Traditional & Professional Contracting Methods
How and when do individuals, industrialists and investors need project management services
We are a team of thorough engineering professionals serving the construction industry for over 20 years. We particularly help factories and industrial establishments to manage their construction projects. We also do assist construction and real-estate companies on infrastructure and development projects; similarly, we also guide individual clients on residential construction projects.
What is Project Management Consultancy (PMC)?
System of engaging PMC on construction projects is not habitual to many project owners. Particularly when construction is not the core business of an individual or organization, the favourite traditional method of project delivery is the Design-Build method. In this system, a Turnkey Contractor proposes to construct the required facility for a Lumpsum Value (or Rate-per-floor-area). The contractor presents a preliminary drawing and specifications to the owner before award of work. After award of work, all detailed design and supervision are done by contractors’ engineers. The lumpsum value is revised, by mutual consent, if there is any change in the original drawings and specifications. The advantage of this system is that (1) the owner is able to get an estimate of construction cost well in advance and (2) the owner needs to associate only with one agency, that is the turnkey contractor.
“When construction is not the core business of an individual/organization, traditionally they seek a turnkey contractor for their construction requirement because there is a single-point responsibility.”
The disadvantages of Design-Build has landed many project owners in trouble. Firstly, different turnkey contractors make their commercial offer based on different drawings and specifications; comparing them is indeed comparing apples with oranges. Secondly, as the owners requirements are not benchmarked before bidding, invariably the preliminary drawings provided by the contractor goes for a toss, during construction. The project cost increases as subsequent change-orders are at best, negotiated variations and no more, competitive bidding. Third, quality assurance of project is a great deal of trust between the owner and contractor, as design and supervision is vested with the contractor.
Modern methods of project delivery attempts to solve this problem, by employing a construction manager, as the pivotal agency. In the PMC system, the construction manager (1) provides preliminary estimates to the owner (2) advises the pros and cons of different methods of construction (3) prepares tender documents that describe project requirements as a benchmark (4) minimizes change orders during construction (5) supervises construction and ensures quality and time schedules are achieved and (6) arbitrate disputes between owner and contractor in case of genuine scope creeps. Here is a detailed account of the services offered by PMC.
“Comparing offers from turnkey contractors, managing changes and quality control are pain points. PMC offers benchmarking of contractors, keeps check on quality and minimizes/manages changes. PMC travels with the owner from feasibility to close-out or even further”
The most frequent complaint about PMC consultants in the industry is limiting their contribution merely to documentation and e-mail communications, and emerging as problem-recorders. True project consultants, with an insight and understanding of operations in the construction industry, are expected to act as facilitators and problem-solvers.
What projects need management consulting services?
In the foregoing discussion, we have only highlighted one traditional and one professional system of project delivery. There are more forms of traditional project delivery, other than Design-Build, such as:
- Owner-build System: In this method, (which is most suitable to construction companies) the owner does not employ a contractor and directly undertakes all purchases and hiring. In most cases, the owner engages a labour contractor to supply necessary manpower and equipment. This Do-It-Yourself (DIY) system is widely adopted by some individual owners and real-estate developers. Factories and industrial organizations do not follow this method, as it is a major deviation from their core business. Owner requires a lot of coordination with designers, and the owner or their employee should be sufficiently knowledgeable in construction to supervise the project. The owner seldom has a preliminary cost estimate, nor is there any control over change-orders and scope creep in labour contracts. [Owners can seek PMC services for preliminary estimates, coordination, supervision and control of changes – See Cost+Fee system below.]
- Design-bid-build System: In this traditional method, (which is most suitable to companies that have a construction department) the owner employs design consultants to prepare drawings and specifications, and competitively bid for contractors based on re-measurable rates. Large industries such as refineries, infrastructure companies such as railways and metro-rails use this arrangement. A lot of coordination is required between designers and contractors, and the owner should have enough supervisory staff. The owners engineering team makes preliminary cost estimates and exercise control over change-orders and scope creep. [Companies can outsource their supervisory and project management staffing to PMC services – See Cost+Fee system below]
“Owner-build system is suitable for individual owners with disposable time or staff for coordination and supervision. However, there is no control over change orders and there is seldom a preliminary estimate.”
Forms of professionally-managed project delivery, other than PMC, include the following:
- Cost-Plus-Fee System: The cost plus fee system, is an offshoot of the owner-build system in which a construction manager is responsible for engineering, procurement and construction. The construction manager undertakes all purchases, hiring, supervision and coordination on behalf of the owner, for a fee, whereas the cost of purchase, rents, wages and overheads are borne by the owner.
- Guaranteed Maximum Cost (GMC) System: The GMC system, is an offshoot of the design-bid-build system in which a contractor acts as construction manager. The GMC contractor guarantees a maximum cost to the owner plus a fee for their role purchases, hiring, supervision and coordination on behalf of the owner. If the cost exceeds the maximum value, it is borne by the contractor whereas any saving is returned to the owner.
“We also undertake projects on Cost-plus-fee System.“