Touching the Sky In Construction Business

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© 2014 Construction Press Service. All rights reserved.
No part of this book may be reproduced in any written, electronic, recording, photocopying or by any
information storage and retrieval system without the written permission of the author, except where
permitted by law.
Construction Press Service
Publishers Since 2004
Mombasa Road, Off Airport Road
Tel. +254 722 889 763
[email protected]
ISBN:978-9966-1587-8-9
Book Design: Benedict Mackenzi & Nathan Kimaku
Editor: Wanjiku Migichi
First Edition
Printed in Kenya – East Africa
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Preface
The desire to publish this book arose after many years of observation. First, with my late
father (God bless his soul) who with minimal education, struggled to grow his construction
business in the 70s till late 90s. Growing up as the first born in a family of ten, I could
not help but admire my dad’s passion in construction. At times, he would make losses and
protest when he was not awarded tenders. In most projects, he had to double up as the
contractor, the engineer and sometimes the accountant. At times, he would hit it big and
bring home lots of money.
I fell in love with this “adventurous” business and promised to contribute to this trade
by writing a manual that would help people run a construction business differently from
how my dad did it. The book’s title had long been formed in my mind; Touching the Sky
in Construction Business.
Being a journalist and publisher of construction journals, I have come across many
contractors who are not where they may have envisioned to be in the construction
business. I have on many occasions discussed with contractors some of the ideas in this
book and in most cases, the results have been remarkable. My friends and other players in
the construction industry have offered me overwhelming encouragement and support in
the course of writing this book.
The book expounds on five key areas that play a role in determining the success of a
construction business. At the end of each chapter, it is advised that you use the SWOT
analysis tool to identify how your business rates in each of the chapters discussed.
Touching the Sky in Construction Business is ideal for start-ups as well as established
construction businesses.
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About The Author
Joseph Gichuhi was born in 1958. He studied both in Kenya and the United Kingdom.
Joe is a trained media professional with a degree in English Literature and Journalism.
He is the son of a contractor. He made his debut in the industry when he joined
the management of his family business on return from the UK in 1984. He would
later venture into the media, freelancing for leading dailies. In 1989, he joined News
Publishers Ltd where he was attached to the Kenya Builder, a journal published by
Kenya Association of Building & Civil Engineering Contractors (KABCEC).
He would later work with others like College Publishers and Intercontinental Publishers
producers of Construction Review and Kenya Engineer respectively.
From 2005, he went into partnership to form several media companies including
Infrastructure Media Network, Construction Press Service and Interface International.
He is the publisher of Kenya Engineer & Builder and Construction East Africa journals
as well as The National Construction Directory. Joe has organized several industry
related events one being the Wajenzi Social Night in 2009. Besides being an accomplished
journalist, the author has great passion in writing for the built environment.
He is also the Chief Executive Officer of Community Building Alliance (NGO) and
Touching Lives Community Network (CBO).
He is pursuing a Master of Arts degree in Business Administration at Strathmore
University and is a registered member of Kenya Union of Journalists, Marketing Society
of Kenya, Public Relations Society of Kenya and the Media Council of Kenya.
Joe is married to his childhood sweetheart Francisca and blessed with seven children.
Joe is a strong proponent of environmental conservation and infrastructure development
and his favourite quote is “a country is as big as its infrastructure”.
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Contents
Preface....................................................................................................iii
THE CONSTRUCTION BUSINESS.......................................................... 1
The Five Construction Sectors........................................................................................1
Jobs in the Construction Industry....................................................................................2
Setting Up a Construction Business in Kenya..................................................................2
Functions of a Construction Manager..............................................................................3
Project Stages in Construction........................................................................................4
Common Terminology in the Construction Industry...........................................................5
What is Project Management?........................................................................................7
CONSTRUCTION PROJECT MANAGEMENT......................................... 7
Trends in Modern Management.......................................................................................9
Strategic Planning and Project Programming..................................................................11
Small Business Management Tools for Construction......................................................21
Professional Construction Management.........................................................................23
Leadership and Motivation of the Project Team..............................................................25
Owners and Contractors Perceptions of Successful and Unsuccessful Projects�������������26
Fundamental Concepts for Owners, Engineers, Architects and Builders ������������������������27
Agency Construction Management...............................................................................27
Cash-Flow Management...............................................................................................28
Construction Management (CM) at Risk.........................................................................28
Tendering for Construction Projects...............................................................................29
TENDER BIDDING................................................................................. 29
Preparing a Tender: The Five-Step Process...................................................................34
Tender/Bid Solicitation..................................................................................................38
Tender Evaluation.........................................................................................................39
Introduction:.................................................................................................................41
10 Key business practices............................................................................................41
BEST PRACTISE IN CONSTRUCTION................................................. 41
Customer Service in the Construction Industry...............................................................46
Dispute Resolution in the Construction Industry..............................................................47
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ADVERTISING A CONSTRUCTION BUSINESS.................................... 50
How and When to Advertise a Construction Business....................................................50
Where to Advertise Your Construction Business in Kenya...............................................51
Target Marketing and Prospecting.................................................................................52
How to Tell Prospective Clients What You Do.................................................................54
How to Market a New Construction Company...............................................................55
Marketing Your Construction Business Online................................................................56
Using Social Media to Market a Construction Business..................................................59
Assorted Marketing & Advertising Strategies..................................................................60
Common Marketing Mistakes for Construction Companies.............................................64
References............................................................................................ 67
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1
THE CONSTRUCTION
BUSINESS
Statistics obtained from the Global Construction Summit 2014 indicate that there are 2.9
million jobs filled in the construction industry. In the UK alone, construction contributes
nearly £90bn to the economy that’s 6.7% of the total. The UK has the sixth largest green
construction sector in the world. With around 60,000 jobs expected to be supported by the
insulation sector alone by 2015. Global construction output is forecast to increase from
around $8.5 trillion today to $12 trillion in 2025 according to Global Construction 2025
The Kenyan construction industry grew 5.5% in 2013 compared to 4.8% a year earlier,
according to the Kenya National Bureau of Statistics’ Economic Survey 2014.The growth
was lifted by an increase in the value of building plans approved in the housing sector,
which rose 34.2% to KSh 243.1 billion from KSh 181.1 billion in 2002.This is partly
explained by increased activity in real estate to cater for rising demand for housing due to
the rapid population growth in urban areas. The construction industry growth was also
reflected in cement consumption which rose to 4.2 million tonnes from 2.6 million tonnes
due to increased construction activities in the period under review, a growth of 59.7%
Cement use is a key indicator of the real estate sector activity given that it is an essential
raw material for construction.
Employment in the sector rose 12.2% to 130,300 compared to 116,100 in the previous
year. Thanks to the rapidly expanding population, the construction industry in Kenya
is expected to expand further as investors rush to meet increasing demand for decent
housing. The level of building and construction activities in a country is an indicator of
the general economic performance of that economy due to the linkages with most other
sectors with corresponding demands for materials and labor inputs.
Some of the major opportunities in construction include: road construction and rehabilitation,
construction of the rail link to South Sudan, rehabilitation of major airports, development
of Lamu Port and associated infrastructure, construction of geothermal and wind power
generation plants, urban housing development and annuity financed roads project.
The Five Construction Sectors
•
Residential: Residential construction includes individual homes,
condominiums, townhouses and other housing types
apartments ,
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• Commercial: This refers to construction dealing with the needs of commerce, trade,
and government Examples include shopping centers, schools, banks, hospitals,
theaters, and government buildings.
• Heavy Civil: The construction of transportation infrastructure such as roads, bridges,
railroads, tunnels and airports. Dams are also included here, but other water-related
infrastructure is considered environmental.
• Industrial: Buildings and other constructed items used for product production,
including chemical plants, steel mills, oil refineries, manufacturing plants, and pipelines.
• Environmental: Environmental construction used to be part of heavy civil, but it has
now become independent, dealing with projects that improve the environment. Some
examples are sanitary sewers, waste management and clean water.
Jobs in the Construction Industry
Planning Engineer: Ensures construction projects are completed within set deadlines,
on budgets and in line with relevant safety standards and regulations. Field Engineer:
Provides technical engineering information to company supervision and craft. Ensures
construction work complies with all engineering standards, codes, specifications and
design instruction applicable to one or more disciplines. Also, provides project controls
support (cost, scheduling, estimating) and sub contract oversight to project construction
supervision and staff personnel.
Quantity Surveyor: Manages all costs relating to building and civil engineering projects,
from initial calculations to the final figures. Also seeks to minimize the costs of the project
and enhance value for money while still achieving the required standards of quality.
Project Manager: Responsible for planning, management, co-ordination and financial
control of a project. Ensures projects are completed on time and on budget. Project
Engineers: Offer liaison between the project manager and the technical staff involved
in a project. The project engineer is also the primary technical point of contact for the
client. His work includes schedule preparation, pre-planning and resource forecasting for
engineering and other technical activities relating to the project.
Setting Up a Construction Business in Kenya
Register Your Company/Business
The first step involves registering your company at the registrar of companies located at
Sheria House. The law in Kenya allows for three kinds of companies: sole proprietorship,
partnerships and limited liability companies (LLC). A sole proprietorship is owned by one
person, a partnership has between 2 to 20 owners and a company can have a minimum
of 2 and a maximum of 50 owners. Each of these outfits has specific requirements
and duration for registration. The legal and monetary requirements required for a sole
proprietorship are less compared to the other two types of companies; this option is best
if you are budding entrepreneur. Generally, for all of them, you will have to conduct a
name search to find out whether your proposed business name is available.
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After the name search exercise and completion of required forms, your company will be
registered and you will be issued with a certificate of incorporation or a business name.
This may cost you between KSh. 2,000 (sole proprietorship) and 30,000 (LLC) depending
on which route you use.
Register With the National Construction Authority
For you to legally operate as a builder or contractor, you will need to register your company
with the National Construction Authority (NCA). The NCA is mandated to oversee all
construction activities in the country. The paperwork here is immense as you might have
guessed. In order to be registered by the NCA, you will need to be registered as above
(sole proprietorship, partnership or LLC). You will need to furnish the NCA with your
ID/Passport, your registration/incorporation certificate, and provide a PIN, VAT and Tax
Compliance certificate from the Kenya Revenue Authority. You will also need to provide
a CV for each of the directors/partners and evidence that there is a bank account in the
name of the company.
The NCA provides eight registration categories i.e. NCA 1 to NCA 8. Each category has
its own academic requirements, fee charges and the value of contracts in KSh that each
category can transact. Detailed information can be downloaded from the NCA website.
Kenyan Government Tenders
If you are a youth, a woman or a person with disability, all government agencies are by
law required to set aside 30% of their tendered procurements for you. In order to qualify,
you need to register with Access to Government Procurement Opportunities under the
National Treasury. You will be issued with a certificate showing that you are from any of
these special interest groups and you can bid for the special category.
Taxation
You must register with the Kenya Revenue Authority (KRA) and acquire Pin & VAT
certificates. Every tender document must be accompanied by a compliance certificate
issued by KRA upon verification of your tax returns record.
Finally, as Ganaway writes in his book,
Owning and operating a construction firm is not a five-day eight-to-five occupation. You can
count on six or even seven longs days in the beginning while you’re setting up you company’s
infrastructure. Simultaneously building projects and trying to get new ones. As you become more
established, plan on fifty to sixty hour weeks routinely and often longer. (Ganaway, 2006)
Functions of a Construction Manager
The functions of construction management typically include the following: Specifying
project objectives and plans including delineation of scope, budgeting, scheduling, setting
performance requirements, and selecting project participants. Maximizing resource
efficiency through procurement of labor, materials and equipment. Implementing various
operations through proper coordination and control of planning, design, estimating,
contracting and construction in the entire process.
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Developing effective communications and mechanisms for resolving conflicts. Typical dayto-day duties of a Construction Manager revolve around: Project management planning,
cost management, time management, quality management contract administration, safety
management, construction management safety practice, obtaining the project
Project Stages in Construction
Design
The design stage contains the following steps: programming and feasibility, schematic
design, design development, and contract documents. It is the responsibility of the design
team to ensure that the design meets all building codes and regulations. It is during the
design stage that the bidding process takes place.
Programming and feasibility: The building’s needs, goals, and objectives must be
determined. Decisions must be made on the building size, number of rooms, how the
space will be used, and who will be using the space. This must all be considered to begin
the actual designing of the building. Schematic design: Schematic designs are sketches
used to identify spaces, shapes, and patterns. Materials, sizes, colors, and textures must be
considered in the sketches.
Design development: This step requires research and investigation into what materials and
equipment will be used as well as their cost. Contract documents: Contract documents
are the final drawings and specifications of the construction project. They are used by
contractors to determine their bid while builders use them for the construction process.
Contract documents can also be called working drawings.
Pre-Construction
The pre-construction stage begins when the owner gives a notice to proceed to the
contractor selected. A notice to proceed is when the owner gives permission to the
contractor to begin the project. The first step is to assign the project team which includes
the project manager, contract administrator, superintendent, and field engineer.
Project manager: The project manager is in charge of the project team.
Contract administrator: The contract administrator assists the project manager as well as
the superintendent with the details of the construction contract.
Superintendent: It is the superintendent’s job to make sure everything is on schedule
including flow of materials, deliveries, and equipment. They are also in charge During the
pre-construction stage, a site investigation must take place.
A site investigation takes place to discover if any steps need to be implemented on the job
site. This is in order to get the site ready before the actual construction begins. This also
includes any unforeseen conditions such as historical artifacts or environment problems.
A soil test must be done to determine if the soil is in good condition to be built upon.
Procurement
The procurement stage is when labor, materials and equipment needed to complete the
project are purchased. This can be done by the general contractor if the company does
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its own construction work. The contractor can also choose to source for sub-contractors.
Sub-contractors are contractors who specialize in one particular aspect of the construction
work such as concrete, melding, glass, or carpentry. Sub-contractors are hired the same
way a general contractor would be, which is through the bidding process. Purchase orders
are also part of the procurement stage. A purchase order is used in various types of
businesses. In this case, a purchase order is an agreement between a buyer and seller that
the products purchased meet the required specifications for the agreed price.
Construction
The construction stage begins with a pre-construction meeting called by the superintendent.
The pre-construction meeting is meant to make decisions dealing with work hours, material
storage, quality control, and site access. The next step is to move everything onto the
construction site and set it all up. At this stage, construction monitoring and supervision
is of great importance to ensure that a project is completed on time and on budget, while
meeting all relevant regulations and quality standards.
Common Terminology in the Construction Industry
The following terms are commonly used in the industry:
• Construction Management: Refers to form of delivery and management of the
site.
• Real Estate Management: Is professional property advice (a continuous process).
Corporate real estate management is a company-focused variant.
• Management Contracting: Is a procurement route in which the works are constructed
by a number of different works contractors, contructed to a management contractor.
• Programme Management: Is concerned with management of a client’s portfolio
(the programme, in this sense, is equivalent to a client’s brief) or (in the UK) managing
time in a project.
• Project Control: Is tracking and reporting of progress, time, cost and quality of a
project. This function can be characterized as passive, whereas Construction Project
Management is active.
• Project Leader: The person responsible for achieving the project’s objectives; acts as
a manager “in-line”.
• Project Director: The leader of a large project that can be broken down into subprojects or the head of a Programme Management organization coordinating on-site
construction activities.
• Field Engineer: A field engineer is considered an entry-level position and is
responsible for paperwork.
• Owner Representative: The representative of the owner; maybe internal i.e. from
within the company or otherwise.
• Document Control : Performs key functions of a project manager. Build – Operate
– Transfer Contract: A type of arrangement in which the private sector builds an
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infrastructure project, operates it and eventually transfers ownership of the project
to the government. In many instances, the government becomes the firm’s only
customer and promises to purchase at least a predetermined amount of the project’s
output. This ensures the firm recoups its initial investment in a reasonable time span.
• Build –Own –Operate: Is a public-private partnership project model in which a
private organization builds, owns and operates some facility or structure with some
degree of encouragement from the government. Although the government doesn’t
provide direct funding in this model, it may offer other financial incentives such as
tax-exempt status. The developer owns and operates the facility independently.
• Engineering Procurement Construction: This is a prominent form of contracting
agreement in the construction industry. The engineering and construction cotractor
will carry out the detailed engineering design of the project, procure all the equipment
and materials necessary then construct to deliver a functioning facility or asset to their
clients.
• Private Finance Initiative: A method of providing funds for major capital investments
where private firms are contracted to complete and manage public projects. Under a
private finance initiative, the private company, instead of the government, handles the
up-front costs. The project is then leased to the public, and the government authority
makes annual payments to the private company. These contracts are typically given to
construction firms and can last 30 years or longer.
• Multiple Prime Contract: A contract used when one or more contractors are
employed under separate contracts to perform work on the same project, either in a
sequence or coincidentally.
• General Contract: Construction contract in which one prime contractor is responsible
for the entire project.
• Joint Venture: Collaboration between two or more companies from the same or
different backgrounds and/or fields to complete a common project. Joint Ventures
typically have a lead contractor that deals with most of the business aspects. The lead
will usually have a bigger stake in the partnership .
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2
CONSTRUCTION PROJECT
MANAGEMENT
What is Project Management?
The management of construction projects requires knowledge of modern management
as well as an understanding of the design and construction process. Construction
projects have a specific set of objectives and constraints such as a required time frame
for completion. While the relevant technology, institutional arrangements or processes
will differ, the management of such projects has much in common with the management
of similar types of projects in other specialty or technology domains such as aerospace,
pharmaceutical and energy developments. Generally, project management is distinguished
from the general management of corporations by the mission-oriented nature of a project.
A project organization will generally be terminated when the mission is accomplished.
According to the Project Management Institute, the discipline of project management can
be defined as follows:
Project management is the art of directing and coordinating human and material resources
throughout the life of a project by using modern management techniques to achieve
predetermined objectives of scope, cost, time,quality and participation satisfaction. In
contrast, the general management of business and industrial corporations assumes a
broader outlook with greater continuity of operations.
Nevertheless, there are sufficient similarities as well as differences between the two so that
modern management techniques developed for general management may be adapted for
project management. The basic ingredients for a project management framework may be
represented schematically in Figure 1 a working knowledge of general management and
familiarity with the special knowledge domain related to the project are indispensable.
Supporting disciplines such as computer science and decision science may also play an
important role.
In fact, modern management practices and various special knowledge domains have
absorbed various techniques or tools which were once identified only with the supporting
disciplines. For example, computer-based information systems and decision support
systems are now common-place tools for general management. Similarly, many operations
research techniques such as linear programming and network analysis are now widely used
in many knowledge or application domains. Hence, the representation in Figure 1 reflects
only the sources from which the project management framework evolves.
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Special
Knowledge
Domains
General
Management
Project
Management
Supporting
Discipline
Figure 1: Basic Ingredients in Project Management
Specifically, project management in construction encompasses a set of objectives which may
be accomplished by implementing a series of operations subject to resource constraints.
There are potential conflicts between the stated objectives with regard to scope, cost,
time and quality, and the constraints imposed on human, material and financial resources.
These conflicts should be resolved at the onset of a project by making the necessary trade
offs or creating new alternatives. Subsequently, the functions of project management for
construction generally include the following: Specification of project objectives and plans
including delineation of scope, budgeting, scheduling, setting performance requirements,
and selecting project participants.
Maximization of efficient resource utilization through procurement of labor, materials
and equipment according to the prescribed schedule and plan. Implementation of
various operations through proper coordination and control of planning, design,
estimating,contracting and construction in the entire process. Development of effective
communication and mechanisms for resolving conflicts among the various participants.
The Project Management Institute focuses on nine distinct areas requiring project manager
knowledge and attention:
1) Project integration management to ensure that the various project elements are
effectively coordinated.
2) Project scope management to ensure that all the work required (and only the required
work) is included.
3) Project time management to provide an effective project schedule.
4) Project cost management to identify needed resources and maintain budget control.
5) Project quality management to ensure functional requirements are met.
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6) Project human resource management to effectively employ project personnel.
7) Project communication management to ensure effective internal and external
communication.
8) Project risk management to analyze and mitigate potential risks.
9) Project procurement management to obtain necessary resources from external
sources.
These nine areas form the basis of the Project Management Institute’s certification
program for project managers in any industry.
Trends in Modern Management
In recent years, major developments in management reflect the acceptance to various
degrees of the following elements: the management process approach, the management
science and decision support approach,the behavioral science approach for human
resource development and sustainable competitive advantage.
These four approaches complement each other in current practice, and provide a useful
groundwork for project management. The management process approach emphasizes the
systematic study of management by identifying management functions in an organization
and then examining each in detail. There is general agreement regarding the functions
of planning, organizing and controlling. A major tenet is that by analyzing management
along functional lines, a framework can be constructed into which all new management
activities can be placed. Thus, the manager’s job is regarded as coordinating a process of
interrelated functions, which are neither totally random nor rigidly predetermined, but are
dynamic as the process evolves.
Another tenet is that management principles can be derived from an intellectual analysis
of management functions. By dividing the manager’s job into functional components,
principles based upon each function can be extracted. Hence, management functions can
be organized into a hierarchical structure designed to improve operational efficiency, such
as the example of the organization for a manufacturing company shown in Figure 2.
The basic management functions are performed by all managers, regardless of enterprise,
activity or hierarchical levels. Finally, the development of a management philosophy results
in helping the manager to establish relationships between human and material resources.
The outcome of following an established philosophy of operation helps the manager win
the support of the subordinates in achieving organizational objectives.
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President
Vice President
Marketing
Forecasting
Fabricating
Sales
Assembling
Vice President
Production
Manufacturing
Purchasing
Tooling
Shipping
Vice President
Finance
Accounting
Expediting
Treasury
Receiving
Figure 2: Illustrative Hierarchical Structure of Management Functions
The management science and decision support approach contributes to the development
of a body of quantitative methods designed to aid managers in making complex decisions
related to operations and production. In decision support systems, emphasis is placed on
providing managers with relevant information. In management science, a great deal of
attention is given to defining objectives and constraints, and to constructing mathematical
analysis models in solving complex problems of inventory, materials and production
control among others. A topic of major interest in management science is the maximization
of profit, or in the absence of a workable model for the operation of the entire system, the
sub optimization of the operations of its components.
The optimization or sub optimization is often achieved by the use of operations research
techniques, such as linear programming, quadratic programming, graph theory, queuing
theory and Monte Carlo simulation. In addition to the increasing use of computers
accompanied by the development of sophisticated mathematical models and information
systems, management science and decision support systems have played an important
role by looking more carefully at problem inputs and relationships and by promoting
goal formulation and measurement of performance. Artificial intelligence has also begun
to be applied to provide decision support systems for solving ill-structured problems in
management.
The behavioral science approach for human resource development is important because
management entails getting things done through people’s actions. An effective manager must
understand the importance of human factors such as needs, drives, motivation, leadership,
personality, behavior, and work groups. Within this context, some place more emphasis
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on interpersonal behavior which focuses on the individual and his/her motivations as a
socio-psychological being; others emphasize more group behavior in recognition of the
organized enterprise as a social organism, subject to all the attitudes, habits, pressures
and conflicts of the cultural environment of people. The major contributions made by
behavioral scientists to the field of management include: (1) the formulation of concepts
and explanations about individual and group behavior in the organization, (2) the empirical
testing of these concepts methodically in many different experimental and field settings,
and (3) the establishment of actual managerial policies and decisions for operation based
on the conceptual and methodical frameworks.
Sustainable competitive advantage stems primarily from good management strategy. As
Michael Porter of the Harvard Business School argues: ‘Strategy is creating fit among a
company’s activities.’ The success of a strategy depends on doing many things well - not
just a few - and integrating among them. If there is no fit among activities, there is no
distinctive strategy and little sustainability.
In this view, successful firms must improve and align the many processes underway to
their strategic vision. Strategic positioning in this fashion requires: creating a unique and
valuable position, making trade-offs compared to competitors, creating a “fit” among a
company’s activities.
Project managers should be aware of the strategic position of their own organization and
the other organizations involved in the project. The project manager faces the difficult
task of trying to align the goals and strategies of these various organizations to accomplish
the project goals. For example, the owner of an industrial project may define a strategic
goal as being first to market with new products. In this case, facilities development must
be oriented to fast-track rapid construction.
Strategic Planning and Project Programming
The programming of capital projects is shaped by the strategic plan of an organization,
which is influenced by market demands and resources constraints. The programming
process associated with planning and feasibility studies sets the priorities and timing for
initiating various projects to meet the overall objectives of the organizations. However,
once this decision is made to initiate a project, market pressure may dictate early and timely
completion of the facility.
Among various types of construction, the influence of market pressure on the timing of
initiating a facility is most obvious in industrial construction. Demand for an industrial
product may be short-lived, and if a company does not hit the market first, there may not
be demand for its product later. With intensive competition for national and international
markets, the trend of industrial construction moves toward shorter project life cycles,
particularly in technology intensive industries.
In order to gain time, some owners are willing to forgo thorough planning and feasibility
study so as to proceed on a project with inadequate definition of the project scope.
Invariably, subsequent changes in project scope will increase construction costs; however,
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profits derived from earlier facility operation often justify the increase in construction
costs. Generally, if the owner can derive reasonable profits from the operation of
a completed facility, the project is considered a success even if construction costs far
exceed the estimate based on an inadequate scope definition. This attitude may be largely
attributed to the uncertainties inherent in construction projects. It is difficult to argue that
profits might be even higher if construction costs could be reduced without increasing the
project duration. However, some projects, notably some nuclear power plants, are clearly
unsuccessful and abandoned before completion, and their demise must be attributed at
least in part to inadequate planning and poor feasibility studies.
The owner or facility sponsor holds the key to influence the construction costs of a
project because any decision made at the beginning stage of a project life cycle has far
greater influence than those made at later stages, as shown schematically in Figure 3.
Moreover, the design and construction decisions will influence the continuing operating
costs and, in many cases, the revenues over the facility lifetime. Therefore, an owner should
obtain the expertise of professionals to provide adequate planning and feasibility studies.
Many owners do not maintain an in-house engineering and construction management
capability, and they should consider the establishment of an ongoing relationship with
outside consultants in order to respond quickly to requests. Even among those owners
who maintain engineering and construction divisions, many treat these divisions as
reimbursable, independent organizations. Such an arrangement should not discourage
their legitimate use as false economies in reimbursable costs from such divisions can
indeed be very costly to the overall organization.
100%
Ability to
influence Cost
Construction Cost
100%
Conceptual planning
and Feasibility Studies
Construction Cost
Level of influence on Cost
Design and
Engineering
Procurement and Construction
Startup
Operations and
Maitenance
0%
0%
Project Time
Start
Figure 3: Ability to Influence Construction Cost Over Time
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Finally, the initiation and execution of capital projects places demands on the resources
of the owner and the professionals and contractors to be engaged by the owner. For
very large projects, it may bid up the price of engineering services as well as the costs of
materials and equipment and the contract prices of all types. Consequently, such factors
should be taken into consideration in determining the timing of a project.
Setting Priorities for Projects
A department store planned to expand its operation by acquiring 20 acres of land in
the southeast of a metropolitan area which consists of well established suburbs for
middle income families. An architectural/engineering (A/E) firm was engaged to design a
shopping center on the 20-acre plot with the department store as its flagship plus a large
number of storefronts for tenants. One year later, the department store owner purchased
2,000 acres of farm land in the northwest outskirts of the same metropolitan area and
designated 20 acres of this land for a shopping center. The A/E firm was again engaged
to design a shopping center at this new location.
The A/E firm was kept completely in the dark while the assemblage of the 2,000 acres
of land in the northwest quietly took place. When the plans and specifications for the
southeast shopping center were completed, the owner informed the A/E firm that it
would not proceed with the construction of the southeast shopping center for the time
being. Instead, the owner urged the A/E firm to produce a new set of similar plans and
specifications for the northwest shopping center as soon as possible, even at the sacrifice
of cost saving measures. When the plans and specifications for the northwest shopping
center were ready, the owner immediately authorized its construction. However, it took
another three years before the southeast shopping center was finally built.
The reason behind the change of plan was that the owner discovered the availability of the
farm land in the northwest which could be developed into residential real estate properties
for upper middle income families. The immediate construction of the northwest shopping
center would make the land development parcels more attractive to home buyers. Thus,
the owner was able to recoup enough cash flow in three years to construct the southeast
shopping center in addition to financing the construction of the northeast shopping
center, as well as the land development in its vicinity.
While the owner did not want the construction cost of the northwest shopping center to
run wild, it apparently was satisfied with the cost estimate based on the detailed plans of
the southeast shopping center. Thus, the owner had a general idea of what the construction
cost of the northwest shopping center would be, and did not wish to wait for a more
refined cost estimate until the detailed plans for that center were ready. To the owner, the
timeliness of completing the construction of the northwest shopping center was far more
important than reducing the construction cost in fulfilling its investment objectives.
Resource Constraints for Mega Projects
A major problem with mega projects is the severe strain placed on the environment,
particularly on the resources in the immediate area of a construction project. “Mega” or
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“macro” projects involve construction of very large facilities such as the Alaska pipeline
constructed in the 1970’s or the Panama Canal constructed in the 1900’s. The limitations
in some or all of the basic elements required for the successful completion of a mega
project include:
a)Engineering design professionals to provide sufficient manpower to complete the
design within a reasonable time limit. b) Construction supervisors with capacity and
experience to direct large projects. The number of construction workers with proper
skills to do the work. c) The market to supply materials in sufficient quantities and
of required. quality on time. d) Ability of the local infrastructure to support the large
number of workers over an extended period of time, including housing, transportation
and other services.
To compound the problem, mega projects are often constructed in remote
environments away from major population centers and subject to severe climate
conditions. Consequently, special features of each mega project must be evaluated
carefully.
Effects of Project Risks on Organizations
The uncertainty in undertaking a construction project comes from many sources and
often involves many participants in the project. Since each participant tries to minimize
their own risk, conflicts among various participants can be detrimental to the project.
Only the owner has the power to moderate such conflicts as he/she alone holds the key
to risk assignment through proper contractual relations with other participants. Failure
to recognize this responsibility by the owner often leads to undesirable results. In recent
years, the concept of “risk sharing/risk assignment” contracts has gained acceptance
by the government. Since this type of contract acknowledges the responsibilities of the
owners, the contract prices are expected to be lower than those in which all risks are
assigned to contractors.
In approaching the problem of uncertainty, it is important to recognize that incentives must
be provided if any of the participants is expected to take a greater risk. The willingness of
a participant to accept risks often reflects the professional competence of that participant
as well as its propensity to risk. However, society’s perception of the potential liabilities
of the participant can affect the attitude of risk-taking for all participants. When a claim
is made against one of the participants, it is difficult for the public to know whether fraud
has been committed, or simply that an accident has occurred.
Risks in construction projects may be classified in a number of ways. One form of
classification is as follows:
Socio-economic factors (environmental protection,public safety regulation, economic
instability and exchange rate fluctuation)
Organizational relationships (contractual relations, attitudes of participants,
communication) and technological problems (design assumptions, site conditions, and
construction procedures).
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Construction Occupational Safety
The environmental protection movement has contributed to the uncertainty in construction
because of the inability to know what will be required and how long it will take to obtain
approval from the regulatory agencies. The requirements of continued re-evaluation of
problems and the lack of definitive criteria which are practical have also resulted in added
costs. Public safety regulations have similar effects, which have been most noticeable in
the energy field involving nuclear power plants and coal mining. The situation has created
constantly shifting guidelines for engineers, constructors and owners as projects move
through the stages of planning to construction. These moving targets add a significant
new dimension of uncertainty which can make it virtually impossible to schedule and
complete work at budgeted cost. Economic conditions of the past decade have further
reinforced the climate of uncertainty with high inflation and interest rates. The deregulation
of financial institutions has also generated unanticipated problems related to the financing
of construction.
Uncertainty stemming from regulatory agencies, environmental issues and financial
aspects of construction should be at least mitigated or ideally eliminated. Owners are
keenly interested in achieving some form of breakthrough that will lower the costs of
projects and mitigate or eliminate lengthy delays. Such breakthroughs are seldom planned.
Generally, they happen when the right conditions exist, such as when innovation is
permitted or when a basis for incentive or reward exists. However, there is a long way to
go before a true partnership of all parties involved can be forged.
During periods of economic expansion, major capital expenditures are made by industries
and bid up the cost of construction. In order to control costs, some owners attempt to use
fixed price contracts so that the risks of unforeseen contingencies related to an overheated
economy are passed on to contractors. However, contractors will raise their prices to
compensate for the additional risks.
The risks related to organizational relationships may appear to be unnecessary but are
quite real. Strained relationships may develop between various organizations involved
in the design/construct process. When problems occur, discussions often center on
responsibilities rather than project needs at a time when the focus should be on solving
the problems. Cooperation and communication between the parties are discouraged for
fear of the effects of impending litigation. This barrier to communication results from
the ill-conceived notion that uncertainties resulting from technological problems can be
eliminated by appropriate contract terms. The net result has been an increase in the costs
of constructed facilities.
The risks related to technological problems are familiar to the design/construct professions
which have some degree of control over this category. However, because of rapid
advances in new technologies which present new problems to designers and constructors,
technological risk has become greater in many instances. Certain design assumptions
which have served the professions well in the past may become obsolete in dealing with
new types of facilities which may have greater complexity or scale or both. Site conditions,
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particularly subsurface conditions which always present some degree of uncertainty, can
create an even greater degree of uncertainty for facilities with unknown characteristics
during operation. Because construction procedures may not have been fully anticipated,
the design may have to be modified after construction has begun. An example of facilities
which have encountered such uncertainty is the nuclear power plant, and many owners,
designers and contractors have suffered for undertaking such projects.
If each of the problems cited above can cause uncertainty, the combination of such
problems is often regarded by all parties as being out of control and inherently risky. Thus,
the issue of liability has taken on major proportions and has influenced the practices of
engineers and constructors, who in turn have influenced the actions of the owners.
Many owners have begun to understand the problems of risks and are seeking to address
some of these problems. For example, some owners are turning to those organizations
that offer complete capabilities in planning, design, and construction, and tend to avoid
breaking the project into major components to be undertaken individually by specialty
participants. Proper coordination throughout the project duration and good organizational
communication can avoid delays and costs resulting from fragmentation of services, even
though the components from various services are eventually integrated.
Attitudes of cooperation can be readily applied to the private sector, but only in special
circumstances can they be applied to the public sector. The ability to deal with complex
issues is often precluded in the competitive bidding which is usually required in the
public sector. The situation becomes more difficult with the proliferation of regulatory
requirements and resulting delays in design and construction while awaiting approvals
from government officials who do not participate in the risks of the project.
Organization of Project Participants
The top management of the owner sets the overall policy and selects the appropriate
organization to take charge of a proposed project. Its policy will dictate how the project
life cycle is divided among organizations and which professionals should be engaged.
Decisions by the top management of the owner will also influence the organization to be
adopted for project management. In general, there are many ways to split a project into
stages. The most typical ways are: Sequential processing whereby the project is divided into
separate stages and each stage when are the various is carried out successively in sequence.
Parallel processing is whereby the project is divided into independent parts such that all
stages are carried out simultaneously while staggered processing is whereby the stages
may be overlapping, such as the use of phased design-construct procedures for fast
track operation. It should be pointed out that some processes may work out better than
others, depending on the circumstances. In any case, the prevalence of various processes
makes the subsequent integration particularly important. The critical issues involved in
organization for project management are: How many organizations are involved? What
are the relationships among the organizations?
When are the various organizations brought into the project? There are two basic
approaches to organize for project implementation, even though many variations may
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exist as a result of different contractual relationships adopted by the owner and builder
These basic approaches are divided along the following lines: Separation of organizations
Numerous organizations serve as consultants or contractors to the owner, with different
organizations handling design and construction functions. Typical examples which involve
different degrees of separation are: Traditional sequence of design and construction and
professional construction management.
Integration of organizations. A single or joint venture consisting of a number of
organizations with a single command undertakes both design and construction functions.
Two extremes may be cited as examples e.g. owner-builder operation in which all work
will be handled in house by force account and Turnkey operation in which all work is
contracted to a vendor which is responsible for delivering the completed project
Since construction projects may be managed by a spectrum of participants in a variety
of combinations, the organization for the management of such projects may vary from
case to case. On one extreme, each project may be staffed by existing personnel in the
functional divisions of the organization on an ad-hoc basis as shown in Figure 4 until
the project is completed. This arrangement is referred to as the matrix organization
as each project manager must negotiate all resources for the project from the existing
organizational framework. On the other hand, the organization may consist of a small
central functional staff for the exclusive purpose of supporting various projects, each
of which has its functional divisions as shown in Figure 4. This decentralized set-up is
referred to as the project oriented organization as each project manager has autonomy in
managing the project.
There are many variations of management style between these two extremes, depending on
the objectives of the organization and the nature of the construction project. For example,
a large chemical company with in-house staff for planning, design and construction of
facilities for new product lines will naturally adopt the matrix organization. On the other
hand, a construction company whose existence depends entirely on the management
of certain types of construction projects may find the project-oriented organization
particularly attractive. While organizations may differ, the same basic principles of
management structure are applicable to most situations.
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Top
Management
Functional
Division B
Functional
Division A
Functional
Division C
Project
No. 1
Project
No. 2
Figure 4: A Matrix Organization
Top
Management
Functional
Organization
Project
No. 2
Project
No. 1
A
B
C
A
B
Project
No. 3
C
A
B
C
Figure 5: A Project-Oriented Organization
To illustrate various types of organizations for project management, we shall consider
two examples, the first one representing an owner organization while the second one
representing the organization of a construction management consultant under the direct
supervision of the owner.
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Matrix Organization of an Engineering Division
The Engineering Division of an Electric Power and Light Company has functional
departments as shown in Figure 6. When small scale projects such as the addition of a
transmission tower or a sub-station are authorized, a matrix organization is used to carry
out such projects. For example, in the design of a transmission tower, the professional skill
of a structural engineer is most important. Consequently, the leader of the project team
will be selected from the Structural Engineering Department while the remaining team
members are selected from all departments as dictated by the manpower requirements. On
the other hand, in the design of a new sub-station, the professional skill of an electrical
engineer is most important. Hence, the leader of the project team will be selected from the
Electrical Engineering Department.
Vice President
For Engineering
Structural
Engineering
Department
Mechanical
Engineering
Department
Electrical
Engineering
Department
Transmision
Tower Project
Substation
Project
Figure 6: The Matrix Organization in an Engineering Division
Example of Construction Management Consultant Organization
When the same Electric Power and Light Company in the previous example decided to
build a new nuclear power plant, it engaged a construction management consultant to take
charge of the design and construction completely. However, the company also assigned
a project team to coordinate with the construction management consultant as shown in
Figure 7.
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Vice President For
Engineering Of The
Owner
Organisation
Functional
Departments
Project
Manager For
The Consultant
Structural
Engineers
Mechanical
Engineers
Electrical
Engineers
Structural
Engineers
Mechanical
Engineers
Electrical
Engineers
Other
Technical
Staff
Project
Co-ordinator
For The Owner
Figure 7: Coordination between Owner and Consultant
Since the company eventually will operate the power plant upon its completion, it is
highly important for its staff to monitor the design and construction of the plant. Such
coordination allows the owner not only to assure the quality of construction but also to
be familiar with the design to facilitate future operation and maintenance. Note the close
direct relationships of various departments of the owner and the consultant. Since the
project will last many years before its completion, staff members assigned to the project
team are not expected to rejoin the Engineering Department but will probably be involved
in the future operation of the new plant. Thus, the project team can act independently
toward its designated mission.
Traditional Designer-Constructor Sequence
For ordinary projects of moderate size and complexity, the owner often employs a designer
(an architectural/engineering firm) which prepares the detailed plans and specifications
for the constructor (a general contractor). The designer also acts on behalf of the owner
to oversee the project implementation during construction. The general contractor is
responsible for the construction itself even though the work may actually be undertaken
by a number of specialty sub-contractors.
The owner usually negotiates the fee for service with the architectural/engineering (A/E)
firm. In addition to the responsibilities of designing the facility, the A/E firm also exercises
to some degree supervision of the construction as stipulated by the owner. Traditionally,
the A/E firm regards itself as design professionals representing the owner who should
not communicate with potential contractors to avoid collusion or conflict of interest.
Field inspectors working for an A/E firm usually follow through the implementation of a
project after the design is completed and seldom have extensive input in the design itself.
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Because of the litigation climate in the last two decades, most A/E firms only provide
observers rather than inspectors in the field. Even the shop drawings of fabrication or
construction schemes submitted by the contractors for approval are reviewed with a
disclaimer of responsibility by the A/E firms.
The owner may select a general constructor either through competitive bidding or through
negotiation. Public agencies are required to use the competitive bidding mode, while
private organizations may choose either mode of operation. In using competitive bidding,
the owner is forced to use the designer-constructor sequence since detailed plans and
specifications must be ready before inviting bidders to submit their bids. If the owner
chooses to use a negotiated contract, it is free to use phased construction if it so desires.
The general contractor may choose to perform all or part of the construction work, or act
only as a manager by subcontracting all the construction to sub-contractors. The general
contractor may also select the sub-contractors through competitive bidding or negotiated
contracts. The general contractor may ask a number of sub-contractors to quote prices
for the subcontracts before submitting its bid to the owner. However, the sub-contractors
often cannot force the winning general contractor to use them on the project. This situation
may lead to practices known as bid shopping and bid peddling. Bid shopping refers to situation
when the general contractor approaches sub-contractors other than those whose quoted
prices were used in the winning contract in order to seek lower priced subcontracts. Bid
peddling refers to the actions of sub-contractors who offer lower priced subcontracts to
the winning general sub-contractors in order to dislodge the sub-contractors who originally
quoted prices to the general contractor prior to its bid submittal. In both cases, the quality
of construction may be sacrificed, and some state statutes forbid these practices for public
projects.
Although the designer-constructor sequence is still widely used because of the public
perception of fairness in competitive bidding, many private owners recognize the
disadvantages of using this approach when the project is large and complex and when
market pressures require a shorter project duration than that which can be accomplished
by using this traditional method.
Small Business Management Tools for Construction
Financial Software
Financial software, in its most basic form, allows you to accurately and quickly track
expenses and income. Beyond that, you will want to look for a program that allows for
creating and tracking invoices. More complex systems may also include estimating and
tracking of individual project costs. These programs are available from a variety of vendors
in stand-alone desktop applications as well as web-only versions, or a combination of the
two.
Project Management Software
Beyond the ubiquitous GANTT chart, project management software allows you to delegate
and track various tasks required to complete a project. This type of software allows for
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planning and tracking the job timeline, notes who has what task and provides a centralized
list of all sub-contractors and contact information. At its core, project management
software is a combination of a to-do list and a calendar. Effective scheduling is the core to
any system, and the better systems allow for scheduling, delegating, tracking and follow-up
on each phase/piece of a construction project.
Personal Communication Software
Email is an essential tool in the contractor’s communication arsenal. Oftentimes, it is easier
to reach clients through email, especially during work hours. An added advantage of email
is the paper trail it creates. Numerous email applications are available, and many combine
desktop versions with web access. Texting is fast becoming an important communication
avenue between contractors and clients or sub-contractors. It is fast and mobile, and many
phones sold today support text messaging.
Client Communication Software
Beyond email and texting, there are websites that provide comprehensive communications
with your clients. These sites provide documentation on allowance items, change orders,
material and color selections. They also provide communications between you and your
clients as well as your staff and sub-contractors. You can set up a different area for each
client and limit access to people actually involved in the project. These programs are
especially useful in dealing with an out-of-town client, since you can upload pictures of the
project’s progress. Think of these sites as a central repository for all of the documentation
of each project. Using one of these sites means you do not have to worry if everybody
has the latest information at hand and it is accessible 24 hours a day.
Customer Relations Management Software
CRM software keeps all of your client and vendor contact information in one database,
allowing easy access across your office. More advanced versions allow a wider range
of parameters including user-defined note fields. Many email clients and even financial
and project management programs already contain some form of a customer relations
manager, but will rarely be as robust as a stand-alone program.
Hybrid Software
There are construction software suites that combine financial programs with project
management, CRM software, and even client communication modules, providing an
integrated approach to running your business. The main advantage to using hybrid software
is having all of your information in one integrated program without having to import and
export data or use separate programs. However, use-specific programs, such as a project
management program or customer relations management software will usually do a better
job than the all-in-one solutions.
Interpersonal Behavior in Project Organizations
While a successful project manager must be a good leader, other members of the project
team must also learn to work together, whether they are assembled from different
divisions of the same organization or even from different organizations. Some problems
of interaction may arise initially when the team members are unfamiliar with their own
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roles in the project team, particularly for a large and complex project. These problems
must be resolved quickly in order to develop an effective, functioning team.
Many of the major issues in construction projects require effective interventions
by individuals, groups and organizations. The fundamental challenge is to enhance
communication among individuals, groups and organizations so that obstacles in the way
of improving interpersonal relations may be removed. Some behavior science concepts are
helpful in overcoming communication difficulties that block cooperation and coordination.
In very large projects, professional behavior scientists may be necessary in diagnosing the
problems and advising the personnel working on the project. The organization’s power
should be used judiciously in resolving conflicts.
The major symptoms of interpersonal behavior problems can be detected by experienced
observers, and they are often the sources of serious communication difficulties among
participants in a project. For example, members of a project team may avoid each other
and withdraw from active interactions about differences that need to be dealt with. They
may attempt to criticize and blame other individuals or groups when things go wrong. They
may resent suggestions for improvement, and become defensive to minimize culpability
rather than take the initiative to maximize achievements. All these actions are detrimental
to the project organization.
While these symptoms can occur to individuals at any organization, they are compounded if
the project team consists of individuals who are put together from different organizations.
Invariably, different organizations have different cultures or modes of operation.
Individuals from different groups may not have a common loyalty and may prefer to
expend their energy in the directions most advantageous to themselves instead of the
project team. Therefore, no one should take it for granted that a project team will work
together harmoniously just because its members are placed physically together in one
location. On the contrary, it must be assumed that good communication can be achieved
only through the deliberate effort of top management of each organization contributing
to the joint venture.
Professional Construction Management
In its most common context, the term ‘management’ relates to the planning, organizing, directing
and controlling of a business enterprise. Construction project management however applies to a
given project, the various phases of which usually are accomplished by different organizations.
Therefore, the management of a construction project is not so much a process of managing the
internal affairs of a single company as it is one of coordinating and regulating all the elements
needed to accomplish the job at hand. (Sears and Sears et al, 2010)
Professional construction management refers to a project management team consisting of
a professional construction manager and other participants who will carry out the tasks of
project planning, design and construction in an integrated manner.
Contractual relationships among members of the team are intended to minimize
adversarial relationships and contribute to greater response within the management
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group. A professional construction management firm is one specialized in the practice of
professional construction management which includes:
Working with owner and the A/E firms from the beginning, and making recommendations
on design improvements, construction technology, schedules and construction economy,
proposing design and construction alternatives if appropriate, and analyzing the effects of
the alternatives on the project cost and schedule also monitoring subsequent development
of the project in order that these targets are not exceeded without the knowledge of
the owner, coordinating procurement of material and equipment and the work of all
construction contractors, facilitating monthly payments to contractors and performing
other project related services as required by owners.
Professional construction management is usually used when a project is very large or
complex. The organizational features that are characteristics of mega-projects can be
summarized as follows:
The overall organizational approach for the project will change as the project advances.
The“functional” organization may change to a “matrix” which may change to a
“project”organization (not necessarily in this order).Within the overall organization, there
will probably be functional, project, and matrix sub-organizations all at the same time.
This feature greatly complicates the theory and practice of management, yet is essential
for overall cost effectiveness. Successful giants and complex organizations usually have
a strong matrix-type sub organization at the level where basic cost and schedule control
responsibility is assigned. This sub-organization is referred to as a “cost center” or as a
“project” and is headed by a project manager. The cost center matrix may have participants
assigned from many different functional groups. In turn, these functional groups may have
technical reporting responsibilities to several different and higher tiers in the organization.
The key to cost effective effort is the development of this project sub-organization into
a single team under the leadership of a strong project manager. The extent to which
decision-making will be centralized or decentralized is crucial to the organization of
the mega-project. Consequently, it is important to recognize the changing nature of the
organizational structure as a project is carried out in various stages.
Owner-Builder Operation
In this approach, an owner must have a steady flow of on-going projects in order to
maintain a large work force for in-house operation. However, the owner may choose to
subcontract a substantial portion of the project to outside consultants and contractors
for both design and construction, even though it retains centralized decision making to
integrate all efforts in project implementation.
Turnkey Operation
Some owners wish to delegate all responsibilities of design and construction to outside
consultants in a turnkey project arrangement. A contractor agrees to provide the
completed facility on the basis of performance specifications set forth by the owner. The
contractor may even assume the responsibility of operating the project if the owner so
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desires. In order for a turnkey operation to succeed, the owner must be able to provide a
set of unambiguous performance specifications to the contractor and must have complete
confidence in the capability of the contractor to carry out the mission. This approach is
the direct opposite of the owner-builder approach in which the owner wishes to retain the
maximum amount of control for the design-construction process.
Leadership and Motivation of the Project Team
The project manager, in the broadest sense of the term, is the most important person
for the success or failure of a project. The project manager is responsible for planning,
organizing and controlling the project. In turn, the project manager receives authority from
the management of the organization to mobilize the necessary resources to complete a
project. The project manager must be able to exert interpersonal influence in order to lead
the project team. The project manager often gains the support of his/her team through a
combination of the following:
Formal authority resulting from an official capacity which is empowered to issue
orders,Reward and/or penalty power resulting from his/her capacity to dispense directly or
indirectly valued organization rewards or penalties,Expert power when the project manager
is perceived as possessing special knowledge or expertise for the job,attractive power because
the project manager has a personality or other characteristics to convince others.
There are several motivational theories that have been posited over the years with the
famous one being Maslow’s Hierarchy of Needs. As outlined in the book, Maslow suggested
that people seek to satisfy needs sequentially arguing that as each need is gratified, then a
new set emerges implying a process of self-motivation.
Maslow believed that ultimately, a level of self-fulfillment can be attained through purely creative
work but would in practice be of limited opportunity given the conditions prevailing in most paid
employment. (Harris and McCaffer et al, 2013)
In a matrix organization, the members of the functional departments may be accustomed
to a single reporting line in a hierarchical structure, but the project manager coordinates
the activities of the team members drawn from functional departments. The functional
structure within the matrix organization is responsible for priorities, coordination,
administration and final decisions pertaining to project implementation. Thus, there are
potential conflicts between functional divisions and project teams. The project manager
must be given the responsibility and authority to resolve various conflicts such that the
established project policy and quality standards will not be jeopardized. When contending
issues of a more fundamental nature are developed, they must be brought to the attention
of high level management and be resolved expeditiously.
In general, the project manager’s authority must be clearly documented as well as defined,
particularly in a matrix organization where the functional division managers often retain
certain authority over the personnel temporarily assigned to a project. The following
principles should be observed:
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The interface between the project manager and the functional division managers should be
kept as simple as possible. The project manager must gain control over those elementsof
the project which may overlap with functional division managers. and the project manager
should encourage problem solving rather than role playing of team members drawn from
various functional divisions.
Successful business owners know that employees are not just people who work for the company
– they are the company. A large part of success is finding, hiring and retaining the best people
possible – not only the most capable, but also the best match for the position and the company.
After finding these exceptional people, of course you will also have the challenge of rewarding
them for their work in ways that encourage them to continue taking pride in their work and
offering them ways to improve on the knowledge and skills they possess. (Davis 2007)
Owners and Contractors Perceptions of Successful and
Unsuccessful Projects
Although owners and contractors may have different perceptions on project management
for construction, they have a common interest in creating an environment leading to
successful projects in which performance quality, completion time and final costs are
within prescribed limits and tolerances. It is interesting therefore to note the opinions of
some leading contractors and owners who were interviewed in 1984. The key factors cited
for successful projects were:
Well defined scope, extensive early planning, good leadership, management and first line
supervision, positive client relationship with client involvement, proper project team
chemistry, quick response to changes, engineering managers concerned with the total
project, not just the engineering elements. Conversely, the key factors cited for unsuccessful
projects are:
Ill-defined scope, poor management, poor planning, breakdown in communication
between engineering and construction, unrealistic scope, schedules and budgets, many
changes at various stages of progress, lack of good project control.
The responses of eight owners indicated that they did not always understand the concerns
of the contractors although they generally agreed with some of the key factors for
successful and unsuccessful projects cited by the contractors. The significant findings of
the interviews with owners are summarized as follows: All owners have the same perception
of their own role, but they differ significantly in assuming that role in practice,the owners
also differ dramatically in the amount of early planning and in providing information in
bid packages. there is a trend toward breaking a project into several smaller projects as
the projects become larger and more complex. Most owners recognize the importance of
schedule, but they adopt different requirements in controlling the schedule. They all agree
that people are the key to project success.
From the results of these interviews, it is obvious that owners must be more aware and
involved in the process in order to generate favorable conditions for successful projects.
Design professionals and construction contractors must provide better communication
with each other and with the owner in project implementation.
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Fundamental Concepts for Owners, Engineers, Architects and
Builders
Some profound implications for the objectives and methods of project management result
from this perspective: The “life cycle” of costs and benefits from initial planning through
operation and disposal of a facility are relevant in decision making. An owner is concerned
with a project from the cradle to the grave. Construction costs represent only one portion
of the overall life cycle costs. Optimizing performance at one stage of the process may
not be beneficial overall if additional costs or delays occur elsewhere. For example, saving
money on the design process will be a false economy if the result is excess construction
costs.
Fragmentation of project management among different specialists may be necessary, but
good communication and coordination among the participants is essential to accomplish
the overall goals of the project. New information technologies can be instrumental in this
process, especially the Internet and specialized extranets. Productivity improvements are
always of importance and value. As a result, introducing new materials and automated
construction processes is always desirable as long as they are less expensive and are
consistent with desired performance. Quality of work and performance are critically
important to the success of a project since it is the owner who will have to live with
the results. In essence, adopting the viewpoint of the owner focuses attention on the
cost effectiveness of facility construction rather than competitive provision of services by
the various participants. As a result of the focus on the effective management of entire
projects, a number of novel organizational approaches and techniques become of interest.
First and foremost, is the incentive to replace confrontational and adversarial relationships
with a spirit of joint endeavor, partnership and accomplishment. For example, we discuss
the appropriate means to evaluate risks and the appropriate participants to assume the
unavoidable risks associated with constructed facilities. Scheduling, communication of
data, and quality assurance have particular significance from the viewpoint of an owner,
but not necessarily for individual participants. The use of computer-based technology and
automation also provides opportunities for increased productivity in the process.
Agency Construction Management
Construction cost management is a fee-based service in which the construction manager
(CM) is responsible exclusively to the owner, acting in the owner’s interests at every stage of
the project. The construction manager offers impartial advice on matters such as: Optimum
use of available funds, control of the scope of work, project scheduling, optimum use of
design and construction firms’ skills and talents, avoidance of delays, changes and disputes
Enhancing project design and construction quality, optimum flexibility in contracting and
procurement
Cash-Flow Management
Comprehensive management of every stage of the project, beginning with the original
concept and project definition, yields the greatest benefit to owners. As time progresses
beyond the pre-design phase, the CM’s ability to effect cost savings diminishes. The
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agency CM can represent the owner by helping select the design and construction
teams and managing the design (preventing scope creep), helping the owner stay within
a predetermined budget with value engineering, cost-benefit analysis and best-value
comparisons. The software-application field of construction collaboration technology has
been developed to apply information technology to construction management.
Construction Management (CM) at Risk
CM at-risk is a delivery method which entails a commitment by the construction manager to
deliver the project within a Guaranteed Maximum Price (GMP). The construction manager
acts as a consultant to the owner in the development and design phases (preconstruction
services), and as a general contractor during construction. When a construction manager
is bound to a GMP, the fundamental character of the relationship is changed. In addition
to acting in the owner’s interest, the construction manager must control construction costs
to stay within the GMP.
CM at-risk is a global term referring to the business relationship of a construction contractor,
owner and architect (or designer). Typically, a CM at-risk arrangement eliminates a “lowbid” construction project. A GMP agreement is a typical part of the CM-and-owner
agreement (comparable to a “low-bid” contract), but with adjustments in responsibility
for the CM. The advantage of a CM at-risk arrangement is budget management. Before
a project’s design is completed (six to eighteen months of coordination between designer
and owner), the CM is involved with estimating the cost of constructing a project based on
the goals of the designer and owner (design concept) and the project’s scope. In balancing
the costs, schedule, quality and scope of the project, the design may be modified instead
of redesigned; if the owner decides to expand the project, adjustments can be made
before pricing. To manage the budget before design is complete and construction crews
mobilized, the CM conducts site management and purchases major items to efficiently
manage time and cost.
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3
TENDER BIDDING
Tendering for Construction Projects
Tendering is the process by which bids are invited from interested contractors to carry
out specific packages of construction work. It should adopt and observe the key values
of fairness, clarity, simplicity and accountability, as well as reinforce the idea that the
apportionment of risk to the party best placed to assess and manage it is fundamental to
the success of a project.
When organizations or individuals wish to have a new facility, or carry out refurbishment
or maintenance of an existing facility, they will be involved in some form of procurement.
There are a variety of different methods for procuring this new facility, not all of which
involve construction as a solution. A complete new building may be purchased, for
example, or existing space may be leased. It is assumed, therefore, that later parts of this
book will only apply once the decision has been taken – and recorded – to proceed with
the construction option.
The two most commonly used methods of tendering are single-stage selective tendering or
two-stage selective tendering. Both involve the invitation of tenders from firms on a preapproved or ad hoc list, chosen because they meet certain minimum standards in general
criteria such as financial standing, experience, capability and competence. The competition
element of the tender is provided on the basis of price and quality. The main difference
between the two is that in the two-stage process, the contractor becomes involved in the
planning of the project at an earlier stage, so the tenders are submitted on the basis of
minimal information, and in the second stage the employer’s team will develop the precise
specification in conjunction with the preferred tenderer. This method is favored in more
complex projects, where the contractor may have significant design input. The processes
concentrate mainly on the use of hard-copy documents, but can be used with electronic
or online methods, where they are compatible with legislative requirements.
It is worth remembering that every activity in the tendering process has a time and cost
implication. It makes economic sense, therefore, not to overburden the participants with
unnecessary information requirements, and to concentrate on those which are relevant
to the work which is to be undertaken. Faced with competing financial pressures, most
contractors will carry out their own assessment of the jobs they wish to tender for, and
will be less inclined to bid for those where the procedures involved are perceived as overly
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complicated or onerous. Also, since preparation costs are included in their overheads, these
will ultimately be passed on, in the form of higher prices. Preparation of this information
will also be reflected in higher consultancy costs for the employer’s team.
The principle of tendering is to ensure that true competition is achieved, as it is evaluated
by applying certain criteria. These criteria may be expressed in terms of financial matters,
comprising a simple assessment relating to tender sums, or more complex financial
evaluation, including consideration of projected costs over the life cycle of the completed
project. It could also address other non-financial factors such as time and proposed
methods or levels of capability; or sometimes a mixture of both – collectively referred to
as a ‘quality/price balance’ or ‘matrix’.
European legislation describes this concept as the assessment of the most ‘economically
advantageous’ option. In order for this to be achieved, however, each tenderer should be
able to bid on an equal basis, meaning that they must receive the same information – and
most importantly that this information should be sufficient in content and accuracy to
allow them properly assess the implications and bid accordingly. In the public sector,
failure to follow fair and transparent procedures can lead to automatic challenges to a
subsequent contract. This may result in damages, or the contract being set aside, or both.
While this may not apply equally in the private sector, it is sensible to adhere to these
principles, if only to make the process itself easier to follow.
When asked to bid for a path work contract, make a brief assessment of the contract and
specification and then decide whether to prepare a bid. There are usually between three
and six companies competing. Preparing a bid is a time-consuming process. A tender for
a medium-sized path contract will take two or three days to prepare: one day for a site
visit and at least one day for making calculations, taking advice from the team and subcontractors and preparing the bid paperwork. So ask yourself the following questions: Are
you available when work is required? Is your team good at this type of work? Do you really
want the job? Preparing a few thorough tenders for the jobs you want is more likely to win
work than submitting rushed bids for every job possible.
It is good practice to evaluate invitations against predetermined criteria, although there
will obviously need to be some flexibility. Some factors to consider include: Does the
organization offering the work have a track record of managing path work. Are you confident
that it is aware of its responsibilities in managing the job?. Does the organization offering
the work have the financial resources available to pay for the work? Are you technically
capable of undertaking the work? Do you have several suitably skilled staff available or
are you relying on one person? What would happen if that person was not available? Are
you financially capable of completing the work? Check that interim payments are available
and that your cash flow can cope with the timing of these, including a contingency for
delays in payment. Are you likely to be made a better offer by another organization during
the contract period? Do you have all the resources available to undertake the work at the
appropriate time?
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Appraise the tender as early as possible after receiving the invitation as you will need plenty
of time for the subsequent stages. Do not spend any further time on a job you do not wish
to bid for. Keep the client informed of progress and seek extra information on any unclear
points. Explain to the client your team’s abilities and areas of special interest, as this will be
useful in planning future work and helps build a good working relationship.
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 bill of
quantities, a bill of approximate quantities or other specifications which enable the tenders
attain higher levels of accuracy, the statement of work.
For instance, a bill of quantities 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 if possible, 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. Either the costs that the contractor
incurs is greater than the price he is charging the client (as a consequence of a lower
tender determining the contract sum), and thus is likely to go insolvent, or he will claim for
“loss and/or expense” due to discrepancies in the contract documents (this can be done
deliberately). The lowest tender is not always a feasible tender. The lowest tender is most
likely to increase the contract sum, the most throughout the course of the project.
Contracts
There are traditionally two contracts between these parties as they work together to
plan, design and construct the project. The first contract is the owner-designer contract,
which involves planning, design and construction administration. The second contract
is the owner-contractor contract, which involves construction. An indirect third-party
relationship exists between the designer and the contractor, due to these two contracts.
An owner may also contract with a construction project management company as an
advisor, creating a third contract relationship in the project. The construction manager’s
role is to provide construction advice to the designer, design advice to the constructor on
the owner’s behalf and other advice as necessary.
Design-Build Contracts
Many owners – particularly government agencies – let out contracts known as DesignBuild contracts. In this type of contract, the construction team (known as the DesignBuilder) is responsible for taking the owner’s concept and completing a detailed design
before (following the owner’s approval of the design) proceeding with construction.
Virtual design and construction technology may be used by contractors to maintain a tight
construction time.
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Design-Build (or design/build, and abbreviated D-B or D/B accordingly) is a construction
project delivery system where, in contrast to traditional “design-bid-build” (or “designtender”), the design and construction aspects are contracted for with a single entity known
as the design-builder or design-build contractor. The design-builder is usually the general
contractor, but in many cases it is also the design professional (architect or engineer).
This system is used to minimize project risk for an owner and to reduce the delivery
schedule by overlapping the design phase and construction phase of a project. Where the
design-builder is the contractor, the design professionals are typically retained directly by
the contractor. The design/build delivery system often cites the original “Master Builder”
model used to build most pre-modern projects. Under the master builder approach, a central
figure of the architect held total project accountability. From inception to completion, the
master builder was the key organizational figure and strictly liable to the owner for defects,
delays, and losses. The design/build system is a return to some of the fundamentals of the
master builder approach.
Design-build focuses on combining the design, permit, and construction schedules in
order to streamline the traditional design-bid-build environment. This does not shorten
the time it takes to complete the individual tasks of creating construction documents
(working drawings and specifications), acquiring building and other permits, or actually
constructing the building. Instead, a design-build firm will strive to bring together design
and construction professionals in a collaborative environment to complete these tasks at
the same time.
Typically, the hallmark of a Design/Build project is that one organization is responsible
for both design and construction of the project. If this organization is a contractor,
the process is known as “Contractor-led Design-Build”. If the organization is a design
firm, the process is known as “Design-led Design-Build”. In either case, the organization
employed by the owner rarely handles both aspects of design and construction in-house.
In fact, the organization often subcontracts with on-site personnel (if design-led) as well
as architects and engineers (if contractor-led).
It is important to note that the Design-Build method, while not focused on saving the
owner construction costs, nonetheless often saves the owner money on the overall project.
The combined effects of carrying a construction loan (which typically carries a higher
interest rate than permanent financing) and an earlier useful on-line date usually yields
considerable overall profitability to the project and may make seemingly unfeasible projects
into genuine opportunities. The compression of time is only one important aspect of the
implementation of this system. Other attributes include increased accountability by the
service provider, single source project delivery, a value based project feedback system and
accountability.
Rather than a parcelized level of responsibility of the classic Design-Bid-Build, DesignBuild provides an integrated solution for the owner or client. This moves projects away
from the “finger-pointing” that is often commonplace in contemporary construction
projects, and allows the owner to look to one entity with any questions or concerns.
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Instead of having several contractors and consultants, an owner has just one entity to
deal with. Design revisions, project feedback, budgeting, permitting, construction issues,
change orders, and billing can all be routed through the Design-Build firm. This single
point of contact allows a certain degree of flexibility for the owner. Most Design-Builders
will leverage that flexibility for the owner’s benefit by continually refining the construction
program to maximize the owner’s value at the completion of the project.
Typically, in order for a contractor to bid on a project, very specific details relating to
the methods and materials must be given to avoid any ambiguity and to make an “apples
to apples” comparison of bids. In a Design-Build context, the owner, the owner’s other
consultants, and the Design-Builder can work together to determine what methods and
materials will maximize the owner’s value. In instances where marginally more expensive
materials, designs, or construction methods might yield a higher return on investment
for the owner than those of lower cost, the owner is free to adjust the project’s program
without having to re-bid the entire project.
Under this delivery method, a construction manager is hired prior to the completion
of the design phase to act as a project coordinator and general contractor. Unlike the
DBB method, a construction manager is hired during the design phase, which allows the
construction manager to work directly with the architect and circumvent any potential
design issues before completion of the construction documents. After documents are
completed, the construction manager accepts bids for the various divisions of work from
sub-contractors or general contractors.
This delivery method is similar to the Design-Bid-Build method in that design and
construction are performed by different firms. Unlike the Design-Bid-Build approach,
a general contractor and an architect are selected at the project’s inception. These firms
work together throughout the design phase. When design documents are complete, the
final construction costs are negotiated by the general contractor through bids from subcontractors on various scopes of work.
Cost estimating for a Design-Build project is sometimes difficult because design documents
are often preliminary and may change over the course of the project. As a result, DesignBuild contracts are often written to allow for unexpected situations without penalizing
either the Design-Builder or the owner. Several organizations (such as the Design/Build
Institute of America) provide standardized form contracts for Design-Builders to use,
but it is not unusual for the Design-Builder to provide its own contractual documents.
This uncertainty requires the owner to rely a great deal on the integrity, acumen, and
competence of the Design-Builder. As the certainty of estimates decreases, the opinion
of the construction professionals of the Design-Build firm must be trustworthy, accurate,
and reasonably verifiable in order to minimize risk.
The major problem with Design-Build contracts is an inherent conflict of interest. In a
standard contract the designer is responsible to the owner to review the builder’s work,
ensuring that the products and methods meet specifications and codes. An independent
builder may pick up design flaws which might go unnoticed (or unmentioned) if the
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builder is also the designer. The owner may get a building that is over-designed to increase
profits for the design-builder, or a building built with lesser-grade products to maximize
profits. If speed is important, design and construction contracts can be awarded separately;
bidding takes place on preliminary plans in a not-to-exceed contract instead of a single,
firm design-build contract.
Preparing a Tender: The Five-Step Process
Preparing a good tender involves information-gathering and decision-making. It is better
to prepare the tender systematically. A tender for a medium-sized contract worth KSh.
2,000,000 will take two or three days’ work to prepare, spread over a period of two or
three weeks.
Information Needed
Work plan; information on other jobs
coming up; diary advance warning of
tender; brief description of the job
Decisions
Do you want to bid for
the job?
Source of Advice
Team leaders, project clients
and other potential clients
Site plans; bill of quantities; on site
information on materials, design, use and
conditions
Is it feasible having seen
the site?
Site owner, local contractors
Detailed design for each element; good
idea of team skills and productivity; plant,
materials and other costs.
Contract details; your own project plan;
site information; team certificates; path
‘portfolio
Cashflow forecast; weather trends;
feasibility analysis
How much will it cost
you to deliver?
Project client,
Supplier companies,
Specialist advice
Training provider
Statutory agencies
Is it a risky job?
Accountant’
Local site
Client decision and feedback.
Is your bid the best
Project client,
Training ‘mentor’
Can you meet all the
conditions?
At each stage of the process, decide whether you wish to proceed – only continue if you
still want the job, believe that you can win the tender and think that you can make a profit.
You can drop out of the tender process at any stage, and usually up to 30% of bidders
do, but you must let the client know immediately: failure to respond by the closing date
will not create a good impression for the next job. Below are the five steps in more detail.
Step 1
Prior Visit to Properly Assess the Site is a Must
A detailed site visit is required to assess properly almost any path job. It is good practice
to attend a pre-tender site meeting for the potential contractors and the client, and many
clients will only accept bids as ‘competent’ if you have attended. It is preferable that all
contractors visit the site on the same occasion. This allows the client to explain to everyone
exactly what is required and answer questions raised. It is also a good opportunity to
demonstrate your knowledge and put forward ideas.
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Normally, the specification will be reviewed by several experts, often resulting in minor
amendments. It is essential that any amendments to the design or bill of quantities are
confirmed in writing to all those invited to tender as soon as practical after the meeting, so
that everyone is bidding for the same revised job. Make your own assessments of the path
use, safety, availability of materials, access for machinery and so on. Take measurements
and photographs, and do not rely on impressions. You may want to return on your own
for a second visit if you are going to bid. Remember that if the job requires staying away
from base, you will also need to look for site accommodation and living accommodation.
If there are factors that will change the way you deliver the work, write them down and
decide whether they will affect the cost. Do you know enough to predict each of these
factors? If the job is not feasible or to your liking, you can pull out at this point. The site
visit also gives you an opportunity to talk to the project manager face to face, to decide
whether you will work well with them, and an opportunity to size up the competition!
Step 2
How Much Will It Cost To Deliver?
Price is a key part of any tender; being able to estimate costs accurately is key to setting the
price and deciding whether there is a margin for leeway and some profit. With the advent
of ‘Best Value’ contract selection, price is a significant factor in choosing who gets the job,
but it is not the sole factor. For many path work jobs a good team at a reasonable price is
a better option than an inexperienced team at cut price.
Cost estimation has several elements: Estimate your labor unit costs. As the greatest cost
element of path works is usually labor, it is important that you are clear about your labor
costs. You must include the cost of satisfying the conditions of any statutory requirements
that apply, such as holiday and sick pay, personal protective equipment, insurance and so
on. Calculate a daily rate inclusive of all costs for your team.
Estimate the time it will take. For each element of the bill of quantities estimate how
long an ‘average’ item will take. For instance, a cross-drain may usually take two days of
labor to build but if you have experienced staff and are on a site where block stone is
available nearby the estimate for building a cross-drain could be only twelve hours. In the
case of such ‘discrete’ tasks the total time will be readily calculated as the time taken to
build one cross-drain multiplied by the number being built. Other tasks are continuous.
For example, setting up a machine and borrow pit to build 50m of ‘floating’ aggregate
path will be a high cost, but once everything is on site the next 50m will be at lower cost.
Multiply up unit costs. Bring together the labor cost per hour or day and the time taken
for each item of work and start working out the total labor costs. Adjust these in light of
the information you have gathered on site, for example, materials available and ground
conditions. Add in any additional time/costs for labor, including site meetings, walk-in
time to site, future remedial works and others. This part of the estimation can best be
presented in a spreadsheet format, which also makes it easy to try out alternative scenarios
and costs.
Estimate all external costs. Add all the external costs you will incur during the job, including
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recurrent costs such as fuel, accommodation and plant hire and one-off costs such as
materials, small tools and delivery charges. It is usually easier to estimate these costs than
labor needs in advance, but more difficult to control them once work is under way. Look
at cash flow. What are the terms of payment for the job? Can you invoice for stages of
work? Will the bills be paid on time? Speak to your bank manager and include a cost for
overdraft and other borrowing charges.
Estimating the cost of works is a complicated task, and different contractors may adopt
different approaches. Consider the options of using different types of plant or other
working methods, such as airlifting materials. This may have an impact on your costs
and the price for providing the optimum quality-price ratio. Air-lifting materials may be
more expensive, but it will create fewer disturbances to the site, and this may be of prime
concern to the client. Talk to the client and consider offering two options and prices.
Step 3
Can You Meet All The Conditions?
Contracts contain detailed conditions on how work will be carried out. Some, such as safety
and insurance, are fixed for all jobs. Some, such as work within designated conservation
sites or access arrangements, vary from site to site. Others, such as working hours and
completion dates, may be flexible and can be set by the contractor. The client will often
provide a checklist of information to include or a tender questionnaire to complete. If you
are uncertain, be sure to cover the following basics: dates, team personnel, track record,
plant and materials, price, project plan or method statement. Give the planned start and
completion dates for the job and your usual working days and hours. The contract usually
gives a ‘window’ within which work must be completed, often constrained by weather or
land use. Give a list of the personnel, e.g. mpany, site supervisor, team leader and team
members, because clients will look not only at the name and reputation of the team but
also at the team members.
Give a resume of the team’s major contract experience and the Vocational Qualifications
(VQs) and skills of individual team members as many clients require a proportion of
the team to have path work VQs (e.g. 50% of the team to hold the level 2 Path worker
VQ). Give a list of all machines and operators, materials and sources. This is particularly
important for work on fragile sites and Sites of Special Scientific Interest (SSSIs), as
permissions will be needed for use. Give a fixed price (usually) for all the work listed and a
daily rate for any extra work (the ‘day works rate’). You may also require an itemised price
for each element on the bill of quantities. State also the frequency of interim invoices and
your payment terms. Give a brief plan of how your team will tackle the contract, lay out
the site, manage the site and complete the job.
Prepare a pre-tender Safety Plan. Make sure you provide all this information and any
additional requested – it is surprising how many bids are incomplete, and these are the
first to be rejected. If you are unable to meet any of the conditions contained in the
contract, or are uncertain about how they apply, then bring this to the attention of the
client and include this in your covering letter. However, do not make your bid a ‘conditional
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offer’ by saying that it only applies if certain conditions are met – clients do not like this
approach. Be positive and concentrate on preparing a good method statement: This is a
great opportunity to show the client you have thought through the contract. Having a well
prepared plan could put your bid ahead of a lower cost but less well-planned competitor.
Many successful contractors submit a detailed method statement for every major contract,
whether the client requests it or not.
Step 4
Is It a Risky Job?
All projects contain some level of risk. The price you bid depends on assessing the risks
and opportunities the job represents to your business. Contractors can make a profit or
loss depending on how accurately the risks have been assessed. Before submitting a tender,
the risks and opportunities involved must be identified and assessed.
Risks include financial, adverse conditions, poor weather, reputation and suppliers. Does
the client have adequate resources to pay for the work and are you confident that they will
make stage and final payments as agreed. Does your quote depend on supply of materials
or plant or labor at prices that may fluctuate? Have you accurately assessed site conditions
such as material availability and ground conditions?
Have you made adequate provision for poor weather that may hinder operations? Will
the specification allow you to construct a high-quality path? If not, will your reputation
be affected if you are associated with the construction of a poor quality path? Are you
confident that sub-contractors or suppliers can provide materials or services of adequate
standard when required? On the other hand, the tender may offer opportunities including
making a profit at the end of a contract that reflects the effort expended and level of
risk incurred, continuity of work, enabling retention of a skilled and reliable workforce,
developing new techniques and gaining experience, resulting in improved skills in the team
and boosting your reputation and developing a positive client relationship that may lead to
further work opportunities.
The price you bid will depend on many things: If you think there is a high chance of
weather lay-offs, increase the price by 10–15% and seek reassurances on being given extra
time to complete the job. If you need work urgently and want to impress a new client cut
the price by 5–10%. Always set your bid price at a level that covers all costs, and never go
below this. Add a margin to your total expected costs that gives you room to manage the
variables and make a profit if you are successfully able to do this.
Look around at the other teams bidding and particularly the availability of skills at the time
the client needs the work done – many larger client organizations prefer higher prices to
delayed work. Your price should cover all work anticipated, including site restoration and
return visits for any remedial work (usually 3–4% of the construction cost). Do not bid a
low ‘core price’ with the expectation of adding plenty of extras when on site clients will
be looking for a realistic, single price that reflects all that the job demands.
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Step 5
Is Your Bid The Best?
Submit your bid in the manner requested – often in two envelopes and with an electronic
copy – and well before the closing date set. Ask the client how long a decision is likely to
take: This can vary from three days to six weeks depending on the complexity and size of
the organization. There may be a long delay if the information is being relayed to grant aid
partners for their approval, but the client should let you know if this is the case. You may
be asked for additional information, and a prompt turnaround is essential.
The winning bidder will normally be contacted by telephone and given a brief period to
confirm acceptance. Unsuccessful bidders will receive a letter a few days later. It is not
standard practice for clients to disclose the winning bid price because of the relatively
small number of teams bidding. Whether or not you are successful, contact the client for
some feedback: You have spent several days preparing the bid, and feedback will aid your
success next time.
Feedback from the client to contractors should include the following, price, quality of
tender and future prospects. Other areas to be addressed include, how did the contactor’s
price compare with the winning bid? Give a percentage above or below, even if actual
prices are not disclosed. How did the contactor rate for team ability and skills? Are there
gaps in the team’s abilities that need to be addressed? Did the bid cover everything that
was needed? Did the contractor provide the right level of information and did the client
understand how the contractor would deliver the job? You should let the contactor know
of future jobs, and discuss the abilities and availability of the contactor’s team.
Tender/Bid Solicitation
Bid solicitation is the process of making published construction data readily available to
interested parties, including construction managers, contractors, and the public. There are
several services, including government entities and private plan rooms that allow project
owners to release project details to solicit and obtain contractor bids. These services act as
a gateway for project owners to release project information to a large group of contractors,
general contractors or sub-contractors in an attempt to solicit bids. Many of these services
are subscription based or charge a flat rate for project data.
Depending upon the language in the bid proposal, a subcontracting construction company
could make its bid final, and, if accepted, a legally enforceable contract is created. In these
circumstances, upon determination by the general contractor that a bid is the lowest offer,
it can accept the bid and upon acceptance, a subcontractor cannot renege or revoke its
offer. The language of the bid or offer can impact the court’s determination of whether
the subcontractor intended for further negotiations to take place, or whether the bid was
intended to be an option or unilateral agreement to enter into a contract upon acceptance
of the offer.
When a path needs to be built, or some other access project undertaken, the organization
commissioning the work (the ‘Client’) will ask several suitable teams (the ‘Contractors’) to
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assess the project, discuss it if necessary and provide a proposal and price for carrying out
the work. The documents that each contractor submits (usually a letter, some notes, a safety
plan and a project plan) is called the ‘tender’, and ‘competitive tendering’ is the process
of communication between the client and the contractors that leads to one team being
chosen for the job. All the common types of contract used in path work can be suitable
for competitive tender – all that differs is what is actually being priced and competed over.
Fixed-Price Contracts can be placed by competitive tender and, as the name suggests,
one price covers the whole of the specified job. Negotiated Contracts can also be placed
through a process of competitive tender, with teams being asked to offer a skilled team at
a price per day or week. Alternatively, contracts may be negotiated with one team against
a ‘benchmark’ price taken from an earlier round of tenders. Maintenance and Small
Works Contracts can be allocated by competitive tender, either by looking for fixed prices
for the maintenance needs of a whole path network or by inviting bids for a daily rate.
Alternatively, a flat daily rate day may be specified, with teams offering to work for this rate
when available. In summary, it is possible to select the most suitable type of contract for
any particular job while still adhering to competitive procurement policies.
Good competitive tendering depends on having a ‘level playing field’ for all contractors.
All contractors have the opportunity to prove their competence and join the pool of
selected contractors, and all chosen contractors receive the same information and have the
same opportunity to bid. A good specification should mean that the needs of the client
will be met whichever team is chosen. Good competitive tendering is about ensuring that
the best bid is selected and that this is done through a fair and consistent process.
Tender Evaluation
Path contracting companies win work by submitting successful tenders. They are
assessed primarily on the information they submit for each new job, backed up by other
information and their track record. Well-thought-out tenders often do best: four to eight
pages containing all the information requested plus some original thoughts on how best to
perform the key tasks is sufficient. Teams that are very able on site often do not show their
abilities and expertise at the tender stage. Only by demonstrating the necessary knowledge
at the planning stage will contract teams get the opportunity to prove it on site.
From the point of view of the client, the offer to carry out work (a ‘tender’) is most
likely to produce a successfully delivered project if it can demonstrate that the contractor
will be able to complete the project. Many tenders fail because they contain insufficient
information for the client to assess competence, not because the contractor is incompetent,
that the work can be completed within budget – very low-cost tenders are often weeded
out as they show an unrealistic estimate of the job and may lead to corners being cut
during the project, that the work will be carried out in a safe and professional manner –
the safety method statement is not only a risk assessment, the client is looking for good
sequencing of work and care for the public on site. Good working methods – a full list
of work (the ‘bill of quantities’) and description of the job (the ‘specification’) are usually
provided by the client, but different contractors will approach this differently: describe
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how your team will sequence the work, divide up the site and adapt the work to fit the site.
Successful tender preparation requires good communication between the parties involved;
this includes an easily read and succinct tender submission.
As a contractor, when submitting your tender remember to be realistic; do not underprice
work, you do not want to be working for nothing or at a loss. Also, be thorough; ensure
you understand all the contract conditions and their implications. If you are in doubt
about preparing a tender, seek advice: Talk to peers, attend a short course or approach an
experienced firm and ask to shadow their work. How you approach and prepare your bid
not only tells others about how you do business, it is also a legally binding contract if you
are successful and win the job.
Finally, clients evaluating tender should be transparent and take time to explain how the
tendering process will work, how bids will be assessed and provide feedback. They should
also be consistent by providing the same level of information to all involved and confirm
verbal instructions or communication in writing. They should emphasize the benefits of a
thorough and rigorous tendering process – better planning, fairer assessment, less dispute.
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4
BEST PRACTISE IN
CONSTRUCTION
Introduction:
Companies implementing best practice consistently report significantly higher profits,
increased customer and employee satisfaction, improved safety and productivity and
reduced environmental impact. Best practice is the knowledge that underpins examples
of excellence. We can take this knowledge, share it and implement it throughout the
construction industry. Over the last 10 years there has been a dramatic change in the way
construction activity is being undertaken. This is not only in the form of new technology,
but also in the way that construction projects are procured and managed. This new thinking
has been very successfully applied in other industries throughout the world. The work of
organizations is to identify this best practice, widely demonstrate the business case for
action and then support its application.
We are all more demanding and more discerning than ever before – wanting everything better,
faster, cheaper, safer and easier. Increasingly, informed clients are looking for companies
that are demonstrably better – more knowledgeable, experienced and progressive – to
consistently meet their business needs. Understanding and using recognized best practice
in construction provides organizations with the opportunity to fully meet those business
needs and make increasing profits to reinvest in its people, products and processes, or
distribute to shareholders.
10 Key business practices
The following are ten key business practices that deliver real added value and are shaping
the direction of the industry.
1. Procurement
Procurement is the process of establishing the most appropriate method of managing
the construction project and selecting the best team to design, deliver and sometimes
operate the required facility. Lowest price tendering and lump sum contracts are giving way
to better forms of selection and contract arrangements. Modern procurement methods
emphasize the need to select those companies that can work effectively in a collaborative
relationship and who understand and practice the principles of “Partnering”. New forms
of contractual arrangements seek to get all key parties to work together as early as possible
to ensure the effective delivery of a project.Procurement follows the project lifecycle. First,
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the client must identify and clarify business needs. Next the client will need to develop and
prioritize a set of value criteria against which an advisory team can help assess possible
options, of which a construction project may be just one. The business need and value
criteria together with the favored option can then be used to esta blish a strategic brief.
It is at this stage that the decision has to be taken as to which procurement route is most
suitable for the project.
2. Partnering
Partnering is a management system that is based on one collaborative approach to working.
It is therefore a very different style of working compared to the traditional adversarial
approach that has been common in the construction industry for many years. It has
been demonstrated on numerous partnering projects that by working collaboratively it
is possible to achieve far greater value for money for the client, higher profits for the
companies involved, improved quality and more predictability of project completion. A
partnering project has the following characteristics: An agreed set of mutual objectives,
work undertaken in a spirit of trust and co-operation, an agreed problem resolution
procedure, open book pricing and a commitment to continuous improvement.
It is normal for partnering projects to have a partnering charter that sets out the objectives
of the team, which is signed by all parties as a statement of intent. Partnering is now widely
used in all aspects of the construction industry. A number of forms of contract have been
specifically written, setting out a framework in which the parties to a partnering project are
to work. In addition, a number of private sector and the larger public sector clients have set
up framework agreements with contractors. These framework agreements clearly define
the partnering arrangements and support the development of long-term relationships by
providing continuity of work in return for continuous performance improvement.
3. Risk Management
A risk register is a key planning tool. The register should be started at the inception of a
project and actively used through to project completion. It can then be used to assess the
way that risk on the project was managed so that lessons can be applied to other projects.
As well as identifying and assessing risks, the register is also used to assign appropriate
actions for project team members against each risk item. The risks and associated actions
should be reviewed on a regular basis throughout the pre-contract and construction phase.
It is important that financial allowance is made for all residual risk items. This ensures that
it does not get ignored. Instead, a decision can be taken as to the best approach in reducing
the cost of this item. This could involve paying for more detailed investigation work to
be undertaken and so providing better information on which the respective elements of
work can be costed.
4. Value Management
This is a method to identify the best way of meeting a client’s business needs taking
into account time, cost, and quality and risk constraints. The value management process
involves collaboration with the team responsible for design and delivering the project, and
ideally includes end-users and other stakeholders.
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The first step is to clearly identify value for the client in terms of need, business benefits
and priorities. Next will be the identification and evaluation of options – this forms part
of the value engineering process. Selected options will then be assessed in terms of their
cost, risk and extent to which they contribute to satisfying the client’s business needs.
All processes and components suggested for the project would be critically appraised
to determine whether better value alternatives or solutions are available. This process
represents a systematic approach to generating and evaluating options to satisfy client
requirements. It is carried out throughout the life of the project and is undertaken in
parallel with the risk management process. It often features a value management workshop
close to the beginning of the process once the principal parties for the project have
been identified. On completion of the project, the value management process should be
appraised to review how successful it was in ensuring value for the client and the other
stakeholders.
5. Sustainable Construction
Sustainable construction cohesively addresses the triple bottom line – the social, economic
and environmental performance of the industry. Areas for action include: Being more
profitable and competitive. It is recognized that businesses need higher profits to
intelligently invest in its people, products and processes to improve their competitiveness.
Delivering buildings and structures that provide greater satisfaction, well-being and
added value to customers and users. Respecting and fairly treating employees and the
wider community. This includes improving health and safety, enhancing site and welfare
conditions, and avoiding noise and dirt which would inconvenience local residents.
Enhancing and protecting the natural environment, including protecting habitats, trees,
waterways and other natural features. Minimizing consumption of natural resources and
energy during the construction phase and throughout the life of the facility. The buildings
should be energy efficient and utilize energy from renewable resources by specifying
recycled materials and renewable energy sources and considering the buildings’ future use.
Reducing waste and avoiding pollution during the construction process. 70% of landfill is
reportedly generated through construction activity.
6. Benchmarking
Benchmarking is a method of improving performance in a systematic and logical way,
by measuring and comparing your performance against others, and then using lessons
learned from the best to make targeted improvements. It means knowing the answers to
the following questions, who performs better? Why are they better? What actions do we
need to take in order to improve our performance? Benchmarking focuses a company’s
improvement efforts on its ‘success-critical’ issues. It ensures that improvement targets are
based on what has actually been achieved by others. For organizations in the public sector,
benchmarking provides quantifiable assurance that ‘Best Value’ is being achieved.
7. Supply Chain Management
Supply chain management is a relatively new term in the construction industry. It
involves integrating the operations of all organizations involved with the delivery of a
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particular product or service. This extends from the primary producer all the way to the
end-user. In construction, this will include the primary material suppliers, component
suppliers, manufacturers, distributors and intermediaries, installers, trade contractors, lead
contractors, designers and the client organization. Supply chain management has become
a central issue for many clients and companies. This is because it offers the prospect of
making significant cost savings and improving value by enabling companies to work more
effectively together across the entire supply chain. Effective operational and management
practices are necessary to make supply chains work. Operational issues look at how
materials are ordered and delivered to site, how trade contractors are selected, how they are
involved with designing and planning the works, and how invoicing and other ‘transaction’
costs can be reduced.
Management practices have to support more collaborative ways of working. This includes
designing systems to ensure accountability and also providing support and incentives to
supply chain partners. Due to the vast range of products and services within the construction
industry it would be impossible for any organization to know, let alone manage, all of its
suppliers. Therefore, leading companies are organizing elements of specific supply chains
that are most critical to their success. Manufacturers are developing integrated supply
chains involving key component suppliers and installers. This pre-assembled supply chain
then competes with other supply chains to work with lead contractors or clients. The
lead contractor and client organization in turn are assembling their own supply chains to
deliver key products or services.
8. Whole Life Costing
This is a method used to measure the costs of ownership of a building. It takes into
account the initial capital cost of creating the building plus the cost of maintaining and
servicing the building over its whole life. The reason why Whole Life Costing has become
such an important issue is the recognition that the cost of maintaining the building often
far outweighs the initial capital cost. Studies have shown that for every KSh.10,000 of
capital cost there is 50,000 operational expenditure over the life of the building. This issue
has become highly relevant with the increasing use of Private Finance Initiative where the
service provider is responsible for both the construction and operation of the facility.
Whole life costing takes into account this operational expenditure when deciding on the
initial design and specification of the building. In this way, it can be seen as a form of
investment analysis. An anticipated cost profile of the building over its planned life is
generated with a discounted cash flow method used to calculate a single cost figure. This
enables the project team to analyze the impact of the capital cost decisions. A higher initial
capital expenditure can often be justified by taking into account the impact this will have
in terms of maintenance, servicing and other forms of operational costs associated with
managing the building.
9.Health & Safety
There are two key issues with regard to health and safety in the construction industry.
The first is respecting people’s rights to be protected against risks that affect their safety
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and long-term health. The second is that construction sites that are effectively planned
and managed are more productive and profitable as well as being safe. The starting point
for health and safety is effective planning of construction works. The design process
should involve a detailed assessment of the construction process to make sure that no
problematic health and safety issues are inherent within the design. Next is the detailed
planning and scheduling. This should include clearly identifying processes for the
execution of each element of the works. Finally, the organizing and controlling of works
on site; in preparation for this, it is necessary to ensure that the people working on the
site are, trained and properly competent to do the work safely, properly supervised and
given clear instructions, provided with the right tools, equipment and protective clothing,
knowledgeable about health and safety issues and performance against each of these issues
needs to be regularly checked and shortcomings remedied.
10. Lean Construction
“Lean” is an approach to managing production activity. It first focuses on understanding
what value means for the client and then seeks to systematically reduce or remove any
processes that add cost but do not add value. The five principles of Lean are, specify
value from the customer’s perspective, identify and integrate the processes that deliver
value, make value flow by eliminating bottlenecks and disruption, produce only what
is wanted when it is wanted and pursue perfection through continuous improvement.
This approach has been widely adopted in a range of industry sectors and is now being
increasingly applied in construction. One of the key principles behind lean construction
is the integration of processes. The aim is to get construction activity to flow through the
elimination of factors causing delay or disruption.
Examples include waiting for information and materials, reworking due to defects,
double handling of materials, unnecessary movements around site due to poor site layout
and access arrangements, and compulsory competitive tendering. Lean construction
includes elements of value management by asking if the design fully satisfies the client’s
requirements. It then focuses on ‘design for construction’. That is, does the design allow for
efficient construction processes? Can the design be developed to overcome build-ability
issues without compromising on the building’s functionality? The next step is to look
at the various processes involved with delivery of the project. This will include detailed
design development, material logistics, on-site materials management and sequencing of
the works.
A series of tools can be used to understand the way processes are currently undertaken
in order to find better ways of working. These include, value stream analysis – a system
to identify which parts of the process add value, five Whys – a method of finding the
root-cause of problems so that they can be systematically removed and last planner – a
planning tool for improving work flow on site. There are three opportunities for your
company to share the best practice: Local construction excellence bodies (for individual
and corporate membership) as well as regional corporate membership. In these forums,
you and your business will get information, influence and improvement.
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Customer Service in the Construction Industry
In today’s hyper-competitive construction markets, contractors have trimmed margins and
slashed overheads in pursuit of cutting an edge. However, many construction firms are
still struggling to remain at the top.
Providing superior customer service is an oft-forgotten strategy for distinguishing your
company from the competition. It is a strategy that takes years of dedication and culture
engineering. Below are six tips for building superior customer service.
Win the War Not the Battle
Look for long term solutions to short-term conflicts and disagreements. Some contractors
would rather lose money in certain situations, than admit wrong doing. Just as in the case
of a relationship with a spouse or significant other, one principle is to pick your battles;
not all arguments are worth a fight. Similarly, in the construction business, maintaining a
good relationship with your clients is more important than ‘winning’ the argument.
Be Firm but Fair
Clients can in deed over step their boundaries; there is a thin line between being firm and
destroying relationships. The secret to this balancing act lies not in this paragraph but in
years of negotiating experience and fundamental communication skills. Be assertive, when
appropriate. This will earn your company respect and establish that you are knowledgeable
and represent the client’s best interests.
Educate the Customer
You are the expert. Share your knowledge. At times, clients do not care to know how the
sausage is made. Mastering the assembly of complex circuitries may be an electrician’s
passion but this level of detail does not resonate with most clients. Your customer’s
attention is often drawn to instances when you fail to deliver on your promises. In such
cases, grab the opportunity to educate your client on the particular process and provide
solutions while at the same time empathizing with their dissatisfaction.
It is natural to get defensive when a client puts up a fight against your business however,
remember to stay calm. Crises are the most effective facilitators of learning and teaching;
they are unique situations to display honesty, integrity, knowledge and most importantly
solutions.
Create Buy-In
Customers appreciate being part of a solution, rather than being handed down prescriptions.
Contractors often sell one solution to a problem and one solution only. Providing various
alternatives to clients is useful for creating buy-in. Options allow clients to be part of the
process. Moreover, if both parties have a hand in the decision-making process, there is less
blame apportionment.The path of least resistance is through choice.
Deliver Bad News Early
The sooner you address problems and notify the client, the more likely an equitable
solution can be reached. Pestering the client with every little setback is not recommended
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either. Generally, clients want contractors to notify them of issues especially those with
financial and schedule-delay implications. Additionally, a contractor must have an efficient
internal communication flow to ensure that the client’s representative is aware of any
setbacks immediately. Communication breakdowns can escalate a crisis and in turn cost
a contractor additional time and money. As a company, define the communication flow
chart and ensure that all staff members understand it.
Take Responsibility for Minimizing the Overall Project Risk
Contractors have an ethical obligation to mitigate project costs and reduce risks. Acting
in the best interest of your clients ultimately pays huge dividends. Be a project leader;
be proactive in management of resources while communicating regularly with the subcontractors and the client. Planning is crucial. Being prepared for unforeseen project
challenges will protect your company and your clients from unnecessary loss. Price
differentiation is a strategy that has left many contractors in a tight spot. As contractors
seek alternative differentiation strategies, building superior customer service is a lowcost, low-risk strategy for creating value. Always remember that customer service is 10
times more expensive than customer retention. A satisfied client is your company’s best
salesperson through word of mouth.
Finally, do not abandon your client upon project delivery and after picking your last cheque.
As much as is possible, keep in touch, through emails or calls, being careful not to come
across as being intrusive.
Dispute Resolution in the Construction Industry
Disputes and claims are common in the construction industry. Dispute resolution can be
costly in terms of time, emotional energy, business relationships and finances. Therefore,
it is critical to the health of your construction firm that you understand dispute resolution
options. This section focuses on the four most common methods of dispute resolution in
the construction industry: litigation, negotiation, mediation and arbitration.
Selecting and Negotiating Dispute Resolution Methods
The best time to select dispute resolution methods is during contract formation. Sometimes,
the dispute resolution procedure is developed and agreed to later by the parties. Standard
form construction contracts have dispute resolution provisions, some of which allow for
election of methods (by checking a box). Sometimes contracts provide for several steps
the parties must take before the final dispute resolution method (typically, litigation or
arbitration) is commenced. These provisions can be modified by revising the contracts
before signing. Always review and, if necessary, negotiate the dispute resolution provision
in contracts before signing. When acting as a subcontractor or supplier, you may be bound
to a dispute resolution method in the prime contract; therefore, always review the prime
contract provisions. Your bond producer can help you spot dispute resolution issues in
your contracts. Your construction attorney can advise you on and negotiate the provisions
in your contracts. When agreeing to a dispute resolution process, whether in the contract
negotiation or after the dispute has arisen, you must weigh the benefits and limitations of
each available dispute resolution method. All alternative methods of dispute resolution are
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voluntary and must be agreed to by all parties. They are, therefore, often more successful
methods of resolving a dispute in a timely and cost-effective manner.
Five Primary Dispute Resolution Options in the Construction Industry
1. Litigation
Traditional method of formally resolving a dispute through the court system, beginning
with the filing of a lawsuit in a court and continuing the process until the court enters
judgment in favor of one party (or the parties withdraw the lawsuit). Some parties insist upon
their “day in court.” Parties are represented by attorneys. It is common for construction
cases to involve multiple parties. Parties lose autonomy to shape their resolution. Virtually
unlimited discovery rights (document requests, interrogatories, requests for admission,
depositions, expert reports and depositions) and robust motions practice. Outcome is
difficult to predict. Judges and jurors, who often do not have expertise in the construction
industry, shape the decision. Legal remedies are available but less creativity involved in
resolution than with ADR. Very expensive in terms of costs, especially costs associated
with exchanging information (in this era of emails and electronic documents). Requires
lots of time from both attorneys and project personnel and representative principals of
the firm. Usually highly adversarial. Business relationships are seldom salvaged. Even after
a lawsuit is filed, parties can try to resolve the dispute using ADR methods, any time before
a judgment is entered by the court. Broad rights of appeal from an adverse judgment.
Litigation documents are made public.
2. Alternative Dispute Resolution (ADR)
ADR refers to any method of resolving disputes other than by litigation. The ADR process
may be administered by individuals who serve as mediators and arbitrators or by various
organizations whose function it is to administer and manage ADR cases. These ADR
methods are listed generally in order of increasing cost to reach resolution, formality of
the process, degree of hostility between the parties, and extent that a third party imposes
a decision on the parties. Standard form industry contracts often require the parties to
attempt mediation before resorting to either litigation or arbitration.
3. Negotiation
Parties try to negotiate resolution of the dispute.Least adversarial method of dispute
resolution. Focus is on problem solving and reaching a satisfactory agreement. Negotiations
are usually unassisted by a third party. Parties typically are not represented by counsel,
as presence of attorneys can raise the level of adversarial behavior. Very low cost and
typically not time-consuming. Voluntary process, with the parties controlling the outcome.
Resolution is by voluntary agreement of the parties.
4. Mediation
Non-binding ADR where disputing parties use a neutral third party, a mediator, to help
them reach a settlement. Parties can select a mediator, who should have expertise in
the construction industry. Mediator does not act as a judge but “referees” a settlement
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between the parties. Low cost and less time-consuming than litigation and arbitration
(no discovery, motions, or depositions). Parties may select procedures for disclosure of
positions and evidence. The disputing parties control the outcome and fashion their own
solutions to the dispute. Most mediations involve a one- or two-day session, which may
or may not result in settlement. The settlement agreement between the parties should be
made into an enforceable, written contract. Parties often maintain a continuing business
relationship during and after mediation. Resolution is usually confidential and is written
into the settlement agreement. Success often occurs when parties enter the process with
good faith intention to attempt to settle the disputes. A party representative who has
authority to settle and enter into a binding resolution should participate.Generally, parties
should be represented by an attorney.
5. Arbitration
Can be less expensive and time-consuming than litigation but in worst case, can also be
as expensive and time-consuming as litigation. Resolution occurs through the issuance of
an “award” by a single arbitrator or arbitration panel (3 arbitrators). Parties can select the
arbitrator(s), who should have construction expertise. Arbitrator(s) decides the outcome
after a hearing, lasting one day to many weeks. More structured than negotiation and
mediation. Quasi-judicial in nature but more flexible than litigation. Parties may, within
limits, select certain procedures and the schedule. Discovery rights depend on the rules
selected and arbitrator discretion. The “award” is final and binding; grounds to appeal
the award are extremely limited (such as bias or fraud). Proceeding is usually confidential.
Arbitration is highly adversarial. Parties should be represented by an attorney.
Key Points to Consider About Dispute Resolution Options
Is the option mandatory or voluntary? What is the financial cost of the option? What is my
time commitment? What is the time period necessary for conclusion? Do I have the right
to select the decision-maker? What rules and procedures will be imposed on me or will I
be able to select? Will I have any control over the outcome or will it be imposed on me?Is
it advisable to use my construction attorney? Is the result final and binding or appealable?
How adversarial is the option? Is the option likely to allow me to maintain the business
relationship? Will the final resolution be confidential?
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5
ADVERTISING A
CONSTRUCTION BUSINESS
How and When to Advertise a Construction Business
The construction industry, like our economy, runs in cycles. These cycles run on average
about 5 to 7 years. When business is good, it’s really good. All you have to do is show up
and you have the job. You can charge whatever you want because the customer is only
interested in, “When can you start?” Most contractors (unfortunately) burn off valuable
leads because they think they are too busy. They forget that business runs in a cycle and
things will change. And when things change, it’s tough. You have to work at every lead
that comes in. It’s during these times that many contractors are tempted to (and do) give
their work away in the belief that it’s better to do a job at a loss than not to work at all.
The theory is that at least cash is flowing through the business and you can keep your
employees working. In truth, that is financial suicide.
There is a better idea. If you want to be successful in attracting new and repeat business to
your doorstep, advertise. There are many construction companies that are doing very well
right now in spite of what the media calls a “slow housing market.” One of the biggest
mistakes construction-related business owners make is trying to save money by cutting
advertising when things get tough. Cutting your advertising budget to save money is like
stopping your watch to save time. It doesn’t work. When times are tight, you must increase
your advertising, not cut back. Why? Because fewer people are buying when things get
tight. If you increase your advertising, you’ll reach more people. When you reach more
people,you have a better chance of contacting those who are ready to buy. If you cut back
on your advertising, you will contact fewer people and reduce your chance of reaching
someone ready to buy.
One of the biggest mistakes construction-related business owners make is trying to save
money by cutting advertising when things get tough. Ideally, don’t wait until the phone
stops ringing to start an advertising campaign. At that point you are one full job cycle
behind. A job cycle starts the day you put out your first piece of advertising. It is complete
the day you collect and deposit the final check from the job(s) you did as a result of
that advertising. For a new homebuilder, a normal job cycle ranges from 7 to 9 months,
although with larger homes a job cycle can run 2 or 3 years. If you do remodeling, the
typical job cycle runs 5 to 7 months, more if you specialize in larger projects. A specialty
contractor might have job cycles that run 3 to 5 months. You need to
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Where to Advertise Your Construction Business in East Africa
Kenya has about six mainstream newspapers, over 30 magazines, ten country wide TV
stations and over one hundred radio stations in the national languages and vernacular.
These media outlets reach millions and thousands of audiences who could be potential
clients for your business.
You could also consider advertising your business in one or all of the three construction
industry journals in Kenya i.e. Construction East Africa, Construction Review and
Kenya Engineer. Industry journals are by far a better option to advertise your business
due to their large and specialized audience.
a) Construction East Africa
Formerly known as Kenya Engineer & Builders, Construction East Africa has been in
existence for the last ten years. It has a circulation of 12,000 copies and a readership
estimated at 100,000. The journal offers industry relevant editorial content in the form
of insightful features, industry news and many other columns. It draws its readership
from Architects, Engineers, Quantity Surveyors, Land Economists, Construction
Project Managers, Real Estate Developers, Valuers, Builders and Civil Engineering
Contractors. Its distribution network covers the entire East Africa region.
The publisher can be reached on +254 723 926 543
Email: [email protected] Website: www.constructioneastafrica.com
b) Construction Review
This magazine has a wide reach targeted at the construction industry, incorporating
suppliers, professionals, contractors, governments and non-governmental
organizations.
The publisher can be reached on +254 20 2210133
Email: [email protected]
c) Kenya Engineer
Kenya Engineer is published through one of Kenya’s construction industry bodies
known as The Institution of Engineers of Kenya (IEK). The journal draws a major
constituent of its readership from the engineering fraternity.
The publisher can be reached on+254 719 207 712
Email: [email protected]
d) National Construction Directory- A comprehensive industry guide 0722889763
The following contacts may be useful when seeking professional advice on where to
advertise.
1. Infrastructure Media Network: 0722 889763 (specialist agency for the built
environment)
2. Access Leo Barrnet Ltd: 020 2712334/ 020 2719502/ 020 2719501,
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3. Brainwave Communication Ltd: 0718 482848/ 020 2718490/ 020 2718489
4. ScanAd Group Limited: 0736 954300
5. Sky One Communications: 0722 889763
6. New Ideas Ltd: 020 3566834
7. Unique Images/Unique Casting Agency: 0737 570030/ 0726 333211
8. Zenith Media: 020 651998/ 020 651999
9. A1 Outdoor (K) Ltd: 020 8044414/ 020 8044415
10. Interglobal East Africa Ltd: 0731 313139
11. Target Media Ltd: 020 2405918
12. Xtreme Ads Ltd: 020 4452028
13. African Influence Ltd: 020 2406970
14. Capital Colours Creative Design Ltd: 020 3547259
15. Century Advertising Ltd: 020 3743307
16. Creative Eye (K) Ltd: 020 3747216
17. Ibrand Design & Media: 020 2326046
Finally, beware of unscrupulous media outlets, conduct thorough research based on your
advertising objectives and only commit to an established and known firm with a proven
track record of experience.
Target Marketing and Prospecting
With the advent of new technologies and business models, building contracts no longer
are awarded solely based on the lowest bid. Before rolling out any marketing strategies,
consider the following.
What are my Objectives?
You sell products to earn income. Thus, a marketing plan must begin by identifying
objectives for income and the activities to attain your income objectives.
What am I marketing?
A marketing plan answers the question, “What can my products and services do for
people?” The key is to view your products and services as tools that enable people to
achieve and/or protect their dreams
To Whom Am I Marketing?
Ideally, you will only set appointments with qualified prospects, people who need and want
your products and services, can afford them, can qualify for them, and can be approached
on a favorable basis. Imagine the increased efficiency and effectiveness of your marketing
efforts if you could market to a large group of prospects that share common characteristics
and needs, and have a communication (networking) system. Such a group of people is
known as a target market. Not surprisingly, successful advisors typically focus on one or a
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few target markets. Identifying and selecting target markets are critical aspects of creating
a basic marketing plan.
How Will I Market To Them?
Of course, not every member of a target market will be a qualified prospect. It follows
that for each target market selected you must choose and apply prospecting methods
to access qualified prospects. These prospecting methods should reflect the prospecting
source, the most probable financial needs and goals, and the target market’s preferences.
In addition, you must identify and implement appropriate ways to position your personal
brand and products and create awareness about them. Finally, you should find effective
methods for approaching prospects and setting appointments. One marketing paradigm,
life-cycle marketing, is an effective way for identifying probable needs.
How Effective Am I?
A basic marketing plan identifies ways to measure and evaluate marketing effectiveness. The
most common measures are effectiveness ratios. Analysis of these ratios enables the advisor
to identify areas of improvement and make changes to increase productivity. Effectiveness
ratios are also the basis for planning in subsequent planning periods (typically annual).
Assessment: Determine your vision of the marketing plan’s goals. Think in terms of
market share or revenue, but also consider your values, mission and purpose. Perhaps
you want to land on the pre-qualified roofing subcontractor list for 40% of the general
contractors in your country. Objectively analyze your company’s inherent strengths,
weaknesses, resources and limitations. This internal checklist will help you home in on
your main marketing messages. Are you a master carpenter? Do you have a decade’s
experience as a construction project manager? Be sure to emphasize it in your ads and
fliers. Research your market – the number and size of the competition, the potential for
market growth and pricing norms. This external evaluation will help identify underserved
markets to target and avoid wasting marketing money trying to penetrate industries or
customers already cornered by the competition. Do a few firms dominate the new school
construction projects in your county? You might want to focus on school maintenance
projects or subcontracting with the big educational builders.
Implementation: Apply your research to settle on a target market and differentiation
strategy. Will you serve your community, your state or a multi-state region? If you’re a
general contractor, will you focus on office buildings or bridges or apartments? Will you
be the low-cost leader, a specialized craftsman or a one-stop shop for all your market’s
needs? Answering these positioning questions will allow you to select the marketing mix
that matches your budget and target market. If advertising will be a component of the
mix, select the magazines, radio and TV programs and websites that cater to the customers
you want. Remember that reach – the number of readers or viewers the medium boasts
– is less important than its demographics. Construction magazines and trade association
websites get far fewer readers/viewers than reality TV shows, but will be far more
valuable in marketing your construction company. Create your ads, radio spots, direct mail
postcards and other collateral. Hire the professionals you need to create the image you
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want. These might include copywriters, graphic artists, printers, web developers and social
media managers.
Follow up: Track and record each marketing effort. Compare marketing costs -- for
example, time spent creating a campaign and the money spent on postage and stationery
for a direct-mail package targeting owners of 10-year-old homes, if you’re a roofer, to the
number of re-roofing jobs the mail campaign generates and the average revenue earned
per job. Eliminate or alter ineffective initiatives and expand the ones that work. Does your
ad in the state contractors’ board newsletter generate several leads per month? Consider
a bigger ad. Is anyone responding to your radio commercial? Consider a different station
or time slot if necessary. Use your marketing initiatives to learn about your customers and
their needs. Do your window customers express interest in green construction? Consider
taking continuing-education classes on installing day lighting systems, double-glazing and
other energy-saving measures.
know how long a job cycle runs for your to do. If you insist on making “working by
referral” the backbone of your advertising campaign, you won’t survive the tough times.
Referrals should account for 20% to 25% of all the work you do. If that percentage goes
higher, you are not doing the job of advertising that needs to be done. Referrals should be
the gravy on your meat and potatoes, the frosting on your cake. But if your meal depends
on referrals, you’ll go hungry when the market tightens up. Make new friends, seek out
actively engaged members; they will mentor you, be kind to the disengaged members; they
will like and respect you, avoid actively disengaged members because they will drag you
down, identify ways to serve the organization and the members.
How to Tell Prospective Clients What You Do
It’s important that you are able to communicate what you do in ways that will help your
prospective client understand that you are a solution to his problem. How you position
yourself is the difference between getting that “deer stuck in the headlight” look from
your prospect or having someone ask you for more information.
Positioning revolves around your core marketing message that clearly states who you work
with, what problems you solve, what solutions you provide, what benefits you offer, what
results you produce, what guarantee you give, and what is unique and special about your
particular service.
Positioning is the foundation that you build the rest of your marketing upon. Here are two
things that you must not do when telling prospective clients what you do:
Do not use your label. This is a sure-fire way of ending a conversation quickly. How many
times have you told someone, “I’m a coach” and they say, “Oh, what team?” or “How
nice” and then quickly change the subject. Chances are that when you open with your
label, if you get a continued conversation, that person is only being polite.
Do not use the process, for instance, a coach might say: “I help people discover their
excellence by co-creating the positive environment needed for a powerful conversation
by having a two-way structured dialogical process that goes beyond basic listening skills
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and includes multilevel hearing and co-active interaction by the coach.” If your strategy is
to have the “deer in the headlights” look in every prospect’s eyes, this is the one for you.
When you, the business owner, communicate the process of what you do, you are still not
reaching your prospects by communicating what’s in it for them. They will be confused and
they will run as fast as they can. Package your services verbally so that you can communicate
in a crystal-clear fashion what you can do for your prospective client in a nutshell.
Here is one thing you must do when telling prospective clients what you do: Communicate
the problem, then the solution. This approach works so well because people are living in,
thinking about and totally immersed in their problems. So, if you relay a problem clearly
and quickly and show that do indeed understand it, you’ll get their full attention in a
heartbeat.
Be as Specific as Possible: “I work with organizations facing many challenges of the slow
economy” will not get you the same result as, “I work with small to mid-sized business
owners who are struggling to get clients”. Now, you’re getting your prospect’s attention.
Then you follow up with the flip-side of the problem... the solution. If you can now show
your prospect through logic, examples, testimonials and case studies that you do indeed
have a solid solution to this problem, you will get that person’s ear - and business. Again,
I caution you to stay away from your process. Continue talking about the benefits that
working with you will provide. The processes are for later... much later.
If you remember that this is about your customer, and not about you, and you engage
your prospect by asking connecting questions about his problems and linking them to
the benefits of working with you, you will have the perfect opportunity to explore a great
business relationship. No matter how slick your brochures, business cards, hardware, and
personal marketing plan, the key to successfully launching your business is acquiring clients.
How to Market a New Construction Company
Marketing a new construction company against long-standing, established competitors
can be a challenge. Finding the strengths from within your own company and team
and highlighting them in your promotions are key to establishing a solid reputation and
encouraging new and repeat business. In construction, your reputation is the single most
important aspect of your business.
Promote experience: Even if the construction company is a new one, focus on the years
of experience of the individuals involved, such as the head contractor and his team. Relay
to the customers that each team member was chosen because of his years of experience
working in the field and that the head contractor was selected to lead the construction
company due to his expertise. Specifics are important. Don’t hesitate to point out where
the individuals worked, for how long, and what types of projects they completed. Honestly
relaying your construction company’s experience makes the customer feel comfortable
and secure in his selection.
Specialty: By evaluating your company’s strengths and weaknesses, you should
be able to find a few key points you can emphasize in your marketing.
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Focus on a service or project that your construction company does
particularly well in your advertising to bring customers on board in
this area. This could result in making a name for your company as an
expert in a particular aspect of construction -- for instance, that your
company is a fast and efficient home builder, that you can adapt easily to
individual site challenges and overcome them, or that your special niche
is in corporate-style construction. Developing a specialty helps make
your brand memorable and sets you apart from the competition.
Social media: With more and more people turning to the Internet for information on
companies, establishing a social media presence is a must for a construction
business. Social media allow the business to assemble a variety of
customers in one easy-to-access place where potential customers can
go to read testimonials from real people. Offer promotional coupons to
past customers for leaving you a review or comment on a social media
page. Post photos of past sites for customers to peruse, and encourage
users to post their own pictures of your construction jobs. While a photo
slide show on your company website is a useful tool, potential customers
can be more trusting of photos submitted by past customers themselves.
Referrals: Word-of-mouth advertising is critical in this line of work, but it can also
be difficult to come by. To counteract this, use a referral program to
encourage past customers to recommend your services to new ones. At
the end of each job, offer satisfied customers an incentive, whether it is a
gift certificate to a local restaurant or a discount on future work by your
construction company, for every referral they send you or testimonial
they write. The larger your business grows, the more effective and farreaching this tactic becomes.
Marketing Your Construction Business Online
In today’s technology driven world, your company website is more powerful at
communicating your value and services than ever before. Three key opportunities to
focus your efforts and start marketing your business online include: building a professional
website, targeting the right audience and developing great content.
Establishing a strong online presence requires hard work, perseverance and commitment
to your goals. While the following checklist won’t guarantee success, it is an important set
of criteria that will increase your odds at achieving growth. Whether you’re hoping to use
online marketing to jumpstart a new construction business or give some oomph to one
that’s already existing, these tips will give you the best advice on how to market online.
Learn online marketing jargon. Having a strong online presence is critical to success,
but you can’t really expect to succeed if you jump in headfirst without first doing some
background research. Case in point: outbound marketing approaches (websites and
blogs) cost a fraction of inbound marketing expenditures while still producing a far
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greater marketing ROI (Return on Investment). Find a niche. If you’ve been running
your construction business for a while, you’ve probably realized that your competition has
been online for years, but don’t worry. Today’s business owners don’t have to worry about
whether they’re first, second or even last, instead they focus their efforts on one specific
aspect of the business. They use their knowledge of the market to decide when to enter
the market with the right product at the right time. So find your strongest niche service;
something that you know your company can promote as being the best, fastest, cheapest.
Review industry regulations. New business owners might not be aware of all the legal
hoops they’ll have to jump through before setting up an online business. Make sure you
have a thorough understanding of the laws that regulate your industry. For example,
learning about contract bonding and why it’s relevant will make the process easier when
you actually need to purchase or renew a bond. Even if you’ve been working in the industry
for a while, it’s crucial to stay updated on regulations, as they change frequently.Protect
your profits. While you hopefully have a passion for the work you do every day, you’re
still in business to make money. This means you have a vested interest in protecting that
profit with every means at your disposal. Controlling costs means making tough decisions,
especially when it comes to marketing. Always measure the value of marketing costs by
calculating the potential profits they’ll bring in.
Build a Professional Website: The Trust Factor: Trust plays a big role throughout the life
cycle of your customers. They must trust you will complete the work estimated, within the
agreed upon budget, at the agreed upon time. Building trust is no small task. This trust is
earned through on-going discussions about their needs and how you are the best fit for
their project.‘On the web, you don’t have the advantage of a face-to-face interaction with
your customers.’ This adds a different layer of complexity to building that relationship and
gaining their trust.
These trust symbols include: The professionalism and design of your website. Your website
design and layout sets the stage for a good – or not so good – first impression. Utilizing
quality imagery can help tell your story to potential customers and get them engaged on
your site. Your website should be a reflection of your company, welcoming visitors to
come in, explore, and learn more about whom you are and what you do.
Your website’s user experience. We’ve all experienced them – a confusing website that is
hard to navigate; includes broken links and takes forever to load a page. Our attention
spans are getting shorter and shorter, if your site offers a bad experience, visitors will
move on to the next website in search for help and answers to their questions. Make it easy
for them to find the information they are looking for on your site. Build an easy to use
website with clean and clear navigation that offers a great experience.
How clearly you communicate your services. Are your customers able to understand what
it is exactly that you do, and how you might help them meet their needs? A dedicated
‘services’ page should honestly communicate your expertise and give your visitors an idea
of how you can help them reach their goals. Clearly defining your specialties and design /
build process can help your potential customers gain a better understanding of how you
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will complete their project – on time and within budget.
The information you provide about your company, its employees, values, mission and
goals. This type of information is your ‘value proposition’ and should set you apart from
your competition. Ask yourself: Why would a customer decide to work with my company
over the competition? Use this information to reassure your customer they are making the
right choice by contacting you.
Testimonials from current or previous customers. While clearly communicating your
value is important, allowing visitors to read your current or past customers’ stories and
experiences about working with you, helps to solidify the claims you have made. The 3rd
party perspective adds credibility, laying the groundwork for trust.
Industry awards, recognition or publicity. Any recognition your company has received can
help communicate the level of service your customers can expect from working with you.
A good first impression is just as important on the web as it is face-to-face. Utilize your
website to clearly communicate the value of your construction company. Your culture,
people, customers, projects, awards and recognition all play a role in gaining trust on-line.
Target the right audience; know your customers and their needs. This is generally a good
rule of thumb in any business practices, but it’s especially important when marketing
your business on-line. Clearly defining who your customers are and what they need is the
catalyst for your on-line marketing plan and can help save you time and money. Targeting
the wrong customer can eat your budget very quickly and produce no results.
Develop great content and help your visitors accomplish their goals. While clearly
communicating the value of your company is key to building trust and setting you
apart from your competition, each visitor to your site has a clear goal they are trying to
accomplish. Whether they are just researching the type of home they want to build or
are ready to talk to a contractor about building that dream home, they have needs that
must be met in order to take the next step in the ‘buying cycle’.Leverage the research
you have done to define your customer segments and their unique needs and develop
a content marketing plan. What type of content or information can you provide each
customer segment to help answer their questions and move them through the buying
cycle? Articles or blog posts about the different styles of homes, imagery of completed
residential or commercial projects, information on how to budget for a project, questions
to ask their account manager they might not have thought about. The answer will depend
on the research you’ve done, and how your company can provide added value to help your
customers reach their goals.
The web is an ever evolving and changing entity and keeping up with those changes can
be challenging. Those construction services companies that learn to embrace the web
understand their customer segments and provide the type of content that helps customers
reach their goals will reap the benefits. Take a look at your current website, what type
of first impression are you making with your customers and website visitors? Is your
site trustworthy? Are you speaking to the right customers? Are you providing added
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value with great content? In on-line marketing – there is always room for innovation and
improvement – you just need to take the first step.
Using Social Media to Market a Construction Business
How do social media work for a construction business? And how does a business advertise
effectively on a platform where people don’t want to be advertised to? Social media are
different to other forms of marketing in that aggressively putting your business out there
is possibly one of the worst things you could do. Instead, social media are less about selling
your business and more about socializing with others in order to build your business’
reputation. This means putting across your business in a personable and relatable manner,
treating your customers less as selling prospects and more like people.’ In this sense, small
construction businesses tend to have two distinct advantages.
The first is that most small construction businesses will only have small number of
staff, meaning that the personalities of various staff members can be utilized to give the
company a ‘face’. Adding this element of personality makes a company much easier to
relate to and gives people the impression they’re actually talking to people rather than a
faceless corporation (this is especially effective if you sign off updates with the name of
the person updating).The second is that most small construction businesses will only serve
a small region, meaning that they can focus almost exclusively on engaging a small target
audience. With strong regional knowledge, a local construction business can arguably fit
in better with a community and integrate itself better than a large company ever could.
The best way to get started is to do a bit of advertising in order to promote your page.
Facebook allows you to hyper-target who your ad reaches and for a small sum, you should
be able to reach a significant proportion of potential customers in your area.
Twitter is a bit trickier and requires a bit more effort. You’ll need to identify people who use
Twitter and who happen to live in the area your business operates in, as well as determining
whether or not they would be interested in your services. Once you’ve followed enough
people, begin engaging with them but do it on their terms. Monitor trending topics and
conversations to determine what is currently concerning people, and discuss that with
people. If you can find a way to work in your business, that’s a bonus but definitely, should
not be the focus of what you do on social media.
Along with setting up your profiles, you should also work on building a base of content
with which to promote and engage your audience with. This could consist of blog posts,
videos, graphics or anything else you deem suitable. What you choose to cover will depend
entirely on the type of customer you’re trying to engage but how-to and other informative
content tends to work well. Don’t forget to inject a bit of personality either.
In all honesty, there is no big secret to social media apart from be social. Don’t always
go for the hard sell; although there’s no defined ratio of social-to-promotional tweets,
about 70-30 would be a decent guideline. So if you’re struggling to market your small
construction business against various big companies, try going social. It might be the best
business decision you ever make
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Choose Your Channels: Where are your customers? If you work primarily with other
businesses, you might choose a social networking site like LinkedIn, as well as a personal
blog and website. If you work mainly with general consumers, then having a Facebook and
Twitter presence will be beneficial as well.
Keep Things Customer-Focused: Remember that social media is really just a way for
businesses to bridge the gap between themselves and their consumers. Give them a chance
to ask questions and leave comments – really listen to what they have to say, and interact.
Don’t use your social media profiles as a way to blatantly advertise. Instead, use them as
a way to get to know the people you serve so you can build relationships and customize
your offerings to their needs.
Add Value: Part of building relationships with customers involves positioning yourself
as an expert at what you do. The best way of doing this is to offer them information that
only an expert would know. Yes, you have to give a little knowledge away, but the gains
can be huge. For example, if you deal mostly with plumbing, write a blog post explaining
how to fix a leaky faucet. Or, if you’re more of a general contractor, create and post
video tutorials on making basic repairs around the house. You might even explain how to
prevent problems in the first place. Any of these things will show potential customers that
you are knowledgeable and professional, and will make them more likely to think of your
business when they have a specific need that requires your skill set.
Stay Up to Date: One mistake many business owners make when it comes to social media
is a tendency to start their pages with great excitement and then let the content trail off.
If you want your social media presence to be effective, you will have to keep up with your
profiles, blogs, and other social media outlets with current content that is updated often.
For example, if you ignore your customers when they offer positive feedback on your
updates, you’re essentially rejecting their efforts to interact with you and your business.
Encourage their feedback by responding to consumer comments in a timely manner.
Social media can only be effective if you use it and use it often.
Assorted Marketing & Advertising Strategies
Picture frames: After doing a job bring your customer a picture frame with before, during
and after construction pictures in it. Put your company’s name and contact information on
the back. This will serve as a permanent reminder of the great work you did. Along with
the picture frame you can bring a gift certificate to a local caterer to help them show their
new project to their friends - you’ll almost always get invited.
Truck magnets: Make refrigerator magnets with your company name and information and
stick them to the back of your truck. Include a sign inviting people to take them. Your
company will be on your potential customer’s fridge until they’re ready for your services.
Offer a free “Green Audit” with every estimate: Bring a “Green Box” with you to every
estimate you give. Fill the box with a few basic energy saving tips and information about
sustainability. This will leave a lasting impression on your potential clients and set you aside
from the competition.
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Create a referral rewards program: If you’re already getting referrals take it a step further
by creating a rewards program. After a job, stop by your client’s place (maybe bring a gift
like wine or flowers) to explain the program. For every shilling they refer, you offer 2% in
gift certificates to a local store of their choice or a 3% rebate towards their next job.
Dinner and cocktails: Set up a dinner and cocktail reception for your present and prospective
clients, and encourage them to bring their friends along.
Join your local trade organizations: If you join make a point to get involved, attend
meetings, join committees because construction is a relationship business and trust is
everything. Some of the local associations include Architectural Association of Kenya
(AAK), The Institute of Engineers of Kenya (IEK), Institute of Quantity Surveyors of
Kenya (IQSK), OESK and Kenya Association of Building Civil Engineering Contractors
(KABCEC). Before joining develop a strategic plan outlining your objectives:
Door hangers: When you do a job in a neighborhood, hang them on as many doors as you
can. People are always curious about who is doing what in their neighborhood and may
ask the neighbor how the construction went and you could easily be recommended. The
door hangers will explain who you are and what contracting or remodeling services you
offer along with contact info. This should not be viewed as an ‘American’ thing–it works
across the world.
Construction vehicles: When not in use, your construction vehicles, with your company
name on them, should be parked in high traffic areas, where they will be exposed to high
traffic volume. If you don’t work weekends, then your trucks are still working doing your
advertising. Phone numbers have got to be on the rear of the trucks for people who pull
up behind you at stop signs. Everyone has a cell, and they will call, but not if your number
is only on the side of your trucks. It’s too dangerous to drive next to someone and try to
write down or dial a number - although some people will unfortunately try.
Networking: You are going to have to budget times to do these things but they will pay off
in the long run. Look for groups that have breakfast meetings or end of the week lunches.
Business cards: Your business card goes in every local bill you pay. Paying bills online is
fine, but the person who opens that payment envelope might need your construction and
remodeling expertise, or know someone that does.
Phones: Your construction company website should be on answer machine or voice call.
Many people will not leave a message; instead they’ll just call another contractor. Always
make sure the phone is on your sign on the outside of the building for people driving by.
Yellow pages: Put the following in your yellow page ad: “for special offers and un-advertised
specials visit our web site.” You want to get people out of the yellow pages, away from
your competitors, and over to your site so you can show them your products, services and
expertise. Make it easy to contact you. Contact info should be on every page of your site.
Don’t make people search for contact info.
Referrals: Start following up with all your old customers. Do they have new construction
or remodeling needs? Is there anyone they know that might need your contracting or
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remodeling services? Put your name in their minds.
Brochures: Prepare a professional looking color brochure consisting of a single page or
a double- or tri-fold that fits in a standard business envelope. The brochure tells who you
are and briefly explains why a prospective customer should do business with you. This is
intended to present only enough information about your company to generate interest.
Letter of introduction. Create a standard letter draft for prospective customers on your
computer that you can tailor as needed for the specific company you’re contacting. Your
more-targeted letter takes over where your more general brochure ends. Try to limit it
to a single page. Use a standard black font, white or off-white stationery, business-letter
format, and a laser printer.
Contractor Qualification Statement. Most owners require a formal statement of your
qualifications, so have it ready to go
Prepared employees: In small firms, the owner of the construction company usually heads
up the sales and marketing effort but every employee is a sales and marketing representative.
Each one should be armed with a stash of the firm’s promotional materials and prepared
to tell the company story in a few words whenever the opportunity arises.
Introductory letter: Send a complete marketing package and introductory letter immediately
after you make a new contact — while your conversation is still fresh on his mind.
Photos: Your prospective customers want to know one thing: will they be satisfied, or
even thrilled, when the job is done? Persuade them with photographs. Here’s how: Ask
your happy clients and their families to pose in front of the completed project and, as they
smile widely, snap away. After obtaining their written permission, you could place these
photos in a presentation album, complete with friendly captions. Then, as you negotiate
new contracts, show this album to prospects, making sure to speak fondly of your former
customers. This simple act says you value customer satisfaction—and have delivered it
repeatedly. Best of all, this strategy works for all kinds of clients, from homeowners to
large commercial enterprises.
Portraits: When the project is complete and you’ve been fully paid, don’t just walk away.
Select one of the photographs you’ve taken, have it enlarged, professionally framed, and
inscribed. Then present it to your clients. Such a portrait can be cherished and displayed
for years in the home or corporate lobby, where it will remind clients of your work and
could generate repeat and referral business for you.
Manage your customers’ expectations: If a customer relationship sours, it’s almost always
because the customer’s expectation differed from what you delivered. So always try to
“under sell, over deliver.” Setting customer expectations just below what you know you
can deliver is especially valuable when planning schedule milestones. For example, tell your
clients that schedules will probably change due to bad weather, out of stock items, etc.
Also, communicate constantly throughout the job, making sure customers know what to
expect at every turn.
Promise 100% delivery: The surest way to satisfy customers is to supply a little extra on
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each project. The best extra to deliver is service. If done efficiently, the cost can be very
low; in fact, it could make you money. Supply extra service on each project, and customers
will think of you first whenever they need help and they will refer you to their friends
and associates—the least expensive way to acquire new clients. Securing a new customer
is generally much costlier than reselling your services to current ones, so do your best
to retain your customers for future work. (Customer retention is cheaper than customer
creation).
Negotiate an early completion bonus: After the customer has agreed to your contract
amount, try to negotiate an early completion bonus. If you’ve followed Strategy 4, your
contractual completion date should leave you room for finishing the project early—and
many customers are happy to pay for the privilege. This bonus could be a percentage
of the customer’s carrying costs, for which an earlier start date translates directly into a
quicker return on the customer’s investment. Such customers may be willing to reward you
with a portion of their savings. You can use this payment as an incentive for your crew
and sub-contractors, rewarding them if they complete the work sooner than scheduled.
Completing the job ahead of schedule helps save expenses and frees you to take on other
work.
Regularly call or visit the project manager once you send direct mailing letters or meet him
on-site to remind him of your willingness to get to work or place a bid.
Add construction company prospects to your newsletter database. Your newsletter
should talk about the projects you’ve recently completed, the services you provide and
case studies or testimonials from satisfied clients. You can also include tips and articles
about your industry to show your expertise and explain the benefits of working with your
organization.
Put your company and your principals on LinkedIn. Detail your experience, skills and
expertise, organization and awards. Solicit recommendations from clients and vendors.
The result: an instant, easily found resume of you and your key people company for
potential clients.
Create a professional email signature line company wide, and use it to highlight your latest
project. In addition to full contact information, add a line such as “Check out our work at
West High School,” and link it to your website’s project photos.
Put your corporate values or key message on the back of your business card. Using the
traditionally blank side can be yet another way to differentiate your company.
Make sure all correspondence – whether paper or digital – carries a subtle marketing
message.
Examine how your team answers the phone, and set up a client response policy. Make sure
your people have good phone skills and know they are required to respond to a client call
or email within a set time period.
Ask your people to get involved in community or professional organizations. It expands
your marketing network and gets your name attached to charitable events – and possible
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media mentions.
Hone your team’s presentation skills. Give them tools to tell your story well to clients and
the community.
Sponsor a local sports team that includes banners and ads in printed event programs.
Choose a sponsorship level that mentions your team when the announcer mentions
sponsors, in press releases and on radio shows.
Common Marketing Mistakes for Construction Companies
Successful marketing campaigns are born on the back of trial and error – the majority of
time, business owners will only get their initiatives right after a few mistakes. With that
said, however, knowing what strategies are mistakes in advance will help entrepreneurs
create better marketing strategies from the get-go.
Advertising in irrelevant sources: As is the case for many businesses, construction
companies often have limited budgets. This leads them to seek inexpensive advertising
space wherever they can find it in an effort to generate the highest return on investment
for the lowest input.While inexpensive advertising space can always be found by savvy
marketers, they need to be careful of buying into irrelevant marketing space in an effort to
maximize their budgets. Whenever marketers contemplate adopting a platform into their
marketing mix, they need to ask themselves if this channel will help them reach their target
audience. If it won’t, they should pass no matter how good the offer seems to be.
Lack of web presence: More than 200 million people have access to the web, and for many,
it is the primary research tool when it comes to looking for local businesses. Whether
consumers use search engines to find a construction company, turn to promotional emails
or collect referrals from friends on social networks, entrepreneurs need to be on the
internet to be found.This starts by owning and operating an up-to-date website. A welldesigned and often updated website will make the best first impression on prospects –
they will see you are technologically savvy and still actively in business.Consumers and
business-to-business clients are likely to check your website out before they call you, and
they are going to wonder who you are if you don’t have one.
Relying exclusively on referrals: For many companies, customer and associate referrals
provide a bulk of new business. Construction companies will do a good job on one project
and in return, these customers will often suggest their services to others.While this can be
a powerful way to generate leads – especially if a construction company is relatively new
and unproven – it’s important that they have other plans in place to reach new customers.
The key is to use a mix of marketing strategies, such as search engine and email marketing,
alongside referral strategies.
As Buckshon warns in his book,
Most of the time, you should initiate rather than accept unsolicited inquiries from advertising
media. You need to plan and strategically consider how and when to advertise. You also need
to test the firm’s credibility. Do they have real evidence of their media’s effectiveness, value and
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reliability.(Buckshon, 2010)
Here is a List of Apex Institutions in the Construction Industry in Kenya
INSTITUTION
Architectural
Association of Kenya,
The Professional Center,
Parliament Road
The Institution of
Engineers of Kenya,
Head Quarters
Transcom House, KRBC
Annex, 1st Floor,
Institute Of Quantity
Surveyors Of Kenya,
Blue Violets Plaza, 1st
Floor, Office No. 106
Kindaruma Road off
Ngong Road
Kenya Association
of Civil Engineering
Contractors,
Parklands MediPlaza,
3rd Parklands Avenue,
Suite 303
The Association of
Consulting Engineers of
Kenya,
The Professional Centre,
Parliament Rd
TEL NO.
Tel: 254-020-2224806
Fax: +254-0202220582
Mobile: +254721691337
EMAIL ADD
[email protected]
WEBSITE
www.aak.or.ke
Tel:254-20-2729326, 2610813
Mobile: 254-721-729363
Fax: 254-20-2716922
[email protected] www.iekenya.org
Tel: +254 20 2619337
Mobile:
+254 0721 676 823
+254 0786 676 824
[email protected]
[email protected],
www.iqskenya.org
Mobile:
+254 724 568 324
+254 738 427 465
[email protected]
www.kabcec.co.ke
Tel: +254 2249085
[email protected]
www.acek.co.ke
The Institution of
Construction Project
Managers of Kenya
Mobile No:
+254 708 844 807
[email protected]
www.icpmk.co.ke
Kenya Association of
Manufacturers,
15 Mwanzi Road
Opposite Westgate,
Westlands
Kenya
Tel: +254 020 2324817/8;
020 8155531/2; 020 2166657
Fax: 254 20 2166658
Mobile:
+254 722-201368, 0706612384, 0734 646004/5
[email protected]
www.kam.co.ke
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Kenya National
Chamber of Commerce
and Industry
Heritan House, Ground
Floor, Woodlands Road,
Off Argwings Kodhek
Road,
Kenya Bureau of
Standards
Popo Road, Off
Mombasa Road
National Construction
Authority,
1st Floor Hill Plaza,
Ngong Road,
Community Area,
Nairobi.
Ministry of Transport
and Infrastructure,
Transcom House,
Ngong Road
The Roads and Civil
Engineering Contractors
Association
The Engineers Board of
Kenya,
Transcom House Annex,
1st Floor,
Ngong Rd,
The Kenya Federation
of Master Builders,
New Waumini House,
6th Floor Suite 601
Nairobi
Tel: +254 20 240 2833/ 221
1494
Fax: +254 20 318740
[email protected]
or.ke , [email protected]
kenyachamber.or.ke
www.
kenyachamber.
or.ke
Tel: (+254 20), 6948000
Mobile: +254722202137/8,
+254734600471/2
PVoC: +254724255242
Fax:
(+254 20) 6948575
Mobile:
+254700021222
0701913140
0701913723
[email protected]
www.kebs.org
[email protected]
www.nca.go.ke/
Tel: +254-202-2729200
Fax: +254-202-2730330
www.transport.
go.ke
Mobile:
+ 254 733 841 294
+254 773 210 558
+254 733 618 641
[email protected]
swiftkenya.com
[email protected]
com
www.raceca.co.ke
Tel: +254-20-2719974
Mobile:
+254-735-330744
+254-722-50997
[email protected]
www.ebk.or.ke
Tel: 020 4442602 | 4454248
Mobile:
0710 660212 | 0772 125557
[email protected]
www.kenyafmb.
org
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References
Buckshon, M. 2010. Construction Marketing Ideas: Practical Strategies and Resources to Attract
and Retain Profitable Clients for Your Architectural, Engineering or Construction Business. Asset
Beam Publishing Ltd
Davis, T. R. 2007. How to Open & Operate a Financially Successful Construction Company.
Atlantic Publishing Group. Inc
Ganaway, N. B. 2006. Construction Business Management: A Guide to Contracting For Business
Success. First Edition. Butterworth – Heinemann Publications
Harris, F. and McCaffer, R. et al. 2013. Modern Construction Management. Seventh Edition.
John Wiley & Sons Ltd
Sears, S. K. and Sears G. A. et al. 2010 Construction Project Management: A Practical Guide
to Field Construction Management. John Wiley & Sons
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