This action might not be possible to undo. Are you sure you want to continue?
NOVEMBER/ DECEMBER 1995 VOLUME 11 NUMBER 6
FEATURES THINK VALUE ENGINEERING By Prakash Acharya,
Charles Pfrommer and Charles Zirbel .....................................................13
GROWING PAINS By James L. Krug................................................. 18
DON ' T BURN THAT BRIDGE! By Hassan Al-Qudsi ..................................22
PEER-REVIEWED PAPERS MEASURING EFFECTIVENESS OF MATERIALS MANAGEMENT PROCESS
By James K. Plemmons and Lansford C. Bell....26
USE OF DESIGN/BUILD IN E/C INDUSTRY
By J. K. Yates...........................................................33
FACILITATING CULTURAL DIVERSITY
By James C. Porter ................................................ 39
BEYOND ADR: WORKING TOWARD SYNERGISTIC STRATEGIC PARTNERSHIP By S. David Ellison and David W. Miller ......... 44
AMERICAN SOCIETY OF CIVIL ENGINEERS / ENGINEERING MANAGEMENT DIVISION
MANAGEMENT IN ENGINEERING
NOVEMBER/DECEMBER 1995 VOLUME 11 NUMBER 6
THINK VALUE ENGINEERING Depending on how it is executed, value engineering has the potential to be the first step to success—or disaster. By Prakash Acharya, Charles Pfrommer and Charles Zirbel ............................................................13 GROWING PAINS A study of a group of 26 engineers, with a combined experience of 708 years, over a six-day meeting shows the developmental sequences through which members must move to become a highly functional team. By James L. Krug .......................................................... 18
' DON T BURN THAT BRIDGE! Team effort by all parties to a contract—owner, architect, construction manager, contractor and subcontractors—is a crucial ingredient for the successful completion of a project. By Hassan Al-Qudsi .................................................... 22
MEASURING EFFECTIVENESS OF MATERIALS MANAGEMENT PROCESS A recently completed research project has identified key measures of materials-management effectiveness for industrial construction. ............ By James K. Plemmons and Lansford C. Bell26 USE OF DESIGN/BUILD IN E/C INDUSTRY How will design-build affect the competitiveness of the U.S. engineering and construction industry in the next decade? By J. K. Yates.................................................................33 FACILITATING CULTURAL DIVERSITY Though often unrecognized as a need and rarely practiced consciously, it is up to managers to facilitate assimilation of members into the organization's culture. By James C. Porter .......................................................39 BEYOND ADR : WORKING TOWARD SYNERGISTIC STRATEGIC PARTNERSHIP Alternate dispute resolution comes into play only after disputes have arisen. One key to project success is establishing relationships among parties to resolve issues before they become disputes. By S. David Ellison and David W. Miller ...................44
EDITOR ' S LETTER .......................................................................................3 FORUM..................................................................................................... 3 MANAGEMENT DIGEST........................................................................10 END OF YEAR INDEX ........................................................................... 55
Don't Burn that Bridge!
Hassan Al-Qudsi, P.E., Associate Member, ASCE The construction industry is becoming, more and more, a repeat business. Owners prefer dealing with the same organizations, provided that previous experiences were pleasant. These days the biggest bridge burners among contract parties are claims and lawsuits. Team effort by all parties to a contract— owner, architect, construction manager, contractor and subcontractors—is a crucial ingredient for the successful completion of a project. There is no need to antagonize any of the other parties; the old saying that "you can attract more bees with honey than woth vinegar" still holds. Moreover, it is important to keep in mind that failure of any party is failure of all. Since an engineer plays a number of roles in a project, he or she should look for ways to reduce, if not eliminate, misunderstandings and subsequent lawsuits from the jobsite. This may not always be possible, but these guidelines should help parties anticipate disagreements and find ways to resolve such disputes. Design stage Designers and/or architects are key players in projects, especially in the case of an in-house design-build project. Some things designers should do to fully orchestrate a team are: • Visualize the project, planning for complicated details and unique requirements. • Visit the project during construction. Visits can be scheduled to coincide with construction stages or installation activities associated with items pertinent to each professional's particular trade. • Ask about methods and techniques for constructing certain items and whether alternate or simpler methods can sometimes be adopted. • Accept for use typical manufacturer's details, which are available in catalogs. They need not be redrawn. The recommended manufacturer's name and material particulars should be clearly given on the drawings. • Leave out special design items for the specialized trade contractor to design. This may not necessarily be true in case of safety-related components. • Make contractors aware of hidden, nonstan dard details for retrofit projects. They may not realize an architect's intentions for the project. • Get specialists involved early on in the design stage and before going out for tendering. Certain areas of specifications (hardware, specialties and other items) typically get modified during the construction phase. • Consider performing value engineering for projects at certain intervals of the design stages (50%, 75% and 100%). Such a service could be instrumental in reducing cost and preempting construction problems. • Perform constructability reviews of projects at completion of design to eliminate any gray areas that would otherwise result in change orders and claims. • Watch out for architects and contractors with large egos, which should be left aside as much as possible. Bidding stage It is safe to assume that misinterpretations of the scope of work start at the point of inception—the bidding stage—and get carried through the rest of the project. Some items to keep in mind are: • To clarify ambiguities in scope of work to the fullest possible extent. • To remember that landing the right job is more important than landing just any job. The bottom line is profit realized at the end of the projects and not the total value of projects being executed. • To understand that the contractor's scope of the work needs to be communicated to the owner as soon as practical after signing the contract A memo to the owner/architect, using assertive request for information (RFI) formats is highly recommended. Judges look favorably at documented facts outlining contractual obligations that have been established in the early stages of the construction phase. • To define the sCOP e of the work during the bidding stage of retrofit jobs. This may be accomplished by asking general and specific questions concerning perceived hidden conditions. • To ask the owner and/or architect, on retrofit jobs, who has as-built drawings. Note if the
Hassan Al-Qudsi is project manager for Baker Mellon Stuart Inc., Pittsburgh.
2 2 / JOURNAL OF MANAGEMENT IN ENGINEERING / NOVEMBER/DECEMBER 1995
architect has shown all concealed items on the drawings. • To ask the owner/architect to clarify general statements such as "work necessary for the installation of' and "whether or not shown on drawings." Clarifying such statements will define the sCOP e of work better, make the owner more comfortable and remove gray areas. In case the owner and/or architect fails to reply, the contractor will still be in a better position to demonstrate in a court of law that he did attempt to clarify ambiguities. • To allow for adequate staff ing of the job. Understaffed organizations cannot produce the results they are expected to, nor can they properly safeguard the contractor's own interest. • To keep a copy of a project ' s estimate with the project 's site staff during the construction stage. This helps them determine what kinds of assumptions were made and improves their ability to anticipate the project's direction. • To update and review the subcontractors' prequalification statements every so often. Subcontractors' financial status and their level of services might be affected by their own inhouse workload. Consequently, the construction department needs to send periodical evaluation of subcontractor and vendor performance to the estimating department, who in turn should take such information into consideration during pricing of future jobs.
At this point every team member has entered the game, so extra care should be taken to maintain those fragile relationships among all parties of the contract. Remember that: • Owners appreciate a chance to reduce some of the construction cost. Accordingly, if at all possible, contractors should consider performing value engineering for the project to allow the owner to reduce out-of-pocket cost. This has the added advantage of giving the contractor a chance to come up with simpler and more efficient ways to execute the same work. Owners will, most probably, remember this service when considering change-orders implications. This service likely will also be considered when choosing team players for future work. • A mobilization period is an excellent opportunity to send RFIs concerning items that, through review and actual preparation of shop drawings, are considered deficient or unclear. Again, it is a good idea to ask positive questions and suggest possible solutions. • You should always try to reach a win-win situation with owners. The site staff needs to give alternative solutions to the owner/architect that would satisfy the perceived intent of design. This is true even if there is nothing wrong with the design. The bottom line is if the contractor's staff can save the owner money, they should do it.
JOURNAL OF MANAGEMENT IN ENGINEERING / NOVEMBER/DECEMBER 1995 / 2 3
• Site staff has an obligation to anticipate prob- tween these two groups. There is a difference lems and attempt to resolve them before they between acting as a filter and acting as a mesbecome crucial and expensive. Waiting until senger. Acting as a filter necessitates that site problems get out of hand reflects badly on the staff screen all incoming mail, reply to relevant site staff and the organization employing them. issues and direct subs/vendors to solutions • It is part of the contractor's obligation to try that they might have overlooked. Sub/vendor to mitigate damages to owners, even in cases claims and allegations need to be scrutinized where owners are at fault. This has been rather than accepted at face value. It is not unlearned from experience. common for a sub/vendor to underestimate a • A good log of daily progress should be kept; certain part of the work and, accordingly, try to it can be an admissible piece of evidence in a find an easy way out. Determining the validity court of law. of arguments before they are submitted to own• Filing systems should be kept in order and a ers/architects is more prudent than having to trail of records maintained. Copies of all docu- think of justifications later. ments should be filed at a distant location to • By definition, a proposal request is only a safeguard against mishaps. Do not depend on proposal. For the work to be executed on site, memory, which is more prone to fading than ink. an order to proceed needs to follow. In certain • A secure and safe filing system is essential. cases site staff , for time and cost reasons, may The use of a secure trailer and fire-rated cabi- find it necessary to proceed with the work outnets at the jobsite is highly recommended. lined in a PR, provided the solution given in the • Copies of all approved shop drawings should PR is the only viable alternative. Such action be kept at the job trailer. By the same token, needs to be preceded by a confirmation letter site staff should maintain copies of the latest re- to the owner/architect to that effect. The convisions to the contract drawings, which should firmation letter should describe whether or not be clearly marked with dates received. Super- the PR has time and/or cost impacts associated seded drawings need to be identified. A current with it. Contractors should not deprive ownlog of all drawings should be posted above the ers/architects the chance of finding other posdrawings' racks. sible answers to the problem at hand. • Site staff need to keep the logs for RFIs , archi- • In pricing a proposed change order, the contect's site instructions, proposal requests (PRs) tractors' site staff need to be as accurate as posand submittals current at all times. For easy sible. This necessitates reviewing sub/vendor reference, these logs can be organized based prices to ensure that they are reasonable and on divisions and grouped under subcontrac- not inflated. tors/vendors trades. Each subfile should con- • A COP should be concise, orderly and easy to tain the full history and documents associated read. First impressions are rather difficult to with a particular submittal. Keeping logs in or- change, so documents need to reflect the ideas der helps identify problem areas, flag delayed and information in an appealing and enticing items and facilitate quick retrieval of informa- way. Contractors are encouraged to use charts, tion required for documentation. graphs and drawings when making presenta• The site staff is responsible for pushing ven- tions and submittals to owners/architects. dors and subcontractors to make timely and ac- • For claims to be valid, contractual procecurate submittals for their material and work. dures have to be fully adhered to. This includes Timely submittals help resolve coordination giving the owner/architect proper and timely and design deficiencies long before they start notification of the intent to claim as well as the to negatively affect both the project's schedule claim's financial and time implications. It is imand cost. portant to outline the contractual basis for the • To expedite change-order—proposal (COP) ap- claim being initiated, and to give proper backup provals, proper documentation needs to be at- and documentation. tached to them. Proper documentation helps • Giving owners and/or their agents ample owners better understand the issue and, there- chance to study COPs will curtail future misunfore, resolve their consequences promptly. derstanding and facilitate the timely receipt of Proper documentation is especially necessary approval/rejection. for public jobs. Government agencies, at all lev- • Owners should not develop the notion that els, get audited. Accordingly, government em- contractors are trying to get rich through the ployees need full backups and documentation change order process. Explain the facts and adbefore they can approve COPs. vise of associated costs that might achieve the • No direct communication should be allowed same results without the bigger price tag. between subs/vendors and the owners/archi- • It may be necessary to explain to owners that tects. The site staff should act as a filter be- including certain items in a particular COP does
not imply that the owner is paying twice for the same item. This step could make the difference between approving and rejecting a COP on the owner's part. • Loss of productivity is, in some cases, worth more than the change-order value itself. In those special cases it is worth it to forgo a specific COP financial return to buy some time. However, the owner must be kept informed of the score. • Second-guessing owners' and architects' decisions should be avoided. Even in cases where their decisions seem irrational, making such interpretations and accusations in writing (even to subs and vendors) will only aggravate the situation. Written statements of such nature can be interpreted as bad faith on the contractor's part. Remember: Lawyers can subpoena all records. • Change orders should be resolved during the construction phase as soon as they arise. The longer COPs linger, the harder it will be to resolve them. Early resolution of COPs serves two purposes: In the case of an add COP , the contractor needs to be paid as soon as possible for work already in place; and in the case when the COP is an owner's credit, resolving its implications will give the owner peace of mind and predispose the owner to approve future add COPs . early during the construction Settling COPs stage leaves owners and contractors with lesser amounts to disagree over at project completion. The smaller the value of outstanding claims, the easier it is to bridge the gap between owner and contractor. Disagreements over large figures tend to make people more rigid, and give rise to expensive lawsuits. • It is counterproductive to submit COPs that are not fully studied or do not include all affected items; it will only generate additional paperwork. COPs need to allow for all add and deduct items. This helps establish credibility with the owner and expedite approval thereof. • Contractors are highly discouraged from underestimating owners/architects/construction managers' abilities during COP valuation. Unrealistic pricing only leads to contractors and subs losing credibility and makes other parties suspicious of future COP valuations. If the contractor cannot substantiate and defend a particular COP while looking the owner in the eyes, it may not be worth submitting. • There is no law that says contractors and owners or their agents cannot be friends or attend social activities together. After all, projects are built by people. • Once COPs are approved, the owner needs to be reminded, every so often, to expedite issuance of finalized change orders.
• Because base time schedules can evaluate the impact change orders have on overall job cost, time schedules should be approved early in the project. Comparative analysis between the as-built time schedule and the approved base schedule can be a powerful tool in documenting damages sustained and cost overruns. • Contractors are in a better position to negotiate COPs and claims during the construction phase than at the end of the job. At project's completion, the owner will have possession of the project and is not motivated to approve or issue a COP, nor to settle claims. • Signing a certain change order, without any reservations, implies that the contractor agreed to terms and is relinquishing future rights to claim for other damages associated with that particular change order. Thus, the time to address time and cost implications associated with a certain change order is prior to final acceptance. • If claims start to pile up or a project's site staff feels the project's perceived profits may not be realized, upper management should be involved early in the game. This gives management the chance to choose an alternate course of action before options become limited. • Before rejecting a proposed settlement, both the owner and contractor need to ask some questions: How much will a lawsuit cost in legal fees? What is the cost of money? How long will it take before entitlements are collected? How will this case affect the company's reputation? What does the company's cash flow look like? Is the lawsuit worth jeopardizing a longterm relationship with the other party? • At the end of the construction phase, it is a good idea to advise the estimating department of the final results. This will help in pricing future jobs and in avoiding pitfalls encountered during construction. • An interactive relationship needs to exist between all concerned parties on the contractor's side including management, accounting, com puter support and human resources. • Incentive systems, based on profit as well as owners' satisfaction with the end product, can be useful driving tools. The COP and claim negotiation process is long and tedious one. The people involved must possess certain criteria: positive attitudes a grasp of the subject particulars, contract ad ministration skills, knowledge of the industry's particulars (methods, means and techniques) 's and a full awareness of upper management red lines. The team involved in the negotiation process needs to conduct this exercise with the sole interest of reaching a satisfactory desolutin, rrather than personal- and/or ego-relate desires.
J OURNAL OF MANAGEMENT IN ENGINEERING / NOVEMBER/DECEMBER 1995 / 25