CEng 572 – Construction Management Lecture Notes

CHAPETR II
CONSTRUCTION INDUSTRY

Construction Industry is an industry which is involved in the planning, execution and

evaluation (Monitoring) of all types of civil works. Physical infrastructures such as Building,
Communication and Energy related construction works; Water supply and Sewerage civil
works, etc are some of the major projects / programs in the construction Industry.

The Construction Industry can be categorized into three major sectors; namely,
a) Transport and Communication (Road, Railway, Airway, and Telecommunication
related physical works);
b) Water and Energy Works ; and
c) Buildings and Other Physical Infrastructures. Accordingly, their capital budget
requirements vary extensively depending on the focus the economical trend requires
for the nation development.

2.1. Nature of the Industry

Construction Industry has long been realized as one among the most important enablers for
social, economic and political development of countries. Specifically this fact is strengthened
in the case of least developing countries like Ethiopia. This is because on the one hand these
projects are inter- sectoral (Table 2.1), and on the other hand the demand of such
infrastructures in these countries consume substantial amount of their capital budget (Table
2.2).

The execution of construction activities may be defined as economic and social activities
engaged in producing, assembling, installing for either new or existing physical
infrastructures. This indicates that the construction process encompasses an industrial process
to account for its name, the Construction Industry. However, most construction activities
involve considerable on site productions where the characteristics for industry processes
could not apply. This will be more applicable in the cases of countries like Ethiopia where use
of manufacturing construction elements for assembly is largely minimal. That is use of Labor

15
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

Intensive and Construction On-Site dominated the way how construction executions are
carried out. As a result, Construction Works can more represent the case of construction
activities in the case of least developing countries than Construction Services.

Table 2.1: Construction Industry-Sectoral Linkages

Sectors Building Other Civil Works

Agriculture Offices, Storages, Equipment Irrigation Schemes, Rural

Shades Access Roads
Education Offices, Stores Class rooms, Internal and External Roads
Libraries, Laboratories, etc and Installations
Energy Offices, Storages, Garages Hydro Power Schemes,
Electricity & Power Stations
and lines
Industry& Factories, Offices, Workshops, Internal and External
Commerce Storages Installations
Health Offices, Clinics, Health Centers, Internal and External
Hospitals Roads& Installations
Transportation & Offices Storages, Stations Airports, Roads, Rail Ways,
communication Telecommunication lines

Water Resources Offices Storages Water supply & sewerage

distribution lines, Treatment
plants
Defense Offices, camps, Training centers Defense Schemes

The construction business furnishes capital improvements to countries, which is very much
related to the development of investments to provide future benefit to nations. Since the
construction industry primarily represents investment, construction activities drop more than
other industries during recessions. Construction services considerably slowed during the
devaluation of the Ethiopian Birr in 1992. All construction industries suffer out of this
depression and their activities dropped severely until 1994 whereby their suffering partially
relaxes when regulation for price escalation compensation in the form of price index came
into force. However its effect has not been totally solved till 2000 for some projects which are
still standing and not completed.

16
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

In addition to this, the fact that construction works being a team work output, the individuals
involved in carrying out the works and their separate outputs is given the highest importance.
Hence, workers in the construction industry shall be highly motivated and well skilled.
However, the individuals shall be geared to focus on the group coordination and its output.
The construction industry often makes skills more immediately rewarding and that is why
mostly workers in this industry became more prosperous professionals than in other
industries.

Construction Industry is unique from the other industries due to the following facts:
i. Fragmented Industry iv. Unpredictable Work Load
ii. Long Production Cycle v. Subject to Environmental Impact
iii. Transient Organization Nature

2.2. Role of Construction Industry in the National Economy

Recent facts showed that while Transport and Communication sector consumed not less than
70% of the capital budget allotted for the Construction industry; Buildings covered only
about 13 %. Besides, about 58.2% of the federal capital budget of Ethiopia is channeled to the
development of Physical infrastructures. Refer to Table 2.2 for detailed budget allocation for
the different sectors between the 1997/98 – 2001/02 fiscal years.

Considering the allocated budget every fiscal year and the number of workmen involved,
construction industry is second only to agriculture in Ethiopia.

2.3. Main Parties in the Construction Industry

The main players in the construction industry are:

The Client: The client is the initiator and owner of the project
The Consultant: The consultant transfers the wish of the owner into
realizable form and makes the study, design and possibly the
supervision.
The Contractor: The contractor is the one who performs the work.

17
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

Table 2.2: Capital Budget for public Construction projects (‘000 Ethiopian Birr)

Sectors 1997/98 1998/99 1999/2000 2000/01 2001/02

Economic 2581.7(89%) 2437.3(85.1%) 3496.6(90.7%) 2263.8(85.2%) 2254.8(79.5%)
Sectors: -
Ethiopian 99.4(32.7%) 1447.9(49.8%) 2344.7(60.8%) 1090.1(41%) 1594.1(56.2%)
Road
Authority
Ethiopian 265.7(8.7%) 397.3(13.7%) 344.4(8.9%) 411.8(15.5%) 31.8(1.1%)
Civil
Aviation
Authority
Ministry of 90(3%) 84(3%) 82(2%) 315(2%) 143(5%)
Water
Resource
Social 215.0(7.1%) 246.0(8.5%) 142.3(3.7%) 249.2(9.4%) 242.1(8.5%)
Sectors
Ministry of 165.1(5.4%) 196.5(6.8%) 116.6(3.0%) 177.5(6.7%) 198.6(7%)
Education
Total 96.10% 93.60% 94.40% 94.60% 88.00%
Public 42.00% 62.40% 66.90% 59.80% 60.20%
Construction
Projects
Annual 58.20%
Average

Insurance Companies: A Contractor is required to provide bid bonds as a condition of being

allowed to bid, and then they must provide insurance for Performance bonds and payment
bond prior to award of the contract. Insurance companies provide bid bonds, performance
and payment bonds, and they also service the liability and property insurance needs of
contractors.
Banks: Banks provide the working capital contractors need to build the
project. Banks also provide bonds for bid and performance.
Suppliers: The quality of a construction project is very dependent on the quality of the
suppliers used by individual contractors.

18
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

Permitting Agencies: These agencies represent the interests of public safety. They administer
publicly funded construction projects, and they ensure private construction projects comply
with zoning laws and building codes.
Public: The public is impacted by every construction activity. Impacts are both good and bad.

2.3.1. Duties and Responsibilities of main parties

The duties of the following main participants will be dealt in the sections to follow:
• The Client – the initiator
• The Consultant – the professional advises
• The Contractor – the one who constructs
2.3.1.1. The Client

The client is the most important party who is active from inception to completion and even
to post-occupancy maintenance.

Clients can be classified as Public Sector Clients and Private Sector Clients.
A. Public sector clients • Public corporations
These represent: B. Private Sector Clients
• Central government offices
These are private individuals & private
(ministries)
companies.
• Local authorities (Regional or
town)

Role of the Client:

The client, as the initiator of the project should consider the following factors, when
planning:
• Demand for the product (Bldg, road, etc) - must see to it that it has a return
• Availability and cost of land, particularly for bldg. projects:
o Size o Required Infrastructure
o Location & accessibility o Legal constraints
o Price

19
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

o Current & future o Soil characteristics of land

development
• Site preparation (right of way)
• Permits

2.3.1.2. The Consultant

The main role of the consultant is to interpret the client’s project requirements into a specific
design.

The consultants’ team shall:

• Ascertain, interpret and formulate the client’s requirement into an understandable
project.
• Design the project to much requirements and constraints (imposed by statutory
obligations, technical feasibility, environmental factors, site conditions, cost, etc)
• Assess client’s cost limit to decide on materials & the like.
• Prepare contract documents.
• Supervise the project and constantly inform the client on the progress
• Approve payments
• Resolve contractual disputes
• Issue provisional and final acceptance certification

2.3.1.3. The Contractors

These are groups established mainly as commercial companies, that contract to construct
development projects.

Responsibilities of Contractors:

• Carry out a full site investigation prior to submission of tender. This helps to know
the costs of contractual risks and problems,
• Submit tender,
• Plan & programme works and even re-programme, whenever unforeseen situation
occur,

21
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

• Control directly employed works, sub contractors, suppliers, materials and plant,
• Control project program & cost,
• See to it that completed works comply with the specification and are to the
satisfaction of the consultant,
• Notify the consultant about delays, discrepancies,
• Effect all payments to his employees, suppliers, subcontractors, etc
• Rectify all defects on completion of works,
• Provide post occupancy repair & maintenance if required,

2.3.1.4. Public Sector Agencies

These are organization set with the authority to sum public utilities or provide local service.
They are:
A. Statutory Authorities

These bodies offer technical advice during design and construction in their respective areas.
E.g. EEPCO, AAWSA, Fire authority - requires meeting their specific requirements. Thus
early information to these authorities is required.

B. Municipalities & Government Authorities

These bodies offer the basic Land permit and building permit. The responsibilities of these
authorities are:
- prepare development plans (site etc) to benefit the public
- ensure that all plots and likes are put to the intended use
- approve and control standards
- provide land and building permits
- Check on material quality and safety

2.4. Resources for the Construction Industry

For most of the construction projects, the resources to look into are the following;
1. Human Resources / Labor or Workmen
2. Financial Resources / Fund
3. Information Resources

21
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

4. Physical Resources such as Materials, Equipment and Other Assets

5. Services and Management.

Human Resources / WORKMEN / Labor: All works involved, including the operation of
equipment can not be executed without human labor. Labor in the form of technical and
managerial personnel and work forces in various trades and professions are essential to carryout
projects efficiently and effectively. All other resources are coordinated and generally the work
itself is executed by labor. Therefore careful planning, organizing and monitoring of workmen
are mandatory.

These resources are very much necessary and for the successful accomplishment of a project, the
availability of workmen from the top management including project manger to the daily laborer
staff level is very vital. These include professional, skilled, semi skilled and unskilled laborers.
Human resources can be understood in two values: Capacity and Capability. While the first
refers to the quantity of labor for the scope defined; the second covers knowledge, technology
know-how and skill as per the demands of the scopes ability. Human resources need to be
attracted, selected, developed, motivated and retained if an organization needs to successfully
accomplish project objectives. They do need also be capable of:
¾ Communication – Inter - personal, group interaction - skills
¾ Problem solving / Conflict resolution / Negotiation Skills
¾ Facilitating / Decision – making Skills
¾ Writing skills for Proposals / Reports / ToRs / MoUs; and
¾ Hard Skills – Planning, Implementing, Leading and Monitoring tools.

Financial Resources / FUND: It is obvious that one of the basic resources in the construction
industry is Fund, which should be arranged before starting any project. The project to be
conceived shall be with in the fund available for it. Usually funds are available from among
Governmental institution, Private institutions and Donors in the form of loan or assistance.

22
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

In the case of Governmental entities, since budgetary resources are scarce it is advisable and in
almost all cases that a priority shall be given to projects which are very useful and necessary to
the society. However, in the case of private organizations it is the business what mater.

The objective and goal of the project is achieved successfully if and only if the fund is sufficiently
flowing to carryout the project as planned. That is, it is the regular supply of fund that keeps
projects moving progressively. It is necessary to ensure financial planning for smooth cash inflow
and outflow to avoid delays in project activities. Financial resources shall be planned and
managed with special care due to the fact that all other resources very much depend on the
availability of funds.

Information Resources: Information can be understood in two terms: data whether processed or
not; and its technology. Both are vital for the successful implementation of projects. Contextual
information, data useful for estimating duration and costs; etc are some of informational
resources used in projects.

Information technology both the hard and soft wares have brought the processing and
management of such information becomes important and helpful in facilitating the comparison
of several alternatives. This helps in optimization or maximization of uses of project resources. As
a result, informational resources need to be managed. PMIS, MProject, Thinktool, etc are some
of the soft wares developed in managing information resources.

Physical Resources:
MATERIALS: The very large portion of a project cost is gone to material cost. As the material
cost component of the construction industry covers between 55-70% of the total construction
cost, proper consideration shall be given in the planning stage to design with easily available
material with out compromising the quality for the intended purpose and for proper flow and
storage of materials. Care shall be provided for materials easily spoiled by climatic and expiry
conditions. This undoubtedly will affect the project if not properly managed.

23
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
CEng 572 – Construction Management Lecture Notes

EQUIPMENT: These days various plants, equipment, tools etc., are used very often in
construction activities. Provision of equipment replace the hard work that can be made by
human labor taking much time with in reasonable period of time. Therefore it increases
efficiency and economy. Its initial cost though high, it works for long period of time under
adverse conditions with less manpower than working in its absence which will result to be
economical for long term investment. Depending on the types and nature of construction,
machinery at site includes batching plant, mixers, trucks, tractors, excavators, dampers, cranes,
vibrators, pumps etc.

OTHER ASSETS: Physical Infrastructures and Owned Land are assets which can be collaterals
for capital base enhancement and credit facilities and are useful to develop the scarce financial
resources and getting into business access.

Services and Management:

SERVICES: Services such as acquisition of land, provisions of water supply, electric power,
communication systems, etc., are very much necessary in the construction industry. Without
acquiring such services, it is too hard to implement construction activities successfully.
Therefore, well thought and due consideration shall be given to services and shall be considered
as one of the resources required for civil works projects.

MANAGEMENT: Management has come to employ a disciplined approach to the use of

available resources. To coordinate these resources and achieve the required goal, a system shall
be devised to plan, organize, execute, and control, the project. Such system which helps to
achieve the necessary goal is called Construction Management, without which it will be a
catastrophe both in cost and completion time to the project.

24
__________________________________________________________________
AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa