Chapter 5 & 6 Management Contracting and Construction Management

AKHMAD RUSLI (9111 202 701) DHINI SYALINA (9111 202 703) ILHAM KURNIAWAN (9111 202 711) SATRYA PRATAMA (9111 202 718)

Table of Content Management Contracting

History of Management Contracting

Construction Contract Type Selection

Background of Management Contracting Management Contracting Overview

Use and Principles of Management Contracting

Risk in Management Contracting Approaches to Management Contracting Advantages & Disadvantage The Implementation

History of Management Contracting

At the end of 1980s, management contracting was introduced Since 1987 standardform contract published by independent institution, e.g. JCT, FIDIC, AIA, SIA

Prior to 1987, modified standard contract forms were introduced and drafted by one of the parties (usually the contractor).

Construction Contract Type Selection

Management Contracting Overview ~ 1

The characteristics of a The management

management contract are the employer engages the management contractor to : participate in the project at an early stage, contribute construction expertise to the design and manage the construction

contractor = managing the process undertaking any of the works. Management contracting is a procurement method consisting of 100% subcontracting. Every item of building work is sub-contracted to works contractors.

Management Contracting Overview ~2

Contractual relationships in Construction risk is distributed

management contracting:

entirely between the management contractor and the works contractors

Works contractors are

contractually responsible for the work quality.

Employer can terminate the
Favoured due to has equal level

as professional consultants.
More effective use of labor

relationship after the design stage but before construction work actually commences.

force, plant and equipment.

Reduce operating costs

significantly.

Use and Principles of Management Contracting Principles of

Use of Management Contracting
The condition that support to

Management Contracting

use the management contract: 1. Independent architect and design team 2. Early completion 3. Size of project 4. Complexity of project 5. Changes to the employers requirements during construction. 6. Competition on price

The scope of the work & responsibilities are well defined using project-specific data. The use of project-specific data : Enables the details to be easily tailored to suit individual projects. Provide a succinct summary of what it is the parties are actually agreeing to do. Data would usually be defined in a management contract: 1. Description of project 2. Prime cost 3. Services provided by management contractor 4. Lists of project drawings and of site facilities

Risk in Management Contracting ~ 1

The management contractor is responsible for the administration

and operation of the works contractors. Liability for work quality is belong to works contractor, as long as the management contractor performed well. In some cases, the employer required management contractor to absorb the risk. The main risks involved were those associated with responsibility for works contractors, 1. Time overruns 2. Defects maintenance 3. Preliminaries & Design

Risk in Management Contracting ~ 2

Risk Category Project Expense (Money) Time Responsibility Employer and Management Contracting Mitigation Create cost reimbursement contract between employer and management contracting

Management Contracting and Works Contractor

Option 1: Management contractor fully responsible and liable on the quality of workmanship & material.

Overlap between design and construction

Quality

Option 2: Works contractor responsible for quality of workmanship and material. Management contractor

Involve only experienced and qualified contractors

Approaches to Management Contracting

Management contracting is one of

contracting method in building construction. Employer shall cooperate with experienced and qualified management contractor in order to get satisfaction result. Employer shall carefully determine the priorities since the works involved different works contractor while the time is very tight.

Advantages & Disadvantages

Advantages
Lower Cost

Contract management helps companies lower their business costs, whether they relate to producing goods and services or running ancillary business operations.
Business Relationship

Companies can use contracts to create lasting business relationships. These relationships allow companies to develop revenue streams by consistently purchasing goods or services from a company.
Competitive Advantage

A competitive advantage is the ability to produce or distribute goods and services better than other companies in the business environment. Using contracts can help companies maintain their advantage by limiting the amount of economic resources in the business environment. Disadvantages
Loss of Control

A major disadvantage of contract management is that the organization gives up a considerable amount of control over the services that will be provided to customers.
Time Delay

Advantages & Disadvantages

Disadvantages
Loss of Flexibility

Flexibility is an important part of doing business in a global economy. When the organization outsources work to third parties, the organization reduces its capacity to adapt its internal business processes to meet the needs of clients in a dynamic business environment
Loss of Quality

When a parent organization provides a certain level of quality in its products and services, the result is a professional reputation gained in the industry. If individuals in the contractor company are delivering products or services on behalf of their client, a loss of quality could have disastrous effects on the reputation of the client firm.
Compliance

Although a service contract between client and contractor is generally viewed as a legal agreement, the client can face huge legal costs to enforce this document in the courts. The contract should include teeth, or mechanisms for ensuring that the contractor will provide services as agreed. However, large firms should plan for unforeseen circumstances and legal costs for contractual

The Implementation
Hotels in Asia

Such as The Marriott International Corporation. They can more easily obtain economies of scale, a global reservation system, brand recognition, etc.
Airline Industry

Such as Qantas airlines. They thought management contract is an alternative that can yield higher returns for the company.

Table of Content Construction Management

Background

Overview
Use of construction management contracts The construction management philosophy Standard Form Contract (JCT CM 02) Risk in construction management Approaches to construction management Advantages and Disadvantages The Implementation Management Contracting Vs Construction

Management Reference

Background of Construction Management

Design
Adopted in UK due to

successful of implementation in USA.

Construction management
Quick, Reliable and Complex Building Construction

Programmi ng

offers alternative besides the management contracting

Construction management

Constructio n

becomes popular due to the more complex problem in modern construction projects.

Manageme nt Issues Architectur al Issues

USA

UK

Origins : USA;

Emerges: 1930

Construction Management Overview

Contractual relationships in construction management

The basic problem with management-based contracting systems lies

with the contractual links, information links and authority. The construction manager acts as consultant who assist the employer in project completion.

Use of construction management contracts

The Joint Contracts Tribunal published their first and still current standard-

form construction management documentation in 2002.

The construction management method is most suitable where some or all of

the following circumstances are present: 1. The employer is familiar with construction, and knows some or all of the professional team. 2. The risks associated with the project are dominated by timeliness and cost (for example the employer may be a private sector employer requiring a commercial building). 3. The project is technologically complex involving diverse technologies and sub-systems. 4. The employer wants to make minor variations to requirements, as the project proceeds. 5. There is scope for separating responsibility for design from responsibility for management of the project. 6. The employer requires an early start on site. 7. The price needs to be competitive, but value for money is more important than simply securing the least possible cost.

Construction Management Philosophy

Construction management is primarily a management philosophy and secondarily a set of contracts.
The impact of management philosophy such as: The employer contracts directly with the trade contractors who are doing the work The construction manager has no contractual responsibility for their performance. The construction manager becomes management consultant while the design consultant is the architects.

Standard Form Contract (JCT CM 02)

First publication was in 2002. Developed from common practice and

industrial practice. Two main part of JCT CM 02 : 1. Construction management agreement (JCT C/CM 02) between the employer and construction manager 2. Construction management trade contract (JCT TC/C 02) between the trade contractor and the employer 3. Each part consists of of articles of agreement, conditions, schedules and an appendix

Risk in Construction Management ~ 1

Risk Category Responsibility Mitigation Since construction manager plays important role in optimizing project time execution, highly qualified and experienced construction manager is required

Time

Construction Manager and Trade Contractor

Project Expense (Money) Design Defect (default)

Monitor the forecast since the payment is direct from Employer and Trade Contractors employer to trade contractors - Involve only experienced and qualified contractors - Clearly stated the liability of trade contractor in the

Trade Contractor

Risk in Construction Management ~ 2

Risk Category Completion

Responsibility
Trade Contractors

Mitigation
Clearly stated the obligation of trade contractors to complete the works

Quality

Trade Contractors

-Put specific contract clause to govern the obligation of trade contractors to deliver high quality works - Establish performance matrix - Ensure good design and specification before execution

Approaches to Construction Management

Popular in US.

Its fairly unusual and only used in certain, very specific circumstances UK specific issue Contract standard form is available from JCT documentation, Engineering and Construction Contract, etc. The standard form shall be anlyzed and customized (as

Advantages and Disadvantages

Advantages
Lower Forecasted Cost

Construction costs are identified and predicted reliably during the design phase. Team interacts relating to construction cost, completion schedule, and quality work to maximize owners value. Also Protect the Owner from unnecessary liability.
Controlled Schedule

Schedule is controlled during design phase to ensure that design efforts are integrated with construction phase requirements. Facilitates fast track methodology or phased construction providing earlier completion Lend itself well to complex construction projects as construction can commence design work is completed.
Single Point Contact

Single prime responsibility for construction. No additional owner personnel required to monitor construction. Serve as an objective, experienced Owners Representative to protect the Clients and projects best interests first and foremost. Disadvantages
Duplication of some supervision and contractors mark-ups. These costs must be

offset by value engineering, etc.

The client takes all the risk, particularly in the construction management.

The Implementation
PT Chevron Pacific Indonesia

Employed contractor to manage their own construction work in house and an outside construction manager is appointed. In this case the trade contracts are still direct with PT CPI.

Construction Management vs Management Contracting ~ 1

Significant different between construction

management and management contracting is the employer places a direct contract with each of the specialist trade contractors. Construction Management: The employer will utilizes the expertise of a construction manager who acts in the role of consultant in order to coordinate these contracts. This technique overcomes many of the problems of the management contracting method, because there is no direct contractual link between the construction manager and the trade contractors

Construction Management vs Management Contracting ~ 2

The Construction Management was that the employer

would organize the management of the construction activities in house by appointing a construction manager. The trade contractors have direct contract with the employer. While, in Management Contracting the actual works are divided into separate work contractors which have direct contract with Management Contractor. Management contractor reports and has direct contract with the employer. Because of the criticism of Management Contracting that has arisen over the past few years, the construction management approach has become more widely applied.

MC vs CM Organization Comparison
Management Contracting

Construction Management

Reference
John Murdoch nand Will Huges, Construction

Contracts Law and Management, Taylor and Francis, 2008

www. kerncm.com www. Wikipedia.com www.ehow.com

TERIMA KASIH

BACK UP SLIDES

Joint Contract Tribunal (JCT) Standard Form

About our contracts JCT contracts facilitate the process of constructing buildings. In simple terms, contracts set out the responsibilities of all parties within the construction process and their obligations, so it is clear as to what work needs to be done, who is doing it, when are they doing it by, and for how much. JCT is the UKs leading producer of standard forms of contract, which work on the principle of adapting established benchmark provisions to suit a wide range of projects. What is a standard form of building contract? A standard form of building contract is a form of contract containing conditions which are applicable, or can be made applicable by the use of alternatives, to a wide range of building projects. The JCT approach Our approach is to produce standard forms that meet clearly defined needs and apportion risk in a way that is appropriate for the procurement methods they reflect. The JCT suite of contracts is made up of families of standard forms, guidance and other documents that are suitable for the majority of construction projects and procurement methods. JCT contracts are produced to provide two key services: Minimize the transaction cost of entering into a contract Provide benchmark provisions in standard form contracts Why a standard form? There are many reasons why the industry and contract users benefit from the use of standard contracts: It saves time It minimizes transaction cost It allocates risk in a fair and recognizable way Standard forms are designed in a way that is comprehensive, and cover most of the pitfalls which surround contractual relations in the building industry Standard forms reflect the benefits that are accrued through precedent this is achieved by defining benchmark provisions which reflect a generally acceptable position in practice JCT contracts are developed via a cross-section of the building industry involved in the contract process. This means that clients (private and public sector), consultants, contractors, specialists, and sub-contractors are all involved in the development of JCT contracts.

Type of Management Contracts