Owner and Contractor Review to Reduce Claims

The owner's role and responsibility for design and review are examined. The scope of the owner's review is outlined, together with his options for executing the review. A novel approach is suggested in using the contractor to review the design after award. Legal implications are explored.     

Owner–Contractor Work Structures: Process Approach

This paper describes a process to assist project managers, within owner companies, define work relationships between owners and their contractors for capital project development, and execution. The owner–contractor work structure process was developed by the Construction Industry Institute as a step-by-step process for making rational decisions about the most appropriate owner–contractor work structure for capital projects. A work structure is described by a set of project competencies and the extent of involvement of the owner and contractor in performing, leading, and/or providing input with respect to those project competencies. The process is described using a formal process modeling technique. Three case studies, conducted to validate the owner–contractor work structure process, are discussed. The results from these case studies suggested some basic changes to the process that would enhance its use in practice. A modified owner–contractor work structure process is then presented.     

Managing Owner’s Risk of Contractor Default

The objective of the study presented in this paper is to provide owners with a decision-making mechanism that will free them from automatically taking the typical “transfer the risk to a surety” option and will allow them to make intelligent and economical decisions that include retaining or avoiding the risk of contractor default. The methodology involves using artificial neural network (ANN) and a genetic algorithm (GA) training strategies to predict the risk of contractor default. Prediction rates of 75 and 88% were obtained with the ANN and GA training strategies, respectively. The model is of relevance to owners because once the likelihood of contractor default is predicted and the owner’s risk behavior is established, the owner can make a decision to retain, transfer, or avoid the risk of contractor default. It is of relevance to surety companies too as it may speed up the process of bonding and of reaching more reliable and objective bond/not bond decisions. The comparative use of the ANN and GA training strategies is of particular relevance to researchers.     

Budgeting Owner’s Construction Contingency

This paper attempts to find ways to reduce an owner’s construction contingency budget such that just enough contingency is allocated that will allow the owner to deal with uncertainties but at the same time not tie up valuable funds that can be used for other activities. It is suggested that the common practice of allocating a fixed owner contingency (e.g., 10% of the contract value) to all projects contracted out by an owner is not appropriate. Instead, a methodology is proposed whereby the owner (1) analyzes historical project data; (2) identifies the line items that are problematic; (3) takes the necessary measures at the preconstruction stage to streamline these line items with respect to site conditions, time constraints, constructability issues, and project scope; and (4) finally budgets contingency funds based on this information. A case study was conducted to analyze the contingencies budgeted and actually spent by an owner in nine parking lot projects. The findings indicated that a systematic approach such as the methodology proposed in this paper is likely to minimize the owner’s contingency budget.     

Guarantees for Contractor’s Performance and Owner’s Payment in China

This paper first analyzes the problem of default risk that contractors and owners often face in China, then stresses that establishing a construction contract guarantee system is a necessary and effective measure for solving this problem. Policy choice for establishing a construction contract guarantee system in China is presented in this paper by using the experience of developed countries for reference and taking Chinese domestic circumstances into account. Further discussion is included about how to protect contractors from default of payment of owners by exercising the right of legal mortgage in accordance with Chinese contract law.     

Amplitudes of the two-nucleon interaction at 579 MeV

There has been increasing emphasis in recent years on construction contract claims and disputes. This paper examines the frequency of occurrence of 427 separate construction claims which were experienced on 22 federally funded and administered construction projects. The data examined include various claim types, the frequency of their occurrence and the average cost of these claims. Also, various factors thought to influence the frequency of claims occurrence were investigated. This study indicates that the largest proportion of change orders and modifications originate with the owner of the project or with those responsible to the owner.     

Fuzzy Preference Relations Consensus Approach to Reduce Conflicts on Shared Responsibilities in the Owner Managing Contractor Delivery System

This paper proposes a fuzzy preference relations consensus (FPRC) approach that helps owners and contractors reach consensus on their responsibilities and reduce conflicts in shared tasks. A fuzzy similarity consensus (FSC) model was developed to aggregate experts’ opinions on roles and responsibilities in the owner managing contractor (OMC) project delivery system. The FSC model categorized 324 generic OMC tasks into three responsibility task lists: owner, contractor, and shared. In a consensus-reaching process, the FPRC approach is applied to shared tasks, where expert opinions on responsibility conflict are expressed, to achieve an aggregated responsibility decision for each task. Experts compare the three responsibility alternatives in pairs by using linguistic preferences, defined on a fuzzy preference scale, to select a preferred responsibility alternative for each of the conflicting tasks. A computed linguistic consensus degree guides the experts on their level of consensus in every round of the process. The quality of experts is defined with a fuzzy expert system–determined importance weight factor for each expert. The FPRC approach is relevant to the construction industry, as it incorporates consistency in decision making by allowing experts to measure and reach an adequate level of consensus linguistically when deciding on responsibilities. The proposed approach provides a method of reducing conflicts in the assignment of task responsibility between the owner and its contractors as early as the project initiation phase; thus, the project teams can concentrate on the work to be done rather than deal with responsibility conflicts during project execution.     

Contractor Process Improvement for Enhancing Construction Productivity

This paper presents a regression model that relates job site productivity to process improvement initiatives (PIIs) executed both before and during construction. Applied during early project stages, this model helps industry practitioners to predict the expected value of labor productivity based on certain inputs related to preconstruction planning and construction execution. The model demonstrates the strong relationship of project performance to a variety of PIIs including design completeness, definition of a project vision statement, testing oversight, and project manager experience and dedication. The correlational research methodology targeted 75 projects representing approximately $274.53 million in civil construction. The data collection effort considered 45 PIIs (independent variables) using quantitative and qualitative measures. The modeling technique involved the use of multiple linear regression, a method that exploits available data from multiple, independent sources to focus on specific outcomes. The model was developed directly from contractor specific information and subjected to rigorous statistical analysis. The model provides project managers as front line industry practitioners with a deliberate yet practical approach to project management and productivity enhancement. The modeling results include verification analysis and a discussion of the model’s usefulness and limitations.     

Duties and Responsibilities of Construction Managers: Perceptions of Parties Involved in Construction

This paper reports the findings of a study conducted by researchers at Illinois Institute of Technology under the direction and supervision of the ASCE Committee on Management Practices in Construction to investigate the expectations of the parties involved in the construction process, including designers, owners, general contractors, subcontractors, construction managers, and educators, relative to construction managers’ duties. The findings suggest that while there is some consensus among parties to a construction project relative to CM duties particularly in the construction phase, there is also some disagreement, most of which appear to be between contractors and designers. Most disagreements are related to CM duties performed in the bidding and postconstruction phases of projects.     

Impact of Change Orders on Small Labor-Intensive Projects

In today’s construction, small projects can be just as important if not more important than the larger projects. However, small projects are usually fast track projects, which often involve overlapping design and construction time. Subsequent modifications may be required for the sections that are already under construction. These disruptions to the ongoing project are labeled as change orders. The impact due to changes has been described as the adverse effect upon the unchanged work due to changes in the contract. For this study, 34 projects were selected to develop a statistical model that estimates the amount of labor efficiency lost due to change orders for small projects. The variables in the final model are percent design related changes, percent owner initiated changes, the ratio of actual peak labor to estimated peak labor, the ratio of actual project duration to estimated project duration, and project manager’s percent time on the project. The results of this paper are of value to owners, electrical and mechanical contractors, and construction managers. The model quantifies the impact of change orders by introducing the most important variables that bring the largest disruptions.     

Case Law and Variations in Cumulative Impact Productivity Claims

Proving and quantifying lost productivity due to cumulative impacts of multiple changes are difficult tasks. This paper presents the most acceptable methods from case law and demonstrates their applications for analyzing the loss of productivity. These methods include earned value analysis, measured mile analysis, and combinations of these two. They are either well established or drawn from recent court and board decisions. A case study is used to illustrate and compare the use of these methods. These methods result in considerably different loss of productivity values though the actual amount (i.e., inefficiency in labor hours) is unique for a particular case and though these methods are often thought to be similar or even the same. How a measured mile analysis and its variants are employed affects the amount of lost productivity estimated. The variants can avoid some drawbacks of measured mile and earned value studies. Nevertheless, which method is more accurate and reliable is difficult to provide for a particular claim. Practitioners should choose between them based on the availability of project records and the nature of changes and cumulative impacts. Practitioners may also employ two or more methods to perform a “sensitivity analysis” of the chosen methods and persuade the other party and/or the jury that their estimate of lost productivity is sufficiently certain.     

Conflicts between Owner and Contractors: Proposed Intervention Process

The parties of a construction contract, the owner and contractor, are a society with a complex set of interrelated relationships requiring cooperation and collaboration to coordinate time, resources, and communication. The main goal of the parties involved in a project’s construction is to have a successful project constructed in accordance with the plans and specifications, within the time and cost originally anticipated. The success of a project depends on a number of variables, not the least of which is how the organizations approach problems and conflicts. However, the adversarial atmosphere that infects the industry can prevent the parties from reaching their goal. This paper proposes an intervention process, a combination of partnership and mediation, to prevent and resolve dispute prior to contract close-out.     

Exploring Coordination Goals of Construction Projects

Effective coordination has been regarded in both theory and practice as a critical factor of success in construction projects. Previous coordination studies have focused on the time spent on coordination, its frequency, and its relationship with performance. However, coordination goals have received less attention, and their relationships with coordination methods and performance are not known. This paper studies coordination methods and goals for construction projects to identify what coordination goals are adopted and to what extent goals are achieved. In the research process, eight coordination methods and six goals were derived. A questionnaire was designed accordingly and sent to seven contractors for survey. Follow-up interviews were conducted with three or four managers and engineers from each contractor. The analysis results indicate that most coordination methods have multiple goals; written coordination methods such as plans, schedules, reports, and contract documents tend to have appropriate goals; and projects performed well by using coordination methods effectively to achieve the coordination goals.     

Contractor’s Risk Attitudes in the Selection of International Construction Projects

International construction involves all of the uncertainties common to domestic construction projects as well as risks specific to international transactions. Consequently, despite the worldwide trend toward globalization, a very small portion of contractors actively seek international contracts due to concerns of probable failures. This paper describes findings from experiments done to investigate the risk attitude and bid decision behavior in the selection of international projects. The participants demonstrated either weak risk seeking in profit situations or strong risk seeking toward loss situations when choosing between conflicting options of risky opportunities and sure payoffs. On the other hand, another experimental test attempting to investigate bid behavior when making a realistic bid or no-bid decision in a complicated international construction project reveals the prevailing risk aversion. Further, this paper finds the experimental supports for some of the errors and biases due to risk attitude that commonly exist in bid decisions in this area. Finally, we present lessons learned and guidelines to make a qualified bid decision through feedback with the participants.     

Profit Measures for Construction Projects

The basic issues related to profit measures of a construction project for the contractor are presented. Specifically, the problem of measuring gross operating profit and financing costs under fluctuating economic environments which has been heretofore inadequately treated in the literature of construction management is addressed. A framework for analyzing financing costs under different financial mechanisms, including the effects of overdraft and other borrowing arrangements, is presented. The general procedure is also applicable to the analysis of the effects of inflation and of work stoppages on profit. Finally, the cost of a project to the owner and the relationship between uncertainty and contract price from the views of both the owner and the contractor are considered.     

Impact of Shift Work on Labor Productivity for Labor Intensive Contractor

Generally, a contractor has three options in accelerating a construction schedule: working longer hours, increasing the number of workers, or creating an additional shift of workers. There has been a significant amount of research conducted on scheduled overtime on construction labor productivity. However, little information has been found in the literature addressing the labor inefficiency associated with working a second shift. This paper has qualitative and quantitative components. The qualitative part details why and how shift work affects labor productivity, and then addresses the appropriate use of shift work. The quantitative component determines the relationship between the length of shift work and labor efficiency. The results of the research show that shift work has the potential to be both beneficial and detrimental to the productivity of construction labor. Small amounts of well-organized shift work can serve as a very effective response to schedule compression. The productivity loss, obtained from the quantification model developed through this study, ranges from ?11 to 17% depending on the amount of shift work used.     

Lawyerization of the Engineering and Construction Industry

Lawyerization has become more and more prevalent in the engineering and construction industry. Some would argue the merits of firms’ retaining lawyers on staff as providing cost savings on projects through averting potential litigation. Others view lawyers as increasing project costs due to increased overhead. Therefore, it is important to understand the pros and cons of lawyerization as viewed by the contractor, designer, owner, manufacturer, and supplier. This paper discusses the current role of lawyers in the engineering and construction industry and examines the factors that contribute to the lawyerization of the industry.     

Avoiding Change Orders in Public School Construction

Increased student enrollment and the current poor state of the educational infrastructure require the construction of more school buildings and the renovation of many of the existing ones. The large number and magnitude of change orders in these projects constitute an impediment to the rapid and economic delivery of these projects. A total of 6,585 change orders filed in a school district’s projects in the 5 1/2 year period from 1999 to 2004 were analyzed in five categories including owner-directed changes, code compliance issues, errors/omissions in contract documents, discovered or changed conditions, and others. The results of the study indicate that the dollar value of change orders relative to the original contract can be reduced if preventive measures are taken. These measures include choosing the right construction management firm, emphasizing the definition of project scope early in the project, and effectively managing the precontract activities by conducting value engineering and constructability reviews. The results indicate that school projects can be completed with change orders not exceeding 5% of the contract value if these measures are taken. This study is of relevance to practitioners involved in school design and construction projects.     

Study of Real Options with Exogenous Competitive Entry to Analyze Dispute Resolution Ladder Investments in Architecture, Engineering, and Construction Projects

Architecture, engineering, and construction industry participants often find it pragmatic to implement a project-specific dispute resolution ladder (DRL) as a managerial tool to assist in the prompt resolution of claims and change orders (CCOs) that might arise during the project construction phase. This project-specific DRL consists of a single or multiple alternative dispute resolution (ADR) techniques that require capital expenditures to cover the expenses incurred by the owner’s/contractor’s employees and third-party neutrals. If a project-specific DRL is properly chosen, then the capital expenditures are outweighed by the expected benefits from the DRL implementation; namely, prompt resolution of the CCOs without incurring excessive cost overruns on an already financially stressed project budget, as well as avoiding the escalation of the claims to a dispute that requires long protracted litigation for final settlement. Typically, the decision as to which ADR techniques to include in the project-specific DRL is undertaken during the project planning phase prior to the actual occurrence of the CCOs. In this case, the project owner decide to invest in a DRL in exchange for the expected savings in the project. This decision regarding the project-specific DRL is usually done based on the experience of the project parties with the ADR techniques. However, such a decision needs to be guided by a financial tool that allows the project owner to evaluate alternative DRLs and choose the most economically feasible alternative based on the project and ADR characteristics. In this paper, a financial model is developed to evaluate DRL implementations in construction projects by drawing analogies from real option theory with exogenous competitive entry. More specifically, the occurrence of a given CCO will result in a reduction in the value of expected savings in the project due to DRL implementation. This is similar to the reduction in the gross value of a capital investment project in a commercial property due to competitive entry by another similar commercial property developer in the market. At the same time, the CCO resolution due to an effective DRL implementation will allow project owner to recover part of the losses in the expected savings in the project due to the DRL implementation. The model presented in this paper takes into account the characteristics of the various ADR techniques included in the project-specific DRL, and the characteristics of the CCOs occurring during the construction phase of the project. A case study of a real construction project is used to illustrate the practical implementation of the model. The results indicate that for this case project and from a financial point of view, the investment in the chosen project-specific DRL was not worthwhile because of the high uncertainty in the project, and the low effectiveness of the selected DRL. These conditions did not provide the owner with the anticipated advantage of the DRL implementation in reducing the value of the CCOs occurring in the project. At the same time the cost of the DRL implementation exceeded the actual savings attained in the project.     

Change Orders Impact on Labor Productivity

This paper describes a study conducted to investigate the impact of change orders on construction productivity and introduces a new neural network model for quantifying this impact. The study is based on a comprehensive literature review and a field investigation of projects constructed in Canada and the USA. The field investigation was carried out over a 6-month period and encompassed 33 actual cases of work packages and contracts. Factors contributing to the adverse effects of change orders on labor productivity are identified and a model presented earlier is expanded to account primarily for the timing of change orders, among other factors. The developed model, as well as four models developed by others, have been incorporated in a prototype software system to estimate the loss of labor productivity due to change orders. A numerical example is presented to demonstrate the use of the developed model, and illustrate its capabilities.