Dire Dawa University

Institute
of Technology
School of civil engineering and
Architecture

Principles of Construction
Management
BY: Mohammednur H.
Chapter Four…
Organizational Management in
Projects
▪ Organization is a legal entity involves collection of
people who join together to achieve a common goals.
Individual organization creates a unique system that
impacts the project operating in that system. The
resulting organizational system determines the power,
influence, interests, competence, and political capabilities
of the people who are able to act within the system.
System is a collection of various components that
together can produce results not obtainable by the
individual components alone.
Chapter Four…
▪ Organizations occur when people work together to
accomplish some desired end or goal. It may be
purposely or from spontaneous activity, or combined.
▪ Organizing has long history. Early humans organized to
hunt, find shelter and protect themselves. By grouping
together, they pursued their goals, through establishing
the first human organization, in the form of family and
tribes. In another way, other species realized early that
organizing improves their chance of survival in the
competitive environment.
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◼ Organization can create strength and inventiveness that
leads to achieving own goals, which is survival, then
civilization and development, or any.
◼ Projects operate within the constraints imposed by the
organization through their structural and governance
framework.
◼ To operate effectively and efficiently, the project
manager needs to understand where responsibility,
accountability, and authority reside within the
organization.
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◼ This understanding will help the project manager
effectively use his or her power, influence, competence,
leadership, and political capabilities to successfully
complete the project.
◼ Governance is the framework within which authority is
exercised in organizations. This framework includes:
➢ Rules and Policies,

➢ System

➢ Procederes and proceses,

➢ Norms and others

Chapter Four…
◼ Management element components are assigned to
selected individuals within the organization. These
individuals may perform in a hierarchical horizontal and
vertical levels within the organization.
◼ These hierarchical levels range from the line
management level through to the executive management
level. The responsibility, accountability, and authority
assigned to the hierarchical level indicate how the
individual may perform the function within that
organization, called the Structural framework.
Chapter Four…

Types of organization
▪ Each organization considers numerous factors for
inclusion in its organizational structure. Each factor may
carry a different level of importance in the final analysis.
The combination of the factor, its value, and relative
importance provides the organization’s decision makers
with the right information for inclusion in the analysis.
▪ Factors to consider in selecting an organizational
structure include degree of alignment with objectives,
clear line and scope of authority, Simplicity, Efficiency
of performance, Physical locations and Cost.
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◼ Organizations take many forms or types. They can be
classified based on ownership, legal and organizational
structure.
❖ Based on ownership:

Private sector: owned by individuals, groups of individuals

Public sector: owned and operated by the government
Third sector (Non-profit): charities, NGOs, and others
focused on social causes.
❖ Based on legal structure:

Sole proprietorship: single owner with unlimited personal

liability.
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Partnership: multiple owners sharing profits and losses.
Limited liability company (LLC): business entity with
limited liability for owners.
❖ Based on organizational structure:

Functional: departments are based on specific functions, e.g.,

marketing, finance…
Divisional: departments are based on product lines or
geographic regions.
Matrix: combines functional and divisional structures.
Flat: fewer layers of management, decentralized decision
making
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◼ Many organizations use hybrid structures that combines
elements of both functional and divisional structures.
These can help to balance the merit and demerit of each
approach.

Functional structure Divisional structure

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Matrix structure

Flat structure
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Project management process

❑ In order to meet project objectives, Project management
processes are grouped in five Project Management
Process Groups.
1. Initiating Process Group. The process performed to
define a new project or a new phase of an existing
project by obtaining authorization to start the project or
phase.
Example : Developing Project Charter, Stakeholder
identification
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2. Planning Process Group: The process required to
establish the scope of the project, refine the objectives,
and define the course of action required to attain the
objectives that the project was undertaken to achieve.
Example : Developing Project Management Plan, Scope
and quality planning, scheduling, WBS, cost planning,
risk management
3. Executing Process Group: The process performed to
complete the work defined in the project management
plan to satisfy the project requirements.
Example : Directing, quality management, Team
developing, Communication, Stakeholder management
Chapter Four…
4. Monitoring and Controlling Process Group: The
process required to track, review, and regulate the
progress and performance of the project; identify any
areas in which changes to the plan are required; and
initiate the corresponding changes.
Example : Work control; Change control; Scope
validating, schedule, cost and quality control;
Communication and stakeholder monitoring;
Procurement control.
5. Closing Process Group: The process performed to
formally complete or close a project, phase, or contract.
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◼ Individual processes in the Process Groups are often
iterated prior to completing a phase or a project. The
number of process iterations and interactions between
processes varies based on the needs of the project.
◼ The output of one process generally becomes an input to
another process or is a deliverable of the project or
project phase. For example, the project management plan
and project documents produced in the Planning Process
Group are provided to the Executing Process Group
where updates are made.
Chapter Four…
◼ Process Groups are not project phases. If the project is
divided into phases, the processes in the Process Groups
interact within each phase. It is possible that all Process
Groups could be represented within a phase.
◼ As projects are separated into distinct phases, such as
concept development, feasibility study, design,
prototype, build, or test, etc., processes in each of the
Process Groups are repeated as necessary in each phase
until the completion criteria for that phase have been
satisfied.
Chapter Four…
Procurement
◼ To procure means to buy or obtain. The procurement
stage of construction management is often referred to as
“buying out” the job or purchasing the labor, materials,
and equipment needed to complete the project.
Procurement is a process used to select the lowest
competitive and qualified bidder for procuring services
or works or goods from potential competitors based on
reasonable relevant criteria.
◼ It can also be expressed as a method used to employ or
buy services or works or goods for the value (in the form
of money) which includes reasonable profit.
Chapter Four…
◼ The procurement operation can be a very simple
process handled on a local basis by the
superintendent, or it can be a major department or
division within the construction company whereby
purchases are made on a regional or national level.
Some projects warrant a combination of both
approaches. In the homebuilding business, for
example, the very large national companies typically
have procurement departments that purchase labor
and materials for hundreds of homes at a time,
securing the best prices available on a national basis.
Chapter Four…
◼ On the other hand, on a high-rise office complex or
other large commercial project, the superintendent
may purchase small quantities of miscellaneous
materials, such as lumber for wood blocking from a
local building supply, or hire local labor for a small
contract item, such as caulking. However, larger
material purchases such as steel framing might be
made by the estimating, purchasing, or procurement
department back at the main office. It depends on the
size of the job and the size of the construction
organization running the job.
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◼ Either way, project procurement constitutes much of
the direct cost associated with the construction
project.
◼ Physical infrastructures are cost extensive and
appropriate savings obtained through competition
are the main factor behind the procurement process
◼ The purposes of a Procurement Management System
can be summarized into two major points:
➢ To satisfy the need for economy and efficiency,
➢ To provide equal opportunity to competitive
bidders.
 Chapter Four…
◼ An effective and efficient procurement method ensures
the following rights called the "Five Rights". These are
The Right Quality,(technical expectation and economic
consideration)
The Right Quantity, (Take-off-Sheet Measurements and
Resources Allocations)
The Right Cost / Price /,(quality related and the right cost is
nearby cost, achieved mainly through competition)
The Right Counterpart (to guarantee that the parties shall be fit
to the job) and
The Right Time. (scheduling with regard to right timing is
essential)
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◼ Physical infrastructures are cost extensive and
appropriate savings obtained through competition are
the main factor behind the procurement process
❑ Procurement Management processes
Procurement Preparation: Procurement Team, Tender
Document, Approval of Tender Docs
Tendering: Invitation, Clarification, Submission and
Opening
Tender Evaluation: Preliminary Evaluation, Detail
Evaluation, Award of Contract.
Chapter Four…
Bidders qualification method
Bid Qualification Procedure

Competitive Bid Negotiative Bid

Short-Listed Bid Open Bid

One-Stage Procedure Two-Stage Procedure

• Financial Proposal

Pre-Qualification Post Qualification

• Technical Proposal • Financial Proposal

• Financial Proposal • Technical Proposal
Chapter Four…
Pre-Qualification:
✓ Protect the employer against unqualified bidders
✓ Make bidders to be better planned
✓ Show competency & methods of implementation
✓ Ensure award to least evaluated not lowest bidder
Post Qualification:
✓ The advantage of this approach is not to loose the lowest
financially evaluated bidder.
✓ But may loose best technically qualified bidder.
✓ Wasting time for unqualified bidder
Chapter Four…
Contract administration
◼ A contract is an agreement between two parties which
they intend to be legally binding with respect to the
obligations of each party to the other and their liabilities.
◼ It is a written agreement between or among two or more
parties whereby each party promises to do or not to do
something and agrees to terms (conditions and
Warranties) set out in the contract.
◼ The contract thus binds the contractor to construct the
works as defined, and the employer to pay for them in
the manner and timing set out.
Chapter Four…
◼ As civil engineering works are often complex,
involving the contractor in many hundreds of
different operations using many different materials
and manufactured items, including employment of a
wide variety of specialists, the documents defining
the contract are complex and comprehensive.
◼ The task of preparing them for tendering therefore
warrants close attention to detail and uniformity of
approach, so as to achieve a coherent set of
documents which forms an unambiguous and
manageable contract.
Chapter Four…

◼ The purposes of a contract are therefore:

➢To enforce law or bind conditions between or among the
parties agree to procure services / works / goods
➢To clearly show the Terms and Conditions of contracts
the parties agree with
➢To identify special risks and their treatment

➢To clearly show the Rights and Obligations of

performances from the contracting parties
➢To clearly show remedial measures in cases for non –
performances
Chapter Four…
▪ To clearly show handling provisions for price,
completion time, requirements variations adjustment
systems, Changes in cost and legislations and their
dispute resolution mechanisms.
▪ The basic purpose of a contract document is to define
exactly and explicitly the rights and obligations of each
party thereto.
▪ The Contract document comprises the full package
tender documents including any addenda issued there to
with the technical and financial offer of the successful
bidder
Chapter Four…

◼ Contract administration is all about managing the

business details and relationships. When you consider all
of the General Conditions, Supplemental Conditions, and
specifications associated with the contract, you can
understand what a challenge this is.
◼ It is virtually impossible for one person to accomplish
the job; support from the main office and the job site is
required. Although one person may be the contract
administrator, it takes the efforts of the entire project
team to accomplish the task.
Chapter Four…
◼ Every statement and every clause in the contract sets
forth rules, regulations, and procedures for every aspect
of the construction process. Nothing goes forward
without some paperwork leading the way: written
requests for information, change orders, submittal logs,
shop drawings, pay requests, progress reports, and on
and on. Staying on top of it all is a huge task and a
critical one.
◼ The role of the contract administrator is to make certain
the contractor meets its contractual obligations, the
Agency adheres to its contractual obligations, and the
Agency’s legal rights are protected.
Chapter Four…
◼ It is important that the Project Management Plan and
the contract management plan clearly identify the
roles and procedures to be followed by the project
staff responsible for managing the project
(delivering the project scope on time and within
budget) versus the project staff responsible for
administering project contracts (making certain
contract parties meet their contractual obligations
and protecting the organization’s legal rights).
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◼ The contract management plan addresses how
awarded project contracts are to be administered.
Due to a contract’s legal nature it is important that
the project team understands the legal implications
of their actions relative to project contracts.
Chapter Four…
Types of contract
i. The Unit-Price Contract: It is based on estimated
quantities of certain well defined items of work and
costs per unit amount of each of these work items. The
Project or Tender price is determined and quoted from
unit rates assigned to detailed bill of quantities.
❖ Advantages:
➢ Promotes open competition involving quantities of
work that cannot be accurately forecast at the time
of bidding.
➢ More transparent and easier for supervision and
control.
Chapter Four…
➢ relatively easy to administer changes and
amendments
❖ Disadvantages:
➢ Requires reasonable time and cost for the
preparation of specification and detailed bill of
quantities.
ii. The Lump-Sum Contract: The lump sum contract
is one in which the contractor agrees to carryout a
stipulated job of work in exchange for a fixed sum of
money; i.e. price is determined and quoted as a total
sum of money without individual ratings.
Chapter Four…
❖ Advantages:
➢ The owner knows the total cost of his project in advance.
➢ More suitable for works of smaller in size

➢ Easy/ no need for detailed specification and bill of

quantities
❖ Disadvantages:
➢ Limited to construction programs that can be accurately
and completely described at the time of bidding.
➢ difficult to administer changes

➢ Recommended only where the contracting parties have

prior experience of similar projects.
Chapter Four…
iii. Cost-Plus Contract: This designates actual cost
plus additions for profit and risks depending on the
mutual agreement to be reached between the parties.
Types of cost-Plus Contract.
1. Cost-Plus Percentage of Cost Contract: This type of
contract fixes percentage of the cost of construction for
the profits and risks to be due to the contractor.
❖ Advantages:
➢ For an emergency nature that time is not available for the
advance preparation of contract documents and for the
usual bidding routine
Chapter Four…
➢ The work entailed may be such that no one can
ascertain what difficulties will be encountered.
➢ protect the interest of the owner
❖ Disadvantages:
➢ It doesn’t urge the contractor to maintain and practice
strict economy in the interests of the owners
2. Cost-Plus Fixed Fee Contract: A popular type of cost-
plus contract is one in which the contractor’s fee is
established as a fixed sum of money.
Chapter Four…
❖ Advantages:
➢ Time saving in the preparation of contract and bidding
document.
➢ Expedition of work is desirable from the view point of
freeing labor and equipment for other contracts.
❖ Disadvantages:
➢ The contractor should work in a diligent manner and
failure to do so will cause additional office, overhead
expense to be incurred for which he is not reimbursed.
➢ Changes and Amendments needs negotiation can be
accommodated amicably
Thank you!