percent, reasons D, F and G at 19.0 percent, reason O
at 16.7 percent, reason H at 14.3 percent, reason I and K at 11.9 percent, reasons N at 9.5
percent and finally the lowest response received was for others at 7.1 per cent.

Ranking shows that the two main reasons for choosing not to do business in the
international market was “High Political Risk”, followed by “Inadequate Financial
Resources”.

High Political Risk

International business is unusual and challenging. The risks and problems normally
encountered on construction projects are exacerbated by the international dimension
(Yates et al., 1991). Problems and risks relevant to international construction includes
political stability (Wang et.al., 1999). According to Kangari and Lucas (1997), the
difficulties are related to client communications, understanding a new culture, avoiding
local politics, and supervising a diverse group of professionals.

The political risk faced and anticipated by Malaysian contractors in global market arises
from causes such as different national laws and regulations, risk of loss due defaulting on
payments of exports arising from political causes, currency inconvertibility, other
government interference, and war or revolution.

292
Political risk is especially prevalent in third world countries. Risk associated with
potential changes in political parties and governmental policies will negatively effect an
investment position. Experience has shown that political changes in Southeast Asia and
the Middle East have hurt many firms. It is very risky to operate in a country where
regime changes, for example when Shah of Iran was overthrown or in the case where
government changed in Philippines.

The complex international environment is commonly affected by various factors and

unforeseen circumstances. These create risks that are not well understood by companies
who are active mostly in the domestic markets.

Inadequate Financial Resources

Suat (2005) has identified that shortage of financial resource is one of the threats posed
by international markets. Problems and risks relevant to international construction
include economic and financial instability (Kapila and Hendrickson, 2001). It is found
that Malaysian contractors are generally unadventurous and see overseas project
financing as a high-risk venture. Financial problems can often cause major difficulties for
company’s overseas construction projects. Financial strength is one of the important
company strengths in the international construction. Warsaki (1996) considers financial
strength of a company to be an important strategic asset. According to Pheng (1996), the
ability to provide attractive financing packages to potential clients will often determine
which international contractor will win the contract, and the first prerequisite is to secure
attractive financing packages from financial institution is a solid balance sheet. Results
shows that having inadequate financial resources was chosen to be the important factor
for Malaysian contractors decided not to venture overseas. These have resulted in the
low ranking of Malaysian contractors as global players in international market.

The identified factors are the keys reasons for Malaysian contractors not to venture
abroad and due to these reasons; they will lose the competition in capturing the
opportunities available in the international market. However, when they were asked
whether they would reconsider their decision if it is proven that Malaysian contractors are
successful in the international market, the following responses were obtained.

Reconsideration of Present Decision by “Disinterested” Contractors

Table 2: Reconsideration of the Present Decision
Decision Percentage
Saying “Yes” 90.5
Saying “No” 9.5
Total 100

Table 2 above shows that 90.5 percent of “Disinterested Contractors” were willing to
reconsider their present decision if it is proven that there are successful Malaysian
contractors in the international market. It is shown that even though they agreed that there
exists various risks and problems, such as inadequate financial resources, majority of the
Malaysian contractors still believe and accept the fact that the international market offers

293
huge opportunities and profits. The Malaysian contractors also believe that the local
market is already saturated because of too many contractors and very stiff competition in
local market and there are more opportunities abroad other than Malaysia for future
projects. Therefore, the position of Malaysian contractors as global players in overseas
are expected to be more and higher near the future.

Only 9.5 percent stated that they will remain to their present decision not to venture
abroad. This small number of contractors still believes that they will never get a chance
in penetrating the international market because of the risk and problems involved.

Attempt to Get Involved in Overseas Project

Nonetheless, some of the “Disinterested” contractors believed that they should put some
efforts to be involved in project overseas in order to face the anticipated challenges and
problems. When they were asked whether they have made any attempt to penetrate
overseas market, the following responses were received.

28.6

Yes
Never

71.4

Figure 4: Percentage of Responses in Trying to Get Involve in Overseas Project

Analysis shows that 71.4 percent of the “Disinterested” contractors have never tried to be
involved whilst the remaining 28.6 percent claimed they have tried to secure some
overseas projects but failed due to some difficulties encountered. One of the reasons
given was that, they were very busy handling projects locally and never have the
opportunity to involve in the global market. However, they would still try to get involve
in the overseas project in the near the future based on the reconsideration of their present
decision.

Reasons to Venture Overseas

The “Disinterested” Malaysian contractors were also asked on their opinions whether
local contractors should try to get involve in the overseas project and the reasons behind
their opinions and the following responses were obtained as follows:

294
 Table 2: Response of Opinions on Whether the Local Contractors Should Get Involved in the Overseas
Project
Opinion Percentage
Saying “Yes” 88.1
Saying “No” 7.1
Both 4.8
Total 100

From the results, most of the respondents believed that local contractors should be
involved in the overseas projects. It is clear that they support and believe that more local
contractors should try to venture overseas even though they are not interested to
participate. However, they are aware of the opportunities and have stated some reasons as
follows:

Reasons to Venture Overseas:

1. Huge opportunities available.

2. Local market is saturated and contractors face very stiff competition.
3. To face global challenges in order to grab the opportunities and self reflection.
4. To expose themselves to international risks.
5. To establish their company performance and name.
6. To get more knowledge in technically, management and consultancy.
7. Well supported from local and foreign government.
8. To diversity and sustain company profitability.
9. Malaysian contractors have experience in good construction practice.
10. To gain experience and learn new technologies.
11. If the company have a strong financial capabilities and have a good political
connection in the respective countries.
12. If financially sound and strong banking support the contractors.
13. High profit and revenue.
14. If the local contractors are fully equipped and well prepared in doing overseas
business.

Reasons Not to Venture Overseas

For “Disinterested” Malaysian contractors who are saying “No” on their opinions, below
are a few reasons given behind their responses. Most of the reasons were based on their
previous attempts or learn from the experienced Malaysian contractors who failed in
penetrating the international market.

Reasons not to venture abroad:

1. Local contractors were unprepared in venturing the international market.

2. High cost risk.
3. Small company may risk itself when going abroad since competition will be
high and cost will be higher when working abroad.
4. Local contractors do not show consistently good performance track in their
own home ground and very busy in local contracting market.

295
Hence, the overall results revealed that present situation influence the majority of
Malaysian contractors who have chosen not to do business in the international market.
Some of them have tried to get involved and some of them already have some overseas
experience but failed resulted from the difficulties, risk and problems encountered during
their ventures abroad. Even though there were problems and risk involved in penetrating
international market, most of the Malaysian contractors have positive attitudes and
perceptions in facing the challenges. They believed that more local contractors should try
to get involve in oversea projects. Hence, it is expected that more Malaysian contractors
are going to extend their tentacles in the international market in near future.

5. CONCLUSIONS
The experienced and the success story of Malaysian contractors in the overseas market
have encouraged some of the local contractors to follow their footsteps. However,
majority of local contractors already stated their lack of interest in doing business
overseas and would like to concentrate and undertake projects in the local market.
Contractors who have chosen not to do business in overseas have viewed the high
political risk and inadequate financial resource to be their most recognized factors. They
feared that the foreign government will unexpectedly change the rules of the game under
which businesses in that country operate and this will negatively impact their investment.
They are more comfortable and confident to do business locally because of the lesser
amount of risk involved which does not pose too much uncertainty and threats.

Therefore, the experienced and successful Malaysian contractors played an important role
in sharing their knowledge and know-how in order to convince and persuade the local
contractors to venture into the international market, to compete with the other
international contractors from different countries, to fulfill the demanding customers'
needs and the government policies. Hence, it is crucial for Malaysian contractors to
devise appropriate strategies in order to cope with the threats and take advantage of the
opportunities and eventually to gain competitive edges and finally be recognized as
global players.

This study has shown the number of Malaysian contractors in the international market is
expected to increase in the near future. Various problems and challenges must be firstly
identified and faced using the right tools and proven strategies used by the successful
contractors. They must follow disciplined and well informed strategies when deciding
whether to enter international markets.

6. REFERENCES
CIDB (2004), Going Global, A Strategic Partnership of Global Builders, MALAYSIA Your Construction
Partner, CIDB Malaysia.
Gubago B. (2000), Developing Citizen Capacity in the Face of Globalisation and Foreign Competition, 2nd
International Conference on Construction in Developing Countries: Challenges facing the
construction industry in developing countries, 15-17 November 2000, Gabarone, Botswana.
Gunhan S and Arditi D. (2005), Factors Affecting International Construction
Journal of Construction Engineering and Management March 2005, 273-282.

296
Ofori, G (2000), Globalization and Construction Industry Development: Research Opportunities.
Construction Management and Economics, 18, 257-262.
Raftery et al (1998), Globalization and construction industry development: implications of recent
developments in the construction sector in Asia. Construction Management and Economics, 16,
729-737.
Turin, D.A. (1973), The Construction Industry: Its economic significance and its role in development,
Building Economics Research Unit, University College London, 2nd Edition.
Wang, S.Q., Tiong, R.L.K., Ting, S.K. and Ashley, D. (1999) Political Risks: Analysis of key contract
clauses in China’s BOT project. Journal of Construction Engineering and Management, 125(3),
190-7.
Yates, J.K., Mukherjee, S. and Njos, S. (1991) Anatomy of Construction Industry Competition in the Year
2000, Source Document 64, Construction Industry Institute, Austin TX.

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298
 RELATIONSHIP BETWEEN DURATION AND COST OF
MALAYSIAN CONSTRUCTION PROJECTS
Intan Rohani Endut, Akintola Akintoye and John Kelly
School of Build and Natural Environment,
Glasgow Caledonian University,
70 Cowcaddens Road, Glasgow G4 0BA

E-mail: ien1@gcal.ac.uk

Abstract: This paper reports an evidence-based analysis on the relationship between the
duration and cost of the private sector and public sector projects in Malaysia as part of a
PhD programme. The main aim of the programme is to develop a system of risk
management to proactively minimise duration and cost overruns in Malaysian public sector
projects. This paper presents the relationship between the actual duration and cost
associated with construction projects in Malaysia using Bromilow equation T=KCB. A
questionnaire survey was undertaken to collect information on 359 projects form 1994 to
2005. The analysis shows no evidence to suggest that all the project parameters considered
follow this relationship. The constant value of K ranged between 135 to 276 days and B
ranged from 0.111 to 0.455 when contract time and cost are used. However, when actual
duration and cost are used the K value which ranges from 207 to 405 days and B from
0.127 to 0.396. The results show that the estimation of projects duration is far shorter than
the actual time it takes to complete suggesting time overrun of Malaysia projects.

Keywords: Construction projects, cost, Malaysia, time

1. INTRODUCTION
The construction projects in Malaysia has grown at an accelerated pace since 1970s
partly by the development of construction in Malaysia, and partly by the affluence and
availability of attractive offers from the government. Numerous public projects were
offered to the contractors, together with subsidies and loan programmes.
In Malaysia, it is generally understood that public projects frequently experience cost
and time overruns leading to some been eventually completed but at excessive duration
and cost overrun, or in some situation abandoned Tan (1996). Chan (2001) investigated
the relationship between duration and cost of building projects using Bromilow’s
model. The study concluded that the Malaysian public sector project contract costing
RM1 million takes about 269 days to complete and produced the best predictor of
average construction time of T=269C0.32. This study does not represent the whole of the
Malaysian construction industry development given that the data used was based on
only one out of fourteen states in Malaysia.

This paper presents an evidence-based analysis on the relationship between duration

and cost of the public and private sector projects in Malaysia based on a questionnaire
survey that covers a wider area of the Malaysian construction industry.

299
2. DURATION AND COST RELATIONSHIP
A relationship between duration and cost was first mathematically established by
Bromilow (1974) and subsequently updated by Bromilov, et al. (1980) Kaka and Price
(1991). For the updated relationship, the study was conducted for building projects in
Australia. The relationship depicts the mean construction duration as a function of
project cost as shown below.
T = KCB Equation 1
Where T = Duration of construction period from the date of possession of site to
substantial completion
C= Completed cost of project in millions of Australian dollars, adjusted to
constant labour and material prices
K = A constant indicating the general level of time performance per million
Australian dollar, and
B= A constant describing how the time performance is affected by the size
of the construction project measured by its cost.

The two constants K and B are determined by using statistical verification as follows:
lnT=lnKCB Equation 2
which is also equal to
ln T = ln K + B ln C Equation 3

Equation 3 is a linear equation from which K and B can be determined through linear
regression of the transformed data. In this analysis, the hypothesis proposed is an
increase in Log T is associated with an increase in Log C. If this hypothesis is true, then
the time-cost relationship of the above equation is also true for the Malaysian
construction projects.

Based on prediction done by Bromilow, several studies have been performed to make
similar predictions for either a specific sector of construction or construction industries,
in general around the world. Ireland (1985) conducted a research to predict the
construction duration of high rise commercial projects in Australia. The results gave the
relationship for duration and cost with R2 value of 0.576 and a significance level of
0.001. Kaka and Price (1991) studied relationship between value and duration of
construction projects in the UK and also contribute to the similar empirical relationship.
Yeong (1994) cited by Chan (1999) reported similar study for Australian and
Malaysian building construction projects. The study includes 67 Australian government
projects, 20 Australian private projects and 51 Malaysian government projects.
Kumaraswamy and Chan (1995) examined the relationship between the duration and
cost for Hong Kong building and civil engineering projects. They claimed that
standardization in public housing projects leads to more consistency in durations of the
projects. Chan (1999) did a similar study for public and private projects in Hong Kong.
Chan (2001) conducted a study on public sector projects in Malaysia while Choudhury
and Rajan (2003) indicate that there is a relationship between duration and cost for the
residential construction projects in Texas. Ogunsemi and Jagboro (2006) conducted
similar research for Nigerian building construction projects and find out poor predictive

300
abilities using Bromilow’s time-cost model. All the results from the above studies are
summarised in Table 1.

Table 1: Duration and cost relationship

Cost and time
Authors Year Country Type of project
model
Bromilow 1974 Australia Building project (370) T=313C0.3
Ireland 1985 Australia High rise building project (25) T=219C 0.47
Public building (Fixed price T=398.8C0.318
contracts)
Private building (Adjusted price T=486.7C0.205
contracts)
Private buildings T=274C0.212
United
Kaka and Price 1991 Civil Engineering(Tendered) T=258.1C0.469
Kingdom
Civil Engineering (Actual) T=245.0C0.432
Public building
-Open competition T=407.4C0.293
-Selected T=424.1C0.342
-Negotiated T=367.5C0.272
Australia All projects T=269C0.215
and Public projects (67) T=287C0.237
Yeong 1994
Public projects (20) T=161C0.367
Malaysia Public projects (51) T=518C0.352
T=182.3C0.277
Total public building projects
Public housing projects
T=188.8C0.262
Public building projects
Kumaraswamy Hong T=166.4C0.294
1995 Total private building projects
and Chan Kong T=202.6C0.233
Private commercial projects
T=232.7C0.187
Private housing projects
T=160.2C0.306
Civil projects
T=252.5C0.213
Building projects(110) T= 152C0.29
Hong
Chan 1999 Public projects T= 166C0.28
Kong
Private projects T= 120C0.34
Chan 2001 Malaysia Building projects T=269C0.32
Overall building projects T=131C0.31
Ng et al. 2001 Australia Public building projects T=129C0.32
Private building projects T=132C0.30
Choudhury and
2003 Texas, US Residential projects T=18.98C0.39
Rajan
Ogunsemi and
2006 Nigeria Building projects T=63C0.262
Jagboro

The duration and cost relationship shown in Table 1 indicate that the values of K and B
are very difference for different type of projects and difference contracts. Where the
types of projects are the same, e.g. public projects, the K and B values are still very
different. Suggesting that the relationship between project duration and cost may not be
stable as one would expect.

301
3. METHODOLOGY
Data for this study were collected through a survey questionnaire to 150 quantity
surveyor consultants in Malaysia. A survey packages containing a covering letter and
project data collection form were sent to the firms to provide duration and cost
information on up to 5 or more projects that they have undertaken in the past10 years.
Only 8 consultants returned the questionnaire. Telephone contacts were made to the
companies but still the response was poor. Given the situation, personal contacts had to
be made with public government officials and quantity surveyor consultants to
encourage more respondents. This tactic improved the amount of data guaranteed.
Discussions with the establishments pointed out that the main reason for not responding
to the questionnaire is because the request is for data on previous projects which are not
readily available. Re-opening previous project files would add extra workload and was
considered a waste of time.
The respondents were asked to provide information on previous projects in relation to
name of project, starting and completion date, location, numbers of storey and gross
floor area for building project, contractual and actual duration, pre-contract budget,
contract sum and final account cost (after Pearl et. al, 2003). Specific features of the
projects such as type of project (new build or refurbishment), nature of work (sector),
procurement methods, nature of works and tendering methods were also requested.

Data Collection

Table 2 shows the project summary and characteristics. Data were collected on 359
projects comprising very small, small, medium and large projects. The procurement
methods involved are: traditional, design & build, construction management,
management contracting and project management. The nature of works range from
residential, infrastructure, commercial, office, educational, health, industrial and
recreational. Three tendering methods were considered: open tender, selective and
negotiated. All the projects were completed between years 1994 and 2005.
Table 2: Summary of Project Characteristics
Category Classification Number %
Type New Build 301 83.8
Refurbishment 58 16.2
Sector Public 308 85.8
Private 51 14.2
Procurement Method Traditional 291 81.1
Design & Build 58 16.1
Management Contracting 1 0.3
Project Management 9 2.5
Nature of works Residential 52 14.5
Infrastructure 139 38.7
Commercial 13 3.6
Office 29 8.1
Educational 111 30.9
Health 11 3.1
Industrial 1 0.3
Recreational 3 0.8
Tendering method Open tender 176 49.0
Selected 118 32.9
Negotiated 65 18.1

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Various analyses has been undertaken on the data collected, This paper only report the
relationship between the project duration and contract sum to test the application of
Bromilow theory to the data.

4. ANALYSIS AND DISCUSSION

Relationship between contract duration and cost

According to Kaka and Price (1991), the form of contract, type of client and the type of
project were shown to have an effect on the relationship between duration and cost of
the construction projects. In this study, the relationship using ln value for the contract
duration and cost is determined. Figure 1 shows the scatter graph for the relationship
and Table 3 shows the correlation and regression results. This findings show that an
increase in ln T is associated with an increase in ln C in the form of ln T= ln K + B lnC
(p<0.01). However, this relationship is based on un-adjusted contract cost. Chan (2001)
and Kaka and Price (1991) used adjusted contract cost for the relationship.

From this findings, since T = K when C =1, the expected contract construction duration
in weeks for an RM1million project is given by the value of K. In other words the
results suggest that the Malaysian construction project takes 216 days to complete a
RM1 million contract sum project. Chan (2001) claims that a RM1 million contract
sum project takes 269 days to complete based on tender price index adjusted contract
cost. The relationship between the ln contract duration and ln adjusted contract cost
(similar to Chan, 2001) shown in Figure 2 and Table 3 indicates that an increase in ln T
is not associated with an increase in ln C in the form of ln T = ln K + BlnC. The only
difference between the current and previous study is that the analysis is based on all
project type, while Kaka & Price (1991) categorised the projects and Chan (2001) is
based on building project.

6.00

5.00
Ln( contract duration)

4.00

3.00

2.00

R Sq Linear = 0.326

1.00

-2.00 0.00 2.00 4.00 6.00 8.00

Ln (contract cost)

Figure 1: Relationship between ln adjusted contract cost and ln contract duration

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 Table 3: Regression Analysis of The Time-Cost Relationship Based On ln Contract Duration and ln
Contract Cost
Regression results Contract duration and Contract duration and
cost adjusted cost
Ln K 3.428* 3.863
K 216 333
B 0.247* -0.025
R 0.571 0.057
R2 0.326 0.003
Adjusted R2 0.324 0.00
F 172.9 1.154
Significant (F) 0.001 0.283

* P < 0.01

6.00

5.00

4.00
ln(Contrct duration)

3.00

2.00

1.00
R Sq Linear = 0.003

0.00

-5.00 -2.50 0.00 2.50 5.00 7.50 10.00

ln(Adjusted contract cost)

Figure 2: Relationship between ln contract duration and ln adjusted contract cost

Relationship between actual duration and cost

Figure 3 describes the relationship between the actual duration and actual cost of
construction project based on ln value. Table 4 shows the coefficient and regression
results for the relationship. The relationship between the contact duration and cost is
more significant compared with the actual duration and contract cost. The analysis
shows that construction actually takes 316 days to complete a project for actual contract
cost of RM1 million. It also shows that actual duration of a project will increase when
the cost of the project increases according to the formula:
T = 316C0.222
Figure 4 shows the relationship between the ln contract duration and ln adjusted actual
cost and Table 4 shows the coefficient and regression results, indicating a weak
relationship.

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 6.00

5.00

ln (Actual duration)
4.00

3.00

2.00

R Sq Linear = 0.264

1.00

-2.00 0.00 2.00 4.00 6.00 8.00

ln (Actual cost)

Figure 3: Relationship between ln actual duration and ln actual cost

Table 4: Regression Analysis of Time-Cost Relationship Based on ln Actual Duration and ln Actual
Cost
Regression results Actual duration and Contract duration and
cost adjusted cost
Ln K 3.810* 4.191
K 316 463
B 0.222* -0.015
R 0.514 0.035
R2 0.264 0.001
Adjusted R2 0.262 -0.002
F 128.290 0.443
Significant (F) 0.001 0.505
* P < 0.01

6.00

5.00
ln(Actula duration)

4.00

3.00

2.00

R Sq Linear = 0.001

1.00

-5.00 -2.50 0.00 2.50 5.00 7.50 10.00

ln (Adjusted actual cost)

Figure 4: Relationship between ln Actual Duration and ln Adjusted Actual Cost

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Application of Bromilow Model to Building Projects

Table 5 describes the relationship between duration and cost for contract and actual for
building projects only. The findings show again that only duration with non adjusted
cost is significant. The relationship between the contract duration and contract cost is
denoted by:
T = 203C0.178 and,
for the actual duration and actual cost as:
T = 303C0.157

Chan (2001) shows that the time taken for RM1 million construction building project is
269 days using the adjusted cost with 1992 as the base year and Yeong (1994) claims
that RM1 million projects takes 518 days to be completed. However, this current study
of the contract duration and cost shows that it takes 203 and 303 days based on the
actual and contract duration and cost respectively. The studies both by the Chan and
Yeong are limited to 51 building projects only. In addition Chan’s (2001) data was
based on only one state in Malaysia. Table 6 shows K values for building projects in
Malaysia which might suggest that K value has dropped significantly for year 1994 to
2001 from 518 days to 269 days for RM1 million projects. These results also show a
big gap between the contract and actual time and cost which might suggest that either
the estimation of project duration is inaccurate, or the projects progress experienced
substantial time overruns during construction.

Table 5: Regression Analysis of the Time-Cost Relationship for the Building Projects
Contract Contract Actual duration Actual duration
Regression
duration and duration and and cost and adjusted
result
cost adjusted cost cost
Ln K 3.365* 3.558 3.769* 3.941
K 203 246 303 360
B 0.178* 0.011 0.157* 0.008
R 0.427 0.029 0.350 0.020
R2 0.182 0.001 0.122 0.000
Adjusted R2 0.178 -0.004 0.118 -0.004
F 48.481 0.184 30..390 0.087
Significant (F) 0.001 0.669 0.001 0.768
* P < 0.01

Table 6: K and B Values of Current and Previous Research Studies in Malaysia

Cost and time relationship Building projects
research K B
2006 research (Present study) 303 0.157
2001 survey (Chan 2001) 269 0.320
1994 survey (Yeong 1994) 518 0.352

The results for other project parameters are shown in Table 7. For contract duration and
cost, the lowest K value is 135 days for refurbishment project and the highest is 276
days excluding the values with the asterisk (*). B values range between 0.111 and
0.455. Values with the asterisk (*) are not significant at 5% significance level. This
shows that project management procurement method and medium, large and very large

306
sized projects show no significant relationship between the contract time and cost.
Based on the actual duration and actual cost, the K values range from 207 days to 405
days and B values from 0.127 to 0.396.

Public and private projects

The values for K and B for private sector projects (K=198 days and B=0.228 for actual
cost and time) shows that RM1 million value of private projects are completed faster
compared with the public sector projects (K=328 days and B=0.246 for actual cost and
time) for both contract and actual time and cost. The studies done by Ng et al. (2001)
for Australian construction projects, Kumaraswany and Chan (1995) and Kaka and
Price (1991) also show similar pattern.

Infrastructure Projects

The infrastructure projects show that it takes 276 days to complete RM1 million
projects and 375 days based on actual duration with constants B of 0.238 for contract
value and time and 0.229 for actual value and time. At RM1 million, infrastructure
projects show better completion time compared with building projects which suggests
that types of project affects the relationship between time and cost of projects.
According to Kaka and Price (1991), at GBP1 million project, the K values for actual
price is lower than the tendered price, but the B values is almost similar contrast results
to the current study.

New build and Refurbishment Projects

The results for K and B values for new build and refurbishment projects also show
similar trends with the building and infrastructure projects. The K values for the actual
time and cost are higher than the K values for the contract time and cost at RM 1
million project as shown in Table 6. However, in this study the refurbishment projects
give better performance in terms of K value compared with new build projects both for
contract and actual time and cost. This result contradicts what is generally accepted that
a new build is more likely to be completed earlier than refurbishment projects for the
same project value. This result is unexpected and may be because the number of
refurbishment projects included in the analysis is significantly lower than refurbishment
projects.

Procurement Method

Akintoye’s (2000) analysis of factors influencing project cost estimating practice,

showed that procurement route and contractual arrangement did not influence cost
estimating of the project. However, in the current study the duration and cost
relationship for the design and build project did not show better performance compared
with the traditional method. When comparing RM1 million cost as shown in Table 7,
the design and build projects take longer duration (231 days for contract cost and 405
days for actual cost) compared with traditional (214 for contract and 311 for actual
cost). The time and cost relationship for project management method is not significant,
this might be due to few project management project included in the analysis.

307
Tendering Method

Table 7 also shows the K and B values for the different types of tendering method. At
RM1 million project cost the value of K shows that negotiated and selective tendering
methods have better duration performance, i.e. better K value for both contractual and
actual cost when compared at RM1 million project cost. Open tender projects take 338
days for RM1 million actual project costs, selective tendering 292 days and negotiated
tendering 296 days.
Kaka and Price (1991) study showed that the type of competition or tendering method
did not affect the time and cost relationship of the projects. However, the above
findings show that tendering method does influence the time and cost relationship of
the Malaysian construction projects with the selective and negotiated tendering
methods associated with better contract and actual duration compared with the open
tendering.

Project Cost

CIDB of Malaysia CIDB (2005) introduced several categories of projects for the
industry excellence award 2005 (MCiEA 2005) which divides projects into three
categories based on contract value:- (i) small scale (less than RM3 million), (ii)
medium scale (between RM 3 million and RM50 million) and (iii) major scale (more
than RM50 million). For the purpose of analysing the data, the categories introduced by
CIDB of Malaysia were adopted but with four categories: small (less than RM3
million), medium (RM3 million to RM20 million), large (RM20 million to RM50
million) and very large (above RM50 million.
The relationship between contract duration and contract cost was only significant in
small projects but not for medium, large and very large. The actual duration and actual
cost also show the same trend. The results suggest that duration and cost relationships
are almost insignificant for the different project costs.
Table 7: Summary of K and B values for time and cost relationship
Relationship between cost and Contract time and cost Actual time and cost
time K (Days) B K (Days) B
Overall 216 0.247 316 0.222
Building project 210 0.178 303 0.157
Public project 223 0.268 328 0.246
Private project 146 0.249 199 0.228
Infrastructure project 276 0.238 375 0.229
New build project 239 0.193 345 0.179
Refurbishment project 135 0.455 207 0.396
Traditional 214 0.262 310 0.245
Procurement Design & Build 231 0.231 405 0.156
Project Mgt* 158 0.227 229 0.189
Open tender 221 0.346 338 0.299
Tendering
Selective 215 0.111 292 0.127
method
Negotiated 207 0.257 296 0.230
Small 201 0.447 300 0.391
Medium* 299 0.101 371 0.159
Project cost
Large* 1007 -0.160 2426 -0.306
Very large* 379 0.069 620 0.017
*P > 0.05 (Not significant)

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5. CONCLUSION
Time and cost are two major factors in construction projects. Contractors often used
their past experience to estimate the project duration and the cost of a new project. In
general the more time spent on one project the more cost is generated. It is a challenge
to the estimators to come out with the best prediction of time and cost for the
construction projects. Bromilow time and cost model is one of the model to predict time
from the cost of the projects.
This analysis undertaken of the Malaysian construction industry (CI) projects shows no
evidence to suggest that all the project parameters considered are follow the Bromilow
time cost relationship model (T=KCB). The constant value of K ranges between 135
and 276 days and B ranges from 0.111 to 0.455 when contract time and cost are used to
compare with the K value which ranges from 207 to 405 days and B from 0.127 to
0.396 for actual duration and cost. The results show that the estimation of projects
duration in Malaysia is below the actual duration taken to complete the project
suggesting project time overrun of Malaysian construction projects.

6. REFERENCES
Akintoye, A. (2000). "Analysis of factors influencing project cost estimating practice." Construction
Management and Economics, 18, 77-89.
Chan, A. P. C. (2001). "Time-cost relationship of public sector projects in Malaysia." International
Journal of Project Management, 19(4), 223-229.
Chan, D. W., and Kumaraswamy, M. M. (1997). "A comparative study of causes of time overruns in
Hong Kong construction projects." International Journal of Project Management, 15(1), 55-63.
Chan, D. W. M., and Kumaraswamy, M. M. (1999). "Forecasting construction durations for public
housing projects: a Hong Kong perspective." Building and Environment, 34(5), 633-646.
Choudhury, I., and Rajan, S. S. (2003). "Time-cost relationship for residential construction in Texa."
Construction Informatics Digital Library http://itc.scix.net/paperw78-2003-73.content.
CIDB. (2005). "The Malaysian Industry Excellence Award (MCiEA 2005)." Construction Industry
Development Board Malaysia, Kuala Lumpur.
Ireland, V. (1985). "The role of managerial actions in the cost, time and quality performance of high-rise
commercial building projects." Journal of Construction Management and Economics, 3, 59-87.
Kaka, A., and Price, A. D. (1991). "Relationship between value and duration of construction projects."
Construction Management and Economics, 9(4), 381-400.
Kumaraswamy, M. M., and Chan, D. W. M. (1995). "Determinants of construction duration." Journal of
Construction Management and Economics, 13, 209-217.
Ng, S. T., Mak, M. M. Y., Skitmore, R. M., Lam, K. C., and Varnam, M. (2001). "The predictive ability
of Bromilow's time-cost model." Journal of Management and Economics, 19, 165-173.
Ogunsemi, D. R., and Jogboro, G. O. (2006). "Time-cost model for building projects in Nigeria."
Construction Management and Economics, 24, 253-258.
Pearl, R. G., Akintoye, A., Bowen, P. A., and Hardcastle, C. (2003). "Analysis of tender sum forecasting
by quantity surveyors and contractors in South Africa." Acta Structilia Journal, 10(1 &2).
Tan, A. A. L. (1996). Project management in Malaysia, Synergy Books International.

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310
 SELECTION AND EVALUATION CRITERIA UNDER
DECISION MAKING ANALYSIS OF CO-FINANCED
PROJECTS

Konstantinos C. Zapounidis1, Glykeria Kalfakakou2, Betty A. Partsalidou3

1
Doctoral Candidate, Department of Civil Engineering,
Aristotle University of Thessaloniki,
Thessaloniki, Greece

2
Dep. Professor, Department of Civil Engineering,
Aristotle University of Thessaloniki,
Thessaloniki, Greece
3
General Director- Architect,
Pieriki Anaptixiaki S.A., Katerini, Greece

E-mail: kzapoundis@yahoo.com

Abstract : The main objective of an evaluation process is to define the most suitable
individual to be selected for a specific project situation. Depending on the technical and legal
framework of each project, a different process is applied, usually leading to a number of,
difficult to quantify, criteria. The aim of the procurement preparation phase of such a project
is to determine the criteria and to publish them. Moreover, in order these criteria to be more
objective, they have to be as quantifiable as possible, leading to the requirement of a more
detailed analysis of each of them. This paper analyses the process of dealing with the
evaluation process, applied in co-financed projects by specific European Union’s Funds.
These projects, including their selection process, are ruled by European Law and Greek
national Law, where applicable. Their selection criteria are predefined as sectors and titles,
whereas the responsible of materializing the project has to quantify them in order to provide
to the candidate projects the more unimpeachable process. The purpose of this paper is to
draw together the results of the selection definition analysis for each different project into a
single overview, and to present the quantifying models of a number of, difficult to quantify,
criteria.

Keywords: Evaluation Process; Criteria; Decision Making; Quantification; Co-financed

projects

1. INTRODUCTION
Evaluation of private investments on the sector of rural development should not take into
consideration only the entrepreneurial efficiency but also further criteria, as social
efficiency. Improvement of the living conditions and of life quality for people should also
be taken into consideration. General social and cultural objectives are often welcomed in
evaluating investments on rural development. For this reason, special care should be
given to investments that participate in the general development of a country and that
satisfy the programmed national social objectives.

311
The need to evaluate the feasibility of a proposed project and apply for and obtain
funding and authorisation to implement the project from the funding authority is more
than essential. Formal authorisation is needed to ensure that funds and resources in
general can be made available and committed to the project. The authorising body should
and must be informed of the potential risks and disadvantages, so that a balanced decision
could be made about the project’s future.

In case of funding, the investors should have a full knowledge of the project finance and
be able to seek sources of finance. Ideally they will also have an understanding of the
banking system, tax, management accounting, the law and related disciplines in this area.
Rural development, as part of a generic national and European policy, seeks to pursue
four macroeconomic policy objectives: high and stable economic growth, low
unemployment, low inflation, avoidance of balance of payments deficits. Unfortunately
these policy objectives may conflict. For this reason, the actual policy a nation or Europe-
in general, pursues depend on the order of its priorities and on which macroeconomic
theories is believed to be most accurate.

2. LEADER+ APPLICATION FRAMEWORK

LEADER+ is a European Union initiative designed to improve the quality of life of the
population of the rural areas and to attract young people into the rural economy, by
implementing a set of actions which will meet both the national and community priorities
for the 3rd programming period (employment, equality, environmental protection, etc.).
The programme is co-financed by the European Agricultural Guidance and Guarantee
Fund - Guidance Section (EAGGF-G) and the Public Investment Programme of the
Ministry of Rural Development and Food (Total Cost: 368,693,321€, Public
Expenditure: 255,778,400€, Community Contribution: 186,129,877€, National
Contribution: 69,648,523€, Own Contribution: 112,914,921€).

The Greek LEADER+ Community Initiative Operational Programme has two general
development objectives:
- 1st OBJECTIVE: Integrated, high-quality, sustainable development of the rural areas,
by means of pilot implementations.
- 2nd OBJECTIVE: Support for the endeavour to end the isolation of various regions, on
all levels of economic and social life.

The national LEADER+ programme Priority Axis 1 “INTEGRATED PILOT

STRATEGIES FOR RURAL DEVELOPMENT” contains the following measures where
application of investments could be submitted:
o MEASURE 1.2: Investment Subsidies – Support for Entrepreneurship
ƒ Interventions for an integrated approach to rural tourism
ƒ Small businesses in rural sector and other sectors of the economy
ƒ Investments to strengthen collective, sectoral and inter-sectoral action
through use of contemporary technology, know-how and new techniques
o MEASURE 1.3: Support Measures
ƒ Upgrading skills and specialist knowledge of human resources - training
ƒ Provision of advisory support
ƒ Marketing and promotional measures

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 o MEASURE 1.4: Protection, Promotion and Exploitation of Natural and Cultural
Heritage
ƒ Protection, promotion and exploitation of natural environment
ƒ Actions to upgrade the built environment and to promote the traditional
architectural heritage of the rural regions
ƒ Actions to support cultural events and events designed to highlight and
preserve the local heritage of rural areas

A four-level administration and communication model composes the generic framework

on which European Community Initiative Leader+ is based on national level (Greece):
o European Commission,
o National Managing Authority (National Level-Greek Ministry of Rural
Development and Food, Special 3rd Community Support Framework Secretariat).
It has been set up at the Ministry of Rural Development and Food. The
Administration is one of the first in the public sector to be accredited with
Hellenic Organisation for Standardisation ΕΝ ISO 9001:2000 certification,
o Local Action Group (Prefecture Level-Pieriki Anaptixiaki S.A.),
These are development agencies, registered as sociétés anonymes, consisting of
collective bodies in the broader public or private sector, such as: first and second
tier local authorities, associations, chambers of science and production,
cooperatives and associations of farmers’ cooperatives, scientific agencies,
environmental and other organizations, workers’ representatives, private
individuals or legal entities in private law, and so on.
Their basic characteristics are as follows:
ƒ They are established as sociétés anonymes
ƒ They have broad participation of local agencies
ƒ They have their offices in the regions in question
ƒ They enjoy sound finances
ƒ They are staffed with adequate, skilled personnel
o Final Receiver (the individual under evaluation and funding).

E.C.
E.C.

National
National Authority
Authority

Local
Local Action
Action Group
Group

Final
Final Receiver
Receiver

Figure 1: Leader+ generic framework

313
2.1 GENERIC APPLICATION DETAILS OF LEADER+
EVALUATION PROCESS
The special legal framework of Community Initiative Leader+ regarding the evaluation
process for the selection of the Final Receivers is specified in the Decision No.430/18-2-
03 of the Minister of Rural Development under the title of “Application details of the
Community Initiative Leader+” which provides the general outlines of the evaluation
process. In more detail, in Article 8, paragraph 5, it is pointed out that for the evaluation
process of the candidate investments that have participated in each Call for Proposals, it
is obligatory to uphold at least the evaluation criteria that are included in Annex III of the
Decision.

Moreover, the criteria and their importance factor (specified by the Local Action Group)
are obligatory to be included in the Publicity Material that accompanies the Call for
Proposals. The Local Action Group is responsible to justify the importance factor along
with the possible amendments and specifications mainly in the effort to quantify the most
generic criteria (as results criteria) in order to succeed the most transparent process. All
the aforementioned are under continuous monitoring from the National Authority and
from the European Commission. In order to support the transparency of the evaluation
process, in Article 1, paragraph f, of the same Decision, it is clarified that Local Action
Group has the possibility to hire an External Evaluator to be an equivalent member of the
Evaluation Committee (staffed by personnel of the Local Action Group covering three
disciplines: Engineers, Economists, Geotechnicians).

Special and of high importance in the evaluation process is the publicity and transparency
of the evaluation criteria. In Article 8, paragraphs 1 and 2, of Decision No.430/18-2-03 of
the Minister of Rural Development, it is pointed that the Call for Proposals should be
publicised in the most intense way possible at having as Annexes all the required
documents including the Evaluation Process and the Criteria in their final format.

2.2 DETAILED LEADER+ EVALUATION PROCESS

FRAMEWORK
Decision No.577/4-3-03 of the Ministry’s of Rural Development Special Secretariat,
under the title of “Special Requirements in the application framework of the Local
Leader+ Programmes”, in Article 9, paragraph 1, points in full detail that the publicised
Call for Proposals should obligatorily include the process and the evaluation criteria fully
quantified (as more analytical as possible) and with their importance factor fully stated.
Moreover, each action’s accession criteria should be clarified, as approved by the full
Monitoring Committee of the Community Initiative Leader+, whose members include
representatives of the ministries, management authorities of other Operational
Programmes, local and prefectural authority organizations, local action groups, economic
and social partners, NGOs and representatives of the European Commission. It is also
clarified that the Call for Proposals is accompanied by the proposal file for the candidate
investment where the corresponding fields regarding the criteria are fully clarified.

In Article 1, paragraph 2, of Decision No.577/4-3-03, it is clarified that the evaluation of

the candidate investments of the interested final receivers is materialized by an

314
Evaluation Committee, organised within the Local Action Group by its personnel after
the decision of the Programme’s Managing Committee (composed by 5 representatives of
the shareholders of the Local Action Group). As mentioned also in Decision No.430/18-
2-03, the Evaluation Committee ought to be multidisciplinary with the option of external
evaluator, selected after an open call. The composition of the Evaluation Committee
could be differentiated according to the nature of the action under evaluation. It is
possible to form more than one Evaluation Committees for different action categories. It
is important to check thoroughly the members of the Committees in order to secure that
no member participate with any kind of relation to the companies that are candidate
investors or have conducted the application file for a third party.

The Evaluation Committee examines all the submitted proposals according to the
aforementioned process and the evaluation criteria (exactly as published) and classifies
them, based on the specific action of each candidate investment. After the completion of
the process, the Programme’s Managing Committee issues a decision with a full list of
the accepted and rejected proposals, which is dispatched to all candidates. The decision
includes a full documentation in case of rejection, along with full details of the plea
process. Pleas deadline could not be less than 10 days after the proved delivery of the
Managing Committee decision. The Pleas Committee is organised within the Local
Action Group by its personnel after the decision of the Programme’s Managing
Committee, securing that no member of the Evaluation Committee could participate in
this committee.

After the finalization of the approved proposals, the Local Action Group composes and
dispatches to the National Managing Authority the technical reports, which are evaluated
according to the aproved by the Monitoring Committee action’s accession criteria. The
National Managing Authority, with a letter of the Special Secretariat, informs the Local
Action Group on the proposals that fulfill the criteria, in order, the last, to issue the
required approval decision for the final receivers to sign the contracts.

3. EVALUATION CRITERIA FOR CANDIDATE INVESTMENTS

Local Action Group “Pieriki Anaptixiaki S.A.”, responsible for the application of
Leader+ program in the Prefecture of Pieria, in full accordance with the aforementioned
legal framework, has prepared evaluation criteria specialized for each different action of
the local program, presented previously under each measure.

The most popular action of the local program is Action 1.2.1.1 “Creation and
improvement of accommodation infrastructures to improve the tourism dynamic of the
region” of Measure 1.2. For the specific action the greatest number of criteria has been
amended, defining the process as totally transparent. Moreover, the criteria, even generic-
as results criteria, were quantified in order to evaluate the proposals in the most objective
way as possible and to minimize the possibility of pleas.

At this point of the paper the elaboration and transformation of the criteria proposed,
according to Annex III of Decision 430/18-2-2005 in a generic and more qualitative way,
will be presented, along with the analysis of their quantification. Moreover, the
importance factor will be presented along with the details of its application.

315
3.1 IMPORTANCE FACTORS

In full adaptation of Annex III of Decision 430/18-2-2005 the Local Action Group has
applied the following Categories of Criteria:
1. Investor evaluation
2. Application file evaluation
3. Results evaluation

The importance factor for each category is depicted in the following Table 1.

Table 1: Importance Factors

IMPORTANCE
CRITERION CATEGORY
FACTOR

INVESTOR EVALUATION 30%

APPLICATION FILE EVALUATION 50%

RESULTS EVALUATION 20%

MINIMUM MARKING 50

In this table it is also stated that the minimum marking a candidate investment should
gather in order to be approved is 50 out of 100, meaning that even if there are available
funds no investment with total marking below 50 could be approved.

3.1.1 INVESTOR EVALUATION

The criteria of this category are, due to their nature, easy to quantify and to grade them.
For this category a sub criterion was added by the Local Action Group in the criterion
A.4 “Experience of candidate investor”. In more detail, the criteria of this category
including the amendments of the Local Action Group are:

A.1 Age of the candidate investor

The scale proposed by the Annex III of Decision 430/18-2-2005 was fully adapted (up to
30, from 31 to 40, from 41 to 54, from 54 to 65).

A.2 Sex of the candidate investor

Women are graded positively, due to the reinforcement of women competitiveness.

316
A.3 The candidate investor is a farmer
Farmers are graded positively, due to the nature of Leader+ programme in general.

A.4 Experience of candidate investor

ƒ Sub criterion 1: Experience related to studies. Whilst the existence of a University
degree remains a sub criterion another specification was added; the existence of
another diploma related to the nature of the investment or seminars on the
investment subject for more than 100 hours, giving half the marks of the
University degree.
ƒ Sub criterion 2: A new sub criterion under the title of “Dynamism and Success on
previous and existing activities”. The evaluation of the dynamism and success for
the investor, regarding its legal entity is following the categories:
I. For existing companies, the dynamism and success of the company along with
these of major shareholders are evaluated
II. For companies under establishment, the dynamism and success of the future
company’s shareholders are evaluated
III. For individuals, the personal dynamism and success are evaluated
ƒ Sub criterion 3: Years of related experience. Scale was amended (less than 3
years, more than 3 years, more than 8 years).

A.5 Permanent residence of candidate investor

Permanent residents of the municipality of the investment are graded positively.

A.6 Former funding

Candidates that have never received funding are marked positively.

A.7 Own funding

Scale was amended (more than 40%, more than 60%, 100%)

3.1.2 APPLICATION FILE EVALUATION

The criteria of this category are, due to their nature, mainly qualitative and, so, difficult to
grade them. For this reason a number of amendments and parallel actions were conducted
by the Local Action Group in order to quantify them, where this is possible. In more
detail, the criteria of this category including the amendments of the Local Action Group
are:

317
B.1 Completeness of the application file
Two sub-criteria were applied:
ƒ Sub-criterion 1: Completeness of the application file’s fields. Scale was amended
(perfect, satisfactory, medium, bad).
ƒ Sub-criterion 2: Completeness and credibility of the viability study. Scale was
amended (perfect, satisfactory, medium, bad).

B.2 Pilot character of the investment

Two sub criteria were applied, as proposed in Annex III of Decision 430/18-2-2005:
ƒ Sub criterion 1: Participation in networks and clusters. Scale was amended (based
on the type of network). Local Action Group has established a network for all
investments of Leader+ program, in order to promote their services and products
in the future.
ƒ Sub criterion 2: Other ways of assuring pilot character. Scale was amended (high,
medium, low, none). In order to help candidates, special details were given to
candidates through the analytical supportive information material (handed out free
to everybody in hard copy, also web based). Moreover, examples on pilot
character were given in the presentation of the evaluation criteria.

B.3 Quality of the candidate investment

The title of this criterion depicts the difficulty on quantification. Local Action Group
“Pieriki Anaptixiaki S.A.” on the effort to quantify quality, up to the possible point, has
selected the three quality sectors that depict the local program, and has conducted, with
external experts, three studies on these sectors. The selected sectors were:
1. Quality in Construction
2. Bioclimatic Specifications
3. Quality Services and Products

The three studies were handed out to all candidates in hard copy (there were also hosted
in the web page of Pieriki Anaptixiaki S.A.). Moreover, the fields in the proposal file
where the adaptation of the specifications of the three studies should be described, were
clarified. Finally, it was also clarified that the observance of the stated specifications is
binding and they have to be part of the total budget as special articles. In order to assist
candidate investors to apply the studies and evaluators to evaluate in the more objective
way as possible, the following details were included in each study:
1. Quality in Construction. First of all the required legal framework was handed out
to all candidate investors. The study’s framework was organized in a way to give
instructions under different subjects-chapters. In that way, the minimum
requirements to be adapted were specified and for any additional requirements
extra marks were provided. Finally, for the evaluation of the specific sub criterion
the conductors of the study took part in the evaluation.

2. Bioclimatic Specifications. Five different studies were conducted, for different

kind of enterprises. Every study has a list of the minimum requirements and a
number of proposed extra actions to be adapted by the candidate investors.

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 Finally, for the evaluation of the specific sub criterion the conductors of the study
took part in the evaluation.

3. Quality Services and Products. A check list for every kind of enterprise was
provided to all candidate investors, helping them to organize their budget and the
working structure of their enterprise.

B.4 Realistic Budget

Scale was amended (0% to 10% deflection, 10% to 20% deflection, more than 20%
deflection). Deflection was calculated from the average market prices, which were
provided as list to candidate investors.

B.5 Realistic Time plan

Based on true durations that have been recorded by Pieriki Anaptixiaki S.A., in similar
projects.

B.6 Progress Adequacy

The criterion, including all the specifications of Annex III, has been separated in three
sub criteria:
ƒ Sub criterion 1: Progress regarding licenses. Scale was adapted (based on
progress).
ƒ Sub criterion 2: Progress on legal entity. Scale was adapted (based on progress).
ƒ Sub criterion 3: Progress on proprietary status. Scale was adapted (based on
progress).

B.7 Viability
Index IRR (Internal Rate of Return) for the part of own funding was used using computer
packages (Excel).

B.8 Type of building

Extra support is given to the rehabilitation of existing traditional buildings.

3.1.3 RESULTS EVALUATION

The criteria of this category are, mainly qualitative and, so, difficult to grade them. For
this reason a number of amendments and parallel analyses were conducted by the Local
Action Group in order to quantify them. In more detail, the criteria of this category
including the amendments of the Local Action Group are:

C.1. Contribution Degree to the achievement of the objectives/indexes of the actions of

the local programme.

It is calculated with the application of a table, related to the type of the investment. The
types of investment are categorized as:
• Staying Overnight Services. This type includes all type of Hotels and
Farms with overnight staying services.

319
 • General Services. This type includes all type of Restaurants, Local
Traditional Coffee Shops, Local Travel Agencies for the application area.

• Small Manufacturing Enterprises. This type includes: Handcraft

enterprises, manufacturing enterprises of animal and vegetable production.

Each table is the optical depiction of a mathematic function that calculates the percentage
of each candidate investment’s contribution to the objectives of the local program
(according the ex ante evaluation) based on the budget of each investment in connection
with the total budget of the specific types of investment approved by the Managing
Authority.

In more detail, as depicted in Table 2, in field (α) the budget of the investment under
evaluation is filled in. Taking the total budget [field (β)] as granted, we calculate the cost
factor of the investment related to the total budget [field (γ)].
Column (δ) depicts the objectives of the local program (according the ex ante evaluation),
while column (ε) is completed with each candidate’s investment contribution to each
objective individually. At this point it must be stated that the candidate investor is stating
the expected objectives of his investment in the corresponding fields of the proposal file
and is legally committed to achieve this objectives in case of approval, or else funding is
proportionally returned. Finally, according with the form of the investment (new lodging,
modernization of existing lodging, modernization and expansion of existing lodging) and
based on Table 2 the candidate investor is released from the obligation to complete some
indexes. It is obligatory though to complete all the fields of column (ε), even if the value
is zero.

Next step is to calculate column δ1, as the ratio of the contribution of the candidate
investment for each index to the total index value of the program (στ)=(ε)/(δ) (according
to the ex ante evaluation). The contribution of each candidate investment for each index,
by taking into consideration the cost factor (γ) is calculated in column δ2, as a result of
the equation (ζ)=(στ)/(γ). At this point, it should be pointed that the contribution (ζ) could
be bigger than 1 as it could overbalance the contribution it was expected to be supplied
by each candidate investment according to its budget and to the calculated cost factor.
The sum of all contributions (ζ), leads to the sum (η), which divided with the sum of the
indexes’ values (that the candidate investor has to fill in-table 2) and multiplied by 100,
lead us to the percentage of contribution of the specific candidate investment (ι) to the
achievement of the objectives/indexes of the action of the local program Leader+.

320
 Table 2: Contribution Degree Calculation

STAYING OVERNIGHT SERVICES

INVESTMENT BUDGET (α)

TOTAL ACTION BUDGET Σ € (β)
FACTOR ON TOTAL (γ)=(α)/(β)

OVERALL OFFERED
δ1 δ2
No INDEX CODE INDEX INDEX
(δ) (ε) (στ)=(ε)/(δ) (ζ)=(στ)/(γ)
1 Workplaces during materialization ∆1 54
2 Workplaces that are retained ∆2 8
3 New permanent women workplaces ∆3 7
4 New permanent men workplaces ∆4 7
5 New permanent youth workplaces ∆5 4
6 New seasonal women workplaces ∆6 1,08
7 New seasonal men workplaces ∆7 0,33
8 New seasonal youth workplaces ∆8 0,33
9 Number of new beds ∆9 92
10 Number of modernized beds ∆10 36
(η)
new lodging: except ∆2, ∆10 Σδi 8 (θ)=(η)/Σδi
modernization:except ∆9 Σδi 9 (ι)=(θ)*100
modernization and expansion: all Σδi 10

C.2 Impact on workforce

Two sub criteria were formatted in order to distinguish existing enterprises from new.

C.3 Impact on environment protection

New criterion applied by Local Action Group. It is calculated as the ratio between budget
elements that protect environment to total budget.
For the application of the selection criterion:
1. as total budget of the investment was considered the total budget of the investment
according to the acceptable costs during the evaluation of the viability of the
investment, and
2. the total budget did not included the value of the land.

C.4 Bearing Capacity Index

According to the full study “Specification of the Bearing Capacity, Spatial Ability and
Planning Alignment of the investment interventions in the application area of the local
program Leader+ of Pieria Prefecture”, column (α) and (β) of Table 3 resulted.

321
 Table 3: ∆1 Calculation

Number of
Settlement name Beds capability ∆1
suggested lodgings

(α) (β) (γ)=[(β)/(β)max]*100

Palaia Leptokaria 2 22 16,30
Palaios Panteleimonas,
1 20 14,81
inside plan limits
Palaios Panteleimonas,
1 25 18,52
outside plan limits
New Panteleimonas 2 36 26,67
Palaoi Poroi 2 36 26,67
Ano Skotina 6 135 100,00
Κato Skotina 2 44 32,59
Kato Milia 1 20 14,81
Mesaia Milia 2 50 37,04
Ano Milia 4 70 51,85
Karies 2 62 45,93
Moshohori 0 0 0,00
Bria (incl. Old village) 4 70 51,85
Elatochori 0 2 1,48
Ritini 4 75 55,56
Agios Dimitrios 4 97 71,85
Foteina 1 18 13,33
Petra 2 40 29,63
Morna 2 40 29,63
Fteri 0 0 0,00
Elafos
Trilofos
Εksohi
2 20 14,81
Toxo
Katalonia
Palaio Keramidi
Aronas
Lagoraxi
2 20 14,81
Meliadi
Moshopotamos
Riakia
Kastania 2 20 14,81
Livadi
Koykos
Nea Trapezounta
Sevasti
1 20 14,81
Alonia
Palaiostani
Sfendami

Column (γ) depicts the 1st step of the leveling process ∆1, and results form the following
equation:

322
 beds capability
∆1 ∆1= Χ100
max beds capability

Figure 2: ∆1 equation

The conditions that rule the specific criterion in the application stage of the
aforementioned equation are:
1. If the under evaluation investment is planned to be constructed in a settlement
with (α)=0, then ∆φι=0 and consequently Βφι=0
2. If the under evaluation investment is planned to be constructed in a settlement
with (α)≠0, but Nbeds>(β)settlement, then ∆φι=0 and consequently Βφι=0
3. If the under evaluation investment is planned to be constructed outside the
settlement’s plan limits, a decrease factor of 50% is applied, after the adaptation
of conditions 1 and 2 (this condition is not applicable for Palaios Panteleimonas
settlement, it is confronted independently in Tables 3 and 4)
4. If the under evaluation investment is planned to be constructed in a traditional
settlement an increase factor of 50% is applied.

After the calculation of the weighing factor ∆1, and after taking into consideration the
total number of candidate investments in each settlement of Table 4 – column (δ), the
Bearing Capacity Factor is calculated according to the following equation:

number of suggested lodgings

∆φι ∆φι= Χ ∆1
total number of cand. Investments

Figure 3: ∆φι equation

The assumption in the application of the equation above is that if ∆φι>100, it is

considered as ∆φι=∆φι,max=100.

With the application of the equation above we complete the following Table 4.

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 Table 4: ∆φι calculation

Total number
Number of proposed
Settlements ∆1 of candidate ∆ φι
lodgings
investments
(γ) (α) (δ) (ε)=(γ)*(α)/(δ)
Palaia Leptokaria 16,30 2
Palaios Panteleimonas,
14,81 1
inside plan limits
Palaios Panteleimonas,
18,52 1
outside plan limits
New Panteleimonas 26,67 2
Palaoi Poroi 26,67 2
Ano Skotina 100,00 6
Κato Skotina 32,59 2
Kato Milia 14,81 1
Mesaia Milia 37,04 2
Ano Milia 51,85 4
Karies 45,93 2
Moshohori 0,00 0
Bria (incl. Old village) 51,85 4
Elatochori 1,48 0
Ritini 55,56 4
Agios Dimitrios 71,85 4
Foteina 13,33 1
Petra 29,63 2
Morna 29,63 2
Fteri 0,00 0
Elafos
Trilofos
Εksohi
14,81 2
Toxo
Katalonia
Palaio Keramidi
Aronas
Lagoraxi
14,81 2
Meliadi
Moshopotamos
Riakia
Kastania 14,81 2
Livadi
Koykos
Nea Trapezounta
Sevasti
14,81 1
Alonia
Palaiostani
Sfendami

After the completion of the completion of Table 4 and the calculation of index ∆φι for
each lodging in each settlement, the Bearing Capacity Index (Βφι) of each candidate
investment is calculated, by applying the following equation:

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 ∆φι
Criterion rating Βφι= Χ max rating(=35)
100

Figure 4: Bφι equation

The reduction is achieved by considering that ∆φι=∆φι,max=100 corresponds to

Βφι,max=35.

4. CONCLUSIONS

Reference to objectives and decisions made by a Local Action Group in a co-financed

project is predominant and they have particular significance for construction project
management in general, including evaluation stage. The objectives of the project
management in a co-financed project are those of an investor meeting the objectives of
the Managing Authority; role of project management is to ensure that the project
organisation, as framed in a co-financed project, works to achieve the common
objectives. Similarly, decisions taken during the process should be taken with the sole
purpose of achieving these objectives.

Value Engineering is required by the investor as an organised process which identifies

opportunities to remove unnecessary costs while assuring that quality, reliability,
performance, and other critical factors will meet or exceed the expectations. Value
Engineering should be performed as early as possible-before commitment of funds,
approval of systems, services, or designs-to maximize results. The main objective of
Value Engineering is to improve value, and the adapted techniques can overcome many
of the roadblocks to achieving good value.

Although the aforementioned details assist the evaluation process of a co-financed

project, quantifying a number of quality and results criteria is not a simple process.
Nevertheless, it was tried to be achieved by Local Action Group “Pieriki Anaptixiaki
S.A.” in order to create an evaluation process as more transparent as possible.

5. REFERENCES
BSi Standards Technical Committee (1994) BS 6079 Guide to Project Management, BSi publications
Dell’ Isola, A. (1997), Value Engineering: Practical publications, R.S. Means Company Inc.
Duncan W (1996) A Guide to the Project Management Body of Knowledge, PMI
Flanagan, R et al (2003) Risk Management and Construction, Blackwell publishing

325
Kalfakakou, G (1991) Organisation and Management of Business-Investments’ evaluation, Aristotle
University of Thessalonica
Kerzner H. (1998) Project Management: A systems approach to planning, scheduling and controlling, John
Wiley & sons Inc.
Ministry of Rural Development and Food (2003) “Special Requirements in the application framework of
the Local Leader+ Programmes”, Decision No. 577/4-3-03, Athens, Greece
Ministry of Rural Development and Food (2003) “Application details of the Community Initiative
Leader+”, Decision No. 430/18-2-03, Athens, Greece
Ministry of Rural Development and Food (2005) Operational Programme LEADER+ Community
Initiative, http:// http://www.leaderplus.gr/doc_en/Leader+_en.doc, {Accessed: 2005, 2004}
Norton, B et al (1995) Value Management in Construction: A practical guide, Macmillan press Ltd.
Pieriki Anaptixiaki S.A. (2005) Publicity Material of 3rd Call for Proposals, Pieriki Anaptixiaki S.A.
Pieriki Anaptixiaki S.A. (2005) Proposal File of action 1.2.1.1 for 3rd Call for Proposals, Pieriki
Anaptixiaki S.A.
Pieriki Anaptixiaki S.A. et al (2004) Specification of the Bearing Capacity, Spatial Ability and Planning
Alignment of the investment interventions in the application area of the local program Leader+ of
Pieria Prefecture, Pieriki Anaptixiaki S.A.
RIBA Companies Ltd. (1997) RIBA Plan of Work for design team operation, RIBA publications
Sloman, J (1999) Economics, Prentice Hall
The Chartered Institute of Building (1998) Code of Practice for Project Management for Construction and
Development, Longman
Walker, A (2002) Project Management in Construction, Blackwell publishing
Zapounidis, K et al (2005) Risk Management analysis during Contract Preparation of co-financed projects,
Proceedings of the 3RD International Conference on Construction in the 21st Century: Advancing
Engineering, Management and Technology, pp 45

326
PROCUREMENT, VALUE, FACILITIES & RISK
MANAGEMENT

VALUE OR COST: TOWARDS A PROFICIENT CONTRACTOR ELECTION 329

PROCESS FOR CONSTRUCTION WORKS IN DEVELOPING COUNTRIES –
NIGERIA A CASE STUDY

THE IMPACT OF SEQUENTIAL THINKING IN THE RISK MANAGEMENT 341

PROCESS

CHALLENGES IN INTEGRATING SUSTAINABLE ISSUES INTO VALUE 353

MANAGEMENT PRACTICES

DETERMINING THE ROLE OF INNOVATION MANAGEMENT IN FACILITIES 361

MANAGEMEN

THE OPERATIONAL RESEARCH FRAMEWORK FOR SAFETY CULTURE OF 373

THE MALAYSIAN CONSTRUCTION ORGANISATION
ADAPTATION STRATEGIES OF CONTRACTING FIRMS:
387
AN ANALYSIS BY FIRM SIZE
COMPARISONS OF EVALUATION TECHNIQUES IN VALUE ENGINEERING 395

DEVELOPING STRATEGIC SYSTEM PLANNING FRAMEWORK FOR 405

FACILITIES MANAGEMENT (SSPFFM) IN THE HEALTH SECTOR

POTENTIAL BEST VALUE CONSTRUCTION IN CHINA 421

EFFICIENT RISK ALLOCATION IN PROJECT FINANCE: ANALYSIS OF 431

LITERATURE REVIEW

327
328
 VALUE OR COST: TOWARDS A PROFICIENT
CONTRACTOR ELECTION PROCESS FOR
CONSTRUCTION WORKS IN DEVELOPING
COUNTRIES – NIGERIA A CASE STUDY
Olatunji Oluwole Alfred (Pastor)
Department of Quantity Surveying
Federal University of Technology
PMB 704 Akure
Ondo State
Nigeria 34001

E-mail: pastorolatunji_alfred@yahoo.co.uk

Abstract: Perhaps for economic reasons, most construction clients desire their dreamt
projects realized at the cheapest price possible, not minding the consequence on the
project life and the real cost to the contractor. Empirical studies in this research reflect on
the relationship between performance of construction projects based on utility derived and
the capability of the contractors selected. Therefore, this study reviews the contractor
selection process for construction works through prequalification in the Nigerian
construction industry and gives an overview of value management of construction works.
This study discovers a strong relationship between performance of construction projects
and capability of contractors through prequalification, using criteria like General
Information about Contractors, Performance Record, Technical Capability, Financial
Capability, Management Capability and Health and Safety Management.

Moreover, questionnaires were administered and interviews were collected through

construction professionals and the statistical data were analysed using Mean Scores,
Percentiles, Regression and Correlation. The study also discovers a model that related the
effects of “unsafe” contract award with contract sum.

Keywords: Construction Projects, Performance, Prequalification

1. INTRODUCTION

Heuristic researches over the years have reflected the relationship between
construction and global economy (Latham, 1994; Flanagan, 1990; Ang and Tang,
1984). In the Nigeria, construction is responsible for about 40% of Total Annual Fixed
Investment (TAFI) and an average of 5% improvement on the annual Gross Domestic
Product (G.D.P.) (Omole, 2000). Ajanlekoko (1990) opines that the construction
industry represent the largest employer of labour, while Kazie (1987) concludes that
over 50% of government expenditure in Nigeria goes into construction. Therefore, the
implication of the prescribed strong link between construction and national economy
is such that any upset in the system is easily reflected in national economy, if not
global economy (hillebrandt, 2000).

However, because of the complex and dynamic nature of the construction industry,
construction project delivery has been hampered by several avalanches of wicked

329
problems and risks, affecting not only the practitioners and procurement of services
and materials but the effects are better imagined than experienced on the success rate
of construction project delivery in Nigeria. Worst still, despite endless researches in
this direction, the number of construction projects marred by substandard quality,
devastatingly delay in delivery due to late completion, cost over-run, client-contactor
acrimonious relationship has not being completely eradicated, therby constituting
embarrassing wastages to private and public wastages. (Olatunji, 2005c).

2. LITERATURE REVIEW
In reporting a recent survey of current procurement practice, Hatush (1996) concludes
that all types of contract arrangement comprise five common process elements, viz;
project packaging, invitation, pre-qualification, short listing and bid evaluation.
Contractor prequalification is a widely used process to select competent contractors by
assessing candidate-contractors’ competence or ability to meet specific requirements
for the performance of a specified task based on prescribed criteria (Russell and
Skibniewski, 1990). This brilliant innovation in construct ion project procurement was
widely accepted because researchers believe that the prevalent traditional system of
contractor selection was characterized with subjectivity, uncertainty and non-linearity
(Lam et al., 2001). Moreover, the need to seek better techniques of improving on the
traditional practices and procedures of contractor selection became pertinent because
the system has remained dormant of the procedures for over six decades and half
decades and it is dominated by the principle of acceptance of the lowest bid prices
(Ogunsemi and Aje, 2005; Hatush and Skitmore, 1997; Holt et al., 1994; Merna and
Smith, 1994; Moore, 1985).

Furthermore, the practice of accepting the lowest bid was heavily criticized to be
shortsighted and risky, though it was widely desirable since all clients have a common
goal, which is acquiring their dreamt project at the cheapest price, however it is not
always the most economic choice in the long run, as the client run the risk of poor
performance in the project life in term of discrepancies in the initial and final costs,
initial and total construction periods, deviation from prescribed quality and
specification and distractions caused by avoidable disputes (Hatush and Skitmore,
1997; Aje and Olatunji, 2005a). However, after appropriate use of qualitative and
quantitative techniques to objectively demystify contractors’ intention before contract
award, based on their competence broadly evaluated though the retrieved information
about contractors other than price data only, has not yielded adequate result. This is
because, practitioners are of the opinion that bidders should be treated equally since all
were marked out for satisfactory competence and so the best way to maximize or
appropriate client’s value for money is through the acceptance of the lowest bid,
which in most cases may be irrespective of client’s own estimates.

Hatush and Skitmore (1997) is of the opinion that such contractor with the lowest bid
may not be the best for the job when other factors bothering on competence is
considered as others with higher bid prices may be willing and able to complete the
project quicker, at better standard and cheaper at the end of the day. Ray et al (1996)
identifies as part of the major reasons for contractors to provide cheap bids on

330
construction projects as a gimmick by the contractor to implant himself deceptively
into client’s unsuspecting mind, in order to win his trust and make his list for future
consideration, which may be dangerous because of future fraud. Researchers have
seen this as unethical because low bids might be as a result of contractor’s mistakes
sequel to change in his market orientation and reduction in available construction and
estimating resources (McCaffer, 1976; Whitaker, 1970). It also directly lessens the
standard of competitiveness in the tendering process, prone to corruption and collusion
in the system and may not reflect the exact intent of the bidders owing to short-timing
in tendering or a deliberate action to fix unrealistic bid if interest is low if not to woo
the client into rekindling his interest on uncharismatic projects (Ray et al., 1996). To
this end, the research proceed to measure the relationship between prequalification of
contractors and performance of construction project delivery in the Nigerian
Construction industry, based on the identified criteria and later presents an overview
of value management in the contractor selection process in the construction industry.

3. RESEARCH METHOD
The result presented in this study were obtained through a questionnaire survey using
the combination of personal contacts and the popular snowball approach, where a
respondent that gets the questionnaire answer a copy and send a blank copy to another
person he thinks might be interested. Moreover, interviews were conducted with
construction professionals who perform prequalification both in the private and the
public sectors of the construction industry. 59% of the respondents are based in
Nigeria, being the case base for the research, 23% of the responses were from
practitioners cardinally spread in 11 African countries. 11% of the questionnaire
responses came as e-mail response from 4 Asian countries, while 7% of the responses
represent the opinion of practitioners from 2 South American countries. The order,
layout, intelligibility, simplicity and precision of the questionnaire survey and
interview conducted, without doubt, were responsible for the overwhelming responses
cropped and captured in the study.

After understudying the correlation and fitness of the academic and professional
disposition of the respondents in the interest of the aim of the research, respondents’
views were collected on achieving universal selection criteria for construction works,
which had been lacking over the years (Hatush and Skitmore, 1998; Ng and Skitmore,
1999). Seven principal prequalification criteria and forty variables or contributory sub-
elements were identified form the literatures (Hatush and Skitmore 1998, Aje and
Olatunji, 2005a; Olatunji 2005c) and rated thorugh an ascending scale of 0 – 5; 0
being negligible or not signicant at all and 5 being very string in importance. This is
because in order for this study to assess the veracity of contractors’ competence, it
must fully accommodate most, if not all the possible identified variables of
construction clients’ kingly requirements, which researchers described as increasingly
complex, dynamic and distinct (Nguyen, 1985; Lam et al., 2001; Ogunsemi and Aje,
2005). Moreover, secondary data and interviews were targeted at measuring the
performance of prequalification on construction project delivery based on market
mecheanism driven by Price, Time, Quality and Risk (PTQR) (Drew and Skitmore,
1992).

331
4. DATA ANALYSIS
The data for this study was conducted through the responses of 126 questionnaires
returned and a number of interviews conducted through personal contacts, snowball
approach and internet mails and chatting with construction professionals and clients in
selected African, Asian and South American countries. Table 1 shows the analysis of
the cropped responses.
Table 1: Analysis of responses received
Respondents Responses Total %
Africa Asia South America Responses

Clients
Public 06 - 01 07 5.5%
Private 10 02 02 14 11.1%
Sub-Total 16 02 03 21 16.6%

Contractors
Civil 08 02 01 11 8.7%
Building 19 03 - 22 17.5%
Services 13 01 - 14 11.1&
Sub-Total 40 06 01 47 37.3%

Consultants
Architects 17 01 03 21 16.7%
Builders 07 - - 07 5.5%
Engineers 09 02 02 13 10.3%
Project Managers 02 - - 02 1.6%
Quantity Surveyors 12 03 - 15 11.9%
Sub-Total 47 06 05 58 46.03%
Total 103 14 09 126 100%

From the foregoing, 16.6% of the respondents represent construction project clients,
33% of which represents public clients while 67% represents private clients. Form a
total of 21 respondents in this section, 76% are from Africa, 9.5% are from Asia,
while 14.3% are from South Asia. The researcher opines that most private firms that
hold stakes in construction in most developing countries are research and innovation
driven in order to remain in contention, making it a bit easier for them to respond
more effectively than their public counterparts, who in most cases are not absolutely
sustained by the profits of their contributions to profound knowledge.

Moreover, 37.3% of the respondents represent contractors, 23.3% of which represents

Civil Engineering works contractors, 45.75% represents Building Works contractors,
while 30.45% represents Services Engineering contractors. From a total of 47
respondents in this category, 85% of the contractors are from Africa, 12.76% are from
Asia, while 2.34% are from South America. Apart from Africa being a case base for
this study, it is evident from the data collected that despite huge need for capital
investment in other construction contracts in developing countries, adequate financial
commitments and availability of requisite technology and seasoned manpower has

332
 culminated into a low patronage of capital intensive civil engineering and heavy
industrial projects, thereby justifying the low contribution from that end.

However, 46.03 of the respondents represents construction practitioners, 36.2% of

which are Architects, 12.1% are Builders, 25.9% are Quantity Surveyors, 22.4% are
Engineers, while 3.5% are Project Managers. Further analysis of the demographic
background of the respondents reveals that 72% of them possess the requisite
academic and professional certification and experience to occupy management
position in their respective places of work, while 28% of the respondents possess
academic degrees only with long standing years of experience and considerable
participations in the construction industry. Table 2 shoes the details of the years of
experience of the respondents, while Table 3 shows the number of prequalification
they have taken part in the last 5 years.

Table 2: Years of experience of respondents

Number of years of 1–5 6 – 10 11 – 15 16 - 20 21 - 25 26 - 30 31 - 35 36 - 40 ∑
experience
X 03 08 13 18 23 28 33 38
Frequency (F) 07 05 12 36 27 11 17 1 126
FX 21 40 15 648 621 308 561 38 2, 252

Arithmetic Mean = ∑fx = 2, 252 = 17.87 ≈ 18 years

∑f 126

The average number of years of respondents in the construction industry is

approximately 18 years.

Table 3: Analysis of the number of prequalification exercises respondents have actively taken
part in the last 5 years

Number of projects 1–5 6 – 10 11 - 15 16 - 20 21 - 25 26 - 30 ∑

X 03 08 13 18 23 28

Frequency (F) 14 26 41 24 19 2 126

FX 24 208 533 432 437 56 1, 708

Arithmetic Mean = ∑fx = 1, 708 = 13.55 ≈ 14 projects

∑f 126
Averagely, the respondents have taken part in about 14 prequalification exercises in
the last 5 years.

333
Form an average of 18 years of experience and the vast experience of the respondents
in prequalification; it is obvious that the data collected for analysis in the study are
reliable enough to form a good basis for the research, based on the quality of the
respondents. Moreover, all the respondents are familiar with multivariate selection
criteria and prefer a standard list of criteria that would be precise, straightforward and
simple rather than endless lists of selection criteria, which are interrelated. Therefore,
the endless list identified from literatures can be grouped into 7 principal criteria,
which have a number of variables and their gravities modifiable into the specialty and
complexity of projects in assessing the competence of contractor, with respect to
project milestones. Although, a vast majority of the respondents (basically from
Africa) would prefer a prequalification based on General Information about
Contractors’ Firm and his Performance Record, however other respondents considered
as relevant other criteria like Management Capability, Technical Capability, Financial
Capability, Location factors and Health and Safety Management of Contractors.

In this study, the criteria identified by the respondents as the variables that mark out
the image of contractors based on general information miscellaneously retrieved about
the contractor’s firm include: Legal status of contractor’s firm, capacity and stability
of firm, competitiveness of accepted tenders, relationship with client, litigation
tendency, references, integrity, cooperative outlook, reputation, firm’s membership of
trade association, contractor’s length of time in business, particulars of holdings and
Directors’ integrity. They also identified the variables of Financial Capability of
contractors as credit worthiness or rating of contractor’s firm, banking arrangements,
bonding capacity and audited balance sheet, while contractor’s Managerial strategy,
the fraction of contractor’s permanent workforce featured on the contract, contractor’s
relationship with sub-contractors, amount of sub-contractor’s work in the contract and
substance abuse policy of the contractor were identified as the variables of contractors
management capability.

The Performance Record of contactor is identified to be affected by the record of

contractor’s past performance on relevant projects, the Quality Performance of
relevant executed projects, record of failure on past projects based on contractor’s
default, current workload, contractor’s response to instructions and record of
fraudulent or unethical activities of contractor on past contracts, while amount, age
and status of plant and equipment possessed and available for use by the contractor for
that particular contract, quality of workmen and technical staff as well as technical
experience, with respect to the contractor’s ability and disposition to the prescribed
technology in the term of the contract, are the identified variables of the Technical
Competence of contractor.

The Safety and Health Management of contractor’s variables are measured by the
safety performance of contractors based on safety standards and policies like
Experience Modification Rating (E.M.R), Occupational Safety and Housing
Management Administration (OSMHA) as well as Management safety performance
accountability; while Location factor is judged based on the variables like the distance
between contractor’s head-office and jobsite, experience of clients in contractor’s
geographic base and experience of contractor on client’s base or jobsite. Table 4
shows the ratings (by Mean Scores) of the Principal and the Variable prequalification
and contactor selection criteria.

334
5. CONCLUSION
The research points out that effective contractor selection must be thoughtful and
impartially objective, rather than being surreptitiously subjective in judgment, in
which cost data should be de-emphasized, but rather, value optimization should be
professionally entrenched in procurement for construction works in developing
countries. Without this, the present construction system is prone to painful economic
wastes in local. National and global settings, and above all, the contractor selection
process may be discharismatized, leading to upsurge in unethical alienation from
standards and traditions that are known to have positively favoured success rate in
construction project delivery, which before now, lack the requisite commensurate
justification with innovation witnessed (Hatush and Skitmore, 1997). It is therefore
recommended that:

1) Apart from cost data, clients should consider other information that competitively
reveals the objectivity of candidate contractors’ competence like General
Information about contractors having to do with legality and image of contractor’s
firm, Financial Capability, Management Capability, Technical Competence,
Performance Record, Location and Health and Safety management as
indefatigably imperative.

2) The variables of the determinants of contractor selection objectivity indicated in

the study should be considered as preliminary and suitable for further
modification, depending on the nature of construction client and project.

3) Basing contractor selection on the lowest bid price alone is both risky and suicidal
to value optimization and may debureaucratize client’s kingly interest in the
construction process, thereby leading to cost and time over-run, discrepant
deviation form quality and dispute. To avert this, adequate measures must be put
in place to respect contractor’s competence to deliver value for client’s money
with respect to client’s cost reference.

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 Table 4: Summary of Contractors’ Prequalification and Selection Criteria in Africa Based on Analyzed
Responses.
Item Elements of contractors’ Sub elements of contractors’ selection Mean Score for Mean Score
Selection and and Prequalification criteria major elements for sub
Prequalification Criteria elements.
1. General Information of Legal status of firm 4.78 4.69
Contractors’ company Capacity and stability of firm 4.65
Competitiveness (based on the prices of 4.56
previously received tender as against
accepted tenders)
Relationship with client 4.51
Litigation tendency 4.34
References 4.30
Integrity 4.29
Co-operative outlook with client’s vision 4.20
Reputation 4.11
Firm’s membership of trade association 4.03
Contractors length of time in business 4.01
Particulars of holding 3.88
Directors’ integrity 3.52
2. Financial capability of Credit worthiness or rating of firm 4.58 4.86
contractor Banking arrangements 4.57
Bonding capacity 4.32
Audited Balance sheet etc. 4.28
3. Management capability of Contractors’ managerial strategy 4.52 4.68
contractor Amount of own force in workforce 4.65
Relationship with sub-contractors 4.58
Amount of sub contractor’s work 4.32
Substance abuse policy of contractor 4.30
4. Technical competence of Plant and equipment 4.37 4.62
contractor Workmanship quality 4.62
Technology or peculiar contract strategy 4.51
5. Performance of contractor on Record of contracts’ failures at 4.28 4.32
Past Projects contractors’ misconduct, default etc.
Quality performance 4.11
Outright failures on past projects 4.09
Current workload 4.02
Response to instructions 4.00
6. Safety Management Safety performance based on safety 3.58 3.61
standards and policies
7. Location risks of contractor Experience of client based on 3.41 3.81
geographical location of contractor
Distance between jobsite and contractor’s 3.80
home office

336
Comparing the Mean Scores and the actuals of the respondent’s ratings, further
analysis through correlation shows a significant relationship in both the Principal and
the variable criteria with the coefficient values of 0.96 and 0.91 respectively.
Moreover, although, the ratings ascribed to the Principal elements and the
corresponding variables are affected by the background, experience and location of
respondents, yet the study reflect an abridged consensus based on the data collected,
which shows an insignificant variance. However, respondents from Nigeria ranked
General Information and Performance Record as the most significant criteria
(Olatunji, 2005c), while the aggregate analysis of the data in this study reveals that the
respondents considered the General Information about the contractor as the most
important because it determines the primary identification and qualification of the
contractors, while Financial Capability of contractor was ranked next because of the
fact that financial resources represent the most important flow that determines all other
capabilities and this criterion shows whether the contractor is worthy, competent or
able to handle client’s money with maximum value thereof or not.

Moreover, Management Capability was ranked next Financial Capability because it

deals with the judicious management of client’s resources with contractor’s human
and plant resources to produce the much awaited and non-negotiable satisfactory
result. The next in the ranking was the Technical Capability, which the respondents
believe is dependent on resources and management and so will determine the outright
performance of the contractor at any point in time. Respondents believe that most
clients prefer their project at minimal health and safety risk, though very hard to avoid
because of the complexity involved in construction. However, most client seldom
considering Health and Safety of contractors as important because clients rarely
indemnify contractors against such risks. Location factor and its variables were ranked
least in importance by the respondents. Although, there are legislations protecting the
sanctity of local industries in most developing countries, global openness to
international trade has relegated the milestones of location, so far performance is
guaranteed, except in rare cases of discrepancy in international polity, which may only
affect public projects and the economic emancipation of such countries.

In the course of this study, secondary data were collected on 150 multimillion
construction contracts executed in the last 10 years in respondents’ countries; 50% of
which are executed without prequalification and the rest 75 construction contracts
executed through prequalification within the last 10 years, both for public and private
sectors of the economy. Analysis revealed that only 6%, 9%, 12% of the selected
project executed without prequalification recorded satisfactory performance in
construction project delivery with respect to Cost, Time, Quality and Risk (measured
in terms of abhorrent disputes only) respectively, while 96%, 61%, 70% and 19% of
the selected projects executed through prequalification satisfactorily performed to
Cost, Tome, Quality and Risk due to abhorrent disputes respectively.

The Time performance of projects was measured by un-negotiated or unwarranted

deviations in Contract Period, while Cost performance was measured by un-negotiated
unwarranted deviations in Contract Sum though Claims and discrepancies in Quality
performance is measured by assessing the project based on expectation or intention
specified met though performance function, ease of use and maintenance, end-result

337
envisaged and other variables that culminates into considerable milestones in client’s
demand vis a vis satisfaction.

Empirical statistics reveals that discrepant performance was common to project

executed without prequalification because of extensive impropriety in contractor
selection which was partial and subjective, the consequence of which has adversely
affected project delivery and national economies through Cost and Time over-run,
deviation in Quality and Dispute, partly resolved by Litigation and Arbitration. Form
the data collected, the variables of project failures (Cost, Time, Quality and Dispute)
was analyzed with Contract Sum to establish the relationship between Contract
Milestones and possible Deviations. Therefore, a correlation of high significance was
discovered between Contract Sum and Deviation variables like Time over-run, Cost
over-run, Disputes resolved through Litigation and Arbitration respectively with the
values of 0.996, 0.969, 0.982 and 0.998 respectively. The assessment of change in
Quality was not included because respondents believe such assessment is practically
ore subjective than objective.

Furthermore, a regression analysis of the data collected about projects executed

without prequalification and awarded subjectively reveals a linear regression model in
an equation given thus:

Y0 = -40.416 + 0.6181X1 – 0.993X2 + 0.474X3 + 7.569X4

Where Y0 = Contract Sum

X1 = Time Over-run
X2 = Cost Over-run
X3 = Disputes resolved through Litigation
X4 = Disputes resolved through Arbitration

The coefficient of determination ”R” and R Square Values were given as 0.962each ,
while the adjusted R Square was given as 0.958, which implies a strong degree of
fitness of the model through the relationships of the variables in the system.

Moreover, further analysis of the available secondary data of prequalified construction

projects on which prequalification scores of winning bids were taken against the
variables of project delivery reveals a strong relationship between prequalification and
construction project delivery in the samples collected. The coefficient of
determination were 0.752, 0.861, 0.824 and 0.691 for prequalification scores against
over-run in Cost, Time, unsatisfactory deviation in Quality and intrinsic disputes
arising from the contract relationships. To this end, it could be deduced that, the
higher the competence of the contractor to handle a specific project, the more the
score in prequalification based on appropriate objectives and impartial judgments.

Moreover, 75% of the respondents (especially from Africa) confirmed the award of
contract based on lowest bids irrespective of client’s estimates, mostly considering
Project Duration and Quality Performance as secondary, since prequalification gas
provided the level playing ground to mark out contractors’ competence. However,
from a pool of competitors prequalified, only a selected few of proven integrity and
trust of performance competence are allowed to bid based on the impression provided

338
at prequalification. From the selected few, there must always be differences in
competence and capabilities, based on the scores awarded the contractors.

It therefore amount to severe injustice if competent contractors are used to spur

competition in the prequalification and bidding only to be denied gainful employment
at the contract despite the surety to provide better quality jobs at shorter time, even at
cheaper cost at the long run with respect to the project life. To this end, the researcher
opines that the best technique to initiate value for money is to honestly and objectively
consider tender on the bases of standards prescribed in competence and not on initial
contract sum, in order to pot for the best quality money can buy with respect to
prequalification scores. Tender action must therefore consider the factors affecting
tenderers’ bids in relation to client’s estimate which may be subjective. A
reconciliation of the above should redefine the estimate to come with the maximum
value disposable in the project with respect to Cost and Time, perhaps on the bases of
the fundamentals of definitive costing or build-up rates for the prescribed construction
projects.

6. REFERENCES

Banwell Report, (1964), The placing and management of contracts for building and civil engineering
works, Ministry of Building and Works, London: HMSO.
Bertelson Sven (2003): Construction as a Complex System, IGLC – 11. Conference Proceedings.
Chartered Institute of Building, Autumn (1979), Estimating Information Service, No 34, Contractor
Selection, Guide to Good Practice.
Curtis, B., Ward, S., Chapman, C., (1991), Roles, Responsibilities and Risks in Management
Contracting, CIRI special Publication 81.
Dennis, L. (1993): Handbook of Engineering Management, Butterworth – Heinemann Ltd., Oxford.
Dikko H. A. (1999): Open and Competitive Tendering – a holistic approach. The Quantity Surveyors,
Vol. 28, pg 17 – 20.
Drew, D.S., Skitmore, R. M., (1990), Analysing Bidding performance; measuring the influence of
contract size and type; Transactions, The International Council for Construction Research
Studies and Documentation, CIB W - 65, Sydney, Australia, p 129 – 39.
Flanagan, R., (1990): Making International comparisons in the global construction market.
Building Economics and Construction Management Vol. 4, International Comparisons, eds V.
Ireland and R. McCaffer the International Council for Construction Research Studies and
Documentation CIB W-65, Sydney, 230-46, p 232.
Hatush, Z. and Skitmore, R. M. (1997): Evaluating Contractor Pre-qualification data, Selection
Criteria and Project success factors. Construction Management and Economics 15(2), p 129-
147.
Herbsman, Z., Ellis R., (1992), Multi-parameter bidding system – innovation in contract administration,
Journal of Construction Engineering and Management, 118(1), p 167 – 172.
Hillebrandt, P. (2000): Economic Theory and the Construction Industry, Macmillan, London.
Holt, G. D., Olomolaiye P. O. and Harris, F. C. (1995): A Review of contractor selection
practice in the UK Construction Industry. Building and Environment vol. 30 (4) pg. 553 – 561.
Holt, G. D., Olomolaiye, P. O. and Harris, F. C. (1994) Factors Influencing UK Construction clients’
choice of contractor, Building and Environment, 29(2), 241 – 248.
Latham, M (1994), Constructing The Team, Final Report of the Government/Industry Review of
Procurement and Contractual Arrangements in the UK Construction Industry, HMSO, London.
Merna, A and Smith, N. J., (1987), Bid evaluation for UK Civil Engineering Construction Contracts,
Final Report, Science and Engineering Research Council, London.
Merna, A and Smith, N. J., (1990), Bid evaluation for UK Public Sector Construction Contracts,
Proceeding Institute of Civil Engineers, Pt 1, p 91 – 105.
Moore, M. J.,(1985), Selecting a contractor for fast track project, Pt II, Quantitative Evaluation Method,
Pla. Engineering 39 (18) 54 – 6.

339
Moselhi, O., Martinelli,. A., (1990), Analysis of bids using Multiattribute utility theory, Transactions,
The International Council for Construction Research Studies and Documentation CIB W – 65,
Sydney, Australia, 335 – 45.
Nahapiet, H., and Nahapiet J., (1985), A comparison of contractual arrangements for building projects,
Construction Management Economics Vol. (3) p 217 - 31.
Ng., S.T.T., (1992), Decision support System for Contractor Pre-qualification, M Sc dissertation,
University of Salford, Department of Surveying, UK.
Nguyen, V. U.:Tender evaluation by fuzzy sets. Journal of construction engineering and Management
1985 111(3), 231 – 243
Ogunsemi D. R. and Aje I. O. (2004): A Model for Contractors’ selection in Nigeria. The
Nigerian Quantity Surveyor. 9, p 44-53.
Olatunji, O. A. and Aje 2005(a): An Assessment of the use of Prequalification in contractors’
selection in construction project delivery. Challenges for Quantity Surveyor. A Paper Accepted
for 2005 QS National Convention in Malaysia.
Russell, J. S., Hanchler, D. E., and Skibniewski, M. J., (1992):Contractor Prequalification data for
construction owner Construction Management and Economics, Vol. 10, 117-29.
Russell, J.S., and Skibniewski, M. J., (1987), A structured Approach to the Contractor Prequalification
Process in the U.S.A., Proceeding CIB., SBI 4th International Symposium On Building
Economics, Copen
Russell, J.S., and Skibniewski, M. J., (1990), Qualifier-1: Contractor Prequalification Model, Journal of
Computing in Civil Engineering, Vol. 4 (1) p 77 - 90

340
 THE IMPACT OF SEQUENTIAL THINKING IN THE
RISK MANAGEMENT PROCESS
David Greenwood and Keith Hogg
School of Built Environment
Northumbria University
Ellison Building
Newcastle upon Tyne
NE1 8ST
United Kingdom

E-mail: keith.hogg@unn.ac.uk

Abstract: The risk management process that occurs during development and construction
activities can have a significant impact on project success. One important aspect of this
process is the manner in which project risks are evaluated and the impact that heuristics
may have upon the attendant decision making process. In this paper, previous research
relating to belief updating mechanisms is reviewed and examined in the context of the risk
management workshop to investigate the way in which the order of information
presentation may influence the evaluation of identified risks. The paper conjectures that
when groups and individuals are asked to evaluate the same sets of risks the outcomes will
change when inconsistent information is presented in different order. The impact that this
may have upon the risk management process is discussed.

Keywords: Heuristics, Decision-Making, Risk Evaluation, Order Effects

1. INTRODUCTION
The risk management process that occurs during development and construction related
activities can have a significant impact upon tender costs, outturn costs, project value
and therefore, client and constructor satisfaction (see, for example, Baker et al, 1999;
Edwards and Bowen, 1998; National Audit Office, 1999; Office of Government
Commerce, 2003). One key aspect of this process may be the manner in which project
risks are evaluated as a pre-requisite to determining management action. It is
recognised that there are many possible factors that can influence group activity and
personal perception of risk (Sjoberg, 2000; Slovic, 2000). The impact this may have
upon the decision making process that occurs during the risk management process
may be significant.

The list of possible factors that may have a negative impact during decision making
during the Risk Management process could incorporate: limitations on workshop time
forcing error or incompleteness; outdated information; poor communications between
workshop participants; poor management of the risk management process. However,
at the heart of much of the potential difficulties arising during the risk evaluation stage
could be the nature of the process itself. A review of this process highlights the
significance of communication (Bord and O’Conner, 1990; Covello et al., 1989). It
also indicates the impact that heuristics may have upon the decision making process in
environments of uncertainty.

341
The effect that the order of information communication may have upon the manner in
which people form and update opinions (‘belief updating’) has been recognised for
many years and related research has been applied in many areas including
communications and persuasion, decision theory, economics, attitude change and jury
decision making (Hogarth & Einhorn 1992).

The idea that the order of information delivery, from facilitator to workshop
participant, or from client to contractor, consultant to client, or contractor to sub-
contractor, may have an effect on the evaluation of project risks is both intriguing and
relevant to the management of risk in construction projects.

2. METHODOLOGY
A literature review was carried out to establish the potential impact of information
sequence on belief updating in the context of risk management. This included the
consideration of previous research into;
i) the effects of sequential information on belief updating
ii) the risk management process and the evaluation of risk
A number of effects have been observed to have an influence upon individuals’
perception of risk and their subsequent decision-making. Among these is the so-called
order effect. There follows a description of the development of a method for
empirically testing for this effect in the context of construction-related risk assessment
and decision-making.

3. THE EVALUATION OF PROJECT RISK

The practice of formal risk management has grown significantly in recent years as a
key part of the construction project management function, and it is understood to be an
important factor that is critical to the success of projects in providing a method with
which to maintain or improve value for money in construction (Flanagan and Norman,
1993; Chapman and Ward, 1997; Akintoye and MacLeod, 1997).Risk management
provides the opportunity to control the occurrence and impact of risk factors and
provides project participants with better information upon which to make decisions.
An essential stage in this process is the evaluation of project risk.
This stage is crucial since the outcome will determine if a risk is to be ‘managed’ and
(say) incorporated within a project risk register, or ignored. There is also an advantage
in making the risk management process more effective by concentrating on real risks
rather than over viewing a lengthy list of possible occurrences. In order that resources
are not wasted in attending to identified risks that are of low order severity, a filtering
process needs to be in place.
To explore the possible effects of sequential information on the risk management
process it is necessary to have an understanding of how risks are evaluated in practice.
It is neither possible nor sensible to suggest that a rigid process exists in the evaluation
of risk (or, for that matter, where formal risk management is used at all) throughout

342
the construction sector. However, a typical construction risk management environment
is likely to have the following characteristics (Wood and Ellis, 2003);
a) the participation of personnel with a variety of professional backgrounds and
perspectives.

b) the use of Probability / Impact (P/I) tables and an informed and consistent
approach in their application

4. BELIEF UPDATING MECHANISMS

There are several variables that may impact upon the risk evaluation process. These
include inherent risk attitude, risk perception, the need to obtain work, the ability to
manage risk and bear the consequences should it eventuate. However, this paper
considers none of these but looks in detail at a further factor - the possible effects of
information sequence - and in particular the impact this may have at risk evaluation
stage.

There has been much research relating to the possible effects of information order in
belief updating which dates back to the 1920’s (Crano W D 1977). The research has
focused upon the effect that the sequence of information under consideration has upon
opinion formation and subsequent decision-making. The proposition is made that
when opposed pieces of information are presented to a subject, the order in which the
information is considered will influence the resultant opinion or updated belief. If the
subject forms an opinion weighted toward the early pieces of information, a primacy
effect is said to occur, whilst if the subject demonstrates the greater influence of
sequentially later information, a recency effect is exhibited (see Einhorn and Hogarth,
1981). Whilst there is strong evidence supporting the existence of an order effect
phenomenon, there has been disagreement as to the prevalence of either primacy or
recency.

In further work by Hogarth and Einhorn (1992), the effect that certain task variables
have upon primacy or recency is considered. These variables are: the complexity of
the information, the number of items of information, and the timing of the judgement
(i.e. whether a belief is updated after receipt of each item of information or after the
receipt of a series of items of information). By classifying and analysing previous
research accordingly, the authors concluded as follows;
‘..our task analysis of order effects leads to the following conclusions: (1)
response mode makes a difference in the case of Short, Simple tasks. End of
Sequence induces primacy, Step by Step induces recency; (2) primacy seems to
obtain when tasks are Simple but Long (this is also independent of response
mode); and (3) recency is associated with more complex tasks (independent of
response mode)’8

8
It should be noted that this analysis of previous research data incorporated a limited number of previous
studies that utilised complex information.

343
By considering the nature of the task variables appertaining to the information flow
during risk evaluation it should therefore be possible to test for the existence of either
a primacy or recency effect. However, this would be reliant upon the ability to classify
such information in accordance with the set parameters described by Hogarth and
Einhorn (i.e. Simple / Short in series / End of sequence action). Since the nature of
communication during risk evaluation stage is acknowledged to be variable and that
varying participants may perceive such information differently (e.g. ‘complex’ or
‘simple’), further research is required in order to identify and classify information
types and communication styles. At this stage it is considered adequate to
acknowledge the existence of an order effect phenomenon and the fact that task
variables may impact upon the primacy or recency outcomes.

To demonstrate the possible application of the order effect phenomenon upon the risk
process, consider the following hypothetical and simplified scenario.
Table 1: Risk Evaluation – Information Interpretation Exercise
cenario – ‘Green’
The client is a world leading food
manufacturer, requiring a new head office
building in the North West of England and has
purchased a two-acre site adjacent to the
main business district of Manchester.
The client would like to construct a double
basement car park adjacent to an existing
warehouse building but has been advised of
the high risks involved. One of the particular
risks which has been identified concerns
protests from local residents due to noise, dust
and possible damage to their properties. Last
year, on a similar project, the local residents
formed a protest group, which resulted in
significant project delays and financial loss to
a developer.
In acknowledgement of the inevitable
problems arising from the construction of the
basement car park, the client has issued a
personal letter to each resident which states
that;
"I give you my personal assurance that noise,
dust and other disruption will be minimised
during the works, and as a token of your co-
operation, would like to offer you a 30%
discount on any travel or holiday you
purchase from my company in the next 12
months".
Scenario - ‘Blue’
The client is a world leading food manufacturer,
requiring a new head office building in the North
West of England and has purchased a two-acre
site adjacent to the main business district of
Manchester.
The client would like to construct a double
basement car park adjacent to an existing
warehouse building but has been advised of the
high risks involved. One of the particular risks
which has been identified concerns protests from
local residents due to noise, dust and possible
damage to their properties. Last year, on a similar
project, the local residents formed a protest
group, which resulted in significant project delays
and financial loss to a developer.
At a risk management workshop, an engineer
tables a local newspaper article which directly
quotes from an interview with the unofficial
leader of the residents group;
"I am certain that local residents are very
unhappy with the pace of development in the area
and the lack of proper provision by the council to
cope with the problems it causes. We are no
longer satisfied with promises of action".

344
At a risk management workshop, an engineer
tables a local newspaper article which
directly quotes from an interview with the
unofficial leader of the residents group;
"I am certain that local residents are very
unhappy with the pace of development in the
area and the lack of proper provision by the
council to cope with the problems it causes.
We are no longer satisfied with promises of
action".
In acknowledgement of the inevitable problems
arising from the construction of the basement car
park, the client has issued a personal letter to
each resident which states that;
"I give you my personal assurance that noise,
dust and other disruption will be minimised
during the works, and as a token of your co-
operation, would like to offer you a 30% discount
on any travel or holiday you purchase from my
company in the next 12 months".

The reader is invited to consider the above scenarios and reflect upon the possible
impact the information sequence may have on his / her opinion formation regarding
risk evaluation.

The above exercise is not an attempt to replicate a risk management procedure. In

practice, more realistic examples would be forthcoming, but it is not feasible to typify
this process due to the vast range of project types and project situations. The intention
is to demonstrate the possible impact of order effects at the risk evaluation stage – the
moment at which the risk workshop participants first form a judgement of project risk
and develop an early response.

The Impact of Order Effects upon Risk Evaluation

As outlined, there is strong evidence as to the existence of order effects which may
impact upon perception which in turn, with regard to risk management, could
influence risk response.

In addition to their literature review and discussion, Hogarth and Einhorn also outlined
a proposed method for obtaining actual data. The basis of this was a short
questionnaire (Hogarth and Einhorn, 1992). This has been adopted and refined for the
purposes of the investigation outlined in this paper.

5. METHOD
With the objective of obtaining data to support the application of the order effect
phenomenon within the risk management process and to test the application of the
methodology, a pilot questionnaire survey was carried out with full-time and part-time
undergraduate surveying students. The students selected for the survey were from the
final stage of their degree course. As such, nearly all of the subjects have had at least
one year of surveying work experience (much more, in the case of part-time students)
and are thereby considered to be a reliable proxy for practising surveyors, given the
constraints that exist in this initial exploratory study.

345
The surveys were carried out in supervised classroom conditions. An outline
explanation of the process was given to the participating students before sight of the
questionnaire, but without reference to its intent.

The questionnaire was designed to reflect several scenarios, including risk evaluation,
and was presented in two formats, differentiated only by order of information;

Experiment

The experiment was undertaken by utilising 4 project scenarios and with the
application of a 4 * 4 Latin Square arrangement. The total sample comprised 48
students in the final year of a surveying degree programme divided into 4 sub-groups
(Groups A – D) each with 12 students. Four ‘belief updating’ scenarios were used.
Each included information flow relating to: design briefing; property location; office
design; risk evaluation. Using a scale of 0 – 100, subjects were requested to weight the
likelihood of certain stated outcomes following discovery of opposed pieces of
information. The questions were introduced to the sample, step by step or end of
sequence in either Positive - Negative or Negative - Positive order with rotation of the
scenarios for each subject as shown in the diagram below;

Group A Group B
SBS EOS SBS EOS

PN (C) PN (D)
PN (A) PN (B)
NP (B) NP (D) NP (A) NP (C)

Group C Group D
SBS EOS SBS EOS

PN (A) PN (B)
PN (C) PN (D)
NP (D) NP (B) NP (C) NP (A)

Diagram 1: Rotation of Scenario

One of the scenarios was used to examine the impact of information sequence upon
design briefing utilising both a different method and metric. This data has been

346
excluded from this analysis, thus reducing the effective sample size in the overall test
to 36.

6. DATA ANALYSIS

Test A: The overall test, which involved 36 cases produced the following aggregate
response;

Positive / Negative
Mean increase relative to initial judgement 2.50

Negative / Positive
Mean increase relative to initial judgement 5.91

This demonstrates a recency effect, which is indicated in the chart below

80
70 67.75
60 54.39
48.94
50
47.86 49.58 Pos / Neg
40
38.19 Neg / Pos
30
20
10
0
1 2 3

Chart 1: Aggregare Response, Step by Step

52
50.47
50 49.8
48
Pos / Neg
46 46.53 Neg / Pos
44
44.11
42
40
1 2

Chart 2: Aggregate Response : End of Sequence

347
Test B; Risk Evaluation Scenario which involved 12 cases produced the following
responses;

Positive / Negative

Mean decrease relative to initial judgement 4.73

Negative / Positive
Mean increase relative to initial judgement 6.88

This demonstrates a more distinct recency effect, which is indicated in the charts
below

70
61.5
60 55.63
56.88
50
40 35.38
Pos / Neg
39.63 40.63
30 Neg / Pos
20
10
0
1 2 3

Chart 3: Risk Evaluation, Step by Step

60
50.63 53.75
50
45.43
40
41.25 Pos / Neg
30
Neg / Pos
20
10
0
1 2

Chart 4: Risk Evaluation, End of Sequence

348
7. DISCUSSION AND CRITICAL EVALUATION

a) With both the aggregate response and the dedicated risk evaluation scenario, the
results indicate a recency effect. This is relatively stronger in the smaller sample
(risk scenario test).

b) The existence or otherwise of order effects which may be shown by consideration

of aggregate results, does not necessarily mean that the same conclusion can be
drawn for individuals. This aspect has not been considered in this research.
c) For reasons of practicality, the survey has been restricted to final year
undergraduate surveying students. Notwithstanding previous comments relating to
the validity of this sample for the aims of the investigation, the experiment lacks
the involvement of experienced practitioners. It is recognised that the perception of
the information provided in the questionnaire may be viewed differently by
experienced professionals involved in the risk management process and that their
treatment of such information may differ from that of undergraduate surveyors.

d) Since the nature of communication at risk evaluation stage is acknowledged to be

variable and that varying practitioners may perceive such information differently
(e.g. ‘complex’ or ‘simple’), further research is required in order to identify and
classify information types and communication style

8. IMPLICATIONS FOR PROJECT RISK STRATEGY AND

RESPONSE

The principles described above would have a clear impact on the development of a
risk management strategy and establishment of a risk register for any project.
Furthermore, there would be a significant impact in the subsequent stages of the risk
management process - namely, the planning and implementation of risk responses -
which are fundamentally determined by perceived levels of severity. For example,
during the execution of risk management workshops the following severity grading
allowances may be used:

Table 2: Severity grading allowances based on P/I evaluations

Impact
Nil Very Low Mediu High Very
low m high
Nil
Very 1 1 1 2 3
low
Probability

Low 1 1 2 3 4
Mediu 1 2 3 4 5
m
High 2 3 4 5 5
Very 3 4 5 5 5
high

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Similarly, a schedule of corresponding risk responses may also be applied, an example
of which is shown below:

Table 3: Suggested Response / Action for different grades of severity of risk

Grade Risk mitigation actions

5 Actions to reduce risk probability and/or impact to be identified and implemented
before project commencement, or as soon as the project starts.
4 Actions to reduce risk probability and/or impact to be identified and appropriate
actions implemented during project execution.
3 Actions to reduce risk probability and/or impact may be identified and costed for
possible action.
2 Costs of planned mitigation are likely to outweigh the advantages. Risks are
managed re-actively. No pro-active measures needed unless grading increases
over time.
1 To be noted - no mitigation action is needed unless grading increases over time.

Clearly, if the sequence of information impacts upon the risk evaluation and eventual
response, the outcome could be significant. For example, risks that may be considered
to require the response: ‘Actions to reduce risk probability and/or impact to be
identified and appropriate actions implemented during project’ when based upon
information presented in a particular order, could be downgraded to ‘To be noted - no
mitigation action is needed unless grading increases over time’ when the same
information is presented in a different order. In a real project such differences would
have a profound influence on the subsequent level of attention and treatment of that
risk by the project team.

9. CONCLUSIONS AND FURTHER WORK

The outcomes of individual decision-making under uncertainty have been the focus of
research for some time. Allais (1953, 1979), for example, reflected on the apparent
irrationality of supposedly rational decisions, leading to experimental work that has
identified that individuals, types and groups can exhibit attitudes that can be classified
as risk-averse, risk-neutral or risk-taking.

Work by Kahneman and Tversky (1979) has identified a variety of other elements and
situations that seriously influence decisions taken under uncertainty. In short, there are
a number of factors, external to the situation itself that influence risk-related decisions.

This paper, which has focused upon the detailed consideration of two distinct but
related areas, the risk management process and belief updating adjustment, has
allowed the identification and exploration of the possible impact that the sequential

350
flow of risk related information may have upon risk perception and hence, risk
strategy and response.
The discussion in this paper supports the case for considered Risk Management
application and acknowledges that important risk decisions can be influenced by
poorly recognised and understood mechanisms. Risk practitioners in most situations
may be unaware of the effects of heuristics in general, however the impact that this
particular variety may have is clear. Workshop activity should be designed to
accommodate for, and mitigate any negative consequences.
There are many factors that may influence decision-making in the risk management
process. These include those that are transparent from research into practice (e.g. time
availability, lack of skills, risky shift phenomenon) and those that may unconsciously
sway our judgements. Awareness of these factors will assist us in making more valid
decisions when dealing with risk.

10. REFERENCES

Akintoye A.S. and MacLeod, M.J. (1997) "Risk Analysis and Management in Construction"
International Journal of Project Management. 1997 15(1) 31-38.
Allais, M (1953) "Le comportement de l'homme rationnel devant la risque: Critique le Postulats et
Axiomes de L'Ecole Americaine". Econometrica, 21, 503-546.
Allais, M (1979) "The so-called Allais Paradox and rational decision under uncertainty", in Allais, M
and Hagen, O, Expected Utility Hypotheses and the Allais Paradox, Reidel, Dordrecht, Holland.
Baker, S; Ponniah, D and Smith, S (1999) A survey of Risk Management in Major UK Companies.
ASCE Journal of Professional Issues in Engineering Education and Practice. 125 (3) pp. 94-102.
Bord, RJ and O’Conner, RE (1990) Risk communication, knowledge and attitudes: explaining reactions
to a technology perceived as risky. Risk Analysis 10, pp. 499-506.
Chapman, C.B. and Ward, S.C. (1997) Risk Management. John Wiley & Sons, New York.
Covello, VT; McCallum, DB and Pavlova, MT (1989) Effective Risk Communication. Plenum Press,
New York.
Crano W D, (1977); Primacy versus recency in retention of information and opinion change; The
Journal of Social Psychology; 101, 87 – 96.
Edwards, PJ and Bowen, PA (1998) Risk and risk management in construction: a review and future
directions for research. Engineering Construction and Architectural Management, 5 (4), pp. 339-
349.
Einhorn, H J and Hogarth, R M (1981) Behavioral Decision Theory: Processes of Judgement and
Choice. Annual Review of Psychology, Vol. 32: pp.53-88.
Flanagan R. and Norman G. (1993) Risk Management and Construction. Blackwell, Oxford.
Hogarth R M & Einhorn H J, (1992); Order effects in belief updating: the belief-adjustment model;
Cognitive Psychology 24, 1 – 55
Kahneman, D and Tversky, A (1979) "Prospect Theory: An Analysis of Decision under Risk".
Econometrica 47, 263-291.
National Audit Office (1999) Modernising Construction Office of Government Commerce (2003)
Achieving Excellence in Construction Procurement: 4. Risk and Value Management.
Payne J W, Bettman J R, Johnson E J, (1990)‘The adaptive decision maker: effort and accuracy in
choice’ in Insights in Decision Making; Hogarth R M (Ed); The University of Chicago Press,
1990.
Sjoberg, L (2000) Factors in Risk Perception. Risk Analysis 20 (1).
Slovic, P (2000) The Perception of Risk. Earthscan Publications, Sterling, Va., USA.
Wood GD, and Ellis RCT (2003) Risk Management practices of leading UK cost consultants.
Engineering, Construction and Architectural Management, April 2003,vol. 10, no. 4, pp. 254-

351
352
CHALLENGES IN INTEGRATING SUSTAINABLE ISSUES
INTO VALUE MANAGEMENT PRACTICES

Nazirah Zainul Abidin

School of Housing, Building and Planning,

Universiti Sains Malaysia,
11800 Penang, MALAYSIA

Abstract: The attention on sustainability issues is growing due to the demand for better
buildings and infrastructures which are not only friendly to the environment but also care for
the well-beings of the society. Sustainability issues consist of energy efficiency, waste
minimisation, social impacts, good indoor environment, pollution control, life cost, user
comfort and others. Securing commitment to these issues early in the construction project is
vital as it would have significant impact to their attention and integration throughout the
project development. From a research, value management (VM) has been recommended as a
strategic means to integrate sustainability issues at the early stages of the project process.
However, the extensive use of VM for sustainability improvement at present has been
thwarted by three challenges. These challenges were unveiled through a survey conducted in
the United Kingdom and discussions with several VM professionals. This paper discusses
these challenges and proposes ways to alleviate them.

Keywords: Sustainability, Sustainability Issues, Value Management, Project Challenges.

1. INTRODUCTION
The industry and its customers are broadening their interpretation of value, and beginning
to appreciate the subjective nature of it by adding concerns surrounding environment and
society (Thomson et al, 2003). It was argued that sustainability aspects would contribute
to improve project value such as improved quality of output, increase productivity,
profitability, reduction to life cost and business enhancement (Hayles, 2004; BedZED,
2002; CABE, 2002; Addis and Talbot, 2001; WS Atkins, 2001; Stansfield, 2001).
Sustainability issues ranging from environmental aspects to society wellbeing and
expands to improving economic gain. It includes aspects such as energy efficiency, waste
minimisation, social impacts, good indoor environment, durability, pollution control, life
cost, user friendly, user comfort and others. The term sustainability has been adopted to
promote balance between the need to continue in business, but does not seek profitability
at the expense of the environment or society’s needs (MaSC, 2002).

The growing pressure for sustainability increases the need to search and introduce
effective ways to deliver it. Sustainability awareness needs to be raised in the project
process as early as possible as it would influence the decisions made throughout the
project. Theoretically, value management (VM) has potential to assist the absorption of
sustainability in the conceptual and design stage of project process (Zainul Abidin and
Pasquire, 2003). VM is a systematic, multi-disciplinary effort directed toward analysing
the functions of projects for the purpose of achieving the best value at the lowest overall
life cycle project cost (Norton and McElligott, 1995). VM is commonly undertaken at
early stages of the project process to ensure maximum impact in influencing the project’s

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critical decisions, which heighten it potential to raise awareness on sustainability early in
the project process. The series of workshop that tied closely to key stages in the project
development ensure that sustainability agenda does not dissipates as project becoming
more complex. VM has an abundance of techniques within the workshop to achieve the
best solution to satisfy client’s needs at the lowest cost possible. The systematic job plan
can be used to guide sustainability issues during the process effectively. Having
identified sustainability as part of the project objectives, the VM team shall work together
to achieve it within the constraints of the resources available.

From a research, VM has been recommended as a strategic means to integrate

sustainability issues at the early stages of the project process (Zainul Abidin and
Pasquire, 2005). However, the extensive use of VM for sustainability improvement at
present has been thwarted by several challenges. These challenges were unveiled through
a survey conducted in the United Kingdom and discussions with several VM
professionals. This paper discusses these challenges and proposes ways to alleviate them.

2. THE INTEGRATION OF SUSTAINABILITY ISSUES INTO VM

Integration refers to the combination of one or more aspects or elements to form a whole
body. The concept of integration here refers to the combination of sustainability issues
into VM practices to enable those issues be considered and integrated throughout the
whole process and decision-makings in VM. The basic premise of this concept is to
introduce sustainability issues prior to workshop, integrate them into the whole VM
process and incorporate them into the decision made in VM. Being sustainable within
VM involves commitment to (Zainul Abidin, 2005b):

• Economic sustainability – increasing profitability through efficient use of

resources (human, materials, financial), effective design and good management,
planning and control.
• Environmental sustainability – preventing harmful and irreversible effects on the
environment by careful use of natural resources, minimising waste, protecting and
enhancing environment.
• Social sustainability – responding to the needs of people, providing high customer
satisfaction and working closely with clients, suppliers, employees and local
communities.

The consideration of sustainability in VM is expected to affect the scope and focus of the
study. The effects of bringing sustainability into VM are discussed in three levels
according to the three stages of VM workshop: input (at pre-workshop stage), process (at
workshop stage) and output (at post-workshop stage). This is illustrated in Figure 1.

1. The input of sustainability – This refers to VM pre-workshop stage, where the

needs of clients are defined and the information needed for the workshop is
gathered. The importance of sustainability issues to the project need to be make
explicit to attract clients’ interest and stimulate demand for it. Once clients
express commitment for sustainability, they would be included in the statement of
needs to secure the inclusion of these issues in the rest of the VM activities.

354
 Pre-workshop Stage Workshop Stage Post-workshop Stage
= = =
Input of Sustainability Processing Sustainability Output of Sustainability
Working within Quality of
Defining the scope outcome
the scope
Economic Tangible value
benefit
Improving awareness on
sustainability Environmental
protection
Intangible
Social value
well being

Figure 1: The three effects of sustainability integration in VM (Zainul Abidin, 2005a)

355
 2. Processing sustainability – This refers to the workshop stage, where the efforts are
directed to produce the best solution for the clients or when the input is transformed
into output. The consideration given to sustainability at this stage is influenced by the
demand from clients, which has been defined in the input level. Having identified
sustainability as part of project’s objectives, they would be presented to all team
members and included during functional analysis stage. Ideas generated during
creativity phase are evaluated against the defined functions and objectives. The
proposals are then developed and presented to the decision makers, highlighting the
estimated cost savings and the features that protect the environment, social interest
and long term economic return.

3. The output of Sustainability – This refers to the post-workshop stage, where the
outcome from the workshop shall be implemented. The clients would decide to
accept, partially accept or reject the proposal produced from the workshop. If
accepted, plans and strategies will be formulated to implement the proposal. As
shown in Figure 1, incorporating sustainability could lead to the improvement of
tangible and intangible value. Tangible value includes profit, life cost and
productivity, shorter time, quality improvement and others. They are usually the
direct purpose of conducting a VM workshop. Intangible value includes sense of
security, image, responsibility, pride and others, which relates to feelings and positive
appreciation. Intangible values will be the additional advantage to the project. The
effects of intangible value would last longer even after the completion of the
construction works. Both should increases the quality of the proposals and make them
more attractive.

3. CHALLENGES IN INTEGRATING SUSTAINABILITY ISSUES

INTO VM PRACTICES

The Fieldworks

From desk-top study, VM has the capability to be one of the means to promote sustainability
issues into the early stages of project process. Two field works were conducted to investigate
the attention and attitude of VM practices concerning the issues of sustainability. The first
field work is a survey, which aimed to investigate the integration of sustainability issues
within VM practices and the perception of VM practitioners with this subject. A total of 360
questionnaires were distributed to various VM practitioners in the United Kingdom. The
responses were targeted from all three roles of VM practitioners: decision makers (clients or
their representatives), facilitators and team members (multidisciplinary participants). A total
of 120 (33%) questionnaires were returned. The second field work involved discussions and
completion of questionnaire documents by 10 certified value managers. The names of the
value managers were gathered from the Institute of Value Management in United Kingdom.
These two fieldworks produced valuable insights into the extent of sustainability issues being
considered within present practices of VM. One branch of this insight was the challenges that
existed at present, which hinder efficient use of VM for sustainability improvement. The
discussion on the challenges is referred to the combined findings of these two fieldworks.

356
Challenges and Proposed Ways to Alleviate Them

The challenges in integrating sustainability issues into VM can be discussed under three
headings: practical barriers, behavioural barriers and professional liability. Practical barriers
were related to the technicality of VM practice while behavioural barriers were related to the
misperception among VM participants about sustainability. This misperception derived from
the lack of understanding of the agenda and the lack of confidence in or appreciation of VM
to deliver sustainability. Professional liability in this context is related to the limitation of
VM facilitators and other team members in providing advice which could be in contrast with
the interest of VM clients.

Practical Barriers

There are three barriers under this category. The first one is the time limitation. The period
for VM workshops in the UK varies from half day to 5 days. It was also argued that
integrating sustainability issues into VM studies would slow down the progress of the study.
As time is critical in VM, it was argued that addressing the vast issues of sustainability is
difficult. It is undeniable that there are various issues under the theme of sustainability and it
is impractical to address them all in a workshop. Suggesting changes to time frame to
accommodate sustainability consideration seemed irrational, as this time frame has been
widely accepted in the industry. Thus, relevant sustainability issues should be identified
before the workshop phase. Identification of sustainability issues prior to a workshop is
possible through a proper guideline and framework. Active participation of VM practitioners
in promoting these issues would be useful but there is a problem of bias, which will be
discussed under professional liability.

Second barrier is the project variations. Different projects would have different problems,
which require unique consideration and driven by different project drivers. The focus on
sustainability-related issues in one project and the focus of a VM workshop conducted in a
project are depending on these drivers. Thus, VM workshop conducted in a project with less
interest on sustainability would have difficulty in addressing these issues in the workshop.

The third barrier is the absence of formal or standard guidelines for sustainability. Some
practitioners have their own internal guide for sustainability in their VM practices, which are
confidential. Some VM practitioners have been referring to assessment tools in the UK
industry such as BREEAM, KPI, Ecohomes rating system, BRE sustainability checklist,
CEEQUAL and BSRIA code of environment practice to guide the consideration issues of
sustainability in the practices. The variety referral of guides lead to uneven integration of
sustainability issues in VM as revealed in the survey (Zainul Abidin and Pasquire, 2005). It is
recommended to produce a standard guideline, which should be applicable to all VM
workshops.

Behavioural Barriers

Behavioural barriers include the lack of awareness on sustainability among VM participants

and the reliance on clients’ demands for sustainability. The lack of awareness on
sustainability is resulted from the lack of this knowledge being diffused in the VM studies.
Sustainability knowledge would help the VM practitioners to understand the importance of
pursuing sustainability in their projects and shall provide the platform to broaden their

357
knowledge in environment and social issues. If sustainability knowledge can successfully be
disseminated into VM, the awareness among VM participants could be improved.

The level of consideration of sustainability is also affected by the clients’ demands and their
commitment. The notion that VM is bound to satisfy the client is understandable because
they commission the services. However, clients may not have the adequate knowledge to
drive them into demanding sustainability.

To a certain extent, every VM workshop must include some level of sustainability elements,
if value is to be enhanced. However, due to the behavioral barriers discussed above, plus the
absence of guidelines, the absorption of sustainability might be kept to a minimal level. The
cycle of responses, perpetuating a lack of sustainability consideration, is illustrated in Figure
2.

1 – Lack of
knowledge, and
awareness

4 – Lack of 2 – Lack of
sustainability promotion by VM
consideration facilitators

3 – Lack of demand
by clients

Figure 2 : The cycle of response for sustainability

• Position 1 : Due to lack of awareness and understanding of the relationship of

sustainability to VM, sustainability is not widely addressed;

• Position 2 : As a result, VM facilitators do not actively promote sustainability in their

practices;

• Position 3 : Since sustainability is not promoted, the clients are not aware of or do not
appreciate the benefits and hence, do not demand it; and

• Position 4 : Since the clients do not demand higher sustainability targets, its
consideration within VM practice is kept at minimal level. Existing appreciation of
sustainability is maintained resulting in a return to position 1.

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The field studies also unearthed misleading perceptions about sustainability issues and VM
agenda. They were treated as two separate issues. Many practitioners believed that
sustainability has a separate agenda, which may not go hand in hand with VM objectives.
When this happened, sustainability easily becomes a burden and integrating sustainability
was felt to mean adding more tasks to the participants. It is important to realise that
sustainability issues are part of VM scope and have been frequently appeared in VM
workshop under various project needs.

Professional Liability

A circle of blame occurred when the VM practitioners were asked about their share in
encouraging sustainability aspects in VM. The VM facilitators and the team members
argued that sustainability issues will be considered in VM if the clients demand for it or if it
is a part of the problem in hand that need to be overcome. The clients, on the other hand,
stated that they were unaware of sustainability issues and thus did not demand for them.
From theoretical perspective, the VM facilitators hold a strategic position to encourage
clients to pursue sustainability and to relay these issues to the team members. However,
from the fieldworks, it was revealed that the facilitators were less enthusiastic in
encouraging the clients on sustainability due to the possible consequences of providing
advice and wanted to avoid raising conflicting interest in VM. The facilitators were worried
that that this could stimulate bias to value drivers and risking facing professional liabilities.
The integration of sustainability issues into VM needs to be handled without causing
conflict with the client’s other interests. Sustainability issues should be discussed by
relating them to the other value drivers so that the clients would see how these issues would
be prudent in achieving their main drivers. The facilitators’ professional liability could be
reduced if the issues were delivered after discussion with the rest of the team members.

4. RECOMMENDATIONS

Several ways have been identified as part of the effort to overcome the challenges
discussed above. Among those are:
• Search for ways to raise sustainability issues early in the VM practices;
• Seek ways to incorporate sustainability issues effectively within the defined time frame;
• Introduce a guide for sustainability for VM practitioners;
• Search for effective ways to encourage sustainability issues without posing liabilities to
VM facilitators
• Promote clients’ interest on sustainability;
• Prove VM capability as mechanism to deliver better sustainable value to stimulate
confidence; and
• Formulate strategies for effective sustainability inclusion within VM process.

5. CONCLUSIONS

Sustainability consideration should be effectively managed early in the project process to

obtain optimum advantage. Integrating sustainability early in the project process will affect
the manner in which the project will be conducted. For sustainability to flourish, project

359
practitioners must learn to think of new ways to embed sustainability thinking in the project
process and become part of its culture. VM has been identified as having the potential to
deliver sustainability for projects owing to its utilisation of diverse knowledge resources,
professional disciplines and stakeholders, facilitated environment, strategic timing and
effective processes. The consideration of sustainability in VM is expected to affect the
scope and focus of the study. There are three levels of effects for bringing sustainability
into VM. These effects were discussed according to the three stages of VM workshop:
input (at pre-workshop stage), process (at workshop stage) and output (at post-workshop
stage). It is suggested that the decisions made on sustainability issues before the workshop
takes place will influence the rest of VM process and will affect the extent of sustainability
issues being considered in VM. However, the extensive use of VM for sustainability
improvement at present has been thwarted by several challenges which are divided into
three categories: practical barriers, behavioural barriers and professional liability. Having
identified the barriers in present practices, improvement can be pursued for more efficient
use of VM for sustainability improvement in the future.

6. REFERENCES
Addis, B. and Talbot, R. (2001), Sustainable Construction Procurement: A Guide to Delivering
Environmentally Responsible Projects, CIRIA C571, CIRIA, London.
BedZED (2002), BioRegional Zero Energy Development, http://www.bioregional.com/zero, (for online
resources)
Commission for Architecture and the Built Environment (CABE) (2002), The Value of Good Design:
Public Perception, http://www.cabe.org.uk/pdf/TheValueof GoodDesign.pdf, (for online
resources)
Hayles C. (2004), The Role of Value Management in the Construction of Sustainable Communities, The
Value Manager, 10(1), http://www.hkivm.com.hk/publications/04/TVM2004-1.pdf, (for online
resources)
MaSC (2002), Managing Sustainable Companies (formerly known as Managing Sustainable Construction
- Profiting from Sustainability), http://projects.bre.co.uk/masc/pdfs/masc_brochure.pdf, (for
online resources)
Norton, B. R. and McElligott, W. C. (1995), Value Management in Construction: a Practical Guide,
London, Macmillan Press.
Stansfield K. (2001), Setting a New Agenda for Sustainable Construction, Structural Engineer, 79 (12), 19
June, 14 – 15.
Thomson D.S., Austin S.A., Mills G.R. and Devine-Wright H. (2003), Addressing the Subjective View of
Value Delivery, The Proceedings of the RICS Foundation Construction and Building Research
Conference, 1 – 2nd September, University of Wolverhampton, 197 – 213.
WS Atkins Consultants (2001), Sustainable Construction: Company Indicator, CIRIA C563, CIRIA,
London
Zainul Abidin N. (2005a), Using Value Management to Improve the Consideration of Sustainability
within Construction, Ph.D. Thesis, Loughborough University, United Kingdom.
Zainul Abidin N. (2005b), The Integration of Sustainability into Value Management: Introducing a
Conceptual Model, Proceedings of 2005 Internation Conference on Construction and Real Estate
Management, Penang, Malaysia, Vol. 1, 682 – 687
Zainul Abidin N. and Pasquire C.L. (2005), Delivering Sustainability Through Value Management: The
Concept and Performance Overview, Engineering Construction and Architectural Management,
12(2), 168 - 180.
Zainul Abidin N. and Pasquire C.L. (2003), “Moving Towards Sustainability Through Value
Management”, Proceedings of the Joint International Symposium of CIB Working Commissions
W55, W65 and W107, Singapore, October, Vol. 2, pp. 258-268.

360
 DETERMINING THE ROLE OF INNOVATION
MANAGEMENT IN FACILITIES MANAGEMENT
Sonia Goyal1 and Michael Pitt 2

¹School of the Built Environment

Faculty of Technology and Environment
Liverpool John Moores University
Byrom Street
Liverpool
Merseyside
L3 3AF
United Kingdom

²School of the Built Environment

Faculty of Technology and Environment
Liverpool John Moores University
Byrom Street
Liverpool

E-mail: : S.Goyal@2005.ljmu.ac.uk

Abstract: Innovation today can be best described as being fundamental to corporate success. In
recent years it has also been expressed as key to survival. Most work has concentrated on the
numerous external and internal factors that are associated with generic innovation but more
recently some attention has been paid to innovation in the management of multiple supplier
contracts. The importance of understanding the concept of innovation is beginning to be realised
as the flawed logic that innovation is coincidentally linked to information technology (IT)
solutions are exposed. This paper explores the concept of generic innovation and suggests that
these concepts apply equally within the FM role driving its role as a dynamic business tool. It
moves away from the classical view of continuity planning which looks at damage limitation in
everyday and emergency damaging business events and aims towards defining best practice in
supplier contract management to find, maintain and protect the optimum position rather than
simply limiting the damage. The paper concludes that the role of innovation management in FM
is not about producing innovative solutions but about the provision of a creative environment in
which solutions can be conceived, developed and applied.

Keywords: Business, Contracts, Facilities, Innovation, Management

1. INTRODUCTION

The capacity for strategy innovation is within the capabilities of any organisation (Bate and
Johnston 2005). Deconstructing the innovation process involves consideration of a chain of
common and numerous internal complex processes providing function and support to sustain
organisations and respond to change (Alexander et al 2004). Alexander et al (2004) further
supports the perceived importance of innovation by stressing that the productivity of a
worker is less frequently measured by how many “widgets” he or she produces but
increasingly by how many successful ideas he or she conceives and implements. Over the
past half a century a number of different models of innovation have emerged. The concept of
innovation today is fundamental to corporate success. It is also commonly viewed as being

361
 key to business survival. In today’s rapidly changing business environment a company
cannot long maintain its market share or profits unless it is innovative (Doyle and
Bridgewater 1988). Naughton (2004) supports this view and confirms that the concepts upon
which the modern theory of innovation is based can be attributed mainly to advances in
technology, changing customer needs, shorter product life cycles and global competition
which have transformed the definition of innovation from one of luxury to practical
necessity.

Burgelman (1996) states that since World War II, innovation has been the norm; technology
based innovations coming in rapid sequence, have been seen as the crucial source of
prosperity, fundamental to business success and the remedy of all business problems.
However, the solutions sought are not always and at all times advantageous. The criteria for
success in the past cases should be applied to future outcomes. A lot of stress is given on the
need to identify management criteria which effectively distinguish between profitable and
unprofitable new technologies and that these criteria have utility in assessing innovation in a
wide variety of cases.

Change agents are transforming today’s workplaces, allowing people in innovation

leadership positions to take their seat at the table along with top managers (Naughton 2004).
Innovation can therefore also be described as the result of a complex set of processes, which
also depends on the organisation’s marketing ability, its strategy, the resources, networks
and processes it builds, together with the culture and leadership in the firm (Doyle and
Bridgewater 1988).

For an organisation which does not innovate or encourage its employees to work towards
new product development, alterations and changes, the lesson is clear and that is either to
innovate or fall behind, this is further confirmed by Naughton (2004) who highlights that
time has come to convert challenges into opportunities. Doyle and Bridgewater (1988)
explain the importance of continuous innovation and change by explaining that if a
company’s product or services are not continually improved, competitive pressures
invariably lead to falling prices, declining margins and the commoditization of its offer.
Doyle and Bridgewater (1988) lay stress that innovation should be regarded as the critical
path to achieving growth in sales and profitability (Refer figure 1).

INNOVATION

Culture Strategy Leadership Market Systems and Resources

orientation processes

Technology
acquisition

Figure 1: Set of processes that result in innovation

Source: Doyle and Bridgewater (1988)

362
2. THE MEASUREMENT OF INNOVATION SUCCESS
Burgelman (1996) stresses that the determinants of success can be found both in technology
and the business context and enlists various factors that should be taken into account while
assessing innovation success;

• There must be an application for the new device, product or system, which is waiting
for it.
• Consideration must be given to the operational consequences of the new technology
or system on the manufacturing marketing or distribution.
• The extremity of market dynamics is given high importance, which according to
Burgelman (1996) is often highly complex in nature and extremely important too.
Criteria with relation to market dynamics is based upon three questions which are;

1) Does the product incorporating new technology provide enhanced effectiveness

in the market place serving the final user?

2) Does the operation reduce the cost of delivering the product or service?

3) Does latent demand expansion or price elasticity expansion determine the

characteristics of new market?

Table 1: Types of Innovation

Type of innovation Example
Product innovation The development of a new or improved product
Process innovation The development of a manufacturing process
Organisational innovation A new venture division; a new internal communication
system; introduction of new accounting procedure
Management innovation Total quality management (TQM) systems, Business
process re-engineering (BPR)
Production innovation Quality circle; just-in-time (JIT) manufacturing
system; new production planning software
Commercial / marketing innovation New financing arrangements; new sales approach
Service innovation Internet based financial services
Source: Trott (2005)

Why innovate?
D’Aveni (1994) stresses that companies today should focus more and even harder on being
innovative especially because of the unending and increasing stream of knowledge that
keeps the marketplaces in incessant motion. Innovation today should be treated by all
organisations as highly critical and vitally important for most firms to embrace in order to
create and sustain a competitive advantage. The pivotal role of innovation to
entrepreneurship and business success within the increasingly knowledge based and hyper
competitive environments has made it even more necessary for all to understand and adapt
innovation (Johannessen 2001).

Time has come when it is essential for the established companies to prepare themselves for a
future that brings with it immense competition. Organisations should be ready to face market
pressures, which will make the pressures of the 1980s and 1990s look tame by comparison.

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It is here that organisations need to realise how powerful forces are aggregating once-
distinct product and geographic markets, enhancing market-clearing efficiency, and
increasing specialization in the supply chain. They should respond by adopting a new
approach to strategy—one that combines speed, openness, flexibility, and forward-focused
thinking. It is an era of new opportunities and regeneration especially for executives who
realise the importance of change and innovation, for mature companies, which acknowledge
that the time for slow change is over and it is important to accept changes in their own best
interest. To survive it is essential that companies must be able to adapt and evolve.
Businesses operate with the knowledge that their competitors will inevitably come to the
market with a product that changes the basis of competition, the ability to change and adapt
is fundamental to survival (Trott 2005).

3. THE PROCESS OF INNOVATION

Rapid innovation requires an effective process. “ The process of innovative search and
selection, exploration of the cycles of divergent thinking and convergence (Leonard and
Sensiper 1998). Innovation according to Kotelnikov and Ten3 East-West (2005) is the key
driver to advantage, growth and profitability. The mechanism of innovation and change as
defined by Naughton (2004) is a systematic process that should be aligned with business
strategy and eventually grows out of the core strengths of the organisation. From the largest
public corporation to the smallest private company, the requirements for successful
innovation are the same (Naughton 2004);

1. Leadership with vision: The most innovative organisations are run by leaders who
not only see the possibilities of the future but who know how to communicate that
vision to their employees.
2. Deeply rooted values: An organisation’s values provide the foundation for its
strategy and strategy provides the road map to innovation.
3. Inclusive culture: The most innovative cultures empower employees, welcome ideas,
celebrate success and tolerate risk.
4. Focus on the customer: The secret of value-added innovation is to put the customer
at the centre of everything. Naughton (2004) accentuates that the ultimate power in
the business lies with the customers. Understanding the customer’s needs and
creating an organisation that successfully delivers a product or service that meets the
need is something that the successful business person never looses sight of.
5. Open communication: Innovation thrives with the free flow of information from the
top to the bottom and vice versa.
6. Collaboration: The best innovation comes from interaction and the power of
teamwork that makes the whole greater than the sum of its parts.

It is not always necessary that innovation or innovative ideas come out of a few brilliant
people; it is all about getting the most out of many people working in the organisation.
Technology amelioration and progressions, increasing changes in nature of customer
demands and the much talked about global competition have also contributed to a large
extent in the ‘rate of change’. Recent studies done by Hamel and Prahalad (1994) as cited
in Trott (2005) suggest that listening to customer could lead to technological innovation and
play an instrumental role in long-term business success. Hamel and Prahalad (1994)
accentuate that to be successful in industries characterised by technological change and in

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order to exist in the competitive environment, firms may also be required to pursue
innovations that are not actually required by their customers.

4. MODELS OF INNOVATION
Cooper (1998) in his multidimensional model of innovation suggests that innovations are
not so much either/or, but that a given innovation possesses the characteristics of various
types at the same time, this is also a more reasonable and justifiable approach towards
innovation than what it has been in the past few years. Cooper’s (1998) model proposes that
all the dimensions and facets to innovation are important but only if they co-relate in total
and to the other dimension that exist for a given innovation

The activity of innovation can be further sub-divided into six different categories these are
(Johannessen 2001):

• New products, new services, new methods of production, Opening new markets, new
sources of supply and new ways of organising.

When a firm adopts a new technique for assembling a given product, it has a technological
dimension, since it directly influences the basic output processes of the organisation (Daft
1978 as cited in Cooper 1998). The same innovation also constitutes a process innovation,
since the firm uses this technique in production of an end product (Zaltnam et al 1973 as
cited in Cooper 1998). This innovation must also be assessed in terms of radical/incremental
dimensions based on the extent to which it departs from existing techniques within the firm
(Ettlie et al 1984 as cited in Cooper 1998).

5. INNOVATION IN SUPPLY CHAIN

Supply chain can be defined as the sequence of processes and activities that are involved or
performed in an entire manufacturing cycle or in a complete distribution cycle, this was also
known as operations management earlier and most of the components that form a supply
chain were a part of operations management. However, with the changes in the business
environment along with variations in the entire manufacturing and distribution cycle
operations management now is better known as supply chain management, which Frank
(2000) defines as more of a new management speak that reflects the significant changes that
have taken place due to changes in the business environment. Various other factors that have
an affect on the changing business environment as per the findings of Frank (2000) are as
follows:

1 Increase in globalisation
Increase in dependency, Money transfer, Knowledge transfer
2 Savage price competition
3 Increased customer demand of higher and better quality of final good and services
4 Changes in technology

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6. NEW FORMS OF WORKING AND TRADING, E-COMMERCE,
INCREASED OUTSOURCING

Supply chain management though mostly used in manufacturing and retail sector has now
started gaining its due importance in facilities management. Adopting a knowledge
management view to the above, Barret and Sexton (1998) as cited in Alexander et al (2004)
define it as ‘the explicit creation and systematic management of vital knowledge into supply
chain knowledge that can be shared with key members of the network and appropriately
applied to add value.’

Frank (2000) states that few examples of innovative approaches to parts of the supply chain
include:

Mass customisation: where the buyer chooses his/her individual form of product like in the
case of Dell Computers, where an individual places an order for a specific configuration of
computer, which is assembled to that order and shipped directly to the customer

Online bidding: defined to be as the new model of procurement in, which the manufacturer
sends a specification and drawing to a number of potential suppliers and then hold multiple
bidding rounds until a mutually agreed price is reached within the parameters of bidding
process.

Shared distribution linked back to production: the use of a shared warehouse to supply a
number of retailers is common but changes is technology now allow the data acquired at the
warehouse as shipments are made to retailers to be aggregated and used to generate
automatic replenishment orders to the manufacturers. According to Frank (2000), an
efficient supply chain network can provide:

1 An ability to source globally: access to more resources, knowledge, and innovative

capabilities
2 Online, real time information networked around the organisation giving full supply
chain visibility: e-auctioning
3 Information management across, rather than just within the organisational
boundaries: knowledge sharing across the organisational boundaries
4 An ability to offer ‘local’ products globally: increasing market share and awareness
5 Improved customer response times
6 Lower inventories
7 New products reach market in less time as compared to before

According to Desbarats (1999) by examining attitudes along the innovation supply chain,
the required changes can be clearly figured and also know that how each discipline helps the
collective to deliver better consumer experiences. This requires better understanding of
current attitudes. Desbarats (1999) summarizes the changes in following attitudes:

Marketing: having a core strategic responsibility towards customer supplier relationship,

marketing personnel need to set clear goals for others to understand and follow willingly in
order to achieve well-managed consumer experiences.

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Industrial design: specifications created by modern designer add. Frank (2000) further
suggests that innovation can take place at both design level or at the process level. Designer
needs to be proactive in seeking potential barriers to implementation.

Engineering development: engineers need to add more value and develop professional
instincts in order to escape from becoming low value commodity professionals, this would
also require closer collaboration with the designers

Manufacturing: To remain integrated with marketing, manufacturing needs to deliver

strategic advantage that can be easily perceived by the consumers. High flexibility
sometimes works better than high productivity.

Distribution channels: retailers and distributors always have vast knowledge of what sells,
as they are closest to the consumer. To create a balance between the retailers and the
manufacturers is always difficult and the higher margins always goes to player who
dominates the consumer experience.

Investors: Investors need to recognise the value-adding potential of customer knowledge and
perceived reputations or brands and need to invest in building knowledge equity in these
areas. Internal and external commercial relationships along the innovation supply chain need
to be run on a commercial partnership basis with an equal emphasis on both short and long
term goals (Desbarats 1999). Stroeken (2001) insists that in today’s fast changing business
environment it is extremely essential for all organisations to understand the link between IT,
innovation and supply chain structure. In his research of supply chain management, Stroeken
(2001) concludes that the conditions for success in IT, innovation and supply chain structure
concern the extent of vertical and horizontal integration, the comparative importance of
information, the extent of (international) pressure and innovative regulations. The extent of
strategic and organisational insight done by management and personnel also hold great
importance according to Stroeken (2001).

The business aspect

Alexander et al (2004) accentuate that supply chain management involves long term
strategic planning and is a method of managing the delivery of services effectively and
efficiently to deliver services that are faster, better and cheaper. Alexander et al (2004)
summarize the benefits of implementing supply chain management as following:

1 Better knowledge and understanding of market trends and key customers needs
2 Better understanding of supplier capabilities
3 Enhanced problem solving
4 Faster response times
5 Flexibility and a strategic capability to plan and innovate
6 Improvement in forecast accuracy
7 Improvement in inventory reduction
8 Lower operating costs and reduction in real costs
9 More efficient and effective use of technology
10 Shared risk
11 The development of environmentally sound service
12 Waste reduction and more effective use of resources and skills
13 Free up of working capital realised through supply chain management efficiencies

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 14 Maximisation of asset return
15 Increased capacity to innovate within the supply chain as knowledge is shared along
the supply chain
16 Opportunity to refocus on the interface with users

The above is explained more clearly by Alexander et al (2004) using the example of AMEC
Facilities, who found real benefits in undertaking supply chain management, including the
following (O’Halloran, 2001 as cited in Alexander et al, 2004):

1 15-20 per cent cost reduction

2 96% customer satisfaction
3 Reductions in lead times and fault levels
4 Improved service at reduced costs
5 Financial control
6 Service linked to business drivers
7 Payment linked to performance
8 Full commitment to a service culture
9 A forum for intellectual exchange
10 A common vision and goal
11 A virtual company concept
12 Mentoring at company and individual level
13 Rewarding success
14 Embracing change as a way of life

The above example was given by Alexander et al (2004) to firmly suggest that not only
supply chain management is highly relevant to facilities management, involving
management of network of suppliers and several supply chains but it also adds value to both
client organisation and also to the service provider as not only costs are reduced whilst
improving quality but also risks are shared and managed through the supply chain, thereby
giving an obvious ‘win –win’ situation.

7. CONCLUSION
Innovation is something more than a mere change (Slappendel 1996 as cited in Johannessen
2001). The vast amount of literature that addresses the increasing significance of innovation
as an important entrepreneurship tool has till date not been able to yield a widely held
consensus regarding how to define innovation. Johannessen (2001) supports by stating that
organisation, in addition to a good working definition also lack in their knowledge of
beneficial methods of innovation. Kotabe and Swan (1995) acknowledge that one of the
greatest obstacles to understanding innovation is lack of a meaningful structure and
measures, which impede the theory development process making it hard to advocate
applicable and relevant interventions for firms seeking to pursue innovations and changes.
(Christiansen 2000) conclude that innovation systems and procedures can be improved if the
managers running them carefully identify the systems and practices that are not operating
optimally and proceed to change step by step. The wishful thinking of having immediate
results and no failures hamper the want to innovate and change. It is essential for the
managers wanting to improve innovation performance to not just blindly apply the first
technique that they encounter or think to be as a change/innovation, or methods, which have

368
been successfully adopted by their competitors. Important is to determine whether those
innovative techniques or methods are appropriate for their own company or organisation or
not. The success of an innovation, therefore, is determined more by the extent of its adoption
than by what who originates it or how technologically advanced it is, what makes it
innovative is its newness (Johannessen 2001).

Innovation in FM: Facilities Management-Defining Future:

Facilities management has come a long way in a very short time. It has a long way to go: the
key challenges can be listed as below (Becker, 1990):
1 Defining and measuring FM performance in a way that acknowledges both the need
to contain costs and provide high quality service to management and rank and file
workers.
2 Encouraging ongoing staff development and training, including career paths that will
attract and challenge the best and brightest minds within the organisation.
3 Developing and supporting a research tradition that provides management with an
informed basis for making critical FM decisions.
4 Moving beyond tight fit model of the facility organisation to one that embraces
diversity and can cope with change without sacrificing individual, group and
corporate needs for control and identity.
5 Collecting and communicating information to top management that demonstrates the
ways that FM can help the organisation meet its basic business objectives.

Grimshaw (1999) explains that there exists a delicate relationship and interface in which the
traditional relationships are now breaking down, and only if the potential conflicts are
understood, and redefined, will FM be able to come to terms with itself and its future.
Facilities management is not only about reducing the running costs of buildings or
maintaining them, efficiency, management of space and other related assets for people and
processes also form an important part such that the missions and goals of the organisation
may be achieved. Innovation in FM can occur in an in-house or outsourced operational
context. The most likely environment where innovative FM solutions will thrive is one of
competition. This is one of the principal advantages of the outsourced FM solution. D’Aveni
(1994) stresses that companies today should focus more and even harder on being innovative
especially because of the unending and increasing stream of knowledge that keeps the
marketplaces in incessant motion. Innovation today should be treated by all organisations as
highly critical and vitally important for most firms to embrace in order to create and sustain
a competitive advantage. In FM service providers need to be in a process of continual
innovation and improvement in order to meet the demands of the client or client group.
Hence competition within the FM field may be defined as originating within the aspirations
of the client group. It is passed on as a demand through the aspirations of the client. The
pivotal role of innovation to entrepreneurship and business success within the increasingly
knowledge based and hyper competitive environments has made it even more necessary for
all to understand and adapt innovation (Johannessen 2001).

It is essential for the established supplier companies to prepare themselves for a future that
brings with it immense competition. Organisations need to realise how powerful forces are
aggregating once-distinct product and geographic markets, enhancing market-clearing
efficiency, and increasing specialization in the supply chain. They should respond by
adopting a new approach to strategy—one that combines speed, openness, flexibility, and

369
forward-focused thinking. It is an era of new opportunities and regeneration especially for
executives who realise the importance of change and innovation, for mature companies,
which acknowledge that the time for slow change is over and it is important to accept
changes in their own best interest.

To survive it is essential that companies must be able to adapt and evolve. Businesses
operate with the knowledge that their competitors will inevitably come to the market with a
product that changes the basis of competition, the ability to change and adapt is fundamental
to survival (Trott 2005).

8. REFERENCES

Alexander, K, Atkin, B, Brochner, J and Haugen, T (2004) Facilities Management Innovation and
Performance. Taylor & Francis.
Barret, P and Sexton, M (1998) Integrating to Innovate: report for the construction industry council, London:
Construction industry council
Bate, J D and Johnston, R E (2005) Strategic frontiers: The starting – point for innovative growth. Strategy &
Leadership, 33 (1), 12-18.
Becker, F (1990) The total workplace: Facilities management and the elastic organisation, Van Nostrand
Reinhold, New York, NY
Burgelman, R A (1996) Strategic management of technology and innovation. 2ed. Irwin.
Christiansen, J A (2000) Competitive Innovation Management, techniques to improve innovation management.
Macmillan Business.
Cooper, J R (1998) A Multidimensional Approach to the Adoption of Innovation. Management Decision,
36(8). MCB University Press. 493-502.
D’Aveni, R (1994) Hypercompetition: The Dynamics of Strategic Manoeuvring. New York: Basic Books.
Daft, R L (1978) A dual-core model of organisational innovation. Academy of Management Journal, 20, 193-
211 in Cooper, J R (1998) A Multidimensional Approach to the Adoption of Innovation. Management
Decision, 36(8), 493-502.
Desbarats, G (1999) Insight from industry: The Innovation supply chain, Facilities, 4(1), 7-10
Doyle, P and Bridgewater, S (1988) Innovation in Marketing. The Charted Institute of Marketing. Elsevier
Butterworth Heinemann.
Ettlie, J E, Bridges, W P and O’Keefe, R D (1984) Organisational strategy and structural differences for radical
versus incremental innovation. Management Science, 30, 982-95 in Cooper, J R (1998) A
Multidimensional Approach to the Adoption of Innovation. Management Decision, 36(8), 493-502.
Frank, J (2000) Supply chain innovation, Work Study, 49 (4), 152-155.
Grimshaw, B (1999) Facilities Management: The Wider Implications of Managing Change, Facilities, 17(½),
24-30
Hamel, G and Prahalad, C K (1994) Competing for the Future. Boston: Harvard Business School Press.
Johannessen, J A, Olsen, B and Lumpkin, G T (2001) Innovation as newness: what is new, how new, and new
to whom? European journal of Innovation Management, 4 (1), 20-31.
Kotabe, M and Swan, K S (1995) The role of strategic alliances in high technology and new product
development. Strategic Management Journal, 16(8), 621-636.
Leonard, D. and Sensiper, S (1998) The Role of Tacit Knowledge in Group Innovation, in Kotelnikov, V and
Ten3 East-West (2005) Innovation Process. www.1000ventures.com, accessed on 18th January.
Naughton, D (2004) Innovation & Learning – Value through Innovation. Facilities Manager, 20 (6) Nov.-Dec.
article featured in www.appa.org/facilitiesmanager, accessed on 18/01/05
O’Halloran, M (2001) Presentation on supply chain management, London:AMEC as cited in Alexander, K,
Atkin, B, Brochner, J and Haugen, T (2004) Facilities Management Innovation and Performance. Taylor
& Francis.
Slappendel, C (1996) Perspectives on innovation in organisations. Organisation Studies, 17 (1), 107-29.
Stroeken, J H M (2001) Information Technology, Innovation and Supply chain structure, International Journal
of Services Technology and Management (IJSTM), 2(¾)
Trott, P (2005) Innovation Management and New Product Development. Prentice Hall.

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Zaltman, G, Duncan, R and Holbek, J (1973) Innovations and Organisations. New York, NY: Wiley in
Cooper, Juett R (1998) A Multidimensional Approach to the Adoption of Innovation. Management
Decision, 36(8), 493-502.

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372
 THE OPERATIONAL RESEARCH FRAMEWORK FOR
SAFETY CULTURE OF THE MALAYSIAN
CONSTRUCTION ORGANISATION

Faridah Ismail1 and Johan Victor Torrance Abdullah2

1
Department of Quantity Surveying
Faculty of Architecture Planning and Surveying
Universiti Teknologi Mara
40450 Shah Alam
Malaysia
2
Department of Building
Faculty of Architecture Planning and Surveying
Universiti Teknologi Mara
40450 Shah Alam
Malaysia

E-mail: farid346@salam.uitm.edu

Abstract: The purpose of this research is to increase the understanding on safety culture since
there is no universally accepted model has yet been established to enable the profession to
quantify and analyze safety culture. The literature review reveals that a psychological
conceptual model is available and necessary to reflect a wide range of safety-related evidence
in the development of the measurement tools where this body of evidence reveals the
presence of a dynamic reciprocal relationship between cognitive, behavioural and situational
factors. Previous studies pointed out that there are common set of organisational, management
and human factors that are being regularly included in measures of safety culture. The initial
reviews also demonstrated that the scales used vary significantly in almost all aspects i.e.
content, style, statistical analysis, and sample size, sample composition (workers, supervisors
or managers), industry and country of origin. However the individual factors that influence
the safety culture as well as the relative importance of these influencing factors are not
understood by most organisations. This study hopes to contribute to the development of a
framework to operationalise the concept of safety culture that will allow safety culture to be
uniformly understood and used by all interested parties. This study is an ongoing research
undertaken by the researchers to determine the safety culture profile of the Malaysian
construction organisation.

Keywords: Safety Culture, Operationalisation, Construction Organisation

1. INTRODUCTION

Safety culture has received a great deal of attention in the international safety literature ;
(Uttal 1983; Smircich 1983;Louis 1985;Schein 1985; Berends 1996;Pidgeon 1991;Lee
2000;Weigmann 2002;Cooper 2002).According to DeJoy (2005), there are at least three
factors driving the current interest in the safety culture; safety is heavily shaped and
influence by the decisions and behaviours of those who manage and provide leadership
for the organisation. In spite of the conceptual and measurement problems, considerable
empirical support found showing that management and organisational factors are
important to safety (e.g. Hale and Hovden 1998:Hofmann.et.al, 1995: Shahnnon.et.al.,

373
2001: Vredenburgh 2002).The second reason involves the growing recognition that there
are limits to the safety benefits that can be achieved through engineering measures and
through traditional personnel and policies actions (Hale and Hovden, 1998; Saari, 1992).
A key part of the attractiveness of safety culture is the idea that assessment of these
aspects may provide leading indicators of the safety level of the organisation and may be
used to bench-mark organisational safety performance (Mearns 1999). The lack of
motivation in fostering a safety culture at both organisational and project levels has
resulted in a poor safety record in general, with construction being one of the most
hazardous industries globally as cited by Thomas Ng (2005).

The purpose of this research is to increase the understanding on safety culture since there
is no universally accepted model has yet been established to enable the profession to
quantify and analyze safety culture. The literature review reveals that a psychological
conceptual model is available and necessary to reflect a wide range of safety-related
evidence in the development of the measurement tools where this body of evidence
reveals the presence of a dynamic reciprocal relationship between cognitive, behavioural
and situational factors. Previous studies pointed out that there are common set of
organisational, management and human factors that are being regularly included in
measures of safety culture. The initial reviews also demonstrated that the scales used vary
significantly in almost all aspects i.e. content, style, statistical analysis, and sample size,
sample composition (workers, supervisors or managers), industry and country of origin.
However the individual factors that influence the safety culture as well as the relative
importance of these influencing factors are not understood by most organisations.

2. LITERATURE REVIEW

A REVIEW OF CONCEPTS AND THEORIES OF SAFETY CULTURE

The term safety culture has many definitions according to past researchers. The concept
has become increasingly important in the last decade, being cited in numerous
publications, including CBI (1990), Waring (1992), HSC (1993), Lee (2000), Geller
(1994), Guest (1994), Meshkati (1995), Rousseau (1990), Reason (1997), Pidgeon
(1991), Cox (2000), Cooper (1998) and IAEA (1997). The concept of safety culture
promotes universal understanding of the accident phenomena since it helps clarify
people’s perception of safety and behaviour related to safety.Although various definitions
of safety culture have been used, the majority does appear to have several features in
common according to (Zhang Hui and Weigmann 2002). The commonalities among
safety culture definitions are as follows:

I. Safety culture is a concept defined at group level or higher, which refers to the
shared values among all the group or organisational members.
II. Safety culture is concerned with formal safety issues in an organisation and is
closely related to, but not restricted to, the management and supervisory systems
III. Safety culture emphasizes the contribution from everyone at every level of an
organisation
IV. The safety culture is usually reflected in the contingency between reward system
and safety performance

374
 V. Safety culture is reflected in an organisation’s willingness to develop and learn
from errors, incidents, and accidents
VI. Safety culture is relatively enduring, stable and resistant to change.

Organisational culture is a concept often used to describe corporate values that affect and
influence members’ attitudes and behaviours. Safety culture is a subset of organisational
culture, which is thought to affect members’ attitudes and behaviour in relation to an
organisation’s ongoing health and safety performance. Ismail.F (2004) has attempted to
gather from various literatures to define the concept of safety culture and further suggests
the adapted definition of safety culture as:

The product of shared values, attitudes, perceptions, competencies, and patterns of

behaviour among the entire group or organisational members’ practices that are
concerned with minimizing the exposure to conditions considered dangerous or injurious.

These definitions shape a theme of relationship and patterns of behaviour that are learnt,
shared, and passed on. There are several features which are essential to promote a sound
safety culture according to Turner (1991):

I. Leadership and commitment from the top that is visible in genuine and effective.
II. Changing a safety culture is a long-term strategy that requires sustained effort and
interest.
III. Policy statement of high expectations and conveying a sense of optimism abount
what is possible are required.
IV. The sense of ownership of safety and health must permeat all levels of workforce.
This requires employee involvement, suitable training and communication.
V. Resalistic and achievable targets have to be set and the corresponding
performance has to be measured.
VI. Consistency of behaviour against agreed standards should be achieved by audition
and good safety behaviour should be a condition of employment and considered
in performance appraisals.
VII. All accidents and near misses have to be thoroughly investigated.
VIII. Management must receive adequate up-to date information so as to be able assess
the performance and review the safety and health system.

SAFETY CULTURE CONSTRUCTS

According to Cox and Flin (1998), in terms of operationalising the concept of safety
culture into a practical measurement tool for managers, safety climate was the preferred
term employed. An extensive literature review focused on exploring various perspectives
in defining safety culture, common organisational safety culture constructs and indicators
of a good safety culture. Comprehensive investigations were also carried out to establish
the research tools for assessing safety culture which also led to this research (Ismail.F
2005).

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A review of literature uncovered the presence of a dynamic reciprocal relationship
between psychological, behavioural and situational factors. Cooper (1993), Geller (1994)
and Cameron (1997) advocates that the use of Bandura’s (1997) Social Learning Theory
for the analysis of safety culture. Previous studies on safety culture interchangeably use
the term safety climate and attempted to cross-sectionally link between the following
safety cultures frameworks:

1. Organisational factors
2. Senior Managers’ attributes
3. Employees’/ Individual Attitudes
4. External factors
5. Safety Management System (Processes)

Previous studies pointed out that there are common sets of organisational, management
and human factors that are being regularly included in measures of safety climate.Coyle
(1995), on the other hand concluded that the likelihood of establishing a universal and
stable set of safety climate factors was “highly doubtful”.

According to Cooper (2002), there is no universally accepted model that has yet been
established to enable the profession to quantify and analyse safety culture. However, a
psychological conceptual model is available and necessary to reflect a wide range of
safety-related evidence in the development of the measurement tools. This body of
evidence reveals the presence of a dynamic reciprocal relationship between
psychological, behavioural and situational factors. Cooper (1993), Geller (1994) and
Cameron (1997) advocates that the use of Bandura’s (1997) Social Learning Theory for
the analysis of safety culture. This vast body of evidence also suggest that change
initiatives which do not consider the reciprocal relationship between psychological,
behavioural and situational factors when developing safety culture are doomed to failure
(Cooper 2002).

Cooper (1993), develops Bandura’s model into a reciprocal model of safety culture. He
considers safety management systems as environmental factors in his model of
organisational safety culture (Cooper 1998). This is due to the fact that organisations are
contained entities, where the efficacy of safety management systems is the key internal
environmental factor. Safety culture is the dynamic reciprocal relationship between group
member’s perceptions and attitudes towards safety (cognition); and the presence of
external influences including legislation, economics, history and climate (environment/
situation). Figure 1 below adapts Cooper’s model to expand the focus to include
situational factors at a societal level. Situational aspects of safety culture can be seen in
the structure of the organisation e.g. policies, working procedures, management system,
etc. Behavioural components can be measured through self-report measures, outcome
measures and observations. The psychological component can be commonly examined
by safety climate questionnaires which are devised to measures people’s norms, values,
attitudes and perceptions of safety. Zohar (1980); Mearns et.al.,(1997); Lee (1998)
attempted to identify the main factors that comprise safety climate. Safety climate
measures have been widely researched and tend to be used as substitute measures of
safety culture.

376
Gellor ES (2001) in I.W.H.Fung et.al. (2005) also investigated a safety triad theory in
which he thought that a “Total safety Culture” should maintain a continued monitoring
process to three domains which are environment, person factors and behaviour factors as
shown in Figure 2. They are dynamic and interactive and the changes in either one factor
will eventually impact the other ones. This is due to the fact that once people choose to
act safety, they act themselves into safe thinking and the corresponding behaviours often
result in some environmental change.

Internal psychological factors

COGNITION
Attitudes, beliefs,
perceptions
Safety climate: attitude scale
interview

External observable factors

BEHAVIOUR ENVIRONMENT
Safety management, risk Climate, economics,
taking, audit and history, regulation and
observation equipment

Figure 1: Reciprocally Determined Model of Safety Culture

(after Bandura, 1977 and Cooper, 1993)

PERSON ENVIRONMENT

Knowledge, Skill, Abilities, Intelligence Equipment, Tools, Physical

Motives and personality Layout, Procedures, Standards
SAFETY and temperature
CULTURE

BEHAVIOUR

Complying, Coaching, Recognising, Communicating

Demonstrating “Actively Caring”

Figure 2: Gellor Safety Triad

The reciprocal model recognises that the strength of each element may be different in
different situations. Describing a safety culture as good/ positive or poor/ negative
equates with the possession of characteristics identified as being effective for controlling
occupational risks to health and safety in their operating environment. Geller (1994),

377
following Bandura, proposes the concept of Total Safety Culture, identifying personal
(knowledge, skills, abilities, intelligence, motivation, personality); behavioural
(compliance, coaching, recognition, communication); and environmental (equipment,
tools, machines, housekeeping, environment, engineering) factors as key aspects of safety
culture.

According to Cameron (1997), an organisation’s safety management system, the

prevailing safety climate and daily goal directed safety behaviour can be measured
making it possible to quantify safety culture in a meaningful way. The attitudes are
measured using a safety climate tool, work behaviour and the situational factors which
influence the work can be examined and assessed. For example, internal psychological
factors (attitudes and perceptions) are assessed via safety-climate surveys; ongoing
safety-related behaviour is assessed via behavioural safety initiatives; situational features
are assessed via safety management audits.

The important mediators of safe behaviour include payment by piece rates and bonuses,
the blame and punishment response to loss events, and the attitude that safety is a cost
that conflicts with production (Cooper 1994). Production related bonus payments
combined with risk taking group norms can motivate some workers to take risks and
short cuts despite positive attitudes to safe working practices. If the company views
safety as an unnecessary cost that slows down production, positive attitudes to safety will
not result in appropriate management behaviour. On the other hand, according to Hale
(1987) model behaviour in the face of danger, perceived hazards, assess the need for
action and implement effective control measures. An individual’s positive safety related
attitudes may not result in corresponding behaviour without the presence of stronger
influences by the organisational culture. In order to achieve this, managers must be
empowered by training, systems, resources and positive attitudes towards proactive safety
management.

THE LEVEL OF MANAGEMENT

This research study was limited to the senior management level within those construction
organisations as a major problem with the research was the use of “manager”
ambiguously, which made it difficult to focus precisely on which management level was
being investigated (HSE 2002). e.g. supervisor, middle or senior manager. Although, it
is well established that positive attitudes towards safety at senior management level are
vital to a positive safety culture, according to Clarke (1998), it cannot be assumed these
will cascade down the organization. Clarke (1998) suggests that the development of a
positive safety culture should be within the context of the organisational culture as a
whole and not viewed as a separate entity. However, no data were collected from the
workers to confirm on the significance of the management practices. Research has tended
to concentrate on the attitudes of employees and Trade Unions. However, little research
has been conducted to discover what managers (especially senior management) really
think about health and safety (Gadd 2002). Therefore, how management’s attitudes are
transmitted to employees needs to be considered to ensure that management commitment
to safety is perceived by them accurately.

378
According to Mohamed (2003), safety culture is concerned with the determinants of the
ability to manage safety (top-down organisational attribute approach); whereas, safety
climate is concerned with the worker’s perception of the role safety plays in the
workplace (bottom-up perceptual approach). The top-down approach includes observable
measures such as management commitment, participation and accountability, procedures
and policies, communications, etc.Waring (1998) distinguished between two safety
culture paradigms: functionist - where organisational culture is viewed as manipulated
and controlled by management; and interpretive where culture is viewed as the unique
and complex, emergent property of an organisation. The functionalist or top-down
approach is based on the perception that organisational culture is dictated by management
ideology, structure and practices in a cause-effect relationship. This approach which
reflects the functionalist view that culture has a predetermined function (implementing
controls and policies to improve safety) favoured by managers and practitioners.

3. RESEARCH METHODOLOGY
To devise a rational framework for safety culture necessitates the establishment on the
factors that influence the embedment of safety culture into the organisational culture in
an objective manner. An exploratory questionnaire survey was chosen as an appropriate
means for soliciting views from Construction Industry Development Board (CIDB)
Malaysians’ registered Grade G7 in the area of Klang Valley with a total population of
866. The questionnaire was piloted to test on the suitability of the factors and the format
of the questionnaire. The Statistical Packaging for Social Science (SPSS) version 11.5
was used to perform the data analysis. The internal consistency of the instrument
(questionnaire) was measured using Cronbach’s alpha. Organisational culture and safety
implementation items were reduced to several items namely factors using factor analysis.
This study used principal components analysis (PCA) to extract the factors. This method
transforms a set of variables into a new set of composite variables or principal
components that are not correlated with each other.

With a response rate of 16.67% the results revealed that the factors identified were:
Leadership, safety orientation, organisational commitment, management commitment and
resource allocation affect the embedding of safety into the organisational culture. This
dimension seems to be consistent with various literatures that have been explored in this
study i.e Cooper (1998); Ostrom (1993); Mohamed (2002); Weigmann (2002);
Vredenburgh (2002) and Schein (2004).

According to Ott (1989) a small number of organisational culture research efforts have
combined qualitative and quantitative methodologies. One of the best of these is Siehl
and Martin’s (1984) two-phased investigation of organisational culture transmittal and
learning processes. Multiple methods are becoming the hallmark of organisational culture
research. This is to triangulate, meaning to come at the same phenomenon from different
angles, using several research tools (or with several researchers using the same tools).
Triangulation increases the richness and the reliability of qualitative organisational
research. In general, there appears to be agreement among researchers that both
qualitative and quantitative methods have unique potential for assessment and a

379
combination of both methods’s beneficial towards a comprehensive understanding of
safety culture. Failure to apply a variety of methods to assessing safety culture thus will
limit the understanding of it.

Based upon the understanding of the research background, aims and objectives, the
current study is being carried out based on figure 2 Methodological Framework and
figure 3 Triangulation Framework of Safety Culture. This framework was also based on a
separate study done by Cooper (2002) who revealed the presence of a dynamic
reciprocal relationship between psychological, behavioural and situational factors and
advocated the use of Bandura’s (1997) Social Learning Theory for the analysis of safety
culture. The literature review thus revealed that no study had been carried out to
investigate the combination of these factors associated with safety culture in the
Malaysian construction organisation.

Summarizing the findings from the previous exploratory survey, the main questionnaire
survey was developed for the targeted respondents who had responded in the exploratory
survey. The scale used for measuring the safety culture profile in this study was based on
the measurement adapted from Stringer (2002) ,Stewart (2002), Schein (2004) and
Cooper (2000) since the present study includes scales dealing with aspects of cognitive,
behavioural and situational factors’ characteristics against traditional measurements of
safety performance i.e. accident rates and loss time injuries. The questions were designed
to capture these three aspects of safety culture.

380
 OBJECTIVES
To establish the research
problem
To identify the
demographics of G7
contractors in Klang
Valley
To establish factors that
influence safety culture in
Malaysian construction
organisations.
To establish most
significant variables that
influence safety culture
based on those identified
To establish the main
questionnaire survey
To establish semi-
structured interviews to
triangulate the studies
To establish data on safety
culture of Malaysian
construction organisations
FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS DRAWN
Figure 3: Methodological Framework
KEY ISSUES
Safety culture in
Malaysian construction
organisation
Nature of project.
Years of establishment.
Awareness on the trend
to inculcate safety culture.
Safety management tools
& techniques.
Frequency of
accidents/near misses.
Exploring variables to be
considered in the
formulation of final
questionnaire
Choosing components of
safety culture;
psychological;
behavioural; situational
Aspects to be covered
Clarity, Format
Method of analysis
anticipated
Identification of
respondents out of main
survey
Administration of data and
testing of hypothesis
381
PLAN OF ACTION
Literature review on
safety culture as a way
forward;
Dimensions of safety
culture;
Tools for assessing
safety culture
Obtain list of G7
contractors undertaking
Building Works from
CIDB Directory of
Contractors
Preliminary survey to
866 identified
construction
organisation in Klang
Exploratory interviews to
Senior Manager,
supervisory levels and
workers
Pilot assessment of the
main questionnaire
survey
List of respondents that
respond i.e 117 or
16.67%
Carry out interviews in
20 companies
Application of statistical
techniques supported by
literature
 COGNITION

SENIOR MANAGER

BEHAVIOURAL PSYCHOLOGICAL

EXPLORATORY

MAIN SURVEY

LINE MANAGERS INTERVIEWS WORKER

BEHAVIOUR ENVIRONMENT

SITUATIONAL

Figure 4: Triangulation Framework of Safety Culture

The questions used to access these three aspects of safety culture were adapted based
upon a review of previous research in which a number of items were developed in regard
to the following core dimensions: management commitment and workers’ involvement.
These 2 factors were established by the researcher, after having an in-depth literature
review, summarizing a total of 5 testable factors identified in the preliminary survey. The
following are the framework adapted to the formulation of the questions posed in the
questionnaire survey.

382
 Table 1 : Framework for Questionnaire Development

ORGANISATIONAL EXTERNAL COGNITIVE BEHAVIOURAL ENVIRONMENT

FACTORS FACTORS
RATIONALE External Culture is a cognitive Manifestation of cognitive construct Presents a consistent
influences construct message that establishes
(adapted from Stringer (2002)
behavioural expectations
(adapted from Stewart (2002)
Leadership Including 1. The health and safety of • personally demonstrate excitement and enthusiasm • The beliefs of those in
legislation, people has priority and for the changes positions of power
economics, must take precedence over • Employee involvement: participative and authority
history and the attainment of business • Reinforce positive behaviours influence the internal
climate objectives • Responsibility & supportive for daily activities environment of the
(environment/ 2. All injuries and • Review organisation through
situation). occupational illnesses can strategy, the design
be prevented. Safety can and implementation of
be managed and self- structures and systems
managed. of the organisation,
3. Excellence in safety is and day to day
compatible with supervision of the
excellence in other work group
business parameters such
as quality, productivity,
and profitability; they are
mutually supportive. Safe,
healthy employees have a
positive effect on
customers and enhance
credibility in the market
place and in the
community.

383
 Table 1 : Framework for Questionnaire Development (Cont’d)
ORGANISATIONAL EXTERNAL COGNITIVE BEHAVIOURAL ENVIRONMENT
FACTORS FACTORS
Organisational 4. Like quality, safety must • Policy: The safety policy statement should
Commitment be made an integral part of describe the organisation’s core beliefs,
every job. “ Do it right the commitments, and responsibilities regarding
first time.” safety, and should connect the success of the
5. Good safety is “mainly in safety and health system to the success of the
the head.” Most injuries organisation’s overall mission
and safety incidents occur • Strategic planning
because of inattention, not • Procedures/ standards : set standards
because of lack of • Structure : decentralization, clear performance
knowledge or for physical goals, decision making
reasons. People take risks • Review policy timely
Safety Training/ because they believe that • High priority on training
Orientation they will not be hurt.
• Safety orientation for new staff
• Continuous Personal Development programmes
• Review training programmes continuously

Management • Senior management take safety seriously

Commitment • Management Involvement in safety-related
programmes
• Communicating an exciting vision of the future for
the organisation to the subordinates
• Explaining how the individual can contribute to the
overall success of the organization
• Continuous and consistent in the commitment

Resource Allocation • Allocate sufficient resources for safety purposes

• Reward System/ recognition for good behaviour/
performance
• Noticing and showing appreciation when the
subordinates put extra effort on safety
• Review continuously

384
4. CONCLUSION

In this paper, the operational research framework for safety culture is described. An important
step in moving from the abstract level of theory to the concrete level of research is to give
concepts operational definition that indicate the precise procedures, or operations, to be
followed in measuring the concepts.The broadness of the many safety culture definitions make
it difficult to operationalise the concept in a consistent manner (Cooper 2000).Many
definitions of organisational safety culture tend to focus on the way people think or behave.In
order to facilitate a more objective framework to be developed, a range of organisational
factors based on safety specific cognitive, behavioural and situational factors’ characteristics
were identified. Out of the findings from the previous preliminary survey, the main
questionnaire survey was developed for the targeted respondents who have responded in the
preliminary survey. The scale used for measuring the safety culture profile in this study was
based on the measurement adapted from Stringer (2002) , Stewart (2002), Schein (2004) and
Cooper (2000) since the present study includes scales dealing with aspects of cognitive,
behavioural and situational factors’ characteristics against traditional measurements of safety
performance i.e. accident rates and loss time injuries. The main survey aiming to get greater
depth on the information derived out of the preliminary survey and finally semi-structured
interviews will be held to complete the triangulation process.

5. ACKNOWLEDGEMENTS

The authors wish to thank the Institute of Research Development and Commercialization of
the University Technology MARA (UiTM) Malaysia for funding the research project and the
reviewers for their invaluable comments on this paper.

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386
ADAPTATION STRATEGIES OF CONTRACTING FIRMS:
AN ANALYSIS BY FIRM SIZE

Mastura Jaafar1 , T.Ramayah2 and Abdul Haris Mohamad Salleh3,

1
Lecturer,
School of Housing Building and Planning,
Universiti Sains Malaysia,
Penang, Malaysia.
USM.
2
Lecturer,
School of Management,
Universiti Sains Malaysia,
Penang, Malaysia.
USM.
3
Msc student,
School of Housing Building and Planning,
Universiti Sains Malaysia,
Penang, Malaysia.
USM.

Abstract: After the economic recession of 1997/1998, the Malaysian construction industry
(CI) has recorded a slow growth. The percentage growth of the Malaysian CI was only
1.9% in 2003, -1.9% in 2004 and predicted to be –1.0% in 2005. Due to this, Bumiputera
contracting firms are facing a very hard time in competing for jobs in the industry. In the
early 2000, government emphasized on the implementation of mega projects which, was in
line with the Eighth Malaysian Plan (RM-8). Towards the end of RM-8, the budget was
almost finished and thus gave a tremendous effect on the survival of contracting firms.
Record from the Construction Industry Development Board (CIDB) showed that the job
demand has been decreasing since 2001 and is going to be worse in 2005 and 2006. So, the
study is timely and was conducted to examine five different strategies that have been
applied by these firms to adapt to the current situation. Results indicate a weak significant
differentiation in strategies used by firms of different sizes. All firms irrespective of size
apply same strategies except for long term strategy which was significantly different. The
big and medium sized firms emphasized more on developing close relationship with
bankers and planning on long term finance; while small firms were more focused on
building close relationship between sub contractors, suppliers and clients and at the same
time plan on their long term finance strategies as well. Surprisingly, all companies were not
interested to diversify to undertake new businesses in the same or different fields. It shows
that, they are still maintaining and depending on their construction activities as their core
business and hoping that the industry will recover sooner or later.

Keywords: Strategy, Bumiputera contracting firms and construction sector.

1. INTRODUCTION.
At one time, the construction industry played a very significant role in Malaysian
economic development. Its contribution showed the highest figure in 1990 and 1995 with
a total growth rate of 19.5% and 17.3% respectively. This was due to the implementation

387
of mega projects for example PLUS highway, Kuala Lumpur International Airport
(KLIA), Kuala Lumpur Twin Tower (KLCC) and quite a number of social projects like
hospitals, schools and large scale infrastructure projects. This gives an advantage for the
Bumiputera contracting firms. Opportunity on getting project initiated by the government
became a pull factors for individuals to start a venture in this industry.

However, demand in the industry was badly affected by financial crisis 1997/1998. With
a negative growth in 1998 (-23.0%) and 1999 (-5.6%) this brought difficulties for the
industry to recover. These figures also reflect the low level of construction activities in
the industry. According to CIDB, the highest contract price offered in the industry (after
the crisis) was RM50.1 billion in 2001. After that, the industry recorded lower contract
prices of i.e. RM46.87 billion (2003) and RM41.04 billion (2004). Even government
have brought forward budget for RM-9 to be implemented this year, but there is still not
much improvement in the construction activities. As of May, 2005; only 5% or 3,187
from 63,753 contracting firms were able to get projects. The ratio for small firms (G1, G2
and G3) to get project is only 1.5%; G4 and G5 is 1.2% and 3.2% for G6 and G7 (CIDB
news, 2005). It shows that nowadays, that number of firms is not in balance with the
number of jobs created in the industry. The most challenging issue is that there are too
many contracting firms operating in the industry that makes the industry very
competitive. Surprisingly, despite a large number of contracting firms close their
operation there is still a large number of firms enter the industry every year.

Thus, the objectives of this study are to compare the various type of strategy used by
contracting firms of different sizes to survive in the industry. The second objective is to
analyze the important strategies practiced by these companies to adapt to the current
difficult situation. The first part of the paper (part A) will discuss the scenario of
contracting firms in the Malaysian construction industry, followed by literature on
strategy in part B. Part C will elaborate on methodology followed by analysis, discussion
and conclusion in part D and E respectively.

A: CONTRACTING FIRMS IN THE MALAYSIAN

CONSTRUCTION INDUSTRY.
To operate in the industry, contracting firms have to register with two government bodies
i.e. Pusat Khidmat Kontraktor (PKK) and CIDB. PKK has been established in 1981
where the objectives are to register, lead and train Bumiputera entrepreneurs involve in
the industry. Meanwhile CIDB was only established in 1994 to control all activities in the
industry for example contractor’s registration, workers training, site safety, material
controlling and foreign workers and so on. Mainly, contracting firms have to register with
CIDB and for those who interested to bid for public project; they also should register
with PKK. Table 1 shows the classification on contracting firm size based on grade by
CIDB and class by PKK. The classification had been used by Jaafar (2003) and jaafar et
al. (2005).

388
 Table 1: Contractors' classification according to total paid up capital
Registration Minimum project Registration Minimum project Contractors
grade (CIDB) price with CIDB class (PKK) price with PKK (RM) category (Size)
(RM)
G1 <100,000 F <RM200,000 Small
G2 <500,000 E and EX < 500,000 Small
G3 <1,000,000 D <2,000,000 Small
G4 <3,000,000 C <5,000,000 Medium
G5 <5,000,000 - - Medium
G6 <10,000,000 B <10,000,000 Medium
G7 No limit A No limit Large
Source: CIDB and PKK

Bumiputera contracting firms started to enter the industry after the implementation of the
New Economic Policy (NEP) in the year 1970. The purpose of government was to attract
more Malay (Bumiputera) businesses to be involved in economic activities. Under the
NEP, the construction activities expanded with the acceleration of public sector
development expenditure, mainly in infrastructure projects. During the implementation of
NEP, the government played an active role in promoting the Malay or Bumiputra
entrepreneur’s development. Construction was one of the main sectors which had
recorded high involvement of Bumiputra entrepreneurs (Jaafar et al., 2005). If during the
implementation of NEP, there was only 2,049 number of contracting firms (1972)
registered with PKK, today (until May 2005), the number has achieved 46,789 with a
majority are Bumiputera firms. Unfortunately most of these firms concentrate only on
getting government projects because from the beginning, government gave priority in
awarding contracts to Bumiputera contractors.

At the same time, government as a main client in the industry highly depended on the
construction industry to activate the Malaysia economy especially after the crisis in the
year 1997/1998. Due to the slow demand from private sector, government had to make
demand purposely to push the Malaysian economy. This was because the industry had
potential to increase growth for other industries as well. It has been acknowledge that the
industry is link with more than 100 sectors. Thus increasing the demand for the industry
will automatically benefits other industries.

The above justification gives advantage to Bumiputera contractors. However, we can see
the impact of the slow demand in the industry by looking at the number of contracting
firms registered with CIDB every year (Table 2). This table shows the number of
contracting firms that are active and not active in the industry for a period of 5 years.
Besides high number of non active firms, there is a growth in number of new entrries
every year since 2002.

389
 Table 2: Number of contracting firms registered with CIDB based on ‘active’ and ‘non-active’ status
Grade 2000 2001 2002 2003 2004
Active Non Active Non Active Non Active Non Active Non
Active active active active active
G7 3658 622 2963 2747 3613 2332 4463 2233 4351 2759
(85.5%) (14.5%) (51.9%) (48.1%) (60.8%) (39.2%) (66.7%) (33.3%) (61.2%) (38.8%)
G6 823 178 740 566 848 528 1110 566 1259 647
(82.2%) (17.8%) (56.7%) (43.4%) (61.6%) (38.4%) (66.2%) (33.8%) (66.1%) (33.9%)
G5 2058 497 1862 1330 2102 1324 2951 1326 3463 1630
(80.5%) (19.5%) (58.3%) (41.7%) (61.4%) (38.6%) (69.0%) (31.0%) (68.0%) (32.0%)
G4 1439 441 1397 934 1494 909 1936 938 2215 1065
(76.5%) (23.5%) (60.0%) (40.0%) (62.2%) (37.8%) (67.4%) (32.6%) (67.5%) (32.5%)
G3 6781 1717 6205 4242 7416 3688 9433 4211 10650 5089
(79.8%) (20.2%) (59.4%) (40.6%) (66.8%) (33.2%) (69.1%) (30.9%) (67.7%) (32.3%)
G2 5005 2605 4246 3324 4973 2491 6487 2743 7549 3478
(65.8%) (34.2%) (56.1%) (43.9%) (66.6%) (33.4%) (70.3%) (29.7%) (68.5%) (31.5%)
G1 23089 7269 14619 16764 22439 9053 37177 10339 43671 18407
(76.1%) (23.9%) (46.6%) (53.4%) (71.3%) (28.7%) (78.2%) (21.8%) (70.3%) (29.7%)
Total 42853 13329 32032 29907 42885 20325 63557 22356 73158 33075
(76.3%) (23.7%) (51.7%) (48.3%) (67.8%) (32.2%) (74.0%) (26.0%) (69.0%) (31.0%)

Overall, the table 2 shows that the most difficult year for firms was in 2001; where 48.3%
were not active and followed by 2002 (32.2%) and 2003 (26.0%). In 2004, the percentage
of non active contractors increased again to 31.0%. The highest number of failures was
recorded for contractors in category G1 and G7 with a total of 53.4% and 48.1%
respectively in 2001. After 2001, there were less non active firms i.e. between 33% to
40%. Among all grades, G7 recorded the highest number of failures followed by the
lower grades.

Based on the above explanation, the current situation can be considered as a very critical
time for these firms to continue their business in the industry. The following part will
review few alternative strategies that can be adopted by these firms in facing the
difficulties.

2. LITERATURE REVIEW
A strategy is a set of rules for guiding decisions about organizational behaviour
(Langford and Male, 1991). External environment can bring different types of pressure to
the firm. Thus, each and every firm needs to apply appropriate strategies that can help
them to cope with the external environment. Pheng and Hua (2000) identified few types
of strategy which can relate to contracting firms i.e. restructuring, marketing, long term
strategies, cost cutting and other actions.

Restructuring refers to the process of transferring production from an expensive site to a

cheaper one (Pheng and Hua,2000). The main objective is to bring the company to an
acceptable minimum level of performance. It can cover related areas of marketing,

390
product development, production purchasing, finance and services (Kozminski, 1997;
cited in Pheng and Hua, 2000).

Examples of the strategies are to:-

1. Transfer of activities from developed to developing countries or from high to low

wage countries (Cardova and Dror, 1984; cited in Pheng and Hua, 2000).
2. Outsource some of the company activities to specialist forms (Tingle, 1994)
3. Select of local talents, with some background in management and provide them
with training (Pheng and Hua,2000)
4. Encourage staff to acquire new skills, and further develop skills and capabilities
(Kozminski, 1997;cited in Pheng and Hua, 2000)
5. Downsize to reduce workload for example eliminating functions, hierarchical
layers of units and by streamlining activities (Pheng and Hua,2000)

Marketing can be defined as the identification of client’s need and satisfying those needs
(Kotler, 1986). In whatever situation, a business should emphasize on marketing When
demand is low, it means a decline in consumer spending power. Thus marketing is
therefore a more desirable alternative to increase volume instead of cutting profit margins
or continually discounting prices (Morine, 1980). According to Palmer (1991), despite of
lower profit margin, a company should increase the budget for marketing. Marketing
policies will need to be redefined in line with customer shifts for more value-adding
products or services at lower prices (Slatter, 1992).

Cost cutting strategy is the most popular and easy to implement in order to tackle the
company difficulties in managing cash flow. Normally it will involve activities like:-

1. Reducing working hours and wages (Chen, 1985)

2. Rearranging human resource for example switching from seniority-based
promotion to ability-based, retrenchment unproductive workers and so on
(Cardova and Dror, 1984)
3. Increasing productivity by creates profit sharing with employees (Shilling, 1988).
4. Selecting subcontractors through competitive bidding rather than through
negotiation (Palmer, 1991).

The example of long term strategies are developing close relationship with potential
sources of fund (Shilling, 1999), restructuring on organization structure to remove
inefficient layers that contribute to unnecessary cost (Chen, 1985), implement upstream
or downstream diversification to spread risks (Chen, 1985), encourage research and
development (Neuno, 1993) and so on.

Other actions may include other aspects of running the businesses both within and
outside the organization (Pheng and Hua, 2000). This may includes strategies like
improve employee morale, maintain rapport with developers and suppliers, making good
connection with suppliers and so on. Specifically in Malaysia, a good political connection
can be an important factor that can support the company’s survival.

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3. METHODOLOGY
The survey was conducted in December 2004 until January 2005. Most of the
questionnaires were adapted from Pheng and Hua (2000). The sample respondents were
Bumiputera contractors’ registered with Pusat Khidmat Kontraktor (PKK). The data
collection was done using face to face interviews with 29 contractors from Kedah and 13
from Penang.

4. ANALYSIS
Table 1: Cronbanch alpha for the dimensions
Variables Number of items Alpha value
Restructuring 5 0.42
Cost cutting 11 0.64
Marketing 5 0.50
Long term 9 0.76
Others 3 0.68

Table 1 shows the alpha value for the above dimensions. Table 2 shows the mean and
standard deviation for the main variables.

Table 2: Descriptive analysis on firm strategies

Strategies Large Medium Small
Mean Standard Mean Standard Mean Standard
deviation deviation deviation
Restructuring 3.35 0.44 3.07 0.69 3.04 0.40
Cost cutting 3.27 0.49 3.07 0.46 2.89 3.68
Marketing 3.60 0.33 3.59 0.48 3.60 0.53
Long term 3.50 0.55 3.67 0.47 3.12 0.59
Others 3.40 0.73 3.43 1.02 3.04 0.92
.***p<0.01, **p<0.05, *p<0.1

Table 3: One way ANOVA

Strategies F value Sig.
Restructuring 1.547 0.226
Cost cutting 2.204 0.124
Marketing 0.005 0.995
Long term 2.878 0.068*
Others 0.655 0.525

Table 3 shows the result of one way ANOVA for the variables. There were no significant
differences between all the strategies practiced by different firm sizes except for long
term strategy. However, the long term strategy is only significant at p< 0.1. Table 4

392
indicates the difference in ranking between long term strategies based on their
importance.

There is not much difference between strategies practiced by large and medium firms in
terms of their importance. Both gave priority on strategies related to finance i.e.
maintaining a good relationship with bankers and long term firm financial planning. The
second important strategy that they emphasized was on maintaining a good relationship
with sub contractors, suppliers and clients.

For small firms, they gave priorities on maintaining a good relationship with external
parties such as sub contractor, supplier and client. Planning on long term financial
requirement and maintain a good relationship with bankers being ranked as their second
priority followed by close relationship with clients.

Table 4: Ranking for long term strategy

Variables Large Medium Small
Mean Ranking Mean Ranking Mean Ranking
Maintaining a good relationship
with bankers 7.26 1 7.21 1 6.61 3
Long term firm financial planning
7.16 2 6.79 2 6.67 2
Maintaining a good relationship
with sub contractor, supplier &
clients 5.97 3 6.61 3 6.83 1
Close relationship with client 6.00 4 6.00 4 6.22 4
Restructuring medium and lower
management 5.39 5 5.21 5 3.22 8
More rental compared to buying 4.24 6 3.86 6 5.89 5
Diversify business activities related
to construction 3.82 7 3.79 8 3.94 6
Diversify business activities not
related to construction 3.13 8 3.89 7 3.50 7
Implement research and
development related to firm
operation 2.03 9 1.64 9 2.11 9

5. DISCUSSION AND CONCLUSION

From the result, we can conclude that Bumiputera contracting firms are aware of the
difficulties they are facing in the current situation. Therefore they have strategically
planned their activities in order to ensure their survival in the industry until the economy
recover.

All firms irrespective of size are likely to give priority on two very important
management functions i.e financial and marketing. These two functions have been proven
by Jaafar (2003) to be very significant factors in contributing to contracting firms
performance. The importance of maintaining a close relationship with bankers, support
her findings that debt funding plays a very significant role in ensuring contracting firm’s
success. As such, the company has to pay attention to their long term financial
requirements in order to avoid financial difficulties.

393
Compared to large and medium firms, small sized firms ranked maintaining close
relationship with external parties as their priority. This also supports the findings of
Jaafar (2003), where small firms have limited resources. Thus they have to depend on
credit from sub contractors, suppliers and advance payment from clients to support their
operation. Furthermore, according to Abdullah (1996), in most sub contracting cases,
terms of payment are always based on ‘pay when paid’ conditions, which provides for
payment to be made to sub contractor only when the main contractor secures payment
from client.

Surprisingly, all categories of firms do are not keen to diversify their business either in
the activities related to the industry or not. This shows that the Bumiputera contracting
firms are still hoping that the industry will recover soon besides that we can also
conclude that they are very confident of gaining projects even in hard times or they still
can suffer with good preparation in long term financial strategies that they adapt.

However, lately, the government has raised the issue of the existence of too many
contracting firms in the industry where it’s not proportionate with the number of project
in the industry. In facing global economy today, these firms should diversify and try to
take advantage from the growing economy in other sectors. On the other hand, this
finding supports the statement that the Bumiputera contractors are just taking advantage
of the government support and have little or no initiative to explore other or new types of
businesses. Thus, we foresee that this will become a big challenge for government to
develop genuine bumiputera entrepreneurs in the near future.

6. REFERENCES
Abdullah, (1996). Issues on Management of Specailist Sub contractors’. The Surveyor, 31-1, 1st quarter, 9-
16
Chen, S. H (1985). Effects of Recession on the Construction Industry, unpublished BSc Dissertaion, School
of Building and Estate Management, national University of Singapore.
CIDB news (2005), Issue 2, 11-13
Jaafar, M (2003). Faktor-faktor Kritikal kejayaan firma bersaiz kecil dan sederhana, Doktoral Thesis,
School of Management, USM.
Jaafar, M., Ramayah, T and Nasurdin, A., (2005). Entrepreneurial Characteristics of Contractors in a
Developing Country: An Ethnic Comparison. International Journal of Management and
Entrepreneurship, vol.1, no.1. 21-29.
Kotler, A (1996). Marketing Management:Analysis, Planning, Implementation and Control. 6th Edition.
Prentice Halll, Englewood Cliffs, New York.
Langford, D and Male, S (1991). Strategic management in Construction, gower, England.
Morine, F. J (1980). Riding the Recession: How to cope with Shrinking markets and hig inflation, Business
Books, London.
Nueno, P (1993), Corporate Turnaround; A practical Guide to Business Survival, Kogan Page, New Jersey.
Palmer, G. (1991). Surviving the Recession: Practical Ways to cope with tough times and prepare for
renewal, Report No. 2092, Business international Ltd, UK.
Pheng, L.S dan Hua, L.N (2000). The Strategic Responses of Construction Firms to the Asian Financial
Crisis in 1997-1998. International Journal for Construction Marketing, vol.1, issue 2.
Slatter, S. (1992). Gambling on Growth: How to Manage the Small High-tech Firm, John Wiley & Sons,
Singapore.
Shilling, A.G (1999)., Deflation: How to survive and thrive in the coming wave of deflation. Mc Graw Hill,
United States.
Tingle, L (1994)., Chasing the Future:Recession, Recovery and the New Politics in Australia, William
Heinnemann, Australia.

394
 COMPARISONS OF EVALUATION TECHNIQUES IN
VALUE ENGINEERING

Amarjit Singh1 and Osama Jannadi2

1
Associate Professor, Department of Civil and Environmental Engineering,
University of Hawaii,
Hawaii, USA

E-mail: singh@wiliki.eng.hawaii.edu
2
Professor, Department of Construction Engineering and Management,
King Fahd University of Petroleum & Minerals,
Saudi Arabia

E-mail: Jannadi@kfupm.edu.sa

Abstract: This paper focuses on the evaluation phase of the value engineering job plan. The
evaluation phase is important because it analyses the ideas generated from the creativity
phase, taking into account the effect of the alternatives on functional objectives and economic
constraints, and identifies functions for development and functional improvement. Thus,
obtaining the proper, high priority, and reasonable ideas for further development assists in
ensuring that the value engineering study is well performed. Four mathematical methods were
applied to select valuable functions to evaluate the ideas in order to make the best decision.
The Matrix analysis method, Analytic Hierarchy Process (AHP), Payoff matrix, and Bayes’
theorem were used in evaluating functions for development.Each of these methods produces
different results for the types of functions that are good candidates for development. One may
think it becomes a problem to decide which decision-making method to adopt, since the
answers of each are scientifically reliable. However, by adopting a comprehensive approach
in decision analysis that combines all decision-making techniques, a more meaningful result
is obtained. Based on exercises undertaken, it was concluded that matrix analysis and payoff
matrix gave identical results 80% of the time, and were close for 100% of the time. Bayes’
theorem was identical to the above two for 40% of the time, and was close to the above two
for another 20% of the time. AHP was usually different in its results.

Keywords: Value Engineering, Construction, Evaluation Techniques

1. BACKGROUND

The Society of American Value Engineers International, (or SAVE International), define
Value Engineering as the systematic application of recognized techniques that identify
the function of a product or service, establish a monetary value for that function, and
provide the necessary function reliably at the lowest overall cost. Value Engineering
began during the World War II when General Electric co. faced material shortages to
produce war related equipment. An electrical engineer, Mr. Lawrence D. Miles was
assigned to find adequate material and component substitutes to manufacture the designs
of needed war equipment. Miles found that by understanding and addressing the
intended function of the product, he could get many of the substitutes that provided equal

395
or better performance at less cost. He named this process of searching for cost reduction
by analyzing functions as Value Analysis. Value is generally represented by the
following relationship:

Function
Value =
Cost

Hence, the value of a product can be improved by satisfying the intended functions of the
product at the lowest possible price. In the 1950s, the U.S. Navy adopted Miles’
techniques and called the program “Value Engineering”. This name was commonly used
and has been accepted since the chartering of SAVE International.

2. VALUE ENGINEERING JOB PLAN (VEJP)

A systematic methodology for performing Value Engineering studies is recommended by

SAVE international. The methodology is broken down into a series of steps, named as
the “job plan”. The VEJP can have a 5-step, 6-step, 7-step, or more elaborate plan. For
instance, King (2000) explained the steps of a 7-step job plan in a nutshell, as shown in
Figure 1, as follows:

Information phase

Function analysis phase

Creativity phase

Evaluation phase

Development phase

Presentation phase

Implementation phase

Figure 1. Value Engineering Job Plan {Source: Zhang and Singh, 2002}

Step 1. Information Phase

It is very important to get objective and factual information that it is not influenced by
opinion or assumption. For example, in constructing a concrete column, the information

396
of the project will answer the following questions: what needs to be constructed? How to
work on it? Why does a certain activity have to be done? What are the specifications
and criteria? Who will take the work? Where will the work be done? Hence, seeking
the useful facts that are related to the project is the critical task of this phase.

Step 2. Functional Analysis Phase

The function analysis phase is the heart of Value Engineering. It expresses the function
in an active verb and a measurable noun. During this phase, the function of any product
or process is translated into a structure of words. The Function Analysis System
Technique (FAST) diagram plays an important role by structuring the functions of the
project into a visible and logical network.

Step 3. Creativity Phase

The objective of the creativity phase is to generate many ideas and alternatives that
accomplish the basic functions that need to be performed. The creativity approach is an
idea-producing process intended to generate a large quantity of ideas without evaluating
them. The most effective technique used during the creativity phase is brainstorming.

Step 4. Evaluation Phase

The objective of the evaluation phase is to analyze the ideas generated during the
creativity phase and select valuable ideas for further development.

Step 5. Development Phase

The objective of the development phase is to further develop those implementable ideas
from the evaluation phase. Those ideas will be fully integrated as practical project
proposals. Cost will be assigned to each proposal.

Step 6. Presentation Phase

The objective of the presentation phase is to present to the decision makers the
recommended project proposals with their advantages and disadvantages.

Step 7. Implementation Phase

The objective of the implementation phase is to ensure that the approved project
proposals are converted into actions.

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3. OBJECTIVE
The objective of this paper is to compare different evaluation techniques applied during
the evaluation phase of a project during a formal value engineering study. Four
mathematical methods namely Matrix analysis, Payoff Matrix, AHP, and Bayes’ theorem
is used to analyze functions in the VE study and to discover the different types of
priorities and decisions that are possible.

4. RESEARCH METHODOLOGY AND SCOPE

Mathematical methods are applied through five case studies (Zhang and Singh, 2002).
The methods include Matrix analysis, AHP, Payoff matrix, and Bayes’ theorem. Results
from these methods help in ranking the priorities of functions to be developed. The
Payoff Matrix method determines the maximum of the maximum payoff value, the
minimum of the maximum regret, the expected monetary value, and the expected
opportunity loss. The AHP method evaluates the weights to be assigned for the priorities
of functions; subsequently, a consistency index check is conducted to determine whether
the assignment of weights is acceptable. In Bayes’ theorem, a priori and a posteriori
analysis are conducted.

The examples used in the paper are limited to the construction area. The final aim of this
research is to facilitate decision-making during the evaluation stage of the value
engineering job plan based on functions identified during the functional analysis phase.

5. TECHNIQUES USED

Discussion on Mathematical Decision Methodology

The whole purpose of the scientific and mathematical method was to obtain a
comprehensive decision on selecting suitable functions for development during a VE
study. It was discovered that all four mathematical techniques -- Pair wise comparisons,
AHP, Payoff Matrix, and Bayes’ theorem -- could be satisfactorily utilized in arriving at
decisions. The results are meaningful and fulfill the aims of this study. A short summary
of each of the four methods follows.

Method 1. Matrix Analysis – Pair Wise Comparisons & Satisfaction Factors

The criteria were weighted in the first stage of the matrix analysis method. The impact of
the criteria upon the functions was determined. Next, the matrix analysis method was
applied on the basis of the evaluated criteria. The method is explained in detail in Miles
(1972).

As a result, an improved evaluation is received from the two stages: evaluating criteria of
functions through pair wise comparisons, and then evaluating functions by satisfaction
factors. The accuracy upon the outcome ensures that the ideas or functions receive a
better evaluation.

398
Method 2. AHP

The three steps of AHP provide a systematic method in function selection decision-
making. The first step of structuring the hierarchy simplifies the relationship of activities
of a project between higher and lower levels of the hierarchy.

Next, the priorities of the functions are determined by allocating weights and going
through the detailed calculation methods recommended by Saaty (1980).

In the last step, the logical checking of the consistency of the judgments increases the
accuracy of the result. It helps to avoid errors occurring during the decision making
process.

Method 3. Payoff Matrix

Decisions can be made quickly on the basis of Maximum of the maximum payoff values,
and the minimum of the maximum regret calculation. In addition, the weight of each
factor in the analysis process is considered during the computation of the expected
monetary value and the expected opportunity loss. The detailed method is described in
Lifson and Shaifer (1982).

The payoff matrix method is a set of efficient decision-making methods that can be
undertaken fairly quickly. It can be used for decision-making in simple and complicated
cases, or when there is a time constraint for making decisions.

Method 4. Bayes’ Theorem

Bayes’ theorem is a complex technique to make the selection decision. The weights are
assigned to functions on the basis of whatever information is provided at the time.
However, the later additional information will force the earlier appraisals to be revised.
In practice, through the entire VE study, the VE team assigns the weights to the functions
of the project. These weights assigned are based on the VE team members’ knowledge
and experiences. Each member’s opinion might be different; however, common
agreement is achieved through teamwork. Therefore, the weights used in Bayes’
calculation have practical meaning for a project.

Bayes’ theorem can be used in both ‘a priori’ and ‘a posteriori’ analysis. A posteriori
probabilities permit us to calculate the reversed probability once subsequent information
becomes known. The decision to select functions for development can be established on
the basis of the given function or given criteria depending on individual needs. The
detailed method for applying Bayes’ Rule is available in many books on statistics and
probability. Reference is made here to Miller and Freund (1977).

399
6. SUMMARY OF TECHNIQUES
In short, the use of the matrix analysis method is to ensure the correction of the decision-
making process by weighting the criteria first then analyzing the elements next based on
the former weighting result, thereby, improving the accuracy of the result. The
application of the AHP method established the priority choices on the basis of the
consistency consideration of the problem. Further, payoff matrix method is a calculation
of a decision-making effort. The Bayes’ theorem provides a technique to ensure the
correction for the decision-making process by revising the earlier appraisals according to
the additional information. Therefore, all four methods applied together enhance the
decision-making quality in VE study.

7. RESULTS

The main purpose of the mathematical analysis is to determine the functions that are valid
candidates for development. Each mathematical method produces a different answer.
The question then arises as to which method is most reliable. However, given that all
methods used have a valid basis, and are mathematically and functionally sound, it
becomes difficult to eliminate any one particular method. Therefore, a comprehensive
approach is adopted wherein all the mathematical methods are incorporated and used
toward the final decision-making. The comprehensive approach involves adding the sum
of the ranks from each method and then selecting the higher priority functions as the ones
that have lower sum of ranks. The calculation results of the four mathematical
technologies are listed in Tables 1-5. The rank order indicates the priorities of the
choices, enabling the function selection decision to be made according to the lowest sum
of ranks.

Table 1: Rank order of candidate functions for a VE study - Construction concrete foundation

Case #1 Bayes' theorem Payoff Matrix AHP Matrix analysis ∑ Rank

Function A1 3 3 3 3 12
Function A2 4 4 5 4 17
Function A3 5 5 1 5 16
Function A4 2 2 2 2 8
Function A5 1 1 4 1 7

Discussion A5 is adjusted the most important function for development.

The priorities of functions selected for development is A5, A4, A1, A3, A2

400
 Table 2: Rank order of candidate functions for a VE study - Construction concrete column
Case #2 Bayes' theorem Payoff Matrix AHP Matrix analysis ∑ Rank
Function A1 3 3 2 3 11
Function A2 4 4 1 4 13
Function A3 2 2 3 2 9
Function A4 1 1 4 1 7

Discussion A4 is adjusted the most important function for development.

The priorities of functions selected for development is A4, A3, A1, A2

Table 3: Rank order of candidate functions for a VE study – Small gas station

Case #3 Bayes' theorem Payoff Matrix AHP Matrix analysis ∑ Rank

Function A1 2 5 1 5 13
Function A2 5 4 2 4 15
Function A3 4 3 3 3 13
Function A4 3 2 4 2 11
Function A5 1 1 5 1 8

Discussion A5 is adjusted the most important function for development.

The priorities of functions selected for development is A5, A4, A1, A3, A2

Table 4: Rank order of candidate functions for a VE study – Pipe making process
Case #4 Bayes' theorem Payoff Matrix AHP Matrix analysis ∑ Rank
Function A1 5 3 3 3 14
Function A2 2 1 5 1 9
Function A3 4 2 4 2 12
Function A4 3 4 2 4 13
Function A5 1 5 1 5 12

Discussion A2 is adjusted the most important function for development.

The priorities of functions selected for development is A2, A5, A3, A4, A1

401
 Table 5: Rank order of candidate functions for a VE study – Site preparation

Case #5 Bayes' theorem Payoff Matrix AHP Matrix analysis ∑ Rank

Function A1 2 1 3 1 7
Function A2 4 3 1 4 12
Function A3 3 4 1 3 11
Function A4 1 2 2 2 7

Discussion A1and A4 are adjusted the most important function for development.
The priorities of functions selected for development is A1, A4, A3, A2

8. CONCLUSION
It was observed that the Payoff & Matrix analysis give identical results in most cases;
Bayes’ deviates slightly, while AHP gives significantly different results.

Case #1, The results from Bayes’ theorem, Payoff matrix, and Matrix analysis are the
same. The result from AHP is different.
Case #2, The results from Bayes’ theorem, Payoff matrix, and Matrix analysis are the
same. The result from AHP is different.
Case #3, The results from Payoff matrix and Matrix analysis are the same. The result
from Bayes’ theorem deviates slightly. The result from AHP is different.
Case #4, The results from Payoff matrix and Matrix analysis are the same. The results
from Bayes’ theorem and AHP are different.
Case #5, The results from Payoff matrix and Matrix analysis are close. The results
from Bayes’ theorem and AHP are different.

Form this observation, Payoff & Matrix analysis are identical in 80% of the cases. The
results in Bayes’ theorem are sensitive to the input weights assigned. Thus, the
likelihood of a function being selected for development is proportional to the initial
weight assigned to it.

A comprehensive method is thus presented that is able to optimize the decision-making

of function selection for further development during the Value Engineering study period.

9. ACKNOWLEDGEMENT
The authors would like to thank King Fahd University of Petroleum & Minerals for
providing the support for the production of this paper.

402
10. REFERENCES
Dell’isola J. A. (1982) Value engineering in the construction industry, Van Nostrand Reinhold Company.
Kaufman J. J. (1998) Value management, Crisp Publications, Inc., New York.
King R. T. (2000) Value engineering theory, Published in USA, Thomas R. King, 343 Crestview drive,
Franklin, Pennsylvania 16323.
Lifson and Shaifer (1982) Decision and Risk Analysis for Construction Management, John Wiley & Sons,
New York.
Miles D. L. (1972) Techniques of value analysis and engineering, McGraw-Hill, Inc., New York.
Miller I. & Freund E. J. (1977) Probability and statistics for engineers, Prentice-Hall Inc., Englewood
Cliffs, NJ.
Parker E. D. (1977) Value engineering theory, The Lawrence D. Miles Value Foundation, Washington,
D.C.
Saaty, T. L. (1980) The Analytic Hierarchy Process: Planning Priority Setting, Resource Allocation.
McGraw Hill, NY.
Snodgrass J. T. & Kasi M. (1986) Function analysis, University of Wisconsin-Madison, Madison,
Wisconsin.
Zhang, Y, and Singh, A. (2002) Functional Models and Mathematical Methods for Decision-Making in
Engineering, UHM Research Report, Honolulu, UHM/CE/02-24.

403
404
DEVELOPING STRATEGIC SYSTEM PLANNING
FRAMEWORK FOR FACILITIES MANAGEMENT
(SSPfFM) IN THE HEALTH SECTOR

Zulhairi Abd. Hamid1 Mustafa Alshawi2

1
Construction Research Institute of Malaysia (CREAM)
Level 10, Grand Season Avenue
No. 72 Jalan Pahang
53000 Kuala Lumpur
Malaysia
2
School of Construction and Property Management
University of Salford
4th Floor Maxwell Building
Salford, M5 4WT
United Kingdom

E-mail: zuhairi@cidb.gov.my

Abstract: Facilities Management (fm) is commonly defined as managing physical workplace

and property, which have a direct link with design and construction activities in one aspect,
and managing services and performance of resources in the organisation as another. Aspects
of fm are inter-related and share information from project brief until the design life of the
building. Information plays a major role in integrating fm stakeholders. This paper highlights
the importance of strategic it in facilitating the implementation of strategic fm in the health
sector. the current uptake of it in hospital’s fm department is at operational level, while the
strategic fm demands the implementation of strategic it in fm. the gap between the current
operational it and the need for it to be considered strategically has made this research
important. Fm department should be ready to implement changes in managing its information
systems to meet client’s demand. The effective use of information for the maintenance and
operation of hospitals, hospital development, benchmarking, performance measurement,
managing finance and human resources, requires strategic information systems (is). This
paper introduces a strategic system planning framework for fm (sspffm) in the health sector to
capture the strategic information on fm that facilitates the implementation of strategic fm.
case study research methodology was adopted in support of this research. Sspffm is derived
from a pilot study conducted in Manchester, UK. It is further validated with other three case
studies. this paper identified; gain top management commitment, align information system
development with fm business needs, establish technology path and policies on it in fm, and
forecast information system requirements in fm as the main components of sspffm that
focuses on short, medium and long-term strategies of fm in the health sector.

Keywords: Facilities Management, Health Sector, Strategic System Planning Framework for
FM (SSPfFM), Information Systems (IS), Information Technology (IT).

405
1. INTRODUCTION
FM in healthcare is a broad topic that encompasses areas such as human resources,
physical workplace, environment, engineering services, structural, maintenance and
financial management. In the National Health Service (NHS) perspective, FM is defined
as “A dynamic business operation embracing non-clinical business anchoring services,
which is dynamic in nature for both the enhancement and creation of the best value
healthcare service success using partnering philosophy. It integrates strategic knowledge
and operational management issues that are environmentally sustainable, embracing the
ever-changing and chaotic business environment in the healthcare service provision”.
(Okoroh et al, 2001).

Building services in NHS Trusts are designed to a relatively low-technology

specifications and, like hospital buildings and support services overall, have not been
required to take on board the importance of life-cycle costing and the need to deliver a
service according to contractual criteria of reliability and performance (Selman, 1998).
However, a new concept of hospital and healthcare has emerged and started the
transition from the traditional “provider-centred” to a “consumer-centred” healthcare
system (Miller and Swensson, 2002). This concept has made the medical administrators
join with construction professional right from the project onset, which was not the case
in the conventional hospital construction.

2. BACKGROUND TO STRATEGIC FM IN THE NHS TRUSTS

The involvement of PFI in hospital redevelopment projects has shown the UK
government’s commitment to promoting project life-cycle approach. A number of
documents have therefore been produced by Facilities Directorate in the NHS Trust,
such as Estates and Facilities Strategy and Policy document as guideline to ensure the
delivery of quality service to patient and healthcare (CMMC, 2002; Trafford, 2002).
Project life-cycle components include the planning of new hospital’s developments,
project briefing, tendering, construction, and FM activities. FM activities in NHS Trusts
include hospital development, asset management, and services performed during
operation and maintenance throughout the design life of the hospital building.

Comments from researchers have shown that FM departments in NHS Trust are
functioning at an operational and tactical level but not at any significant strategic level
(Wagstaff, 1997; Wheeldon, 2002) but commercial development of integrating non-core
services into a Facilities Management service division has started to influence the
thinking and structures of NHS trusts (Rees, 1997).

The key to success in implementing hospital’s FM strategy lies in knowledge and ability
in developing and improving the strategy (Hicks, 2004) in which the FM department
must be creative in disseminating its strategic role. The strategic FM implementation
must be flexible in order to manage change in support of the core functions of the
hospital. The Facilities Directorate is responsible for, and must be innovative in,
performing this type of services. FM services in the NHS are more than just a range of
non-core activities, they are vital enabling functions that underpin the whole business
activity of the Trust in all departments of the organisation (Payne and Rees, 1999). The

406
tasks to implement strategic FM require co-ordination, integration and sharing of
information among all stakeholders.

3. USE OF IT IN THE NHS TRUST

The NHS Trust has planned to implement an Information Strategic Programme for the
Modern NHS 1998-2005 encompassing the clinical and non-clinical services including
FM, that emphasises the use of IT to facilitate and improve their business (NHS
Executive, 1998; NHS, 2002; CMMC NHS Trust, 2002). Government initiatives via the
NHS Modernisation Plan and e-Government policy (NHS, 2001) have placed strategic
FM as an agenda priority. The Facilities Directorate is required to formulate a strategy
for FM and IT. Under the National IT Programme for the NHS stated in DoH (2000),
DoH (2002), and NHS (2001), the NHS Trusts require information, applications and
services to be delivered in new ways and through modern systems and technology, with
the need for infrastructure that is robust, flexible, secure and standardised.

Facilities Directorate plays a major role in providing support services to the Trust and
responsible in developing information strategy for FM activities. The future direction on
how IT could strategise the dynamic business operation and the implementation of
strategic FM must be clearly defined (NHSIA, 2002; CMMC, 2002). The Directorate
should be ready to implement changes in managing its information systems to meet
client demand.

Through NHS Plan the government has urged NHS Trust to implement IT strategically
in the hospital activities. Without any referred strategic IT document plan the
implementation of IT will be of an ad-hoc and operational based. Although no specific
directives given to FM Directorates on how to implement strategic IT in FM, it is clear
that the Directorate must take that lead. Currently there is no indication that information
strategy on FM is being developed in NHS Trust despite the urgency laid by the
government and authority.

4. PROBLEM STATEMENT
The strategic implementation of FM at the NHS Trusts plays a major role in persuading
FM stakeholders to implement strategic IT. Despite its potential, the advantages of IT
are not being fully exploited by the Facilities Directorate. Studies have acknowledged
the scarcity of intellectual resources, experienced personnel, and the lack of IT
knowledge and skill levels amongst managers at all level (Protti, 1999; NHSIA, 2002,
The Lancet, 2002) that have delayed the implementation of strategic IT in the Trusts.
Communication, integration and sharing of information among stakeholders are very
important and have the potential to assist.

Based on information from the literature and the examination of the current
implementation of strategic FM and IT systems in the NHS Trusts, the current uptake of
IT is operational, while the implementation of strategic FM which involves short,
medium and long-term activities requires information to be shared by the stakeholders
that demanded the implementation of strategic IT. The unbalanced situation between the

407
current operational IT and the need for it to be considered strategically has made this
research important. In order to respond to the need for strategic FM activities, it would
be important to provide the Facilities Directorate with a strategic system planning
framework for FM (SSPfFM), to be associated with the strategic FM operation. The
requirement for strategic IT in FM is contained in NHS Executive (1998), NHS (2001),
NHS (2002) and NHSIA (2002) for the Facilities Directorate to implement. These
documents does not specify the detail of the implementation plan and it is up to the
Facilities Directorate own initiatives to take the matter forward. The development of
SSPfFM is a step-by-step approach that will first investigate the current uptake of
strategic FM by the Facilities Directorate and then identify the necessary process in
strategic IS/IT to facilitate the information sharing by all stakeholders in the health
sector.

Four NHS Trusts have agreed to participate as case studies to develop SSPfFM. A pilot
study was used to prepare a draft proposal of SSPfFM which is then validated with other
three case studies to validate SSPfFM. The final delivery of the validation process is the
proposal of SSPfFM to the NHS Trusts.

5. ASPECTS OF FM IN HEALTH SECTOR

Aspects of FM in health sector could be grouped as design and construction related
activities and as support services. Design and construction related activities for health
sector include new hospital construction, redevelopment plan, renovation and
refurbishment work, property management, space management, energy management,
M&E services as well as engineering/building maintenance and a ground maintenance
service.

Another aspect of FM is focussed as support services to the hospital and provides value
for money services to the patients. Supplying catering, cleaning, and ward house
keeping services, site management, waste management, portering, linen supply,
residential accommodation for doctors, car parking and security are some of the typical
examples of support services in the hospital.

Gelnay (2002) considers healthcare FM as one of the key elements for the successful
delivery of healthcare services. These aspects of FM as business supports objectives to
the organisation are shown Figure 1. This figure highlights FM activities before and after
the completion of construction. The implementation of FM requires information on
design and construction related activities to be passed to the client after the completion
of the construction. This information is also shared to support the business function of
the organisation. Bridging the communication gaps are considered to be important
solutions to allow seamless flow of information in FM activities. Information is a tool to
bridge the gap between aspects of FM.

Normally, FM departments are responsible for providing support functions to meet the
core objectives of hospitals and deliver a valuable service to patients. Also, the
integration between the two aspects of FM is critical as the activities are inter-related
and share information. This relationship makes the project life-cycle approach important
to FM professionals as it provides a link between construction and the operation of
hospital facilities.

408
 Before completion of
construction project
Design, build Construction related
and construction information
of project
Useful Information passed to
Handover of construction project from organisation to perform its
Contractor (Design and Build from function within two aspects
AEC) of FM

Facilities Management Bridging

the gap

After completion of construction project

Design and construction
related activities Aspect
FM 1
Maintenance Management

Property Management Bridging

the gap

Business primary support Aspect

objectives to organisation FM 2

Figure 1. FM activities

6. THE PROJECT LIFE-CYCLE APPROACH

Project life-cycle approach is crucial in FM. Major functions in FM like maintenance

and operation have often been ignored in the project life-cycle cost resulting in buildings
that are costly to maintain. Horvath (1999), Sarshar et al., (2000), Underwood and
Alshawi (2000) proposed project infrastructure should properly be viewed from a life-
cycle perspective. Lack of information and cooperation among the parties, especially the
contractor and the designer, at the design stage, is the major contributor to problem of
maintenance (Underwood, Alshawi, 2000). In many cases, operation, maintenance and
end-of-life environmental costs of facilities have contributed to 85 % in cost occurring
after construction by outweighing all initial costs (Scarponcini, 1996). A study by
Teicholz (2004) also suggested that design and construction of buildings often represents
less than 15% of the total lifecycle cost of building.

409
 Actual whole life cost percentage
40%
35%
30%
25%
20%
15 %
10 %
5%
0%

%
4%
%

2%
0%

8%
38

18
20

t1

gn
al
e
n

n
r

rv

os
ai
ai

tio
en

si
p

se
nt

sp

de
em

uc
re
ai

re

di

tr
/m

ac

ns
k
ris
n

pl

co
ru

re
d
rio
pe Benchm arking cost of total ow nership

Figure 2. Benchmarking Cost of Total Ownership - Boussabaine et al. (2004)

Another study by Boussabaine et al. (2004) gave a slightly higher percentage of design
and construction life-cycle cost at 22% as shown in Figure 2 to which whole life cycle
cost (WLC) can be compared and controlled.

The project life-cycle approach for hospital emphasises the importance of Architecture,
Engineering and Construction (AEC) and FM professionals working together with
policy makers. This allows dissemination of information and knowledge sharing to be
integrated throughout the project life-cycle right from the project inception. Likewise,
integrated FM for hospital demanded facilities managers, stakeholders of FM and AEC
to be on board right from the planning stage. Figure 3 shows the project life-cycle for
hospital.

410
 Design Construction Operation
Hospital’ 1 Knowledge
Transfer 2
Knowledge
Transfer 3 Knowledge
4
As-built Transfer
Information Information
drawing Information
Plan and
Design
Teamof Construction Transfer to
The Construction O•perational
Property
hospital ofDocuments
hospital management
of hospital owner/client
• Maintenance
facilities
management
• Infrastructure
Government: • Environmental
management
Ministry of Health,
• Support service
Local Authority, - Performance
Hospital management
Management
Business support
services in clients’
organisation

i. Administration
Consortium: ii. Human resource
management
iii. Finance
management
iv. Procurement

Figure 3. Project life-cycle for hospital

The project life-cycle for hospital is divided into four operations as follows:
i. Plan and design of hospital,
ii. Construction of hospital,
iii. Operational of hospital,
iv. Transfer hospital back to owner.

7. RESEARCH OBJECTIVES
The objectives of this research are summarised below:

i. Explore the strategies and the implementation issues of Facilities Directorate in

NHS Trusts involved in the case studies,
ii. Investigate the strengths and weaknesses of current practices of IT for FM in
NHS Trusts,
iii. To capture and formulate Strategic System Planning framework for FM
(SSPfFM) relevant to the hospital’s strategic FM based from literature review
and case studies,
iv. To validate the SSPfFM framework developed from the pilot study against the
other three case studies,
v. Propose a Strategic System Planning framework for FM (SSPfFM) to the
health sector.

8. CASE STUDY AS A RESEARCH STRATEGY

The design of the pilot study is established first and targeted to NHS Trust A. This
hospital has planned to develop its strategic systems planning for FM and has
collaborated in this research. Data was obtained via interviews, questionnaire feedbacks
and document checks on NHS circulars. Senior managers of the Facilities Directorate
have collaborated in this exercise. Three other NHS Trusts B and C and D have taken
part in the multiple case studies to validate the SSPfFM developed from the pilot study.

411
The case studies looked into the current use of IT in FM and examined how the health
sector perceived IT as a tool to improve the implementation of strategic FM. The case
studies looked into current events happening in the health sector. This includes
government’s policy, organisational and department’s strategic direction and objectives,
and the interaction between the hospital management and the patients.

9. CASE STUDIES ANALYSIS CRITERIA

In order to meet the research objectives, the analysis of the case studies are mainly
focused from the following criteria:

i. The alignment of information systems (IS) strategies and strategic FM in the

NHS Trusts,
ii. Examine the current IS/IT capabilities in Facilities Directorate of all the NHS
Trusts involved, and
iii. The implementation of strategic IS/IT in FM for NHS Trusts.

10. RESEARCH FRAMEWORK

The research framework from the pilot study to the multiple case studies is illustrated in
Figure 5. The pilot case represents a most complicated one, compared to the other three
cases, so that nearly all relevant data collection issues will be encountered in this initial
trial. Each individual case study consists of a “whole” study, in which convergent
evidence is sought regarding the facts and conclusions for each case; each case’s
conclusions are then considered to be the information needing replication by other
individual cases. For each individual case, the report indicates how and why a particular
proposition was demonstrated or otherwise.

412
 DATA ANALYSIS
PLANNING DATA COLLECTION AND
VALIDATION

Draw cross-case
conclusions

Validate pilot
Conduct study’s result with
2nd. case Write 3 case studies
study individual
NHS Trust case report
B
Select 3
cases
Consolidate result
studies
with survey
Draft questionnaire
Proposal Conduct 3rd. Write
case study individual
NHS Trust case report
C
Design data
collection Write cross-case
protocol report
Theoretical
Framework
Conduct
4th. Write
case study individual
NHS Trust case report Proposal of
D SSPfFM
Pilot case
study NHS
Trust A

Literature
Review

Figure 4: Case Study Research Framework

An important part of Figure 4 is the dotted line feedback loop, which represents the
situation in which important discovery occurs during the conduct of one of the individual
case studies – for example, if one of the cases did not in fact suit the original design. A
second feedback could represent the situation in which the discovery led to
reconsidering one or more of the study’s original theoretical propositions. Under either
circumstance, “redesign” should take place before proceeding further. Once this has
been established, the research follows the path recommended before analysing, and
drawing conclusions from the case studies.

413
11. ANALYSIS OF CASE STUDIES

The background detail of the hospitals involved in the case studies is shown in Table 1.

Table 1: Size of Hospital

Case Study Category Size
Pilot case study Large NHS Trust A
This Trust is a major teaching Trust with six hospitals on four
Case Study 1 sites.

Hospital staff : 7500

Case Study 2 Medium NHS Trust B

Hospital staffs: 2500

Case Study 3 Medium NHS Trust C

Hospital staffs: 2500

Case Study 4 Medium NHS Trust D

Hospital staff : 4000

Closely examining the alignment of the NHS Trusts IS/IT strategies to FM strategic
objectives as shown in Table 2 have suggested the followings:

i. Only the pilot study has started the strategic IS/IT planning. Although there is
directive from the government (DoH, 2002) to implement strategic IT in the
hospitals but the uptake from the Facilities Directorate is still at its early
stage,
ii. There is no integration between information systems in FM and the hospital’s
core business needs dealing with patient’s record such as Electronic Patient
Record (EPR) and Electronic Health Record (EHR),
iii. The involvement of PFI consortium in the hospital’s development project
shows the relevance and importance of strategic IS/IT,
iv. It is important to gain top management commitment to implement strategic
IS/IT for FM.

414
 Table 2: Aligning IS/IT strategies to FM strategic objectives

Aligning IS/IT strategies to Pilot Study Case Study Case Study Case Study
FM strategic objectives NHS Trust 2 3 4
NHS Trust NHS Trust NHS Trust

A B C D
Aligning IS in FM with No No No No
hospital business needs
Aligning IS with FM Planning No No No
strategic needs stage

Seek competitive advantage Through No No Through

from IT PFI PFI

Gain top management √ No No √

commitment/support

Forecast IS resource Planning No No Planning

requirements stage stage

Establish technology path and Planning No No No

policies stage

The current implementation of IS/IT capabilities in Facilities Directorate for all the case
studies is detailed in Table 3. The analysis is focused into three areas: strategic FM,
strategic IT and organisation’s initiatives towards formulating strategic IS/IT in FM.

415
 Table 3: Current strategic IS/IT capabilities in Facilities Directorate
Current development of strategic Pilot Study Case 2 Case 3 Case 4
IS/IT in Facilities Directorate, NHS NHS Trust NHS Trust NHS Trust NHS Trust
Trust A B C D
Strategic FM
Defining FM strategic planning √ √ In progress √
objectives

FM Strategic Plan for hospital √ √ In Progress √

Determining FM key planning √ In In progress √

issues progress

Prioritize FM business operation √ In In progress √

progress
Strategic IT
Strategic ICT Vision for Hospital √ √ √ √

Strategic ICT Vision for FM Planning No No No

stage
Identifying strategic IS/ IT in FM No No No No
objectives

Analyzing the current IS National National National National

environment for hospital level level level level
(Dept. of (Dept. of (Dept. of (Dept. of
Health) Health) Health) Health)
Analysing the current IS in FM No No No No
business system

Analysing the current IS √ No No √

organizational system

Analysing the current FM information √ No No √

systems
Current external business Not Not Not Not
environment required required required required

Current external IT environment Not Not Not Not

required required required required
Identifying opportunities for No No No No
improvement for IT in FM
Evaluating opportunities for No No No No
improvement in IT

Identifying high level IT strategies No No No No

Identifying new IT architecture No No No No

Organization’s initiatives towards

formulating strategic IS/IT in FM

416
 Table 3: Current strategic IS/IT capabilities in Facilities Directorate (Cont’d)
Current development of strategic Pilot Study Case 2 Case 3 Case 4
IS/IT in Facilities Directorate, NHS NHS Trust NHS Trust NHS Trust NHS Trust
Trust A B C D

Organization’s initiatives towards

formulating strategic IS/IT in FM
Organizing the planning team √ √ √ √
looking on strategic FM strategic operation operation strategic
Establish Strategic team to Planning No No Planning
formulate strategic IS/IT in FM stage stage

Obtaining top management √ No No √

commitment to implement strategic
IS for FM
Identifying new business processes No No No No

Identifying priorities for new √ √ Not √

development projects documented

Defining change management Not Not Not Not

approach to implement strategic IT required required required required
Has defining IS action plan No No No No
previously

Has evaluating IS action plan No No No No

previously

The analysis from Table 3 has paved the way for the formulation of strategic IS/IT in
FM for the health sector. Strategic IS/IT in FM is influenced by the following factors:

i. The vision for strategic IS/IT for the hospital firstly has to be established,
ii. The strategic FM document is prerequisite before planning for strategic IS/IT
in FM,
iii. Obtaining top management commitment will expedite the planning process,
iv. The development of strategic IS/IT in FM requires a teamwork that comprise
of FM stakeholders in the hospitals,
v. The Facilities Directorates requires directive from top management to plan
for strategic IS/IT in FM for the hospital.

12. SSPfFM IN HEALTH SECTOR AS THE WAY FORWARD

After analysing the pilot study and the validation process via three case studies, the
SSPfFM are represented in Figures 5 and 6 respectively. The priority of the process flow
was determined by the senior management through priority ranking established during
the interview sessions.

Discussions with senior management at the Facilities Directorate of the three case study
Trusts suggested that additional factors and modifications on SSPfFM are needed other
than those identified by the pilot study. The adjustment to the previous SSPfFM is
shown in Figure 6 and detailed modifications are as follows:

417
 i. Directive from the top management that drives the planning of strategic IS/IT
in FM for the health sector, is crucial,
ii. A strategic team is required to determine the business vision and strategic FM
or Case 2, 3 and 4. For Case study 3, there was no strategic FM being planned
and documented when the interviews were conducted,
iii. The strategic team must comprise members from Facilities Directorate, IM&T
Directorate and the NHS Trust stakeholders to ensure all aspects and issues in
strategic FM are discussed,
iv. A second loop is introduced to complete the strategic IS/IT in FM. The
strategic team engaged here may consist of the same members that established
the strategic FM earlier, or a new team may be appointed by the management.
However, to maintain the continuity, the author proposes the same strategic
team be engaged,
v. The SSPfFM stresses the importance of NHS Board member, and FM
stakeholder approval, to ensure that detailed strategic FM information
pertaining to the health sector is captured.
OBTAIN TOP MANAGEMENT COMMITMENT

OBTAIN TOP MANAGEMENT

COMMITMENT
ESTABLISH STRATEGIC TEAM

BUSINESS VISION AND

STRATEGY FOR FM IN
HOSPITAL DIRECTIVE FROM TOP MANAGEMENT

STRATEGIC ISSUES AND BUSINESS VISION AND STRATEGY FOR FM

OPPORTUNITY FOR FM IN IN HOSPITAL
HOSPITAL

STRATEGIC ISSUES AND OPPORTUNITY

ESTABLISH STRATEGIC FOR FM IN HOSPITAL
TEAM

APPROVAL FROM NHS TRUST BOARD

ASSESS CURRENT IS/IT MEMBER AND FM STAKEHOLDERS
CAPABILITY

ESTABLISH STRATEGIC TEAM

EXAMINE CURRENT IT SYSTEM

FOR FM IN DELIVERING ASSESS CURRENT IS/IT
SHORT-MEDIUM-LONG TERM CAPABILITY
STRATEGIC PLAN

EXAMINE CURRENT IT SYSTEM FOR

FM IN DELIVERING SHORT-MEDIUM-
ALIGN IS/IT STRATEGIES
LONG TERM FM STRATEGIC PLAN
WITH STRATEGIC FM

ALIGN IS/IT STRATEGIES WITH

STRATEGIC FM
PRIORITISE BUSINESS
OPERATION IN FM

PRIORITISE BUSINESS
APPROVAL FROM NHS BOARD OPERATION IN FM
MEMBERS AND FM STAKEHOLDERS

Figure 5. APPROVAL FROM NHS TRUST BOARD

Strategic System Planning Framework for FM (SSfFM) in the MEMBER AND FM STAKEHOLDERS
Health Sector from Pilot Study Figure 6.
Strategic System Planning Framework for FM (SSfFM) in the
Health Sector After Validation from Case Study 2, 3 and 4

418
13.CONCLUSION
The implementation of strategic FM engaged many stakeholders in the NHS Trusts. The
need to share information between aspects of FM as discussed earlier emphasise the
importance of strategic IT in FM. The SSPfFM is proposed to fill the IT implementation
gap created when the Trusts starts to implement strategic FM. Without the SSPfFM in
place the authors foresee the operation of strategic FM will face layers of “information
difficulties” in its implementation. One example is the involvement of the PFI
consortium which clearly demands a strong need for sharing of information. Information
sharing is currently not taking place as IT systems in hospital development departments,
and hotel and estates operational services departments are stand alone, although both
departments are in the Facilities Directorate. The SSPfFM requires staff to be
knowledgeable in the management of IT, and this research revealed that the level of IT
knowledge among staff at the Facilities Directorate is still to be improved.

This research revealed, obtaining top management commitment and the need to establish
a strategic team to align strategic IT to FM business objectives are prime concerns. The
strength and the success of the SSPfFM rely on the ability of this team to streamline IT
with strategic FM objectives. This is only achievable through good knowledge in IT.

13. REFERENCES
Boussabaine, H. A., Kirkham, R. J. (2004) Whole Life-cycle costing Risk and Risk Responses. Blackwell
Publishing.
CMMC NHS Trust (2002) Estates and Facilities Compendium of Policy and Strategy. NHS Trust.
Department of Health (DoH, 2002) Delivering 21st. Century IT Support for the NHS: Summary of the
overall procurement strategy. Department of Health.
Department of Health (2000) Delivering 21st. Century IT Support for the NHS: Summary of the overall
procurement strategy. Department of Health.
Gelnay, B. (2002) Facility management and the design of Victoria Public Hospitals. Proceedings of the
CIB Working Commission 70: Facilities Management and Maintenance Global Symposium 2002.
Glasgow, pp. 525-45.
Gilligan, Colin & Lowe, Robin (1995) Marketing and Health Care Organisations. Radcliffe Medical
Press Oxford.
Hicks, M. L., (2004), Hospital Maintenance Strategic Plan at University of Michigan Hospital and Health
Centres, Business Briefing: Hospital Engineering and Facilities Management 2004.
http://www.bbriefings.com/pdf/747/hosp041_hicks.pdf. (Accessed: 23rd. December, 2004).
Horvath,A (1999) Construction for Sustainable Development – A Research and Educational Agenda.
Berkeley-Stanford CE&M Workshop. Stanford 1999.
Miller and Swensson (2002) Hospital and healthcare facility Design, second edition. W.W. Norton and
Company.
NHS Executive (1998) Executive Summary Information for Health. An Information Strategy for the
Modern NHS 1998-2005. Crown copyright 1998. Published for NHS Estates. NHS Executive.
NHS (2002), Making Information Count: A Human Resources Strategy for Health Informatics
Professionals, NHS Information Authority
Okoroh, M.I., Gombera, P.P., John,E., Wagstaff, M. (2001) Adding value to the healthcare sector - a
facilities management partnering arrangement case study. Facilities. Volume 19 Number 3/4
2001 pp. 157-164 Emerald Group Publishing Limited.
Payne, Trevor, Rees and David (1999) NHS Facilities Management: A prescription for change, Facilities,
Volume 17, No 7/8 July/August 1999Volume 17, Number 7, July 1999, pp. 217-221(5) Emerald
Group Publishing Limited

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Protti M (1999) An assessment of the state of readiness and a suggested approach to evaluating
information for health: An information strategy for the modern NHS (1998-2005). Report
submitted to NHS Executive.
Rees, D. (1997) Health Service: an overview of management structures. Facilities. Volume 15 Number 3,4
1997 pp. 62-65, MCB University Press ISSN 0263-2772.
Sarshar. M, Betts. M, Abbott, C. Aouad, G. (2000) “A vision for construction IT 2005-2010”. RICS
Research Papers. Vol. 3,No. 1, December 2000.
Scarponcini, P. (1996) Time for an integrated approach to facility management. Journal of Computing in
Civil Engineering. ASCE 10 1 (1996), p. 3.
Selman, C. A. (1998) The Influence of the Private Finance Initiative on Hospital Building Design,
Proceedings of 15th. International Congress of the International Federation of Hospital
Engineering, Edinburgh, Scotland 15th.-18th. June, 1998, 99-102. International Federation of
Hospital Engineering.
Teicholz, E. (2004) Bridging the AEC/FM gap. IFMA Journal. April/March 2004 IFMA Journal
The Lancet (April, 2002) The globalisation of the NHS. Vol 359 Number 9316 Elsevier Science Ltd.
Trafford Healthcare NHS Trust (2002) Estates Strategy 2003-2012. Director of Facilities, NHS Trust.
Underwood, J. and Alshawi, M. (2000) Forecasting building element maintenance within an integrated
construction environment. Automation in Construction. Volume 9, Issue 2 , March 2000, Pages
169-184, Published by Elsevier Science B.V.
Wagstaff, T. (1997) Productive use of IT in support of FM solutions. Journal of Management in Medicine.
Volume 11 Number 6 1997 pp. 382-387.
Wheeldon, B. (2002) Strategic facilities management in NHS Trusts. Built Environment, University of
Central England. http://boris.uce.ac.uk/research/students/index.php. Accessed: 24th. December,
2002.

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 POTENTIAL BEST VALUE CONSTRUCTION IN CHINA

Ziwei Tang1, Kenneth Sullivan2, and Dean Kashiwagi3

Arizona State University,

Performance Based Studies Research Group,
PO Box 870204 Tempe, AZ 85287-0204

1
E-mail: Sylvia.Romero@asu.edu
2
E-mail: Kenneth.Sullivan@asu.edu
3
E-mail: Dean.kashiwagi@asu.edu

Abstract: Due to the development of Chinese economics, the construction industry has
experienced the largest expansion in the last two decades. In order to encourage free
enterprise and competition within both the national and international environment, the
construction delivery mechanism in China was changed from traditional government
allocation to competitive or price based bidding. The problems encountered in this transfer
have been similar to other countries utilizing the competitive award system. This paper
proposes that through analyzing the lessons learned from countries that have matured in the
low bid award process, China can avoid common errors and accelerate the benefits of the
system. Education of professionals in the US identifies that one of the primary reasons for
poor performance is the client’s professionals’ misunderstanding of the source of construction
nonperformance. The results of a survey that was given to US construction personnel before
and after facilities education on the source of construction nonperformance shows that the
professionals’ misunderstanding is a major issue in industry performance, and can be
addressed through facilities education (20% alteration). The authors propose to test the
Chinese perception for similarities, to determine if the educational program that was
successful in the US can also increase the level of construction performance in China.

Keywords: Low Bid, Facilities Education, Best Value, Construction Procurement, Chinese
Construction Industry.

1. INTRODUCTION
Since open-door policy was practiced, China shifts from a rigidly planned economy to a
more vibrant market-oriented economy (Chan, Wong, and Scott 1999). Meanwhile,
construction delivery shifted from traditionally government allocation to state-owned
contractors to competitive bidding (Lai, Liu, and Wang 2003). After “Temporary
Regulation Construction Bidding and Tendering” was enacted in Nov 1984, China
attached more importance in a legalized procurement system of construction due to
increased amount of foreign investment and funding from World Bank and Asian
Development Bank, most of which required China to follow international practice (Chan,
Wong, and Scott 1999).

Besides the regulation mentioned above, there were other nine milestones with regarding
to Tendering & Bidding practices in China (Huang 2005).

1. 25, Feb 1991, “The Notice of Intensifying Tendering & Bidding Regulation on Key
National Construction Projects and Large-Scale Construction Projects” was issued.
2. 1 Jan 2000, “The Law of Tendering & Bidding” was implemented. Through this law

421
 the government requires that fundamental facilities, public facilities, construction
projects (including the project’s survey, design, construction and supervision) and
important equipment and materials relevant to the projects be awarded through the
system of inviting bids as long as the criteria prescribed by state are met (Chan,
Wong, and Scott 1999).
3. 1 May, 2001, “Opinion on Different Responsibility on Administrative Supervising of
Tendering & Bidding by State Council’s Relevant Departments” took effect.
4. 1 July, 2000, “Provisional Measure on Issuing Public Notice” by the original National
Planning Commission was released.
5. 1 Feb, 2002, the original National Planning Commission issued “Provisional Measure
on Supervising Bidding and Tendering of Key National Projects.”
6. 1 Jan, 2003, “Government Procurement Law” was implemented.
7. 12 July, 2004, “Opinion on Further Standardizing Tendering & Bidding Practice by
The General Office of State Council” was issued to decrease corruption in bidding
and tendering.
8. Most recently, 1 Sep, 2005, “Provisional Measure on Tendering & Bidding
Coordination Agency” was implemented. Eleven China Ministries formed this agency
to minimize the inconsistencies in tendering & bidding practices between industries,
as well as regulations and policies enacted by different ministries.
9. 10 Sep, 2005, “China Tendering & Bidding Association” was the only national
corporative organization across different trades and districts found in Beijing.

2. LOW-BID IN CHINA
Since the implementation of, The Law of Tendering & Bidding, the scope of delivery was
expanded to include construction delivery, mechanical equipment importation, and
government procurement. The government claims that the cost of government funded
projects has decreased about 500 Billion RMB compared with the budgeted estimates.
(Lai, Liu, et al. 2003).

In the past decade, three most popular means to evaluate tenders are centesimal grade
evaluation, two stage evaluation, and tendering with and without evaluation of tender
price with base price or actual cost.

The Law of Tendering & Bidding specified two bid methods: Open Bid and Invitation
Bid. It also stipulated that the awarded bid should at least meet one of these two
requirements:

1. The bid should satisfy various evaluation standards specified in the tendering
document.
2. The lowest bid should satisfy the essential requirements of the tendering document,
and can not be lower than actual cost.

Since low-bid was legalized, the low-bid or price-based bid has been widely used. As a
result, the awarded prices have significantly declined. Along with the perceived benefit
of getting a low price, professionals saw the drawbacks of low bid: low quality, not
completed on time, corruption, illegal competition, and increased final project price. In
the districts near the coast, low bid was applied for almost every project regardless of size

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and type. Many projects were awarded far below project budget. As a result, some
contractors gave up the bid bonds after they got the awards rather than accept the project
award. It also gave owners the opportunity to use the low bid award as a tool to collude
with the contractors after the award of the project. Under these circumstances,
municipals and state government, clients, and contractors began to be concerned about
the undesirable results of low bid (Huang 2005, Zhou 2004). A senior expert who took
part in building the China Tendering & Bidding Association stated, “The marketing share
of construction procurement can be equivalent to the stock market, and is still in the
ascendant. The construction procurement will be even hotter in the future. Only the
regulation system was not as good as the stock market (Huang 2005).”

In the New China 50-years Serial Analyses Reports issued by state statistical bureau in
1998, it stated that although the percentage of construction industry increased value in
GDP had been over 6% these years, the quality of construction was lagging. The
representative projects of construction in China reached the international standard, and
the fine-rate of quality was around 30%. This low level of quality and performance has
resulted in the collapsing of buildings and bridges from time to time. In the 1990s, the
fine-rate of quality remained below 40%. The peak was reached by 38.8% at 1993, but
has suffered annual declines. There is room for improvement (National Bureau of
Statistics of China 1999).

Another weakness of the Chinese construction industry is the number of safety accidents.
According to the statistics of Construction Ministry, the number of deaths from
construction was 1,297 in 2002, a higher mortality rate than every other industry except
transportation and mining. A lack of consciousness of safety, unfulfilled responsibility,
poor management, and illegal practices are practices identified on construction projects.

Fujian is an example of poor performance in the low bid environment (Cao 2005, Sun
2005). The vice secretary-general of Xiamen construction association, Jianghuai, Zhu,
stated that since Low-Bid was carried out in Xiamen, the fine-rate of quality had dropped
more than 70%. This phenomenon was present at different cities of the Fujian province.
Local contractors estimated that the majority of awarded prices were lower than the
contractors’ actual cost.

The harmful consequences of the under-cost competition induced by low bid were not
only limited to the project quality, but brought severe influence to the local contractors.
Many contractors could not make profit due to the high competition and the growing
price of materials. Contractors gave up their bid bonds after being awarded projects.
Many contractors moved from the Fujian province, to places where low bid was not as
popular (Cao 2005, Sun 2005).

3. POSSIBLE SOLUTIONS TO THE LOW BID AWARD ISSUES

The authors propose that China is using the low bid process because they are unaware of
the disadvantages of the system and do not have the technology for a more successful
process. The authors also propose that they can learn how to solve the issues of China’s
low bid award by analyzing the results of the process in more mature construction
industries such as the United States. The US construction industry has practiced the low
bid for the last 40 years and has not been able to solve the performance issue (Kashiwagi

423
and Gardner 2002). Research into the low bid award system has resulted in the
understanding of the Construction Industry Structure (CIS), the performance of the low
bid environment, and the supply and demand issue of the construction industry
(Kashiwagi 2004). The CIS identified the client makes the decision to use either the low
bid (minimal requirements) or the best value (high performance and price) procurement
process (Figure 1)
High

Quadrant III Quadrant II

Best-Value
Negotiated-Bid Quality Control
Perceived High Price
Performance

Efficient
“Unstable”

Quadrant IV Quadrant I
Non-performing Low-Bid or Price-Based
Low Competition / Performance High Competition
“Unstable” Minimum Performance

Low Competition High

Figure 1: The Construction Industry Structure (CIS) Model (Kashiwagi 2004)

The low bid process requires the client to use a specification. It requires the client to
direct the contractor on what to do, how to do it, and by asking for the lowest price and
the minimum requirement, to manage and inspect the contractor. The best value process
requires the client to identify the requirement, but forces the contractors to compete based
on the highest performance and the best price. This forces the contractor to practice
quality control, and to minimize the risk of nonperformance before the construction
instead of during construction by client management and inspection. The biggest
difference between the two environments is that construction risk is transferred in the
best value environment. This is the definition of outsourcing (PriceWaterhouse 2005).

These concepts are not well understood by the construction owner’s personnel in the
construction industry. Research has identified that the client controls the selection of the
procurement process. Best value tests show that when the client uses a performance
based environment, the contractors perform, and problems are minimized. The research
has shown that the low bid structure is the source of construction nonperformance. When
the low bid structure is used, the occurrence of the following is increased:

1. Client and contractor collusion for change orders and changing the specification.
2. Minimum amounts and performance of construction products.
3. Opportunities and the competitive advantage of the nonperformers.
4. Adversarial climate between the client and contractor resulting in inefficiencies.
5. Client’s management and inspection costs.

The American federal government also has had difficulty with construction performance
over the past ten years through the low-bid, design, bid, specification, procedure. Federal
procurement directives (FAR 37) identify that the low-bid award process is (Kashiwagi
and Gardner 2002):
1. Inefficient.
2. Has not provided quality construction.

424
3. Gives the risk to the government instead of contractors and designers.
4. Is not to the advantage of the government.

Data from Engineering News Record, 1998 shows (Post 1998):

1. 42% of projects completed late;
2. 33% of projects were over-budget;
3. 13% of projects have claims and litigation; and
4. 53% of owners would use the contractor again.

Research has shown that the counterintuitive solution for increasing value and
construction performance is to move from the low bid environment to the best value
environment. The largest obstacle is the understanding of the differences between the
two environments by the client’s personnel (Kashiwagi, et al 2005). This hypothesis was
tested by conducting survey questions to client’s professionals before and after the
education of the CIS, the low bid delivery structure and its results, and performance
information of best value tests. The research test had two objectives:

1. Confirm that the construction owners and their representatives do not understand
the source of construction nonperformance.
2. Identify if the client’s personnel are open to the concepts of best value and if
education will improve their understanding of the concepts.

Client’s personnel were questioned before and after education sessions. The
questionnaires were designed to identify understanding of best value and low bid
environments, CIS, transfer of construction risk, and effectiveness of management and
inspection of low bid contractors. 226 owners, designers, consultants, and general
contractor personnel were educated. The attendees were asked to rate 21 questions based
on a scale of (1-10) with 10 as strongly agreed and 1 as strongly disagreed. They were
instructed that if they did not know, to rate the question a 5.0. A rating of 10 indicates
that the industry personnel completely understood the concepts. A result of 1 indicates a
complete misunderstanding of the concepts. A 5 indicates that they are confused about
the concept and do not know (Kashiwagi, et al 2005).

Figure 2 shows the responses before the education for ten seminars. The average rating
was a 5.2, indicating a basic confusion of the delivery of construction performance. The
results show that the educated personnel do not know the source of construction
nonperformance (not on time, not on budget, not meeting the clients’ expectations).

In order to assess the impact of the best value education, the personnel were surveyed
again at the end of the conferences. Figure 2 compares the average scores at the
beginning and the end of the conferences. The average score was 6.9, with an
improvement of 1.7 points. The results suggest that with adequate education, the
industry personnel are open and capable of increasing their understanding of the
concepts.

425
 10.00
9.00
8.00
7.00

Average Score
6.00
BEGINNING
5.00
END
4.00
3.00
2.00
1.00
0.00
1 2 3 4 5 6 7 8 9 10
Conference

Figure 2: Average score the beginning and the end of the conferences

The results of the test support the hypothesis that the client’s personnel do not understand
the source of construction nonperformance, that they are open and can understand the
concepts of the best value environment. Twelve years of testing show that the client’s
personnel must understand the source of construction nonperformance before the best
value environment can be used (Kashiwagi, 2004). The proposal of this paper is to use
the same questions to identify if the industry personnel in China understand the concepts
of construction performance and nonperformance. If the industry does not understand the
concepts, the next step would be to educate the personnel and see if the results are similar
to the results in the United States. If they are, the third step would be to run best value
tests in China.

4. SURVEY RESULTS OF CHINESE CONSTRUCTION

INDUSTRY PERSONNEL
The questionnaire was designed based on the same reasoning as the surveys for the US
participants. The attendees were centralized in Shanghai where the booming real estate
market and location of the “2010 Shanghai EXPO.” By identifying the attitude of
construction personnel, the possibility to promulgate education of best value procurement
in China can be identified. Questionnaires were sent out to 200 personnel, with 110
returned (55% return rate.) The surveyed included different roles in the construction
industry: owners, contractors, designers, consultants, and government officers.

The survey is comprised of five sections: statements 1-6 are related to concepts of logic
and business, statements 7-12 are intended to identify current construction practices, and
statements 13-19 related to Best Value concepts. The surveyed were asked to rate the
questions based on the scale of (1-10) with 10 as strongly agreed and 1 as strongly
disagreed. The responses to each criterion were divided into three groups: agreed (1-4),
neutral or don’t know (5-6), disagreed (7-10). A multiple answer question was also
asked.

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5. ANALYSIS OF RESULTS
Table 1 shows the statements and results. Ninety-three out of 107 respondents tend to
agree that people take risks without enough information, and 59 of 109 also agree that all
information can predict the outcomes. But as to why expectation does not match
outcome, only 36 of 109 respondents tend to believe it is due to inadequate information.
Actually since each event has only one input and one output, given “all” information at
the input, each event becomes predictable. If expectation does not match the outcome, it
is because there is inadequate information at the input. In the construction environment, if
the contractor cannot meet the client’s expectation, it may be because the owner does not
get enough information when the bidding was conducted. The way to utilize information
would be to somehow consider the performance information or the ability of the
contractor to understand the requirement of the client. In the low bid environment, this
information is not considered. It is a part of the best value process. In the best value
environment, contractors are forced to preplan, look ahead and identify risk as a part of
the procurement process.

Table 1 shows only half respondents agree that a high level information is related to a
leadership or efficient process that has less client decision making and control
(outsourcing.) The result shows that respondents consider decision making, control, and
management as the means to force the contractor to perform. Client decision making is
caused by a lack of information. Also by making decision, using control and
management, the clients actually assumed the responsibility of their decision and take the
risk which should have been transferred to the contractors.

Forty-four out of 109 respondents agreed that the current environment of construction
industry is a “win-win,” and 80 out of 109 respondents are inclined to regard low bid as
an environment of high competition, low performance and causing change orders which
lead to higher price. Eighty-five out of 109 respondents tend to agree that the low price
contractor does not always result in performance. These responses imply that the
majority of respondents consider the current low bid award resulting in poor performance
and conflicting to best value. This outcome also confirms that people in the Chinese
construction industry recognized the deficiencies of the low bid environment.

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 Table 1: Questionnaire Results
Responses
# CRITERIA Not
Total Neutral Agree
Agree
1 Event has one outcome and can be predicted. 107 19 29 59
2 A person without enough information will take the risk. 109 2 14 93
When expectation does not match outcome, not enough
3 109 31 42 36
information was used.
The person who has high information level makes less
4 109 21 28 60
decision and control.
The person with low information level uses management
5 108 25 25 58
instead of leadership.
The less control and management the owner does the
6 109 43 25 41
more risks are shifted to contractors.
7 The majority of owners outsource projects to contractors. 109 42 23 44
8 The current environment of construction is a “win-win”. 109 37 28 44
Low bid is an environment of high competition, low
9 performance and causes change orders leading to higher 109 15 14 80
price.
10 The contractor awarded does not always perform. 109 8 16 85
The quality standards actually cap the highest possible
11 110 57 29 24
quality an owner could achieve.
13 A professional wants high perceived risk and no real risk. 109 14 24 71
Long term partnerships build trust and relationships and
14 110 47 30 33
decrease performance and value.
The time/cost to measure the performance of individuals
15 110 11 37 62
is often worthwhile.
Owner representatives should have technical expertise in
16 109 5 12 92
what they are buying.
Contractors should be selected based solely on
17 110 46 38 26
Performance (and not price)
18 The owner should never give their budget to the 110 26 32 52
contractors
It will be good to try a new delivery method based on
19 109 4 17 88
Best-Value System.
Who is the real expertise in construction industry? Owner,4; contractor,40; consultant,22;
202
inspector,20; designer,45;

Only 24 out of 110 respondents are inclined to agree that quality standards actually cap
the highest possible quality an owner can achieve. This shows that most of the surveyed
personnel do not understand that standards and specifications are always based on the
minimum, and when combined with low price, are the cause of a decrease in
performance, value, and increased risk.

Contractors and designers are deemed as the experts in construction by the respondents.
This shows the misunderstanding that designers are experts in construction. In an
efficient environment, designers should be experts in identifying requirements and
translating the requirements into construction documents, and contractors are experts in

428
construction. This misunderstanding is a major obstacle in moving from a low bid
environment to a best value environment as designers have not been recognized for their
core expertise. Research has shown that this confusion exists in inefficient environments
where management is maximized.

Forty-four out of 109 agree that the majority of owners outsource projects to contractors,
and 92 out of 109 agree that owner representatives should have technical expertise in
what they are trying to buy. The definition of outsourcing from MSN Encarta is “The
purchase by a company of labor or parts from a source outside the company rather than
using the company's staff or plant (MSN Encarta).” Instead of using technical expertise
to manage and control contractors who are the real technical based experts, the clients
should minimize their management by really outsourcing their projects to contractors
(best value environments). This shows that the surveyed personnel do not understand the
sources of construction nonperformance.

81% are willing to try a best-value based procurement delivery method. This shows that,
1) The current processes are not optimal, 2) There are problems, and 3) The problems are
severe enough to consider another process.

Although the respondents did not show high understanding of Best Value concepts, they
are open to try best value procurement. The average scores (once adjusted based on the
optimal scores) is 6.1 which is higher than the U.S. average before education. The results
also show that the personnel surveyed were very open to new concepts.

6. CONCLUSIONS AND RECOMMENDATIONS

The United States construction industry has gone through an extensive period of using
the low bid construction delivery process. The results show low performance. This can be
validated by:
1. The performance numbers of the US construction industry.
2. The search for different delivery systems.
3. The importance of client project and construction management in the industry.

It has been identified that the construction client or owner controls the level of
performance of the industry by the type of delivery system being used. It has also been
identified that the client’s personnel do not understand the sources of construction
performance. Tests have shown that the client’s personnel are open to education, and the
education can improve their understanding.

The construction industry in China is not as mature as the US industry. Lessons learned
from the U.S. industry may assist the Chinese industry to improve performance.
Questionnaires show that the Chinese industry personnel are similar to the U.S.
personnel. They lack an understanding of the source of nonperformance, but can identify
that there are issues, and are open to new processes. The authors propose that the best
value technology that has been tested for the past 12 years can be taught to Chinese
industry personnel, and if understood, best value tests can be conducted.

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7. REFERENCES

Cao, L (2005) Low-bid: disputes left to the judgment by actual practice (Chinese). Chinese Construction
Newspaper, http://www.chinajsb.cn/gb/content/2005-02/28/content_125675.htm, {Accessed:
2005, Feb}.
Chan, W, Wong, F, and Scott, D (1999) Managing construction projects in china-the traditional period in
the millennium. International Journal of Project Management, Volume 17, Issue 4, pp.257-263.
Huang, Zhen L (2005) Tendering & Bidding: Go out the high-level occurrence-zone of corruption
(Chinese). China Economic Journal,
http://www.ce.cn/ztpd/hqmt/gnmt/zgjjzk/200509/20/t20050920, {Accessed: 2005 January}.
Kashiwagi, D and Gardner, G (2002) The movement of the federal government from low-bid award to best
value. ASC Proceedings of the 38th Annual Conference – Virginia Polytechnic Institute –
Blacksburg, VA, pp.273-280.
Kashiwagi, D, Parmar, D, and Savicky, J (2003) The impacting of minimizing specifications and
management at the university at the University of Hawaii. Journal of Facilities Management, Vol
2, No. 2.
Kashiwagi, DT (2004) Best Value Procurement. Performance Based Studies Research Group: ASU.
Kashiwagi, D and Massner, S (2002) Solving the construction craftperson skill shortage problem through
construction undergraduate and graduate education. ASC Proceedings of the 38th Annual
Conference – Virginia Polytechnic Institute and State University – Blacksburg, VA, pp165-176
Kashiwagi, M and Sullivan, K (2005) The impact of education of construction clients. PBSRG Internal
doc.: ASU.
Lai, K, Liu, S, and Wang, S (2003) The method used for evaluating bids in the Chinese construction
industry. International Journal of Project Management, Vol. 22, pp193-201.
Post, NM (1998) Building Teams Get High Marks. Engineering News Record, Vol. 240, Issue 19, p. 32-39.
PriceWaterhouse, Coopers Global (2005) HR Outsourcing in Government Organizations: Emerging
Trends, Early Lessons, Http://www.pwcglobal.com/extweb/newcoatwork.nsf/docid , {Accessed:
2005, January}.
Sun, X (2005) Low-Bid serial reports: Part I, Fujian: the Low-Bid was questioned by construction industry
(Chinese). Construction Times, Volume CN31-0051, p.12.
Zhou, X (2004) The current status and future consideration of Low-bid (Chinese). Journal of Construction
and Architecture, Volume Sep 2004, pp 55-57.

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EFFICIENT RISK ALLOCATION IN PROJECT FINANCE:
ANALYSIS OF LITERATURE REVIEW
Zulhabri Ismail and Johan Victor Brownlie Torrance Abdullah

Department of Building,
Faculty of Architecture, Planning & Surveying,
Universiti Teknologi MARA

E-mail: zulhabri@salam.uitm.edu.my

Abstract: Project finance is one of the most effective alternatives to finance large
construction projects due to off balance sheet and limited / non recourse project financing
machinery. However, the “lenders” which are the most important entities in this structure will
ensure the success of the project by way of efficient risk allocation scenarios and all necessary
safeguards have been affirmed before agreeing to provide debt and the project can be started.
The reason behind is to ensure the success and revenues can be generated. This paper
highlights and analyses points of view and suggestions by project finance experts from the
various countries (i.e. UK, USA and Australia) that had experience with such project
procurement method to get overview and general knowledge in relation to project finance.
The study showed that almost all commentators and practitioners agreed that in any situation
efficient risk allocation scenarios are one of the solutions that can minimise the risk of
unperforming projects. This can be seen from the report done by the UK government when a
large percentage of projects executed were able to be delivered within the time stated and as
per quality and cost required.

Keywords: Literature Review, Lenders, Project Finance, PFI/PPP & BOT, Risk Allocation.

1. INTRODUCTION
Didkovskiy (2003) and Karpova (2003) enlighten that project finance often becomes the
most viable alternative to financing important infrastructure development needs
particularly because of the public sector “off-balance sheet financing” and “limited or
non-recourse project financing” mechanism. Under this arrangement, the financing of the
project will largely derive from debt by the project finance lenders [lenders] normally
60% - 80% and equity from shareholders normally 20% - 40%. For the lenders, risk in
financing infrastructure projects is crucial, as most projects are capital intensive and have
long construction and payback periods i.e. 20 – 30 years or more (Bruce, 2004).
Therefore, the lenders will make sure the success of the project by way of ensuring
efficient risk allocation scenarios.

It has been suggested that the profile of lenders in project finance can differ from project
to project. It may include a combination of private sector commercial lenders [banks]
together with export credit agencies and bilateral and multilateral finance organisations
(Delmon, 2005 and Banani, 2003). Scriven (1995) clarifies that each lender’s detailed
requirements can differ greatly depending on the nature, arrangement and jurisdiction of
the project (Mallesons, 2003). In this paper it is assumed that the term “lenders” is
referring to the said entities in general and in the same project or at least in the same type
within the same jurisdiction. Therefore, it is beyond the scope of this paper to discuss

431
each type of lender’s appetite in different types of construction projects across different
jurisdictions.

This paper aims to discuss what are typical efficient risk allocation scenarios accepted by
most lenders in project finance, at the same time demonstrates the lenders risk averse
attitude if such scenarios are “dramatically different” and to show whether such attitude
is compatible with such efficient risk allocation and it is beyond the scope of this paper to
discuss the whole structure of risk management system. For the purpose of this paper, the
“risk allocation scenarios” in question will merely refer to risk allocation structures of
infrastructure projects in general, particularly under UK PFI/PPP and BOT arrangements.
The research method was purely based on the literature review and the data collection
will be done in near future depending on availability of target group and case studies.

2. RISK ALLOCATION IN PROJECT FINANCE

Gerrard (2001) clarifies that there are not many differences between PFI/PPP and BOT.
PFI/PPP itself draws from BOT and other almost similar forms i.e. BOOT and DBFO.
The central theme of PFI/PPP is delivery of services and not payment for assets by way
of “Unitary Charge” by public sector. Whereas under BOT arrangement Delmon (2005)
states that the SPV operates the project for the whole concession period, receiving
revenues in exchange for operation of the project obtained from single off-taker i.e. the
government.

Project finance in the context of PFI/PPP and BOT projects involve the financing of a
project through limited or non-recourse Special Purpose Vehicle [SPV] which is created
as the bearer of the debt. The SPV will be responsible [via project agreement] to the
“whole life” of the project including building, financing, maintaining and operating the
asset. As one of the most important entities in project financing, lenders will have
influence on risk allocation and ensure that the SPV will sub-contract the construction
and operation of the facility ensuring that no residual risk remains with the SPV, Capper
(2005) affirms that the “residual risks” in question are either transferred to the
subcontractor or remain with the public sector.

As stated earlier, the financing of the project is a mixture of equity and a large amount of
debt from lenders and also insurance in respect of insurable risks borne by the SPV.
Therefore, the lenders will be keen to ensure the successful of the project by way of
efficient risk allocation in order for them to get repayment of debt through the project
revenues. Delmon (2005) suggests that “efficient contractual arrangement with
appropriate risk allocation structure will be the deciding factor for the bankability of the
project and whether the lenders will go with the project financing of the development”.
Whereas, Mallesons (2003) argues that due to lenders’ requirements which may vary
from project to project and jurisdiction to jurisdiction, it cannot be said that absolute
certainty of risk allocation will definitely be bankable although it can usually be stated
which allocation will not be bankable, even so Pirani (1999) states that “major projects
look more viable when risks are spread broadly”. Penrose and Rigby (2001) suggest that
appropriate risk allocation in bankability assessment is crucial in order to foresee and
ensure the success of the project and determine certainty in timely debt payments. But in

432
any situation efficient risk allocation is crucial in any situation to minimise the risk of
unperformed project.

It is understood that “most lenders” will not be in the operation, construction or even
administration of the project (Mills, 1996). Therefore, they will be hesitant to accept risk
allocations which are unfamiliar, uncertain or even different from other project finance
lenders. If so, they will make sure that appropriate safeguards are on board i.e.
appropriate cover ratio; higher equity investment in order to ensure greater ownership by
the shareholders, hence ensure the success of the project; better insurance coverage; more
thorough assessment on bankability to ensure that those risks will be borne to the party
“best able to manage”; protection via contractual provisions and its security
documentation and its rights in relation to the project should the project fail (Scriven,
1995).

The lenders view risk differently than other project participants, they will not feel safe
and comfortable with both technical and commercial risks as will other project
participants, particularly if the lenders in question provide a large percentage of funding,
hence take significant portion of the project risk. However, Capper (1995) suggests that
proper risk allocation / management will not remove all risk from projects, merely to
ensure that risks are managed most efficiently by way of contractual documents after the
risks have been identified. Whereas, Barber (1989) urges that the framework or contract
“should be compatible with the realities of construction and of nature”, therefore
thorough analysis is required prior to allocating that risk efficiently to any particular
party.

As stated earlier, lenders are extremely careful to manage and accept risk allocation
scenarios. They will definitely restrict some type of risks they might take and ensure the
majority of risks are transferred and allocated to project participants efficiently. The
amount and type of risks the lenders are willing to take is heavily market driven and is
commonly considered within the concept of bankability of the project. In assessing
bankability the viability of the project will be assessed, Delmon (2005) suggests that the
viability of the project will concentrate on four main areas: financial, legal, economic and
technical, thus all the risks associate with these areas need to be allocated and mitigated
efficiently. Moreover, Karpova (2003) emphasises that all the said factors require
thorough and extensive assessments prior to commencing the project. This shows that
“lenders risk averse attitude” is enshrined even at the very beginning stage! Henchie
(2002) suggests that even during negotiation stage where the lenders will not be present,
but still its presence will be felt, this confirms Pausch (2003) view when he said that
“lenders risk averse is compatible with all debt contracts”. For instance, in Australia,
any project under the department of defence, the contractor / SPV is required to include
the risk allocation table in the Request for Tender in order to ensure that all risks are
identified and allocated efficiently.

To determine bankability and viability particularly under a BOT arrangement, Delmon

(2005) points out that financial review will consider financial position of the project to
ensure that the revenues received will be sufficient for the various needs of the project;
legal review will consider the legal and tax system in that country; the economic review
will involve whether the local economy can support the project. Nicklisch (2003)
suggests that the economic viability depends on the extent to which the planned cash flow

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can be assured in the framework, thus ensure project revenues; and the technical review
will look at the design and equipment to be used and whether this has in the past
demonstrated sufficient reliability and performance capacity to satisfy the requirements
of a project. In order to “avoid new risk” on board, Delmon (2005) suggests that the
lenders prefer not to finance projects with new or unfamiliar risks which has not been
accepted by them [or other lenders] for instance using new method or untested new
technology. Therefore, it can be concluded that bankability is one way to determine
efficient risk allocation scenarios and the lenders will be hesitant to accept different or
new risk than those normally accepted by other project lenders.

3. EFFICIENT RISK ALLOCATION AND COMPATIBILITY

Some commentators emphasis that efficient risk allocation scenarios relate to project
performance, for instance the UK government (OGC) suggests that risk allocation is the
“process of apportioning individual risks relating to projects and service delivery to the
party best placed to manage each risk”. Whereas, Chapman et al. (1995) consider that
“efficient risk allocation is crucial in order to enhance project performance by way of
reducing costs, time and improved quality of the completed works”. Delmon (2005)
considers that “efficient allocation of risk will generally result in a more successful and
profitable project and will benefit each of the parties involved”. Even so, efficient risk
allocation is practically difficult to achieve due to certain risks inherent in infrastructure
projects proved particularly difficult to effectively allocate. For instance Barber (1989)
suggests that variable ground condition on a tunnelling project cannot be quantified with
sufficient certainty having regard to the limited profit margin involved, but still the
lenders will do whatsoever to allocate and manage it efficiently.

In order to ensure efficient risk allocation scenarios, Abrahamson (2005) suggests that
“risk should be placed on insurers or other professional gamblers where practicable;
otherwise it should be placed on whoever gains the main economic benefit of running it;
that is, on to one who carelessly or wilfully creates it, or can best control the events that
may lead to it occurring or best manage it when it does occur”. Thus, it can be said that
efficient risk allocation refers to allocation of risk between parties that will have
incentive, be best equipped to manage and minimise that risk, if not it will be inefficient,
as a result the lenders will be hesitant to accept it.

However, Delmon (2005) suggests that there is situation where the lenders are unwilling
to permit the particular party to bear a particular risk in order to allocate it to more
“financially significant entities” even if this allocation is expensive and inefficient. He
confirms that “one lender is willing to accept…risk allocation in a given project, other
lenders will be expected to accept”. Therefore, that caption made clear that the particular
lender will be hesitant to accept “dramatically” different risk allocation from other project
finance lenders in the same project.

Ashley et al. (1995) suggest that six questions need to be answered to ensure efficient risk
allocation: who can control the occurrence of a risk?; who wants to be in a position over
the circumstances related to the risk?; who can manage the risk for the least cost?; is the
relevant party able to manage the risk, does it have the relevant resources and is it in a
position to manage the risk?; can the relevant party bear the consequences of the risk?; is

434
there an interrelationship between the relevant risk and other project risks?; and will that
party be motivated to manage the risk in the most efficient and effective manner?.
Therefore, the writer agree with Coggen (1995) when he expressed that “in order to
ensure compatibility with efficient risk allocation scenarios, the lenders will make sure
that answers for all these questions are certain and again particular risk will be assigned
to the party best able to control it”.

According to a survey done by Grandjean (1999), lenders averse attitude on risk

allocation is not incompatible to the success of project. He urges that lenders will ensure
that management of risk follows a pragmatic path i.e. on the past experiences and they
willing to go to great extent to identify, understand and manage risks, in the absence of
precedent, again the risk is allocated on the principle that “the party best able to control it
undertakes it”. He notes that lenders “agreed that risk allocation is a subject of many
debates but insisted that deals must rest on sound principles”, therefore, lenders attitude is
actually compatible with efficient risk allocation principles.

In the context of PFI/PPP and BOT arrangements [see Figure 1 below], one can say that
efficient risk allocation scenarios are one of its major principles. This can be seen where a
SPV will be established and the lenders will ensure that those “whole life project risks”
are efficiently allocated and shared with other project entities by way of the contractual
arrangements (Capper, 1995) i.e. to construction contractor, service providers. The
contractor / service providers will normally pass the risks either wholly or partially down
the line to their sub-contractors, thus, the risks are generally spread over the entire project
structure and shared among the project participants and allocated to the parties who can
“best control and manage the risks”. Therefore, if there is any inefficiency in the risk
allocation structure in question, for instance where the lenders believe that the risk is
allocated to someone not able to manage it efficiently or they think that risk allocation in
question is different from what is normally being accepted by most lenders, they will be
hesitant to accept it. Delmon (2005) suggests that inefficiency in risk allocation scenarios
can be seen in a construction context for instance ground condition risk may be relevant
to ground works contractor, as a result it will be inefficient if this ground works
contractor to bear surface risk where it has no control over it. Another obvious scenario is
where operation and maintenance risks are borne mainly by the construction contractor
instead of the facilities management operator. Therefore, it seems quite clear that lenders
risk averse attitude in this context is compatible with efficient risk allocation.

Another example of efficient risk allocation under UK PFI/PPP is in relation to payment

mechanism i.e. “Unitary Charge” where the key concept of services is “no service - no
payment” and “poor service – reduced payment” (Handley, 2004) risks are expected to
incentivise all private sector participants to work together in order to deliver the required
services on time, within cost and as per quality since the risk of delay completion,
overrun and maintenance are allocated to them. Thus, it places pressure on them to
manage the risks more efficiently (UK NAO, 2003). Therefore, it can be said that such
incentivising as a result of efficient risk allocation scenario evidenced that the lenders
risk attitude is compatible with efficient risk allocation. Bear in mind that if risk
allocation in question is inefficient or lenders in doubt with different risk allocation [if
any], the project will not be started at the first place.

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4. TYPICAL RISK ALLOCATION SCENARIOS ACCEPTED BY
MOST PROJECT FINANCE LENDERS

From the lenders point of view, there are five categories of risks that need to be
considered and allocated in PFI/PPP projects: construction risk, which is related to design
problems, cost overruns and delays; financial risk, which is related to interest rates,
exchange rates, and other factors affecting financing costs; performance risk which is
related to the availability of an asset and the continuity and quality of service provision;
demand risk which is related to the ongoing need for services and residual value risk
which is related to the future market price of an asset (IMF, 2004).
Whereas under BOT arrangement, the Mizuho Financial Group highlights that there are
at least eight risks that need to be considered, managed and allocated efficiently: country
risk; construction risk; technology risk; fuel/input supply risk; off take risk; operation and
maintenance risk; interest rate/FX risk; and environmental and social risk. In order to
ensure efficient risk allocation, Mizuho (2004) highlights that risks in question should be
allocated as in Figure 1 below. Efficient risk allocation scenarios can be seen where the
lenders in general or Mizuho in particular will ensure that each participant will take risk
that is within its control by way of contractual arrangement, for instance Contractor and
Engineer will take construction and technology risks via construction agreement and
engineering procurement; fuel or input supplier will take fuel or input risk via fuel or
input agreement; country and political risk will be mitigated by way of guarantee or
insurance and so forth.

Figure 1 is the typical risk allocation structure in most of project finance transactions
which is accepted by most project finance lenders; therefore in order to avoid any
incompatibility and inefficiency the lenders will be hesitant to accept dramatically
different structure of risk allocation than in Figure 1 below, the main reason for this is to
“avoid unexpected and unwelcome surprises” that will effect the project in general and
its revenue in particular (ACEC & AGCA, 1998).

436
 Engineer / Contractor Fuel or input Off taker Operator
Supplier

Construction Risk Off take Risk Operation &

Technology Risk Fuel or input Risk Maintenance

Engineering Procurement Fuel or input Off take Agreement Operation &

Construction Agreement Supply Agreement Maintenance
Agreement

Project Company /
SPV

Equity / Debt Debt Guarantee / Insurance

Remaining Project Risks Country / Political Risk

Foreign Developer / Sponsor Foreign Financial Institution Multilateral Export Credit

Agency

Figure 1: Typical Risk Allocation Structure in Project Finance Transactions

Gerrard (2001) elucidates that under PFI/PPP arrangement, positive results for efficient
risk allocation are evidenced where it has been reported that most PFI/PPP projects are
completed ahead of schedule and within budget. In the UK, 78% of PFI projects executed
in 2003 were reported with no construction cost increase after contract award, thus no
increase to the public sector’s payments, if any, it had been borne by the private sector
compared with conventional procurement where 73% of the projects had run over budget.
In addition, over 81% of authorities said that “value for money” of their PFI/PPP was
satisfactory or better and 50% said that the value for money for their PFI projects was
good or excellent (UK NAO, 2003). Despite that, not all projects are suitable for PFI/PPP
arrangement, some parties still in doubt whether risk allocation and management in
PFI/PPP arrangement is efficient enough (UK NAO, 2004) e.g. London Underground
(Lonergan, 2004), but still as a result of efficient risk allocation structure large percentage
of PFI/PPP deals are able to give better “value for money” and enhance a large
percentage of project performance. Therefore, lenders’ attitude is hesitant to accept
different structure of risk allocation accepted by other lenders is compatible with efficient
risk allocation.

5. CONCLUSION
This paper shows that the lenders attitude is hesitant to accept risk allocation scenarios
that are dramatically different from those accepted by other project finance lenders
actually compatible with efficient risk allocation. If so, they will make sure that all
necessary safeguards will be demanded, the main reason is most lenders will not be
rigorously involved with the project, therefore efficient risk allocation via contractual
arrangement is crucial to foresee and ensure the success of the project, hence will ensure
certainty and timely debt payments. Bankability assessment is a means to determine and

437
to assess success on the project and efficient risk allocation scenarios. In the course of
bankability assessment, new risks and improper risk allocation will be highlighted; this
will effect lenders decision whether to go on with the project, lenders will be hesitant to
accept new risks, improper risk allocation scenarios or even dramatically different risk
allocation scenarios in a given project where other lenders will hesitance to accept the
same position. The lenders will give their consent to go on with the project once they are
comfortable with risk allocation scenarios that will ensure the project success and debt
payments. Even so, this “too cautious” attitude does not create an obstacle to the success
of the project but on the other hand, it is one of the factors that contribute to the success
of the project. For instance, “incentivising” as a result of risk allocation in PFI/PPP
projects places pressure on the project participants to manage the risks more efficiently,
as a result, a large percentage of PFI/PPP projects have been completed on schedule.
Whereas, in BOT projects, “back to back risk allocation” will assign risk to the party best
able to control and manage it efficiently, bear in mind that if risk allocation in question is
inefficient and improper or lenders are in doubt with dramatically different risk allocation
than accepted by other lenders, most probably the project will not be executed. Therefore,
lenders attitude is compatible with efficient risk allocation.

6. REFERENCES
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Coggan, D.R. Financial risks in construction. Edited by Uff, J. and Odams, A.M. (1995). Risk Management
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Delmon, J. (2005). Project Finance, BOT Projects and Risk: Kluwer International.
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(1995). Risk Management and Procurement in Construction, pp. 195 – 226: Centre of
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Risk Management and Procurement in Construction, pp. 71 – 100: Centre of Construction Law &
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[UK] National Audit Office: PFI: Construction Performance (2003).
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 STRATEGIC ISSUES IN CONSTRUCTION
INDUSTRY

INVESTIGATING ON THE SUPPLY CHAIN MANAGEMENT 441

LABELLING CONSTRUCTION COMPANIES AS DOMESTIC, INTERNATIONAL, 451

MULTINATIONAL, GLOBAL CORPORATIONS: HOW FEASIBLE IS IT?

FUTURE RESEARCH MODEL OF THE NEW UNIVERSITY 463

440
 INVESTIGATING ON THE SUPPLY CHAIN
MANAGEMENT
A. Azizi, 1 and Napsiah Ismail, 2
1
The Intelligent Systems and Robotics Laboratory/
Institute of Advanced Technology
Universiti Putra Malaysia
43400 UPM Serdang, Selangor,
Malaysia
2
Department of Mechanical and Manufacturing Engineering
Faculty Of Engineering
Universiti Putra Malaysia
43400 UPM Serdang, Selangor,
Malaysia

E-mail: a.azizi@eng.upm.edu.my
napsiah@eng.upm.edu.my

Abstract: In this paper, we review SCM recent articles. Supply chain management (SCM)
is the 21st century global operations strategy for achieving organizational
competitiveness. Supply chain management has emerged as a critical arena in which firms
can find significant cost reduction opportunities, giving them a cost advantage over
competitors. Also SCM has emerged as an increasingly important approach to improving
the performance of logistics systems. Supply chain management and networks are
important fields of study nowadays. SCM has become the key strategic area that has direct
impact over the success of any enterprise in today's highly competitive business
environment. SCM is an integrated approach to increase the effectiveness of the logistics
chain by improving cooperation between the players in the chain.

Keywords: Supply chain design; Globalization; Build-to-order supply chain management;

supply chain quality management; Supply chain integration.

1. INTRODUCTION
The supply chain has three stages: procurement, production and distribution. The
concept of supply chain quality management (SCQM) across inter-organizational
supply chains has received scant research attention, even though that perspective is
sorely needed in delivering value to customers in often globally scattered supply
chains. Supply Chain Management is primarily concerned with the efficient
integration of suppliers, factories, warehouses and stores. The paper proposed a
Quality-SCM framework that can be used to place prior work in perspective, as well
as identify three specific opportunities for future SCQM research. It demonstrated it is
easy to see how future research in SCQM that seeks to integrate quality and process
improvement strategies across the entire supply chain will benefit the practitioner [1].
We close this paper with recommendations for future research in supply chain
management that is both forward-looking and practically oriented.

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2. SUPPLY CHAIN MANAGEMENT DEFINED

The literature is replete with buzzwords such as: integrated purchasing strategy,
integrated logistics, supplier integration, buyer–supplier partnerships, supply base
management, strategic supplier alliances, supply chain synchronization and supply
chain management, to address elements or stages of this new management philosophy
[2, 3].

They described supply chain management as the chain linking each element of the
manufacturing and supply process from raw materials through to the end user,
encompassing several organizational boundaries [4, 5]. Further expands supply chain
management to include recycling or re-use. Supply chain management focuses on how
firms utilize their suppliers’ processes, technology, and capability to enhance
competitive advantage and the coordination of the manufacturing, logistics, and
materials management functions within an organization. When all strategic
organizations in the value chain ‘integrate’ and act as a single unified entity,
performance is enhanced throughout the system of suppliers

3. EVOLUTION OF SUPPLY CHAIN MANAGEMENT

In the 1950s and 1960s, most manufacturers emphasized mass production to minimize
unit production cost as the primary operations strategy, with little product or process
flexibility. New product development was slow and relied exclusively on in-house
technology and capacity. ‘Bottleneck’ operations were cushioned with inventory to
maintain a balanced line flow, resulting in huge investment in work in process (WIP)
inventory. Sharing technology and expertise with customers or suppliers was
considered too risky and unacceptable and little emphasis appears to have been placed
on cooperative and strategic buyer–supplier partnership. The purchasing function was
generally regarded as being a service to production, and managers paid limited
attention to issues concerned with purchasing. In the 1970s, Manufacturing Resource
Planning was introduced and managers realized the impact of huge WIP on
manufacturing cost, quality, and new product development and delivery lead-time.
Manufacturers resorted to new materials management concepts to improve
performance within the ‘four walls’ of the company [9].

The intense global competition in the 1980s forced world-class organizations to offer
low cost, high quality and reliable products with greater design flexibility.
Manufacturers utilized just-in-time (JIT) and other management initiatives to improve
manufacturing efficiency and cycle time. In the fast-paced JIT manufacturing
environment with little inventory to cushion production or scheduling problems,
manufacturers began to realize the potential benefit and importance of strategic and
cooperative buyer-supplier relationship. The concept of supply chain management
emerged as manufacturers experimented with strategic partnerships with their
immediate suppliers. In addition to the procurement professionals, experts in
transportation and logistics carried the concept of materials management a step further
to incorporate the physical distribution and transportation functions, resulting in the
integrated logistics concept, also known as supply chain management.

442
The evolution of supply chain management continued into the 1990s as organizations
further extended best practice in managing corporate resources to include strategic
suppliers and the logistics function in the value chain. Supplier efficiency was
broadened to include more sophisticated reconciliation of cost and quality
considerations. Instead of duplicating non-value-adding activities, such as receiving
inspection, manufacturers trusted suppliers’ quality control by purchasing only from a
handful of qualified or certified suppliers. More recently, many manufacturers and
retailers have embraced the concept of supply chain management to improve
efficiency across the value chain. Manufacturers now commonly exploit supplier
strengths and technology in support of new product development, and retailers
seamlessly integrate their physical distribution function with transportation partners to
achieve direct store delivery or cross docking without the need for receiving
inspection [10-13].

Finally, Diagram 1 illustrates the Dynamics of Supply chain (Diagram 1).

Diagram 1: The Dynamics of the Supply chain

4. ISSUES IN SCM
Ongoing issues in global supply chain design

International manufacturing sources—whether company-owned or external

suppliers—have in recent years been sought out by managers because of reduced cost,
increased revenues, and improved reliability. Manufacturers typically set up foreign
factories to benefit from tariff and trade concessions, low cost direct labor, capital
subsidies, and reduced logistics costs in foreign markets [14].

However, experts maintain that global supply chains are more difficult to manage than
domestic supply chains. Substantial geographical distances in these global situations

443
not only increase transportation costs, but complicate decisions because of inventory
cost tradeoffs due to increased lead-time in the supply chain. Different local cultures,
languages, and practices diminish the effectiveness of business processes such as
demand forecasting and material planning. Similarly, infrastructural deficiencies in
developing countries in transportation and telecommunications, as well as inadequate
worker skills, supplier availability, supplier quality, equipment and technology
provide challenges normally not experienced in developed countries. Currency
exchange rates affect the price paid for goods that are purchased in the supplier’s
currency and so influence the timing and volume of purchases as well as the financial
performance of the supply chain [15-17].

Emerging issues in global supply chain design

The business environment that surrounds the global supply chain problem is
continually changing, however, as new issues in supply chain management and
globalization surface. First, firms are increasingly outsourcing to both domestic and
global locations. Second, many firms that had viewed their sourcing problems
myopically as an enterprise-level concern now strive to integrate decision processes
across tiers in the supply chain. A third issue is the broadened definition of supply
chain performance, as mission, strategy and objectives can vary considerably based on
the value of the product offered to the customer [18].

Another emerging issue—the integration of decisions across the supply chain—also

influences global supply chain design. Integrating business processes is a best practice
in supply chain management that involves coordinating decisions across multiple
facilities and tiers. In practice, firms engaged in Vendor Managed Inventory (VMI)
and Collaborative Planning, Forecasting, and Replenishment (CPFR) integrate
replenishment planning between enterprises by sharing sales and promotion
information. Similarly, firms that implement Advanced Planning Systems (APS) may
integrate production decisions across the supply chain by including supplier inventory
and capacity constraints into their scheduling function, striving to avert supply
problems before they occur. These integration practices also affect global supply chain
design. Several authors discuss the value and need for integration between facilities in
the global supply chain. An integrated, well-coordinated global supply chain is
difficult to duplicate and so plays an important role in competitive strategy [19-23].

To date, much of the emphasis in supply chain management has been on cost
reduction, but performance in real-world supply chains has multiple attributes. As
defined in the Supply Chain Operations Reference (SCOR) model, performance is
measured in terms of reliability, responsiveness, flexibility, cost, and assets.
Additionally, mentions five benefits for companies who choose to source globally—
improving quality, meeting schedule requirements, reducing cost, accessing new
technologies, and broadening the supply base. For example, throughout the 1990s, a
number of firms adopted a quick-response strategy to improve competitiveness [14,
24-27].

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5. GLOBAL SUPPLY CHAIN DESIGN MODELS

The paper developed a global supply chain model to address design problems relating
to a multinational corporation that out sources some but not all of its production to
supplier facilities. This model simultaneously selects facility locations, computes
flows between facilities, sets transfer prices, and allocates transportation costs to either
the shipper or the receiver to maximize after-tax profits across multiple tiers in the
supply chain. Supplier selection is outside of the scope of the authors’ design problem,
however, so the location decisions are not integrated across the production and
supplier tiers. In the model, the component costs are transfer prices when supplied by
internal production locations and market prices for external suppliers. The model
evaluates global supply chain costs, which include tariffs and corporate income taxes.
The authors specified a bill of material constraint to allow for complex product
structures over multiple tiers that explicitly link the quantity relationships between the
facilities in the global supply chain. The mode choice decision in the model considers
the trade-off between transportation and pipeline inventory costs, so that a high
inventory value of product in-transit may offset the high cost of air transport. The
model is a non-convex optimization model with a linear objective function and both
linear and bilinear constraints to represent this problem. The solution methodology is a
heuristic algorithm that decomposes the model into a set of Linear Programming sub-
problems, and then iterates until an optimal or a satisfactory solution is found [28].

The paper took a broader approach by combining manufacturing and marketing

functions into a global supply chain model that they then used to assess eight
manufacturing-marketing strategies. Specifically, the authors developed a model of
market share as a function of product attributes and then incorporated production and
inventory costs for the specific locations as inputs to the revenue and profit models.

They assumed that production costs vary linearly with product attributes and allowed
for exchange rates, inventory costs and transportation costs in their analysis. However,
the model does not include the supply segments of the supply chain—it considers only
the end-product manufacturing location for a set of markets [29].

They developed a two-phase multi-screening approach for incorporating uncertainty

about exchange rates and exchange rate risk in an international production and
sourcing model. The decision variables in this model are the location of production
facilities and how much capacity to place at each of these plants. The premise is that it
will be beneficial to the manufacturer to plan for some additional capacity to allow for
production shifting as exchange rates fluctuate. The authors used scenarios to
represent possible realizations of real exchange rates, incorporating uncertainty for
both nominal currency exchange rates and inflation.

The cost structure in is generic in that it comprises fixed and variable costs for each
candidate location in the problem, including but not limited to transportation and
duties. The method also allows for qualitative factors such as worker availability. The
supply chain in the model allows for multiple locations at one production and one
market tier [30].

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The paper developed a network equilibrium model for a global supply chain
comprised of three tiers—manufacturer, retailer, and consumer. The model uses a
variational inequality formulation to derive product shipments and price patterns in the
network, assuming cooperation between tiers but competition within tiers. The
equilibrium model maximizes profit at each tier in the supply chain subject to the
customer’s willingness to pay, considering production costs for the manufacturer,
transaction costs associated with obtaining the product, and exchange rate appreciation
over time. The cost functions are all assumed to be convex and continuously
differentiable. Inventory costs may be included as part of the transaction cost function
at any and all tiers.

The model considers fluctuation in currency exchange rates. Since the model describes
the distribution segments of the supply chain only where the product is the same from
the manufacturer to the retailer to the consumer, a bill of material structure is not
required [31].

6. DEVELOPING AND IMPLEMENTING THE BUILD-TO

ORDER SUPPLY CHAIN MANAGEMENT (BOSCM)

Developing and implementing BOSCM includes designing products and coming up

with a procurement process, developing partnerships and a virtual supply chain, and
managing logistics. This is an important area in which numerous medium to long-term
decisions are made, and their impact on the performance of BOSCM is significant.
Issues of implementation in BOSCM are not generally discussed at length and,
therefore, deserve attention.

Design and procurement

The design of products and procurement of materials are the major activities in
BOSCM. In BOSCM, the production system needs to be flexible and responsive
enough to meet the requirements of individual customers. Reducing the lead time in
products design, and efficiently procuring raw materials and components are
important in the ability to respond to individual customer requirements as quickly as
possible. The proliferation of products and uncertainties over demand can result in
difficulties in material requirements planning (MRP), which lead to high inventories
and poor customer service. A design concept and delays in differentiating products are
advocated to reduce the impact of inaccurate forecasts and the shortening of order
response times in a supply chain environment, in particular BOSCM [32].

One of the most difficult issues for operations managers is the proliferation of
products. This is particularly true in mass customization and in a global market.
Product proliferation makes the accurate forecasting of demand difficult, and
consequently, leads to high investments in inventory and poor customer service.
Different markets may have different requirements for a product, due to differences in
taste, language, geographical environment, or government regulations [33].

446
A key element to enabling efficient mass customization is a common product design
platform that incorporates modular product architectures. BOSCM requires the point
of differentiation to be identified and the parts, components and modularity to be
grouped to offer a range of products.

E-procurement and E-fulfillment facilitate the development of BOSCM. The

following factors are the advantages of e-procurement and e-fulfillment projects: (a)
better management of the information and knowledge exchanged with suppliers and
customers; (b) better control of supply operations; (c) fewer mistakes related to
procurement; (d) better control of sales; (e) optimization of warehouse stock; (f) better
control of market trends; and (g) an increase in the number of products supplied by the
main suppliers [34].

Development of partnerships and suppliers

A virtual enterprise (VE) is based on developing a network of collaborative firms with

the necessary core competencies to reach the market on time with the right products.
Developing a network of firms requires a communication system to achieve a
cooperative supported work. This could be achieved by utilizing various
telecommunication technologies. A company can utilize the capabilities of suppliers
by developing its sourcing structure, clarifying its sourcing policies, and increasing
integration and cooperation in its operations. The paper highlighted the role of the
Internet in building commercially viable supply chains in order to meet the challenges
of virtual enterprises. Without the application of the Internet, a company is unlikely to
achieve a BOSCM [35].

7. CONCLUDING REMARK & RECOMMENDATION

In this paper, We have reviewed (SCM) recent papers published in the open literature
on Supply chain management system such as defining the concept of SCM, Issues in
SCM, Evolution of supply chain management, supply chain design models,
Developing and implementing The build-to-order supply chain management
(BOSCM),…

This paper concluded that global supply chain models need to address the composite
supply chain design problem by extending models to include both internal
manufacturing and external supplier locations. Manufacturers rarely own the facilities
in their supply chains, yet managers aim to achieve a well-designed supply chain.
Supply chains typically comprise both internal and external facilities. These criteria
include minimum vendor order quantities, budget constraints, number of vendors,
geographic preferences, and capacities. In addition, these models should have
objectives or constraints to evaluate the impact quality, lead-time and service level in
the global supply chain design problem. And also that global supply chain models
need broader emphasis on multiple production and distribution tiers in the supply
chain. The supply chain model should include enough supplier tiers to allow
investigation of the interactions in the sourcing of major components and material.
Without multiple tiers in the global supply chain design model, the ability of supply

447
chain managers to integrate decisions is limited to coordination within the tier [36,
37].

The Supply-Chain Council identifies five performance metrics for supply chains—
reliability, responsiveness, flexibility, cost, and assets.

Future research should focus on multi-tier supply chains with both internal production
sites and external suppliers, and encompass more performance criteria and a wider
variety of industries. Also it is a need that further investigation to clarify any
misunderstandings regarding the role of virtual enterprises in BOSCM.

8. REFERENCES

C. J. Robinson, M. K. Malhotra, Defining the concept of supply chain quality management and its
relevance to academic and industrial practice, Int. Jou. Production Economics, Vol. 96, (2005)
315–337.
New, S.J., 1997. The scope of supply chain management research. Supply Chain Management 2 1, pp.
15–22.
La Londe, B.J. and Masters, J.M., 1994. Emerging logistics strategies: blur print for the next century.
International Journal of Physical Distribution and Logistics Management 24 7, pp. 35–47.
Scott, C. and Westbrook, R., 1991. New strategic tools for supply chain management. International
Journal of Physical Distribution and Logistics 21 1, pp. 23–33.
New, S.J. and Payne, P., 1995. Research frameworks in logistics: three models, seven dinners and a
survey. International Journal of Physical Distribution and Logistics Management 25 10, pp. 60–
77.
Baatz, E.B., 1995. CIO 100 – Best practices: the chain gang. CIO 8 19, pp. 46–52.
Farley, G.A., 1997. Discovering supply chain management: a roundtable discussion. APICS – The
Performance Advantage 7 1, pp. 38–39.
Lee, H.L. and Billington, C., 1992. Managing supply chain inventory: pitfalls and opportunities. Sloan
Management Review 33 3, pp. 65–73.
Farmer, D., 1997. Purchasing myopia – revisited. European Journal of Purchasing and Supply
Management 3 1, pp. 1–8.
Inman, R.A. and Hubler, J.H., 1992. Certify the process, not just the product. Production and Inventory
Management Journal 33 4, pp. 11–14.
Ragatz, G.L., Handfield, R.B. and Scannell, T.V., 1997. Success factors for integrating suppliers into
new product development. Journal of Production Innovation Management 14, pp. 190–202.
Morgan, J. and Monczka, R.M., 1995. Alliances for new products. Purchasing 118 1, pp. 103–109.
St. Onge, A., 1996. New concepts in supply chain management. Modern Materials Handling 51 3, p.
33.
Ferdows, 1997 K. Ferdows, Making the most of foreign factories, Harvard Business Review 75 (1997),
pp. 73–88.
MacCarthy and Atthirawong, 2003 B.L. MacCarthy and W. Atthirawong, Factors affecting location
decisions in international operations—a Delphi study, International Journal of Operations &
Production Management 23 (2003), pp. 794–818.
Carter and Vickery, 1988 J.R. Carter and S.K. Vickery, Managing volatile exchange rates in
international purchasing, Journal of Purchasing and Materials Management 24 (1988), pp. 13–
20.
Carter and Vickery, 1989 J.R. Carter and S.K. Vickery, Currency exchange rates: their impact on global
sourcing, Journal of Purchasing and Materials Management 25 (1989), pp. 19–25.
Keeney, 1994 R.L. Keeney, Creativity in decision making with value-focused thinking, Sloan
Management Review (1994), pp. 33–41.
Sherman, 1998 R.J. Sherman, Collaborative planning forecasting & replenishment (CPFR): realizing
the promise of efficient consumer response through collaborative technology, Journal of
Marketing Theory and Practice 6 (1998), pp. 6–9.
Lewis, 1999 L. Lewis, CPFR: One giant business plan, Progressive Grocer (1999) (April), pp. 69–72.

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Bowersox et al., 1999 D.J. Bowersox, T.P. Stank and P.J. Daugherty, Lean launch: managing product
introduction risk through response-based logistics, Journal of Product Innovation Management
16 (1999), pp. 557–568.
Brush et al., 1999 T.H. Brush, C.A. Martin and A. Karnani, The plant location decision in multinational
manufacturing firms: an empirical analysis of international business and manufacturing strategy
perspectives, Production and Operations Management 8 (1999), pp. 109–132.
Trent and Monczka, 2003 R.J. Trent and R.M. Monczka, International purchasing and global
sourcing—What are the differences?, Journal of Supply Chain Management 39 (2003), pp. 26–
37.
Supply-Chain Council, 2003 Supply-Chain Council (2003). Supply-Chain Operations Reference Model,
version 6.0. Available from: <http://www.supply-chain.org>.
Handfield, 1994 R.B. Handfield, US global sourcing: patterns of development, International Journal of
Operations & Production Management 14 (1994), pp. 40–51.
Hammond, 1990 Hammond, J.H., 1990. Quick response in the apparel industry. Harvard University,
Cambridge, MA, Report Number N9-690-038.
Bozarth et al., 1998 C. Bozarth, R. Handfield and A. Das, Stages of global sourcing strategy evolution:
an exploratory study, Journal of Operations Management 16 (1998), pp. 241–255.
Vidal and Goetschalckx, 2001 C.J. Vidal and M. Goetschalckx, A global supply chain model with
transfer pricing and transportation cost allocation, European Journal of Operational Research
129 (2001), pp. 134–158.
Hadjinicola and Kumar, 2002 G.C. Hadjinicola and K.R. Kumar, Modeling manufacturing and
marketing options in international operations, International Journal of Production Economics 75
(2002), pp. 287–304.
Lowe et al., 2002 T.J. Lowe, R.E. Wendell and G. Hu, Screening location strategies to reduce exchange
rate risk, European Journal of Operational Research 136 (2002), pp. 573–590.
Nagurney et al., 2003 A. Nagurney, J. Cruz and D. Matsypura, Dynamics of global supply chain
supernetworks, Mathematical and Computer Modelling 37 (2003), pp. 963–983.
Hsu and Wang, 2004 H.-M. Hsu and W.-P. Wang, Dynamic programming for delayed product
differentiation, European Journal of Operational Research 156 (2004), pp. 183–193.
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Operations Research 44 (1996) (1), pp. 151–159.
Muffato and Payaro, 2004 M. Muffato and A. Payaro, Implementation of e-procurement and e-
fulfillment processes: a comparison of cases in the motorcycle industry, International Journal of
Production Economics 89 (2004), pp. 339–351.
Graham and Hardaker, 2000 G. Graham and G. Hardaker, Supply-chain management across the
Internet, International Journal of Physical Distribution and Logistics Management 30 (2000)
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Pan, 1989 A.C. Pan, Allocation of order quantities among suppliers, Journal of Purchasing & Materials
Management 25 (1989), pp. 36–39.
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global sourcing decisions, Production and Operations Management 6 (1997), pp. 277–289.

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450
 LABELLING CONSTRUCTION COMPANIES AS
DOMESTIC, INTERNATIONAL, MULTINATIONAL,
GLOBAL CORPORATIONS: HOW FEASIBLE IS IT?

Cha Shih Yee and Abdul Rashid Abdul Aziz

School of Housing, Building and Planning
Universiti Sains Malaysia
11800 Minden, Pulau Pinang
Malaysia

Abstract: Scholars have identified the evolution of companies into different phases starting
from domestic to international, to multinational, to global and to transnational. Each of
these phases supposedly has its own distinct characteristics. From a questionnaire survey of
12 construction companies operating around the globe, it was found that the same company
can exhibit different evolutionary phases depending on the theoretical discipline that was
adopted for analysis, just like looking through a kaleidoscope. For example a construction
company may have an international disposition from a marketing perspective but appear
multinational from the management approach. Such is the complexity of real-life
contracting organisations. The study underscores the difficulty of compartmentalising
construction companies along the evolutionary trajectory. Further studies however needs to
be conducted before definitive conclusions can be made.

Keywords: Evolutionary, Construction Company, International, Multinational,

Globalisation

1. INTRODUCTION

In today’s international business environment, companies developing the kind of

multidimensional strategic competencies and the flexible organisation capabilities is no
longer simply an idealised model. Scholars have identified the evolution of companies
into different phases starting from domestic to international, to multinational, to global
and to transnational. (Bartlett and Ghoshal, 1989; Moran and Riesenberger, 1994) Each
of these phases has its own distinct characteristics. The strategies that a company used
and the customers they focus on will determine the way the company operate. Below is
the difference between the organisations based on strategies capabilities:

Multinational - Building strong local presence through sensitivity and

responsiveness to national differences.
International - Exploiting parent company knowledge and capabilities through
worldwide diffusion and adaptation.
Globalisation - Building costs advantages through centralized global-scale
operations.
Transnational - Optimising efficiency, responsiveness and learning
simultaneously in the worldwide operations.

451
Source: Bartlett and Ghoshal (1995)

The transnational forms suggested by Bartlett and Ghoshal (1989) is akin to Ohmae’s
(1990) truly global organisations. Bartlett and Ghoshal (1995) coined the term
“transnational corporations” which is an advanced variant of global corporations.

2. METHODOLOGY
This study is based on the 12 companies had appeared

A postal questionnaire survey was conducted from November 2004 to January 2005 on
349 international contractors from around the world. They were selected on the basis of
their appearance in the annual Engineering News Record (ENR) Top 225 International
Contractors list from 1999 to 2003 period. From that first effort, only 12 companies
responded, yielding a response rate of 3.4%. After one month from the date of sending
out the questionnaires, a reminder letter was sent by e-mail to all the non-responding
companies, but the response rate remained the same. Some of the companies rejected
the invitation to participant on grounds of confidentiality and survey fatigue. PCL of
USA for example replied that they receive approximately three to four e-mails a month
from students requesting support with school projects, making it impossible for them to
respond to each request. Orion Construct of USA replied that they did not have time to
complete the survey. A second round of postal questionnaire survey was conducted,
this time to the Malaysian subsidiaries of these companies in the hope that they would
be more cooperative. Their addresses were obtained from the CIDB 2004 Directory and
the respective embassies. That effort also proved to be futile. This study therefore is
based entirely on the returned questionnaires of the 12 responding companies. Table 1
shows the details for the 12 international companies that participated in the research.

452
 Table 1: Details of the Surveyed Companies
Company Country Profile The Highest ranking
recorded between 1999-
2003
A Germany Established in 1987 65
Active in Europe, Latin America, Africa,
Asia and Middle East
B Germany Established in 1898 56
Active in Europe, Latin America, Asia
and Middle East
C Germany Established in 1989 22
Active in Europe, Africa and Middle
East
D Japan Established in 1961 27
Active in Latin America, Asia, Japan and
Middle East
E Germany Established in 1910 183
Active in Europe, North America and
Africa
F Australia Established in 1919 90
Active in Europe, Asia, Oceania and Middle
East
G Belgium Established in 1909 49
Active in Europe, Africa and Middle East
H Turkey Established in 1993 134
Active in Europe only
J Turkey Established in 1959 69
Active in Europe, Africa, Asia and Middle
East
K Netherlands Established in 1948 45
Active in Europe, North America and
Africa
L Taiwan Established in 1956 101
Active in North America, Latin America,
Africa and Asia
M Italy Established in year 1919 148
Active in Europe, Latin America and Africa

453
3. LITERATURE REVIEW

BOARD & HEAD OFFICE

MANAGEMENT & ORGANISATION

FINANCE & OWNERSHIP

RESEARCH & DEVELOPMENT

PRODUCTION

COMPETITION

COMPETENCIES

MARKET

Figure 1: A Framework for Analysis Globalisation

Source: Adapted from Isabella (2003)

Globalisation happens in different stages/ context. Each context defines globalisation in

differ way. Based on Isabella (2003) framework (Figure 1), there are eight (8)
dimensions to examine and measure in an organisation. Some adjustments are
necessary to suit the context of those dimensions to the construction industry. The eight
(8) dimensions are market, competencies, competition, production, research and
development, finance and ownership, management and organisation, and last but not
least board and head office. Due to space limitation, only three 3 dimensions are
deliberated in this paper. They are market, competencies, and management and
organisation.

Bartlett and Ghoshal (1987) made the conclusion that very few companies are pure
global, textbook multinational, or classic international. Most companies are driven by
simultaneous demand for global efficiently, national responsiveness and worldwide
learning. Perroton (2001), like Hirst and Thompson (1999), accept that there are few
truly global companies. But nonetheless, there is evidence of multinational companies
having adopted global strategies, to some extent because they themselves have both
created and been subject to global competition. Moreover the pressure to globalise is

454
being countered by a rise in regional pressures (Morrison et. al., 1991; Tham and Loke,
2001)

Market

Isabella (2003) states that globalisation goes beyond mere ‘internationalisation.’

Internationalisation implies involvement in a handful of foreign countries (Glaxo, for
example, had roots both in Britain and in Australia and New Zealand). By contrast,
global companies are involved in all three major regions known as the triad (i.e.
America, Asia-Pacific and Japan). Daniels & Daniels (1993) state that globalisation is
the ability to do business any place around the world in new ways, balancing the global
qualities of the product or service and the unique needs of various local customer bases.
Figure 2 shows the classification of companies along international, multinational,
global and transnational lines based on the marketing perspective.

International Multinational Globalisation Transnational

y Home market is y Home market is one
primary important. of the several
y Profit sanctuary distinct national
located in home operations of
market only. varying importance.
y Profit sanctuary
located in home
market and
individual units.
y Home market is y Home market is
one of the units one of the units
comprising the comprising the
single overall single overall
market. market.
y Profit sanctuary y Profit sanctuary
located in home located in certain
market and certain individual units.
individual units. (possibly not in
home market)

Home market

Figure 2: Classification of companies

Source: Adapted from Huszagh, Fox and Day (1985, p.32) & Bartlett and Ghoshal (1995).

Competencies

Competencies are a set of differentiated skills, complementary assets and routines that
provide the base for a firm’s competitive capacities and sustainable advantages in a
particular business (Teece, 1988). According to Daniel & Daniel (1993), competitive
advantage will go to those who make the best use of the information they have or can
find, those who can distribute information and knowledge most freely throughout the
executive, managerial, technical, and product or service making workforce, and those

455
who deliver the fruit of this knowledge to customers throughout the world. Competitive
advantages created by the identification and management of competencies and the
value they create for the customers serve as a basis for a long term, profitable customer
relationships (Bogner and Thomos, 1994). Table 2 shows the disposition for
competencies approach.

Table 2: Development and Diffusion of Competencies

Development and Diffusion of Competencies Disposition

Competencies in overseas offices are transferred from International
headquarters
Overseas offices develop and retain their own set of Multinational
competencies that is different from headquarters
Competencies are retained at headquarters only Globalisation
Competencies are developed jointly between offices for the Transnational
benefit of the entire group
(Source: Bartlett and Ghoshal, 1998)

Management and Organisation

According to Bartlett and Ghoshal (1989), thecompany’s administrative heritage is one

of the factors that influence the organisation worldwide. Therefore when a corporation
establishes operating subsidiaries in foreign countries, the headquarters manager must
decide how much control they need to maintain over subsidiary managers.

According to Rodrigues (1995), foreign subsidiary control relationship (HSR) can be

one of centralisation or decentralisation. If the HSR is in centralisation mode, it is
implicit that headquarters is in decentralisation mode, and vice versa. When HSR is
centralised, the headquarters managers do not give much autonomy to the subsidiary
managers, and they make the most important decisions which affect local operations.

Bartlett and Ghoshal (1995) describe a multinational company as a decentralised

federation with distributed resources and delegated responsibilities. In contrast, global
company can be depicted as a centralised hub with overseas subsidiaries depending on
the parent headquarters for resources and direction. The international company is
defined as a coordinated federation suited for companies with a reputation for
professional management. This implies a willingness to delegate responsibilities while
retaining overall control via sophisticated management systems and specialist corporate
staffs (see figure 3).

456
 Management treats overseas operations
as delivery pipelines to a unified global
market
controlled from headquarters.
International Mentality
Management regards overseas operations

corporation
Personal Control
Informal HQ-sub relationships overlaid

Administrative Control
Formal management planning and control
systems allow tighter HQ–sub linkage

Centralised Hub
Many strategic assets, resources,
responsibilities, and decision centralised

Coordinated Federation
Many assets, resources, responsibilities,
and decisions still decentralized but

Operational Control
Tight central control of decisions,
resources, and information

Large flows of components, products,

resources, people, and information among
interdependent units.

Distributed, specialised resources and

capabilities
as appendages to a central domestic Global Mentality

cooperation in an environment of shared

decision making

Transnational Organization Model

Complex process of coordination and

Decentralised Federation
Many key assets, responsibilities, and
decisions decentralised

Figure 3: Organization Configuration

457
4. DATA ANALYSIS

Market

Two questions were posed in the questionnaire to explore the marketing dimension, the
first was regarding the company’s geographical markets (e.i. the ability to do business)
while second was regarding the location of the company’s primary profit centre.

Of the 12 surveyed companies, 6 (i.e. 50%) can be as considered global or transnational

since they were able to do business any place around the world, 3 can be categorised as
international due to their ability to do business in a handful of foreign countries while
the remaining 3 can be labelled as multinational companies as they were only able to do
business in a few regions.

Generally, a company tends to give more attention to its primary profit centres. From
the location of the primary profit centres, we can determine the status on the company.
For the international company, the primary profit centre is the home market only. For
the multinational company, the primary profit centres are located in the home market
and all host countries. For global company, the primary profit centres located in the
home market and certain host countries whereas the primary profit centre for
transnational company are located in certain host countries only. On the basis of this
explanation, 5 of the surveyed companies can be regarded as global, 5 as multinational
and 2 transnational.

Competencies / Knowledge

Of the twelve companies, five gave multiple responses to the question that explored the
competencies/ knowledge dimension, leading us to surmise that they used more than
one approach in developing and diffusing compentencies internally. The discussion in
this section dwells on this five companies first before proceeding to the remaining
seven. Two of the five companies transferred their competencies from headquarters to
overseas offices, yet at the same time developed them jointly between offices for the
benefit of the entire group. As such they can be regarded as being both international
and transnational in form. For the other two companies, the scenarios were different.
Their competencies were transferred from headquarters, yet at the same time, their
overseas offices developed and retained their own set of competencies that was
different from headquarters. Hence they were a blend of international and
multinational companies. The final company had the semblance of international, global
and transnational forms as its competencies were retained at headquarters, the
competencies in overseas offices were transferred from headquarters, and also
developed jointly between offices for the benefit of the entire group.

Of the seven remaining companies, five can be classified as transnational as their

competencies were developed jointly between offices for the benefit of the entire group,
one as international as its competencies in overseas offices were transferred from
headquarters while the last one as multinational as its overseas offices developed and
retained its own set of competencies that is different from headquarters.

458
Management and Organisation

There are three (3) parts to this dimension to measure and compare; the overseas
subsidiaries management, the formulation of strategies and the relationship between
headquarters and subsidiaries.

For overseas subsidiaries management, four companies selected more than one answer.
Two can be regarded as international and global companies simultaneously as their
responsibilities and decisions were decentralised but controlled from headquarters for
some aspects, yet also centralised for other aspects. One company was a hybrid of
global and transnational forms as its responsibilities and decisions were centralised, yet
having shared decision making procedures. The last company to give multiple
responses can be characterised as having all four forms as its responsibilities and
decisions were decentralised, centralised, decentralised but controlled from
headquarters and also having sharing decision making procedures simultaneously.

From the remaining eight companies, six were international companies (i.e. their
responsibilities and decisions were still decentralised but controlled from headquarters),
one was global (i.e. responsibilities and decisions were centralised which mean all
decisions was decided by headquarters) and the last one transnational (i.e. shared
decision making with relatively high cooperation between the headquarters and
subsidiaries).

As for the formulation of strategies, four companies gave multiple responses. Three can
be regarded as multinational and transnational simultaneously as their local subsidiaries
had a great deal of autonomy in designing and implementing while at the same time
there was also collaboration between headquarters and individual subsidiaries for
integration. One of the companies was a hybrid of international and transnational form
as its strategies were formulated from headquarters then passed top-down to individual
subsidiaries, yet at the same time there was collaboration between headquarters and the
individual subsidiaries for integration. As for the rest of the companies, four can be
considered international (i.e. strategies were formulated by headquarters then top down
to individual subsidiaries), three were transnational (i.e. collaboration between
headquarters and individual subsidiaries to formulate strategies for integration) and one
multinational (i.e. local subsidiaries had a great deal of autonomy in designing and
implementing strategies).

We can also compare a company based on the relationship between headquarters and
subsidiaries. Six of the companies (50%) gave multiple answers. One had all four
characteristics as it is overlaid with simple financial controls, is tight with formal
management planning and control system, had tight central control of decisions,
resources and information, and also practised coordination and cooperation. Two of the
companies selected three answers, implying that they were a hybrid of international,
global and transnational companies (i.e. tight relationship with formal management
planning and control systems, tight central control of decisions, resources and
information, and also practised coordination and cooperation). Three companies
selected two answers, but each of them had different status, i.e one was an international
and transnational hybrid, one an international and global bybrid and the last one
multinational and transnational combination.

459
The remaining six companies only selected one relationship; two were international
companies (i.e. tight formal management planning and control systems between
headquarters and subsidiaries) two were transnational companies (i.e. they practiced
coordination and cooperation) while the last two can be regarded as global companies
(i.e. tight central control of decision, resources and information to remain the
relationship).

Table 3 shows the disposition of the surveyed companies for each dimension. From the
table, we can observe that each of the company had different status for each dimension.
For example, Company E had international and multinational disposition from the
marketing perspective but appeared international and transnational from a management
approach.
Table 3: Disposition of company in dimension
Company Market Primary Competen- Overseas Formulation Relationship
Profit cies subsidiaries of strategies between
Centre management headquarters
and
subsidiaries
A Global Global Trans Inter Multi / Trans Inter / Global
/ / Trans
Trans
B Global Global Trans Inter Multi / Trans Inter / Trans
/
Trans
C Global Trans Inter Global / Trans Inter Inter
/
Trans
D Global Multi Trans Inter / Multi / Multi / Trans Inter / Multi /
/ Global / Trans Global / Trans
Trans
E Inter Multi Inter / Inter Inter Trans
Multi
F Multi Global Inter / Inter Trans Trans
Trans
G Global Multi Inter / Inter Trans Inter / Global
/ Trans
Trans
H Multi Trans Trans Trans Trans Multi / Trans
J Global Multi Inter / Inter / Global Inter Global
/ Global/
Trans Trans
K Inter Multi Multi Inter Multi Inter
L Inter Global Trans Global Inter Global
M Multi Global Inter / Inter / Global Inter / Trans Inter / Global
Multi / Trans
Note: Inter – International, Multi – Multinational, Trans – Transnational, Global – Globalisation

5. CONCLUSION
From the analysis, it was found that the same company can exhibit different
evolutionary phases depending on the theoretical discipline that was adopted for
analysis, just like looking through a kaleidoscope. Clearly, definitive conclusions
cannot possibly be made based on a questionnaire that was deliberately designed to be
concise. As such this study can only be regarded as exploratory in nature. The
preliminary findings however do suggest that there this is an exciting area to delve
deeper into, provided the target population can be made to cooperate.

460
6. REFERENCES
Bartlett, C. A. and Ghoshal, S. (1987) Managing Across Border: New Strategic Requirement, Sloan
Management Review, Vol.28, Iss. 4, pp. 7-17
Bartlett, C. A. and Ghoshal, S. (1989) Managing Across Border: The Transnational Solution, Harvard
Business School Press, Boston.
Bartlett, C. A. and Ghoshal, S. (1995) Transnational Management: Text, Cases and Reading in Cross-
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Bartlett, C. A. and Ghoshal, S. (1998) Managing Across Borders: The Transnational Solution, 2nd
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Daniels, J. L. and Dr. Daniels, C. N. (1993). Global Vision: Building New Models for the Corporation of
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Hirst, P. and Thompson, G. (1999) Globalisation in Question: The International Economy and
Possibilities of Governance, 2nd Edition, Polity Press, Cambridge
Huszagh, Sandra M., Fox, Richard J. and Day, Eileen (1985) Global Marketing: An Empirical
Investigation, Columbia Journal of World Business, Twentieth Anniversary Issue, pp. 31-43
Isabella, P. (2003) Globalisation as a long-term process: A case study of the British experience since
1700, Globalisation LA Mondialisation, Vol. 32, pg. 15
Moran, R. T. and Riesenberger, J. R. (1994) The Global Challenge: building the new worldwide
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Morrison, A. J. , Risks, D. A. and Roth, K. (1991) Globalisation versus regionalisation: Which Way for
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Ohmae, K. (1990) The Borderless World, New York: Harper-Collins
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Rodrigues, C. A. (1995) Empowerment in Organizations, Vol. 3, Iss.3, pp. 25-34
Teece, D. J. (1988) Technological change and the nature of the firm. In Dosi, G. et al. (eds) Technical
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462
 FUTURE RESEARCH MODEL OF THE NEW
UNIVERSITY

William W. Badger, Dean Kashiwagi, and Kenneth Sullivan

1Performance Based Studies Research Group (PBSRG).

Arizona State University, Tempe,
Arizona, USA.

E-mail: Sylvia.Romero@asu.edu
E-mail: Dean.kashiwagi@asu.edu
E-mail: Kenneth.Sullivan@asu.edu

Abstract: The Del E Webb School of Construction was forced in the 1990s to transition its
primary focus from teaching undergraduate construction education to construction research.
In the transition, the traditional sources of construction research grants were identified, but the
funding opportunities were very competitive, typically required highly directed research,
which only documented and used current “best practices” of the existing construction industry
practices. Very few grants allowed for the longitudinal development of innovative and
sustainable theories, and constructs from other industries, repeated hypothesis testing (beyond
one or two data collection cycles), and industry implementation. This paper proposes a new
research model in the new university which is built upon basic theoretical development,
prototype model development, and implementation into the industry. The new model is more
of a business model that is generated from research that develops futuristic models that will
impact the performance of the construction industry. The new model is not constrained by the
existing construction industry practices.

Keywords: Construction Education, Construction Research, Innovation in Construction

Research

1. INTRODUCTION

In 1992, the major objective of the Del E Webb School of Construction (DEWSC) at
Arizona State University (ASU) was to provide an undergraduate education program that
produced construction management personnel for the construction industry. Although
the DEWSC was under the College of Engineering and Applied Sciences (CEAS), there
was no focus on the CEAS objective of adding new knowledge to the current industry,
nor did the DEWSC have any major funding sources to execute construction research
which generated new knowledge or which built futuristic models. During the mid 1990s,
the CEAS took on a major endeavor to further emphasize the importance of new
knowledge by separating the technology areas (education and training areas which taught
existing processes) from the research programs. They realized that in order to become a
world-ranked institution, they should centralize their efforts to (Insight 2004):
1. Be known for producing a creative, entrepreneurial and technical work force
2. Become a driving force for change and economic growth in the community

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 3. Deliver useful research for the benefit of individuals, companies, institutions, and
the environment.

Research became the focus of CEAS and therefore, the focus of the DEWSC. The
DEWSC identified the major sources of construction research grants as:
1. Government organizations such as the National Science Foundation (NSF)
2. Large agencies such as Housing and Urban Development (HUD) and Department
of Transportation (DOT)
3. Trade organizations (i.e. NECA, SMACNA, MCAA, etc.)
4. Large client/owner groups (or contractor/owner mixes) such as the Construction
Industry Institute (CII) and Construction User Roundtable (CURT)

However, these research funding opportunities did not seem to have the potential of
sustainable research that would allow the development of technology that would have a
lasting impact on the future of the construction industry. The funding sources were
extremely competitive and highly directed. The research directed by these groups
seemed to be based on the latest interest of the industry or “buzzwords,” and often were
in an iteration away and in agreement with existing best practices of the construction
industry. Very rarely did the research generate new and innovative technology with high
impact. Very few of these grants allowed sustained innovative idea development, long
term research, and repeated hypothesis testing (beyond one or two data collection cycles).

2. CHANGE OF STRUCTURE

In order to generate new knowledge and impact the practices of the industry, the DEWSC
realized that they would have to undergo a transformation, from a documenting group to
a generator of new knowledge. The following changes were needed:
1. Focus on basic theoretical research.
2. Become more efficient by operating as a business staying with a core expertise.
3. Create longitudinal research and funding models which encourage a culture of
sustainable research – allowing for the simultaneous development of conceptual
models, prototype testing of the models, with the potential to change the
construction industry through implementation tests.

The DEWSC was faced with the following obstacles:

1. The majority of professors were educators and not innovative researchers.
2. There was relatively little seed money for research.
3. The current DEWSC partners who were contractors, wanted undergraduate
students who could work, and not researchers who were trying to get them to
change.
4. The DEWSC, like many construction groups in the US, was undermanned and
under-funded.

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3. NEW RESEARCH STRUCTURE
The new research culture would depart from the traditional bureaucratic processes, and
transformed into a performance based environment. Promotions and pay increases would
have to be tied to research performance:
1. Number of grants.
2. Dollar value of grants.
3. Research publications.
4. Number of journal editorial boards.
5. Leadership among international and national research organizations.
6. Partnerships with other research schools.
7. Expertise recognized by international, national, and other prestigious
organizations.
8. Mentorship of younger professors.

To change the environment, the DEWSC provided the following:

1. Easy access to buy out time to do research.
2. Assistance in writing journal and conference papers.
3. Funding to present papers.
4. Funding channel (industry organization) to bring in research without paying high
overhead rates.
5. Environment of freedom (no rules, no reporting required, and allowing the
researcher to govern their own funding and activities.)
6. Encouraged the professors to teach in their research expertise, and make their
education progressive (changing with the research.)
7. Provided separate tracks for research and teaching professors.

The new research structure had the following characteristics:

1. Leadership. Leadership of director, leadership environment, leadership exhibited
by researchers.
2. Business approach. The research must quickly identify the value of the research
and then market the value to the industry.
3. Sustainable research. Basic theoretical research, prototype testing, and
implementation. Hypothesis testing results should then be analyzed and referred
back to all three stages of the research.
4. Progressive education. The education should change with the research results.

4. LEADERSHIP STRUCTURE AND ENVIRONMENT

Innovation requires an environment of freedom. With the freedom is delegation and
accountability. The researchers must dictate their own path. The environment of
freedom allows innovators to become successful. Although researchers must still do their
part of teaching and administration; they must be given the freedom to do it their way.
They determine where they work, how they work, how they teach, and what they teach.
Researchers will still be regulated by the university tenure requirements. If they are not
successful, they cannot remain. No internal control needs to be put on the innovative
researcher.

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In return, the researcher will become a leader of their own research. They will have total
control, they will also have accountability. They will have to determine how to spend the
funding. They will have to have a tactical and strategic plan, and a business plan. The
research is treated as a business. Inefficiency and activities that do not match the tactical
and strategic plans are scrapped. The researcher will do research first, educate students
on the research, use the students to do the research, and market the research to
construction industry participants. Every activity becomes a coordinated activity to
support the research, do the research, teach the research, or to find new research partners.
Such a business model cannot operate in an overregulated, taxing, and micromanaged
environment.

The advantage of the leadership structure is that it also allows researchers who are more
traditional to flourish. It also allows professors whose core expertise is teaching to teach.
However, the leadership environment does not hinder the innovative researcher. Herein
lies the greatest challenge of providing an environment of sustainable research. The
innovative researcher must have the opportunity to build an entirely new work structure
and funding model. The greatest obstacle to the effort is political, with the potential of
the other professors perceiving that the innovative research has opportunities that they do
not. Even though they may refuse to do something that no one else has done, to be at
risk, to change and do things a different way, they do not want to allow anyone else to try
(bureaucratic and political environment.) Without the leadership environment of freedom
and accountability that allows the researcher to control and dictate the course of their
research, their workplace, and their classes, innovation and sustainable construction
research becomes very difficult.

5. MARKETING/FUNDING MODEL
Due to the “out of the box” concepts, the research had to be self funding. The research
developed the basic concepts, and the researcher had to market the concepts to facility
owners and industry groups who were interested in funding the education of the building
owner. Without a marketing effort, the research would not be sustainable. The
researcher had to have marketing skills. At first, the funding would have to come
through small research tests, education of the basic concepts, the gathering of data that
was required for the research, and research reports that industry groups or clients funded.
All research activity needed to be focused on the same strategic goal. No research
activity can be performed that does not meet the strategic goal of the overall program.
Every research activity will serve as a part of the whole. Every activity had a dual
purpose, tactical and strategic. No research funding can be overlooked. Every research
partner is billed in some way. Research projects must be synergistic. No project can
stand alone. All research was synergistic. The professor must invest any funding back
into the program. No funding is too small or insignificant.

6. CONTINUOUS RESEARCH
The research must be multi-faceted (solve problems for different components at the same
time) and be constantly evolving. To overcome the construction industry bias to maintain
the status quo, theoretical development, prototype design and testing, implementation,

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marketing, and education would have to be simultaneously performed. Research results
therefore needed to be immediate, as well as long term. Beta testing would instead be
actual tests, on real construction projects. By conducting real-time research tests of
hypotheses, the researchers placed themselves at risk if the basic theory is incorrect.
However, researchers will always minimize risk with correct concepts and will gain the
confidence of the industry due to the results of their research. If the research has a quick
turnaround, proves the hypothesis, and improves performance, the research program will
become a source of expertise, and it will drive industry funding and research testing to
the university; thereby becoming continuous

7. PROGRESSIVE EDUCATION
A major priority of a professor is to educate. In order to be efficient and effective, the
researcher would have to be an educator in the same area as the research expertise.
Administration duties would have to be aligned to the research. Only research in the
expert’s area should be done by the expert. The research should be the education. The
education and research should continuously change. Research partners should be
students in the graduate/research program. As the education becomes specialized,
research organizations will gravitate towards each other, providing opportunities for
collaboration and growth.

The new model of research and education follows the best practices of the current
business market. It encourages the “privatization of higher education,” similar to the
reformation the Japanese are undergoing to renovate their education system (Craft 2004).
It forces the professors to become performance-based. It requires the professors to
validate their research through performance, while minimizing bureaucracy, inefficiency,
and restrictive rules.

The graduate education must have a research objective (change focus.) Innovation and
new methods become far more important that current business practices. The classes are
not for the teaching of a technical toolbox, that the student can use once they are finished.
The class cannot be structured the traditional way with an inflexible syllabus and based
on presentations or information. The class must focus on the research, potential
modifications, innovation, and free thinking. Classes should not meet every week. A
large portion of the classes should be in outside work, reading other texts in different
areas, identifying research opportunities and coming up with innovation. Outside work is
more critical than classroom work. Prospective students for the research class should be
a mix of students with academic credentials and industry experience. If a new result is
required, the education model must be different.

8. CASE STUDY: PBSRG

A case study at the Del E Webb School of Construction (DEWSC) is the Performance
Based Studies Research Group (PBSRG.) The researcher quickly setup the PBSRG
office. No school funding, staff, office space, official approval/sanctioning, or time off
was initially sought to start the effort. This paid dividends as PBSRG became successful

467
because no entity could direct or restrict the PBSRG operations. Where no investment is
made, no control can be exercised. The first order of business was to determine the
strategic objective. A quick assessment was made of the construction industry and the
following was identified the following:
1. The theoretical solution to construction delivery nonperformance was efficiency.
2. The construction industry was demand and supply, and therefore the source of
nonperformance was the construction client.
3. The funding groups would then have to be high performance manufacturers who
understood the issues, and clients who wanted to solve the problems.
4. Efficiency models would have to be developed.
5. The models would quickly have to be prototype tested.
6. The research effort would have to quickly assemble high performance participants
who would test the models.
7. If the models had potential, hypothesis testing would be conducted to increase
client’s efficiency, increase performance, or increase profits of high performance
manufacturers.

The following hypothesis was drawn from the above:

1. Construction owners/clients had funding and risk (which could not be transferred
to the contractor.)
2. If the client was convinced to make changes, the contractors would follow.
3. Clients at risk would have to prototype test the concepts.
4. The clients were charged very low costs when first proving the concept.
5. If the concepts worked, the client could be convinced to do another research
project, at a higher cost. The research fee would not include a burdensome
overhead at first.
6. As the prototype testing completed, results were analyzed, hypothesis changed,
and retested.
7. The researcher would have to teach, research, and publish in the same area.
8. The researcher should be given total freedom to run the research program as a
business with very little oversight.
9. The researcher would have to continually seek funding, and funding only in the
area of research expertise.

The initial plan was to develop a construction procurement or delivery system that would
increase the performance of construction (on time, on budget, and meet expectations.) It
would be based on new conceptual models from industrial engineering concepts:
1. Information measurement theory (IMT), the measurement of information
differential to predict the future outcome.
2. Construction Industry Structure (CIS) chart that explains industry performance.
3. Supply and demand concepts.
4. Quality control and Six Sigma concepts.
5. Performance Information Procurement System (PIPS) that increased performance
with minimized management.
6. Management structure that would produce the results of a leader.
7. Performance lining of any entity, person, company, product etc.

PBSRG initially implemented PIPS on construction projects without any beta testing.
Due to the risk, a high degree of marketing was required to get construction clients to

468
participate. The initial fees were low, and rose as the research results proved the basic
concepts.

PBSRG research included all the business aspects of the research. The model is recursive
and synergistic in nature. The research office operated off of the same principles as the
proposed research concept. The research office constantly measures, looks for
inefficiencies, change, and performance. It is all inclusive (marketing component,
research/testing component, education component, and strategic planning component.)

The first component was marketing the PBSRG basic research. One of the initial
research grants was to Neogard ($1M over 8 years), a waterproofing manufacturer, who
had a high performing product. The objectives of the research grant were to:
1. Identify the performance of the Neogard waterproofing product in non-technical
terms: percentage of applications not leaking, no defects, and the customer’s
expectations met.
2. Teach the manufacturer how to market the performance information through
education.
3. Prototype test the marketing process to show success in attracting prospective
buyers for the high performance products.

The Neogard research grant was used to find building owners, and to educate them on
best value and the use of performance information in minimizing risk. A component of
the grant was to present 40 – 50 times a year to building owners. The Neogard grant
became the vehicle for the connection to the forward thinking building owner. The
building owners then used PIPS to procure construction from high performance
contractors and manufacturers. As the success of the tests improved, more building
owners became research partners, threatening the PBSRG program due to its lack of
capability.

Once the building owners became research partners, who funded the research, their test
results fed the hypothesis testing of the basic research concepts, and the prototype test
hypothesis testing at the same time. The cycle of hypothesis testing (Figure 1), with the
overall objective of efficiency (less effort, higher performance) has been going on
cyclically for the past 12 years. The results of the hypothesis testing included the
following results:

1. The client is most responsible for construction nonperformance due to the

inefficient delivery process and not transferring risk.
2. The information technology showed how the least amount of information can
minimize more risk than the most amount of information.
3. Management and inspection is a sign of inefficiency and poor performance.
4. The objective of efficiency is to minimize the manager’s functions.
5. Systems which are efficient are simplistic in nature.
6. High performance does not cost more than low performance.

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 Figure 1: Hypothesis Testing

Because of the number of repeated tests, sustained testing, the unparalleled quantity of
results, coupled with validated basic theoretical concepts, PBSRG has become the
worldwide leaders in improving construction performance.

9. PBSRG RESULTS
Over the last 12 years, the PIPS has been tested over 400 times in local, State, and
Federal government agencies, as well as the private sector. The research and results of
the PIPS system have been published in 23 refereed journals. The research model has
used repeated hypothesis testing to minimize construction issues. It has been
implemented by organizations such as the US Coast Guard, the Dallas Independent
School District, Motorola, Honeywell, Boeing, IBM, United Airlines, and the States of
Wyoming, Hawaii, Utah, Georgia, Washington, and Montana. The experiments have
shown significant results with 98% of all projects completed on time, 98% of users
satisfied, and 100% of projects completed with no change orders. Users have
documented an increase of efficiency by up to 80%. It has been implemented with
design-bid-build, design-build, construction manager at risk, and job order contracting
delivery systems, as well as services such as landscaping and janitorial. PBSRG is
willing to test and implement the theory in every buyer/vendor relationship.

The new model has resulted in an attraction of construction industry clients, contractors,
and professionals to the University to improve their efficiency. In the last two years, the
PBSRG has given more than one hundred presentations to groups of facility managers
around the world. The research group has also published a complete manual regarding
the theory, steps of implementation, and case studies of their Best Value research. The
PBSRG has been approached by the US Army Medical Command, the Federal Aviation
Administration (FAA), Harvard University, the City of Peoria (Arizona), and General
Dynamics (GD) to implement and test the theory on their facilities in the year 2006. The
PBSRG has become experts in the field of performance based procurement through
documented testing, ongoing research, and continuous education of the facility owners.

PBSRG took the following actions to create sustainability with the education effort:
1. Formed the Facility Management Research Institute (FMRI) in 2005. FMRI is the
first partnership between the International Facility Management Association (IFMA)
chapter, General Dynamics C4 Systems, and Arizona State University, to allow the
education and use of research technology.

470
2. Through the FMRI, formed a graduate program around the needs of the research
partners, local IFMA chapter members, and contractors. The core of the graduate
program is the research technology being developed.
3. Using the thesis of the graduate students, the testing environment of the research
partners, and the classroom setting to educate the research partners. The program is
also being used in a marketing approach to introduce personnel who are getting
advanced degrees to get involved in the research.
4. Spread the research/education to other universities. PBSRG has gone to two different
US universities to attempt to implement the education/research.

PBSRG has identified the biggest obstacle to moving the technology/research to another
university, is the transforming of one of the faculty from a bureaucratic teaching mode to
a research mode. Assistant, associate, and full professors at the two universities were not
in the research/ business role. Their current work schedules are filled with administrative
services and teaching classes. They do not have the time to become experts or
researchers in the PIPS/IMT technology. PBSRG has attempted to bring the technology
to three universities, and thus far, the most successful has been the implementation at the
Florida International University, at Miami, FL. The following are requirements for
successfully moving the technology to another school:
1. Find a PhD student who is interested and capable of doing research, coordination of
research, and their PhD in the research. Fund the PhD student for three years, and use
the student as an extension of PBSRG.
2. Teach the IMT and PIPS classes every other semester, with the PhD student doing the
brunt of the work. It is an excellent training ground for future PhD candidates.
3. Find research partners within the general locality of the university who are very
interested in the research. PBSRG found two large building owners, the Baptist
Health South Florida, and the City of Miami Beach. The first year funding from the
two clients was $150K.
4. Find IFMA, BOMA, ASHE, or PMI local chapters who can participate in the
research. The local PMI chapter was very excited in the presentation, and will assist
with the research.

This research effort became the largest research effort for the construction management
group at Florida International University. The key was the identification of the PhD
student. So far, the transfer has been very successful.

The last component of the research group is strategic planning. Strategic planning
includes the following:
1. A succession plan. The more experienced personnel must have a protégé to train and
prepare for retirement.
2. The strategic goal of becoming more efficient must be marketed and meet the tactical
needs of the construction owner and research partners.
3. The research effort needs continuous funding, and a cash surplus to cover times of
inactivity (a year time period.)
4. Professors in PBSRG must have a structured program that assists in publications,
research funding and projects, and industry service.

Currently, the research effort has grown from one professor to two full professors, one
assistant professor, three researchers, two graduate research assistants, a marketing,

471
administration, internet, and filming personnel, and undergraduate student workers. Part
of the sustainability of the effort is the mentorship of the future researcher. The structure
has been setup that has resulted in the following opportunities for the assistant professor
(researcher of the future) in his first full year of tenure track service:
1. 25 refereed conference papers.
2. 4 journal papers submitted.
3. $300K of research grants.
4. Coordinated a CIB working group conference on procurement with 90 international
researchers participating.
5. Became the coordinator for a CIB task group on benchmarking performance
information worldwide.
6. Coordinated the beginning of the FMRI, the first academic/industry research office of
its kind.
7. Coordinated the Facility Management “Information Worker of the Future” masters
degree program, and brought 10 students (20% of the graduate students in the
DEWSC.)
8. Assisted the local IFMA chapter win the chapter of the year award due to the
innovative education/industry projects.

10. CONCLUSION
This paper proposes that a new research model must be developed to produce sustainable
construction research (have the potential to increase the performance of the construction
industry) in the new university setting. The research must be based on non-directed
research funding, hypothesis testing, and simultaneously conducting basic, prototype
testing, and implementation testing. The new model must allow the researcher to teach
their research. The researcher must be a researcher first, and a teacher second. The
research model must have a marketing function, a research function, and an education
function with a tactical and strategic plan. The research must be synergistic, and provide
sustainability over time. This includes a succession plan with professors at different
stages in their career. The new research model must be allowed to thrive in a
leadership/freedom environment. The researcher must be able to control their own
funding, activities, and direction. A successful research program is validated by
sustainability; hypothesis testing that validates the hypothesis and basic research,
publications, and recognition by the construction industry.

11. REFERENCES
ASU Insight (2005, March) Fulton School makes progress on lofty goals. ASU Insight, Volume 25,
Number 32.
Berry, G., Conway, H., Frazier, M., et al. (2000) Industry Studies 2000: Construction. The Industrial
College of the Armed Forces. Accessed on February 25, 2005 from
http://www.ndu.edu/icaf/industry/2000/construction/construction.htm.
Craft, Lucille (2004, Sept) Remade in Japan. PRISM 14 [1], pp 33-35.
Egan, J. (1998) Rethinking Construction: The Report of the Construction Task Force to the Deputy Prime
Minister, John Prescott, on the scope for improving the quality and efficiency of UK construction.
The Department of Trade and Industry. 16 July, URL:
http://www.dti.gov.uk/construction/rethink/report/index.htm

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Kashiwagi, D.T. (2004) Best Value Procurement: How to use Information System to Minimize Risk,
Increase Performance, and Predict Future Success. Performance Based Studies Research Group,
Arizona.
Murray, Myles (1993) A Construction Contract for the Year 2000, Concrete International.
Post, Nadine M. (1998, May 11) Building Teams Get High Marks. Engineering News Record (ENR), 240
[19], pp 32-39.
Tulacz, Gary (2004, July) The Industry Searches for a Swift Turnaround. Engineering News Record
(ENR), Volume 252: 26A.

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 LAW AND CONTRACTS

THE RELEVANCE OF LIQUIDATED DAMAGES CLAUSE IN CONSTRUCTION 475

CONTRACTS

ABANDONED HOUSING PROJECTS IN MALAYSIA: ITS LEGAL CAUSES AND 487

LEGAL SUGGESTIONS

THE IMPACT OF EDUCATION OF CONSTRUCTION CLIENTS 513

474
THE RELEVANCE OF LIQUIDATED DAMAGES CLAUSE
IN CONSTRUCTION CONTRACTS

Norila Abu Hassan

Faculty of Law
Universiti Teknologi MARA
40450 Shah Alam
Selangor
Malaysia

E-mail: norila282@salam.uitm.edu,my

Abstract: This paper will examine the law relating to claims for liquidated damages
according to section 75 of the Contracts Act 1950 and its continued relevance to construction
contracts. The purpose of liquidated damages in the commercial environment is that it
provides a sense of certainty as to the recovery of damages when there is a loss sustained or
incurred by reason of the inability of one contracting party to complete the works contracted
for in a timely manner. The provision for liquidated damages is normally contained in a
clause and the insertion of such clause has become a regular feature in construction contracts.
With such a clause according to the literal reading of the said section, there can be no inquiry
into actual loss suffered subject only to damages payable up to the sum named in the contract.
The courts have interpreted otherwise as enunciated in many cases. This paper will look into
the courts’ interpretation and application of section 75 of the Contracts Act 1950 with
particular reference to cases on construction contracts. The controversy seems to be whether
liquidated damages clause is still relevant in settlement of claims especially in construction
contracts where very often it is difficult to attach a monetary figure to assess the losses
incurred.

Keywords: 1. Liquidated Damages 2. Penalty 3. Actual damage 4. Construction Contracts 5.

Reasonable sum

1. INTRODUCTION

Parties to a contract may provide in their contract a clause that a specified sum named in
the contract payable to the innocent party in the event of a breach by the defaulting party.
Such a clause in the contract is called liquidated damages clause which has become a
regular feature in construction contracts, commercial contracts and sale and purchase
agreements. The purpose or aim of such clauses is to provide a sense of security as to the
recovery of damages if, as in construction contracts, one of the contracting party failed to
complete the work in the specified time given. The necessity of such a clause is
especially significant when it is difficult to attach a monetary figure to the losses
incurred.

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In a construction contract, this fixed sum of money is a pre-estimate of the loss an injured
party will suffer from the breach by the defaulting party. Lord Dunedin in Dunlop
Pneumatic Tyre Co v New Garage & Motor Co Ltd (1915) AC 79 said that:

“The essence of liquidated damages is a genuine covenanted pre-estimate of

damage”

Where there is a liquidated damages clause in a construction contract and the contractor
has failed to complete the work on time, the employer can claim for the liquidated
damages either by way of action or deduction or by a set-off. There need not be any
inquiry into the actual loss suffered by the employer. The contractor however, may have a
defence by proving that the agreed sum is a penalty. In the above case, a penalty is “…a
payment of money stipulated as in terrorem of the offending party.” How then to
differentiate between liquidated damages and a penalty? “…whether a sum stipulated is a
penalty or liquidated damages is a question of construction to be decided upon the terms
and inherent circumstances of each particular contract, judged of as at the time of
making the contract, not as at the time of the breach.” This represents the English law
where the question of whether the agreed sum is a penalty or ascertained damages is a
question of the construction of clause in the contract.

In Malaysia, there is no distinction between liquidated damages and penalty as liquidated

damages is deemed as penalty and invalid by virtue of section 75 of the Contracts Act
1950. In SS Maniam v State of Perak (1957) MLJ 75 at p 76, Thompson J said:

“…in this country there is no distinction between penalty and liquidated damages. This
section boldly cuts the more troublesome knot in the common law doctrine of
damages…In brief, in our law, in every case if a sum is named in a contract as the
amount to be paid in case of breach; it is to be treated as a penalty.”

Therefore the position in Malaysia differs from the English law but rather in line with
Indian law on liquidated damages (section 74 of the Indian Contracts Act).

2. SECTION 75 OF THE CONTRACTS ACT 1950

“Where a contract has been broken, if a sum so named in the contract as the amount
to be paid in case of such breach, or if the contract contains any other stipulation by way
of penalty, the party complaining of the breach is entitled, whether or not actual damage
or loss is proved to have been caused thereby, to receive from the party who has broken
the contract reasonable compensation not exceeding the amount so named or, as the
case may be , the penalty stipulated for.”

The scope and effect of section 75 can be illustrated by judicial interpretation of its
provision such as ‘if the sum so named in the contract’, ‘any other stipulation by way of
penalty’, ‘whether or not actual damage or loss is proved to have been caused thereby’,
‘reasonable compensation not exceeding the amount so named’.

476
a) ‘If the sum so named in the contract’ / any other stipulation by way of penalty’

As stated above the Malaysian legal position appears to depart from the position of
English common law. By virtue of section 75 of the Contracts Act 1950, it would seem
that despite naming a sum as agreed by both parties payable in the event of a breach, that
sum so named must be treated as a penalty (SS Maniam v State of Perak). There is no
distinction between liquidated damages and penalty except in respect of the explanation
to section 75 which states that:

“A stipulation for increased interest from the date of default may be a stipulation by
way of penalty.”

In Realvest Properties Sdn Bhd v Co-operative Central Bank Ltd (In receivership)
(1996) 2 MLJ 461, Peh Swee Chin FCJ explained the above that, “While the object of
enacting the said section 75 was to abolish the difference between penalty and liquidated
damages so that every sum named in the contract to be paid on breach would be treated
as unenforceable on the basis of such sum being a penalty in every case, the amendment
by way of the said modification brought about such distinction only in the case of interest
or default interest, i.e. increased interest payable on default. This is evident from the
wording of the ‘Explanation’ set out above, notably the words ‘may ‘and ‘penalty’
therein. The use of the word ‘penalty’ therein must have been deliberate.” (Emphasis
added) The default interest must be exorbitant in order to be caught by section 75 and this
is best illustrated by reference to illustration (d) to section 75.

‘A gives B a bond for repayment of $1,000 with the interest at 12 % at the end of six
months, with a stipulation that, in case of default, interest shall be payable at the rate of
75% from the date of default. This is a stipulation by way of penalty, and he is only
entitled to recover from such compensation as the court considers reasonable.’

Thus, the sum named in the contract payable in the event of breach, in other cases is
treated as a penalty and subject to prove of actual loss or damage, despite the wordings
“whether or not actual damage or loss is proved to have been caused thereby.”

b) ‘Whether or not actual damage or loss is proved to have been caused thereby”

The literal interpretation of the above wordings in section 75 would mean that damages
can be recovered without proof of actual loss by the injured party. However, the Federal
Court in Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy (1995) 1 MLJ 817
required the injured party to prove his actual loss, notwithstanding the liquidated
damages clause in his contract. The injured party is therefore deprived of the benefit the
liquidated damages is meant to confer him. The case of Selva Kumar concerned the sale
of a medical practice where the parties entered into an agreement which contained an
agreed liquidated damages clause. The appellant had paid substantial sum towards the
purchase price but defaulted on the balance resulting in the termination of the contract.
Under the liquidated damages clause, the respondent was allowed to forfeit the
substantial sum paid by the appellant. The Federal Court held that the respondent had not
proven his loss and was thus not entitled to claim under the liquidated damages clause.
Peh Swee Chin FCJ, upon interpreting section 75 sated that there was no distinction

477
between liquidated damages and penalty clause in a contract. He said that a penalty
clause is regarded as void in equity for being unconscionable.

The above wordings in section 75 as stated in the above case should be given ‘a limited
or restricted construction though the language used in the words in question expresses
really no circumscription of the area of operation.’ However, his Lordship said that the
words are limited to cases where the court would find difficulty to assess damages for the
actual damage or loss. In other cases, the injured party would have to prove the damages
or the reasonable compensation for the actual damage or loss in the usual ways. The
difficulty in ascertaining the actual loss or damage is where ‘there is no known measure
of damages employable, and yet the evidence clearly shows some real loss inherently,
and such loss is not too remote; then the court ought to award not nominal damages, but
instead substantial damages not exceeding the sum so named in the contractual
provision, a sum which is reasonable and fair according to the court’s good sense and
fair play.’ Otherwise, the words ‘whether or not actual damage or loss is proved to have
been caused thereby’ was to be narrowly interpreted , and ‘that in any case where there is
inherently any actual loss or damage from the evidence or nature of the claim and
damage for such actual loss is not too remote and could be assessed by settled rule, any
failure to bring in further evidence or to prove damages for such actual loss or damage,
will result in the refusal of the court to award such damages, despite the words in
question.’

c) ‘Reasonable compensation not exceeding the amount so named’

The damages awarded for instances of ‘where there is no known measure of damages
employable’ or after proving actual loss would reflect a ‘reasonable sum not exceeding
the amount so named.’ Thus, the amount named in the liquidated damages clause would
be the ceiling amount for the award of damages. Even if the innocent party can prove
actual loss exceeding the sum named, he can only claim up to that amount as stated in the
liquidated damages clause in the contract. These words in section 75 are given effect
literally by the courts of law in this country.

‘Reasonable compensation’ must be proved according to the usual principles, i.e. ‘to
make good loss or damage which naturally arose in the usual course of things or which
the parties knew when they made the contract, to be likely to result from the breach
(Hadley v Baxendale (1854) 9 EX.34).’

The judiciary in the case of Selva Kumar a/l Murugiah construed the words in the
section with reference to section 74 of the Indian Contracts Act and Indian cases such as
Bhai Panna Singh v Bhai Arjun Singh AIR 1929 PC 179 and Fateh Chand v
Balkishen AIR 1963 SC 1405. In Bhai Panna Singh, the plaintiffs were required to
prove actual loss despite the presence of a provision in the contract for the party in breach
to pay Rs 10,000.Lord Atkin said:

“The effect of s 74 of the Contract Act of 1872 is to disentitle the plaintiffs to recover
simpliciter the sum of Rs 10,000, whether the penalty or liquidated damages. The
plaintiffs must prove the damages they have suffered.”

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3. CASES AFTER SELVA KUMAR A/L MURUGIAH
In Reliance Shipping & Travel Agencies Sdn Bhd v Low Ban Siong (1996) CLJ 960,
Siti Norma Yaakub JCA cited the cases of Bhai Panna Singh, SS Maniam and Selva
Kumar a/l Murugiah, and found that the employer failed to prove its losses when it
provided on the job training to its employee. It was therefore insufficient for the
employer to rely on the amount stipulated in the agreement as their measure of damages
without proving actual loss. The case of Pembinaan Sima Sdn Bhd v Low Lai Seng
Holdings Sdn Bhd (1998) 1 CLJ 159 reiterated the stand taken in the case of Selva
Kumar a/l Murugiah and Reliance Shipping & Travel Agencies Sdn Bhd.

Similarly, in the two subsequent High Court cases of Lightweight Concrete Sdn Bhd v
Nirwana Indah Sdn Bhd (1999) 5 MLJ 351 and Clarity Heights Sdn Bhd v Syarikat
Samland Sdn Bhd (1999) 4 MLJ 485 Kamalanathan Ratnam J enunciated that even if
the sum claimed was a penalty under section 75, the said section on authority of Selva
Kumar a/l Murugiah is to be given a restrictive interpretation by Peh Swee Chin FC in
that case.

The above cases however did not deal specifically on construction contract until the case
of Sakinas Sdn Bhd v Siew Yik Hau & Anor (2002) 5 MLJ 498, where a buyer of a
condominium apartment sued for delay in delivery from the developer. The contract
between the buyer and the developer was in a standard form prescribed by the Malaysian
Housing Developers (Control and Licensing) Regulations 1989, which contained a
liquidated damages clause. The liquidated damages would accrue for each day that the
developer was late in achieving completion. The developer achieved completion only a
year later and the buyer therefore was entitled to the sum of RM18, 000 for the delay in
completion. The developer argued that following Selva Kumar a/l Murugiah, the buyer
could not rely on the liquidated damages clause as it was held as invalid. The buyer had
to prove his actual loss or damage in relation to the breach by the developer, which the
buyer failed to do. Therefore, the buyer could not claim the sum of RM18, 000
accumulated by virtue of the liquidated clause.

The High Court in Sakinas Sdn Bhd however, observed that in Selva Kumar a/l
Murugiah, the Federal Court did not decide that in every case falling under section 75 of
the Contract Act 1950, there must be proof of actual loss or damage. Accordingly, the
need to prove actual loss or damage would depend on the class of cases of which there
are two types of class of cases. In the first class of cases, where it is difficult to assess
damages or the actual damage or loss are cases where there is no known measure of
damages employable, and yet the evidence clearly shows some real loss inherently and
such loss is not too remote, the court ought nevertheless to award substantial damages not
exceeding the sum so named in the contractual provision, being a sum which was
‘reasonable and fair according to the Court’s good sense and fair play.’ The second
class of cases was where the damage for such loss was not too remote and could be
assessed by settled rules. In such an event, the failure to bring further evidence or to
prove damages for such actual loss or damage would result in the court’s refusal to award
such damages despite the words in question.

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Delays in completion were considered as a species of breach for which ‘no known
measure of damages employable.’ The court outlined the circumstances whereby the
purchaser may suffer losses which is difficult to assess in cases of where he has to pay
the instalments for the housing loan without being able to enjoy the house; if he is
renting, he would have to pay the rental and loan instalments; and if he has his own house
already but is hoping to live in a better new house, and rent his present house, will be
deprived of early enjoyment of the new house and the receipt rental from his present
house, while having to pay his loan instalments. As a consequence, Abdul Aziz J said
that:

“…I am of the opinion that a delay in completion such as the present case should be
treated as belonging to the first class of cases, which does not require proof of actual
damage or loss. There has to be real loss that is not too remote, but it is difficult for the
court to assess the actual loss because there is no known measure of damages
employable. What the court needs to determine, in the absence of proof of actual loss, is
what is the reasonable compensation, applying good sense and fair play.’

In awarding damages that is ‘reasonable and fair according to the court’s good sense and
fair play’, the sum which could well be equal to the full value of the liquidated damages.
In the above case, the full value of the liquidated damages was found to be ‘reasonable
compensation.’ The method of calculating liquidated damages for failure to hand over
vacant possession in time was prescribed in the Sale and Purchase Agreement by virtue
of the Housing Developers (Control and Licensing) Regulations 1989; it was a subsidiary
legislation under the Housing Developers (Control and Licensing) Act 1966 and therefore
prima facie incapable of overriding section 75. Notwithstanding this the court found in
favour of upholding the measure of damages within the Sale and Purchase Agreement.

The above case illustrated the continued importance of liquidated damages clause in
respect of delays in completion in the construction industry. Such clause can also be
utilized by the developer towards the contractor what the buyer could claim against the
developer.

In Arab Malaysian Corp. Builders Sdn Bhd & Anor v ASM Development Sdn Bhd
(1998) 6 MLJ 136, the building contract provided for liquidated damages payable at the
rate of RM15,000 per day of delay. Liquidated damages accumulated to the sum of RM
570,000. The employer purported to deduct this sum from interim payments due to the
contractor. The contractor argued that the deduction was wrongful. Citing Selva Kumar
a/l Murugiah, it was contended that the employer had to prove what his actual loss was.
This he had not yet done. The contractor therefore sought an injunction to restrain the
employer from deducting this sum, pending proof of his actual losses in arbitration. The
High Court refused to grant the injunction sought by the contractor and held that the
liquidated damages clause gave the employer a provisional right to deduct the sum
specified as liquidated damages first and subsequently if he could not prove his losses, he
would have to refund the difference to the contractor.

“What s 75 attacks is the quantum of the damages specified in a contract as payable

for a breach of contract. This is an issue for the arbitration proceedings and not for this
court to decide. Until the arbitrator rules that the defendant is not entitled to LAD at
RM15, 000 per day, the defendant is entitled to deduct. In my judgment, until and unless

480
set aside or rectified, the contract is valid and must be performed. For these reasons, the
plaintiffs’ reliance on Selva Kumar a/l Murugiah v Thiagarajah a/l Ratnasamy is
flawed. (per Kamalanatham Ratnam JC)

Some writers have commented on the curious stand taken by the court in the above case
as in Malaysian law, liquidated damages are deemed to be void which therefore cannot be
deducted simpliciter. The danger prevailing while waiting for the arbitration proceedings
is that the fund may have dissipated say in the event that the employer is being declared
insolvent. The above case further strengthened the continued relevance of liquidated
damages in construction contract.

4. CONSTRUCTION CONTRACTS
A construction or building contract can be loosely defined as an agreement for the
construction, repair, renovation or restoration of building or engineering works. It ought
to specify what work has to be done by the contractor, when this work must be
completed, to what standard the work must be completed, how the contract is to be
administered and how much is to be paid to the contractor by the employer. Standard
Form construction contracts provide a basic legal framework identifying the rights,
obligations and duties of the parties, establish the ambit of the powers and duties of the
contract administrator as well as put in place the administrative procedures necessary for
operation of the contract (Legal insight).

In view of the judicial interpretation of section 75 in the case of Selva Kumar a/l
Murugiah, the parties in construction projects were finding ways to contract out of its
effect. The bulk of amendments in Malaysian construction contracts after Selva Kumar
a/l Murugiah have targeted the need to prove actual loss. The amendments uniformly
provide that the sum of liquidated damages stated will represent the ‘actual loss which the
employer will suffer’ for late completion, in order to obviate the need for proof of actual
loss mandated by Selva Kumar a/l Murugiah. An example can be found in Clause 22.2,
PAM 1998 Standard Form of Building Contract which seeks to overcome the problem of
having to prove actual loss by getting the parties to agree that liquidated damages will in
fact be the ‘actual loss which the employer will suffer’ for late completion.

The Liquidated and Ascertained Damages stated in the Appendix is deemed to be the
actual loss which the employer will suffer in the event that the contractor is in breach of
the clause hereof (i.e. if there is late completion of the Works). The contractor by entering
into this contract agrees to pay to the employer the said amounts if the same becomes due
without the need of the employer to prove his actual damage or loss. (Emphasis added)

Another attempt to opt out of the consequence of having to prove actual loss by the
employer can be found in a public sector construction contract:

Liquidated and Ascertained Damages means these damages provided by Appendix I and
Clause 42 to be paid or allowed by the Contractor to the Government…as compensation
for the respective defaults as therein stated. The parties recognize the expense and
inconvenience likely to be incurred from any need to prove the loss and damage that will
be suffered by the Government in the event of any such default on the part of the

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Contractor. In consideration of the Government agreeing to limit its right to recover
damages to the rate of damages per day of delay as provided in Appendix I and Clause
42, which damages and limitation the parties have had the opportunity to consider and to
reflect in the Contract Sum, the parties acknowledge that such sums are the sole,
complete and reasonable compensation for the loss and damage that will be suffered by
the Government in the event of any default on the part of the Contractor…and the parties
irrevocably undertake that they will not, whether by legal proceedings or otherwise,
contend that such sums and the limits therein in Appendix I and cl 42 are not sole,
complete and reasonable compensation, nor will the Contractor put the Government …to
the proof thereof. (Emphasis added)

In theory, it would seem that the Employer can dispense with need to prove actual loss by
inserting such clause but such a clause is yet to be tested in court. However, an attempt
was made in the case of Constrajaya Sdn Bhd v Johor Coastal Development (2002) 6
MLJ 115, to contract out by inserting Clause 16.2 in an agreement for sale and purchase,
and construction. Clause 16.2 stated that the sums stipulated in the Agreement to be
payable to the defaulting party would constitute reasonable compensation to the non-
defaulting party and that both parties waived any possible objections to the effect that the
sums were otherwise fair and reasonable compensation. The High Court found that the
Clause 16.2 was a penalty and therefore void and unenforceable. The party (the
Appellant) relying on the Clause appealed to the Court of Appeal (Johor Coastal
Development Sdn Bhd v Constrajaya Sdn Bhd (2005) 2 AMR 90) on whether they
were entitled to retain the whole of the forfeited sum without proof of damage because of
Clause 16.2 of the Agreement. Counsel for the Appellant argued that both parties had
contracted out of section 75 of the Contracts Act 1950 by virtue of Clause 16.2 of the
Agreement. The Court of Appeal found in favour of the Respondent without addressing
the question on whether parties to an agreement can contract out of section 75 of the
Contracts Act 1950.

In Hariram a/l Jayaram & 14 Ors v Sentul Raya Bhd (2003) 1 AMR 42, concerned 15
plaintiffs who purchased condominium units from the defendant (the developer) using the
standard Sale and Purchase Agreement (SPAs) as stipulated in Schedule H of the
Housing Development (Control and Licensing) Regulations 1989. It was agreed that the
units were to be completed within 36 months, failing which the developer would have to
pay liquidated damages. Under Clause 7 of the SPA, time was stated to be of the essence
in the contract. The developer failed to deliver vacant possession of the units on the
stipulated time. They also failed to complete the common facilities in the project. The
plaintiffs sued for liquidated damages.

The defendant posed two issues firstly, relying on section 56(3) of the Contracts Act
1950 where the plaintiffs should have first given the defendant “proper and express
notices of termination” if the plaintiffs wished to avoid the contract. As the plaintiffs
failed to do so, time was no longer of the essence of the contract and therefore would
exclude their claim for liquidated damages. Secondly, whether the terms of the sale and
purchase agreements can be said to operate to entitle the plaintiffs to liquidated
ascertained damages in any event despite the provisions of s 56 (3) of the Contracts Act
1950 as to the requirement of the relevant notices.

482
Abdul Malik Ishak J had this to say, “Put differently, in construing the standard sale
and purchase agreements which the plaintiffs have signed with the defendant, one must
examine the language employed therein and at the same time bearing in mind the
purpose of the Housing Act one must not purport to go around the Housing Act and the
Housing Regulations so as to remove the protection accorded to the plaintiffs as house
buyers by importing s 56 (3) of the Contracts Act 1950. It would certainly be erroneous
in the extreme to burden the plaintiffs as purchasers with the requirement of s 56 (3) of
the Contracts Act 1950 when the Housing Act and the Housing Regulations do not
impose such a burden. In my judgment, any attempt to impose such a burden will taint
and remove the very protection which the Housing Act under which the Housing
Regulations were made was enacted for. This certainly cannot be the law of the country.
Incidentally, if Parliament intended that the plaintiffs as purchasers must notify the
defendant as developer of the plaintiff’s intention to claim liquidated ascertained
damages before making such a claim, then Parliament would have manifested that
intention in the standard sale and purchase agreements which the plaintiffs have signed.
The fact that there was no such requirement incorporate in the standard sale and
purchase agreements showed, on the balance of probabilities, that Parliament had never
intended to impose such a burden on the plaintiffs as the purchasers of those
condominium units.”

The judge further summarized the law to be “…Where there are two provisions of the
written law, one general and the other specific, then whether or not the specific
legislation came into existence subsequent to the general legislation or vice versa, the
specific legislation will exclude the operation of the general legislation” with reference
of the applicability of section 56 (3) of the Contracts Act 1950.

5. FORFEITABLE DEPOSIT OR LIQUIDATED DAMAGES

In the leading case of Howe v Smith (1884) 27 Ch D 89 at p.95, Cotton LJ clearly stated
as follows:

“The deposit, as I understand it, and using the words of Lord James (viz in Ex parte
Barrell (1875) LR 10 Ch App 512), is a guarantee that the contract shall be performed. If
the sale goes on, of course, not only in accordance with the words of the contract, but in
accordance with the intention of the parties in making the contract, it goes in part
payment of the purchase money for which it is deposited; but if on the default of the
purchaser the contract goes off, that is to say, if he repudiates the contract, then
according to Lord Justice James, he can have no right to recover the deposit.”

It is important to determine whether initial payments is a deposit or part of liquidated

damages as deposits are forfeitable whereas liquidated damages need prove of actual loss.
In Constrajaya Sdn Bhd, Syed Ahmad Helmy JC observed that:

“It is important to determine the nature of the payment as envisaged by the SPAs i.e.
whether the amount paid (initial/first payment) is for all intent and purposes a deposit
and as such forfeitable as section 75 has no application whatsoever in relation to
forfeitable deposits as it does not amount to a penalty for which the court can exercise its
powers to ascertain whether the sum is reasonable or not.”

483
Thus, if it is determined that the initial payment is a deposit then upon breach by the
purchaser the vendor is entitled to forfeit the deposit and section of the Contracts Act
1950 has no application in such cases. It has been accepted by the courts in Malaysia that
if the word ‘deposit’ is expressly stated in the contract such effect should result upon the
breach of the contract. The problem arises when the word ‘deposit’ does not appear in the
contract as in the case of Constrajaya Sdn Bhd making it difficult to determine whether
the initial payment amounted to a deposit or part of liquidated damages. How then would
the court approach the problem? In Morello Sdn Bhd v Jaques (International) Sdn
Bhd (1995) 1 MLJ 577, a Federal court case which was referred in Constrajaya Sdn
Bhd propounded several factors to determine whether the initial payment is a deposit or
part of liquidated damages. The payment of a sum at the time of the formation of the
contract would be a pointer but Syed Ahmad Helmy JC held that “…but it is only of one
of several pointers-other factors must be looked into before the payment could be
categorised or classified as a deposit.” The other pointers are the labels attached to the
term ‘initial payment’; the reasonableness of the sum stipulated; the distinction between
the terms ‘deposits’ and ‘instalments’ in the contract; the intention of the parties; and the
surrounding circumstances. In this court, the absence of the word ‘deposit’ coupled with
the repeated usage of the word instalments prompted the court to find that the deposit was
not forfeitable and thus the return of the deposit to the plaintiff.

The defendant (Appellant) appealed to the Court of Appeal (Johor Coastal

Development Sdn Bhd v Constrajaya Sdn Bhd (2005) 2 AMR 90) on the questions:

i. whether a deposit needs to be described as such;

ii. whether a party forfeiting sums other than a deposit is required to prove loss
under section 75 of the Contracts Act 1950; and

The Court of Appeal answered the first question by explaining the effect of a deposit
(quoting the dicta of Hashim Yeop Sani SCJ in the case of Sun Properties Sdn Bhd v
Happy Shopping Plaza Sdn Bhd (1987) 2 MLJ 711 as a deposit is not merely a part
payment but is also an earnest money to bind the bargain entered into and creates by fear
of its forfeiture a motive in the payer to perform the rest of the contract. In the
circumstances of the case, the 12% paid as initial payment was not unusual or
extortionate as it represented a true deposit upon construing the agreements as a whole
and therefore forfeitable by the Appellant. As for the second question, the Court of
Appeal after referring to the cases of Linggi Plantations Ltd v Jegatheesan (1972) 1
MLJ 89 and Bhai Phanna Singh v Bhai Arjun Singh AIR 1929 PC 179 reaffirmed the
principle that only a true deposit may be forfeited in the event of a default as it represents
a genuine pre-estimate of the damage of the vendor and that any further sum paid towards
the balance of the purchase price can only be forfeited upon proof of actual damage. The
Appellant showed no such proof and therefore was not entitled to the monies.

It would appear that in drafting future agreements, whether or not a deposit is labeled as
such is immaterial as long as on the proper construction of the contract, a sum of money
(not an unusual or extortionate sum) is intended to secure the future performance of the
contract, would be forfeitable by the payee upon default by the payer. But in respect of
other sums not deemed as deposit would be subject to proof of actual loss by the payee as
required under section 75 of the Contracts Act 1950.

484
6. CONCLUSION
In construction contracts, it would seem that liquidated damages clause would have
relevance in cases ‘where there is no known measure of damages employable’, whereof
the court by employing its good sense and fair play, upon finding some loss inherently
and the loss is not too remote, would award a reasonable sum up to the sum named in the
clause in the contract. Late completion in construction contracts is a species of such cases
of ‘no known measure of damages employable’ In other cases, where the damage for
such loss is not remote then such loss must be proven by applying settled rules i.e. subject
to the principles in Hadley v Baxendale (1854) 9 Ex. 34 which is statutorily enunciated
in section 74 (1) of the Contracts Act 1950. The failure to bring evidence to prove such
loss would result in the court’s refusal to award such damages despite the words in
section 75 of the Contracts Act 1950.

However, one must not forget the cardinal principle in contract that parties to a
contract are free to determine their intention to be bound by the terms as expressly
agreed. Even though the clause may amount to a bad bargain for one party, nevertheless
the court should uphold the sanctity and not destroy the contract. Such stand was
observed in the recent case of Maxisegar Sdn Bhd v Silver Concept Sdn Bhd (reported
on 28 June 2005) between the Appellant, a housing developer and the Respondent, a
landowner for the purchase of 1142.48 acres of land. The Court held that:

“…It is now established that a party who attacks a liquidated damages clause as a
penalty is in fact asking the court to relieve him from his contractual obligations which
he had freely undertaken in exchange for good consideration. The courts would therefore
generally preserve the sanctity of the contract freely entered into by the parties.”

On the other hand, one must not forget the common law spirit in cases such as
Bonhame Carter v Hyde Park Hotel Ltd (1948) WN 89, where it was held that:

“…it is not to write down the particulars and so to speak, throw them at the head of the
court saying: ‘This is what I have lost, I ask you to give me these damages.’ They have to
prove it…”

Finally, whatever it is, to quote Abdul Wahab Patail J in Lam Soon (M) Bhd v
Maxharta Bhd (1997) 2 AMR 1620, “…The safe course …is always to prove the loss.”

7. REFERENCES
Buang, Salleh (2003) Upholding Purchaser Protection, Property Times, August 2nd , Johor Bar, p 1
Eggleston, Brian (1999) Liquidated Damages and Extension of Time 2nd Edition Warwickshire Blackwell
Nayagam, Kamraj et (2005) Drafting Construction Contracts “A stitch in time saves nine” , Legal Insights,
Issue 2, p. 5
Phang, Andrew (1998) Cheshire, Fifoot & Furmston’s Contract Singapore and Malaysian Edition:
Butterworths
Powell-Smith, Vincent (1993) Current Developments in the Law of Liquidated Damages-A More Flexible
Approach? Malayan Law Journal, Vol 3, pp cxv
Sakinas Sdn Bhd v Siew Yik Hua & Anor (2002) 5 MLJ 498 : One Step Forward, Two Steps Back?
Malayan Law Journal,

485
Sinnadurai, Visu (2000) The Law of Contract in Malaysia and Singapore Vol I and II Kuala Lumpur:
Malayan Law Publishers.
Syahrul Bahiah (2005) Forfeited Deposit or Liquidated Damages? Legal Insights, Issue 2, p 6

Cases

1. Dunlop Pneumatic Tyre Co v New Garage & Motor Co Ltd (1915) AC 79

2. SS Maniam v State of Perak (1957) MLJ 75
3. Realvest Properties Sdn Bhd v Co-operative Central Bank Ltd (In receivership) (1996) 2
MLJ 461
4. Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy (1995) 1 MLJ 817
5. Bhai Panna Singh v Bhai Arjun Singh AIR 1929 PC 179
6. Fateh Chand v Balkishen AIR 1963 SC 1405
7. Reliance Shipping & Travel Agencies Sdn Bhd v Low Ban Siong (1996) CLJ 960
8. Pembinaan Sima Sdn Bhd v Low Lai Seng Holdings Sdn Bhd (1998) 1 CLJ 159
9. Lightweight Concrete Sdn Bhd v Nirwana Indah Sdn Bhd (1999) 5 MLJ 351
10. Clarity Heights Sdn Bhd v Syarikat Samland Sdn Bhd (1999) 4 MLJ 485
11. Sakinas Sdn Bhd v Siew Yik Hau & Anor (2002) 5 MLJ 498
12. Arab Malaysian Corp. Builders Sdn Bhd & Anor v ASM Development Sdn Bhd (1998) 6
MLJ 136
13. Hariram a/l Jayaram & 14 Ors v Sentul Raya Bhd (2003) 1 AMR 42
14. Howe v Smith (1884) 27 Ch D 89
15. Constrajaya Sdn Bhd v Johor Coastal Development (2002) 6 MLJ 115
16. Morello Sdn Bhd v Jaques (International) Sdn Bhd (1995) 1 MLJ 577
17. Johor Coastal Development Sdn Bhd v Constrajaya Sdn Bhd (2005) 2 AMR 90
18. Sun Properties Sdn Bhd v Happy Shopping Plaza Sdn Bhd (1987) 2 MLJ 711
19. Linggi Plantations Ltd v Jegatheesan (1972) 1 MLJ 89
20. Hadley v Baxendale (1854) 9 Ex 34
21. Maxisegar Sdn Bhd v Silver Concept Sdn Bhd (reported on 28 June 2005)
22. Bonhame Carter v Hyde Park Hotel Ltd (1948) WN 89
23. Lam Soon (M) Bhd v Maxharta Bhd (1997) 2 AMR 1620

486
 ABANDONED HOUSING PROJECTS IN MALAYSIA:
ITS LEGAL CAUSES AND LEGAL SUGGESTIONS

Nuarrual Hilal Md. Dahlan

Faculty of Public Management and Law
Universiti Utara Malaysia
06010 Sintok, Kedah
Malaysia

Abstract: Housing industry is one of the important agendas in Malaysia since

Independence Day. Since then, it has been placed in the list of the top government’s
priorities in the Malaysian Plans. After Independence, one of the most important
objectives of the government is to restructure the society and eradicate poverty, through
the means of the various Malaysia Plans, the pre-emptive New Economic Policy (NEP)
and the National Development Policy (NDP) adopted by the government. One of the
approaches contained in these programmes and means, is to provide sufficient and
suitable housing accommodation to its citizens. Initially, after Independence, the duty to
provide housings for the citizens of Malaya (the then Malaysia) was resumed by the
Malaysian government itself, following the step of the British-led government before it.
However, due to the insufficient funds on part of the government and there were
upsurges in demand for housing democracy and ownership, this noble task was too, been
given to private developers, for them to provide and construct housing accommodation,
subject to the rules and regulations imposed by the government. Be that as it may,
although housing industry has served as the development, economic and social catalyst
and has brought many benefits to the nation, yet, one of the spill-over problems which it
carries, is the problem of abandoned housing projects. This problem has become a
nightmare to the government and especially to the purchasers involved. Based on initial
researches there are various kinds of reasons leading to such a catastrophe. It is thought
that, legally speaking, this problem might have been and it is evident, due to certain legal
problems.

Thus, on this footing, this paper, will look into the legal provisions available that have the
direct linkages with abandoned housing projects and will identify the related legal
problems. Following this, the author will suggest certain legal approaches to overcome
and avoid these problems from recurring in the future as well as the legal approaches to
ensure the success of any rehabilitations
.
Keywords: Abandon Housing Project, Housing Accommodation, Legal Provision,
Malaysia.

1. INTRODUCTION

In Malaysia, there are two(2) types of housing projects. Firstly, projects that are
constructed by the government towards providing residential or office premises to its
servants and administrators. Second, is the private housing project spearheaded by
fours types of parties, namely:

487
 1) Cooperative Society9;
2) Special Low Cost Housing Projects undertaken by private parties;
3) Individual and Group Housing; and,
4) The Licensed Private Developers.10

Previously, only the licensed private developers11 are subject to the Housing
Developers Act (control and licensing) 1966 (Act 118). However, after the new
amendment made in 2002, all of the above parties are subject to the purview of Act
118 (currently being renamed ‘Housing Development Act (Control and Licensing) Act
1966’). This means that all housing developments commenced, carried by the above
four (4) parties after the amendment are subjected to the provisions provided in Act
118 and its regulations made thereunder.

The licensed private developers are the major contributors in providing office,
industrial and residential housings to fulfill the demand of all layers of society in
Malaysia.12 All the activities of housing development carried out by the licensed
private developers are now governed by
the Housing Development (Control and Licensing) Act 1966 and its regulations made
thereunder.13

9
This society is established under, and has to comply with, the rules and regulations as contained in the
Co-operative Society Act (Act 502).
10
See Ministry of Housing and Local Government, Buletin Perangkaan Perumahan 1995 (Housing
Statistic Bulletin 1995), p. 12 and Ministry of Housing and Local Government, Buletin Perangkaan
Perumahan 2000 (Housing Statistic Bulletin 2000), p. 9. The latter is the latest report available.
11
For critical analysis on the meaning of ‘housing developer’ see Nuarrual Hilal Md. Dahlan, Seksyen 3
Akta Pemajuan Perumahan (Kawalan dan Pelesenan) 1966: Suatu Pemerhatian Ke Atas Maksud
‘Pemajuan Perumahan’ (Bahagian 1 daripada 2), 2003, 6 CLJ i and Nuarrual Hilal Md. Dahlan,
Seksyen 3 Akta Pemajuan Perumahan (Kawalan dan Pelesenan) 1966: Suatu Pemerhatian Ke Atas
Maksud ‘Pemajuan Perumahan’ (Bahagian 2), 2003, 7 CLJ i.
12
Buletin Perangkaan Perumahan 2000 (Housing Statistic Bulletin 2000), pp. 30 and 25.
13
The Housing Development (Control and Licensing) Act 1966 is the latest Act (‘the current Act’)
which controls the housing industry in West Malaysia. Actually the first legislation was the Housing
Developers (Control and Licensing) Act 1966 (Act No. 3 of 1966) and its regulations relating to
licenses and advertisement. This act had been amended many times and undergone several major
changes until the promulgation of the new legislation enforced since December, 2002 (the Housing
Development (Control and Licensing) Act 1966). The legislation prior to the current act was the
Housing Developers (Control and Licensing) Act 1966 (‘the previous act’). By virtue of the amending
act – Act A1142 – Housing Developers (Control and Licensing) (Amendment) Act 2002, the previous
act and its provisions had been amended and renamed ‘the Housing Development (Control and
Licensing) Act 1966 – the Act. Likewise, the previous rules – Housing Developers (Control and
Licensing)(Licenses and sale and advertisement permits) Regulations 1989 – which mainly concerned
the application of licenses and sale and advertisement, had also been amended by the Housing
Developers (Control and Licensing) Rules (Amendment) 2002 (P.U.(A) 473) and renamed the ‘Housing
Development (Control and Licensing) Regulations 1989’. Conversely, the previous Housing
Developers (Control and Licensing) (Developer’s Account) Rules 1991 is still applicable and subsists
and enforced until today. Meanwhile to further consolidate the rules and regulations and then protect
the purchasers, government had introduced new rules i.e, the Housing Development (Purchasers
Housing Claim’s Tribunal) Regulations 2002 and Housing Development (Compounding of Offences)
Regulations 2002. To recapitulate and in summary, currently the applicable legislations and rules on
housing industry in West Malaysia, controlling the housing industry are:

488
Even though, housing industry has become one of the top government’s priorities, yet
this industry, too still possible to cause spill over and recurring problems to the nation.
One of the most plaguing enigma, is the sui generis abandoned housing projects. The
causes are multifarious, but the most formidable reason is the economic recessions,
which affect the whole nation.14 Thus, this research is to look into this problem based
on the legal perspective via the data and information generated and attempts to
forward legal suggestions to encounter the problem.

2. OBJECTIVES OF THE PAPER

1) to identify the legal causes of abandoned housing projects;

2) To suggest certain legal approaches to avoid any housing development from
becoming abandoned in the future;
3) To study the rehabilitation of the abandoned housing projects in respect of
their legal problems occurred and to suggest the most possible legal
suggestions to ensure viability and the complete success of the rehabilitation
plans.

The legal problems and musings in regard to this paper on abandoned housing
projects, revolves around the below questions:

1) Why are abandoned housing projects still occurring even though there are
laws, regulations and statutory provisions governing the housing industry?
2) How could law, rules, regulations and statutory provisions prevent and avoid
this catastrophe from recurring in the future? And how to improve the law?
3) In case the abandoned projects are to be rehabilitated, how could then law,
rules, regulations and statutory provisions play their parts to facilitate and
protect rights and interests of parties involved? If the available law is not
enough or if there is none, how could the laws be improvised or improved or

a) Housing Development (Control and Licensing) Act 1966 – the parent act;
b) Housing Developers (Control and Licensing) (Housing Development Account) Regulations
1991 – the regulation on the application and maintenance of the developer’s accounts;
c) Housing Development (Tribunal for Homebuyer Claims) Regulations 2002 – the regulations
governing the tribunal to hear claims from buyers against the developers;
d) Housing Development (Control and Licensing) Regulations 1989 – concerned with the
application for licenses and sale and advertisement permits; and,
e) Housing Development (Compounding of Offences) Regulation 2002 – the regulations which
give the power to the enforcement officers of the Ministry of Housing and Local Government
to compound certain offences committed by the developers.
14
Nuarrual Hilal Md. Dahlan, Sections 5 and 6 of the Housing Development (Control and Licensing)
Act 1966: An Over View, Unpublished Research Report, School of Management, Universiti Utara
Malaysia. 2003, pp. 9-11. See also Ministry of Housing and Local Government, Division of
Supervision and Enforcement, Laporan Senarai Projek Perumahan Terbengkalai Bagi Tahun 2004
(Report of Abandoned Housing Projects List for year 2004), 2004, p. 4.

489
 new legal ideas and solutions could be forwarded to give appropriate and
sufficient protections and remedies to parties involved?

Thus this research is to unveil the above matters and phenomena of abandoned
housing projects. Once the causes or snag as well as the legal problems and
phenomena, which might occasion the abandonment, are identified, the anecdote can
then be easily and readily identified so that the risk of housing projects getting
abandoned or aborted, based on legal perspectives, can be eradicated or if not, can be
minimized to an acceptable level.

The study is imperative in order to highlight the legal problems faced when housing
projects became abandoned. Although, housing is one of the important industries in
Malaysia, the problem of abandoned housing has become a nightmare to the
government which purchasers expect that they should take some actions to alleviate
their miserable plight. Thus, this research will look into the legal and statutory
provisions available that have direct linkage with the abandoned housing and to
identify the legal problems. Following this, the author will suggest certain legal
approaches to overcome and avoid catastrophe from recurring in the future.

3. ABANDONED HOUSING PROJECT - THE PROBLEM

Hitherto, ironically there is yet, no official, legal or judicial definition on the meaning
of ‘abandoned housing project’.15 Neither is there any legal literatures and researches,
except by the author, as far as the situations in Peninsular Malaysia is concerned, have
been seriously undertaken to study the problem based on legal perspectives.16 Be that
as it may, the practical definition, for the purpose of facilitation and administration,
has been given by the Ministry of Housing and Local Government (‘MOH’) and is
defined as follows:17
15
Nuarrual Hilal Md. Dahlan, Projek Perumahan Terbengkalai: Fenomena, Masalah dan Penyelesaian
– Satu Kajian Ke di Daerah Timur Laut, Pulau Pinang, Unpublished Master of Law Thesis, 2001,
Universiti Kebangsaan Malaysia, p. 15.
16
Ibid, p. 20 and Nuarrual Hilal Md. Dahlan, Sections 5 and 6 of the Housing Development (Control
and Licensing) Act 1966: An Over View, Unpublished Research Report, School of Management.
Universiti Utara Malaysia, 2003, p. 4.
17
Ministry of Housing and Local Government, Senarai Projek Perumahan Terbengkalai (List of
Abandoned Housing Projects) 1999, 2000, p. 1. Even though there are case law which reported certain
abandoned housing projects, yet, none had ever attempted to define the legal definition of ‘abandoned
housing project’. See for example Syarikat Chang Cheng (M) Sdn. Bhd v. Pembangunan Orkid Desa
Sdn. Bhd (1996) 1 MLJ, p. 799, Soo Hong & Leong Kew Moi & Ors v. United Malayan Banking
Corporation Bhd. & Anor (1997) 1 MLJ, p. 690 and, Keng Soon Finance Bhd v. MK Retnam Holdings
Sdn. Bhd. (Bhagat Singh s/o Surian Singh & Ors, Interveners) (1996) 2 MLJ, p. 431. Based on
preliminary investigation, certain quarters of professional do indeed forwarded suggested definitions.
For example according to the receiver’s definition, abandoned housing project is a project which its
development and construction had to be terminated. This is either because the developer had faced
financial difficulties or the developer concerned terminated the project and absconded from the site of
the project for good. See what had been cited by Abdul Halim Sallehuddin, Pengambil Alih Projek
Perumahan Terbengkalai (The take over of abandoned housing project), Project Paper for Bachelor of
Science (survey), Universiti Teknologi MARA, Malaysia, 1991. On part of the planner as well, certain

490
 1) Construction and development works on site of the project have been
terminated for the preceding 6 months or more. Either it is consecutively
occurred or during the period within which the project must be completed or
beyond the required completion period. Completion period means the period
within which the developer has to complete the construction of the housing
units. For the landed property, the completion period is 24 months calculated
from the date of the sale and purchase agreement being executed, whilst for
flats the completion period is 36 months from the date of the execution of the
sale and purchase agreement; or,

2) Within the said duration of 6 months, the developers concerned had been
wound up and was put under the control of the Official Receiver18; and,

3) The housing controller is of the opinion that a particular housing developer

fails to carry out their obligation as a developer.

According to the latest report from the Ministry of Housing and Local Government
(‘MOH’), until December 2004 there are about 227 projects, throughout Peninsular
Malaysia19, have been identified as abandoned housing projects. These problems
involved 75,356 housing units, 50,813 purchasers and with value of more than RM 7
billion.20 Most of the projects occurred in Selangor with 55 projects, followed by
Penang (24 projects) and Negeri Sembilan (22 projects) etc. The state which has the
least abandoned projects is Perlis with 3 projects.21 These projects can be categorized
into the following categories:22

a) Projects which have the prospect for rehabilitation;

definition of abandoned housing project too, had been suggested. Accordingly, what is meant by
abandoned housing project is a project which its development and construction had been deferred. To
achieve this definition, the deferment must have been occurred after the pre-requisite approval for
development plan had been granted by the authorities, not before it. This approval includes approval
and development plans. See Abdul Halim Sallehuddin, Pengambil Alih Projek Perumahan
Terbengkalai (The take over of abandoned housing project), Project paper for Bachelor of Science
(survey), Universiti Teknologi MARA, Malaysia, 1991, p.3. Further, Circular of Malaysian Treasury,
also defines that ‘an abandoned housing project’ is similar to that of the MOH’s definition. See:
http://www.treasury.gov.my/index.php?ch=34&pg=119&ac=104&keyword=bil.
18
Attached to the Insolvency Department under the Prime Minister Department. The function of this
officer is to preserve and accumulate the assets and money of the debtors, pending the determination
and distribution of the assets and money to secured and unsecured creditors in order to settle off the
debts owed by the debtors. See: http://www.bheuu.gov.my/jim/senaraicawangan.shtml.
19
Abandoned housing projects in Sabah and Sarawak are not governed by the MOH as they have their
own MOH which becomes subject to their respective Housing legislations, not the Housing
Development Act 1966. See section 1 of the Act 118.
20
See Ministry of Housing and Local Government, Laporan Senarai Projek Perumahan Terbengkalai
Bagi Tahun 2004, 2004, p. 11.
21
Ibid.
22
Ibid, p. 1.

491
 b) Projects taken over by other developers;
c) Projects not suitable for rehabilitation; and,
d) Completed and rehabilitated projects.

This substantial figure is a cause of concern to the general public who may loose
confidence in housing developers, in particular those who were or are already the
victims, but also the ‘formidable problems’ of what to do with them: Can these
abandoned projects expediently be revived and the question is how soon and also the
question of how much will they additionally cost?

The consequences of abandoned housing projects are many. Some of them are, first,
on part of the purchasers, they surely unable to occupy the houses on time as promised
by the developers as purported in the Sale and Purchase agreement. The constructions
of the houses are terminated and partly completed resulting them to be useless for
occupation for a long duration of time (mostly), unless they could, expeditiously be
revived.23 Apart from the inability to occupy the houses, the purchasers too have to
pay monthly installments to their banks.24 This is pathetic as the purchasers have to
part with their monies but they could not get the houses. There are not uncommon
cases, where banks had made the purchasers bankrupt on the ground that they failed to
pay monthly installment.25

Further to aggravate and worsen the situations, in the event there are plans for
rehabilitation, the plans and attempts to rehabilitate are not easy, so to speak. Many
impending problems and difficulties, subtle nor obvious, would be awaiting the
purchasers and the developers. Among the traumatic problems are the impossibility to
revive the projects as the projects have been too long overdue without any prospects of
reviving and to rehabilitate them, need additional and substantial costs and
expenditures.26 Cases show that most of the purchasers are reluctant to take additional
money out from their own pocket on the ground, ‘that was not their fault’, as the ‘fault
was squarely due to the developers’. ‘Thus, the developers concerned should advance
their own money to revive the projects’. The matters would not be settled that easy
since most of the developers involved do not have enough money, which may be
contributed and due to poor management or they had calculatedly siphoning of
company’s asset through unreasonable directors’ allowance and high overhead
operating costs. Worst still and of all, most of them have been wound up and the
directors have absconded, unable to be traced and contacted.27

23
See for example – Taman Suria Mutiara, Jalan Farlim, Pulau Pinang. Ministry of Housing and Local
Government File Number: KPKT/08/2349-2.
24
Taman Bistari, Kamunting, Perak. File Number: KPKT/08/824/3957/E.
25
Ibid.
26
See for example, Taman Villa Fettes, Tanjung Bungah, Pulau Pinang. Ministry of Housing and Local
Government File Number: KPKT/08/824/63 97-01, Jld 2.
27
See for example, Taman Yew Lean, Jalan Embi, Pulau Pinang. Ministry of Housing and Local
Government File Number: KPKT/08/824/365.

492
Other problem that has been identified is the disagreement prevailing among the
purchasers, bankers, local authorities and the contractors concerned when it comes to
revive the abandoned projects.28 This problem is complex as is evident in many cases.
Consequently, the projects could or may not be rehabilitated as there is no common
consensus among them.29

Based on researches undertaken, even though there are legislation that cater for
housing development in Malaysia, yet record shows that, this catastrophe keeps on
recurring especially so during the economic downturn. This is understandable, as in
the economic recession, banks would reluctant to grant housing loans as they are many
bankrupts in the country, the slow business coupled with high gearing ratio of
borrowing and less generating profits by banks, traders and business entities. Further,
there are many unemployed people or dismissal cases, which overall, resulting in
social and economics chaos in the country.30

It is also found that among other causes are that, the Ministry of Housing and Local
Government(‘MOH’) and Local Government Department and Agencies, had failed to
strictly monitor the terms of the statutory provision provided.31 This is evident in
certain studies that show, the legal provisions and requirement as stipulated by, for
examples, the Housing Development (Licensing and Control) Act 1966, the Street,
Drainage and Building Act 1974, the Town and Country Planning Act 1976 (Act 172),
the Uniform Building By-Laws 1984, the Sewerage Services Act 1993, the
Environmental Quality Act 1974, and the Occupational Safety and Health Act 1994
are blatantly disregarded by developers without any punishment and legal actions
taken by the government.32 Apart from insufficient legal and statutory provisions and
legislations and specifically, due partly to the enforcement weaknesses, the projects
are prone or inevitably to be abandoned and yet the real culprits (defaulting
developers) easily escaped from further liability and responsibility. It can be said, not
exaggeratedly, that the ultimate victims will be the purchasers itself.

In this respect, it is opined that an overhaul study is required to re look and re evaluate
into the current statutory and legal provisions available in the abandoned housing
projects in order to identify the underlying and apparent legal and statutory provision

28
See for example, Taman Batu Bukit, Tanjung Bungah, Pulau Pinang. Ministry of Housing and Local
Government File Number: KPKT/08/824/1910 –2.
29
Ibid.
30
See Rancangan Malaysia Kelapan, 2001 – 2005, Unit Perancang Ekonomi, Jabatan Perdana Menteri,
Putrajaya, Percetakan Nasional Malaysia Berhad, pp. 535-536.
31
See Nuarrual Hilal Md. Dahlan, Projek Perumahan Terbengkalai: Fenomena, Masalah dan
Penyelesaian – Satu Kajian Kes di Daerah Timur Laut, Pulau Pinang, Unpublished Master of Law
thesis, Universiti Kebangsaan Malaysia, 2001, p. 10.
32
See for example Taman Han Chiang, Jalan Burmah, Pulau Pinang, Taman Shaukat, Jalan P. Ramle,
Pulau Pinang, Taman Universe, Jalan Prangin, Pulau Pinang and Taman Tingkat Nusantara, Jalan
Bishop, Pulau Pinang. See Ministry of Housing and Local Government, files No.: KPKT/08/824/1913 –
2.

493
problems that have hitherto persisting and plaguing the national housing industry
contributing to the abandoned housing projects.

Based on the researches and readings, it is found that relatively, some of the grounds
that lead to such a catastrophe in the housing industries are due to the mismanagement
(reckless or calculated) of the developer’s affairs (especially financial), extravagance
dissipation of purchasers’ fund and that the projects also had been undertaken by
unqualified developers. Notwithstanding that most of the researches made are not
based on legal views and perspectives as there is none as far as the library of law and
legal literatures on abandoned housing projects in Malaysia is concerned, yet it is
submitted and opined that the finding of these researches (other than law and legal
researches) would to a certain extent help us to understand better and give some
constructive and enriching insights on the abandoned housing projects, particularly to
their causes. According to researches made (Rodziah Idris33, Che Ani Muhamad 34,
Abdul Halim Sallehuddin35, Nik Maisarah Nik Omar 36, Noor Azhar Mohd Asha’ari37,
Suhaimi Mohd38, Zulfakar Rahmat39, Nuarrual Hilal Md. Dahlan40 and Mohd
Hamizan Nasir 41) amongst the causes are:

33
Rodziah Idris, Projek Perumahan Terbengkalai: Sebab, Kesan dan Cadangan Mengatasinya, Latihan
Ilmiah, Universiti Malaysia 1990, p. 19.
34
Che Rani Muhamad, Projek Perumahan Terbengkalai: Pemulihan dan Pencegahan, EP 998 Project
Paper, Diploma Pentadbiran Awam, Fakulti Ekonomi dan Pentadbiran, Unversiti Malaya, 1991, p. 21.
35
Abdul Halim Sallehuddin, Pengambil Alih Projek Perumahan Terbengkalai, Project Paper, Universiti
Teknologi Malaysia, 1991, p. 33.
36
Nik Maisarah Nik Omar, Kajian Projek Perumahan Terbengkalai Kajian Kes: Selangor dan
Kelantan, Tesis sebagai memenuhi sebahagian dari syarat-syarat untuk Diploma Lanjutan
Perancangan Bandar dan Wilayah, Kajian Senibina, Perancangan dan Ukur, Jabatan Perancangan
Bandar dan Wilayah, Institut Teknologi MARA, 1993, p. 15.
37
Noor Azhar Mohd Asha’ari, Pemuliharaan dan Penilaian Projek Perumahan Terbengkalai Kajian
Kes: Wilayah Persekutuan, Jabatan Pengurusan Hartanah, Kajian Senibina Perancangan dan Ukur, Satu
Projek Yang disediakan sebagai memenuhi sebahagian daripada syarat untuk penganugerahan Diploma
Lanjutan Pengurusan Hartanah, 1993, p. 12.
38
Suhaimi Mohd, Projek Terbengkalai: Masalah dan Penyelesaiannya Dalam Negara Masa Kini,
Latihan Ilmiah, Universiti Kebangsaan Malaysia, 1992, p. 11.
39
Zulfakar Rahmat, Projek Perumahan Terbengkalai Di Malaysia: Masalah dan Penyelesaiannya,
Tesis Sarjana, Universiti Malaya, 1994, p. 8.
40
Nuarrual Hilal Md. Dahlan, Projek Perumahan Terbengkalai: Fenomena, Masalah dan Penyelesaian
– Satu Kajian Kes di Daerah Timur Laut, Pulau Pinang, Unpublished Master of Laws Thesis,
Universiti Kebangsaan Malaysia, 2001, p. 15, and Nuarrual Hilal Md. Dahlan, Sections 5 and 6 of the
Housing Development (Control and Licensing) Act 1966, An Over View, Unpublished Research Report,
School of Management, Universiti Utara Malaysia, 2003, p. 10.
41
Mohd Hamizan Nasir, Projek Perumahan Terbengkalai: Kajian Kes Perumahan Taman Wahida,
Maran, Pahang Darul Makmur, Kertas projek ini dikemukakan sebagai memenuhi syarat
penganugerahan ijazah sarjana muda sastera, Jabatan Antropologi dan Sosiologi, Fakulti Sastera dan
Sains Sosial, Universiti Malaya, 1991, p. 23.

494
 1) Legal problems and lacuna, which warrant abandonment of the projects.
2) Financial problems faced by the developers. The cause of this problem is due
to the developer’s own financial mismanagement, lacking of experience and
skills in handling projects, irresponsible and some had absconded after
realizing that they could not complete the projects;
3) Loose approval of the applications for license by the MOH. The MOH fails to
obtain advices from economists, legal experts, property experts and other
experts in approving the applications;
4) The embedding and permeating Illegal squatters’ problems faced by the
developers and this would include the formidable challenges and problems
caused to the detriment of the developers concerned in getting rid of them from
the site of projects;
5) Conflicts, feuds and squabbles caused between and among the developers, land
proprietors, purchasers, contractors, consultants and financiers ensuing further
difficulty to coordinate and streamline the development and construction
activities.

On the other hand, based on the regular watches and observations by the Ministry of
Housing and Local Government (‘MOH’), there are about seven (7) identified causes
of abandonment of the projects. These factors are the weakness of and problems faced
by the developers in respects of their:42

a) Finance;
b) Administration and management of the developers;
c) Technical;
d) Contractors;
e) Land owners;
f) Illegal squatters; and,
g) Marketing and sales.

Under this stage, legal problem may occur when the developer applies subdivision of
land or changes the status of land. The application to subdivide and change the land’s
status are respectively provided in sections 135, 137, 124A and 12443 of the National
Land Code 1965 (NLC). The problem that may arise from this stage include

42
Ministry of Housing and Local Government, Laporan Senarai Projek Perumahan Terbengkalai bagi
Tahun 2004, 2004, p. 4.
43
The exercise of administrative power, in imposing certain conditions in consideration of change of
status of land, by the state land authority is subject to the principle of reasonableness, fair and just, and
no ulterior object involved. See Pengarah Tanah dan Galian Wilayah Persekutuan v. Sri Lempah
Enterprise Sdn. Bhd. (1979) 1 MLJ 135, Land Executive Committee of the Federal Territory v. Syarikat
Harper Gilfillan Sdn. Bhd (1981) 1 MLJ 234 (FC) and Garden City Development Bhd v. Collector of
Land Revenue, Federal Territory (1982) 2 MLJ 98 (PC). The form of application usually is provided for
in the Land Rules of the individual states. For example in Kedah, the provisions contained in the Kedah
Land Rules 1966, which were enacted by the State Authority pursuant to section 14 of the NLC. For
example, application for sub-division of land and application for variation of conditions are respectively
provided in rule 37(1) Item No. 5 and rule 37 (1) Item 68 (a)(b)(c)(d). The respective fees payable are
as follows - for application for sub-division of land, per title, is RM 20 per sub-divided plot to be issued
with title – subject to a minimum fee of RM 100 by using form 9A and the fees for the application for
variation of conditions is RM 50.

495
fraudulent practices by the developer. It is thought this ill practice may happen,
because there is no concrete and practical law which can trace and curb this peripheral
problem associating with the subdivision of land.44 This can be articulated as follows,
normally when the developer applied for subdivision of land, the result of the
application of subdivision of land can take years. So, if the developer concerned
wishes to proceed expeditiously with the sale, construction and development of the
projects, they need to have license and permit to advertise and sale from the MOH.
This application can be done and granted even though the finality of the application of
the subdivision is still pending. What is required by the MOH is that, the application
for subdivision to the land authorities has already been lodged. That’s all. The
developers are allowed, by the MOH, to attach the application for license, only with
the copy of the pending for approval application for subdivision of land. Once, they
have been granted the license and permit, they can sell the pending and ad hoc
subdivided land/plot to purchasers. However, the problem may arise, when the
developer, dishonestly, sells the same portion of that particular ad hoc and still
pending subdivided land/plot to other purchaser or they may charge that ad hoc and
interim subdivided portion/land to banks for getting loans. This is possible, because,
provided that that particular interim subdivided land have been forthwith caveated by
the first purchasers concerned, the subdivided land, though have been sold to the first
purchasers, yet their titles and rights over that ad hoc subdivided land as beneficial
proprietor, are still not indefeasible because their title and right over that subdivided
land have not yet been finalized, registered nor issued by the land authorities. The
developer could later, change the application for the sub-division of land with new
application and erase the earlier application which the first purchaser had the interest,
thereby eliminating the proof of sale of such particular lot to the first purchaser. In this
event, the first purchasers may be considered as being defrauded and suffered
pecuniary losses. Thus, this usual practice, it is submitted, has posed certain lacuna
and loopholes that warrant it to be redressed by way of incorporating new legal and
statutory rules, not just based on equitable shield, to protect the first purchaser and
bona fide parties for value.45

The above legal fraud also may occur in the sale of flats and apartments, normally
involves the application for strata titles46. In this respect, usually the developer and the
purchasers would execute, apart from sale and purchase agreement, the deed of
assignment47 to evidence the beneficial ownership on the prospective parcels. The

44
Interview with Mr. Tomadan Johari, Deputy Secretary General (Development), MOH, Pusat Bandar
Damansara, on 22nd December 2005.
45
Ibid.
46
Application for strata titles is provided in section 7 (proprietor of alienated land may apply for
subdivision of a building), section 8 (circumstances in which it is compulsory for a proprietor to apply
for subdivision of a building), section 9 (conditions for approval) and section 10 (application for
subdivision of building) of the Strata Titles Act 1985 (Act 318). The application is effected by filling
and submitting Form 1 (First Schedule) to the Land Administrator subject to certain payments and other
conditions as provided in section 10.
47
This is a document evidencing the beneficial interest of the purchaser on and over such particular
purchased parcel stipulating that the ownership would be completely transferred to him once he had
paid off the price and complied with all the conditions of the sale. This is a means recognized in English
rules of equity. The concession and permission to apply English rules of equity in Malaysia is well

496
purpose of effecting the deed of assignment is to enable the purchaser to assign the
parcel so purchased to bank as evidence of ownership pending the issuance of separate
strata title to the said parcel and allowing the bank (as lender/chargee) to charge the
parcel as collateral against the loan so advanced to the purchaser(borrower/charger) to
buy the said parcel.48 However, later the developer could dishonestly, sell the same
parcel to other new purchasers and extinguish the first purchaser’s sale and purchase
agreement and deed of assignment thereby eliminating the first purchaser’s evidence
of sale and his beneficial ownership over that particular parcel. The sale of flats and
apartment, through the deed of assignment, is not governed by the NLC. Instead, it is
subject to ordinary law of contract and equitable principles. This legal loophole
likewise needs to be addressed.

In some respect, as regards the local and planning authorities who are responsible in
issuing the permission to plan development (Kebenaran Untuk Merancang), their
practice in certain circumstances may too have caused unwarranted difficulties to the
developers concerned.49 For example, they may impose certain conditions, at their

entrenched in section 3 (1) of the Civil Law Act 1956. The application is subject to the availability of
the Malaysian written law, in particular the NLC’s provisions. See Haji Abdul Rahman & Anor v.
Mahomed Hassan 1917 (AC) 209, United Malayan Banking Corporation Berhad & Anor v. Pemungut
Hasil Tanah, Kota Tinggi (1984) 2 MLJ 87, Pemungut Hasil Tanah, Kota Tinggi v. United Malayan
Banking Corporation Berhad (1981) 2 MLJ 264, Holee Holdings (M) Sdn. Bhd v Chai Him (1997) 4
MLJ 601. See also, Andrew Phang Boon Leong, Cheshire, Fifoot and Furmston’s Law of Contract,
Second Singapore and Malaysian Edition, Butteworths Asia, 1998, Singapore, p. 44 and Teo Keang
Sood and Khaw Lake Tee, Land Law In Malaysia – Cases and Commentary, Singapore Butterworth,
1987, pp. 10-11. It should be noted that, the application of English law including the rules of equity is
subject to the availability of written law in Malaysia and that the importation of these laws are only that
being the English laws as at and that of prior to the 7th April, 1956. However, it is dismal to note that
courts in Malaysia still rigorously apply English common law and rules of equity decided in England
even after the mandatory date line - 7th April, 1956. See argument concerning this issue in Nuarrual
Hilal Md. Dahlan, Doctrine of Laches in action founded on Contract in Malaysia, Malayan Law
Journal, Article Supplement (2002) 2 MLJ xlix-cxxvii, May 2002 PP 8053/8/2002; MITA (P)
150/2/2000, Nuarrual Hilal Md. Dahlan & Hairuddin Megat Latif, Wakaf: Conflit of Jurisdiction
Between Civil and Syariah Courts In Malaysia, Current Law Journal (CLJ) August Part 1 (2003) 3
CLJ 289-348 and Nuarrual Hilal Md. Dahlan, Pembuangan Konstruktif di Malaysia (Constructive
Dismissal in Malaysia), KANUN - JURNAL UNDANG-UNDANG MALAYSIA, 17, June 2005,
Dewan Bahasa dan Pustaka, 2005, Kuala Lumpur, pp. 1-57.
48
This is provided in clause 12(1) Schedule H, Housing Development (Control and Licensing) Act
1966, Housing Development (Control and Licensing) Regulation 1966 – Sale and Purchase Agreement
(Building Intended for Subdivision).
49
Interview with Mr. Tomadan Johari, Deputy Secretary General (Development), MOH, Pusat Bandar
Damansara, on 22nd December 2005. Section 19 of the Town and Country Planning Act 1976 (Act 172)
prohibits any development unless planning permission in respect of the intended development has been
granted pursuant to section 22 or section 24(3). The word ‘development’ as defined by section 2 of Act
172 means: ‘the carrying out of any building, engineering, mining, industrial or other similar operation
in, on, over or under land, the making of any material change in the use of any land or building or any
part thereof, or the subdivision or amalgamation of lands; …’. While ‘planning permission’ means
permission granted, with or without condition, to carry out development. Further section 20 provides
that the undertaking and implementation of the intended development is subject to the conditions of the
planning permission. The application for planning permission is provided in section 21 and the
applicant must comply with conditions as stipulated in the section. In addition thereto, the applicant
must submit the development proposal which contain, inter alia, the development concept and

497
whims and fancies, at the very last minute nearing the completion of the project or in
the mid-stream of it, as condition precedent to the issuance of CF (Certificate of
Fitness for Occupation), whereas these conditions may have not been stipulated earlier
for immediate action and due notice of the developers. Taman Padang Tembak, Lot
No. 688, T.S. 2, Mukim 16, NED, Penang is an example, where the local planning
authorities had imposed unwarranted condition.50 This was so happened, as they (the
local planning authorities) had amended the approval of certain plan made earlier right
in the course of construction of the housing units. This would certainly, caused a lot of
difficulties and troubles, wasting time and money of the developers.51

In respect of comments and approval from certain technical agencies, before

Certificate of Fitness For Occupation (CF) and the permission to plan could be issued,
certain legal problem may also occur. These technical agencies include, Department of
Town and Country Planning, Department of Public Work (JKR), Department of Water
and Irrigation, Tenaga Nasional Berhad (TNB), TELEKOM Malaysia, State Water
Authority, Land and District Administrator, Fire Department, Department of Sewerage
Services, Department of Education, Department of Environment etc. These technical
agencies and their requirement and conditions imposed need to be standardized and
incorporated into the statutory provisions, for otherwise, due to their inconsistency and
non standardized practices, they may also potentially result in the abandonment of the
project.52 This can be illustrated for example in Taman Cemerlang, Lot Number 3254,
Lebuhraya Thean Teik, Bandar Air Itam, Pulau Pinang53, where TNB had required the
developer to provide an area of land of 2 acres for the purpose of erection of sub-
power station by TNB. Due to this new requirement, the developer had to incur
additional costs. However, this requirement had not been stipulated earlier. Yet,
because, the developer did not want to have further problem with the authorities, they,
by hook and by crook, managed to provide the land at substantial price. To the dismal
of the developer, however, after the provision of this requirement had been met, TNB
did not proceed with the plan. This had costed, the developer, substantial expenditure
and wasting time of the developer and patently resulted in the abandonment of the
project.

In respect of the issuance of CF, certain other new agency, apart from the current list,
also should not be undermined of their importance. For such matter, they need to be
included in the list of such technical agencies, if it is expedient to do so. For instance
Department of Geology, which will be responsible to look into the land, location and
geography of the project sites to confirm that the land and the site fit and suitable for
development within certain projected cost of development. This is to avoid future land
erosion, land slide and avoid any further cost and work to extract hidden rocks and

justification, a location map and a site plan, particulars of land ownership and restrictions, if any etc.
This is pursuant to section 21A.
50
File number: KPKT/08/824/2605.
51
See also Majlis Perbandaran Pulau Pinang v. Tropiland Sdn. Bhd (1996) 3 CLJ 837.
52
Ibid.
53
File Number: KPKT/08/824/7347-I Jld II.

498
unwarranted soils structure which if not properly addressed may give lead to
abandonment of the projects. This is evident in Taman Villa Fettes, Lot 141 dan 3622,
Mukim 18, North East District, Penang, where it was found that the project had to be
abandoned because the developer had incurred substantial expenditure to extract and
remove hidden hard rock in the soil of the project sites.54 This additional costs and
problem were unforeseen items and out of the developer earlier anticipation.

The practice and conditions for the CF’s grant vary from one state to another in
Malaysia. Even though there are circulars or guide issued by the MOH (Ministry of
Housing and Local Government) for due implementation by the local and planning
authorities for the purpose of coordinating and standardizing the requirement for the
issuance of CF, yet, there are cases, where the circulars have been blatantly not
adhered to by these authorities. This turpitude policy may be so, it is perceived, as the
circulars do not have legal force and that these authorities have their own bye-laws
and not be subjected to the jurisdiction and power of the MOH.

Some of the cumbersome financial charges and fees imposed by the local planning
authorities and technical agencies (such as Department of Irrigation, Surveyor Council
(Lembaga Juru Ukur Malaysia and Water Authority such as PUAS) also may have
caused financial hardship and substantial cost to the developer which could contribute
and resulting in the abandonment.55 For example, a housing project of 7 acres in
Setapak, Kuala Lumpur has been approved to build 800 units of medium cost houses.
However, the approval is subject to the development charge with amount of RM 3.7
millions to Dewan Bandaraya, Kuala Lumpur (DBKL). While the land cost is RM 12
millions. This means, the said developer has to incur at nearly RM 16 millions (RM
3.7 million plus RM 12 millions) before the sale could be carried on and the developer
could get certain proceeds.56 Rules that impose burdensome fee need to be revised to
help the developers concerned and to avoid financial difficulties on part of the
developers which could resulted in the abandonment. It should also be noted that, the
developers are not only to bare this costs but they also have to pay fees to consultants
such as architects, engineers, land surveyors, quantity surveyors and lawyers to effect
the development.57

It should also be noted that, in case the above predicaments were to occur, it may be
argued that, the aggrieved party could appeal to the Appeal Board pursuant to section
36 of Town and Country Planning Act 1976 (Act 172). This appeal usually involves
dissatisfactory decision of the local planning authority, for example, in refusing to
grant permission or for imposition of onerous conditions on the developers concerned.

54
File Number: KPKT/08/824/63 97-1, Jld 2 and KPKT/BL/19/6397-I.
55
See:
http://aplikasi.kpkt.gov.my/akhbar.nsf/8521d968204e8b454825697400224ca6/3e4e3dd045193bc64825
6e9e000b5bd6?OpenDocument.
The development charge and liability is provided in section 32 of Act 172.
56
Ibid.
57
Ibid.

499
However, the problem to this is that not all states in Malaysia do have such a board.58
Only Federal Territory, Selangor and Penang comply with this statutory requirement.59
Even of these three states, it is only Penang which has an active Appeal Board.60 In
Selangor and Federal Territory there are Appeal Boards established, yet, there are not
much information available.61 Secondly, this appeal process and procedures are at the
expense and is of a time consuming coupled with its final outcome uncertainty, on part
of the developers, which ultimately could be adverse to their project undertaken before
hand. In addition thereto, this may cause further ‘chaos’ and could cause ‘prejudicial’
effects on their overall projects especially so, when it comes for obtaining the final
CF, from the same authority, to warrant the obtaining of vacant possession and due
completion of the projects.

In other problem, it is also found that one(1) of the reasons that has caused the projects
abandoned is the lack and insufficient purchasers. For example, let say the plan of the
project is to build 100 unit of housing but finally only 5 purchasers that have turned up
and signified their intention to purchase the units. This problem is evident in Taman
Yew Lean, Lot Number 664, Section 2, North East District, Penang62 and Taman
Julita, Bukit Air Itam, NED, Penang63, where only few purchasers interested to buy
the housing units.
On other occasion, abandoned housing projects too might have been caused due to the
problem of illegal squatters who refused to leave the project sites. These illegal
squatters might have resided on the site of the projects for years. Illegal squatters are
indeed become one of the stumbling problems to the developers, if it is not been
addressed earliest possible. This can be seen in Taman Taman Yew Lean, Lot Number
664, Section 2, North East District, Penang, 64 Taman Han Chiang, Lot Number 2343
PB6, North East District, Penang65 and Taman Padang Tembak, Lot No. 688, T.S 2,
Mukim 16, NED, Penang66.

Concerning the practice of collecting deposit or what sometimes called ‘earnest

money’ from the purchasers, this practice could also pose certain legal problem. This
problem may occur, when the developer collected them even before the approval of
plan for development and license and permit have been issued by the local planning

58
Hunud Abia Kadouf & Ainul Jaria Maidin, Theory and Practice in Land Use Planning in Malaysia,
IIUM Law Journal, Volume 12, No. 1, 2004, p. 40.
59
Ibid.
60
Ibid.
61
Ibid.
62
File Number: KPKT/08/824/365.
63
File Number: KPKT/08/824/2200 Jld. II.
64
File Number: KPKT/08/824/365.
65
File Number: 340/D/(547)/E and KPKT/BL/19/547-2.
66
File Number: KPKT/08/824/2605.

500
authorities and the MOH. The purpose of the practice is generally to secure at earliest
and as many as possible, a pool of prospective purchasers and create interim capital to
generate money via fixed deposits or other investment means, pending the approval of
the plan for development and license, and once these are fruitful they can thus
expedite the construction of the buildings and gained some profits. However, in case
the approval and the license could not be granted and that the developer absconded to
avoid the purchasers, with all the deposits and their profits, the purchasers could be
left without any remedy. This problem was so happened in Taman Universe, Lot 1556,
Mukim 13, NED, Penang, where 62 purchasers who had paid deposits had been
defrauded and the project abandoned because developer failed to get approval from
the local planning authorities and MOH and ran away to overseas.67

Stage Two (2): During the course of construction and development of the projects

It is evident that, one feature of an abandoned housing developer is their inherent

financial problem. For example, they have incurred losses prior to the application for
licenses, negative Return of Capital Employed (ROCE)68, negative Net Profit Margin
(NPM)69 and High Gearing Ratio70. This means that, the developers concerned did not
have financial strength albeit license and permit to develop and sell housing units have
been granted. Based on the reading of the Housing Development (Control and
Licensing) Act 1966 provisions, none has specifically stipulated that the financial
position and business record of the developers concerned must be viable and
sufficiently convincing before their applications for licenses can be granted by the
Housing Controller. This problem is the case occurred to Eastern Enterprise Sdn. Bhd
(developer for Taman Suria Mutiara, Jelutong, Penang)71, Gewaris Sdn. Bhd (Taman
Villa Fettes, Tanjong To’kong, Penang)72, Shaukat Industry & Realty Sdn. Bhd
(Taman Shaukat)73, Yew Lean Development Sdn. Bhd (Taman Yew Lean)74 and City
and Country Development Sdn. Bhd. (Taman Hamiltion, Jelutong, Penang)75.

67
File Number: KPKT/08/2349-2.
68
ROCE means return on capital employed. ROCE relates to the overall profitability of a company to
the finance used to generate profit and links net profit margin, net asset turnover and gross profit
margin. See Denzil Watson and Tony Head, Corporate Finance, Principles and Practice, Second
Edition, Prentice Hall, 2001, London.
69
NPM is Net Profit Margin. This is one of the ratios to determine return of capital. This ratio, which is
also called operating profit margin, indicates the efficiency with which costs have been controlled in the
generation of profit from sales. See, Denzil Watson and Tony Head, Corporate Finance, Principles and
Practice, Second Edition, Prentice Hall, 2001, London.
70
Gearing ratio reflects how a company is financed with respect to debt and equity and are used to
assess the various risks. The purpose of this ratio is to indicate the proportion of debt finance employed
by a company. See Denzil Watson and Tony Head, Corporate Finance, Principles and Practice,
Second Edition, Prentice Hall, 2001, London.
71
File number: KPKT/08/2349-2.
72
File number: KPKT/08/824/63 97-1, Jld 2 and KPKT/BL/10/6397-I.
73
File number: KPKT/08/824/ /337 Jilid II.

501
Secondly, in respect of the right of the developer to withdraw the funds from the end-
financier at each progress development supported by the architect certificates
verifying the completion of certain stage of development, as entrenched in rules 7 of
the Housing Development (Housing Development Account) 1991 and section 7A of
the Housing Development Act 1966, it is also argued that, this provision can also be
abused by the developers. This is so, because there are cases where although architects
or engineers have signified and evidenced the completion of certain progress
development, however this had not been done honestly.76 In order words, there are
fraudulent practices by developer, architects, engineers and bank managers to
withdraw the available money in the end financier’s hands at the expense of the
purchasers. So far, there is no current legal provision that can prevent this malpractice.

Apart from the legal loopholes such as above, it is also succinctly found, that there are
also weaknesses on part of the MOH to implement fully the provisions contained in
Act 118. This weakness also has contributed to the problem. In other words, this is an
enforcement and implementation weakness on part of the MOH. These may include
the failure to charge criminal offences against defaulting developer and to black list
the abandoned housing developers. Among the developers’ non-compliance duties that
have been evident in abandoned housing projects saga are, for e.g. failure to comply
with section 7 (duties of housing developers)77, section 8 (Disclosure of the
arrangement and reorganization), 78 section 9 (duty to appoint auditors)79 etc. Though

74
File number: KPKT/08/824/365.
75
File number: KPKT/08/3013/E.
76
This fact has been confirmed via interview with Mr. Tomadan Johari, Deputy Secretary General
(Development), MOH, Pusat Bandar Damansara, on 22nd December 2005.
77
For example Eastern Enterprise Sdn. Bhd (Taman Suria Mutiara). See File Number: KPKT/08/2349-
2. Amongst the duties, provided in section 7, include a) every year appoint an auditor or auditors in the
manner required by section 9; b) within six months after the close of the financial year of the licensed
housing developer in question send to the Controller and also publish in the Gazette a copy of the report
of the auditor prepared under section 9 together with a copy of his balance-sheet and profit and loss
account; c) not later than 21st day of January and the 21st day of July of each year, send to the Controller
a statement, in such form and containing such information as the Controller may from time to time
determine, on the progress of the housing developments which the housing developer is engaged in,
carries on or undertakes or causes to be undertaken etc.
78
For example Gewaris Sdn. Bhd (Taman Villa Fettes). See File Number: KPKT/08/824/63 97-1, Jld 2
and KPKT/BL/19/6397-I.
79
For example Penangan Maju Holdings Sdn. Bhd (Taman Cemerlang). See File Number:
KPKT/08/824/7374-I Jld II. According to section 9(1)’…every licensed housing developer shall every
year as often as the need arises appoint a person approved by the Minister to be his auditor or auditors;
and where a licensed housing developer fails to make the appointment or fails to appoint another
auditor in place of an auditor who has resigned or dies or whose appointment has been terminated, the
Minister may appoint any person or persons who in his opinion is or are fit and proper to be an auditor
or auditors…and fix remunerations which shall be paid to the auditor…and such remuneration shall be
paid by the licensed developer…’. The duty of the auditor is spelt out in section 9(3) which reads:
’Every auditor…shall make a report to the Controller as to the annual balance-sheet and loss accounts
of the licensed housing developer…’.

502
these transgressions occurred, yet, based on the preliminary study, no punishment has
been meted out by the MOH against these defaulting developers.

There is also situation where, when the time to rehabilitate comes, and upon study by
consultants to look into the viability and suitability of the project for rehabilitation,
one of common problems, that axiomatically happens, is the insufficient funds
available in the hands of end-financier. In other words, this happened due to the
increasing construction costs and the fact that the physical states of the houses, have
long been over due and abandoned, which might have been damaged and need
substantial repairs and replacement in order to get the CF. In this situation who will
inject the additional funds? Based on the preliminary study, the author finds that
either, this additional fund comes from the developer themselves80 or the purchasers
are willing to part with their additional money81 or some ‘welfare’ contribution by
government agency for instance Tabung Pemulihan Perumahan Terbengkalai (TPPT),
Bank Negara82. However, it is opined that it is fair and equitable to impose this
obligation on the defaulting developer themselves. However, say that the developer
has no money at all, how could we settle the matter?

Within the statutory period, the MOH have no legal right to take action against them,
as they have agreed and undertook to pay the statutory damages for late deliveries of
vacant possession to the purchasers.83 This is the legal predicament. The associating
effects lies with this legal problem is that, it would cause difficulties to the MOH or
rehabilitating agencies to take over or go into the project for revival soonest possible
to avoid further problems, unless this problem has been admitted, by the developers
concerned and they surrendered the projects to the MOH to resume the construction.84
The problems may also postulate further ‘headache’ in that, dispute and tussle may
ensue between purchasers, local authorities, end financiers and the developers
concerned.85 This dispute could to a certain extent, lead to litigation proceeding in
court.86 If this were to happen, this would certainly prolong the plan for rehabilitation
to an indefinite period of time. Yet the rehabilitation of the project remains stalled. In

80
See for example Taman Rasa Sayang, Jempol Negeri Sembilan, developed by Winlord Enterprise
Sdn. Bhd. File Number: KPKT/08/824/3361-1.
81
See for example Taman Budi, Daerah Marang, Terengganu, developed by Bina Budi Sdn. Bhd. File
Number: KPKT/08/824/1247/E.
82
See for example Perkampungan Bayu, Beserah, Kuantan, developed by Bayu Titiwangsa SDn. Bhd
(In Liquidation). File Number: KPKT/08/824/2886/E.
83
Interview with Mr. Tomadan Johari, Deputy Secretary General (Development), MOH, Pusat Bandar
Damansara, on 22nd December 2005. See also Nuarrual Hilal Md. Dahlan, Projek Perumahan
Terbengkalai: Fenomena, Masalah dan Penyelesaian – Satu Kajian Ke di Daerah Timur Laut, Pulau
Pinang, Unpublished Master of Law Thesis, 2001, Universiti Kebangsaan Malaysia, pp. 20 – 22.
84
See for example Taman Han Chiang, Lot 2343, PB6, NED, Penang (Lam Chew Development Sdn.
Bhd), File Number: 340/D/(547)/E and KPKT/BL/19/547-2.
85
For example Taman Showkat, Lot 2219, Mukim 13, NED, Penang (Showkat Industry & Realty Sdn.
Bhd). See File Number: KPKT/08/824/ /337 Jilid II.
86
Ibid.

503
effect to this consequence, because of the long delay, to rehabilitate, the materials and
physical states of the uncompleted building could have been damaged, unsuitable for
human habitation/occupation and the increasing costs and expenses needed to repair
and replace them.87 The question is: who will be responsible to inject the additional
funds?. Unless the purchasers themselves agreed to top-up the insufficient fund for
example as happened in Taman Showkat, Lot 2219, Mukim 13, NED, Penang
(Showkat Industry and Realty Sdn. Bhd)88 or in case there is financial help from
somebody (for eg government and Tabung Pemulihan Perumahan Terbengkalai
(TPPT) Bank Negara) like Tingkat Nusantara, Lot 300 & 302, NED, Penang (Syarikat
Nusantara Pulau Pinang Berhad)89, it is regretted that the rehabilitation could not be
proceeded with adverse to the interest of the purchasers. The latter scenario occurred
for example in Taman Bistari, Kamunting, Perak (Sri Ringgit Sdn. Bhd)90, where the
purchasers were reluctant to provide new fund from their own pockets, the project
remains stalled, since abandoned in 1987, until recently before being taken over by a
new developer. Thus, it is submitted, it is necessary and timely to have new legal and
statutory definition and legal and statutory rehabilitation regime to avoid these legal
problems.

Stage Four (4): The purchasers obtained vacant possession and entitled to occupy
the housing units

There are also cases, after rehabilitation had been successfully undertaken; the
purchasers echoed dissatisfactory remarks about the shoddiness end result of the new
developers’ works and their workmanships. For example, in Taman Julita, Bukit Air
Itam, an abandoned housing project situated at P.T Lots 4910-1916, Mukim 13, NED,
Penang (Malaysian Resources Corporation Sdn. Bhd.), where it was found that the
developer responsible to revive the project failed to comply with the original layout
plan and specifications of the building as contained in the sale and purchase agreement
and the permission to plan for development.91 Thus law is needed to curb this
malpractice of the rehabilitating developers.

3. SUGGESTIONS
Based on the above illustration, it is suggested that the following legal suggestions be
adopted by the government to counter the above legal problems92 :

87
See for example Taman Yew Lean, Lot Number 664, Section 2, NED, Penang. (Yew Lean
Development Sdn. Bhd). File Number: KPKT/08/824/365.
88
File Number: KPKT/08/824/ /337 Jilid II.
89
File Number: KPKT/BL/19/1171-I Jilid II.
90
File Number: KPKT/08/824/3957/E.
91
File Number: KPKT/08/824/2200 Jilid II.
92
It is suggested that these suggestions should be considered by government especially through its
machineries, for example, the National Physical Planning Council, the MOH, land authorities, state

504
Stage One (1): Before the developers obtained license from the MOH, viz during
application to subdivide land and the application for obtaining permission to
plan

To avoid the fraudulent practices by the developer in selling the same land to several
persons, it is suggested that, the legal provisions must state, once they (the developer)
had filed the application for subdivision, the application shall be irrevocable. It can not
any more be changed except on the ground of equity. This is to protect the interest of
the purchasers from being defrauded by the developer as illustrated above. This
additional legal requirement is supplement to the requirement that the sale land
concerned be caveated forthwith.

As far as the local planning authorities are concerned, on the problems of not having
coordination and standardized procedure and the non legal locus circular orders in
imposing the conditions precedent prior to obtaining the approval of development plan
and the CF, it is suggested that, new a law and regulation have to standardize them.
Once the approval, which enumerates certain conditions, has been given, it shall be
irrevocable. Thus, by having such certitude of requirements and conditions, the
developers can plan and meet their objectives without any potential danger of
variations of the earlier plans.

Similarly in respect of the problem of having insufficient purchasers, it is suggested

that, the developers who intend to apply for the permission/approval to plan for
development must provide convincing proof that there are enough purchasers for
consideration of the local planning authorities. It is suggested that to obtain these
prospective purchasers certain avenue can be sought for example, for the low cost
housing unit, the developers can get the list from the State Secretary office and for the
remaining non low cost houses’/ordinary purchasers, it is suggested that, new rules
requiring resident in the area of the local authorities to register names to purchase
houses. By having this bank of prospective purchasers, it is hope that the problem of
lacking of sufficient purchasers would be eliminated.

Finally, on the problem of illegal squatters who hesitantly refused to vacate the site of
the projects, it is suggested that, the developer shall get rid off these squatters, first,
before the developers take off the project. It is therefore necessary, to have new law
that requires the developer to settle the problem of squatters first, failing which the
permission to plan development shall not be granted. The problem and encumbrances
potential and inherent in nature must be specified in the development proposal as
required under Section 21A of the Town and Country Planning Act 1976(Act 172).
The local planning authority must also have their own internal audit and task force or

authorities, State Planning Committee, Regional Planning Committee and local planning authorities
when adopting policies and guidelines, as well when executing them, in housing development. The
Town and Country Planning Act 1976 (Act 172) could be invoked, apart from Act 118, to employ the
suggestions, as the basis to strengthen the policies in housing development. The suggestions, it is
submitted, would also in line with the spirit of the Town and Country Planning Act 1976 (Act 172),
inter alia, under its Long Title and Preamble, ‘…for the purpose of ensuring uniformity of law and
policy to make a law for the proper control and regulation of town and country planning in Peninsular
Malaysia’.

505
independent, reliable and credible valuers and assessors to verify the information
contained in the development proposal to avoid any discrepancies and fraud that may
have been submitted by the applicant developers. This also must be put into the
statutory provision as supplement to the existing one.

Stage Two (2): During the course of construction and development of the projects

It is suggested that the existing provision especially the Housing Development

(Control and Licensing) Act 1966 provides clearly the obligation on part of the
applicant developer to prove and show that their financial positions and ratios are
reasonable and viable to the satisfaction of the MOH. The MOH also must set certain
minimum standard of financial quotient and standard that can be considered suitable
for a developer to meet all and any financial challenges that they may encounter
throughout the course of construction and development of the houses. The proof of
this ability must be consistently shown throughout the stages of the development.

In case, there are dishonest practices by the developers and the architects in
withdrawing the fund from the financiers, it is suggested certain legal protection, are
urgently needed to curb this ill practice. For instance, it can be implemented by way of
incorporating tighter procedures such as the need to have purchasers’ and MOH
architects and engineers, being independent professional parties, to verify each and
every payment claim submitted by the developer to the end financiers.

In looking into the ineffectiveness and weaknesses on part of the MOH to monitor and
supervise the conducts and activities of the developers, it is also suggested that, there
should have additional provision granting the purchasers and interested parties, as
‘watch dog’ or to certain extent ‘the whistle blower’, to look into and supervise the
due compliance of these statutory duties. They may exercise the ‘check and balance’
against the conducts of the developers as the trustee and the Local Planning
Authorities and MOH as the regulatory body. The provisions also should confer rights
to the purchasers, in the event, there is unreasonable non-compliance behaviour
against these statutory duties, on part of the developers, which may cause and bring
potential and impending, detrimental in nature, breaching their legal rights and
interests, to apply for stop order of the development and request for the change of
developer to avoid any further problem to the development and to avoid the housing
project from becoming abandoned. In addition thereto, this statutory right also, it is
suggested, shall not prevent the purchasers concerned from instituting civil proceeding
against the defaulting developer founded on equitable, contractual and tortuous
principles. This is to give full power, right and ability to the purchasers, and by all
means, as the potential aggrieved parties to seek justice against the culprit defaulting
developers.

As regards the liability and responsibility of the developer who had defaulted and
caused the abandonment, it is opined that it is fair and equitable to impose them the
obligation to fully fund the rehabilitation. However, what about if let say the
developer does not have money at all, how could we settle this matter? In the opinion
of the author, it is suggested that, in every approval plan for development issued by
the local planning authorities and license and permit to developer issued by the MOH,
there must have condition precedent which state that, the developer must reserve at

506
least certain portion of the site project and development area, for eg, 30% of them,
reserved as security or lien or collateral land to the project. This is to safeguard the
interest of the purchasers in case the project is later abandoned. In case the project
abandoned, and upon report by the consultants, if it were found that the fund, available
in the hands of the end-financier, for rehabilitation is not enough, this
collateral/lien/security land can be used by way of selling it and the proceed accruing
thereon can be utilized to top-up the insufficient fund in order to grease and provide
the capital/fund for the rehabilitation purposes. After the project is fully rehabilitated,
the CF has been granted and the defect liability period, after the rehabilitation has
expired, then, provided that, there is balance from the proceed money accrued from
the sale of the security/lien/collateral land, this balance shall be refunded to the
defaulting developer. For this purpose, it is suggested, new provision must be inserted
into the existing legal provisions to give effect to this idea.

Stage Three (3): After the projects abandoned and ready for rehabilitation

The definition of abandoned housing project must be provided legally and must
statutorily be interpreted. It is suggested the administrative definitions given in the
above be used as the statutory definition of abandoned housing projects. In addition
thereto, the new law must, and it is incumbent, defines when does abandonment
occur? For example, abandonment occurs if the progress development of the project
and the developer failed to comply with the statutory duty to submit the progress
report within certain months. The purpose of having this legal and statutory definition
to abandoned housing is to prevent any abuse by the developer concerned as
illustrated above. Further, by having this statutory definition, the rehabilitation can be
expedited and facilitated the completion of the project without further due at the
expense of the purchasers. It follows that once certain project is statutorily and legally
defined as ‘abandoned’, the MOH can make official declaration and gazette it in
Parliament. In follows that, the project so abandoned can be immediately vested into
the MOH’s control. Following this, new supplement rehabilitation legal regime is
needed to guide and control the process of rehabilitation. This law and statutory
provision serve as a statutory vesting mechanism to the MOH and as a protecting
mechanism or legal and statutory shield against any interfering actions, either legal or
non-legal action, from recalcitrant parties which can jeopardize the whole
rehabilitation process. This statutory provision, it is submitted, must, at least, contain
the following matters according to sequence:

a) The MOH shall declare that certain housing project has been abandoned and
gazetted it in Parliament, once the project falls into the definition of ‘abandoned
housing project’.

b) Once declared and gazetted in Parliament, the existing defaulting developer is no

more responsible on the projects.

c) Following this, the MOH will appoint a new rehabilitating developer. The
functions of this new developer (may also akin to receiver and manager or special
administrator or project manager entrusted by the MOH to rehabilitate the
projects) is to rehabilitate, control, manage the whole project until completion
based on the rehabilitation statutory legal provisions.

507
d) All securities, collateral and deposits of the defaulting developer will be frozen
and subject to the use of the new rehabilitating developer and MOH for the
purpose of facilitating and adding the fund for the revival of the project if is
necessary and expedient.

e) The declaration and gazette also serve as a ‘moratorium’ or ‘shield’ against action
from any parties, for the purpose of facilitating and ensuring smooth running of the
rehabilitation by the new developer and until the construction of the whole project
completed .

f) All parties (purchasers, end financiers, local planning authorities etc) are under
obligations to comply with these statutory provisions and to give full support and
cooperation to the MOH and the new rehabilitating developer for ensuring the due
execution of the rehabilitation.

g) The new developer will make appointment of consultant consisting of accountants,

architects, engineers and quantity surveyors to conduct feasibility and viability
studies on the status quo of the abandoned projects. The objective of this study is
to disclose the physical states of the building, the uncompleted units, the available
funds, the costs and expenses needed to run the rehabilitation.

h) If the study finds that the fund is not sufficient, the new developer may utilize the
lien, security, collateral and deposit of the previous defaulting developer to
supplement the existing funds.

i) The consultants are required to prepare and submit the report of the study within
certain duration of time. This report must be submitted to the new developer for
consideration and only upon the approval of the MOH, could then the proposal be
implemented.

j) Once MOH have approved the proposal as per the report, they would forthwith
declare that the rehabilitation will be commenced.

k) This new rehabilitating developer also has to give certain undertaking to the MOH
and also has to comply with the rehabilitation statutory rules and regulations, in
order to benefit and protect the interest of the purchasers.

l) The new developer also will be subjected to ordinary development and planning
laws such as ordinary developers do. Thus, they have to apply for the new plan for
development from the local planning authorities as required under Town and
Country Planning Act 1976 (Act 172) and the regulations made thereunder, Street,
Drainage and Building Act 1974, Uniform by-law Act 1984. Similarly, they too
shall have to apply new license and permits for advertisement and sale from the
MOH subject to the provision of the Housing Development (Control and
Licensing) Act 1966 and the regulations made thereunder. These regulations are
imperative, it is perceived, to ensure the legality of the rehabilitation projects and
protects the rights and interests of the parties involved.

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m) The new developer will appoint contractors and the construction and rehabilitation
will be carried out and completed within a reasonable specified period.

n) The local planning authorities are also required to issue new plan for development
replacing the previous one and with new updated requirement and conditions to
ensure that CF can be granted once the rehabilitation have finally completed.

o) The MOH would then issue new license and new permit to the new developer
before commencing the rehabilitation.

p) New agreement of sale between the new developer and purchasers will be effected
based on the spirit and intention of the Housing Development (Control and
Licensing) Act 1966 and the regulations made thereunder but with certain
modification. The process of rehabilitation also will take, for example 6 to 12
months, depending on the seriousness of the problems and uncompleted housing
units. This duration of time is determined by the feasibility and viability studies
conducted by the above consultants and subject to the statutory progress
development and stage as provided in the rehabilitation rules and regulations.

q) The rehabilitation commences until full completion and until complete success.

It is submitted that, the above legal suggestions would able to achieve at least the
following objectives:

1) To avoid any problems and disputes which may arise from and caused by the
recalcitrant purchasers, contractors, end-financiers, banks, local authorities etc?
This can be seen in Ria Kondominium, Bandar Kuah, Langkawi developed by PRJ
(M) Sdn. Bhd., where all discussions in order to proceed with the rehabilitation
between the purchasers, banks and developer failed.93

2) Will expedite the rehabilitation of the projects within a specified time period.
Otherwise, without a systematic and concrete rehabilitation plans and law which
can control it, the rehabilitation will be delayed and in worst situations,
rehabilitation could not be commenced. For example Taman Seri Marina, Kuala
Kedah, Kota Setar District developed by JB Kulim Development Sdn. Bhd. The
reason is that the developer had been wound up by court on the application of the
main contractor due to the default on part of the developer and currently no one is
willing to rehabilitate the project. This project should have been completed by
February, 2001.94

3) The purchasers will be able to get the houses and their rights will be protected as
these are provided in the act and the new developers and rehabilitation are subject
to close scrutiny and control of the law and MOH. See for example Taman Bunga
Raya, Mukim Wang, Kangar developed by Bintong Dasari Sdn. Bhd. This project
was completed on 12th June, 1998, after abandoned since 1992. However, the

93
File Number: KPKT/08/824/658-1.
94
File Number: KPKT/08/824/6741-2.

509
 developer eventually managed to rehabilitate the projects after undergoing series
of problems and difficulties.95

4) To avoid any abuse and misuse, when the project is undergoing the process of
rehabilitation, caused by consultants, contractors, receiver, managers and
liquidators which are happening currently to the detriment of the purchasers and
the public. See for instance Taman Bistari Kamunting, Taiping, Perak developed
by Sri Ringgit Properties Sdn. Bhd. The problem with this project is that, the new
contractors - Setia Laris Sdn. Bhd and Super City Triumph Sdn. Bhd failed to plan
properly and had transgressed certain rules and regulations.96

5) To avoid any unwarranted disturbing actions such as legal actions commenced by

dissatisfied parties and thus would help the new developers to smoothly implement
the rehabilitation development successfully. See for example Taman Perpaduan
Permai, Bercham Ipoh developed by Trinity Home Builders Sdn. Bhd. In this case,
the project should have been completed by year 1999, however until now no
rehabilitation has been undertaken. To worsen the matter, 18 purchasers have filed
writ of summons against the developer praying for specific performance, damages
and other equitable remedies.97

6) To avoid any abandoned housing projects from being stalled for indefinite period
of time, without any positive and prospective rehabilitation plans and
development. This scenario can be illustrated in Taman Sri Intan, Besut, and
Terengganu, developed by Tenaga Wan Bersaudara Sdn. Bhd. This project should
have been occupied and completed by year 1999. However, it was later abandoned
and until now there is no plan for rehabilitation. Furthermore, the developer fails
to inform MOH the latest development and plan for the rehabilitation of their
project.98

Stage Four (4): The purchasers obtained vacant possession and entitled to occupy
the housing units

To protect the purchasers rights, it is prudent to impose on the new rehabilitating

developer the right to, likewise, observe certain legal rights, just as the ordinary
developer does. These obligations include, for example, the liability to observe defect
liability period, obligation to make good any losses suffered by the purchasers,
ensuring vacant possession and CF obtained within the stipulated period of time. In
the ordinary standard format of the sale and purchase agreement, there are progress
development stages and payment will follow after completion of certain stage of the
development. To strengthen the law, it is suggested that, this procedure should be
improvised, for example, the new rehabilitating developer could only get payment
equivalent to 10% progress development only if they managed to reach and complete
95
File Number: KPKT/08/824/4756.
96
File Number: KPKT/08/824/3957/E.
97
File Number: KPKT/08/824/7055-1.
98
File Number: KPKT/08/824/7090-1.

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the 30% progress development, payment for 30% progress development after they had
completed the 50% progress development and so on. These stages of completion shall
also be verified by architects and engineers of the purchasers, bankers and Housing
Controller, not just that of the rehabilitating developers. This is to ensure credibility,
reliability, validity, veracity of the claims, from being manipulated dishonestly by the
rehabilitating developers and their professional aides and consultants at the expense of
the purchasers, and above all to ensure that the interests (their physical houses and
loan funds) of the purchasers are fully protected all the time. This ‘lien’ based method
of payment, is thought can be introduced, to avoid the new rehabilitating developer to
abandon again the project and run away. Alternatively, in case, this new rehabilitating
developer, calculated or otherwise, terminated the construction of the project, at least
‘positive’ and ‘meaningful’ portions of the intended progress development have been
completed and yet the outstanding purchasers’ funds available in the hands of end-
financiers are still preserved.

4. CONCLUSION
This paper represents an initial attempt to understand the legal phenomena, problems
and catastrophes in abandoned housing projects in Malaysia. By analyzing the legal
problems and situations occurred in abandoned housing projects, certain approaches
and in particular legal suggestions, provisions and remedies would be appropriate to
address the problems as well as to facilitate the rehabilitation of the abandoned
projects in Malaysia.

511
512
 THE IMPACT OF EDUCATION OF CONSTRUCTION
CLIENTS

Marie Kashiwagi, Kenneth Sullivan, Dean Kashiwagi

Performance Based Studies Research Group,

Arizona State University,
651 E. University Dr. Rm. 250,
Tempe, Arizona, 85281

Absract: Research has identified the client or construction delivery system as inefficient and
one of the major causes of nonperformance. A proposed hypothesis is that the clients lack a
knowledge of supply chain best practices, supply chain management efficiency and
outsourcing. The resulting environment produces an excess of solutions with little or no
documented results, biased research, and no benchmarking of performance. The authors
propose that through the facilitation of owner education, the knowledge gap may be closed,
and the level of the construction industry elevated. This hypothesis will be established
through supporting documentation as well as a recent case study detailing the effects of
facility owner education.

Keywords: Facility Management, Facility Education, Supply and Demand, Construction

Industry.

1. INTRODUCTION
The construction industry is experiencing an increase of construction inefficiency.
Despite rising construction opportunities, revenue is declining. In the past year, the total
revenue for the Top 500 companies according to ENR dropped 1.8%, with an average
decline of 10.3% per company (2004). Contractor failure has also increased, with
payouts for poor and unfinished work rising by 28% (Armendariz 2004). Overall
construction performance has mirrored these results, with a majority of owners
expressing dissatisfaction with projects being over-budget, past-schedule, or poorly
handled (Egan 1998, Butler 2002).

Alternative award systems, management programs, increased specification, and other

attempts to rectify the situation through the supplier’s side have proved unsuccessful
(Post 1998, Murray 1993). The ineffective results can be explained by analyzing the
construction process through a simple Integrated Definition (IDEF) model that diagrams
the hierarchical series and interfaces involved in the construction delivery system (See
Figure 1). At first glance, project performance seems to be determined by the
contractor’s ability to minimize construction risk. However, the event of the contractor
constructing is not independent. It is contingent on the environment primed by the owner
(Guetzko 2004). Although the contractor is the instrument of execution, the conditions,
constraints, and even the choice of instrument is made by the owner. The contractor has
very little control over the quality of construction. Similar to a tool, the contractor is
constrained by personal abilities and works within their financial constraints (US
Services 1998, ENR 2004). As the owner determines the preliminary conditions, award
methods, and processes of facility projects, they initialize a cascading effect that will

513
establish the project outcome. Ultimately, it is the owner’s that must identify the correct
means in order to effectively minimize construction risk (not on time, not on budget, and
not meeting the client’s expectations.)

As the driving force of this supply chain, any incongruent owner misconceptions
regarding the industry will increase the chances of utilizing an ineffective system. In
many cases, it may cause self-defeating processes or methods to be set into place. The
minimization of this effect is the driving motivation for owner education. While FM
education has become more accepted in the past decade, the lack of education has always
been perceived to be a problem in the construction industry (Post 2000). The following
case study will address the need for and effectiveness of an educational program directed
towards the owners.

Owner determines Project Award Contractor Risk Project Performance

Method of Award Transfer of Risk Minimization (Schedule, Budget,
Customer Satisfaction)

1A Efficient Construction Delivery System

Owner forces Owner retains risk in Owner is Contractor maximizes

contractors to increase Project Award: forced to profit by doing minimal
risk through low manages, directs, and minimize work and not
bidding inspects contractor accepting any risk.
the risk

1B Inefficient Construction Delivery System

Figure 1: Efficient Delivery System vs. Inefficient Delivery System

2. PERFORMANCE BASED STUDIES RESEARCH GROUP

The Performance Based Studies Group (PBSRG) is a division of Arizona State
University, devoted to streamlining the construction procurement process and increasing
the efficiency and performance levels in the industry. As an educational entity, PBSRG
accomplishes its mission through industry testing and implementation, as well as through
industry education for contractors, designers, sureties, and owners. The two are self-
sustaining, as they are maintained and supported by each other.

Over the past year (2004), PBSRG has educated 365 facility owners in procurement
seminars given throughout the United States. In order to measure the effectiveness of the
educational seminars as well as the change of industry perception, the owners were asked
to complete a survey before and after the presentation. Three questionnaires were used in
the surveying process, each composed of approximately 21 questions. The survey invited
the participants to rate their agreement level (on a scale of 1-10, 10 being the highest) to
various statements concerning the construction industry (See Table 1). The results were
compiled and analyzed.

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3. SURVEY RESULTS
In order to compare the individual issues on the industry questionnaire, the statements
were adjusted to align with current research. For example, if an issue originally read,
“The construction industry has a large profit margin,” with an average owner rating of
2.5, it was adjusted to, “The construction industry does not have a large profit margin,”
with an average rating of 7.5. Through this method, the results revealed the degree that
the owners’ perceptions paralleled current research results in the fields of management
theory, construction procurement, and business best practices. Of the twenty questions,
items six, thirteen, seventeen, and eighteen were excluded due to inadequate published
research. Figure 2 displays the average respondent rating for each of the issues before
the educational seminar.
Table 1: Owner Questionnaire
No. Questionnaire Statement Response
1 The majority of owners outsource construction 314
2 Contractors should be selected based solely on Performance (and not price) 313
3 The owner should never give their budget to the contractors 315
4 Awarding to the best-value (first cost) is more expensive than low-bid 314
5 The owner should be involved in decision-making 260
6 An efficient delivery process should maximize the amount of information 312
7 The facility owner should have technical expertise in what they are trying to 364
8 Low performing contractors are the major source of problems in the 314
9 Minimum standards and specifications increase quality and performance 314
10 More extensive and accurate specifications are needed in the industry 364
11 Management and inspection are very important to the success of a project 315
12 Warranties are very important since they protect the owner from issues that 314
13 The owner should be involved in creating and enforcing a quality control (QC) 315
14 A successful facility manager should outsource risk 361
15 A facility manager should feel comfortable minimizing control and inspection 362
16 Long term partnerships build trust and relationships 315
17 Long term partnerships decrease performance and value 365
18 In a best-value environment, trust is not a key component 365
19 A facility manager / owners representative should feel comfortable measuring 362
20 A facility manager / owners representative should feel comfortable minimizing 364
21 The time/cost to measure the performance of individuals is often worthwhile 362

9.00
8.00
Owner Ratings (1-10)

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Survey Item No.

Owner biases addressed in the paper

Figure 2: Average Response Before Education

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Each issue was then given an ‘Incongruity Level,’ that accounts for both the averaged
level of the responses as well as the variability between owner ratings. This was
computed by dividing the owners’ average rating by the scaled variance of the issue’s
ratings. As either the owner response lowers or the variance of the responses rises, the
assigned incongruity level increases. Table 2 displays the results from this process. By
evaluating the responses, it is noted that the industry bias deviates from proven industry
studies. In many cases, they oppose and disavow each other. This section will address
the top six owner biases that do not correspond with documented research.

Table 2: Identifying Congruity

Average Response Incongruity Level
Item No. Before Education Variance
(RAve) Var - VarMin
1 3.44 14.13 2.91
8 4.15 10.88 1.69
10 4.98 11.29 1.48
3 5.97 12.37 1.40
11 3.29 8.21 1.39
12 4.05 9.27 1.37
2 5.12 9.27 1.08
5 4.50 8.31 1.03
9 6.16 9.53 0.94
16 8.53 11.4 0.88
4 6.56 8.85 0.78
7 5.26 7.42 0.73
20 5.82 6.51 0.51
14 5.96 5.64 0.37
15 6.23 4.84 0.23
19 8.44 3.25 0.00

4. CONFUSION IN THE INDUSTRY

Owner Bias #1: Management and Inspection are important to the success of a project
(Item No. 11, Average Rating 6.7). Management and inspection roles were created to
enforce the construction performance stipulated by the owner. The Just in Time (JIT)
theory contradicts this reasoning, and views management and inspection as non-value
added components that do not contribute to product desirability (Imai 1997). JIT
assumes that defect prevention rather than rework will stabilize a process for sustainable
quality. Increased management and inspection draw the focus to the occurrence rather
than preclusion of error, deeming construction gaffes acceptable. Instead, JIT promotes a
culture intolerant of mistakes, investing and allocating resources to the system’s process
that delivers quality with little risk.

Furthermore, contractors are employed to compensate for an owner’s lack of technical

expertise in construction. Their task is to minimize the owner’s risk by performing a
function in their area of specialty. By encouraging management and inspection, owners
reclaim the risk that they had previously outsourced. Their behavior is inefficient, as it
frustrates the initial plans by neutralizing the benefits of expertise. Instead, the owner is
left saddled with the project risk, naively lulled in the false security of an emasculated
professional (Korman 2004).

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Owner Bias #2: Owners should never give their budget to the contractors (Item No. 3,
Average Rating 5.97).

Owners are under the impression that giving their budgets to the contractors will result in
an exploitation of project costs. This may be true in a low bid situation where contractors
will often bid low, and then process change orders to use the full owner’s funding.
However, when awarding based on price and performance (value), the owner is assisting
the low performing low-bidder to get the project if they do not give the budget (critical
information in the case of a lack of a clear scope definition). The low bidder does not
gain an advantage if they increase their price. That is their advantage due to their poor
performance. The high performance contractor who minimizes risk, will raise their price
when not given critical information (time, budget, clear scope, and expectation) to
minimize the unknown risk. This bias has led to government agencies not giving
budgetary figures, but rather ranges that assist the low bidder (FAR). While there are an
insufficient number of documented cases to assume that project budget disclosure is
correlated to successful projects, there is no evidence to prove contrary (FAA, Harvard
University, USAMedical Command, USCG.)

Owner Bias #3: More extensive and accurate specifications are needed in the industry
(Item No. 10, Average Rating 5.0). A specification is defined as, “a detailed, exact
statement of particulars (Specification 2005).” This has a strong correlation to
commodity products, which use precise measurements for the assurance of performance
and success. The purpose of specifications in the construction industry has been warped
over time. While construction is a service that utilizes commodity products, it is not a
commodity in and of itself. The service requires technical expertise and judgment in the
application of commodity products, as well as creativity and aptitude in providing
effective solutions. The utilization of technical specifications in construction is
ineffectual and deceptive as construction standards have little effect on the performance
level of a contractor (Holf 2003).

Ironically, specifications are detrimental to the owner, as they force the retention of risk
for design deficiencies. They provide the contractor with instructions that do not require
experience or examination, as well as a default for construction failure. They allow the
contractor to provide a minimum standard material at a maximum industry price (Murray
1993). As one owner stated, it is reaching down to the lowest level of practice in order to
raise the level (Post 2004).

Functional, general specifications tend to be more effective than technical specifications

(Mahtesian 1994). They allow owners to describe a problem without using explicit
instructions and permit vendors to propose their own creative solutions. Instead of
conforming to technical requirements, the contractors must focus on customer
satisfaction. Miscommunication is minimized as the owner’s translation between desired
outcomes and actual solutions is eliminated and is performed by the contractor.

Owner Bias #4: The majority of owners currently outsource construction (Item No. 1,
Average Rating 6.6). Outsourcing is defined as the “delegation of non-core
operations…to an external entity that specializes in that operation (Outsourcing 2005).”
Because outsourcing is a market-driven activity, the customer essentially determines the

517
relationship’s structure by determining the amount of control to relinquish. Providers are
flexible and immediately respond to changes in the market’s demands.

Owners in the construction industry are currently aiming for an outsourcing relationship.
However, the target has been overshot into the closely related field of vendor
associations. The difference is in the transfer of control. Outsourcing will shift a
significant amount of control and risk to the supplier, while a vendor exchange will not.
As control and risk are reallocated, the owner’s involvement in the “how” is minimized,
allowing them to focus on the “what” of the business (Corbett 2004). Thus, successful
outsourcing will occur when the owner is not included in the technical aspect of
construction, and decisions and accountability are effectively retained by the specialist.
The current field does not reflect this (Post 1998).

Owner Bias #5: Warranties protect the owner from issues that may arise in the future
(Item No. 12, Average Rating 5.9). Warranties are made for the express purpose of
limiting contractor and manufacturer liability. Through the Uniform Commercial Code
Law, each owner or user is entitled to an adequate product used under “reasonable
consequence (Smith 2005).” Owners are automatically empowered to receive
compensation for failure. Warranties protect the manufacturer by constraining their
obligations. They are “marketing tools” designed to pacify the owner. As one expert
asserted, “A warranty may not be in the best interest of the facilities executive. [They]
might get a better coverage without a warranty (Roof Consultants 2004).”

The coverage of a warranty is directly correlated with the contractor performing the
construction. As the warranty is designed to protect the supplier, the life length of the
system depends completely on the installer. If the construction is done well, the warranty
will be unneeded. If substandard, the warranty will likely hold clauses that deem it to be
of no use to the owner (Consumer 1992). Warranties do not guarantee the life time of a
product – only performance can do that.

Owner Bias #6 Low performing contractors are the major source of problem in the
construction industry (Item No. 8, Average Rating 5.9). The problems in the construction
industry and the contractor’s role are similar to cracks in a dam. Although the escaping
water is causing damage, it is not the problem but an effect or symptom. Any attempt to
blame, divert, or control the symptom will be ineffectual. It is only by fixing the source
that the problem may be resolved.

As with any marketable service, construction is a demand driven event. Supply is a

symptom or indication of the type of demand communicated. The owner gives specific
desires, constraints, and expectations, and the specialist attempts to satisfy the owner
through their skill and expertise. Failure benefits neither party.

An owner’s core function in construction is facilitation. As owners do not have the

expertise to make educated technical decisions, their job is to identify competent entities
with the necessary skills. When owners are forced to make decisions, the work has been
poorly outsourced, and the FM as well as the contractor has been unsuccessful. Hired
specialists do not remove total risk from the project. Nevertheless they are presumed to
have competitive abilities superior to in-house management. In allocating decision
making to an outsourced entity, the owner is investing in their own judgment and

518
assessment of the specialist. The trust involved is not focused on the specialist, but on
the owner. With this assumption, the following are guidelines for defining owner
demand:

1. Use historically performing contractors. If the goal is quality work, then bidders
with similar experience and capabilities must be used (Snyder 2003).
2. Award projects on both measurable “value-added” performance as well as price.
Studies have found that owners treating construction as a commodity, with an
emphasis on price, as well as those nurturing long term relationships, often do not
receive the highest value for their money (Tuchman 2005).
3. Avoid the low bid arena. As owners pressure vendors to lower prices, the budget
decrease must come from somewhere. Profit margins are driven down and must
be accounted for, usually resulting in forced corner cutting (ENR 2004).
4. Facilitate contractor planning and risk minimization early in the project. Drive
the contractor to outline critical choices and comprehensive project planning
(Casinelli 2005).

The construction process begins and ends with the owner. The relationship that the
owner establishes with the contractor must be grounded in a win/win proposition with
fair and reasonable opportunity. As the demanded expectations are matched with
appropriate resources and processes, the quality of the supply will follow.

5. CONFLICTING PRINCIPLES
The survey results disclosed inconsistencies in the owners’ managing principles. While
they seemed to be aware of current best practices in general management, they were
unable to transfer these principles to the construction field. The following are identified
statements that were rated incongruently in the survey:

1. While FM’s believed that most owners outsource construction and should
outsource risk, they favored controlling project risks through decision making and
enforced quality control (QC).
2. Although the owners felt that minimum standards and specification would not
increase quality and performance, they vied for more extensive specifications.
3. The majority of owners agreed that FMs should feel comfortable minimizing the
amount of control and inspection they perform, but asserted that management and
inspection are important to a project’s success.
4. Lastly, owners indicated that facility managers should feel comfortable measuring
themselves in terms of performance. However, owner accountability was placed
second to contractors as the source of low project performance.

6. EFFECT OF EDUCATION
The change or differential between the questionnaire statements before and after the
educational seminar were assessed. It was recognized that statements producing a drastic
alteration would confirm the instability of current principles in the construction industry.
In looking at each questionnaire, the shift varied from a change of 4.3 points to a change

519
of .47 points. The average change for the responses was 1.4 points (See Figure 3 and
Table 2).

5.00

4.00
Positive
Change in 3.00
Owner
Ratings
2.00

1.00

0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Survey Item No.

Owner biases addressed in the paper

Figure 3. Positive Change between Owner Responses ‘Before’ and ‘After’ education

Table 3. Positive Change between Owner Responses ‘Before’ And ‘After’ Education
Average Average
Response Response Positive
No. CRITERIA
Before After Change
Education Education
Contractors should be selected based solely on Performance
2 5.12 4.00 0.00
(and not price)
Low performing contractors are the major source of problems
8 4.15 3.95 0.00
in the construction industry
16 Long term partnerships build trust and relationships 8.53 5.37 0.00
3 The owner should never give their budget to the contractors 5.97 6.41 0.44
A facility manager / owners representative should feel
19 8.44 8.90 0.47
comfortable measuring themselves (in terms of performance)
The time/cost to measure the performance of individuals is
21 7.73 8.61 0.88
often worthwhile
Minimum standards and specifications increase quality and
9 6.16 7.58 1.42
performance
Awarding to the best-value (first cost) is more expensive than
4 6.56 8.13 1.57
low-bid
More extensive and accurate specifications are needed in the
10 4.98 6.61 1.62
industry
1 The majority of owners outsource construction 3.44 5.65 2.21
A facility manager / owners representative should feel
20 comfortable minimizing the amount of technical information 5.82 8.04 2.22
passed to the owner
A facility manager should feel comfortable minimizing the
15 6.23 8.53 2.30
amount of control and inspection they perform
The facility owner should have technical expertise in what
7 5.26 7.59 2.33
they are trying to buy
14 A successful facility manager should outsource risk 5.96 8.65 2.69
Warranties are very important since they protect the owner
12 4.05 7.17 3.12
from issues that may arise in the future
5 The owner should be involved in decision-making 4.50 7.77 3.27
Management and inspection are very important to the success
11 3.29 7.63 4.34
of a project

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Education was successful in influencing the owners’ perceptions towards the construction
industry. This was specifically true in items relating to management theories. However,
it should also be noted that education did not significantly affect the facility manager’s
view of the contractors. Although they identified the value in following best practices,
the owners did not seem to realize the correlation between their actions and the
contractors. The owners were able to see the logic of the principles, but not the
application. It may be concluded that facility education must be followed up with a more
in depth accounting of applicable case studies.

7. CONCLUSION
The existing views of management and performance in the construction industry are
insubstantial and contradictory to best practices. Because the industry’s inefficiency and
poor performance is tied to the pulling demand of facility owners, attempts to raise the
level of quality and performance have not been successful. Facility management/owner
education has proven effective in indoctrinating and acquainting owners with correct
business and management principles. Education has the ability to alter the owner’s biases
through logical explanation, reasoning, and past case studies. If the industry’s
performance is to improve, the source of demand must be addressed first. Through the
orchestration of similar facility education, owner perception, customs, and techniques can
be changed. The impact to the industry culture and construction demand will provide the
principal key in needed to increased performance in the construction industry.

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