Project Organization in Construction Project

For Undergraduate Program

By Dr BHW Hadikusumo
 Management

• It is the attainment of organizational goals in an

effective and efficient manner through planning,
organizing, leading and controlling organizational
limited resources.
The Process of Management
 Project Management

Project management is the art of directing and

coordinating human and material resources
throughout the life of a project by using modern
management techniques to achieve
predetermined objectives of scope, cost, time,
quality and participation satisfaction.
Management and Project
Management
 Project Management Functions
Specification of project objectives and plans including
delineation of scope, budgeting, scheduling, setting performance
requirements, and selecting project participants.
Maximization of efficient resource utilization through
procurement of labor, materials and equipment according to the
prescribed schedule and plan.
Implementation of various operations through proper
coordination and control of planning, design, estimating,
contracting and construction in the entire process.
Development of effective communications and mechanisms for
resolving conflicts among the various participants.
 9 Functions of PM by PMI
Project integration management to ensure that the various project elements are
effectively coordinated.
Project scope management to ensure that all the work required (and only the
required work) is included.
Project time management to provide an effective project schedule.
Project cost management to identify needed resources and maintain budget control.
Project quality management to ensure functional requirements are met.
Project human resource management to development and effectively employ project
personnel.
Project communications management to ensure effective internal and external
communications.
Project risk management to analyze and mitigate potential risks.
Project procurement management to obtain necessary resources from external
sources.
Strategic Planning and Project
Programming
 “Setting Project Priority” Case
A department store planned to expand its operation by acquiring 20 acres of land in the
southeast of a metropolitan area which consists of well established suburbs for middle
income families. An architectural/engineering (A/E) firm was engaged to design a
shopping center on the 20-acre plot with the department store as its flagship plus a
large number of storefronts for tenants. One year later, the department store owner
purchased 2,000 acres of farm land in the northwest outskirts of the same
metropolitan area and designated 20 acres of this land for a shopping center. The A/E
firm was again engaged to design a shopping center at this new location.
The A/E firm was kept completely in the dark while the assemblage of the 2,000 acres of
land in the northwest quietly took place. When the plans and specifications for the
southeast shopping center were completed, the owner informed the A/E firm that it
would not proceed with the construction of the southeast shopping center for the time
being. Instead, the owner urged the A/E firm to produce a new set of similar plans and
specifications for the northwest shopping center as soon as possible, even at the
sacrifice of cost saving measures. When the plans and specifications for the northwest
shopping center were ready, the owner immediately authorized its construction.
However, it took another three years before the southeast shopping center was finally
built.
 “Setting Project Priority” Case
The reason behind the change of plan was that the owner discovered the availability of
the farm land in the northwest which could be developed into residential real estate
properties for upper middle income families. The immediate construction of the
northwest shopping center would make the land development parcels more attractive
to home buyers. Thus, the owner was able to recoup enough cash flow in three years
to construct the southeast shopping center in addition to financing the construction of
the northeast shopping center, as well as the land development in its vicinity.
While the owner did not want the construction cost of the northwest shopping center to
run wild, it apparently was satisfied with the cost estimate based on the detailed plans
of the southeast shopping center. Thus, the owner had a general idea of what the
construction cost of the northwest shopping center would be, and did not wish to wait
for a more refined cost estimate until the detailed plans for that center were ready. To
the owner, the timeliness of completing the construction of the northwest shopping
center was far more important than reducing the construction cost in fulfilling its
investment objectives.
 Effects of Project Risks on
Organization
Risks in construction Organizational relationships

projects may be classified Contractual relations

in a number of ways. Attitudes of participants

One form of classification Communication
is as follows: Technological problems
Socioeconomic factors Design assumptions
Environmental protection Site conditions
Public safety regulation Construction procedures
Economic instability Construction occupational safety
Exchange rate fluctuation
 3 meanings of Organization in
Construction
First meaning: Organization of Project Participants

Second: Organization of Construction company

Third: Project Organization Structure at the site

(owner or conractor or consultant)
Organization of Project
Participants
 Organization of Project Participants
There are two basic approaches to organize for project implementation, even though
many variations may exist as a result of different contractual relationships adopted by
the owner and builder. These basic approaches are divided along the following lines:
• Separation of organizations. Numerous organizations serve as consultants or
contractors to the owner, with different organizations handling design and construction
functions. Typical examples which involve different degrees of separation are:
Traditional sequence of design and construction
Professional construction management
• Integration of organizations. A single or joint venture consisting of a number of
organizations with a single command undertakes both design and construction
functions. Two extremes may be cited as examples:
Owner-builder operation in which all work will be handled in house by force account.
Design and Build, EPC, and Turnkey operation in which all work is contracted to a
vendor which is responsible for delivering the completed project
 Project Procurement System
Traditional Method

Traditional Method
O w ner

G e n e ra l
D e s ig n e r
C o n tra c to r

= C o n tra c tu a l
= F u n c t io n a l
Sub- O w n F o rc e s
C o n tra c to r W o rk

Figure 5. Contractual and Functional Relationships in Traditional

Method
 Project Procurement System
Traditional Method

Characteristics of Traditional Method

• Separate designer
• Single general contractor
• Numerous sub-contractors
• Payment method used to contractor: fixed price or cost-plus-a-fee
method.
• Payment method used to designer: negotiated fee
 Project Procurement System
Traditional Method

The Process (1/6)

Preparation/
Design Tender Construction
Inception
 Project Procurement System
Traditional Method

The Process (2/6)

Influence on total building cost 65% 25% 10%

Appraisal and Design and Construction and

Project definition contracts procurement

5% 10% 85% Actual expenditure during each stage

 Project Procurement System
Traditional Method

The Process (3/6)

Preparation Stage

• Client establishes his needs in principle (functionality, quality, cost and

time)
• Client appoints a project manager
• Client appoints his design team (Architect, structural engineer, M&E and
QS).
 Project Procurement System
Traditional Method

The Process (4/6)

Design Stage

• Briefing  Feasibility  Outline Design  Scheme Design  Detailed

Design
• A complete design significantly influences the project success, however,
in most of construction projects, this is difficult to be achieved due to time
and changes.
 Project Procurement System
Traditional Method

The Process (5/6)

Tender Stage

• Tender documents (i.e. drawings, specifications, BOQ and contract

condition) preparation.
• Open or closed tendering. In the “open tendering” every contractor can
submit the tender, while on the closed tendering client only invites several
preferred contractors to submit.
• Design teams explain the design to contractors, if inquired.
• Contractors submit the bid (cost, and time of completion)
• Most of the award is based on competitive tendering, the lowest bidder.
 Project Procurement System
Traditional Method

The Process (6/6)

Construction Stage
• At this stage the impacts of incomplete design, inaccurate BOQ, poor
tender documentation and poor buildability are seen.
• Although at this stage it is still possible to do some design changes,
however this will impact on the project cost and completion time.
• PM and the site supervision team must ensure that the work on site
confirms to the specification, design and contract condition.
• The contractor is paid by assessing the value of work done. This
assessment is conducted by architect and QS.
• At the final completion, the client holds the retention monies until the
agreed time.
 Project Procurement System
Traditional Method

Specific characteristics distinguish the traditional method from the others

• Separation of responsibility of designers (i.e. consultants) and

responsibility of a contractor (Masterman, 1992).

• “Separation of the design and construction process and the lack of

integration across this boundary, along with the employment of a whole
series of separate consultants to design the project and an independent
contractor to take charge of the construction process” (Rowlinson, 1999)
 Project Procurement System
Traditional Method

Advantages of Traditional Method

• Project cost can be generated before the contract agreement between

owner and a general contractor is signed.
• Competitive tendering is used; owner can get a low project cost.
• Bills of quantities make for ease of valuation of variation and ensure that
tenders submitted by contractors refer to the same amount of work.
• Minimal involvement of owner is required.
• There are clear lines of accountability.
 Project Procurement System
Traditional Method

Disadvantages of Traditional Method (1/2)

• Decision processes are slow and complex.

• Total project time is the longest of all contract strategy options.
• It has low levels of buildability (USA: Constructability).
• Many organisational interfaces (i.e. designers, and general contractor) must be managed.
 Project Procurement System
Traditional Method

Disadvantages of Traditional Method (2/2)

• Using a competitive tendering, there is a tendency that contractors will

submit unreasonable low tender in order to get the project. This is a bad
practice! In order to avoid this practice, several actions are suggested:
- Appoint Quantity Surveyor (QS) service to calculate the quantity of
the work (bill of quantity) to ensure that each contractor’s bid refers to
the same amount of work.
- Some countries practice “second lowest bidder” award criteria.
- Use pre-qualification mechanism to invite only qualified contractors
to tender.
 Project Procurement System
Traditional Method

Variants of the Traditional Method

• Sequential method: Contractors bid on a completed design and cost documents.

Design Tender Construction

• Accelerated method: A contractor is appointed earlier on the basis of partial information

by negotiation or in competition

Design1 Tender1 Construction1

Design2 Tender2 Construction2

 Project Procurement System
Design and Build Method

Design and Build Method

O wner
: F u n c tio n a l

: C o n tra c tu a l
E n g in e e r
C o n tra c to r

G e n e ra l
D e s ig n
C o n tra c to r

O w n F o rc e s
S u b c o n tra c to rs
W o rk

Figure 6. Contractual and Functional Relationships in Design and Build

Method
 Project Procurement System
Design and Build Method

Characteristics of Design and Build Method

• A single point responsibility offered to the client by the contractor and
the opportunity for overlapping the design and construction phases
which stems from this unitary approach
• Specialty sub-contractors
• Payment method: fixed price, guaranteed maximum price, or cost plus
fee design-construction contract.
 Project Procurement System
Design and Build Method

The Process

Preparation of employer’s requirements

Obtaining tenders from D/B firms

Evaluation of submissions (based on design

and price)

Acceptance of the most appropriate tenders

Implementation and completion

 Project Procurement System
Design and Build Method

The Process: (1) Preparation of Requirements

An inexperience client usually finds difficulty in preparing the project

requirements (I.e. what project the client wants to build).

A D/B firm usually puts a financial contingency sum to cover the

unpredicted cost (risk) due to poor project requirement.
 Project Procurement System
Design and Build Method

The Process: (2) Obtaining Tenders

• Selecting D/B firms for tender submission:

- Identify whether it is a pure, integrated or fragmented D/B firm.
- D/B firm’s qualification and financial capacity
• Tender procedure:
- Single stage: 3-4 contractors submit proposal (detailed design
work, and the obtaining of the necessary approvals)
- Two-stage: 6 contractors submit preliminary proposal (design and
budget). Favored proposals are selected and developed (details
design and budget).
• Choosing the form of contract (e.g. JCT Standard form of building
contract with contractor’s design 1981)
 Project Procurement System
Design and Build Method

The Process: (3) Evaluation of Submissions

• Client finds difficulties in comparing the tenders (design and budget) especially
if the client’s requirements are poor. As a solution, some clients interview each
firm’s design to get a better understanding of the design. This practice, however,
is considered unethical since this is used to obtain the lowest price. This
unethical issue can be minimized by informing the other tenderers about the
client’s changes of requirements as a result of the negotiation. This enables
other firms to change and re-submit their tenders. Finally, the proposals can be
ranked based on client’s needs.

For tenders modification

Requirements

Proposal 1 Proposal 2 Proposal 6

Interview Interview Interview

Preferred + changes of requirements

 Project Procurement System
Design and Build Method

The Process: (4) Acceptance of Tenders

Client and the D/B firm enter into one of the forms of contract

The Process: (5) Implementation

Client has to do regular independent checks to ensure the progress

and quality.
Payment progress based on progress measured by a quantity
surveyor (QS) firm, or monthly installment scheme.
 Project Procurement System
Design and Build Method

Advantages of Design and Build Method

• It has high level of buildability.
• Minimal owner co-ordination is needed. This is useful for an
inexperience owner. For several type of projects, where the output of
the project can be determined, an owner can easily specify what he
wants, such as to build a 500MW power plant. The owner, then, can
check the project completion whether the power plant can produce
500MW output.
• Design-construct time can be reduced through phased construction.
 Project Procurement System
Design and Build Method

Advantages of Design and Build Method

“In case of a turnkey project the whole scenario is radically changed as

the design process integrates with the construction process and a more
proactive approach evolves.”
(Khan, a managing partner of Bridge and Structural Design Systems,
2000: 17)

Khan, S. Z., 2000, Construction and Sustainability Concerns in Privately Financed Major Bridge
Projects, ACECOMS News and Views Newsletter, Asian Institute of Technology, July –
December 2000
 Project Procurement System
Design and Build Method

Disadvantages of Design and Build Method (1/2)

• Lack of independent advice.

• It requires a detailed brief and client requirements at the outset. This,

however, contradicts with the second benefit of D/B method; an
inexperience owner usually finds difficulties in defining what he wants to
build in details. This issue is a debate among researchers.
 Project Procurement System
Design and Build Method

Disadvantages of Design and Build Method (2/2)

• Changes can be very expensive. Since there is no bills of quantities

issued, there is no established guidance in calculating the changes.

• Comparison of bids can be very complicated since every design and

build firm can propose different concept of design, in terms of product
and process.

• As a result of item D, level of competition is very low since contractors

propose different products in different prices.
 Project Procurement System
Design and Build Method

Types of Design and Build (D/B) Method

• Pure D/B
• Integrated D/B
• Fragmented D/B

Source: Rowlinson (1987)

Rowlinson, S., 1987, Design Build – Its development and present status,
Occasional paper No. 36, The Chartered Institute of Building.
 Project Procurement System
Design and Build Method

Another
Example By the
US Naval
Facilities
Engineering
Command
(NAVFAC)

Source: Potter and Sanvindo (1994)

Potter, K. J., and Sanvindo, V., 1994, Design/Build Prequalification System, Journal of
Management in Engineering, Vol. 10, No. 2.
 Project Procurement System
Management Oriented

Management Oriented
The contractor is elevated to the status of a consultant and special
emphasis is placed on the integration of the management of both design
and construction.
• Management contracting
• Construction Management
• Design and Management
 Project Procurement System
Management Oriented

It must be emphasized that in this system the firm must act as a pure
consultant, therefore it is important to remove profit attitudes inherent in
traditional contract. For this, several measures can be considered:
• Common and service facilities used by the management firm must not
be included as the fee, but as a work package.
• Guaranteed Maximum Price (GMP) can be attributed with the
negotiated professional fee payment method.
 Project Procurement System
Management Contracting

Management Contracting
Client

Design Management
Contractor

Work contractors
 Project Procurement System
Management Contracting

Characteristics

"Management contracting is a process whereby an organization, normally

construction based, is appointed to the professional team during the initial
stages of a project to provide construction management expertise under
the direction of the contract administrator.

The management contractor employs and manages works contractors

who carry out the actual construction of the project and he is reimbursed
by means of a fee for his management services and payment of the actual
prime cost of the construction."
(Masterman, 1992: 78)
 Project Procurement System
Management Contracting

The Process

Pre-appointment Pre-construction Construction

of the MC Period Period
 Project Procurement System
Management Contracting

The Process: Pre-appointment Period

• Consultants prepare brief of the project, drawings and a specification

describing the scope of the project.

• Select MC based on several criteria, such as proposal, qualification,

pre-construction fee and construction fee.
 Project Procurement System
Management Contracting

The Process: Pre-Construction Period

MC provides several services:
• Overall project program;
• Material delivery schedule
• Buildability of the design
• Construction method
• Planning common services and site facilities.
• Developing work packages
• Tender documents
• Proposing potential tenderers
• Selecting contractors in consultation with client’s consultants
 Project Procurement System
Management Contracting

The Process: Construction Period

The roles of MC:
Managing activities, such as planning, supervision, control and action, to ensure
that the project is delivered within the time, budget and quality as required.
Time:
• Assess the effect of changes proposed by consultants to the programme and
cost.
• Maintaining construction programme (scheduling)
Budget (Cost)
• Monitoring the project cost against contract cost plan.
Quality
• Supervising the operation to ensure that all of the work is built as specified.
 Project Procurement System
Management Contracting

Advantages of MC
• Fast project completion as a result of overlapping between design and
construction stage (with a condition that there is a strong perceived requirement
for fast completion).
• Better design (buildability aspect, and value engineering)
• Minimizing costs (work package, staged competitive tendering, better design)
• Better supervision as a result of closed control system which is achieved by a
combination of staged competitive tendering for works, selection of work
contractors, and most fundamentally supervision and coordination.
 Project Procurement System
Management Contracting

Disadvantages of MC
Cost
• More cost compared to traditional method:
• Work contractors undertake project at high prices due to the difficult
contract imposed by the MC.
• Duplication of common services cost from work contractors and MC)
• Uncertain total project cost.
Contractual
• The MC’s liability is only limited to professional negligence.
Functional
• Duplication of site supervision between MC and Architect due to Architect’s
desire to control the quality on the site.
 Project Procurement System

Construction Management (CM)

Client

Design organization Work contractors Management

Contractor

Main characteristics
• The CM is appointed as a consultant since the initial stage of the project
and has equal status with the design team.
• The CM is paid by a lump-sum or percentage fee.
• The work packages are undertaken by work contractors employed by
client; and coordinated, supervised and administered by the CM.
 Project Procurement System
Construction Management (CM)

Selection of CM

• 10 to 12 CM firms are provided with a brief description of the project

• The CM firms have to confirm whether they are interested with the project.
• 3 to 6 CM firms are selected based on their responds.
• They have to make formal submissions in the form of an offer to provide the
service for a specified fee.
• Each firm is interviewed to discuss the submission and client meet the key
project personnel. The client questions the firm to identify weakness and
gather missing information as well as to evaluate the personnel.
• The selection must be based on the discussion and the firm’s qualification
against a list of criteria determined by the client.
 Project Procurement System
Construction Management (CM)

Duties of CM
• Involved in the preparation of the project cost budget and client’s cash-flow
requirements
• Overall planning and management of the total project from inception to completion
• Assessment of the design (i.e. buildability and value engineering)
• Identification of statutory requirements and necessary actions needed
• Planning, management and execution of the construction phase such as work
packages development, tendering, drafting contracts and identifying and ordering
essential materials and equipment
• Reporting the project status to the client
• Evaluating and issuing variations
• Agreeing interimpayments and final accounts with the work contractors
• advising the client on contractual claims
 Project Procurement System
Construction Management (CM)

Advantages of CM System
• Better quality of product due to the CM’s experience.
• Shorter duration of project completion due to the work division (work
package system).
• Cost effective due to quicker project completion.
 Project Procurement System
Construction Management (CM)

Disadvantages of CM System
• No improvement of the project’s detailed design due to poor
understanding of design process of the CM’s personnel.
• Uncertain final project cost. As a solution, incentive and penalty
scheme of payment can be applied to the CM.
• For owner’s point of view: CM’s liability is limited to professional
negligence.
 Project Procurement System
Design and Manage (DM)

Design and Manage

Client

Scope Designer Design and Manage Contractor

Designers Work Contractors

 Project Procurement System
Design and Manage (DM)

Characteristics
• A single organization, which can be a contractor (contractor-led design and
manage) or a consultant (consultant-led design and manage), is appointed to
both design and manage the project.
• Designer’s presence during the construction stage; this differs the DM and
“fragmented DB” since in the latter the designer might not actively involve in
the construction stage.
• The actual construction of the project is carried out by work packages.
• In a contractor-led design and manage, work contractors are employed by the
contractor, but on the other method they are under the client.
• Payment package for DM firm: design fee, management fee, fee for the site
establishment and services, and GMP (if applicable)
 Project Procurement System
Design and Manage (DM)

Advantages:
• Better quality of product implementation because of the presence of the
designer during the construction (production).
• Better quality of design. Since the project is divided into several work
packages, detailed design and changes for a work package can be
undertaken while other work packages are being constructed.
 Project Procurement System
Design and Manage (DM)

Disadvantages:
• Difficult management task faced by DM firm as a result of work
packaging method.
• Uncertain final project cost. As a solution, incentive and penalty
scheme of payment can be applied to the CM.
• For owner’s point of view: DM’s liability is limited to professional
negligence.
• For consultant-led: lack of construction expertise.
• For contractor-led: the concept of pure professional consultant service
is distorted due to the GMP scheme promised by the contractor-led.
Organizational Structure of
construction companies
 Departmentalization
The basis on which individuals are grouped into
departments
 Vertical functional approach. People are grouped together in
departments by common skills.
 Divisional approach. Grouped together based on a common
product, program, or geographical region.
 Horizontal matrix approach. Functional and divisional chains of
command. Some employees report to two bosses
 Team-based approach. Created to accomplish specific tasks
 Network approach. Small, central hub electronically connected
to their other organizations that perform vital functions.
Departments are independent, and can be located anywhere.
 Virtual approach. Brings people together temporarily to exploit
specific opportunities then disbands
Five Approaches to Structural Design
Five Approaches to Structural Design
Slide 2
Functional Structure
Divisional Structure
Matrix Structure
Dual Authority Structure in a Matrix
Organization
Example of Division
Example of Matrix
Project Structure
 Project Structure
Owner, contractor or consultant needs to develop
their project site structure.
This structure is developed based on the
functions.
 Example of Project Organization
Structure
Large Contractor Project Organization
EPCM Contractor Project Structure
EPC contractor project structure
 Group Assignment
Find a case study related with:
- Organization of project participants.
- Organization structure of a company (contractor, owner or consultant)
- Project organization site structure of a contractor or consultant.
And discuss
• Why they design such organization structure? What are the reasons?
• Any strengths and weakness of the organization structure?