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HANDBOOK OF CONSTRUCTION MANAGEMENT AND ORGANIZATION

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HANDBOOK OF

CONSTRUCTION MANAGEMENT AND

ORGANIZATION

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HA DBO K OF

CONSTRUC 10 MA AG ME AN

o GANIZA 0 Second Edition

JOSEPH P. FREIN, Editor

IrimI VAN NOSTRAND REINHOLD COMPANY ~ NEW YORK CINCINNATI TORONTO LONDON MELBOURNE

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Copyright © 1980 by Van Nostrand Reinhold Company Inc. Sof'tcover reprint of the hardcover 1 st edition 1980

Library of Congress Catalog Card Number: 79-9540 ISBN-13: 978-1-4684-1451-6 e-ISBN-13: 978-1-4684-1449-3 DOl: 10.1007/978-1-4684-1449-3

All rights reserved. Certain portions of this book copyright © 1973 by Van Nostrand Reinhold Company. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means-graphic, electronic, or mechanical, including photo­copying, recording, taping, or information storage and retrieval systems-without permission of the publisher.

Manufactured in the United States of America

Published by Van Nostrand Reinhold Company Inc. 135 West 50th Street, New York, N.Y. 10020

Van Nostrand Reinhold Publishing 1410 Uirchmoun t Road Scarborough, Ontario M I P 2E7, Canada

Van Nostrand Reinhold 480 Latrobe Street Melbourne, Victoria 3000, Australia

Van Nostrand Reinhold Company Limited Molly Millars Lane Wokingham, Berkshire, England

1514131211109876543

Library of Congress Cataloging in Publication Data

Main entry under title:

Handbook of construction management and organization.

First ed. (J 973) by J. B. Bonny. Includes index. I. Construction industry-United States-Management

I. Frein, Joseph P., 1904- II. Bonny, John Bruce, 1903- Handbook of construction manage-ment and organization. HD9715.U52B58 1980 658'.92'40973 79-9540 ISBN-13: 978-1-4684-1451-6

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CONTRIBUTORS

JAMES A. ATTWOOD

Senior Vice-President Equitable Life Assurance Society of the

United States New York, New York

DARIO DE BENEDICTIS

Partner Thelen, Marrin, Johnson, & Bridges San Francisco, California

R. E. BERNARD

Vice-President Kaiser Engineers Oakland, California

*J. B. BONNY

President and Chairman (Retired) Morrison Knudsen Company, Inc. Boise, Idaho

HENRY C. BOSCHEN

Chairman (Retired) Raymond International, Inc. New York, New York

DAVID V. BURGETT

Partner Lybrand, Ross Bros and Montgomery

(Subsequently Coopers and Lybrand) San Francisco, California

C. B. CAMPBELL

Vice-President-Accounting Morrison Knudsen Company, Inc. Boise, Idaho

• Deceased

PAUL W. CANE

Vice-President and Manager of Public Relations The Bechtel Corporation San Francisco, California

JOHN C. DAY

Senior Vice-President Marsh & McLennan, Inc. Seattle, Washington

FRANCIS DURAND

Partner Ernst and Ernst New Orleans, Louisiana

O. P. EASTERWOOD

Partner McN utt, Dudley, Easterwood & Losch Washington, D.C.

JOHN FONDAHL

Professor of Civil Engineering Stanford University Stanford, California

J. P. FREIN

Vice-President and Director (Retired) Morrison Knudsen Company, Inc. Boise, Idaho

*EARDLEY W. GLASS

Financial Vice-President (Retired) Morrison Knudsen Company, Inc. Boise, Idaho

DAN GORTON

Vice-President (Retired) Fidelity and Deposit Company of Maryland Baltimore, Maryland

v

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vi ContrIbutors

JOSEPH J. HYDE

Partner Lybrand, Ross Bros and Montgomery

(Subsequently Coopers and Lybrand) San Francisco, California

GEORGE F. KERNAN

Vice-President (Retired) Continental Illinois Bank and Trust Company Chicago, Illinois

LEE E. KNACK

Director of Industrial Relations Morrison Knudsen Company, Inc. Boise, Idaho

WILLIAM S. LAMBIE, JR.

Vice-President, Parts and Service Caterpillar Tractor Company Peoria, Illinois

JOHN LANGBERG

Procurement Manager (Retired) International Engineering Company, Inc. San Francisco, California

JOHN W. LEONARD

Vice-President-Engineering Morrison Knudsen Company, Inc. Boise, Idaho

W. F. MEYER

IBM Marketing Manager New York, New York

ROBERT M. McLEOD

Partner Thelen, Marrin, Johnson & Bridges San Francisco, California

WILLIAM J. PALMER

Partner and Chairman-Construction Industry Division

Coopers and Lybrand Sacramento, California

DONALD G. PERRY

Formerly Partner Lybrand, Ross Bros. and Montgomery

(Subsequently Coopers and Lybrand) San Francisco, California

MARK A. ROBINSON

Director of Procurement (Retired) Morrison Knudsen Company, Inc. Boise, Idaho

FREDERICK P. SLOAT

National Director of Acturial and Benefits Consulting Services

Lybrand, Ross Bros. and Montgomery (Subsequently Coopers and Lybrand)

San Francisco, California

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FDREWDRD

The construction industry, like any other, has through evolution and technological advance become increasingly complex. Always a high-risk business, it has thus becomc even riskier.

But underneath this complexity lie certain truths, certain basic fundamentals. The need has long existed for a "hand­book" of these fundamentals that would be of guidance to general contractors, specialty contractors and subcontrac­tors as well as to professors and students in universities or technical institutes.

Such a handbook would, by example, examine the basics of construction management, the organizational structures which in practice have proved to be the most workable, and the capabilities and requisites which experience has shown to be necessary for success.

Obviously, no text can provide all the answers. However,­this compendium by proven professionals, edited by leaders

of the construction industry, represents a valuable addition to the body of literature on this subject.

In our experience, no other business demands such a broad range of management talents and skills which are adaptable to other industries. Successful construction man­agement requires another quality-the 24-hour approach to problem-solving.

The editors have spent a lifetime in construction, a lifetime full of challenge and achievement. The associates gathered together to contribute to this handbook write from experience and with the shared conviction that the book fills a real need.

We, their friends and associates, commend them for this effort.

Edgar F. Kaiser Chairman of the Board Kaiser Industries

vii

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PREFACE

The primary purpose of this handbook is to make available to general contractors, consulting engineers, construction managers, specialty contractors, and subcontractors, as well as to professors and students in Universities and technical institutes which offer courses on the subject, the fundamentals of construction management together with the most workable types of organization, and the necessary capabilities they must include to reasonably ensure success and minimize the possi­bility of failure in this most hazardous profession.

The second and equally important purpose is to furnish equipment manufacturers, dealers, material suppliers, bankers, surety bondsmen, and others, who traditionally rely on finan­cial statements and general reputation, something more con­crete to look for-the type of management and organization, and its scope and capability-in deciding how far to go along with contractors with whom they deal or wish to deal.

This, the second edition of the Handbook, is an updated version of the work published in 1973 and co-edited by J. B. Bonny, President and Chairman of Morrison Knudsen Company, Inc. (Retired), now deceased, and J. P. Frein, the undersigned, Vice-President and member of the Board of Morrison Knudsen Company, Inc. (Retired), but continuing as consultant.

The book, then and now, covers very many subjects which are part of construction. The greatest care was exercised in consideration of their practical aspects based on the theory and practice of construction management and its structure, and the functions of the various departments, both in the field and central offices, that make up construction organization.

The original co-editors each wrote chapters on specific subjects in which they were thoroughly experienced. To­gether they chose and invited a number of executives out­standing in their own fields to author chapters or sections on the theory and practice of construction management, its basic concepts, and in some detail its important functions.

In addition, leading specialists in their particular fields were selected to write chapters on the vital segments making up the structure of construction management and organization.

These fields include construction contracts and conditions, job organization by general types of projects, equipment

maintenance and preventive maintenance and overhaul, engi­neering and estimating, scheduling and controls, data pro­cessing and the use of computer equipment in engineering and accounting techniques, office administration, corporate and cost accounting, payroll, employment and labor relations, safety, public relations, legal and contractural problems, banking and finance, taxes, surety bonding, insurance, pen­sion and retirement problems and others.

The combined effect of the various chapters, in addition to describing good practice with respect to the functioning of the segments of a construction organization and the tangible services needed by it, presents the all-important subject of contractural relations, procedures to be followed, the prepara­tion and pursuit of change orders and extra work orders for things affecting payments under the contract, and ultimately the pursuit of claims through administrative channels, appeals boards, and if the possibilities of remedies are thus exhausted, the consideration of legal action.

All of the subjects covered in the Handbook have been treated from the standpoint of practice as well as theory, since every contributor is an expert whose knowledge comes from practical application, and their presentation through a single volume should provide a valuable "tool kit" for any one concerned with construction.

This, the second edition of the Handbook of Construction Management and Organization, has been updated to include the latest in the practices of the construction industry, and the associated specialties that serve it. For this purpose, the chapters of the book have been supplemented, or they have been revised by the various contributing authors. The same general format of the work has however been preserved.

Numerous other publications dealing with construction management treat various segments of the industry'S functions independently, and often are too general and theoretical to be of the best practical use. This work is intended to cover very much of the whole spectrum concerned.

It is hoped therefore, that this handbook will serve its pur­pose adequately in the most important field of construction management.

Boise, Idaho J. P. FREIN

ix

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INTRDDUCTIDN

The construction industry, by its very nature, differs from rather than resembles any other business. It is true that certain basic principles of sound business management apply equally to all enterprises. Management must com­ply with codes of ethical conduct, it must strive to build a loyal and efficient organization, it must have sound fiscal policies, it must have adequate accounting and cost con­trols, it must purchase materials wisely and produce its product economically in order to realize a profit. At this point the differences begin to exceed the similarities.

The construction business is to a significant degree made up of a multiplicity of contradictions and anomalies.

Giant in size and ever growing larger, employing fifteen out of every hundred workers, the largest user of steel, aluminum, copper, cement, rubber, lumber, brick and building supplies, fuel, power, and the products of a host of other businesses whose prosperity depends upon it, construction is, in truth, not an industry at all but a service profession.

Construction is above all a "people" profession. Man­agement must first and always be able to communicate with and lead people. Management must develop to a high degree a loyal, dedicated and efficient staff and train its members as well as allow them to make prompt and sound independent decisions in the field, above and be­yond usual industrial practice. The "man on the spot" and his staff must constantly deal with new groups of Union officials and workers, since Union practice and labor economics have over the years nearly eliminated the custom of construction workers drifting from job to job for the same employer, and a ready-made organiza­tion from top to bottom at each location is today very rare indeed. Rather, the project manager and his perma­nent people today lack entirely the easy familiarity and knowledge of each individual's capabilities, nor do they have the "Company loyalty" of their skilled and unskilled workers on each job. Instead much time and effort must be spent in overcoming the indifference and frequently the hostility of a constantly changing group of strangers who must be molded into a workable unit in order to complete the project on time and with a profit.

Construction, ever expanding as population and needs increase, lends itself to the development of larger and constantly growing enterprises, capable of handling huge and numerous individual projects and spreading geo­graphically throughout the nation and the world. Yet the smaller contractor with less capital, if he has learned the principles of competent management, can compete on equal terms and in most cases look forward to a much greater return on his investment, due to lower overhead

and more personal supervision, than his large competitor. He must, however, be prepared to accept a greater hazard, since with a smaller number of jobs under way he can­not "spread the risk" to protect himself against the one bad contract which may break him.

The contractor, contrary to any other industry or business, is constantly striving to work himself out of a job. He moves to a location, sets up a "factory" (his construction plant), and proceeds to produce only one of its kind, as each project is unique from all others. If the plant functions as it must from the start, and if labor-the men who operate the plant and work with their hands-performs as expected, it is because the contractor and his supervisors successfully lead the workers and properly plan and schedule the work, in which case the job is finished on time and if priced safely, with a profit.

A project completed, the contractor, his supervisors, and his plant move on to other projects and the performance is repeated. Regardless of how large or how small, whether building one project at a time or fifty, he is by the nature of his profession mobile and constantly mov­ing, with each new project presenting a brand new set of problems.

In the construction business, as in no other to the same extent, experience and intuition are prerequisites for success and survival, and mistakes can have more devastating effects. The contractor must be able to draw from his own historic background of performance, and have the ability to relate basic knowledge to new and different situations that will crop up in the preparation of a proposal for the next job. His finances and fortune may well be at risk. The opportunity for a second guess might never materialize.

With the ever-increasing complexity of factors which are a part of or related to construction, a variety of talents must be available to, and be prudently used by the contractor manage­ment. Thus there is the necessity of being able to call upon with confidence, the experts who contribute their special knowledge to round out the picture.

The successful contractor must have learned how to evaluate his key personnel, how to utilize their special talents, influence them and develop their sincerity and loyalty, and how to direct their efforts to best fit both present and future circumstances. He must have learned their importance and necessity for his own good, and make them feel like part of the show. He needs what they can contribute. No one person can do it all.

Boise, Idaho

By J. B. BONNY (deceased) Modified and supplemented

By J. P. Frein

xi

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CONTENTS

1 2-4 Liaison with Owners and Their

BASICS OF CONTRACTING 1 Representatives 14

2-5 Construction Financing 15 J. B. Bonny 2-6 Accounting 16

2-7 Effects of Job Size 19 1-1 Characteristics of Contractors 1 2-8 Job Supervision 19 1-2 Changing Conditions 1 2-9 Records and Reports 20 1-3 Problems with Some Owners' Engineers 1 2-10 Labor Relations 20 1-4 Basic Knowledge Required 2 2-11 Types of Contractor Organizations 21 1-5 Branches of Construction-Heavy 2 1-6 Dam and Canal Construction 2 1-7 Hydro Projects 3 3 1-8 Highways and Railroads 3 BUILDING AN ORGANIZATION 24 1-9 Underground Construction 4 1-10 Bridge Construction 4 Henry C. Boschen and J. B. Bonny

1-11 Waterfront Construction 4 1-12 Dredging 5 3-1 Personal Selection of Key Organization 24

1-13 Airports 5 3-2 Nucleus of Administrative Organization 25

1-14 Pipelines and Pumping Stations 5 3-3 Advantage of Training and Advancing

1-15 Water Supply and Sewerage 5 Key Personnel 25

1-16 Power Projects 6 3-4 Preparing the Administrative Manual 25

1-17 Military Work 6 3-5 Adding to the Manual-Labor Relations

1-18 Construction in Battle Zones 8 and Safety 25

1-19 Power Transmission 9 3-6 Specification for Employment Manager 26

1-20 Building Construction 9 3-7 Specification for Tax Expert and

1-21 High-Rise Construction 9 Controller 26

1-22 Industrial Buildings 9 3-8 Purchasing and Equipment Management

1-23 Commercial Developments 11 Functions 26

1-24 Recreational Developments II 3-9 Director of Procurement-Liaison

1-25 Public Buildings 11 Between Operations and Purchasing 27

1-26 Residential Construction 12 3-10 Chief Engineer as a Key Operating

1-27 Summary of Requirements 12 Officer 27 3-11 The Engineering Manual-Skeleton

Organization 27

2 3-12 Key Operating People in a Vertical or Functional Organization 28

MANAGEMENT FUNCTIONS, PROBLEMS, 3-13 Dangers of Expanding in Unfamiliar AND TYPES OF ORGANIZATION 13 Fields 28 J. B. Bonny 3-14 Expansion by Acquisition-Becoming a

Horizontal or Delegated Organization 28 2-1 Sales Functions 13 3-15 Formation of Districts 28 2-2 Contract Negotiation 13 3-16 Development of Overseas Cost-Plus

2-3 Bidding Practices 14 Organization 29

xiii

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xiv Content.

3-17 3-18 3-19

3-20 3-21

3-22 3-23 3-24 3-25

4

Updating Field Management at Home Military Programs Abroad Civil Contracts Abroad-Developing Skills of Locals Feeding and Housing Abroad Special Situations with Local Personnel Abroad Personal Problems in Combat Zones The Changing Foreign Picture The Changing Domestic Picture Environmental and Political Impacts in the U.S.A.

BID STRATEGY 37 J. B. Bonny

4-1 Basic Considerations in Bidding 4-2 When to Bid 4-3 Influence of the Owner's Engineer 4-4 Influence of Competition 4-5 Overcaution 4-6 Influence of Experience 4-7 Influence of Propaganda 4-8 Contract Modifications 4-9 Unbalanced Bids 4-10 Contingency Allowances 4-11 Construction in Other Countries 4-12 Playing Percentages

5 CONSTRUCTION CONTRACTS 48 Dario De Benedictis and Robert M. McLeod

5-1 The Form of Construction Contracts 5-2 Oral vs. Written Contracts 5-3 Private vs. Public Contracts 5-4 Competitive Bidding Requirements 5-5 Extra Work, Changes, and Changed

Conditions 5-6 Fixed-Price Contracts 5-7 Unforeseen Difficulties, Differing Site

Conditions Clause 5-8 Cost-Plus Contracts 5-9 Subcontracts

B ARRANGING FOR FINANCING 55 Eardley W. Glass

6-1 Initial Organization of a Construction Company

6-2 Approach to the Bank 6-3 Importance of Bank Credit 6-4 Individual Project Financing 6-5 Location of Banks 6-6 Interest Rates

29 30

30 31

31 31 32 34

35

37 38 39 40 41 41 41 42 43 44 44 47

48 49 50 50

50 51

53 53 55

58 58 59 59 59 60

6-7 How To Keep Good Bank Relationship 6-8 Equipment Financing 6-9 Financing Other Than Banks 6-10 Public Ownership of Stock 6-11 Joint-Venture Financing 6-12 Financing Subcontractors 6-13 Financing Foreign Operations

7 CONSTRUCTION FINANCING 67 George F. Kernan

60 60 62 62 62 63 64

7-1 Hazards of Construction Financing 67 7-2 Reasons Why Banks Extend

Construction Financing 68 7-3 Steps a Bank Can Take to Lessen the

Risk Factor 68 7-4 Understanding a Contractor's Motivation 68 7-5 Intricacies of a Construction Contract 69 7-6 Contractors' Financial Statements Vary

Widely 69 7-7 Contractor's Honesty Must Be

Emphasized 69 7-8 What Constitutes a Current Asset on a

Contractor's Statement? 69 7-9 Contractor's Business Can Rarely Repay

Loans by Conversion of Balance Sheet A~~ . @

7-10 Banker Must Have Detailed Knowledge of Cost System 70

7-11 Steps Taken to Regulate Financial In-formation to Lenders 70

7-12 Completed Contract Accounting vs. Per-centage-of-Completion Methods 77

7-13 Supplementary Schedules, Cash Budget, and Equipment Projections 78

7-14 Equipment Financing 78 7-15 Bid Deposit Loans 78 7-16 The Matter of Bonding 79 7-17 Owner's "Interim" Loans and "Perma-

nent" Financing 79 7-18 Bank's Sensitivity to Supply and Demand

of Money in the Economy 81 7-19 Construction Loans in Foreign Countries 81

8 SURETY BONDS 83 Dan Gorton

8-1 8-2 8-3 8-4 8-5 8-6 8-7 8-8 8-9 8-10

How Surety Bonds Differ from Insurance Purposes of Surety Bonds Underwriters Reason for Contractor Failures Contractor-Underwriter Relations Surety Bond Forms Qualifying for Bond Accounting and Financial Records Net Quick Worth Indemnity

83 83 84 85 85 86 87 87 89 90

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Contents xv

8-11 Financial Aid from Sureties 91 9-42 Calculating Service Costs Performed by 8-12 Basis for Bond Credit 91 Equipment Dealer 157 8-13 Bonding of Subcontractors 94 9-43 Parts Inventory Cost 158 8-14 Bonding of Joint Ventures 95 9-44 Efforts to Shorten Service Time 160 8-15 Selection of a Bonding Company 97 9-45 Total Maintenance Contracts 160 8-16 Selection of Agents or Brokers 98 9-46 Total Cost Contract 162 8-17 Rules for Successful Contracting 99 9-47 Guaranteed Machine Availability 162

9-48 Critical Item Monitoring 162

9 1D EQUIPMENT MAINTENANCE

METHODS OF DECIDING OVERHAUL AND REPAIR 100 OR REPLACEMENT 163

William S. Lambie, Jr. William S. Lambie, Jr.

9-1 Lubrication 100 10-1 Equipment Management 163 9-2 Fueling 100 10-2 Determining Equipment Owning and 9-3 Inspection and Adjustments 100 Operating Costs 163 9-4 Preventive Repair 102 10-3 Annual Net Loss in Machine Value 164 9-5 Systems Analysis 102 10-4 Investment, Insurance, and Taxes 164 9-6 Time and Cost Records 105 10-5 Maintenance and Repair Costs 165 9-7 Organization for Field Maintenance 105 10-6 Other Operating Costs 166 9-8 Equipment Manager Responsibilities 106 10-7 Other Cost Categories 166 9-9 Lubrication and Fueling Personnel 110 10-8 Using Cost Data for Equipment Re-9-10 Inspection Personnel 110 placement Decisions 167 9-11 Contributing Personnel 111 10-9 Selecting Construction Equipment 168 9-12 Field Maintenance Equipment 111 9-13 Systems Analysis and Testing Equipment 113 9-14 Maintenance Reference Material 114 11 9-15 Preventive Maintenance Programs 122 9-16 Plan I-Planned Preventive Maintenance CHARGES FOR USE OF EQUIPMENT 170

Packet 122 Mark A. Robinson 9-17 Plan II-The Tag and Chart Program 123 9-18 Plan III-The On-Board Computer by 11-1 Charges Affecting Ownership Costs 170

Bissett -Berman 124 11-2 Equipment Records 171 9-19 Plan IV-Total Computer Control Sys- 11-3 Lease or Buy? 171

tern; Equipment Failure and Repair Data 11-4 Types of Leases 172 Retrieval System 129 11-5 Terms and Conditions of Leases 173

9-20 Machine Owner 132 11-6 Internal Charges for Equipment Usage 173 9-21 Maintenance Contracts 134 11-7 Associated General Contractors' Owner-9-22 Remedial Repair 135 ship Expense 173 9-23 Component Overhaul 137 11-8 External Charges for Equipment Usage 174 9-24 Component Exchange 137 11-9 Plant Equipment 174 9-25 Machine Overhaul 140 11-10 Transferring Equipment Between Jobs 175 9-26 Service Facilities 140 11-11 Operating Costs vs. Overhauls-Deter-9-27 On-Site Service Facilities 140 mining Replacement 176 9-28 Machine Owner's Permanent Service Fa- 11-12 Disposition of Equipment 176

cility 143 11-13 Trade to Dealers 176 9-29 Contacting Job-Site Suppliers 144 11-14 Sale to Third Parties 176 9-30 Parts and Supplies Inventory 144 11-15 Auction Sales 176 9-31 Safety 145 11-16 Auction Preparation and Planning 177 9-32 Service Shop Management 145 9-33 Shop and Field Service Personnel 148 9-34 Other Service Personnel 148 12 9-35 Field Service Vehicles 149 9-36 Service Shop Equipment 153 PURCHASING, EXPEDITING, TRAFFIC, 9-37 Service Sources and Cost 153 AND TRANSPORTATION 178 9-38 Machine Owner's Service Shop 153 John Langberg 9-39 Calculating Hourly Cost of Owner-Per-

formed Service 155 12-1 Coordination with Management 178 9-40 Independent Service Shop 156 12-2 Coordination with Engineering 178 9-41 Equipment Dealer Service Shop 157 12-3 Coordination with Estimating Group 178

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xvi Contents

12-4

12-5

12-6 12-7 12-8 12-9 13-10 12-11 12-12 12-13 12-14 12-15 12-16

12-17 12-18 12-19 12-20 12-21 12-22 12-23 12-24

13

Coordination with Operating Depart­ments Purchasing Responsibilities and Proce­dures for Overseas Operations Organization Field or Job Purchasing Organization Personnel Purchasing Function Purchase Requisitions Source Selection Soliciting Quotations Written Bid Procedures Telephone or Verbal Bid Procedures Addenda to Requests for Proposal Quotations for Contractor's Bidding Pro­gram Evaluation of Quotations Award and Issuance of Purchase Orders Expediting Status Reports Verifying Shipments Traffic and Transportation Equipment Inventory and Availability Other Functions

FUNCTIONS AND ORGANIZATION OF CONTRACTOR'S ENGINEERING SECTION 195 J. P. Frein

13-1 13-2 13-3

13-4

13-5

13-6

13-7

13-8

13-9 13-10

Basic Purpose of Engineering Section Levels of Engineering Functions Contractor's General Engineering Or­ganization Functions and Duties of the Contractor's Engineering Staff Market Surveys of Prospective Work Being Offered Reporting Bid Results to Company Offi­cers Planning, Scheduling, and Programming Construction Operations Estimating the Cost of Prospective Work and Preparing Bid Proposals Arranging for Bid Guarantees Preconstruction Liaison with J oint-Ven-ture Partners

13-11 Soliciting, Receiving, Tabulating, and Analyzing Material Prices and Subcon­tract Proposals

13-12 Reviewing Permanent Materials and Sub­contract Proposals

13-13 Drafting Technical and Special Condi­tions of Subcontracts

13-14 Making Cost and Method Studies of Al­ternative Methods of Construction

13-15 Preparing Budget Control Estimates for Jobs Awarded

179

179 180 181 181 182 182 183 184 184 184 184

186 187 187 190 190 192 192 194 194

195 196

196

197

199

199

199

201 210

202

204

205

205

205

206

13-16

13-17

13-18 13-19

13-20

13-21

13-22

13-23

13-24 13-25 13-26

13-27

13-28

13-29

13-30 13-31 13-32 13-33 13-34

13-35 13-36 13-37

13-38 13-39

13-40

13-41 13-42

13-43

13-44

14

Detailed Design of Construction Plant Facilities Developing New and Better Methods of Construction Maintenance of Contractual Relations Supervising and Performing Engineering Layout in the Field References and Specifications for Con­struction Machinery and Permanent Ma­terials Advise About Requisitioning, Schedul­ing, Expediting, and Inventorying Per­manent Materials Records of Work Performed and Con­tractual Transactions Preparing or Checking Payment Esti­mates for Work Performed Job Inspection and Quality Control Records of Costs and Extra Work Records of Subcontract Performance and Payment Estimates Accumulating Performance and Produc­tion Data Cost Coding Charges for Cost Account­ing Reports of Costs and Construction Ac­tivities Daily Reports Weekly Reports Monthly Reports Final Project Reports Contract Adjustments, Change Orders, and Claims Assisting in Contract Settlements Special Assignments Annual Review and Reports to Manage­ment Other Engineering Functions Employment, Training, and Reassign­ment of Engineering Personnel Suggested Project Engineering Organi­zation (Large Company Concept) Index of Engineering Responsibilities Procedures for Cost-Plus and Special Types of Contracts Assembly of Brochures and Special In­formation Evaluation of Contract Documents

COST ESTIMATING FOR LUMP-SUM AND UNIT-PRICE CONTRACTS 261 J. P. Frein

14-1 Organization for Estimating Department 14-2 Estimating Manual 14-3 Building vs. Heavy Construction Esti­

mating 14-4 Historical Cost Background for Estima­

ting

206

207 208

208

209

210

210

211 213 214

215

216

217

217 219 219 219 223

225 227 227

228 229

229

230 230

230

230 233

262 263

264

264

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14-5 Initial Considerations in Planning an Estimate 265

14-6 14-7

Site Visits and Investigations 266 Compiling Basic Data for a Specific Esti-mate 267

14-8 Labor Rates, Fringe Benefits, and Work-ing Conditions 267

14-9 Social Benefit Payroll Taxes and In-surance 269

14-10 14-11 14-12

Taxes Other Than Payroll 269 Insurance Other Than Payroll 270 Quotations for Expendable Construction Materials and Supplies 270

14-13 Quotations for Permanent Materials and Installed Items of Equipment 270

14-14 14-15

Subcontract Quotations and Conditions 271 Listing Available Company-Owned Plant and Equipment 271

14-16 Schedule of Approved Plant and Equip-ment Rental Rates or Amortization 271

14-17 Abstract of Local Laws Affecting Cost of Work 271

14-18 Preliminary and Refined Construction Programs 272

14-19 14-20 14-21 14-22 14-23

Principal Divisions of Estimated Costs 272 Direct Costs 272 Indirect Costs 273 Hourly Equipment Operating Costs 273 Summary of Equipment and Move-In Cost 274

14-24 Selection of Construction Methods and Procedures

14-25 Preliminary Design of Construction Faci­lities

14-26 Detailing Direct Construction Costs 14-27 Detailing and Distribution of General

Expense and Overhead Costs 14-28 Consideration of Contingencies 14-29 Determination and Application of Mark­

Up 14-30 Completion of Estimate Summary and

Bid Prices 14-31 Special Considerations In Estimating

Foreign Projects 14-32 Special Formats of Estimates for Specific

Kinds of Construction Work 14-33 Typical Building Estimate-Short For­

mat

15 ESTIMATING OTHER THAN FIRM-PRICE CONTRACTS 350 J. P. Frein

15-1 Cost-Plus-a-Percentage-Fee Contracts 15-2 Cost-Plus-a-Fixed-Fee Contracts 15-3 Cost-Plus-an-Award-Fee Contracts 15-4 Cost Plus a Fee with Guaranteed Maxi­

mum

274

274 274

279 282

282

283

283

285

286

350 351 352

352

Contents xvii

15-5 Target Estimate with Penalty and In-centive-Fee Contracts 353

15-6 Turnkey Proposals and Contract Condi-tions 354

15-7 Construction Management Contracts 355

16 COST CONTROLS, RELATION, AND COORDINATION WITH ENGINEERING AND ACCOUNTING 437 J. P. Frein

16-1 Pre bid Estimating and Bidding 16-2 Preparing the Record to Start a New Job 16-3 Selection of Accounting System 16-4 Accumulation of Physical and Other

Data on the Job 16-5 Applying the Cost Coding in the Field 16-6 Maintaining the Cost Accounts 16-7 Computing or Verifying Earnings Under

the Contract 16-8 Preparing Interim and Final Cost Re­

ports 16-9 Systems of Assigning Cost Account

Codes 16-10 Basic Arrangement of Coordination

17 NETWORKING TECHNIQUES FOR PROJECT PLANNING, SCHEDULING, AND CONTROL 442 John Fondahl

17-1 17-2 17-3 17-4 17-5

17-6 17-7 17-8 17-9 17-10

17-11

17-12 17-13 17-14 17-15 17-16 17-17 17-18 17-19 17-20 17-21 17-22 17-23

Historical Background Network Diagramming Arrow Diagramming Precedence Diagramming Comparison of Arrow and Precedence Diagramming Diagramming Trends Scheduling Calculations Forward Pass Calculations Backward Pass Calculations Total Float and Critical Path Calcula­tions Free Float and Interfering Float Cal­culations Calendar Dating PERT Probabilistic Approach Communication and Control Updating Subnetworks Terminal Interfaces Intermediate Interfaces Dateline Cutoff Method Computer Applications Master Schedule Subschedule or Responsibility Schedules Bar Chart By Computer

437 437 438

438 438 438

438

438

439 441

443 444 445 446

447 448 449 449 449

449

449 451 451 452 455 455 455 456 458 459 460 461 461

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xviii Content.

17-24 17-25 11-26 17-27 17-28 17-29

17-30 17-31

17-32 17-33 17-34 17-35

17-36

17-37 17-38

18

Resource Schedules Monitor Report Progress Estimates--Cash Flow Other Reports by Computer Computer Program Evaluation Resource Allocation-Single-Project Leveling Multi-Project Leveling Evaluation of Resource Allocation Pro­cedures Time-Cost Trade-offs The Problem and Objectives Procedures Combined Resource Allocation and Time-Cost Trade-offs Contractor-Owner Relationships-Speci­fication Requirements Claims Implementation References

USE OF COMPUTERS IN CONTRACTOR'S ENGINEERING ORGANIZATION 472 John W. Leonard

18-1 Advantages of Computers 18-2 Alternative Computer Services Available 18-3 Computer Languages 18-4 Computer Programs 18-5 Sequences in Computer Application 18-6 Alternative Sources for Development of

Computer Programs 18-7 Contractor-Developed System 18-8 Personnel Requirements 18-9 Problems to be Anticipated 18-10 Program for Adoption of the Computer 18-11 Updating Historical Cost Information for

Reference Purposes 18-12 Time-Consuming and Lengthy Compu­

tations 18-13 Computer Assistance in the Choice of

Alternatives 18-14 Storage of Historical Experience Data 18-15 Performance of Clerical Functions 18-16 Analyzing Performance of Off-Highway

Trucking 18-17 Other Practical Computer Uses

18 COMPUTER CAPABILITIES IN CONSTRUCTION MANAGEMENT 510 W. F. Meyer

19-1 Project Cycle 19-2 Data Processing Applications in Esti­

mating 19-3 Quantity Takeoff

461 463 463 465 465

465 466

466 466 467 468

469

470 470 471 471

472 473 474 475 475

480 489 492 495 495

495

498

500 503 505

505 506

510

511 512

19-4 19-5 19-6 19-7 19-8

19-9

19-10 19-11

19-12 19-13 19-14 19-15 19--16 19-17 19-18 19-19 19-20 19-21

19-22

2D

Detail Takeoff Pricing Printing Evaluation of Changes and Alternatives Responsibilities of Planning and Sched­uling Planning for Budget and Schedule Prep­aration Simulation of Alternatives Updating and Revision of Project Sched-:: ules Job-Site Reporting Exception Reporting Cost Control System Labor Cost Performance Records Equipment Costs Equipment Records Material Costs Subcontractor Costs Overhead Costs Concepts of the Project Control Opera­ting System Development of Data Communications

OFFICE ADMINISTRATION: HEADQUARTERS AND FIELD 535 Donald G. Perry and C. B. Campbell

20-1

20-2 20-3

20-4 20-5 20-6 20-7

20-8 20-9 20-10

20-11

20-12 20-13 20-14 20-15

20-16 20-17

20-18

20-19 20-20 20-21 20-22 20-23

Headquarters vs. District and Project Administration Field Administration Functions of a Job Administrative Man­ager Establishing a Chart of Accounts Accounting Reports to the Home Office Other Functions of Field Administration Field Administration in Joint Venture Contracts Headquarters Administrative Function Administrative Services at District Level Accounting as a Headquarters Staff Function Gathering Data for Financial Reports for Top Management Corporate Accounting Records Emphasis on Job Results Prequalification and Other Reports Comptroller Support to Field and Dis­trict Personnel Internal and External Audit Services Reports to the Securities Exchange Com­mission Relations with Banks and Financial In­stitutions Headquarters Office Purchasing Tax Record Department Equipment Department Data Processing Department Warehousing Records

512 513 513 514

514

515 517

517 517 518 518 519 521 522 522 522 522

523 523

535 535

536 536 537 537

537 543 543

544

544 544 544 545

545 545

546

546 546 546 546 546 547

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21 CORPORATE AND COST ACCOUNTING Francis Durand

21-1 Financial Statements 21-2 Accounting Method Applicable to Long-

Term Contracts 21-3 Other Factors 21-4 Illustrative Financial Statements 21-5 Accounting Systems and Procedures 21-6 Headquarters Office 21-7 Project Office Accounting-Contract

Cost Accounting 21-8 Internal Auditing-Control Procedures 21-9 Accounting for Equipment Costs 21-10 Evaluating Cost Trends and Cost of

Future Work 21-11 Utilization of Computer Techniques 21-12 Conclusion

22 PAYROLL PROCEDURES 561 Donald G. Perry and C. B. Campbell

22-1 22-2 22-3 22-4

22-5 22-6 22-7

22-8

22-9

22-10

22-11

22-12 22-13 22-14

22-15

23

Payroll System Timekeeping Accumulation of Payroll Costs Use of Electronic Data Processing (EDP) Payment of Salaries and Wages Preparation of the Payroll Cumulative Records and Type of Pay­ment Withheld Amounts and Employer Con­tributions Company Expense and Allocation of Overhead Methods of Computing Payroll and Labor Distribution Payroll Journal, Earnings Statement, and Employees' Earnings Record The Manual System Mechanized Payroll Preparation Methods of Applying Data Processing to Payroll Preparation Use of a Bank Computer System

EMPLOYMENT PRACTICES AND RECORDS 567 R. E. Bernard

23-1 Employee Classification 23-2 Responsibility for Employment Func­

tions 23-3 Resources for Manpower Planning 23-4 Applicant File

515

548

548 549 549 554 554

555 556 558

559 559 560

561 561 561

561 562 562

564

564

564

564

566 566 566

566 566

567

568 568 570

Contents xix

23-5 23-6 23-7 23-8

23-9 23-10 23-11 23-12

23-13 23-14

23-15 23-16 23-17 23-18 23-19

24

Skills Inventory for Present Staff Availability Lists A Typical Project Scene Schedule of Job Classifications and Sal­ary Ranges Recruitment Prejob Trades Conference Employment Procedures Manual Personnel Practices During Construc­tion Employment Records Hiring Exempt and Nonexempt Em­ployees Hiring Union Craftsmen Demobilization of Project Personnel Development Equal Employment Opportunity (EEO) Foreign Project Aspects

LABOR RELATIONS AND THEIR EFFECT ON EMPLOYMENT PROCEDURES 588 Lee E. Knack

24-1 Uniqueness of Construction Labor Re-lations

24-2 Collective Bargaining Methods 24-3 Independent Action 24-4 Affiliated Action 24-5 National Agreements 24-6 Combination of Methods 24-7 Influence of Inflation on Labor Nego-

tiations 24-8 Strike vs. Lockout 24-9 Hiring Halls 24-10 Turnover Policy 24-11 Absenteeism 24-12 Selectivity in Hiring 24-13 Training Personnel 24-14 Looking Ahead 24-15 Labor Laws

25 SAFETY PROCEDURES AND PRACTICES Lee E. Knack

25-1 25-2 25-3 25-4 25-5 25-6 25-7 "25-8 25-9

25-10 25-11

Safety Benefits the Employer Insured vs. Uninsured Costs Workmen's Compensation Laws Amount of Benefits Methods of Complying with the Law Labor Turnover Safety Benefits the Employee Safety Benefits the Customer Safety and Employer-Employee Rela­tions Safety Program Planning Management Support and Directions

571 575 576

576 577 577 577

577 577

578 578 582 584 585 587

588 588 589 589 589 591

592 593 594 595 595 595 596 596 598

601

601 601 602 603 604 610 613 613

613 614 614

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xx Contents

25-12 Safety Organization 25-13 Worker Education 25-14 Hazard Control 25-15 Medical and First-Aid Plans

26 PUBLIC RELATIONS FOR CONTRACTORS 616 Paul W. Cane

26-1 Gaining a Reputation 26-2 Public Relations Objectives 26-3 Foundations of Good Public Relations 26-4 Relations with Clients and Potential

Clients 26-5 The "General Public" 26-6 Employee-Company Publications 26-7 The Project or Branch Office Community 26-8 The Mass Media 26-9 Government Officials and Political Fig­

ures 26-10 Special Interest Groups 26-11 Stockholders and the Financial Com-

munity 26-12 Competitors 26-13 Suppliers 26-14 Technical and Professional Societies 26-15 Faculty and Students at Engineering

Schools 26-16 Hazards of Increased Exposure 26-17 Staffing the Public Relations Function 26-18 Evaluating Public Relations Activities

27 LEGAL AND CONTRACTUAL PROBLEMS O. P. Easterwood, Jr.

27-1 27-2 27-3 27-4 27-5 27-6 27-7 27-8 27-9 27-10

27-11 27-12 27-13

27-14 27-15 27-16

27-17 27-18

Subcontracts and Purchase Orders Bonding of Subcontractors Documents and Records Total Cost Less Bid Price Record of Negotiations and Schedules Daily Chronology of Progress Trouble Flags Personalities in Owner's Administration Your Original Estimate and Schedule Breach of Contract vs. Administrative Remedies Various Contract Adjustment Clauses Changes Article Changed Conditions (Differing Site Con­ditions) Article Suspension of Work Article Variation in Quantities Article Termination for Default, Damages for Delay, Time Extensions, and Force Ma­jeure Articles Inspection and Acceptance Article Possession Prior to Completion Article

614 614 614 615

616 617 617

617 618 618 620 620

621 622

622 622 623 623

623 623 624 624

626

626 627 627 629 629 629 630 630 630

631 631 632

632 633 634

635 636 636

27-19

27-20 27-21 27-22

27-23 27-24 27-25 27-26 27-27 27-28 27-29 27-30 27-31 27-32 27-33

28

Termination for Convenience of the Government Article Government Furnished Property Article Escalation of Labor or Materials Article Currency Fluctuations; Loss of Equip­ment and Materials "Constructive" Changes Acceleration of Work Ripple or Impact Effect Cardinal Change Platitudes in the Claims Field A "War Powers Case" Contract Interpreted Against Drafter Specifications vs. Drawings Duty to Seek Clarification The Wunderlich Act Equitable Adjustments

TAXES 644 Joseph J. Hyde and William J. Palmer

28-1 28-2 28-3

28-4

28-5 28-6 28-7 28-8 28-9 28-10

28-11 28-12 28-13

28-14

28-15

28-16 28-17

28-18

28-19

28-20

28-21 28-22

28-23

Taxation is Monumentally Complex United States Income Tax Tax Accounting Methods to Determine Income from Long-Term Contracts Cash Receipts and Disbursements Method The Accrual Method The Percentage of Completion Method The Completed Contract Method Income from Cost-Plus Contracts What Constitutes a Single Contract? Problems Common to Accrual, Percent­age of Completion, and Completed Con­tract Methods Taxation of Foreign Operations Foreign Tax Credits Less Developed Country Corporations­Tax Credits Foreign Jurisdictions That Do Not Allow Completed Contract Methods of Re­porting Foreign Countries Levying Withholding on Dividends Controlled Foreign Corporations Necessity of Making Fair Charges to Foreign Subsidiaries for Services Ren­dered Western Hemisphere Trade Corpora­tions Dangers of Joint Ventures in Certain Countries Problems of Income Taxation of Ameri­can Employees in Foreign Countries State Taxes Interstate Tax Bills, Allocation of In­come Other State and Local Taxes

637 638 638

638 639 639 640 640 641 641 641 641 641 642 642

644 644

645

645 645 645 646 646 646

646 646 646

646

646

647 647

647

648

648

648 648

648 655

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29 CONTRACTORS' INDUSTRIAL INSURANCE 656 John C. Day

29-1 Planning and Organizing the Insurance Program

29-2 Workers' Compensation and Employers Liability

29-3 Comprehensive General Liability Includ­ing Automobile

29-4 Builder's Risk Insurance 29-5 Business Interruption and/ or Extra Ex-

pense InsuranCe 29-6 Contractor's Equipment Coverage 29-7 Transit Insurance 29-8 Floating Marine Equipment 29-9 Charterer's Liability Insurance 29-10 Comprehensive Dishonesty, Destruction

and Disappearance Policy 29-11 Property Insurance 29-12 Boiler and Machinery Insurance 29-13 Glass Insurance 29-14 Summary

30 GROUP INSURANCE PLANS 665 James A. Attwood

30-1 30-2 30-3

30-4

30-5 30-6

30-7 30-8 30-9 30-10 30-11 30-12 30-13 30-14 30-15

Designing a Group Insurance Program Eli gi bili ty Group Term Life Insurance for Em­ployees Group Term Life Insurance for De­pendents Survivor Income Benefits Group Accidental Death and Dismem­berment Insurance Group Weekly Indemnity Insurance Long Term Disability Income Insurance Hospital-Surgical-Medical Expense Ancillary Health Care Benefit Plans Supplemental Major Medical Expense Health Care Expense Medicare Costs of Group Insurance Benefits Foreign-Based Employees

656

657

659 662

662 663 663 663 663

663 663 664 664 664

665 665

666

666 666 666 667 667 668 668 668 669 669

Contents xxi

31 FUNDAMENTAL CONCEPTS UNDERLYING PENSION PLAN FINANCING AND COSTS 670 Frederick P. Sloat and David V. Burgett

31-1 31-2 31-3 31-4 31-5 31-6 31-7 31-8

31-9 31-10 31-11 31-12 31-13 31-14 31-15 31-16 31-17 31-18 31-19

31-20 31-21

31-22

32

Types of Pension Plans Provisions The General Nature of Pension Costs Normal Cost Actuarial Assumptions Present Value Financing Policies Effect of Funding Policy on Periodic Pension Costs Past Service Costs (Supplemental Cost) Pay-As-You-Go Method Terminal Funding Method Advance Funding Methods Trusteed Plans Insured Plans Computation of Actuarial Gain or Loss Actuarial Gain or Loss Adjustment Valuation of Fund Assets Historical Background Statements of the American Institute of Certified Public Accountants Present Practice Lybrand's Comment on APB Opinion No.8 Future Changes

CONTRACTURAL RELATIONS, DISPUTES, PREPARATION AND PURSUIT OF CLAIMS, AND CONTRACT SETTLEMENTS J. P. Frein

32-1 Contractural Relations 32-2 Disputes 32-3 Claims-Their Preparation and Pursuit 32-4 Contract Settlements 32-5 Recourse Beyond Time of Release 32-6 Referal to Contract Appeals Boards 32-7 Arbitration 32-8 Settlement Through Court Action

Index

670 670 673 673 673 674 674

675 675 675 676 676 677 677 680 680 681 681

681 682

683 685

686

686 687 688 688 689 689 689 690

694

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HANDBOOK OF CONSTRUCTION MANAGEMENT AND ORGANIZATION