Chapter 1 Constructionindustryandcontractmanagement

Chapter 1
Construction Industry and

Contract Management
Prepared by:
Assoc. Prof. Ts. Dr. Azeanita Suratkon
Ts. Syed Burhanuddin Hilmi Syed Mohamad
Contents
Introduction to Construction Industry
Project Management, construction management

and contract management
Parties involved in construction project and

contract management
Stages and processes of construction project

Background of Malaysian Construction Sector:
Progressing for Development
• The New Economic Policy was introduced in 1970 to overcome the socio-economic imbalance among the main
races in Malaysia with the adoption of a 20-year national development plan.
• The policy aimed to forge national unity by reducing economic, social and geographic disparity among the races.
• This initiative directly increased the demand in construction due to development of infrastructure related to
trade, health, education, transport, and other economic sectors.
• the 20-year period (1970 to 1990), the policy had spurred the construction sector, which grew at an average of
4% with construction output increased from RM800 million in 1965 to RM980 million in 1970, mainly
contributed by the public sector.

Construction
• ‘Construction’ refers to the processes of building physical
structures and related activities.
• The end products are site-specific and for each product the
processes involve elaborate commissioning, design,
management and assembly of resources – human, finance and
materials – over a period of time.
• It encompasses all types of buildings, all civil engineering

works and the repair and maintenance of existing structures.
11
Construction
• The Malaysian Industrial Classification (M.I.C) refers to
construction as:
“… new construction, alteration, repair and demolition.
Installation of any machinery or equipment which is built-in at
the time of the original construction is included, as well as
installation of machinery or equipment after the original
construction but which requires structural alteration in order to
install.”
• The M.I.C categorises construction works into 2 categories:

• General contracting – covering residential, non-residential,
civil and engineering construction.
• Special trade contracting - covering specialist works such as
metal work, electrical, refrigeration and air-conditioning,
carpentry, planting, etc.
12
Construction
13 Category of
Construction
CIVIL
BUILDING
ENGINEERING
CONSTRUCTION
CONSTRUCTION
• Industrial
• Agricultural Dam
• Community Port
• Residential Airport
• Educational Highway
Sub-marine pipeline
• Recreational
& medical social.
The Environment
• 3D – Dirty, Dusty, Danger.
• Gathering of multi-sector industries.
• Installation process or combination/compilation

construction materials or building components.
• A manufacturing process.
14
The Characteristics
• The products are heterogeneous

• The final process is in-situ
• The product is unique
• The output consists of capital goods
• Separation of design and construction responsibilities
• The setting up of ad-hoc team
• Methods of price determination
• Risks
15
The Characteristics
• The products are heterogeneous
• The products are different in terms of design, size, location
and in terms of end-use.
• The products differ widely in terms of the materials and
techniques used in production.
• The final process is in-situ
• The finished products are generally permanent in the
particular location where the construction takes place.
Consequently, the final process of construction must be in-
situ, although some sections of the completed products may
be produced elsewhere.
16
The Characteristics
• The final process is in-situ (cont’d)
• There is a limit on the potential for prefabrication. Prefabrication
refers to using component parts or sections of a structure
produced elsewhere, perhaps on the basis of economies of scale.
• There must always be a balance between the savings that may be
gained from prefabrication and the ensuing costs of transportation
of components parts or sections of a structure to the construction
site.
• Since the products of construction are site-specific, generally they
cannot be produced in advance of demand but rather have to be
sold before they are produced. Construction therefore, follows a
sequential process of planning, ordering and the final production
on the particular location where they are required.
17
The Characteristics
• The output consists of capital goods
• Capital or investment goods refer to products required for
the production of other goods or services in an economy.
• The products of construction including roads, railways, air
and sea ports, telecommunication, electricity generation and
transmission, water supply, buildings for factories, offices,
hospitals, schools, houses, etc. are all regarded as capital or
investment goods.
• This makes the construction sector highly susceptible to
variations in the level of activity in the economy.
18
The Characteristics
• Separation of design and construction responsibilities
• The general trend in the construction sector is that the party that
designs the project is normally different from the party that
constructs the project.
• This approach referred to as the traditional system of construction
procurement follows a pattern of activities that is sequential in
nature: a client engages a team of designers to produce design –
tender documents are prepared and tenders are invited from
contracting firms – award the project to successful contracting
firm.
• However, there are alternative approaches (such as design-build or
turnkey system and management-oriented systems) were developed
in response to problems that may arise from the separation of the
responsibility for the design from the responsibility for
construction.
19
The Characteristics
• The setting up of ad-hoc team
• A construction project requires the setting up of an ad-hoc
team consisting of persons and firms, each specialising in a
particular area of expertise, to work together to complete the
project.
• Since a construction project is one of its kind it is unlikely
for the same team to work together again and if they do so it
would be for a different project and in a different location.
20
The Characteristics
• Methods of price determination
• The common methods used for determining price: measurement-
based method and cost reimbursement-based method.
• Measurement-based method – the contractor is paid for the work
based upon the actual quantities of work that formed the
finished project multiplied by the respective unit rates. The
quantities of work is measured prior to commencement or
alternatively after the work is completed. The contractor is also
paid for costs of plant hire, temporary materials, contractor’s
overheads and profits, etc.
• Reimbursement of costs method – the contractor is paid for the
actual costs of materials that have been used, the time spent on
the project by the operatives and an agreed amount for the
contractor’s profit and overheads.
21
The Characteristics
• Risks
• Construction work involves risks, the level of risk is considered much
higher than in other types of economic activities.
• A construction entrepreneur moves from one location to another,
organise the logistics required to complete each project, and follows a
bespoke design for each project.
• Most contracts are awarded through some forms of competitive tenders
– contractors have to estimate the cost based on assumptions about
many factors including weather, site conditions, availability and
productivity of labours, availability and timely supplies of materials and
plant, time constraint, interest rates, political and social scenarios, etc.
22
The Characteristics
UNIQUE
TIME CONSUMING
FRAGMENTED INDUSTRY
RELYING TO OTHER
INDUSTRIES CHARACTERISTCS JOB OPPORTUNITIES
OF
CONSTRUCTION
LACK OF INDUSTRY
COORPERATION RISKY INVESTMENT
SEPARATED PROCESSES
VAST WORK LOAD
COMPLEX
ORGANISATIONS
23
Project Mgmt, Construction Mgmt & Contract Mgmt
Project Management
 Project: A temporary endeavour undertaken to create a unique
product through a set of inter-related tasks (Proj. Mgmt. Inst.).
In engineering/construction industry, e.g. a building project would
constitute a temporary endeavour where a myriad of skills and
materials are brought together to create a unique product (i.e.,
the building) through a set of inter-related tasks (i.e. the relevant
activities)
 Project Management: The planning, monitoring and control of all

aspects of a project (i.e. financial, technical, administrative etc.)
and the motivation of all those involved in it from inception right
up to eventual completion with the ultimate objectives of
delivering the end product within the specified cost, time, quality
and performance.
Construction Management
 A term used to describes:
 the particular type of contract procurement method or
 the actual process of running of a construction project
 The planning, monitoring and control of all aspects of the

construction process from pre-tender to the completion stage.
 Entails the planning, monitoring and control of essentially the
construction aspects of a project.
 The scope of construction management includes not only the
activities pertaining to the construction stage but also all the
preliminary enabling matters at the pre-contract stage.
 Construction management is weighted heavily to the construction
process.
Contract Management
 Contract: A legally binding agreement between two or more
persons which creates mutual rights and duties, enforceable at law,
or
a legal device for conducting exchanges between parties/ binding
parties to future performance.
 Contract Management: A term to describe the control and

administration of the legally binding agreement between two or
more parties from its inception up to its final discharge.
Scope of Contract Management

 the planning for the legal framework or transaction that is to be
entered into by the parties to a project;
 The administration and enforcement of the provisions, procedures
and practices (as expressly or impliedly stipulated) in the contract
 The management of the roles, responsibilities, powers, rights,
duties and liabilities of the contracting parties
 The implementation of relevant sanctions to induce performance
or to compensate for the non-performance on part of the parties
 First line resolution of disputes between the contracting parties
Purpose of Contract Management

The contract entered into by the parties is efficiently and fairly
administered to ensure that:
 the parties perform their respective obligations/duties under the
contract fully;
 each party to the contract receives the full benefit due under the
contract;
 the contract is completed within the time frame and cost agreed
between the parties;
 the quality of the finished product as agreed upon by the parties is
not compromised in terms of material, workmanship and design (as
applicable); and
 disputes and contentious issues are minimised or resolved
completely without having to resort to litigation or arbitration.
Parties involved in construction project & contract mgmt
Construction Stakeholders
Public Private
Sector Sector
Architect
OWNER /
DEVELOPER
Planner
Project Mgt. Engineer:

Federal
Consultant C&S, M&E
APPROVING Quantity
State CONSULTANTS
AUTHORITIES Surveyor
FINANCIER
Landscape Interior
Local
Architect Designer
Finance
Bank Land
Company
Surveyor
Other
Credit Leasing
Nominated MATERIAL & BUILDERS / Specialist
Corporation Company
Supplier EQUIPMENT SUPPLIER CONTRACTOR
Manufacturer Main Nomi. / Sub-

Contractor Contractor
Importer
MANPOWER
Distributer
Skilled Semi-Skilled Un-Skilled

Technologist Technician
Worker Worker Worker
29
Employer
 Also called the client/ purchaser/ authority
 Normally the person or party who wishes to have development
project constructed on a piece of land
 The employer is the most important party to a contract as he is in
reality the paymaster who initiates and ultimately uses the
tangible fruits of the contract.
 The employer may be a public entity (government bodies) or
private entity (developers/ owners/ investors).
 He will appoints consultants, employs contractors and supply the
necessary fund to implement the project
30
Contractor
 The contractor is the person or legal entity (partnership or
company) who under the contract is actually entrusted to carry
out construction works.
 He is variously labeled as the contractor, the builder, the installer,
the erector, etc. depending on the nature of the contract involved.
 Construction development can only remain at blue-print and
drawing board stage without contractor and builders to actually
translate the project into reality.
31
Contractor
 Owing to the complexities of the nature of the contracts entered
into between the employer and the contractor, the contractor may
be further described as a:
 main or general contractor; or
 turnkey contractor; or
 design and build/design and construct contractor; or
 management contractor; or
 construction management contractor
 Normally these contractors enter into a main contract with the

owner for the execution and completion of a construction contract.
32
Sub-Contractor
 A sub-contractor is a person or firm to whom part of the
main contract works are sub-let.
 A sub-contract is a contract made between a main-
contractor and another contractor (sub-contractor) for
part of the work which the main contractor has already
contracted to carry out as part of his contract with the
employer.
33
Sub-Contractor
 Depending on the complexity of the works, the specialist skills
required, the extent of detailing or design work involved, the
method of contract procurement adopted, sub-contractors can be
further classified as:
 domestic sub-contractors; or
 nominated sub-contractors; or
 designated (or named) sub-contractors; or
 selected sub-contractors; or
 specified or named sub-contractors.
34
Sub-Contractor
 Nominated Sub-Contractor (NSC)
 Specialist contractor nominated by owner/architect/ engineer,
who sign their respective sub-contract with the main contractor
and perform their respective duties and responsibilities under
sub-contracts.
 In Malaysia, there is a prevalent practice of sub-contractors further
sub-letting portions of their work to an array of sub-sub-
contractors, i.e. labour, material supply, fabrication,
erection/installation, etc.
35
Supplier
 A person or firm undertaking the supply of goods or materials to a
contract. The supplier’s contract is with the main contractor
 In essence, a supplier is a sub-contractor concerned solely with
supplying goods or materials as compared to undertaking services or
labour.
 As for sub-contractors, a supplier may be a domestic/ nominated/
designated/ selected/ specified supplier.
 In practice, the common types of suppliers encountered are of the
domestic, nominated or designated types.
36
Professionals
 The professionals are not parties to the various contracts
employed between employer and main contractor, main
contractor and subcontractor, and sub-contractor and his sub-
contractors/suppliers.
 The professionals may have his own services agreement whereby
he may contract to undertake either all or some of the following
work depending on his term of employment:
 design work; supervision work; contract administration;
 auditing or independent checking of turnkey/design & build

contractor’s work; project management; facilities
management.
37
Professionals
 Owing to the peculiarities of Malaysian law, in most instances only
the qualified person is entrusted with the design and supervision
of the works undertaken.
 The definition of the qualified person encompasses mainly
architects and engineers.
38
Architect
 In most building projects, i.e. of the traditional general contracting type,
the professional team during the design and construction stage is
normally led by the architect.
 Person who practises the profession of architecture and usually submits
the application on behalf of the owner to obtained development order
and designs and submit building plans for approval.
 Building By-Laws defines architect as “any person who is registered as an
architect under any law relating to the registration of architects and who
under that law is allowed to practice or carry on business as an
architect”.
 The Architects Act 1967 restricts the usage of the word to a person
registered as such by the Board of Architects, Malaysia for the practice of
architecture.
39
Engineers
 Person who practises the profession of either civil, structural,
mechanical or electrical engineering and usually designs and submits
plans for approval by the approving authorities.
 In projects, i.e. of essentially engineering or infrastructure origin, the
engineers are expressly stipulated in the contract as the principal
designers and contract administrators.
 In this country, the law restricts the label engineer to “any person
who is registered as a Professional Engineer under any law relating to
the registration of engineers and who under the law is allowed to
practice or carry on the business of a Professional Engineer.
40
Quantity Surveyors (QS)

 Person who practises the profession of quantity surveying and
building economics and usually prepares bills of quantities, tender
and contract processes, evaluates interim payment and final
accounts of the project.
 QS maybe engaged by the architect or engineer or may be directly
appointed by the employer to play a role during the pre-contract
and post-contract award stages.
 There is a necessity for the QS to be registered with the Board of
Quantity Surveyors under the Quantity Surveyors Act 1997.
41
Other professionals
 Land Surveyor – person who carries out boundary and contour
surveys and other surveys on land, submits survey plans for
amalgamation and sub-division of land, applies on behalf of owner
for qualified titles and final titles from the land office.
 Town Planner - person who practises the profession of town and
country planning covering land use, zoning, density, the type,
mode and form of development, traffic pattern, infra-structural
requirements, impact of development with other developments in
the vicinity etc.
42
Other professionals
 Interior Designer - person who practises the profession of interior
designing involving furnishing and finishing work usually for
prestigious buildings
 Landscape Architect - person who practises the profession of
landscaping architecture involving beautification of the project
internally and or externally by using plants of all kinds, rocks etc.
43
Other specialists
 Project Management Consultant
 Person/group of persons practising the profession of project
management function.
 The works involved ranges from feasibility report, financial
projection, design of management system, evaluation designs
prepared by consultants, co-ordinating work of consultants etc.
 These include traffic consultants, acoustical engineers, information
technology (IT) consultants and interior decoration (ID)
consultants.
44
Authorities/Regulators
 Federal and State Authorities
 Usually interested in matters regarding land, town and
country planning, drainage and irrigation, supply of
public utilities, fire requirements etc.
 Local Authorities
 Normally the building authorities and is therefore
entrusted with the power to approve layout plans,
building plans and services plans etc.
45
Other stakeholders
 Finance
 Invariably the owner requires to borrow funds from
banks and other financial institutions to finance or
provide adequate funding to their project
46
Manpower
 Craftsmen
 Represent the skilled workers of the industry especially in new
construction method it is necessary for them to appreciate not only the
how but also the why the work they do.
 Semi-Skilled Worker
 Those who possess skill of one or more construction trades but have
not attained the requisite level of skilfulness to be paid as skilled
workers.
 Unskilled Worker
 Those who do not possess skill in any building trades but are working
on construction sites performing such basic functions as carrying
materials etc.
47
Manpower
 Technicians
 Persons who qualified by specialised technical education and training to
work under the general directions of technologists.
 Technologists
 Person who have a qualification and experience required for corporate
membership of professional institutions.
48
Different Perspectives
49
50
51
52
Stages of a project
• The principal phases of a typical engineering and construction
contract:
• Pre-contract award phase: involves all activities or processes involved
from the inception of the project up to the award and/or signing the
engineering and construction contract pertaining to the project.
• Post-contract award phase: involves the activities or processes arising
after the award and/or signing of the contract up to the issue of the final
certificate.
Pre-contract award phase Post-contract award phase
Inception & Handover &

Design Tendering Construction
Feasibility Maintenance
53
Stages of a project (Traditional)

• Undertake all testing, Commissioning and
training
• Obtain CCC or CF (all authority approvals)
• Handover of project to employer/user
• Identify project objectives • Issue tender documents • Carry out necessary maintenance and
• Resolve all land issues • Prepare and submit tenders, i.e. defect rectification during defect liability
• Set up user’s requirements Contractor’s Proposals, etc. period
• Conduct feasibility studies • Evaluate tender submissions • Undertake migration
• Set up project organisation and • Award tenders • Carry out facilities management
management structure • Prepare contract documents

• Develop project brief further • Site possession and mobilisation of resources

• Develop concept and schematic design • Obtain necessary permits and approvals
• Obtain planning approvals • Undertake procurement, fabrication,
• Undertake detailed design and detailing installation, construction, etc.
• Prepare cost plan/budget • Carry out contract administration
• Undertake value engineering • Undertake project financing
54
Feasibility Study (Tan, 2004)
“A through an comprehensive feasibility study is a proposal to determine
whether a project is viable or feasible from an economic (business) and
technical point of view.
It enhances project success and avoid project failures altogether and
minimises mistakes due to short sightedness, lack of market research,
study, analysis and marketing aspects of the project.”
Parties involved in project stages

• Developer/Owner • Developer/Owner • Developer/Owner
• Project Manager • Users/Consumers • Nominated / Domestic
• Valuer
• Architect • Project Manager Sub-Contractors
• Research firm
• Engineers • Architect • Regulatory bodies/
• Real estate agents
• Quantity Surveyor • Engineers authorities
• Financial advisors
• Other specialists • Quantity Surveyor • Facilities Manager
• Architect
• Engineers • Main Contractor • Other specialists
• Quantity Surveyor • Nominated Sub-Contractors/ • Main Contractor/ Turnkey
• Town Planner Suppliers Contractor/ Management
• Other specialists • Domestic Sub-Contractors/ Contractor/ Construction
Suppliers Manager

• Developer/Owner • Contractor for: • Project Manager • Suppliers
• Project Manager • Turnkey Contracts • Architect • Construction Site Staff &
• Architect • Management Contracts • Engineers Workers
• Engineers • Construction Management • Quantity Surveyor • Regulatory bodies/
• Quantity Surveyor (if applicable ) • Other specialists authorities
• Town Planner • Main Contractor/ • Financers
• Other specialists Turnkey Contractor
• Regulatory bodies/ • Nominated/Domestic
authorities Sub-Contractors
56
57
Stages of a project (Package Deal)

• Site possession and mobilisation of resources
• Identify project objectives • Undertake procurement, fabrication,
• Set up user’s needs • Issue tender documents installation, construction, etc.
• Resolve all land issues • Prepare and submit tenders, i.e. • ‘Fit-out’ (if applicable)
• Conduct feasibility studies Contractor’s Proposals, • Carry out contract administration
• Set up project organisation and • Evaluate tender submissions • Undertake auditing of contract/works
management structure • Award tenders • Undertake project financing
• Source funds/financing • Prepare contract documents
Inception & Tender Tendering Detail Handover &

Construction
Feasibility Documentation Process Design Maintenance
• Commence with contract • Undertake all testing, commissioning and

• Obtain planning approvals
training
• Set up employer’s • Undertake detail design
• Obtain CCC or CF (all authority approvals)
requirements • Obtain necessary approvals, • Handover of project to employer
• Prepare preliminary permits, etc. • Undertake occupation of facilities/
estimates/ cost plans • Order materials migration
• Finalise type and forms of • Finalise costing • Carry out maintenance, facilities
tender documents to be issued • Award sub-contracts management, etc.
• Undertake defect rectification
• Pre qualify suitable tenderers • Close off project
58
RIBA Work Stages 2007
59
RIBA Work Stages 2007
60
RIBA Plan of Work 2020
RIBA Plan of Work 2020
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64
Stages and processes of
construction project
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Chapter 1 Constructionindustryandcontractmanagement

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Chapter 1

Construction Industry and

Project Management, construction management

Parties involved in construction project and

Stages and processes of construction project

races in Malaysia with the adoption of a 20-year national development plan.

trade, health, education, transport, and other economic sectors.

contributed by the public sector.

• It encompasses all types of buildings, all civil engineering

• The M.I.C categorises construction works into 2 categories:

• 3D – Dirty, Dusty, Danger.

• Gathering of multi-sector industries.

• Installation process or combination/compilation

• The products are heterogeneous

 Project Management: The planning, monitoring and control of all

 The planning, monitoring and control of all aspects of the

 Contract Management: A term to describe the control and

Scope of Contract Management

Purpose of Contract Management

Project Mgt. Engineer:

Manufacturer Main Nomi. / Sub-

Skilled Semi-Skilled Un-Skilled

 Normally these contractors enter into a main contract with the

 designated (or named) sub-contractors; or

 specified or named sub-contractors.

 auditing or independent checking of turnkey/design & build

Quantity Surveyors (QS)

Pre-contract award phase Post-contract award phase

Inception & Handover &

Stages of a project (Traditional)

Inception & Handover &

• Develop project brief further • Site possession and mobilisation of resources

Parties involved in project stages

Inception & Handover &

Stages of a project (Package Deal)

Inception & Tender Tendering Detail Handover &

• Commence with contract • Undertake all testing, commissioning and

RIBA Work Stages 2007

RIBA Work Stages 2007

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