Turner Construction Company

Arrigo GaetanoRinaldi Alessandro

Organizational Design

Turner Construction Company

In 1983, turner led building contractors in the value of contracts booked

Construction services

Turner operated as

General Contractor: a Contractor plans to deliver (and built a portion of) a finishedproduct to an owner(customer)

Construction manager:A CM acted as the owner’sagent and adviser, providingpreconstruction servicesand monitoring the firmsthat actually built the project.

Contracts were:

• Lump-sum: an owner’s architect completed plans and specifications and thencontractors bid on the project; the contractors competed primarly on price, and theirincentive was to meet specifications at minimal cost because their remunerations wasthe lump-sum price minus their final cost of materials and construction.

• Negotiated: contractor and owner worked together from the planning stage, negotiating specifications, cost estimates, a guaranteed maximum price, and the

contractor’s fee.

Construction services

Turner perfomed most of its work through negotiated fee contracts where itacted as both General Contractor and Construction Manager

• Planned and scheduled the project;

• Procured materials;

• Marshaled the different personnel required;

• Awared and supervised subcontracts;

• Assumed responsability for on-time completion at a guaranteed

maximum price;

‘’Our business is a combination of consulting and underwriting: we buy risk and sell predictability’’

‘’ We manage all the project’s details for the owner and, because we’re involved early, we can guarantee a price earlier than the lump-sum bidder. Thus, the owner can

begin arranging financing earlier and construction (and occupancy) can begin sooner. TIME IS MONEY IN CONSTRUCTION’’

Turner’s senior vice president

Major Markets and buyers

Commercial

Turner Public

Hotel/residential

Health care

Commercial:

Real estate developer

Corporation building a new heardquarters

Health care: Total hospital construction expenditures were expected tocontinue increasing ( due to financing through municipal bond offerings)

The Selling Process

Winning a contract involved several activities:

1. To locate prospects and create awareness of Turner’s capabilities in that buildingcategory; ( in hospital construction, potential building was public knoledge andpresentations at hospital associations were a common means of maintainingawareness of Turner’s services; in commercial construction, contacts withdevelopers and architects are crucial)

2. To meet with the decision makers (architect or owner); at this meeting, theterritory’s business development manager sought information about both thespecifications and the people involved in a project

3. To send a proposal and references

4. A 30- to 45-minute presentation to a board or development committee; thispresentation also covered preconstruction services such as cost estimates andscheduling

5. Ivolved pricing, where lump-sum versus a negotiated fee contract was often a keyissue

The Project Selection

Selecting a project meant judging future demand and potential opportunity costs:

1. Type of contract : lump-sum or negotiated

2. The job’s size: bigger can be better, but large projects take years and carry risksconcerning the availability and perfomance of subs during that time

3. The owner: some developers will chisel away your margin, and some existingrelationships take precedence over the other criteria mentioned

4. Required staffing

5. The level of business in the territory: often determines whether we commit topursuing a job

6. Whether it’s a client we want to get to know

Project Management

Complexity of projects(purchasing, scheduling, fabrication, inventory control, shipping, coordinating of subcontractors)

Project executive = key Turner person during construction Scarcest resource

Territory manager had spent several years as project executive

Local knowledge isfundamental

Most projects required changes during construction lead by

Fast changes in technology (Hospitals) Changes in owners mind

Key words: Executive manager have to manage the owner proprerly with daily meetings

«There are networks at each phase»

Organization

Until 1973

Home office

Branch office 1 Branch office 2 Branch office 3

Home office in charge for executive selling and for estimating/purchasing for large projects

Starting from 1973 we had a reorganization of the Organization Chart…

Turner Corp.

Construction company

Northest region

New York (1902), Boston (1910), Philadelphia (1920), Pittsburgh (1975)

Southeast region

Washimgton, D.C.(1978), Miami 1980

Central region

Chicago (1948), Cincinnati (1955), Cleveland (1965), Columbus (1965), Houston (1972), Detroit (1975)

Western region

Los Angeles (1964), Denver (1976), San Francisco (1972), Seattle (1978

Subsidiaries International industries

OrganizationTurner corporate organization, 1984

Organization

Cost and projectcontrol

Terrotory operationsmanager

Safety

Equal employmentopportunity

Special projectdivision

scheduling

Project executives

Financing

Purchasing

Estimating

Business development

Territory general manager

Project managementPreconstruction support

Turner Territory Organization

OrganizationTurner Typical Project Staffing

Project Executive

Project engineer

Assistant engineer

Project superintendent

Assistant superintendent

Project accountantCost engineer

Estimating

Purchasing

Organization

Organization

Territory GMs had been with Turner for 20 to 25 years with experience in estimating, purchasing and project management

GMs reported to regional VPs who reported to Kupfer

GMs and VPs were measured on annual sales and earning goals

Recent developments

Kupfer became executive VP in May 1983, previously he held the position of International Industries’ president and senior VP for eastern region.

He was responsible for corporate marketing and sale, contract administration, and strategic planning

Two long-term development setted by him:

Product specialization

National accounts

Product specialization

Hospital market:

Turner had lost share in recent years to a new company (Park).

Park is considered a «hospital construction specialist», it operate from corporate offices

Ability to bring national resources to a hospital project

«The core of precostruction service’s Parks is software that provides a fancy checklist of cost and design estimates»

Park’s presentations are very professional

Product specialization

Similar competition in correctional and high-tech industrial market

In response to this competition Turner established in 1983 a «Management ConsultingService, M.C.S.» to standardize service among territories

Some GMs welcomed these groups, wile others considered their involment redundant.

What do you thing about this new function at the corporate level of Turner?

National accounts

Various factors had increased the national scope of construction work

Nationwide expansion of large regional developers and major architectural firms

National insurance companies beginning to assume development as well as financingtasks in JV with developers

Large retailers and manufacturers had expanded into national companies.

IN 1978, Turner estabilished a National Account Program (N.A.P.)

Objectives: develop a network for early detection of new business opportunities

In 1984, corporate management was disappointed with this programNational firms are not pursued aggressively or proactively

In your mind, why the N.A.P. is not working well?

National accounts

Recommendations concerning N.A.P.

•Granting a territory some percentage of the operating fee if it performed “work ofsubstance” in generating a project for another territory

•Placing one or two senior managers as full-time NAP rappresentative at the corporate level

•Developing Turner’s product-specific capabilities beyond the MCS stage byestablishing national groups for hospitals and correctional facilities.

Today’s Decisions

Commercial building project in territory A

Turner had not previously worked with this owner but it had worked with DA (Design Associates) for 30 years.

All key staff available in territory…(not really it the three previous proposal were successful)

Project’s starting date suggested a tight schedule

Hospital Facility Group

Turner had not built an hospital in territory A in the last decade and had not workedwith HFG

Kupfer believed the hospital market would be increasingly important and that thecommercial-building market, while currently strong, was vulnerable to overcapacity in the near future.

Today’s Decisions

Call from business development manager of Territory B

He reported a possible contract of renovation ($50 million) for Goodnight Hotelsnational chain

A senior VP of Goodnight Hotels request a uniform standard of service and feesthrough the United States