EAT 357
CONSTRUCTION
MANAGEMENT
CHAPTER 2 :
PROJECT
INITIATION
Dr.Hj.Umar Hj.Kassim
Definition: Project Initiation
• It is a first phase of projects life cycle and is a process
which start with the idea or proposal to change
implementation (due to business needs or external
factors) and end in POSITIVE case with the approval
to start formally the project.
NEGATIVE case, project will be rejected and will wait
better times.
• Also known as “Promotion”
• Come from owner (individual, government, private
sector, or developer)
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Purpose:
• To identify scope and gain initial approval for a
project/projects that will deliver tangible
benefit to the company business.
Once it approves it is time to move on to the
planning phase of the Project. Initiating is
COMMITING the organization’s resources to a
project/project phases.
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Project Life Cycle
Project Life
Cycle
Project Life Cycle
Initiation Planning Execution Close-out
• Propose • Scope - Final • Production of key • Celebrate
• Strategic Fit • Select team Deliverables • Contract Closeout
• Objective • Plan Deliverables • Monitor & Control • Team Feedback
• Scope (Draft) • Quality Plan • Quality Management • Recomendation futher
• Term of Reference • Baseline Schedule • Time Management action
• Draft Schedule • Baseline Budget • Cost Management • Post Implementation
• Budget Estimation • Risk Register • Risk Management Review
• Issues Register • Issue Resolution
• Business Case • Change Control
• Approval • Reporting
• Communication Plan • Communications
Figure 1-5: Flowchart of steps/ activities that take place in the three stages of Project Initiation
Project Initiation Phase
The Project Initiation Phase is the 1st phase in the Project Management Life Cycle, as it
involves starting up a new project. You can start a new project by defining its objectives, scope,
purpose and deliverables to be produced. You'll also hire your project team, setup the Project
Office and review the project, to gain approval to begin the next phase.
Overall, there are six key steps that you need to take to properly initiate a new project.
1. Develop a Business Case Research the business problem or opportunity
Identify the alternative solutions available
Quantify the benefits and costs of each solution
Recommend a preferred solution to your sponsor
Identify any risks and issues with implementation
Present the solution for funding approval
2. Undertake a Feasibility Study Research the business problem or opportunity
Document the business requirements for a solution
Identify all of the alternative solutions available
Review each solution to determine its feasibility
List any risks and issues with each solution
Choose a preferred solution for implementation
Document the results in a feasibility report
3. Establish the Project Charter Identify the project vision and objectives
Define the complete scope of the project
List all of the critical project deliverables
State the customers and project stakeholders
List the key roles and their responsibilities
Create an organizational structure for the project
Document the overall implementation plan
4. Appoint the Project Team List any risks, issues and assumptions
Define the real purpose of the role
List the key responsibilities of the role
Define who this role will be reporting to
Create a detailed Organizational Chart
List the skills and experience needed
Define any relevant qualifications
5. Set up the Project Office Set out the key performance criteria
Identify the salary and working conditions
Identify the right location for your PMO team
Ensure that you have the correct infrastructure
Procure the right PMO equipment and tools
Define the PMO roles and responsibilities
6. Perform a Phase Review
Put in place suitable standards and processes
Implement relevant project management templates
Templates Offer Project Management Office services to
projects.
Contract:
• Definition
All the written and graphic documents concerning execution
of a particular construction contract. These include the
agreement between the owner and contractor all conditions
of the contract including general and supplementary
conditions, the specifications and drawings, any changes to
the specifications and drawings, any changes to the original
contract, and any other items specifically itemized as being
part of the contract documents
• The contract to protect the contractor and developer.
• Objective of Developer : to successfully implement the work
within the time frame at the minimum cost.
• Objective of contractor : to maximize the margins
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Strategy of selecting the contract:
• Because of the unique nature of constructed facilities, it is
almost imperative to have a separate price for each facility.
The construction contract price includes the direct project
cost including field supervision expenses plus the mark-up
imposed by contractors for general overhead expenses and
profit. The factors influencing a facility price will vary by type
of facility and location as well.
• Therefore, as developer the contract chosen should
successfully give high profit, at lower cost.
• Factor:
(i) Risk to get profit/loss
(ii)) Incentive for the contractor to improve productivity
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Types of contract/project:
1) Lump sum contract (jumlah pukal)
2) Bill of quantities contract (berdasarkan jadual
kuantiti bahan)
3) Cost plus contract (kos tambah)
4) Turnkey contract
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Definitions:
LUMP SUM CONTRACT:
• An item or category priced as a whole rather than broken down into its
elements.
• Contractor will implement the work based on the drawing contract and
specification at fixed price.
• The risk on the contractor, due to the cost estimate by the
drawing/specification, without the BOQ.
• The tender price is fix, unless the scope of work change, or variation of
material cost.
• The price in the tender form is fix, but the price in the tender summary
should be discuss and both party agree as a original cost price.
• Estimation of variation is base on the price list or schedule rates in the
contract.
• Suitable for small project or standard building work. If the drawing/spec is
ready, work will be faster/easier.
• Problem: administration of the contract, not all the scope of work appear
in the contract.
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Bill of quantities contract:
• Bill of quantities is part of the contract, so it easier plus the
contractor will facing high risk of offer in term the cost of
project.
• Quantity of works is measure again after the completion of
work. The payment is based on quantities and rates.
• Estimation of variation is based on the prices rated in the BOQ.
• The rate of cost in BOQ need to be revised and mutually agreed
to represent the original price. However, the offering price is
fixed.
• Suitable for the project with precisely estimated.
• Usually, this type of project doesn’t give any issues in terms the
contract administrative when compare to Lump Sum Contract,
scope of work and price rate is in details.
• Details of contract is prepared by The Dep. of Work (JKR) based
on the proposed plan.
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COST PLUS CONTRACT:
• Here in, contractor receives payment on the labor/manpower cost, materials,
tools, machines use in the project, plus profit payment and overhead.
Therefore, the contractor will not face -issues on the risk of manpower cost,
and fluctuation of materials prices.
Two types of cost plus contract:
(1) Cost plus contract with fixed fees or fixed percentage
- Original cost of construction is paid to the contractor with percentage of
fees or fixed fees agreed.
- Disadvantage – contractor cant have any initiatives to reduce the project
cost, and increase the profit margin
(2) Target cost with variable fees
- The target cost is agreed by both contractor/developer based on BQ. After
completion of work, fees is paid based on the targeted cost (exceeded or
not).
- Bonus is paid to the contractor if there is saving in the cost project, but if
there is surplus on the targeted cost, penalties will be imposed.
• Suitable to the complicated project, when the magnitude project is
unknown at certain time constrain.
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TURNKEY CONTRACT:
A type of project that is constructed so that it could be sold to any
buyer as a completed product. This is contrasted with build to order,
where the constructor builds an item to the buyer's exact
specifications, or when an incomplete product is sold with the
assumption that the buyer would complete it.
• The main contractor will be given responsibility to design, purchase
the materials, construct, commission the facility based on the agreed
prices. The main con. also conduct the monitoring works.
• Example: Many government-owned public housing projects are
turnkey projects. A private developer undertakes all activities
necessary to producing the project, including land purchases, permits
, plans, and construction, and sells the project to the housing
authority.
• Developer (owner) only grant the needs of statement and the will
propose the overall project.
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Needs of statement (Turnkey) include followings:
(i) The facilities required
(ii) Performance specification
(iii) Normal specification, table of finishing
(iv) Electrical and mechanical tools
(v) Social/cultural
(vi) Operation/management system
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To select the type of contract
Economy
contractual
Technical
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Discuss in details the responsibility of main
contractor in the Turnkey project start from
(i) Pre-project strategy technology
(ii) Building planning and workmanship
(iii) Turnkey Project management
(iv) Start of operations & training
What is the advantages and disadvantages of
Turnkey project? Please find up…
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Preparation of Document Tender:
• Construction bidding is the process of submitting a proposal (tender)
to undertake, or manage the undertaking of a construction project. The
process starts with a cost estimate from blueprints and take offs.
• The tender is treated as an offer to do the work for a certain amount of
money (firm price), or a certain amount of profit (cost reimbursement
or cost plus). The tender which is submitted by the competing firms is
generally based on a BOQ, or other specifications which enable the
tenders attain higher levels of accuracy, in term of the statement of
work.
• Type of tender:
(i) Open-bid – for public project. Any or all contractors are allowed to
submit their bid to the owner
(ii) Closed-bid- for private project. A selection of contractors are sent an
invitation for bid so only they can submit a bid for the specified project.
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Preparation of document tender:
• For instance, a BOQ is a list of all the materials (and other work such as
amount of excavation) of a project which have sufficient detail to obtain a
realistic cost, or rate per described item of work/material. The tenders
should not only show the unit cost per material/work, but should also break
it down to labour, plant and material costs. In this way the individual who is
selecting the tender will be quite confident that the tender is feasible.
• Bids are not only chosen on cost alone. Sometimes contractors submit
lower tenders to win the contract and win the work. The lowest tender is
not always a feasible tender. The lowest tender is the most likely to increase
the contract sum, the most throughout the course of the project.
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Things to consider in tender document:
(a) To reduce complexity to the min level
(b) No obscurity
(c) Revise the drawing and ensure all standard is refereed
(d) Ensure no discrepancy in each of documents
(e) Define the work program, contract time, and completion period.
• Tenderer’s must be given details on the construction site situation such
as: excess road to the construction site, soil condition, and geology
• Site visit can be arranged with pre-tender site meeting to the tenderers.
• Advantages:
- Avoid arguments during construction
- When the ambiguities in known, the diligent tenderers who put the
high tender price will not be removed from the list.
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Content of Tender Document:
(a) Call for tender letter
(b) Guideline to the tenderer’s such as, date line of tender, date
for pre-tender meeting, site visit
(c) Requirement of tender (tender form)
(d) Specifications for all type of work with standard applied, i.e.
B.S 8110 for concrete work
(e) List of tools, machines, finishing, paints
(f) Plan, building drawing
(g) Bank guarantee form
(h) All risk insurance form
(i) List of work
(j) Organization preform, etc
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Valuation of Tender:
(1) Based solely on the price
• Poor Method of assessment, all the tenderer’s will be evaluated in every
aspects to make sure the work completion within the time frame and
ability.
• The contractor experience, performance, organization, financial status.
(2) Best- value selection
• Two set variables are inserted to the matrix.
(i) Qualified based on the experiences
(ii) Qualified based on the information in the tender document
(3) Qualification-based selection
• Owner decides to choose the contractor only basis of their
qualifications. The owner uses a request for qualification (RFQ) which
includes of: contractor’s experience, management plans, project
organization, budget, schedule performance, safety records, and
individual credentials of their members.
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Factors to consider during tender evaluation:
A: Factors based on previous experiences
(i) technical specialist and management
(ii) compliance with specification
(iii) Attitude towards repair works
(iv) Ability to follow work program
(v) Attitude towards claim
B: Factors based on the information in the tender document
(i) Understanding of work (based on the prices quote)
(ii) List of works very important esp. to specialized structure e.i. Jetty
(iii) Contractor organization
• Other things to consider:
(i) validity period of tender
(ii) letter of acceptance to the contractor (after Board meeting tender)
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From the Tender Assessment selection
criteria to design a bridge contracted by
Bentley Resource, discuss in class how one
contractor will get high scores in each of
assessment skills.
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Contract document:
• Contract document stated all the agreements of the
construction works between the contractor and developer.
• It is legitimate with the law
• It is a primary reference for all the construction works and
covers the aspect of:
(i) Condition of the contract
(ii) Acceptance of tender
(iii) BOQ
(iv) Schedule of rates
(v) Design drawing
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Things should be aware:
(i) All drawings need initial
(ii) Offered price rates need to be revised to represent original
cost. All changes need initial of both party.
(iii) Delay is expected if the contractor prepare last minute bank
guarantee, insurance policy, etc. It must be recorded with
the reason.
- The finalized document will be signed by the contractor,
developer, or The Dep. of Work.
- The implementation date of contract is the last date of the
last person sign on the document.
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Payment Contract:
• Lump-sum: Most common type. The construction manager
and the owner agree on the overall cost of the construction
project, and the owner is responsible for paying that amount
whether the construction project exceeds/fall below the
agreed price of payment.
• Cost-free-fee: Contractor receive payment including the total
cost as well as a fixed fee or percentage of the total cost.
Beneficial to contractor for the additional cost will be paid.
• Guaranteed Maximum Price: Same as the cost-free-fee
contract although there is a set price that the overall cost and
fee do not go above.
• Unit-Price: this contract is used when the cost cannot be
determined ahead of time. The owner provides materials with
a specific unit price to limit spending.
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