Construction contract stated that Engineer “will decide all questions which may arise.. . as to the acceptable fulfillment of the contract on the part of the contractor.”
Owner and Contractor got into a dispute over late completion of the project. Engineer made a determination regarding the amount of liquidated damages that Owner could withhold from Contractor’s final payment. Contractor sued to recover the money withheld.
Owner argued that the terms of the contract made Engineer’s decision final and binding on all the parties.
The Court of Appeals of Arizona ruled that an engineer’s resolution of a dispute will be final and cannot be appeal only if the construction contract expressly states that the
engineer will be the final arbitrator. In this case, the contract contained no such statement.
Engineer’s authority was limited to interpreting the contract documents and making decisions during the performance of the work. Engineer was not the final arbitrator of disputes.
10
The Claims Process
In concluding this chapter on engineers and claims, it is useful to summarize the process by which claims are usually asserted.
Typically, a contractor will orally convey a problem to the owner’s representative, precipitating a certain amount of give and take. If the owner agrees that a change order is appropriate, the contractor will be asked to submit a change order proposal putting prices on the changed or additional work.
There is frequently extensive negotiation regarding the price of changed work. Once this has been resolved, the change order is executed by both the owner (or its representative) and the contractor. A contractor who proceeds with changed or extra work without a signed change order proceeds at its own risk.
If the owner does not agree that a particular work item or a particular directive is a change in the original scope of work, the owner may direct the contractor to proceed with the work. The contractor is obligated to proceed but will proceed under protest and later submit a claim for the increased cost.
A court, board, or panel of arbitrators will ultimately decide whether this was a change and whether the contractor is entitled to additional compensation.
A similar process occurs regarding requests for an extension of time. The owner’s
representative will be called on to determine whether a particular delay is excusable, non-excusable, or compensable under the terms of the contract. Typically, excusable delay is beyond the control of both owner and contractor, entitling the contractor to an extension of time. Compensable delay is the fault of the owner or its agents, entitling the contractor to an extension in the schedule and an increase in the contract price to cover the increased costs of performance resulting from the delay.
If an agreement is reached regarding any extension or price increase the contractor is entitled to, a change order is issued and executed. If the parties can’t agree, the contractor will be forced to submit a formal claim.
REFERENCES
J.T. Brown, "THE HANDBOOK OF PROGRAM MANAGEMENT", McGraw-Hill Companies 2008
T.J. Esque, " NO SURPRISES PROJECT MANAGEMENT", ACT Publishing 1999 PMI, "THE STANDARD FOR PROGRAM MANAGEMENT", PMI, 2008
PMI, "A GUIDE TO THE PROJECT MANAGEMENT BODY OF KNOWLEDGE", 4th Edition, PMI 2008
“MASTERING PROJECT MANAGEMENT BASICS” Boston University, 2005
R. Mulcahy, "PMP EXAM PREPARATION", RMC Publications Inc. 2009
PMI, "PRACTICE STANDARD FOR EARNED VALUE MANAGEMENT", PMI 2005 S.J. Amos, "SKILLS & KNOWLEDGE OF COST ENGINEERING", AACEI, 2004 A.Damodaran, "STRATEGIC RISK TAKING", WHARTON School Publishing 2007
Chapter II
Projects Planning
One of the most exciting things in life is to change our ideas into tangible achievements using whatever means are available to us. Every time ideas are transformed into facts an elementary process called project execution has taken place.
Projects may be developmental as in the case of a new idea or well-known when all the parameters involved in its execution have been experienced before.
Projects are omnipresent in human activity. They may be simple things such as :
• Studying for an examination;
• Saving for buying a favourite thing;
• Making travelling arrangements;
• Transforming a bathroom;
• Repairing an electric appliance at home; and
• Assembling your own personal computer.
They can be medium size propositions as:
• Designing a new house;
• Building a house;
• Investing in a new idea;
• Developing a new consumer product;
• Writing a book; and
• Introducing further education courses.
They may be large and super large sized ideas such as:
• Building a multi-storey facility;
• Developing a new airplane;
• Designing a new petrochemical complex;
• Building an oil refinery;
• Designing and building a dam; and
• Designing and building a nuclear plant.
Regardless of their nature, projects invariably follow a common disciplined approach comprising the following stages:
1.-Getting well informed about the subject 2.-Establishing a plan of action
3.-Cost estimating the plan of action
4.-Finding out the time required to develop the project 5.-Instituting the means of accounting for all expenses
6.-Generating a system to measure progress and revise plans accordingly 7.-Organizing a system to store all data concerning the project
8.-Executing the plan of action
For small projects the above-mentioned procedure may be developed without the help of sophisticated management science procedures.
For medium and large projects the situation changes dramatically due to the fact that it is almost impossible to keep in mind the amount of information that may be accumulated by the number of activities included in these kinds of undertakings.
Management and computer science provide the means to handle projects:
Getting well informed about the project by using:
Historical information databases, economic indexes, brain storms, statistical information, market research and learning curves.
Establishing a plan of action using:
Work breakdown structures, organization breakdown structures, planning tools and scheduling procedures.
Cost estimating the plan of action management by using:
• Index estimating;
• Cost factors estimating;
• Cost capacity estimating;
• Unitized cost estimating;
• Parametric cost estimating; and
• Range cost estimating.
Finding out the time required to develop a project by using:
Critical path methods or Project evaluation and review techniques Instituting the means of accounting for all expenses by using:
Code of accounts to facilitate gathering of all expenses incurred in an organized manner.
Generating a system to measure progress and revise plans accordingly by:
Clearly specifying how progress and productivity measurements will be certified periodically as a percentage of the total project and procedures to be followed when the project:
• Has to be accelerated;
• Falls behind schedule;
• Has to include changes; and
• Productivity is lower than expected.
Organizing a system to store all data concerning the project:
Specifying computer and management science applications to be used to store, organize, and report all relevant information to the project. After recognizing all the above elements, a definition for project management may be drawn as an organized effort dedicated to the attainment of a goal.
The goal usually is the successful completion of a product or service when it is required in time, within a previously approved budget and in compliance with performance specifications. Project management may be seen as planning, organizing, directing and controlling an engineering effort to achieve an objective.
The essential function of every human endeavor is planning and it consist of deciding what to do, setting goals, determining strategy and selecting alternative courses of action.
Planning involves:
• Determining short- and long-term objectives;
• Formulating programs, policies and procedures; and
• Reviewing information from periodic reporting systems and adjusting plans accordingly.
Once things are planned they need and organization breaking down the work required and structuring it to facilitate its achievement. Organizational principles give projects the capability to:
• Divide the work to allow better productivity and control;
• Group related jobs;
• Delegate authority; and
• Develop coordination mechanisms to reduce complications.
Plans and organizations need motivation and guidance that is brought to project management by directing. Directing means understanding human behavior at work, communicating properly, motivating and using leadership to achieve planned productivity levels. Directing is a management compromise among autocratic, democratic and free-rein leadership styles to influence others to behave as required by project requirements.
Finally, measuring performance against planned objectives gives project management the controlling function that feeds facts back into the system to make it react and adjust.
Controlling basic functions are:
• Establishing of planning standards;
• Scheduling of work;
• Budget reviewing and adjusting;
• Supervisory action;
• Productivity measurement; and
• Corrective action activity.
Project Management Structure
Projects are typically organized by task or vertical structure instead of by function or horizontal structure. Project management uses a vertical structure in which control and performance associated with autonomous management are maintained for a given project.
(see Figure No.1)
PROJECT MANAGER
FIELD CONSTRUCTION SENIOR PROJECT BUS INES S ADMINISTRATOR M ANAGER ENGINEER
CONSTRUCTION PROJECT QA/QC ENGINEERING
ENGINEERS ENGINEERS
COST/SCHEDULE ENGINEERS
START UP PROCESS
ENGINEER ENGINEERS
CONTRACT SUPERVISOR
SURVEYORS PROCESS
SPECIALISTS JOB ACCOUNTANT
PROCUREMENT
SPECIALISTS COST ENGINEERS
Figure N o. 1
Essential to the project management concept is a clear delineation of authority and responsibility. The project manager knows that his basic responsibilities consist of delivering a product:
• As designed;
• Within budget; and
• Within the time scheduled specified by his customer.
Project managers delegate by tasks giving subordinate managers the same three basic responsibilities for subprojects. Successful project management depends on the ability of the manager to perceive fine variations of performance, budget and time schedule and to resolve continuous conflicts among them.
The project management first line of supervisors is by hierarchy the ones who play the key roles in guiding the daily progress of a project.
Such supervisors bear a wide range of burdens such as:
• Manpower control;
• Contractors control;
• Design and specifications control;
• Schedule compliance;
• Cost compliance;
• Resolution of contract/design interpretation disputes;
• Reporting;
• Invoicing and payments;
• Material procurement; and
• Change-order administration.
Typical first line supervisors are:
• Cost engineers;
• Project engineers;
• Planning and scheduling engineers;
• Estimating engineers; and
• Design engineers.
Project Life Cycle
Most capital projects are generated by either one of the following reasons or a combination of them:
• New product development;
• Market pressure;
• Natural resources exploitation;
• Business expansion;
• Business ventures; and
• Personal initiative for business opportunities.
Whatever the reason, they all follow what may be called a project life cycle.
The project life cycle may be defined as the organized number of activities needed to develop a project from its proposition or inception to its full implementation or completion.
Figure No.2 shows a typical summary schedule network depicting the main activities involved in such a development.
When a project is proposed a very elementary procedure based on personal experience, historical data, project analogy, incipient design or a combination of them is set on the table in the form of a package usually called Conceptual estimate paper.(CEP)
The conceptual estimate paper is a description of the project in question. It is required as part of the initiation review package before a budget item is incorporated into the company's business plan.
The CEP usually contains the following kind of information:
• Purpose of the proposed project;
• Description of the project;
• Milestone schedule for the project main activities(duration estimate); and
• Order of magnitude cost estimate.
It gives management a first rough idea about the size of the project, its financial commitment and timing for the execution. This document is developed in-house by the interested party and it is usually inexpensive but at the same time its accuracy is very limited. It really serves as a basis to proceed to further development when circumstances justify it. LLIP CONSTRUCTION COMMISSIONING
COST ESTIMATE
PROCUREMENT
Figure No.2
Once the CEP is approved, additional activity is generated by starting an Engineering study which in time will be the base line to develop a project proposal for expenditure approval. This engineering study along with other related information outlines is called the design basis paper (DBP).
The DBP clearly defines the project scope and supports the technical development of the project proposal later on in the project life cycle. It encourages completion of a planning study before a project team is given the responsibility for the item.
The DBP makes emphasis on what has to be done rather than how it will be done.
The design basis paper should incorporate:
• The purpose of the proposed project;
• The relationship of the project to existing plans;
• The description of the proposed project;
• A review of the alternatives studied;
• An order of magnitude estimate (-40, +40 % accuracy); and
• The scheduled dates for major milestones.
If the DBP is approved the cycle continues with a selection of a contractor to proceed with a more elaborated design that will support a better cost and time estimate and seeking of funds for project construction. This more elaborated design is usually called the project proposal and it usually provides the final design basis and scope of work for the proposed project.
The Project Proposal usually contains:
• The project location and layout;
• The process design basis;
• The on-plot and off-plot facilities;
• Major mechanical and electrical needs;
• Instrumentation needs;
• Needed modification to existing facilities;
• Operating variables;
• Corrosion control parameters;
• Project impact on related facilities;
• Environmental impact assessment;
• Fire protection and safety requirements;
• Equipment and material needs;
• Project milestone schedule; and
• Engineering studies if applicable.
Along with the production of the Project proposal the following documents should be developed before asking for project funding:
• Project execution plan;
• Updated cost estimate (-15, +10 % accuracy); and
• Financial feasibility studies.
If project funding is granted a definitive design contractor has to be selected, long lead time procurement has to be started and a slate of construction contractors updated.
When definitive design has been completed enough, according with the type of project, the construction contract is awarded and the last phase of the project will be on its way.
REFERENCES
Manzanera I., “PLANNING AND SCHEDULING REFERENCES”, Aramco Saudi Arabia, 1991
Lasser's, J.K.,"BUSINESS MANAGEMENT HANDBOOK", McGraw Hill Book Company, 1998
Joseph J. Moder, Cecil R. Phillips, Edward W. Davis, “PROJECT MANAGEMENT WITH CPM, PERT AND PRECEDENCE DIAGRAMMING”, Van Nostrand Reinhold Company, 1995
Duncan W.R., A Guide to the Project Management Body of Knowledge, Project Management Institute, 1996
Chapter III
Detailed Planning and Scheduling
The lack of adequate tools, techniques, and system design knowledge has been primarily responsible for the historical difficulties with project management. Most of the traditional scheduling techniques are based on the Gantt or bar chart, a tool which has been in common use for over 50 years. Although it is still a valuable tool, its use is limited in the scheduling of large scale operations.
In particular, the bar chart fails to delineate the complex interactions and precedence relationships existing among the project activities. In addition, it does not lend itself to mechanization through the use of a high-speed electronic computer and thus cannot utilize many of the scientific management techniques that computers make feasible.
The process of detailed planning is simply an application of the thought process that must be developed before the actual scheduling or event-timing can begin. Planning is determining what has to be done, when and by who in order to accomplish an objective.
The preliminary process of planning should include answers to the following questions:
Material procurement:
• Are materials needed for the project been researched for local availability?
• Have vendors established there procuring conditions according to the project conditions?
Time for construction:
• Is the time allowed to complete the project adequate for the location and the seasons, or will it require increased crew sizes or premium time?
Special construction equipment:
• Will special equipment be required for construction? If so, is it off-road equipment that will require special haul routes?
• What are the load limits and bridge clearances for roads in the area?
Interdependence of the tasks:
• Are some of the tasks in this project dependent upon the completion of another contractor or utility owner before they can be started?
Work and storage areas:
• Have provisions been made for contractor's work and storage areas?
Manpower availability:
• Have studies been made about local availability for different labor trades?
and if so, how will the results impact the manloading of the project?
Temporary utilities:
• Will temporary utilities lines be required during the construction period?
Local by-laws:
• Have local by-laws been researched and understood? If so, what regulations have to be followed and what permits required?
Once these questions and the additional ones drawn from the natural business process, have been answered and satisfied the task of planning can begin.
There are three kinds of planning:
Strategic Planning
It is a planning effort considering activities to be implemented looking at a long-term horizon, usually, it should look at more than five years ahead.
Tactical Planning
It is a planning effort regarding activities to be performed in the medium-term future, usually, between 1 and 5 years ahead.
Operational Planning
It is a planning effort regarding activities to be performed in the immediate future., usually, between 1 and 12 months ahead.
Planning Elements
A structured planning procedure should include the following elements:
Objective: goals/target/quota to be accomplished Program: strategy to be follow
Budget: Resources and expenditures organized logically Forecast: Projections of what is going to happen
Policy: guidance for decision making
Procedures: detailed methods for carrying out a policy Standard: Define accepted performance level
Planning Tools
Engineering management science has always helped to provide the needed tools for good planning practices. Some of the tools are enumerated here:
• Historical Information;
• Engineering capital projects checklists;
• Local time and cost estimating data;
• Project Management Software;
• Accountability check lists; and
• Computerized simulation techniques.
Planning Primary Objectives
Planning engineers primary objectives are concerned with getting things done within the shortest available period of time, minimizing cost and risk, and complying with the required technical specifications.
To achieve these primary objectives, resources utilization, communications, and project controls must be optimized and team spirit fostered at all times. Misunderstanding of corporate goals, lack of discipline, poor financial estimates, plans based on insufficient data, schedules neglected are only a few of the parameters that can go wrong.
Scheduling Engineering
Scheduling engineering is a management tool providing time and other resources allocation to a plan, time-cost trade-offs for all activities involved, and expenditures control.
As may be seen from the above definitions scheduling is the heart of good cost control.
Unfortunately, it is usually neglected by management due to the level of complexity that is normally achieved and the consequent lack of understanding.
Scheduling is one of the simplest and less sophisticated tools available for cost control, yet it only requires a good team effort at the beginning of the task and good management support to have a powerful tool working for all.
When scholars talk about different methods of scheduling they mention:
• Bar charts scheduling;
• Velocity curves(S curves) scheduling; and
• Network scheduling.
True scheduling engineering is only concerned with network analysis practices such as critical path method (CPM), program evaluation and review technique (PERT) and similar developments.
Bar charts and velocity curves (S curves), are good tools when used along with network analysis, but they should not be considered as stand-alone means to control capital
Bar charts and velocity curves (S curves), are good tools when used along with network analysis, but they should not be considered as stand-alone means to control capital