Part 7, Advanced Civil Construction
MT KAO (Blog: http://mtkaoforum31.blogspot.tw/)
(1) Prototype, bespoke; portable, fixed:
a. Machine, prototype
People in construction industry need to know machine, plant and equipment for their manipulation, size, cost, productivity and required logistic.
The general contractors used to own machines, in the days they're expensive related to human cost and company asset.
When a country starts to build infrastructures, they need to move earth, lift heavy weight, paving concrete and asphalt, and deal with confronting water or other inaccessible.
There're machines typical to do these jobs and we call them the prototypes: bulldozers, cranes, graders, trucks, mixing plants, paving machines, compactors, work boats, etc.
Training of operators and workers are quicker and more economical these days as computerized simulation being introduced for training and the machines become simple in their build-up, maintenance and repair.
The repeating usages of machines is attainable in fledging economies, also the capital to buy them is comparatively less than before; thus the delivery of infrastructures will be more efficient.
b. Machine, bespoke
As countries proceed to build infrastructures projects of more sophisticated nature, the machines and the method employed may need special design and fabrication, we called the order and the makes bespoken. The usages are limited unless market is big and structures of similar dimensions are designed and built successively.
The bespoken construction plants, either will be maneuvered and launched by the people, such as advance shoring for bridge superstructure; or will be forwarding automatically as boring machines for the tunnel. It is something that a civil or mechanic engineer can conceptualize, design and assemble.
It must be noted that when the bespoken construction plant finishes its job, normally it has to be scrapped because difficult in storage, maintain finding similar project for reuse.
c. Machine, portable and fixed type, mobilization and assembling cost
Most of machines can be transported to construction sites, either by self-driving or mounting on trailer for distance, we call them portable, such as dump trucks, excavators, dozers, loaders, etc. For mixing plants, TBM, tower crane, or machines too big for transportation, they're divided in parts or compartments, and then hauled to the site for erection; we call them fixed type of machine.
Engineers must take into consideration the cost and time required to mobilize, install and demobilize construction machine. Sometimes in the remote or hazardous places disembarkation and the installation of plants and equipment can be difficult, slow and costly that the engineers have to work out the solution.
There is also possibility that the damages will incur to the parts or entire plants during transportation and assembly. Effective protection will take time and cost; commercially insurance policy shall be bought accordingly.
Also, people need to know the value of certain fixed plants decimated very much in single usage, and the remaining value after one project could be only the material cost after dissection.
Even the plant is designed and made strong for reuse, the bulk volume to store and its maintenance requirement during long wait will force the owner to scrape it.
(2) Operation, maintenance and repair.
a. Owning Cost: Depreciation, Interest, Productivity
In the days when the value of machine and spare parts far exceeded cost of people serving them: operators and crew for maintenance and repair. Only big companies would buy machines as main asset and source of revenue.
For two reasons the machine ownership had to be overtaken by specialty companies:
i). Facing human cost rising, and labor and safety laws fastidious and draconian, only companies able to concentrate effort to manage problems related to operation, maintenance and repair are in a position to handle the machines.
ii). Companies owning big fleet of machine wouldn’t have chances to share costs with other companies as each general contractor compete to get the business.
The machine owning cost, in general, shall be calculated as buying price plus interest payment over the machine's service life and thus obtain the so called flat depreciation cost.
The other is weighted depreciation method, perceiving that the first 2 or 3 years the machine will have high productivity and put the depreciation cost higher in such period.
However, the taxation offices have power to decide the amount permitted for depreciation for each year for different equipment. It affects how the owners should have decided, to charge their equipment.
Interest payment can be considered for each company in total, and outside machine cost calculation.
b. Maintenance and Repair Cost
Machines need operators to move them, the owners must pay the operators hourly wage and overtime. In addition, machines also need daily, or periodical maintenance; the related cost are the wages of the workers responsible for maintenance and amounts covering for consumable, lubricant and tool.
Repair cost in general is low when machine is new, but it will be accelerated when machine's condition become less fair in the later part of work life. The elements of repair cost consist of two parts: labor, and the other as spare parts.
In developed economy, the repair cost shall be between 100% and 200% of the initial cost according to statistic, depending on different equipment. In order to save labor cost, they’d identify the failed compartment and change accordingly; and in developing countries, the repair workers have to examine the parts more thoroughly and only change the damaged parts as few as possible.
Also, in places where machine price is high compared to human cost, the wage of operator can be 4-5 times of that of manual labor and output of machines will be higher than what can be achieved in advanced economy. Because when machines are relatively expensive, the owners won’t care to pay high wage to the operator as it’s now a small fraction of the revenues from higher productivity.
Right or wrong, the repair workers and operators for construction machines in the developing economies may be more dexterous than their counterparts in developed economies.
(3) Rental and owning.
Started from 70's last century, general contractors ceased to own construction machine and the reasons are: i) investment was big to buy equipment; ii) business opportunity was uncertain over long period; iii) difficulties to handle labor relationship with operators, maintenance and repair workers under the labor law; iv) judgement over replacement or repair of major parts requires specialty knowledge.
It is proven that the general contractors have no way to replace the small entrepreneur for construction machine owning as operation/ maintenance/repair is concerned.
Nowadays in Taiwan where the sense of entrepreneur is high, the equipment rental rates can be as high as buying price of a plant returned in 2 years.
(4) Construction method and machine selected.
a. Selection of Work Method and Construction Machines.
Designing an efficient construction method is key to successful deliver of infrastructure works: right construction sequence, get through most critical part of work, minimize undue outside interference, and avoid hazardous incident from happening shall be considered when the plan is drawn.
Engineers may have wide range to select machines for the construction projects; however, it will be influenced by the market availability for machine itself and operators. For example, in Taiwan, excavators are everywhere but dozers and loaders not frequently to see as in the cases of North America.
The reasons could be incidental because the people first introduce them to Taiwan just did it inadvertently and others just follow suit. This plus the fact that the local operators can be dexterous to maneuver the machines over the narrow and congested sites explaining fully that the back-hoes are popular in Taiwan.
Number of machine available for rental would draw down the cost thus affecting the user’s choices. Tower crane rental is an example. Because the buildings are now taller and mobile crane as substitute is restrained for occupying too much of the side walk, so the use of tower crane is required. A virtuous cycle is induced proving that the constructor’s practice can be changed for economic reasons.
In Taiwan, when the officials establish budget and draft contract for projects, they need to specify the types and the modes of machine to justify rates and sums. It’s a rationalized process but sometimes inflexible bureaucrat and supervisors will call for the usage of the same equipment appeared in the price breakdown; consequently, causing troubles.
Traditional “build according to the drawing” contracting could be excessive if everything shall be interpreted with “according”. The system has to be liberalized so as not to choke the constructor for their flexibility to select right and inexpensive machines. It also a proof that that the introduction of DB or EPC is necessary.
b. Machine and Manual Labor
In countries like India, machines face strong competition from man and vice versa. For example, bulldozers and earth moving machine has to be levied with high tariff and surcharges, so that men and their assistant working with spades and dustpan will have chances to outperform mechanized construction.
When we say the civil engineering, and construction is local, choice between man and machine is apparent, because machine absolutely is foreign. When the economy is still under development like India, augment of local employment shall be considered first.
Back to the India construction market, the wages paid to the machine operators won’t be significant compare to the revenue generated by extra output brought by the operator’s better performance. Thus, the wages of operators can be 5 times of the common labors in developing economies.
c. Cost factors in Prototype and Bespoken Machines
There is situation that prototype machines will not meet construction requirement, the bespoken one will be the solution. For example, when spatial dimensions are particular, physical obstruction needs to be overcome, , or automation required to speed up construction.
But engineers need to know: i). Lead time to design and build the plant is long; they’re not available at once like ordinary plants on the market. Ii). When one part goes down, entire system will idle or fail unless there is spare. iii). Though people will try to re-use it for next project but the chance is slim. iv). The whole value of the bespoken plant can be high and when it scraps after one project, the depreciation allowed can hardly be claimed. V). Turnkey contracts become popular these days; the contractors will have chances to design structures d fit into owned bespoken plant.
(1) Local and Conventional Material shall be chosen for Construction.
a. Transportation Cost and Locally Available Material
Material for construction is bulky and transportation cost is high, so they have to be obtained from local for maximum extent as quality and property meet the project requirement and not differ much from the outside world.
In fact, the overwhelmed material requirement of a gigantic project may sometimes tilt the supply/demand balance drastically in an isolated area. Investment in term of time and money shall be considered before projects start to assure quality and punctual completion.
Still, material prices can be fluctuated from time to time either in the case of limited supply, such as aggregate and sand, or as a result of global boom like steel and rebar.
It can be a disaster to a contractor who doesn’t know how much risk he’s taking in obtaining the construction material for the project he’s bidding. Normally, the contractor staying long in the market will understand that the probability and magnitude of price fluctuation are high; and only the so-called escalation clauses in the contract can offer minimum protection. Or the tenderers must mark up their bid price.
Traditional construction method and material can be available and inexpensive for bulk construction, evidenced by several hundred years of using history. Also as described above, the projects are there for economic development so that the employment of local artisans and labors shall be considered since the design stage.
b. Continuous Evolution for Material used in Construction
In old days, human's weight lifting capacity was limited, long distance hauling capability also prohibitively expensive and could only go through waterway. People had to use small and light material from local, like timer, brick and mortars for buildings and structures in most of the cases.
Granite and basalt were used in part of Europe especially for churches, castles or monumental structures. Wooden structure was erected in Asia for aristocrats and land lord, but the timber size reduced as a result of deforestation.
In general, the masses had to live in hut and dens for which they built with any material they could pick up from nearby area.
Discovery and use of steel in civil engineering works change the world. They replace traditional construction material resulting in great saving of cost and time. Steel in the form of rebar, sections and strains give buildings and structure new dimensions and spatial aesthetics.
People still think of innovation for construction material better than steel, such as fiber glass or high strength concrete, commercially one day it would be popular as steel used today.
c. Green Construction
Nowadays, carbon reduction is an issue, the material used in the projects shall be considered climate friendly, and engineers need green knowledge to incorporate construction material made from renewable, waste, or need less processing.
Commercial scheming would be different when the work requirement changes and regulations are revised or the new laws introduced.
(2). Material and Equipment incorporated into Permanent Project
a. Project More Sophisticated
As economy advances in a country, the construction work won't be simple structural work again; many systems and equipment will be installed in addition to steel and concrete. So, procurement will be more complicated than simply clearing the composition, dimension and strength of construction material.
When proper delivery of system and equipment, and their installation, operation and maintenance, is desired; prior check and mutual commitment shall be made with reliable makers or specialty contractors even before the contract is awarded.
An experienced general contractor knowing the risk implied in the contract signed with ever demanding client will seek teammates working in different field to discharge the huge responsibility for successful delivery.
Type of cooperation may include consortium, main and sub-tier contractual relationship, or various form of partnership suitable in each case since before the tender.
Between general contractor and system specialty contractor has to be in line with market practice for cooperation; and their undertakings must be complementary at least technically.
b. Nominated Subcontractor
In practice the owner may actually designate the maker of the system and equipment based on confidence and trust the brand bearers have exhibited. After award, the winning main contractor has to sign the sub or supply contract with the specified makers to overtake the deliver responsibility for their part.
Scope of the subcontract works undertaken by those nominated shall cover the risks begin with engineering, making, shipment, installation, commissioning, test run and operation with main contractor responsible for the interface coordination, progress control, and quality supervision.
Normally, in addition to contingency provision the cost shall include persons assigned for coordination and communication; plus fixed percentage on top of nominated subcontract price for bank guarantees, insurance premium, financial and legal expense.
In other words, the contractor imposed with nominated subcontract work has to share whatever may have gone wrong for the nominated subcontractor under him unless it can prove that the fault is on the Owner’s side since selection of nominated subcontractor.
At times of high inflation, market instability or when owners believe by directly go into supply contracts with the manufacturers or vendors for certain material like aggregate, steel or tiles, they’re in better position to implement the projects. Under the arrangement the contractors will accept money as the handling charge not as much compared to the percent of overhead in the case that they are requested to administer the nominated sub-contract.
In the case of Owner Furnished Material the handing charge is paid supposed to cover the cost that the contractor receiving, storing and keeping properly the material furnished by the owner; and not to cover the overhead and provision needed to complete the contractor’s responsibility according to the contractual conditions as explained above.
But there will be bureaucrats, design consultant, and financing people during budget establishment, reject the idea that the contractors need overhead to handle the nominated subcontract or the handling charge for Owner Furnished Material.
They consider the frontage contractor won't add substantially anything and following up the delivery making everything good and in order is their obligation.
The denying of invisible cost stemmed from the days the economic output mainly counted on agriculture and manufacturing (Physiocracy). The ignorance causes big problem in pushing the works forward; and a further proof that the construction works sometimes need cultural and conceptual fix.
(1) Payment: cash, in kinds or goods (barter), deferred (BT), franchise revenue (BOT, PFI).
Because the construction contracts are with big money; public or private owners will choose forms of payment according to their financial conditions.
The ways of payment include cash, kinds or goods (barter), deferred payment after completion and transfer to the owner (BT), or through franchise revenue (BOT, PFI).
The contractor must evaluate its own ability to accept the form of payment, for example, when he would have accepted the payment in crude oil over long period, he has to consider oil price fluctuation for long term or bear the cost and the remaining risk to buy the futures.
The reliability of the owners, government or private companies must be taken into account.
(2) Standard international contracts to regulate: FIDIC, NEC3 (New Engineering Contract3), AIA(American Institute of Architects), JCT forms of Contract(Joint Contract Tribunal)...etc.
It's not enough that the contractor will get the owner's pledge to pay him. It depends on the contract conditions through which the contractors get paid.
Normally we'd have type of contracts such as: FIDIC, NEC3(New Engineering Contract3, used for civil works in UK., Australia, New Zealand and Hong Kong, the language of it is simpler and the signing parties are said to be more equal), AIA(American Institute of Architects, form of contract popular in USA.), JCT forms of Contract(Joint Contract Tribunal, for architectural works in UK.)...etc.
As projects are different for each other, the contracts need to be modified to fit the situation; they will be reflected in so called Special Application (or Conditions) and leave the General Application (or Conditions) unscratched.
Whatever slight difference in Special Application will result in big departure in reality so that the contractor needs to read carefully even the author of standard contract or the Owner would have claimed they're the friendliest contract terms.
According to the payment conditions, the contract can be divided in forms like the conventional Rates and Quantity, Lump Sum, Guaranteed Maximum Price, Alliance, Cost and Cost Based, etc.
契約形式甚多，在台灣有政府範本；國際人士許多引用FIDIC,，英國協土木工程多採用NEC3，建築則有JCT範本，美國人則用建築學會之AIA。另依付款形式則有Rates and Quantity, Lump Sum, Guaranteed Maximum Price, Alliance, Cost and Cost Based等。
(3) Non-technical People to Control Money.
Compared to the old days now that big component of contractual money pays for intangible part of the project in the name to protect every party involved. The added value including the cost to acquire money, assure the delivery of the works, O&M of the project and even to the extent to guarantee the products or the purposed functioning of the project will be welcome by the customers. Thus, the added values are created.
But it is true that engineers are not playing the dominating roles in construction business because the invention as said is from improvement of technology, business skill, capital fluidity, that financial, legal and management people intrude and colonize uncompromisingly.
Though money is everywhere (QE?), but they’re dear. It takes so-called experts to invent ideas to attract the capital, they provide guarantees, mitigations and assurance to fascinate investors.
It is the trend, lots of the construction projects are controlled by hordes of non-technical people who can tease the investors.
For example, the government has plain financial resource for construction project and spent almost exclusively for construction related items last century. But now, big chunk of money will be paid as financial cost for BOT and/or PMI as people argue private fund is useful to create more public works for the benefit of the people.
A decent part of money will go to the so called independent third parties for their certificates, report and affidavits at non bargain-able cost (handled by the non-technical people) to ratify the security of capital while the construction hands need to compete each other.
Engineers must realize, somehow, they’re now playing secondary role in the construction project; but because of it they could concentrate in technical matters and become a better manager than people of other disciplines invading the profession.
(1). Contractors of Lemming Mentality
As it's said above, there're 2,800 strong Class "A" contractors in Taiwan to apportion a small market; the threshold to go into the construction market isn't high as capital (relatively low to the contract amount) is concerned. When they get contracts, the contractors will find many sub-tier contractors more than eager to share risks.
The running cost for a Class "A" contractor is low in Taiwan, the expense will be fee paid to the registered PE, a tiny office, plus a clerk to answer the bell. When the bosses cannot get business, pay such the low cost for "hibernation", will allow them hanging on for long.
The sleeping contractors will wake up when they get contracts and then to recruit managers and engineers to activate the company. Taiwanese people aren’t against shoot and off employment as most of them like to stay in the area like big city or home town.
So, the majority of the contractors are "entrepreneur" type. They're competitive and spiral down ward the awarding price. The practice is not possible to nurture big contractors with know-hows and experience in the market.
But once it is provoked by market turmoil destined to happen every few years, such as sudden sabotage of dump trucks of 1990 (resulted in soil haulage hike and aggregate short supply), or sharp escalation of steel price in 2006, the contractors wouldn’t have sufficient contingency provision will go for broke. The number culled will be significant but it will rise again if there is market re-juvenescence.
The process repeats again and again; the contractors go up and down riding on the changing tides. The ones with bad luck will capsize, but too many of them survive. One moment, the contractors' number will be swelling like lemmings grow to incredible amount in short spring time; the other moment the nature will drive some of them jumping the cliff and the rest follow subconsciously.
The market is still there for another cycle; but the professionals wouldn't have chance to lead the trend while public has to bear most of the cost that speculators should have to pay.
(2) Type of Bid Competition and Evaluation: Lowest Bid, Evaluated Lowest Bid, Value for Money.
The problem of construction industry in Taiwan is over competition. Lowest bid is blamed because under the bureaucratic system the budgets were considered to be right and served as bench mark for the contractors. The winning price was considered as true market cost or the officials follow them shall be subject to official chastisement.
Automatically, people, the budget builders or the tenderers will consider it as a bench mark for similar tenders. Vicious cycle begins and the awarded prices have to wait for another episode close to force majeure for correction; of course, it's always late.
Evaluated lowest bid is taken with the hope that the best contractor and their offer can be selected as the champion to win the tender; however, the selected may not be the most outstanding one, and the judges' supposed imparity is often challenged.
Authorities had sometimes to amend the criteria with the aim that it must be more fitful for particular tender but more susceptible to criticism. So, the evaluated lowest bid system stopped at 2007 in Taiwan, and BOT and PMI also suspended. The lowest bid tendering system prevailed for the next decade.
It is true that in recent years the contractors don't make money. They kept tendering and performed the contracts only to sustain the company. They couldn’t afford to pay senior engineers because of the poor overhead earned; the result is the loss of expertise.
There will be limit to which the contractors take the construction contracts because they can’t make profit after all. The result is tenders "aborted" or the execution in chaos. So, the evaluated lowest bid is coming back. There’s possibility and also a reasonable hope that the authority may get lessons from flaws happened in the past.
The criteria to select the best tenderer for the tender shall be rationalized, especially that the persons to be assigned as "judges“, shall be men of integrity.
Current tendering rules propping the idea for EPC will nurture bigger and more public construction companies instead of the small entrepreneurs who always cut corners of the fair competition is said to be the solution to correct the market for persistent fragmentation.
It could be a well wish and hind sight, but seeing the implementation of FCPA (of the US) and similar laws of various states, the big and public companies can be supervised more thoroughly in the entire process.
The final goal for government spending shall be "Value for Money", in which, the project completed will worth money spent. It’s idealistic but we suppose the introduction of more liberal ideas, moderate as it may be, will bring in the progress.
(3) Elements of Competition.
A market considered normal will be the one that the consumer is most important. For public works the government is single biggest buyer, he can draw the lines to select the contractors based on their apparent capability, past experience and planned execution plan for the tendered project.
It means the government can define a clear and objective criterion for elements such as price, technical approaches, time of completion, safety record, experience in similar works, existing work loading, managerial and technical resource in hands, records of contract disputes (with owners) …etc.
For international tenders, the owners usually will analyze and evaluate the tenders according to the criteria established objectively. The scores and the tabulation can then be submitted to higher ranking people, maybe people with reputation for review.
The process will avoid complain that the judgement in supporting contract award is made subjectively so as to prevent the outside criticism and interference.
It's true that during the selection of the winning contractor, the authority and invited judges have to "play god" to weed up the weaker or the unfit, and the result maybe that the selected aren’t the perfect ones because many factors are involved during tender and later execution. And in Taiwan, public and the industry may not be patient and easily to find someone as scapegoat.
However, the rules shall be respected and endured for some time to see what if it will change the construction industry players and whether or not that the professionals will be allowed to lead the ring.
(4) Defying the International Norms.
Until now, the developed countries especially Europeans and Americans have big say on the codes, standards, disputes solutions and financial arrangement of the international projects. They are the establishment to enjoy privileges and power more than their competency in the industry.
If the Asian contractors want to go overseas or the western investor coming to their country to build something, they may have the problems to follow specifications and conditions alien to them.
And in recent decades, the foreign owners already accept the idea that the projects need to be guaranteed for their success will go for every detail to ensure nothing will go wrong and therefore favorable the western establishment.
So, despite the new comers may have good engineering knowledge, construction skill and the versatile capability completing the works, they are handicapped in the international construction market, where the established western companies set the rules of the game.
We believe it's not an intended design by any known nations or covenants of them, but it’s difficult, to change the universal conviction soon. Because it’s a capitalist practice that the distrust is used as the excuses to safeguard the people’s interest that the parties involved in the construction contract have to adapt and accept.