Lecture 12:

1. Procurement Basics:
- Procurement is an integral part of construction project management.
- It involves acquiring the necessary materials and equipment for the project.
- Procurement management is parallel and interconnected with construction management.

2. Phases of Procurement:
- Pre-project phase: Involves working with suppliers to identify speci c materials and
equipment needed. Purchase orders are created, and materials are delivered as planned.
- Project execution phase: Ensures timely delivery of materials according to speci cations and
compliance with legal and regulatory requirements. Problems and issues are identi ed and
resolved promptly.

3. Construction Management Procurement Method (CMPM):

- CMPM ensures the purchase and timely delivery of the right materials while meeting legal and
regulatory requirements.
- Materials must match the type, quality, and quantity speci ed in the tender document.

*Procurement management steps:

-Plan
-Conduct
-Administer
-Close

4. Bene ts of CMPM:
- E ective project management from conception to completion.
- Transparent, e cient, and economical procurement.
- Identifying best value for money through a performance-based approach.
- Clear roles and responsibilities for all parties involved.
- Identifying risks and opportunities throughout the project lifecycle.

5. Choosing the Right Procurement Method:

- Selection depends on project speci cs and supply market conditions.
- Directly working with suppliers may provide industry knowledge and competitive pricing.
- Negotiating contracts with construction companies familiar with the bidding process can o er
cost advantages.

6. CMPM Strategies:
- Identi cation of the need for CMPM.
- Development of an CMPM policy statement.
- Establishment of an e ective CMPM process.
- Implementation of a CMPM program.
- Evaluation and modi cation of the CMPM program as necessary.

7. Stages of Procurement:
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 - Plan procurement: Involves seven steps to de ne procurement objectives, identify potential
suppliers, and establish procurement methods.
- Procurement methods: Various approaches include purchasing through suppliers, negotiating
contracts with construction companies, and using requisitioning systems or software
programs.

8. Considerations in Procurement:
- Timelines: Ensuring timely delivery of materials.
- Acceptable quality: Meeting quality standards.
- Reasonable pricing: Obtaining cost-e ective solutions.
- Risk minimization: Identifying and mitigating risks.
- E ective communication and administration.
- Ensuring client satisfaction.

9. Problems in Procurement:
- Daily issues: Workers' injuries, equipment malfunctions, road problems.
- Project-threatening problems: Financial issues, re, natural hazards, structural failures.
- Management-related problems: Lack of professionalism or inadequate planning.

10. Indicators of Ine cient Procurement:

- Manual processing of purchase orders and invoices.
- Insu cient sta training standardization.
- High invoice exception rate.
- Lack of reporting and analysis of internal teams and supplier performance.
- Lengthy invoice approval times.
- Poor sourcing methods and failure to realize supplier incentives.

11. Conclusion:
- Construction management procurement method streamlines the acquisition of products and
services.
- It saves time and money while meeting project requirements.
- E ective procurement improves collaboration and synergy between key players.

Proper procurement management is crucial for successful construction project execution,

ensuring timely delivery of materials, cost control, and adherence to quality standards.

Lecture 13:
Introduction:
- Risk management is crucial in contemporary society due to increasing uncertainty.
- The knowledge gained in this lecture can be applied in project management, company
management, and personal life.
- Risk management helps in making informed and calculated decisions.

Why we need Risk Management:

- Risk management is necessary in any company or construction project due to the
involvement of di erent parties and processes.
- Risks can stem from nancial uncertainty, legal liabilities, technology issues, strategic
management errors, accidents, and natural disasters.

Risk Management as a Strategy:

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 - Risk management should be integrated into the organizational strategy of construction
companies.
- Risks must be considered in every construction project.
- Some risks can be tolerated, while others require preparation and alternative solution plans.

Types of Risk:
- Financial Risk: including market risk, credit risk, and liquidity risk.
- Operational Risk: associated with daily operations, such as technology, human error, and
process failures.
- Strategic Risk: tied to an organization's strategic decisions, competitive landscape, and
industry changes.
- Compliance and Regulatory Risk: navigating regulations and compliance to mitigate potential
risks.

Steps of Risk Management:

1. Establish context for the risk management process.
2. Identify and de ne potential risks.
3. Analyze risks.
4. Assess and evaluate risks.
5. Mitigate risks.
6. Monitor risks.
7. Communicate and consult with stakeholders.

Risk Management Strategies:

- Risk avoidance, reduction, sharing, and retaining.

Questions to Assess Risks:

- What can go wrong?
- How will it a ect the organization or construction project?
- What can be done?
- How will we pay for it?

Quantitative vs. Qualitative Risk Analysis:

- Quantitative Analysis: using numerical data and statistical methods.
- Qualitative Analysis: non-numeric methods like expert judgment and scenario analysis.

Enterprise Risk Management (ERM):

- ERM takes a holistic approach to managing all risks across an organization.
- Organizational culture plays a role in e ective risk management.

Case Studies:
- Delayed Project Completion: Risk assessment, mitigation measures, contingency planning,
and risk transfer.
- Safety Risks in High-Rise Construction: Risk assessment, safety protocols, monitoring,
stakeholder communication, and emergency response.

Emerging Trends in Risk Management:

- Technology and Risk Management: advancements in AI, data analytics, and cybersecurity.
- Environmental and Social Risks: managing environmental, social, and governance (ESG)
risks.

Challenges and Ethical Considerations:

- Identifying common challenges in risk management and ethical responsibilities of risk
managers.
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 Conclusion:
- Risk management informs and guides strategic decisions.
- Continuous learning and adaptation are essential in this dynamic eld.

Lecture 14:
Construction Risk Management:

- Construction risk management involves identifying and mitigating potential risks in

construction projects.
- Risks in construction projects can be in uenced by external factors such as technical, design,
logistics, physical, operating, environmental, socio-political, force majeure, etc.
- Risk management helps to deal with various risks through analysis and remedial steps.
- The process of construction risk management includes planning, monitoring, and controlling
instances of risk.
- A risk management plan is a document that details the risks and processes for addressing
them.
- By implementing proactive risk management and creating contingency plans, construction
teams can streamline operations, enhance safety, boost client con dence, and increase pro ts.

Methods of Dealing with Risk Issues in Construction Projects:

1. Risk identi cation

2. Risk analysis
3. Risk response
4. Risk monitoring and control
5. Communication
6. Training

Key Players in Construction Risk Management:

1. The project owner team

2. The design team
3. The contractor teams

Information Required for Developing a Risk Management Plan:

- Cash ows
- Drawings and diagrams
- Schedules
- Cost information
- Inspections
- Project les and logs
- Contracts
- Regulatory documents

Steps in Developing a Risk Management Plan:

1. Identify the risks through brainstorming sessions and regular meetings.

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 3. Determine risk response strategies, including avoiding, transferring, mitigating, or accepting
the risks.
4. Execute the risk management plan through monitoring and control.
5. Create contingency plans as alternative methods for addressing accepted risks.
6. Revisit and revise the plan to adapt to changing circumstances and unknown factors.

Factors to Consider in Risk Identi cation:

- Safety risks
- Financial risks
- Legal risks
- Project risks
- Environmental risks

Risk Assessment Matrix:

- A matrix that arranges identi ed risks according to their risk levels.

Resources Used in Risk Management Plans:

- Software
- Banks and nancing sources
- Professional advice
- Technology (such as drones, BIM, and prefabricated building methods)

Creating Contingency Plans:

- Alternative methods for completing a project despite accepting risks.

Bene ts of Risk Management Plans:

- Streamline operations
- Enhance safety
- Improve e ciency
- Increase resilience against risks

Revisiting and Revising the Risk Management Plan:

- Consistent monitoring and revisions to adapt to changing circumstances and unknown

factors.
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 Lecture 15:
Construction Cash Flow:

- Cash ow in construction refers to the movement of money into and out of a construction
project.
- Cash ow is crucial for funding new projects, keeping current projects on track, paying for
materials and labor, and covering other costs.
- Cash ow can be a ected by late or missed payments, inventory overstock, or sudden
increases in material costs.
- Monitoring cash ow helps predict nancial needs, identify potential issues, and support
business growth.

Contract Finance:

- The contract sum is the amount the owner will pay to the contractor for the project.
- Payment processes can be monthly or based on completion of construction milestones.
- Payments may be conditioned and violating the conditions can lead to penalties or contract
termination.

Importance of Cash Flow in Construction:

- Steady cash ow is essential for construction businesses to fund projects, cover expenses,
and avoid cash shortfalls.
- Monitoring cash ow helps predict needs, identify potential problems, and support business
growth.

Types of Money Flow:

- Cash ow includes money coming into the project (cash in ow) and money going out (cash
out ow).
- Net cash ow is the remaining cash after deducting all out ows.

Methods of Calculating Cash Flow:

1. Direct Cash Flow Method:

- Adds up all cash payments and receipts, including payments to suppliers, receipts from
customers, and salaries.
- Suitable for small businesses using cash basis accounting.

2. Indirect Cash Flow Method:

- Calculates cash ow by adjusting net income for non-cash transactions.
- Non-cash items are re ected in changes to a company's assets and liabilities.

Strategies to Improve Cash Flow:

1. Accurate project estimation.

2. Detailed contracts.
3. Negotiating payment terms with clients.
4. Submitting invoices systematically and on time.
5. Aligning company payments to subcontractors with client invoices.
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 6. Maintaining good relationships with suppliers and subcontractors.
7. Having a cash reserve in the company account.
8. Implementing cost control measures.
9. Monitoring accounts receivable.
10. Utilizing construction software.

Cash Flow Statement:

- The cash ow statement is one of the three main nancial statements.

- It summarizes cash and cash equivalents entering and leaving the contractor's account.
- The statement helps assess a company's cash management and liquidity.
- Cash ow in ows and out ows are categorized as operating, investing, and nancing cash
ows.

Cash Flow Analysis:

- Conducting a cash ow analysis involves examining activities on the cash ow statement to

determine available funds for expenses.
- Identifying the underlying causes of cash ow changes can help improve cash ow and
identify potential drains.
- Negative cash ow over time may indicate long-term investments or business growth.
- Positive cash ow does not necessarily indicate pro tability or absence of signi cant debt.

Pay Requests (Claim):

- Pay requests refer to formal requests made by the contractor for payment from the owner.
- These requests are based on completed work or milestones achieved in the construction
project.

Lecture 16:
1. Pay Requests:

- Standard construction contracts establish payment guidelines between parties involved in the
construction project.
- Payment requests, also known as payment claims, ensure that contractors, subcontractors,
and suppliers are rightfully paid for their work, materials, services, and supplies.
- The main contract designates the contractor as the claimant, and the client as the
respondent.

2. Progress Payments and Pay Requests:

- Construction contracts must include a section specifying the payment schedule between
builders, contractors, and subcontractors.
- Payment claims, in the form of a document called a Payment Claim, are submitted to request
payment for completed construction work and services.
- Local legislation often regulates the claiming and payment of progress claims, and special
conditions should be included in the construction contracts.

3. Cash Flow and Pay Requests:

- Pay requests re ect the cash ow or progress payments of a construction project.

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 - Standard form construction contracts typically include provisions for progress payments.
- Payments can be made at regular intervals, such as monthly or upon completion of speci c
project stages.
- Even if not speci ed in the contract, payment in installments may be implied for extensive
projects with staged completion.

4. Types of Pay Requests:

- Di erent types of pay requests exist, each with its own format and contents.
- Pay requests vary between di erent parties involved in the construction, such as between the
client and contractor or contractor and subcontractor.
- Organizing and controlling pay requests is best handled by a contracts specialist.

5. Pay Request Contents:

A valid pay request should contain:

- Description and amount of completed construction work

- Reference date
- Due date for payment

- The claimant (contractor) must serve the pay request.

- The payment claim should state that it is made according to the contract and regulations.
- The pay request should indicate the work done, the claimed amount, and may require
supporting statements.

6. Payment Disputes:

- Payment disputes commonly arise from disagreements over payment claims and payment
schedules.
- Disputes occur when the claimant's payment claim is refused, a payment schedule is not
issued, or payment is withheld.
- Adjudication can be sought to resolve payment disputes and recover debts.

Common Causes of Construction Disputes:

- Errors in design leading to delays and additional costs.

- Inadequately drafted contract terms that allocate blame unfairly.
- Disputes over di ering site conditions.
- Lack of proper risk management.
- Disputes over quality of work.
- Poor employee accountability.
- Disputes over payment claims.
- Mistakes in the tender process.
- Variations in project requirements.

Overall, understanding pay requests and their role in cash ow management is crucial for
construction project success. Clear communication, adherence to contractual and legislative
requirements, and proper risk management can help minimize payment disputes and ensure
smooth project execution.
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 Lecture 17:
1. What are Change Orders?

- Change orders are common in construction projects and modify the scope of work stated in
the original contract.
- All involved parties, including the project owner, contractor, lender, and subcontractors, must
sign the change orders.
- Construction contracts typically include a clause for handling change orders.
- Change orders specify how costs will be adjusted during the construction period due to
changes in the project.

2. Construction Problems Requiring Change Orders:

- Errors in plans, drawings, or inaccurate job descriptions.

- Design changes, additions, or features.
- Unrealistic budgets and schedules.
- Con icting or inaccurate speci cations.
- Material substitutions due to shortages or upgrades.
- Unavailability of workers or materials.
- Unanticipated site conditions, such as unstable soil.
- Risks that delay the project or a ect the contractor's ability to complete the work as initially
agreed.

3. Change Order Costs to Consider:

- Direct costs involved in implementing a change order include materials, labor, and equipment.
- Additional costs may include professional fees for redesign, fuel, sta hours for coordination
and communication, security, project insurance, sales tax, permit fees, licenses, safety
measures, cleanup, and utilities.

4. Change Order Process:

- Review the contract and identify the reason for the change order.
- Create a change order request, amending the original contract and scope of work.
- Reach an agreement between parties regarding the change order proposal.
- Obtain approval for the change order and adjust the contract accordingly.
- Maintain a change order le to track all change orders and ensure they are progressing as
scheduled.

5. Change Orders and Request for Information (RFI):

- Change orders are part of the change control process and often stem from RFIs.
- RFIs clarify or request additional information during the construction project.
- RFIs can lead to changes in the contract, triggering the need for change orders.

6. Elements of a Change Order:

A change order should include:

- Project information (contract number, contractor's and owner's names, change order
number).
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 - Description of proposed changes compared to the original contract.
- Detailed costs for each proposed activity, including subcontractor costs.
- Supporting documentation (construction drawings).
- E ective date of the change order.
- Updated version of the contract re ecting changes in value, schedule, and duration.
- Signatures of the client and contractor.

7. Types of Change Orders:

- Additive change orders involve adding new costs or changing items in the project without
removing anything.
- Deductive change orders request the deletion of a portion of work, resulting in cost reduction
and potentially shorter project timelines.

8. Approved and Unapproved Change Orders:

- Approved change orders require adjustment of incurred costs, estimated costs, and contract
prices, potentially increasing estimated gross pro ts.
- Unapproved change orders can be added to an asset account with a negative amount until
approval is obtained.

9. Change Orders in Saudi Arabia:

- Change orders can lead to disputes among the main parties involved in construction projects
in Saudi Arabia.
- There are speci c regulations in Saudi Arabia governing change orders.
- Further details on change orders in Saudi Arabia can be found in the provided document:
"Change Orders in Construction" (link included).

Understanding the accounting and management of change orders is essential for e ective
project control and successful construction project execution. Proper documentation, clear
communication, and adherence to regulations can help mitigate disputes and ensure project
success.
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