CEng 5604 – Construction Management Lecture Notes

CHAPETR I
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 economic 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- sectorial
(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 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.

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JU, JiT, Department of Civil Engineering Instructors: Ashebir, Abay, Moges, Samson
CEng 5604 – Construction Management Lecture Notes

Table 2.1: Construction Industry-Sectorial Linkages

Sectors Building Other Civil Works

Irrigation Schemes, Rural Access

Agriculture Offices, Storages, Equipment Shades
Roads

Offices, Stores, Class rooms, Libraries, Internal and External Roads and
Education
Laboratories, etc. Installations

Hydropower Schemes,
Energy Offices, Storages, Garages Electricity & Power Stations and
lines

Industry & Internal and External

Factories, Offices, Workshops, Storages
Commerce Installations

Offices, Clinics, Health Centers, Internal and External

Health
Hospitals Roads& Installations

Transportation & Airports, Roads, Railways,

Offices Storages, Stations
communication Telecommunication lines

Water supply & sewerage

Water Resources Offices Storages 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.

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.

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JU, JiT, Department of Civil Engineering Instructors: Ashebir, Abay, Moges, Samson
CEng 5604 – Construction Management Lecture Notes

Construction Industry is unique from the other industries due to the following facts:
i. Fragmented Industry ii. Unpredictable Work Load

iii. Long Production Cycle iv. Subject to Environmental Impact

v. Transient Organization Nature

2.2. Role of Construction Industry in the National Economy

The facts showed that from 1997/8 – 2001/02 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.

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JU, JiT, Department of Civil Engineering Instructors: Ashebir, Abay, Moges, Samson
CEng 5604 – 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
Road 99.4(32.7%) 1447.9(49.8%) 2344.7(60.8%) 1090.1(41%) 1594.1(56.2%)
Authority

Ethiopian
Civil
265.7(8.7%) 397.3(13.7%) 344.4(8.9%) 411.8(15.5%) 31.8(1.1%)
Aviation
Authority

Ministry of
Water 90(3%) 84(3%) 82(2%) 315(2%) 143(5%)
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
Construction 42.00% 62.40% 66.90% 59.80% 60.20%
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.

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JU, JiT, Department of Civil Engineering Instructors: Ashebir, Abay, Moges, Samson
CEng 5604 – 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 B. Private Sector Clients

These represent:  private individuals &

 Private companies.
 Central government offices (ministries)
 Local authorities (Regional or town)
 Public corporations

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:

 Size  Required Infrastructure
 Location & accessibility  Legal constraints
 Price  Soil characteristics of land
 Current & future development

 Site preparation (right of way)

 Permits

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JU, JiT, Department of Civil Engineering Instructors: Ashebir, Abay, Moges, Samson
CEng 5604 – Construction Management Lecture Notes

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 & program works and even re-program, whenever unforeseen situation occur,

 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,

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JU, JiT, Department of Civil Engineering Instructors: Ashebir, Abay, Moges, Samson
CEng 5604 – Construction Management Lecture Notes

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
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
cannot 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 Manager 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

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JU, JiT, Department of Civil Engineering Instructor: Ashebir, Abay, Moges, Samson
CEng 5604 – Construction Management Lecture Notes

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:

 Communication – Inter - personal, group interaction - skills

 Problem solving / Conflict resolution / Negotiation Skills
 Facilitating / Decision – making Skills
 Writing skills for Proposals / Reports / ToRs / MoUs; and

 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 within
the fund available for it. Usually funds are available from among Governmental institution, Private
institutions and Donors in the form of loan or assistance.

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 carry out 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.

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JU, JiT, Department of Civil Engineering Instructor: Ashebir, Abay, Moges, Samson
CEng 5604 – Construction Management Lecture Notes

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 without
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.

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 within 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.

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JU, JiT, Department of Civil Engineering Instructor: Ashebir, Abay, Moges, Samson