Long-Term Entropy and Profitability Change of United States Public Construction Firms

A firm’s business composition and the sales volume of each business segment are subject to change depending, to a considerable extent, on the firm’s business strategy. These changes were first weighted and represented as a single index, referred to by scholars in strategic management and industrial organization research fields as “firm entropy,” then the impact of firm entropy on firms’ profitability was assessed over 12?years. The performance differences between contractor and noncontractor firms, as well as focused and diversified firms, were compared through a longitudinal data analysis technique within a hierarchical linear modeling framework. Two hypotheses were formulated based on firm diversification theories and previous research findings. These hypotheses were tested according to the modeling outcomes, and implications are presented. The research findings indicate that the entropy changed constantly for both contractor and noncontractor firms. In addition, the level of firms’ long-term profitability supports the argument that the construction industry is highly competitive and mature.     

Analysis of the United States Department of Transportation Prompt Pay Provisions

In recent past the United States Department of Transportation has implemented a number of changes in regulations regarding federal-aid transportation projects. Some of these regulations are designed to help the disadvantaged business enterprise (DBE) firms and subcontractors in general, by requiring the general contractors to pay their subcontractors in a timely manner. Further, these regulations require that general contractors pay their subcontractors’ retainage after the subcontracts are completed, even if they have not received their own retainage from the owner. This paper reviews these new regulations and introduces a financial model for quantifying the effect of these new regulations on the contractors’ profit and the cost of transportation projects. The analysis is done using a spreadsheet-based cash flow model that takes into consideration the expenditure curve, the owner and general contractor’s payment and retainage policies, front money, finance charge on negative cash flow, and interest income on positive cash flow, and final payment and return of retainage policies. A survey was conducted among contractors in Massachusetts and their input was used to run the cash flow model. The results of the analysis for eight different projects are presented and it is shown that the new regulations, on average, reduced the contractor’s profit by 4.35%. It is also shown that the average potential cost increase for transportation projects is 0.14%.     

Time-Profit Trade-Off Analysis for Construction Projects

This paper presents a multiobjective optimization model that provides new and unique capabilities including generating and evaluating optimal/near-optimal construction resource utilization and scheduling plans that simultaneously minimize the time and maximize the profit of construction projects. The computations in the present model are organized in three major modules: (1) a scheduling module that develops practical schedules for construction projects; (2) a profit module that computes the project profit; and (3) a multiobjective module that searches for and identifies optimal/near optimal trade-offs between project time and profit. A large-scale construction project is analyzed to illustrate the use of the model and to demonstrate its capabilities in generating and visualizing optimal trade-offs between construction time and profit.     

Benchmarking Productivity Indicators for Electrical/Mechanical Projects

Labor-intensive industries such as the electrical and mechanical trades are considered high risk due to the high percentage of labor costs. Because of this high risk, it is important for contractors in these industries to closely track labor costs on projects and compare these costs to industry benchmarks. In this paper, benchmark indicators for these industries are established on the basis of actual project data. These benchmarks include the relationship between the percent complete or percent time and cumulative work hours or cost, project size and duration, project size and average man power, project size and peak man power, and average versus peak man power. These relationships were developed using regression analysis. Man power loading charts and the related S-curves were developed from actual project data. The man power loading charts and the related S-curves are useful for resource planning and for tracking progress on a construction project. They can be used to show the cause-and-effect relationship between projects impacted by outside factors and normal labor productivity.     

Illustrative Benchmarking Rework and Rework Costs in Swedish Construction Industry

Following several studies investigating the causes of construction rework among some projects in the Swedish construction industry, we conducted this study in cooperation with R&D West, a group of construction companies in Sweden, to measure the costs of rework in construction projects. Rework has become an endemic feature of the procurement process in construction that invariably leads to time and cost overruns in projects. Thus, in order to improve the performance of projects, it is necessary to identify the causes and costs of construction rework. The research presented in this paper identifies, analyzes, and discusses the causes, magnitudes, and costs of rework experienced in seven Swedish construction projects. The findings revealed that the costs of rework for the case study projects were 4.4% of the construction values of the observation period, and the time needed to correct them was 7.1% of the total work time. The construction errors that generated rework were further analyzed according to their origins, types, and positions, causes of construction rework were identified and discussed, and preventive actions were suggested.     

Unabsorbed Overhead and the Eichleay Formula

One of the less understood elements in construction damage claims is the home office expense that is incurred when a project is delayed. In compensable delay cases, there is no doubt that home office overhead is a legitimate expense of the contractor. However, the methodology for the calculation of the expense incurred has been widely debated as well as the circumstances under which the methodology should be applied. The Eichleay formula was born in 1960, and has come a long way over the past 40 years in its use and application. Court and board decisions have shaped the prerequisite criteria for its application and made it what it is today. This paper provides the background concept of compensable damage due to project delay, the effects of delay on home office overhead, the Eichleay formula evolution, precedence for prerequisite criteria for the formulas’ application, and other formulas and methods that have evolved and been used. A “Direct Method” is proposed by the authors, which is straightforward and simple to apply. In the final analysis, obtaining a 100% accurate estimate of home office expenses is practically onerous. Therefore, representative formulas and techniques are used to arrive at a reasonable value for the unabsorbed overhead.     

以节能降耗为突破口 大力降低成本 提高全行业经济效益

介绍了济钢节能降耗、挖潜增效的基本经验,分析了钢铁工业能源消耗的现状,认为节能降耗对全行业降低成本、提高经济效益具有重要意义,指出了节能降耗的目标和主要途径。     

Prepayment Ability to Offset Inflation

A model is presented to highlight actions that both owners and contractors, who do construction overseas, need to take in order to obtain costeffective construction projects. The model delineates a clear relationship between inflation, price escalation, time‐lag, prepayment, and the effects of price escalation on the value of the project. To simplify that relationship, the model concentrates inflation, price escalation, time‐lag, and profits into one term, the project's net present value. The analysis reveals three major points. First, the prepayment can be viewed and quantified as an additional markup whose benefits should be shared with the owner. Second, there is, indeed, an equilibrium point that defines the extent to which the prepayment accounts for inflation coverage, and thus no price escalation is needed. Finally, price escalation clauses in countries having high levels of inflation do not encourage prudence in spending. On the contrary, price escalation clauses encourage price escalation.     

Multiple Simulation Analysis for Probabilistic Cost and Schedule Integration

One of the major goals of the construction industry today is the quantification and minimization of the risk associated with construction engineering performance. When specifically considering the planning of construction projects, one way to control risk is through the development of reliable project cost estimates and schedules. Two techniques available for achieving this goal are range estimating and probabilistic scheduling. This paper looks at the integration of these techniques as a means of further controlling the risk inherent in the undertaking of construction projects. Least-squares linear regression is first considered as a means of relating the data obtained from the application of these techniques. However, because of various limitations, the application of linear regression was not considered the most appropriate means of relating the results of range estimating and probabilistic scheduling. Integration of these techniques was, therefore, achieved through the development of a new procedure called the multiple simulation analysis technique. This new procedure combines the results of range estimating and probabilistic scheduling in order to quantify the relationship existing between them. Having the ability to accurately quantify this relationship enables the selection of high percentile level values for the project cost estimate and schedule simultaneously.     

Predicting Profit Performance for Selecting Candidate International Construction Projects

International projects are inherently exposed to unpredictable and complicated risk scenarios. To minimize possible losses due to these risk exposures, construction firms have their own procedures or basic tools for selecting potential projects, but they are usually based on the experience and knowledge of the firm’s engineers and decision makers that are often very subjective and lack scientific basis. This paper presents a quantitative profit prediction model for the early stage of an international project as a systematic risk-screening tool that involves the processes of defining, analyzing, and evaluating various profit-influencing risk variables. Various successful and unsuccessful international project cases with respect to profit levels are collected. Then, a scale-based profit prediction model to select candidate overseas projects is developed through factor analysis and a multiple regression analysis. Finally, this paper provides implications for global project management and lessons learned from case studies to improve profitability for international projects.     

MAUT-Based Dispute Resolution Selection Model Prototype for International Construction Projects

Disputes are common in international projects because of contractual, cultural, and legal factors. The dispute resolution methods currently adopted in international projects are varying, including litigation, arbitration, adjudication, mediation, expert-determination, dispute resolution board, and minitrial. The problem in question is on how to select the most appropriate resolution method that can fit nicely in the nature of the dispute and the disputing parties’ needs. A dispute resolution selection prototype (Model) based on the analytical hierarchy process and multiattribute utility technique (MAUT) is presented in this paper. The Model developed consists of five components: Selection factors, dispute resolution methods, utility factors, relative importance weightings, and user’s preferred weightings. These were based on the quantitative data provided by 41 experts in the field, who were barristers, arbitrators, mediators, and project managers. The Model is considered beneficial to the industry, as it provides construction professionals with a systematic and objective approach in the management of international project disputes.     

Judging Unreasonable Litigation Behavior at the Interface of Mediation in the English Jurisdiction

Civil procedure rules (CPRs) in the English jurisdiction were introduced to restrain the adversarial and expensive litigation activities of the legal profession. Judges use case management to fix timetables for preaction meetings, disclosure, and trial dates. Under CPR both the judiciary and the parties have a duty to consider ADR alternatives such as mediation. Costs sanctions were implemented to keep in check unreasonable litigation practices and prevent the parties and their lawyers from creating delay and unwarranted expense. Evidence exists that construction parties are beginning to utilize mediation tactically both in the settlement phases activated by CPR and during the mediation process itself and some lawyers are reported to adopt an adversarial approach in mediation. This paper examines case law from the English jurisdiction on the application of the principle of “unreasonable behavior” in litigation to analyze how effective the specialist Technology and Construction Courts (TCCs) are in countermanding the strategic interplay of mediation within CPR and to determine the developing legal rules on mediation. Case law indicates that judges in the TCC are using costs sanctions to control abuse of the preaction protocols where there is a “substantial” lack of compliance but the Halsey criteria demonstrates an uncertainty in the application of the guidelines for delay and the timing of mediation, which can impact on the expense of litigation and may result in abuse or costs injustices. Further case analysis shows that negotiations in mediation are protected by the privileged status of “without prejudice statements” but unreasonable conduct in mediation will be examined by the court if both parties waive privilege or the abuse is such that it reaches the bar set for “unambiguous impropriety.” Further protection is provided through a developing principle of confidentiality but judges are likely to use their discretion in the “interests of justice,” for example, where there are allegations of economic duress. Neither unambiguous impropriety nor economic duress is likely to encompass uncooperative or adversarial approaches within the process or hard negotiations.     

Estimating Performance Time for Construction Projects

The prediction of performance time for construction projects is a problem of interest to both researchers and practitioners. This research seeks to gain insight into the significant factors impacting construction duration by developing a regression model. Data were collected for 856 facility projects completed between 1988 and 2004. These data were analyzed using Bromilow’s time-cost (BTC) model (1969) as well as multiple linear regression. The multiple linear regression model was found to provide the most acceptable prediction. As in the BTC model and previous research reported in the literature, a significant correlation was found to exist between cost and duration. However, several other factors were also identified that resulted in significantly lower than average construction durations. These include projects completed within certain management groupings, managed by a certain construction agent, and designed by in-house personnel.     

Nature of Engineering Consulting Projects

Engineering consulting firms usually collect data such as cost and man-hour expenditures. Although these data help analyze project profit and productivity, they lack the information on the project nature to examine work and analyze the root causes of performance. This study investigates the nature of engineering consulting projects in terms of uncertainty and equivocality (U&E). A questionnaire was designed to collect project U&E data from 108 project managers. The U&E scores were analyzed, further linked to and tested on a consulting firm’s profit, productivity, project type, phase, duration, and owner data. It is found that project nature does not affect profit or productivity; engineering design work needs more data acquisition and analysis than problem definition and interpretation. Other results show insightful patterns about engineering projects that can be useful references to the engineering services industry.     

Relationship between Changes in Material Technology and Construction Productivity

There have been substantial changes in both material technology and construction productivity over the past several decades. By analyzing the changes in both material technology and productivity among 100 construction activities from 1977 to 2004, this research examines the strength and types of relationships that exist within these two occurrences. Through analysis of variance (ANOVA) and regression analyses, the researchers found that activities experiencing significant changes in material technology have also experienced substantially greater long-term improvements in both their labor and partial factor productivity. The research did find that a stronger relationship exists between changes in material technology and partial factor productivity than in labor productivity. The research also found that changes in the unit weight of materials had a significant relationship to labor productivity, while changes in installation and modularity had a significant relationship to partial factor productivity. The research findings will help industry practitioners to better understand how they may leverage technology to improve construction productivity, while also helping researchers understand the theoretical relationships between technology and construction productivity.     

Characteristics for Leveraging Value Management Processes on Capital Facility Projects

A more competitive business environment requires that a variety of value management process (VMP) options be continuously introduced into the construction industry. Project stakeholders and managers are highly concerned about value maximization through implementation of one or more beneficial VMP options. The objective of this study is to identify the most leveraging project characteristic factors (PCFs) in need of VMP implementation. Furthermore, the levels of importance of each PCF in association with the optional VMPs are quantified to effectively assess the applicability of VMP implementation using the fuzzy-based analytic hierarchy process method. Four real-case validation tests provide robust research findings. The proposed project assessment tool is useful in evaluating individual projects in terms of whether the subject project is leveraged or has much to be improved by implementing the optional VMPs. The results of this study can facilitate a rigorous evaluation of a project and eventually help the decision-making process in selecting the most beneficial VMP options to maximize the optimum project value.     

Lean Construction: From Theory to Implementation

This article compares the techniques developed for lean construction with those developed for lean manufacturing. Lean manufacturing and lean construction techniques share many common elements despite the obvious differences in their assembly environments and processes. Manufacturing plants and construction sites are different in many ways that might explain why lean production theories and practices do not fully fit the construction industry. Though many lean construction tools and elements are still in an embryonic state, lean construction techniques are gaining popularity because they can affect the bottom line of projects. Additionally, this paper presents a study of a construction project in which specific lean construction elements were tested. Each technique was evaluated in terms of its impact on the performance of the project. Based on the findings of the study, a new “lean assessment tool” is proposed to quantify the results of lean implementations. The assessment tool evaluates six lean construction elements: last planner, increased visualization, huddle meetings, first-run studies, five S’s, and fail safe for quality. This paper provides a simple and comprehensive approach that is transferable to any construction project.     

Immigration and Construction: Analysis of the Impact of Immigration on Construction Project Costs

There are an estimated 11 million illegal immigrants currently residing in the United States. Of this population, research shows that approximately 19% work in the construction industry, comprising around 14% of all construction workforces. The main objectives of this research are to (1) to predict possible effects of immigration and immigration reform legislation on worker wages and (2) to assess the likely wage increase due to decreased supply of immigrant labor. In the Washington, D.C. metropolitan region, the construction workforces for low-skilled trades such as concrete, masonry, drywall, painting, flooring, and roofing are comprised of approximately 55% illegal immigrant. Based on four factors evaluated in this research (1) prevailing wage provision in legislation; (2) forced tax compliance of the workforce; (3) market correction from currently depressed wages due to immigrant penetration into the workforce; and (4) a labor shortage resulting from a depleted supply of immigrant labor, proposed legislation could increase the cost of trade labor up to almost 70% in the Washington, D.C. metropolitan area. Overall labor costs for projects could increase by almost 18%, and total project costs could rise almost 12% in the Washington, D.C. metropolitan region.     

Analytical and Approximate Variance of Total Project Cost

The statistical variance of total project cost is usually estimated by means of Monte Carlo simulation on the assumption that exact analytic approaches are too difficult. This paper tests that assumption and shows that, contrary to expectations, the analytic solution is relatively straightforward. It is also shown that the coefficient of variation is unaffected by the size (floor area) of the project when using standardized component costs. A case study is provided in which actual component costs are analyzed to obtain the required total cost variance. The results confirm previous work in showing that the approximation of the second moment (variance) under the assumption of independence considerably underestimates the exact value. The analysis then continues to examine the effects of professional judgment, and, with the simulated data used, the approximation is shown to be reasonably accurate—the professional judgment absorbing most of the intercorrelations involved. An example is also given in which the component unit quantities are priced by their average unit costs and which again shows the approximation to be close to the true value. Finally, this is extended to show how the exact total project cost variances may be obtained for each project.