CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT

CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT CHP 7: CONSTRUCTION AND CLOSEOUT BY ASSOC. PROF. DR. AHMET ÖZTAŞ UNIVERSITY OF GAZİANTEP DEPARTMENT OF CIVIL ENGINEERING Lecture 7

INTRODUCTION SUBCONTRACTS ORGANIZATIONAL DESIGN Legal Forms of an Organization CONSTRUCTION ETHICS PARTNERING QUALITY MANEGEMENT JOB START CONSTRUCTION OPERATIONS PROCUREMENT JOB SITE PROJECT COMPLETION Construction Closeout and Turnover Planning Owner Startup OPERATING PHASE CONCLUSION CHAPTER-7 CONSTRUCTION AND CLOSEOUT

Student learning objectives • The activities necessary to properly organize and prepare a project for construction. • How construction sites are staffed and the relationship between the field and the home offices. • The legal forms of construction organizations. • The physical and administrative work necessary to properly close out and turn over a construction project.

Introduction-1 Once a project enters the construction phase, builder's work is same no matter what contract form or delivery method was chosen. Same activities are necessary to get the project built: • the subcontractor’s contracts must be negotiated, • the project staffed, • a detailed schedule of values and work schedules developed, and • the job site assembled. To simplify our discussion, we assume builder as a CM at risk. This means the subcontractors work directly for the builder with no direct contractual relationship with the owner. Construction is; • a show time. • Testing the assumptions made during planning and design • Transformation from 2-dimentional to 3-dimentional • From a computer image to a full-scale object.

Introduction-2 After drawings and design are complete, need for planning, anticipation, and even design does not end. Rather, needs shifts into field. • Everyday that work installed, • the conditions at site is change, • Construction manager aware of these shifting circumstances. Manager should be ahead of the day. Manager`s real skill is to solve problem before it is a problem. How it done? With Good anticipation, contingency planning and Well-organized team of people A large part of organizing for construction is creating best possible relationship among, The work: needs to be accomplished The people: who accomplishing the work The conditions: under which they are working The work that needs to be accomplished is largely outside the control of the contractor. The designer and the owner determine the scope of the project. To make the work most efficiently, the contractor should setup two components: the personnel and the working conditions.

Subcontracting-1 Once owner accepts bids, CM enter into negotiations with subcontractors. Parties discuss: • Obligations to owner, • Closeout requirements, • Assumptions that formed the basis of bid. A final price is agreed after discussions. A contract is signed between subcontractor and CM, no direct contractual relationship with owner. Subcontract can be signed by contractor with either • A trade contractor: has specific construction skill... Carpentry, plumbing • Supplier: furnishes a product to job… refrigeration unit, electrical generator. Example: a mechanical sub-c may hire a sheetmetal sub-c to fabricate and install the ductwork

Subcontracting-2 • There are provisions in owner-contractor general conditions that pass on the same owner obligations to sub-c and sub-c to owner. • Subcontractors do large % of work on most projects and at considerable risk. They are bound by terms of contract between prime contractor and owner, but no part in negotiating them. • Most sub-c are not paid until owner pays the prime contractor. • When change order needs to be negotiated, payment can occur many months after work completed. After signing a contact, CM works with sub-c and develop a detailed schedule. With sub-c on board, CM have majority of work force, needs home office support, field supervisory personnel and laborers.

Staffing-1 • On any construction project, there is a split in how the project is managed between home office and field office. • Home office personals and field office personals perform different tasks. (See next figure). • Home office…communication with owner. Preparing reports, impeding problems and suggested solutions. • Field office…supervision of sub-c, management of safety program.

Staffing-2 Although projects organizations are temporary, they must interact with corporate structure of company. Home office staffs may grow and shrink with ups and downs of market. What this mean? - some functions (scheduling, procurement, estimating, accounting) may take place at Home office during good times but shift to field during slow time. A project manager must be careful about when he staffs a project. If there is insufficient work, lost money never recovered. However, understaffing can cost time on project that may never be recovered.

Staffing-3 At the end of a project, it can be difficult to get people off the job if there is no pressure for staff members on the other jobs. Ideally, a job will have a gradual build up, a level production period, and a gradual decrease. PM analyze this pattern and try to mimic it as closely as possible. However, a job slowdown can be difficult to accommodate. Slowing down or stopping work means finding other places for workers. Once workers are gone from the site, it is difficult to get them back. Each project requires different staffing scheme, if it is large there may be more task breakdown, if small less breakdown.

Organizational design-1 Organizations can take many forms. Their structure is dictated by the nature of work, their size, and the level of control. The generalist organization is the most basic organizational structure. It includes both line authority and staff authority. Line authority: giving orders `down the line` about production. Line supervisors direct, supervise, and evaluate work of their subordinates. Staff authority: advising and assisting those with line authority.

Organizational design-2 A concern of every organization is number of people that any one manager has control over. This is called Span of control. Narrowing one’s span of control creates additional organizational hierarchy. A narrower span of control provides more supervision and control but also tends to create more departmentalization (specialization). Here, each unit focuses on a specific technical or production area, grouping people by discipline, expertise, and training…promoting technical teamwork.

Organizational design-3 There is downside to departmental structure. Communication among the involved departments must be sound with each providing the necessary resources at the correct times. Matrix organization responds to this need (See Fig 7.6). Here, a PM is assigned the responsibility for budget and schedule, and for reporting on project status to client and principals of the firms. PM must work closely with each dept. head.

Organizational design-4 Communication and decision making must be considered in the design of an organization. More layers of hierarchy means information will be received with longer time, and information may be filtered. The higher in an organization that a decision is made , farther the decision maker is from the job and longer it may take to be made. Job satisfaction must also be considered.

Legal forms of organizations How the Home office is organized, How flexible the administration is, Administration`s impact on decision making depends in part on legal the form of organization. Three forms are common in businesses ; 1) Proprietorship 2) Partnership 3)Corporation

Proprietorship • It is single-person ownership. This person • owns, operates, and makes all major decisions for the company. Only responsible person is the one proprietor. • This is simplest form of ownership. It can be started with no formal documents and ended with no formal documents. • The disadvantage of this form is the high risk involved for the person who owns the company. All losses are personnel losses to the owner.

Partnership-1 • A partnership must include at least two people to be legal, but they may be many more than two in the partnership. The percentage of ownership varies. Partners are each fully responsible for all debts incurred by any one member. • Partnership dissolves according to prior agreement about how to dissolve it. Reasons of dissolution: • If one member dies or is terminated for just cause, • if there is mutual decision to quit or a predetermined time frame for dissolution. However, there can be provisions for others to continue by buying shares. In a bankruptcy or financial loss, there are general rules for how depths are paid off.Outside creditors are paid first.

Partnership-2 Limited partnership: another variation of partnership agreement. Limited partner … who invest a certain amount of money, but don`t contribute management of firm. He is only liable to the extent of his investment, even if the percentage of ownership is greater. The difference between general and limited partners is this limit of liability and their involvement with business decisions. General partners may take on limited partners to increase their ability to raise capital and credit base while retaining control over the firm.

Corporation-1 • Corporations are most complex form. To form a corporation, a companyhas to apply for a charter from the state in which it does business. Once corporation is formed, formal meetings must be held for any major decision. • The percentage of ownership is recognized in the amount of stock given to each member. Each share is given • A par value… simple unit of measure – say 1TL, and • A book value… actual amount contributed by each member. • Advantages: • Corporation has continuity independent of the stockholders. • The corporation is perpetual.

Corporation-2 • c) Assets that belong to firm are attachable for claims Stockholders are only liable up to the amount that they have invested in the company. The corporation can sell more shares of stock to raise additional capital. • Disadvantages: • Some management decisions about dividend levels paid out or the selling of additional stock must be approved by all stockholders. • Taxes. Profits from corporations are taxed twice: once on the corporate level and once on an individual level. • Dissolution: first outside creditors, last shareholders.

Construction ethics-1 Society governs behavior by written laws and unwritten moral and ethical codes. Many acts are allowed by low but considered unethical or immoral by a certain group’s standards. In professional circles, expected ethical behavior is sometimes written out as a code of ethic. Often it is difficult to discern if certain ways of acting are unethical or simply economic business practice. In construction, one example of unethical behavior is bid shopping. Basically, bid shopping involves letting a specific contractor or subcontractor know enough about the other bids so that he/she can bid below them to win the job. This practice hurts all bidders.It is fair not to give everyone the same chance of winning the job. winning subcontractor may reduce his profit that the incentive to cut corners is high.

Construction ethics-2 Additionally the owner will find it difficult to get good bids on subsequent jobs. Being able to trust the people we work with is a big part of putting our best effort into our work. On a construction job people often do not know each other very well. They come together to do a project but may have no prior common working experience. A key to success is creating a trusting environment in which people feel comfortable with each other. If project participants adhere a professional code of ethics, they already have a foundation for creating that trust.

MÜHENDİSLİK YEMİNİ Bana verilen mühendislik unvanına daima layık olmaya; onun bana sağladığı yetki ve yüklediği sorumluluğu bilerek, hangi şartlar altında olursa olsun onları ancak iyiye kullanmağa; yurduma ve insanlığa yararlı olmaya kendimi ve mesleğimi maddi ve manevi alanlarda yükseltmeğe çalışacağıma namusum ve şerefim üzerine yemin ederim

Partnering-1 Construction industry adopted a more structural approach to working together. This approach is called partnering. Its primary goal is to encourage people to look beyond traditional adversarial roles toward cooperation & open communication. For partnering to work, all stakeholders must make serious commitment. Issues of ethics are also taken more seriously. Partnering usually begins with owner. There must be a commitment from top management of all stakeholders and a designated managing partner who nurtures the project participants throughout the project. Partnering is a project-length commitment and does need continual renewal.

Partnering-2 Usually partnering involves a workshop in which all participants (through a facilitator), discuss and agree to mutual goals. A charter is developed that identifies the goals. Then a formal organization is established. This organization lays out lines of communication, dispute resolution methods, and decision making and problem solving procedures. Follow-up and support are important components of the plan. The rewards of partnering are; • Decrease in litigation costs; • Collaborative problem solving; and • Equity in the development of goals, personnel job satisfaction, and a job well done.

Quality management-1 Another factor that contributes to more cooperative corporate relationships across traditional boundaries is the evolution of a company’s internal quality management. This breaks down barriers among organizations because customer satisfaction is focus of work and measure of success. Many companies use standards such as ISO 9000 to assure costumers worldwide that quality will be consistently high. Goal: to deliver consistent high quality to client at a reasonable profit. It assumes high level involvement from upper management and participation by everyone in the organization. The fulfillment of client needs defines success, and the client’s voice is included in all organization decision. All of these systems assume a feedback loop either through internal methods or through customer surveys. QM systems developed for product-oriented organizations, but also applied to construction. In some construction companies bonuses are given at the end of a project after feedback is solicited from the customer. Bonuses are given to team in equal proportions without preference to one individual. This encourage people to look out for each other, and focuses attention on successful completion of whole job, not just isolated tasks.

Quality management-2 There are many rewards to creating a customer-focused organization. It means; • Building long term relationships, • Learning to understand needs of customer. This means repeated business and more negotiated work. • More opportunities to help clients in other ways. The foundation of total quality is continuous improvement. One way is ISO 9000. ISO stands for International Organization for standardizations. Registration in the ISO means that a third-party accredited auditor will examine the company’s practice to ensure that it meets the appropriate standard. Companies join the ISO with the hope of increasing their competitive advantage worldwide.

Job start-1 Before actual construction starts, the owner, the architect, and the contractor usually hold a preconstruction meeting. Focus… logistics of getting the project built. • Agreement about communication protocol is established, • site rules are reviewed, • certificates of insurance are submitted. • The contractor establishes when the work is to begin. • Team members discuss means and methods. They review general and special conditions of the contract to ensure that contractor understands his/her obligations. • Administrative details are worked out. (change orders, shop drawing procedures, applications for payment). • Other site-specific issues are reviewed.

Job start-2 One important issue is communication protocol. Discussions clarify; • the specific roles of each project participant; • establish lines of communication; and • set procedures for submittals, questions and answers about design, emergencies, community relations, and dispute resolution. Often a project runs into trouble when communication protocol are either poorly worked out or ignored by project participants. To ensure that right information gets to right people at right time, these protocols must be observed

Construction operations Organizing a construction project is primarily a material handling challenge: • understanding how material needs to flow into the site, • when it needs to arrive, and • how it will be manipulated once it arrives. Some materials are used temporarily (eg scaffolding, forms), others permanently (steel, concrete, etc). The quantity of materials required and size of each component are two factors to consider when organizing the job, because sometimes sites are limited in size, especially in an urban environment.

Procurement-1 During the latter stages of design, the owner or construction manager purchases critical items needed on the job earlier than normal bidding processes allow for. These may be large equipments items or materials. Once contractor starts buying out subcontracts, more items will be identified that needs to be purchased out of sequence. An understanding of global economic conditions and local construction activities will help identify which items should be bought early. In a simple world, purchasing would involve ordering a specific item for a specific amount of money to be delivered at a specific time. In more complex world of construction, construction manager has to consider many factors

Procurement-2 Before committing to a specific item, the construction manager should consider the following: • Evaluate the difference in the handling cost versus the worth of item. • Discuss custom items with designer;standard product may do same job. • Order in bulk to bring down the unit cost. • If the owner organization has agreements with vendors, use leveraging power to reduce costs. • Understand production schedules and stay within normal ranges to keep costs at a minimum. • Consider shipping costs to choose the best method of getting the material to the site… • Evaluate cost and risk to the job of storing materials before installed. (double handling, damage, theft, misplacement) • Conversely, consider the cost of not having the material on site when needed- direct cost of rush shipping and indirect costs of interruption.

Procurement-3 Procurement deals with entire cycle of material handling – from purchasing, shop drawing approval, fabrication, delivery, installation, testing, and then turning over completed project to owner. If procurement is treated only as a purchasing function, construction manager may have problems. Vendors do not voluntarily share information about production problems, and sometimes conditions change on the job, accelerating the schedule of delivery. A routine trip to a vendor`s facilities, periodic phone calls to check on progress, and understanding the production schedules and routine plant shotdowns are all important. Control of material purchasing, delivery, and storage on the site can have a large effect on overall production on the job.

Job site-1 A construction site is like a factory. Both transform row materials into a finished, permanent product that is more than the sum of its parts. Each new product that come to the factory requires only minor retooling at the plant. But construction site deals with one unique product. When product is complete, site is disbanded and its parts sent off to new sites. Advantage: site is set up specifically to manage a project most efficiently. Disadvantage: lessons learned are not transferable to the next project. This is unique challenge of construction. Before the contractor sets up the job site, he should plan it on paper. A scaled version of the site, with dimensions, access road, utility locations, elevations, and existing structures, should be noted. Then decide how people will move into and around the site. Visitors must be escorted to wherever they need to go in the site. Because, the site is messy, confusing, and ever changing.

Job site-2 The goal of the site is to make • Sorting, • Processing, • Movement of materials from storage to lay down areas to installation areas as short as possible.

Job site-3 For the site to operate efficiently over time, many organizational and procedural decisions and policies need to be made. • Contractor's designated area for storage • Designated locations for lunch and breaks • Use of toilet facilities • Start and finish times for work; regular and overtime rules • Security access after hours • Everyday access to and from the site • Safety rules and first-aid stations • Emergency evacuation and accident procedures. Superintendent must ensure that each new employee is aware of these rules and obey them.

Project completion-1 Construction Closeout and Turnover Completion of a project is actually more complex than it seems. One common miscalculation is underestimating this complexity However, a poorly planned, understaffed project closeout can have a adverse effect on a company’s reputation. By the end of job everyone is tired. Huge efforts have been expanded from beginning to ending of the job. But the job doesn’t end here, instead, last phase of the project begins. This is involving closeout, commissioning of systems, and turning over the project to the owner. Closeout usually takes place while the owner is occupying the facility. The punch list items that are left over can be a source of annoyance for the owner, with people complaining when they move in that the facility is not complete. Usually there is not enough construction people at the end of job. Last minute items and their importance for the owners make difficult to schedule, because his/her focus is on the next job.

Project completion-2 • Planning Project closeout officially begins when the contractor turns over the certificate of substantial completion to the owner. Closeout requirements should meet the specifications that was agreed at the beginning. Closeout requirements may include the following: • Responsibilities for each participants: owner, contractor, designer • Clarification of what constitutes substantial completion and final completion • Verification of government regulations • Schedule of owner-furnished equipment and furniture • Confirmation of warranty start and duration • Review of turnover procedures

Project completion-3 • Planning A few months before the end of the project second meeting should be established to review obligations. At meeting, agreed procedures and responsibilities should be reviewed to refresh everyone`s mind Closeout includes organizing and turning over documents to the owner as follows: • Guarantees and warranties • Certificates of completion • Operation manuals and instructions for equipment • Keying schedule • Maintenance materials, spare parts, special tools • As-built drawings • Certificates of code compliance • Lien waivers • Consent of surety for final payment

Project completion-4 Field office also has to be decommissioned, including the equipment. How equipment was purchased determines how it is decommissioned. Builder can move it to another site. Several other activities are also involved in decommissioning the field office. • Inventory equipment, office supplies, and furniture • Changing the field office address, • Terminating phone,radio, and pager accounts • Terminating office equipment, rentals, and leases • Demobilizing the office and taking it off site, • Reassigning field office staff

Project completion-5 Perhaps the most important and the most visible aspect of the closeout is closeout of the construction and the subcontracts, which involves the following: • Preparing the closeout schedule • Terminating temporary utilities • Issuing contractor’s certificate of completion • Conducting a pre-punch list inspection • Preparing a punch list with the architect • Completing a punch list • Performing the final inspection • Receiving a certificate of completion or substantial completion • Requesting final payment • Issuing a lien waiver and consent of surety of payment • Receiving final payment

Owner startup-1 People who are going to ultimately run the facility should be involved in the design so that they understand the rationale behind design decisions and have time to get familiar with new technologies as they are incorporated. During design, team members should hold reviews that focus on operations and maintenance issues, including the following. • Size and layout of working space around equipment, • Suitability of equipment models in relation to existing inventory, • Proposed control systems and their effect on energy cost and staffing requirements, • Life-cycle costs of equipmentand building systems

Owner startup-2 • Environmental considerations: airflow, noise, odors, safety, accessibility for people with disabilities • Personnel and budget planning for operations and maintenance staff (Q&M), includingtraining requirements (with the goal of having trained staff on opening day) If these reviews take place during design, the start-up period will flow much more smoothly.

Owner startup-3 Those are the main components of a start-up program: • Scheduling activities, determining construction completion, and putting together an action plan that outlines who will oversee testing • Determining that each component of the project is in working order and can be operated as planned • Providing a training program for Q&M personnel • Confirming Q&M manuals

Operating phase During the operating phase the facility is staffed entirely by the owner’s employees. The owner’s staff members serve as the first contact for any problems; but they in turn call the contractor, the subcontractor, or the supplier directly depending on the nature of the problem. It is in contractor`s best interest to be responsive during this phase. It is often frustrating time for owner as bugs of new equipment are worked out. If it is difficult to get attention of installer or manufacturer that frustration can exceed the actual bounds of the problem.

Conclusion The construction period can be the most exciting part of the design/built cycle. Everyday conditions of the job change. If the project gets out of control from a cost, schedule, or logistical standpoint, it is very difficult to get it back on track. Tempers get short; motivation to cooperate is lessened; efforts to blame increase. Construction project manager must be quick to recognize when the project is going off track and be prepared to act decisively to get it back on track, often before anyone else notices that it has strayed. Last minute details, pressures from the owner to finish, loss of staff and subcontractors as the project winds down all play against getting the project 100 % complete. However, that is goal and expectation.

Next Chapter Chapter 8 – ESTIMATING PROJECT COSTS

CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT