There is a lot of progress made in the practice of risk management in housing within the construction industry sector in America. The sector is prone to different types of risks because of a rapidly changing environment. There are few transferable practices since each project presents different operational conditions and different environmental constraints even if based on the same design.
For this reason, the practice of risk management is crucial to the success of projects. Stevens (2002) notes that, “to succeed the risk management process must be treated with respect within an organization and has to be implemented early to achieve the greatest effectiveness”.
Risks refer to events, which cause some degree of disturbance to the flow of a project when they occur. When such disturbance is positive, it results in a positive risk, while if it is negative, it results in a negative risk. Two measures apply in risk analysis. The first one is a risk’s probability of occurrence while the second is the damage that results from the occurrence of the risk event. The probability of the occurrence of the risk measures the degree of certainty within which the risk may occur.
The consequences associated with the risk describe the seriousness of the effects of the occurrence of the risk. These consequences vary from insignificant to catastrophic. Boyd and Chinyio (2002) best summarize the purpose of risk management when they say, “clients need better value from their project, and construction companies need reasonable profits in order to assure their long term future”.
Types of Risks Associated To the U.S. Housing Construction Sector
Various causes of risks characterize the risk source portfolio for housing construction projects. There are a number of ways to categorize then including project homogeneity versus project heterogeneity, environmental analysis and controllable versus uncontrollable risks.
Housing construction projects have various degrees of homogeneity and heterogeneity. Homogeneity encourages transfer of skills and lessons since it hinges on similarities between projects. The biggest risk associated with homogeneity in housing construction projects is the replication of a construction fault across projects based on the same design.
If the contractors use a particular method of construction or a certain type of material that ends up being a source of damage to the houses, the company will face huge project losses. This scenario requires that for large scale homogenous projects, there is need for sufficient time for design and testing in order to stem the risk of a serious fault finding its way across the entire project.
There are more risks associated with heterogeneity. This is because working on a project never done before makes it difficult to determine the effort and resources required. Risks arising out of homogeneity still occur even in very similar housing projects because of differences in environmental conditions. Risks arising out of heterogeneity include unpredictable site conditions and different management styles.
Others are sources of inputs such as labor and materials, and differences in element specifications. Physical conditions for every site, even for housing construction within one area may vary widely. Winch (2010) verifies this by stating, “There are difficulties which cause pressures to reduce levels of standardization”. These differences come about because of different soil profiles, old uses of the land such as quarrying and the presence of pools and depressions.
These conditions have different preparatory requirements, which may alter the timeframe and the resource outlay for the project. The fact that most of them only come to the surface when the project work has begun makes them the source of considerable risk. Management style is a source of risk for large-scale housing construction projects, which require different management teams to work together for the successful completion of the project.
Thompson and Perry (1992) indicate that, “effective management of risky projects demands rapid and realistic predictions of alternative courses of action and positive decision-making”. If there are managers who cannot get along because of personality differences or because of the use of different management styles, the project will suffer. Finally, among the risks associated to homogeneity, are differences in sources of raw materials and labor.
The nature of housing construction projects makes it difficult for contractors to maintain the large and diverse workforce required for the successful completion of housing projects. This discontinuity in labor supply is a source of risk for the housing construction industry. Distance affects the supply of raw materials from the supply source. Other factors include the availability of the materials and their suitability for specific environments. These factors contribute to the risks associated to the housing construction industry.
Another method used to evaluate risks in the housing construction sector in by assessing the project’s internal and external environment. The project’s stakeholders determine the effects of the environment on the project. The external project environment constitutes political, social, and economic elements while the internal environment comprises the project team.
Morledge, Smith, and Kashiwagi (2006) observe that there is, “need for a politically skilled champion prepared to fight for the project against strong opposition”. Housing construction remains vulnerable to political issues such as uncertainties due to elections, wars, legislation, and activism. These impinge on the project’s development and alter its progression, usually in unpredictable ways.
External economic risks to housing construction projects come about because of fluctuations in foreign exchange, and severe economic times characterized by inflation, depression, and recession. The housing construction sector is especially vulnerable to economic risks because of the time span required between the inception of the project and the break-even point.
The whole process takes years, which makes it impossible to forecast the economic environment. The internal environment of a project comprises the project management, the workforce, and the client.
Evidence of Risk Leading To Poor Performance
The financial crisis in the US provides an excellent example of how risk can lead to poor performance in the sector. The housing industry provided the conditions necessary for the entire country to get into a recession. Sowell (2010) notes that, “during the housing boom, there were some voices of sanity that warned against the risky way things were being done”. The property bubble caused by a bulging housing bubble made house prices to rise to artificial heights.
When the market sought to correct itself, the result was a sharp decline in property prices, characterized by widespread foreclosures as financial institutions sought to recoup their investments. The housing construction sector was particularly vulnerable because of the project duration for houses, and the fact that the building of houses is not for ready markets but for projected markets. Any changes in income levels affect the potential market and hence put the entire investment at risk.
Evidence of Established Risk Management Practice in Your Chosen Sector
The Construction Management Association of America champions for housing construction risk management. It advocates for the use of the ‘CM at-risk’ approach to project management, which seeks to ensure that the contractor delivers the project within the Guaranteed Maximum Price (GMP). The International Risk Management Institute (IMRI) recently organized a conference on risk management in the November 2010.
IMRI regularly organizes these conferences targeting various professionals in the housing construction industry. Another body that provides support for risk management in the construction industry is the Construction Financial Management Association (CFMA). It provides financial risk management services to the housing construction industry. These demonstrate that there are different risk management interest groups working within the American housing construction sector.
Risk Management Practices Applicable To U.S Housing Construction Sector
There are some options for risk management in the sector. They include Standardization of construction processes, training of construction on risk management, using risk management consultants to provide risk management training and advice. Housing construction projects have several stages and processes that are similar.
The standardization of these procedures provides the opportunity to reduce the risks associated with them. It would ensure that the processes benefits from learning that take place in the process of project execution, so that transferable lessons contribute to risk management.
Kelly, Morledge and Wilkinson (2002) observe that, “the knowledge obtained from a risk management strategy can assist with preparing the tender, selecting the resources and methods of construction, interpreting the contract and pricing works”. Secondly, many construction managers have inadequate training in risk management. They associate risk management to insurance and not the entire process of construction.
This perception creates a rift that stops construction managers from taking advantage of risk management techniques available to them. Finally, there are consultants who provide risk management services. These consultants provide professional guidance to contractors on various elements of risk management thereby improving the risk preparedness of a given project. One of these consultants, PwC, provides clients with capacity to “implement project and cost controls” (PwC, 2010).
Reference List
Boyd, D. & Chintio E., 2006. Understanding the construction client. Oxford: Wiley-Blackwell.
Kelly, J., Morledge, R., & Wilkinson, S., 2002. Best value in construction. Oxford: Wiley-Blackwell.
Morledege, R., Smith, A., & Kashiwagi D. T., 2006. Building procurement. Oxford: Wiley-Blackwell.
Sowell, T., 2010. The Housing boom and burst. New York: Basic Books.
Stevens, M., 2002. Project management pathways. Buckinghamshire: APM Publishing Limited.
Thompson, P., & Perry, J. G., 1992. Engineering construction risks: a guide to project risk analysis and assessment implications for project clients and project managers. London: Thomas Telford.
Winch, G. M., 2010. Managing construction projects. Chichester: John Wiley and Sons.
An Evaluation of Current and Potential Future Application of Value and Risk Management into Construction Project Management Professional Services in the Construction Sector in the UAE
Abstract: The UAE had an unprecedented boom in its construction sector between 2004 and 2008. This ended during the international financial crisis of 2008. As a result, the UAE Prime Minister issued a decree requiring all contractors to use green principles in construction projects.
The high-end construction market responded by adopting stronger VRM practices. The state of VRM in the UAE is that it is growing in prominence. However, the professionals in the area are very few. In many cases, external consultants provide VRM services. The future of VRM in the UAE requires better training for undergraduate engineers, to supplement the efforts of the existing postgraduate VRM professionals.
General Structure of the Paper
This paper has two main sections. The paper includes a literature review covering the essential background of both value management and risk management, and the result of the combination of the two, into value and risk management. The paper also presents the findings of a survey conducted to determine the VRM awareness levels of professionals in the construction sector in the UAE. The paper concludes by presenting the conclusions obtained in answer to the problem statement.
Introduction
The UAE is a regional leader in the application of VRM principles. This paper seeks to examine the issues that have an impact on VRM practices in the UAE and the implications of these issues for the future. The period between 2004 and 2008 will remain etched in the memory of the UAE as the heyday of the construction industry.
In that time, value management did not command much respect because investors in the construction sector did not demand efficiency in their projects. They favored fast pace construction over cost management. The result of this attitude is that the UAE is now home to some of the most energy intensive skyscrapers in the world.
Value and risk management is slowly finding its place in the construction sector. The rules have changed. It is no longer survival for the swiftest in the UAE, but survival of the fittest. This article examines the current state and future opportunities of value management in the UAE.
VRM in the UAE
In any business, value comes from business processes. The professional process of ensuring that a certain process yields maximum value for the stakeholder at the least cost is value management . The definition of value in this case is not just the financial value. Rather it is value in the context of the balanced scorecard, which covers the financial value, value from internal processes, value for the customer in question, and value in terms of transferable experience for the contractor .
On the other hand, risk management is an active process of finding potential events or circumstances that can affect the progress of a project if they take place during the life of the project . The occurrence of risk must be uncertain. Otherwise, the event ceases to be a risk. Risks associated with the construction sector range from material defects to industrial action by workers. The cost of many construction projects is very high.
This creates the need to manage risks as effectively as possible. Risk management involves the identification of potential events that will trigger the risk and determining the probability of occurrence of that event. After that, the risk manager quantifies the impact of the occurrence of risk-causing event on the project in terms of loss of life, time, money, and business opportunities.
It is possible to view risk management as a specialized form of value management because risk can erode the value of a project. It serves a preventative purpose. Value management on the other hand aims at increasing value from the processes by reducing costs or increasing the utility of the outcomes of the project .
According to Karim, Berawi, Yahya, Abdul-Rahman, and Mohamed (2007) the value management process has three stages namely, value planning, value engineering and value analysis. Value planning takes place during the planning phase of the project. Value engineering occurs during construction, while value analysis takes place after the construction phase.
Value analysis helps in the establishment of measures to ensure that the value gained during the value engineering process lasts throughout the useful life of the building. The risk management process involves risk identification, analysis, response, and monitoring . Risk identification and analysis take place during the planning of the project at the same time as value planning. Risk monitoring takes place throughout the active life of the project.
The construction teams use risk indicators to monitor the risks. Risk response depends on whether the risk events take place or not. If a risk occurs, risk response takes place. The amalgamation of risk management (RM) and value management (VM) into risk and value management (RVM) comes from the relative similarity of the objectives of these two aspects of construction management. Focusing on RM only can erode value while focusing on VM only can introduce high risks to the project .
The rising stature of VRM in the UAE is as a direct result of the events that took place between 2004 and 2008 in the construction sector . In 2004, the construction sector in the UAE was experiencing unprecedented growth. The country was on the path to achieve its dream of becoming a transport, trade, and commercial hub in the Middle East .
This led to an increase in the number of the immigrants looking for work in the Emirates. In addition, many traders were coming to the UAE to close business deals. The result was that the demand for housing and commercial buildings grew. The country saw the construction of an unprecedented number of new buildings to meet the rising demand. Since investment funds were flowing, the speed of construction became the driving force.
VM was not central to project planning in the construction industry. The UAE ended up undertaking projects that delivered buildings with the highest energy consumption in the world . In 2008, the UAE economy went through a downturn occasioned by the global financial crisis triggered by the US real estate market . Since that year, there has been a growing appreciation of the role VM can play in the construction industry.
The shift towards VM goes back to 2007 when Sheikh Mohammed bin Rashid Al Maktoum, the Prime Minister of the UAE, issued a decree that ordered players in the construction industry to conform to a newly established green standard in their projects . The decree took effect in January 2008 just when the global financial crisis was hitting the UAE. From that time, there has been a steady increase in the number of construction companies using VM in order to meet project goals and the regulatory goals.
Evidence in literature suggests that the current state of application of VRM in the UAE is uncoordinated. While there is widespread recognition of the potential saving the use of VRM can bring to projects, the practice is not widespread. It appears that the planning processes of construction projects do not include VRM.
A case in point is the low-income housing project in Musaffah, Abu Dhabi in which VRM principles were not part of the planning process . Some of the design choices made by the project planners seemed unsuited for the construction projects. For instance, the houses contained some utilities such as gas-powered central heating, which is not fitting for low-income housing .
In addition, the water tanks positioned outside on the roofs of the houses started malfunctioning after three years, yet the project requirements stated that the life cycle for each house was to be twenty-five years . The main contention resulting from this situation is that project planners did not carry out VRM with the users of the house in mind.
Rather, the designers used uneconomical design options to raise their design fees since they charge a percentage of overall project cost. The current application of VRM in construction projects in the UAE is also a reflection of the little manpower available to conduct VRM.
The VRM Survey Methodology
A VRM survey conducted for this project revealed several issues regarding the current and future prospects of VRM in the UAE. The survey involved professionals working in the construction industry with decision-making responsibilities.
Results
The key findings of the survey were that only ten percent of the engineering professionals in the construction sector have any form of training in VRM, and none of the respondents have participated in a VM program. VM training in the UAE is available in postgraduate courses in construction management.
The graduates do not all go to practice VRM hence the lack of involvement in any VRM project. The fact that most professional engineers in the UAE without postgraduate qualifications have not formal training in VRM may indicate the low skill levels in the area of VRM in the country.
Other findings in the survey showed that there is a general understanding of what RM is, but the views of respondents on VM did not demonstrate a strong grasp of the concept. When asked about their understanding of VM, most of the respondents used cost savings as the main issue in VM.
The answers included phrases like, “help clients reduce costs”, “managing expenses in construction”, and “having the best quality with least money”. Forty percent of the respondents had no idea what VM meant. There seemed to be a perception that VM is part of project scope management because many responses included phrases talking about time, quality, and money.
The responses for a similar question relating to RM showed a better understanding of RM in a project. RM is a core part of undergraduate construction courses hence it is not surprising that most of the respondents were articulate about RM. None of the respondents had any experience in analyzing the benefits of VRM exercise because none of them had participated in a VRM exercise.
All the respondents felt that the application of VRM in the UAE should continue. The responses depended on their understanding of VRM in the first place. One respondent pointed out that VRM activities take place in large projects only. Therefore, there is a need to downstream the practice.
Another respondent also added that the practice of VRM in the UAE is selective. The project managers choose to implement some elements and ignore others. This leads to low return from the VRM process, which requires implementations throughout the project cycle.
Based on this survey, the need to make VRM conventional is obvious. If the professionals in the construction industry do not have a clear understanding of the basics of VRM, then the construction industry will not have people who can champion for VRM. The best way to tackle this gap is to include VRM in the training curriculums of all construction courses.
Even if this does not produce VRM consultants, it will empower these professionals to evaluate the benefits of VRM in construction projects. The current model where consultants carry out all VRM activities is not sustainable for nationwide impact. If project initiators do not want to spend money on consultants, a project does not benefit fully from VRM. Training all professionals in the industry to understand VRM will increase the appreciation and application of VRM in the industry.
In conclusion, while the data available from industry sources such as The Oxford Business Group may suggest a vibrant VRM environment in the UAE, the data collected for this project shows that there are serious training gaps in VRM in the UAE. Industry publications are niche publications hence they may report in detail issues having an effect on a very small part of the overall environment.
Conclusions
The main conclusions from this project are as follows. VRM is increasing in importance in the UAE, partly because of intervention by the state, and partly because of the lessons learnt after the global financial crisis. The decree by Sheikh Mohammed bin Rashid Al Maktoum, the Prime Minister of the UAE that took effect in 2008 requires all construction projects to use green principles in construction.
VRM is an essential part of ensuring all green projects meet the requirements of the decree. Secondly, there is inadequate capacity in the UAE to mainstream VRM across the construction sector. This conclusion comes from the survey conducted for the purposes of this project to find out the current level of manpower available to push forward the VRM agenda in the UAE. If UAE can train professionals at all levels, then it will improve the practice of VMR in the country.
Thirdly, the Engineering Associations in the can play a part in mainstreaming VRM by conducting training seminars for all engineers working in the UAE. Currently the training levels of VRM are too advanced. Undergraduate engineers do not have the skills and experience needed to implement VRM in their settings.
Finally, institutions of higher learning in the UAE need to include VRM as part of the coursework for all construction courses at undergraduate level. This will serve to increase the capacity of the country to make VRM a part of construction planning for all sizes of projects.
References
Abdellatif, MA & Othman, AA 2008, ‘Improving the Sustainability of Low Income Housing Projects: The Case of Residential Buildings in Musaffah Commercial City in Abu Dhabi.’, Emirates Journal of Engineering, vol 11, no. 2, pp. 47-58.
Davies, RH & Davies, AJ 2011, Value Management: Translating Aspirations Into Performance, Gower Publishing, Surrey.
Gordon, RJ 2012, ‘Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds NBER, vol 18315, pp. 1-23.
Jaapar, A & Torrance, JV 2010, ‘Contribution of Value Management to the Malaysian Construction Industry: A New Insight’, Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Selangor Darul Ehsan.
Karim, SBA, Berawi, MA, Yahya, IA, Abdul-Rahman, H & Mohamed, O 2007, ‘The Integration of Value and Risk Management In Infrastructure Projects: Learning from Others’, Quantity Surveying International Conference., Value Management Centre (VMC), Faculty of the Built Environment, University of Malaya, Kuala Lumper.
Koenig, M & Meissner, J 2011, ‘Risk Minimizing Strategies for Revenue Management Problems with Target Values. ‘, Working Paper, Department of Management Science, Lancaster University Management School, Lancaster University Press, Lancaster.
KPMG 2003, ‘Internal Audit’s Role in Modern Corporate Governance’, Risk and Advisory Services, KPMG, KPMG, Hong Kong.
Meredeth, JR & Mantel, SJ 2011, Project Management: A Managerial Approach, 8th edn, John Wiley and Sons, Hoboken, NJ.
Othman, AA 2005, ‘Value and Risk Management Protocol for Dynamic Brief Development in Construction’, Emirates Journal for Engineering Research, vol 10, no. 2, pp. 23-36.
Othman, AA 2008, ‘Incorporating Value and Risk Managemen Concepts in Developing Low Cost Housing Projects ‘, Emirates Journal for Engineering Research, vol 13, no. 1, pp. 45-52.
The National Petroleum Construction Company is a global construction company which received many awards in fabrication of steel structure sections. It was established in 1973 as a Public Joint Stock Company and its fabrications facilities are located at Mussafah – Abu Dhabi.
It started with providing and fabricating the required steel structure for the onshore and offshore Oil and Gas production industries. In 1978, it developed and widened its operations by inaugurating a custom pipe coating facility at the field. In 1979, the company fought an escapade into offshore activities for the Oil industries, installation and knitting works.
In 1986, NPCC began the manufacturing storage tanks which are used in storing various types of petroleum products. In 1994, NPCC built a new modern facility in Mussafah which can produce and fabricate up to 67,000 tons of steel annually. After that by just two years, another modern facility was constructed for fabrication of pressure vessel.
This facility has a capability of producing 6,000 tons per year of pressure vessels in different type and size. The Company takes all developing steps and urban growth carefully to achieve the goals and achievements over the years. That dynamic growth strategy makes NPCC to reach a place in league with the major international EPC contractor of the Oil and Gas industry.Aqeel A. Madhi is the Chief Executive officer and HussainJasem Al Nowais is the chairman-GHC of the NPCC.
Nowadays, NPCC is regarded as a successful and fast-developing global company that ensures high quality services and products in the sphere of gas manufacture, storage, engineering, and installation. More importantly, the company sustains a competitive advantage in integrating offshore and onshore projects.
Core values
The National Petroleum Construction Company is an excellent provider of offshore and onshore services in the sphere of production of gas, as well as delivery of petroleum products. The NPCC takes prides in its highly competitive and confident employees who are able to control and coordinate of advanced technologies. The company is actively involved in the production, testing, and inspection that take control of the modern technologies.
The NPCC ensured well-equipped environment in which employees operate. Therefore, the company’s managers realize the importance of ensuring a favorable organizational culture that motivates their employees, as well as provides highly effective coordination and collaboration. The Board of Directors is conscious about its strategic objectives and, therefore it is committed to producing high quality products that meet the established international standards.
Employees are considered as the most important and valuable asset of the company. Therefore, the staff strives to ensure training and development programs for their employees, as well as provide efficient social schemes. According to the NPCC managers, wellbeing of their employees can guarantee expert services for their clients.
Products and Technology
The company, as the provider of offshore and onshore activities, also offers the following services and products to their customers (Product & Services, n. p.):
EPIC and EPC Management that ensures Procurement, Building, and Installation services;
Pipeline Testing, Pipelaying, and Riser Installation;
Building and Installation of Storage Tanks;
PLEM and SPM Building and Installation;
Geotechnical and Geographical Offshore Services;
Delivery and Production of Pressure Vessels, Modules, and other Petrochemical Projects;
Onshore Development of Plants;
Anti-corrosion Coating of Pipelines;
Offshore Installation and Production of Wellhead Jackets, Modules, and Topsides;
Commissioning and Pre-commissioning of Offshore Activities;
The company is also involved into the development of offshore and onshore projects. In particular, the NPCC managers introduced Gas Development Project that includes installation of the Habshan Platform. The project presents the gas manufacture by drilling extra gas wells.
This platform serves to transfer gas through new pipelines. IN addition, the company worked on installation and manufacture of Scraper Decks and Tie-in Platforms in 2007. In particular, the project integrated fabrication, installation, and engineering of such facilities as ZULF TP7, ZULF TP8, ZULF TP5, and ZULF TP6 (Offshore n. p.). There are many other interesting and innovative projects that relate to the development and technological advancement of the facilities.
The NPCC integrates advanced and innovative technologies into constructing its offshore and onshore projects to guarantee safety and quality of products and services. In this respect, the company has achieved numerous awards and quality certificates that enhance the image of an innovative and high-tech organization (Quality and HSE, n. p.).
Social Responsibility
Code of Conduct
The Code of Conduct features the principles of behavior of employees. The company conducts its business in a fair environment and, therefore, the employees of the NPCC should follow ethical principles in accordance with established laws and regulations. While conducting business activities, the company focuses on integrity as the primary principle in cooperating with clients, shareholders, business partners, communities, competitors, suppliers, and employees (Code of Conduct n. p.).
Company’s responsibilities should be accomplished in regard to the international ethical standards to meet the performance requirements. Therefore, employees are not allowed to engage in the in the activity that may undermine the company’s reputation (Code of Conduct n. p.). There are a number of rules and principles that the NPCC employees should observe to meet the code of ethics introduced in the company.
To begin with, employees should not abuse the power of their position for personal interests, as well as take advantage of the information for non-business purposes. Second, the employees should also protect all assets of the company’s stakeholders to use them for relevant activities only (Code of Conduct n. p.). Finally, employees should also report on the case of improper ethical conduct to avert the situations that pose threat to the welfare of the company.
Assessing the environment and ensuring social corporate responsibility
The NPCC has a full awareness of the consequences of negligent attitude to the business and operation activities. Therefore, the Board of Directors, along with employees, considers social corporate responsibility a priority in conducting business (Quality and HSE n. p.). They understand the environmental issues, as well as the necessity to introduce specific regulations that could prevent the probability of accidents and contingencies that can pollute the environment.
International Cooperation
The company introduces strict measures to ensure that the products and materials meet the established quality requirements. Therefore, the suppliers and vendors engaged with business activities should conform to those requirements. In addition, the NPSS department of HSE and Corporate Support realizes that Media Assistance and Communication are among the most important aspects of company’s successful development.
Business Partner
NPCC is considered a subsidiary company since the hold share of 70% is owned by the General Holding Corporation GHC. Thus, NPCC had extent it’s business throw many engineering fields, making it one of the most important business partners in UAE.
They provide several services to many companies in variety ways suck as offshore constructions, offshore services, onshore/onsite services, fabrications, pipe coating and pressure vessel. With this NPCC becomes a major company in oil and gas industry, turning into a big business partners throw the years.
Offshore construction and services
NPCC help oil and gas companies to establish their Offshore facilities by installation & Commissioning of pipeline systems, Installation of heavy structures using float-over technique Offshore positioning & seabed surveying, and Under water inspection & maintenance. Main business partners in offshore services are ADNOC and ADMA-OPCO.
Onshore/onsite services
With the high demand for maintenance and fabrications on the onshore, NPCC had been success to meet these demands. NPCC had provided engineering teams to solve engineering challenges. They had built state-of-the-art Fabrication Yard which supply all the fabrication needed by clients. Also they can install and inspect to maintain any onshore facility the client asked for. Main clients/ business partners are TAKREER, GASCO and ADCO.
Environment protection
NPCC has been an award company with huge accomplishments since they got their first award British Safety Council Sword of Honor in 1989. Since then, NPCC continued to reserve awards and certifications for their work. They have cared for environment and HSE applications and they proved themselves to the community as well as to their clients.
HSE awards
NPCC had achieved a lot by applying HSE standards and they been given awards for their safe work such as :
British Safety Council Sword of Honor in 1989 for being one of the top 30 safest companies in the world
ADNOC HSE Award 2001, 2002 and 2003
ZADCO HSE Award 2009 & 2006
The Royal Society for Prevention of Accidents (RoSPA) Award 2011
HSE Certificates
NPCC efficiency in HSE have increased throw the years thus, they been reserving many excellent certificates for their job well done. Since certifications have a limited time, they still managed to continue getting them by the safe practice such as:
ISO 14001:2004 CERTIFCATE OF APPROVAL (following Environmental Management System Standards)
OHSAS 18001:2007 CERTIFCATE OF APPROVAL (the Occupational Health and Safety Assessment Series “OHSAS 18001”)
IPLOCA Safety Awards.
Conclusion
Since its emergence in 1973, the NPCC has managed to conquer the leading markets in manufacture of petroleum products and installation of offshore and onshore schemes. It has a well-developed set of values, missions, and strategies that allow the organization to integrate new initiatives and attract new clients.
The company’s managers are involved in constant development of new training and developing programs for their employees being the most valuable asset of the company. They also encourage innovation and use of modern equipment in promoting exceptional quality.
It should be stressed that the NPCC emphasizes the importance of adherence to the Code of Conduct as the foundation for company’s business activities. In particular, the executive managers of the company believe that ethical standards should be strictly followed to preserve the organizational culture and increase the welfare of the employees.
Aside from ethical and cultural aspects of company’s organization, the company works on expanding their markets and establishing new relations with other international companies. International cooperation and communication is vital for enhancing the company’s position and respectable image.
Finally, the company integrates an environmentally savvy policy that guarantees strict adherence to existing environmental laws and regulations.
As a proof, the company has won numerous awards in the sphere of Quality and HSE, which justify their strategies, mission, and values. Being among the most successfully companies, NPCC strives to attract more investors to develop new approaches and techniques. Therefore, the managers never cease expanding the company’s potential.
List of References
“Awards.” The National Petroleum Conestruction Company. Web.
“Code of Conduct.” The National Petroleum Conestruction Company. Web.
“Introduction.” The National Petroleum Conestruction Company. Web.
“Offshore Constructions.” The National Petroleum Conestruction Company. Web.
Onshore/Onsite Services.” The National Petroleum Conestruction Company. Web.
“Offshore Services.” The National Petroleum Conestruction Company. Web.
“Offshore.” The National Petroleum Conestruction Company. Web.
“Product & Services.” The National Petroleum Conestruction Company. Web.
“Quality & HSE.” The National Petroleum Construction. Web.
“Vision & Mission.” The National Petroleum Conestruction Company. Web.
The aim of lean production is not only to reduce waste, but also to maximize value. This has to be attained through lean production management and by devising particular tools and techniques for effective delivery of the lean production projects.
Some of the ways of integrating lean production into the construction project delivery and it is argued that this can be achieved by improving factory based manufacturing in terms of building elements, sections and components. Inclusion of pre-assembly has attracted a lot of opposition from clients, showing how important these clients are to the process of construction.
Generally, the client and workers are the two most important stockholders in the construction process. The client ought to be involved in decision making and their views should be sought to ensure that products of value and those that meet their needs have been produced. On the other hand, the effective delivery of the construction process requires that the safety, health and welfare of workers have been met.
This assessment discusses the reasons and problems that may lead to the failure of any construction project and analyses these problems and their possible solutions, so that in the future, the project could be successful. First, the work begins by highlighting problems that may be encountered by any project before proceeding to the use of Toyota way to solve the problems.
The problems will be in reference to a number of reports from various construction sites. To begin with, there are several problems that are common at construction sites and had been previously identified in the UK by CIRIA Construction Industry Research information Association abbreviated as CIRIA (Pasquire and Connolly, 2002, p. 9).
Analysis of the Problems and Possible solutions
First, there’s a problem of the amount of labour, health and safety. Bigger cities are dominated by skilled labour than smaller ones. This is likely to have an effect on both the quality of work and the availability of employees.
Survey indicates that in the recent past, there were some injuries which a number of employees. Further study reveals that in the recent years, the industry lost billions of workers as a result of work related injury and poor health during work.
Almost every nation has a problem of the safety of workers in the construction industry. The industry is ill reputed due to its high accident rates and despite efforts through campaigns, education, regulation and control, the impact has not been remarkable. The best solution of enhancing safety is changing the behaviour of the system to being safer rather than imposing rules (Bertelsen, 2004, p. 63).
Secondly, there the problem of construction site waste. Many builders are finding it an issue to get rid of waste from the construction site. This is an issue in most nations. The waste entails all the unwanted material such as electrical wiring, insulations and rebar.
The waste may comprise of hazardous substances such as asbestos and lead. Other forms in which waste exists are overproduction, rework, unnecessary movement, conducting unnecessary inventory and waiting (Song, Liang & Javkhedkar, 2008, p. 2).
Waste reduction is a vital aspect in lean construction. House Keeping plays a central role in waste reduction. This is simply ensuring that the construction site is organized and tidy. Workers should be urged to ensure that a job site is clean after completion of activity on it. A third way of enhancing waste reduction in lean construction is through stock holding and efficient transportation of construction material.
This is often termed as Just – In – Time (JIT) delivery which is based on the notion that inventories should be done away with because they are not valuable. Through JIT, contractors receive materials in small amounts when in need of it in a bid to minimize both stock holding and double handling of the material (Eriksson, 2009, p. 3).
Information Technology is the fourth vital waste reduction measure. A number of errors are detected and corrected using joint-IT tools represented by 3D – modelling. Research has shown that the probability of cost and schedule success increases with the use of joint-IT tools since their use enhances integration of project actors and their activities.
Moreover, there is pre-fabrication. It involves off-site manufacture of units and components. Its benefits are similar to those of lean production in the manufacturing industry. These include reduction of material waste, shortening the duration of construction and improving the working environment (Eriksson, 2009, p.3).
The third problem has to do with the on-site coordinate activity. Coordination among workers is one of the ways through which success can be enhanced in the construction industry.
The several roles accomplished by it include implementation of measures to do with prevention of danger and safety, engineering, controlling and updating provisions of the health and safety protection plan and ensuring that information duties have been fulfilled.
This problem has to do with coordination issues among subcontractors. This is mainly manifested through putting more focus on the planning for methods of construction resources for physical construction such as labour and material but giving less consideration to technical engineering review with regard to upcoming work.
The problem can be solved using three methods. First is by using Lat Planner method. Last planners are individuals who make decisions with regard to the kind of assignment that is to be done.
They concentrate on assignment – level planning and decide the amount of work that is to be done on the basis of the master project plan. If well implemented, the last planner concept can improve productivity by removing bottlenecks (Song, Liang & Javkhedkar, 2008, p.5).
The second way of solving this problem is by use of Linear Scheduling Method (LSM). It is a graphical device that is used to reschedule linear construction projects such as pipelines, high-rise construction projects and railways whose construction units are similar.
It ensures easy monitoring of work progress because it ensures that schedule information has been well represented by depicting locations and the start and end times of various activities (Song, Liang & Javkhedkar, 2008, p. 5). Thirdly, software development can be used to come up with an application that can automatically change the schedule from bar chart form to LSM.
At times, the project process can be affected by mistakes, disjointed specifications and other incompatibilities that may need to be adjusted at in future. This is common especially when there is multi functional work and faster information exchange. To avoid this, there’s need for proper coordination to ensure that all professionals in charge of design are aware of any change in the design process (Melhado, 1998, p. 5).
Fourthly, there is the problem of delivery and storage of materials. Material handling and storage is an important aspect in this industry. The operation should ensure that there is continuous flow of material in the entire workplace. It is also important to ensure that the materials are available when needed.
The best way of addressing this problem is pulling the just in time delivery from the supply chain to the customers. This will lead to reduction of waste in the process, provide inventory control and reduce inventory, enhance yearly improvements by strategically liaising with preferred suppliers, and enhance trust with supplier relationships (Pasquire and Connolly, 2002, p.7- 8).
The fifth problem is neglect of welfare facilities. Adequate welfare facilities such as toilet and washing facilities are required by construction workers. They also need a place for warming up and have their food apart from a place for keeping their clothes.
However, these basic needs are often neglected. It is not enough to have a chemical toilet and a cold water tap. The health and well being of individuals can be improved by good facilities besides helping to prevent dermatitis (HSE, 2010, p. 1).
Those in control of the site such as the principal contractor or any other individual have the responsibility of ensuring that the site meets legal requirements with regard to welfare. In planning, several aspects should be looked into. First, there should be a proper address of welfare arrangements in the health and safety plan to be applicable in construction.
Second, the location and frequency of maintenance of welfare facilities are also important aspects while making plans. Third, prior to construction work, there should be arrangements of making equipment available and connecting them to services. Fourth, the facilities should be adapted to the certain factors such as number of users, the area of the size and the kind of tasks done there.
For example, more washing facilities will be needed if a numerous people are working on a given site or if the work being done is either dirty or risky (HSE, 2010, p. 1-2).
Generally, welfare based areas such as personal storage, washing, rest and changing areas should not only be accessible, but also have sufficient ventilation, heating and lighting. Secondly, accessibility to facilities by all workers should be enhanced by constructing them in several places.
Thirdly, someone must be put in charge of cleanliness of the facilities. The regularity of the cleanliness may be determined by the number of people present in the site and how often they get dirty.
In addition, rest facilities are required to be used by the workers during meal times and afterwards. Furniture and other devices for warming food and heating water should be among the rest facilities. It should be easy for non-smokers to utilize the facilities without being affected by the tobacco smoke.
Proper ventilation is the best way to achieve this. Also, the rest places should be free from other facilities that may be of direct use in the construction process. This may include certain materials and equipment that do not qualify as rest facilities.
Workers in the rest place should also have access to clean water for drinking. The water should be uncontaminated and be marked to avoid it being confused with non-drinking water. Drinking vessels such as cups should also be made available at the water tap (HSE, 2010, p. 2-3).
The sixth problem is that of construction complexity whose cause is lack of optimal conditions to the problems caused and by defining preconditions parallel to the solution. In addition, different targets and goals are held by different stakeholders. A lot of project activities do not depend on each other and their execution may either be in a sequence or even simultaneous, and either way, the overall result won’t be affected.
To offer an effective solution to this problem, there should be dialogue among the stakeholders involved. The parties should also learn how to reach a compromise. To achieve this, the client should be involved too (Bertelsen, 2004, p. 55).
Moreover, a solution can be obtained by making the process of construction to be a kind of manufacturing where adoption of industrial thinking with regard to issues like management tolerance should be embraced. This strategy may generally reduce the nature of complexity in a project (Bertelsen, 2004, p. 50).
The seventh problem is about developing a plan for construction. Its significance can be attributed to that of a desirable facility design. Besides an estimate of the costs and the validity of alternatives, the planner should also look into technical viability. The significance of preparing a plan for construction can be compared to that of having a good design facility.
This is the time that the planner should not only seek technical viability, but also take an estimate of the options’ cost and validity. However, construction planning during building process started and to change physical facilities is very difficult.
An important measure to be used in solving the construction planning process is the Last Planner (PL) system. It leads to efficiency in production planning and control. Last Planners control the flow of work by preparing work plans on weekly basis and if assignments are not completed within the required time, they establish the main causes and come up with action plans to prevent similar occurrences in future.
Secondly, there is autonomation. This ensures that everybody takes self control with regard to their work to avert defects at the source and stop them from flowing through the entire process (Ballard, Harper & Zabelle, 2003, p. 6-14). All activities during the entire buying process should adopt this quality aspect. Conventionally, there is no satisfaction in performance of self control in construction work.
Since the contraction side is used to be controlled by the client’s side, a lot of commitment is required on behalf of the former. Due to lack of time, design consultants do not also perform self-control satisfactorily. It is therefore decisive to empower all co-workers enable them control their own work (Eriksson, 2010, p. 4).
The eighth problem has to do with the supply chain. Management of the supply chain is a concept that has flourished a lot in manufacturing and it emanates from the Just – in – time production and logistics. There is still a lot of waste in the construction supply chains which is contributed by inappropriate control.
In the process of construction, the SCM domain based initiatives have shown impartiality in covering issues related to the supply chain. In most cases, the issues are looked at from the perspective of the main contractor. This can be best dealt with through downstream performance.
A better solution to this can be achieved through the use of Just-in-Time delivery. This enhances efficient transportation and stockholding of material used in construction.
Other strategies that can be used to deal with waste problems in supply chains are pre-fabrication and use of joint – IT tools through three dimensional modelling which not only enhance cost and schedule success, but also detect and correct errors before the production process (Eriksson, 2010, p. 3).
Ninth, there’s the problem of downstream performance. The construction engineers are very familiar with the progress of work process on the construction site due to the many causes that may have an effect on the site. Nonetheless, these causes could either be out of control or under control.
The out of control causes cannot be dealt with and mainly include topography, weather and hurricanes. On the other hand, causes such as information delay and number of labourers can be easily dealt with and are therefore the under control causes.
The tenth problem is that regarding project delivery. Lack of knowledge on the various systems of project delivery can impede the owner from starting off a project properly. To ensure that a project sets off in the right way, the owner should choose the right project delivery system.
There are several project delivery systems related to construction. They entail the construction management model, the design – bid – build – system, bridging, program manager and the design – build – system, among other methods. The owner must take into consideration the benefits and limitations that each of the systems have. Several factors have been identified as those that can lead to project delivery.
These factors have been identified from the Crown House Engineering (CHE) Manufacturing Centre’s experiences during their off-site trading manufacturing for projects related to construction. The factors were identified are as follows: first, the project should be part of the frame work of the manufacturing company.
Second, there should be a shared desire between the project client and the delivery team with regard to high quality of engineering, operation and product. Third, the project design must suit the manufacturing process. Fourth, there should be a recognition and commitment of the site management towards the requirements of installing manufactured modules.
Fifth, there is need for an implementation protocol to enhance understanding among all project participants regarding the changed processes and the means of overcoming constraints and avoiding being tempted to get back to the old ways when faced with challenges. Sixth, a repeat business is helpful in ensuring that annual improvements have been driven in a supply chain that is stable.
Seventh, the best opportunity for ensuring that client need has been met is where high quality products and speed of installation are on demand. Eighth, there should be a commitment of all project participants towards ongoing improvement. Ninth, specification should have pre-assembly as a requirement and finally, if pre-assembly has to work well, it should be client led (Pasquire and Connolly, 2002, p. 6-7).
The availability of information system in construction is very crucial especially in the process of design. Therefore, the designer should be aware of details regarding the needs of the client and other stakeholders to ensure that changes do not arise during the design process. Moreover, this information could have effects on the site if there are numerous changes.
In addition, there should be clarity in sharing of information between engineers and designers. Design documents should have the right information since incorrect information may lead to the integration of the design parts in a wrong way. Additionally, detailed information should be available from the beginning of the design process to enhance the design analysis in relation to the production process (Melhado, 1998, p. 4).
Another problem in the construction industry has to do with not understanding the nature clients. A client refers to an individual or group of people who have a plain insight of their value. It should be understood that holding a dialogue between the client and professionals is a process of learning. After an in-depth conversation, the two parties reach at a consensus on the needs and other options.
Nonetheless, there is no specific client in the construction industry but rather the products produced are for the importance of many. The client has to do with the owner, users and the larger community that have to live with the building as it forms part of their dwelling place (Bertelsen, 2004, p. 55).
The next problem is Product lifecycle. “In construction lifecycle of product is the relatively short project duration, and thus it is more difficult to justify research and training (Salem, et al 169)”. Although the product lifecycle in construction is short, the process is not only complex, but also has some activities that ensure high quality of the product.
These are the installation and erection aspects. Both the value that these activities add and the complexity of the products may warrant research and training in construction (Salem, et al, 2006, p. 168).
The problem of product lifecycle results to another problem: lack of investment. Failure to invest in research and training due to a shorter product lifecycle is doing harm to the construction industry’s ability to improve both innovation and technology.
This jeopardizes the industry’s competitiveness at both local and global level (Salem, et al, 2006, p. 168). This problem can be properly addressed if both staff and workers create time to discuss, devise and agree on an appropriate remedy (Eriksson, 2010, p. 5).
Next, there’s the problem of manufacturing quality. “Quality in construction is primarily related to product conformance. Specifications and drawings determine quality standards, and quality assurance is the joint effort of the construction company and the owner to meet safety requirements, environmental considerations, and conformance with applicable regulations.
Rework is a common practice because only one final product will be delivered (Salem, et al, 2006, p. 169)”.
Although technically speaking, one may assert that low quality is an upcoming concept in construction, the idea is that it’s does not emanate from a single sequence of events but rather it becomes part of the system depending on management.
To deal with this, the bottom up responsibility should replace the conventional top down management in line with the commitment that the last planner is likely to make. Quality and the flow of work are improved as a result of the new principles of management (Bertelsen, 2004, p. 62-63).
The other problem is with regard to process variability. “Process variability is the notion that immediate action should be taken to prevent defects at the source so that they do not flow through the process….Because defects are difficult to find before installation, quality in construction has traditionally been focused on conformance (Salem, et al, 2006, p. 170).”
To solve this, various methods can be used. These include application of both the traditional control and autonomation to avoid defects. A functional management system supports autonomation apart from promoting the management of quality and cost in the entire company.
Secondly, there’s the method of autonomous control that hinders defects from getting into the process. This level of control is supported by visual inspection which makes it different from the traditional inspection that does not incorporate direct intervention within the process (Salem, et al, 2006, p. 170).
Continuous Improvement is another construction problem. Continuous improvement may not be connected to any particular technique. Indeed, all techniques enhance continuous improvement through problem solving and creative thinking (Salem, et al, 2006, p. 170). Nevertheless, through lean manufacturing, quality circles can enable workers to fully take part in process improvement.
The teams should have occasional meetings to come up with ideas for problems that are most visible within the place of work. The teams can work out quality, cost, reduction, maintenance and safety issues to devise potential remedies for future activities. Apart from the implemented ideas, another benefit that quality circles create is it enables workers to experience a learning process (Salem, et al, 2006, p. 170 – 171).
Factory physics is another principle whose application is problematic in the construction industry.
“Factory physics is based on the understanding of production as an ordered system which is similar to the industry part of the industry but very different from the construction part (Bertelsen, 2004, p. 53)”. Rather than adopt what the manufacturing world with its principles and order, the construction industry should aim at establishing its own construction physics.
The principles to be applied in doing this should be to lead to the maximisation of value and minimisation of waste (Bertelsen, 2004, p. 53).
Project control forms another problem in the construction process. “Construction management is by tradition executed as a management of transformation and as such can be interpreted as management by contracts. This kind of management could work in a rational and ordered system (Bertelsen, 2004, p. 61).”
Generally, for effective project control, several steps should be undertaken. First, there should be adoption of complex and dynamic systems that ensure that the system is not under tight control. Large and fatal accidents can be prevented by allowing small unpleasant incidents to occur which at times drive the stress out of the system.
Generally, ensuring that there’s proper management of both out of control and under control, the steps that should be taken include: improvement of the system prior to its details, increasing order to the largest extent possible while not anticipating perfection, setting the objectives clearly and communicating them broadly, minimizing the orders needed for operations, making the logistics better, using bottom up to manage the operations and using errors as a learning opportunity (Bertelsen, 2004, p. 62).
Integration of the design is the next problem. Requirements such as fast completion are expected to be part of nearly every construction project. This occurs in a setting that is dynamic and one that is mainly characterized by changes.
In future, the general situation could be simultaneous engineering and construction. This requires that in the engineering process, there should be development and keeping of alternatives for a long period of time.
“Also, value engineers must be redefined from managing the process to delivering the specified value to the lowest cost and into how to meet the except value criteria at an acceptable price (Bertelsen, 2004, p. 56).”
There is also the problem that has to do with coordination and the design process. “Multifunctional work requests a great co-ordination effort to assure that all design professionals are informed of any change along the design process to be successful.
If there is a really fast exchange of information, it is possible to avoid the occurrence of mistakes, incoherent specification and incompatibilities that can demand future revisions in the design developed, increasing the time until design completion (Melhado, 2004, p. 5).”
Playing forward to the project goal should be the role of the design coordination. This can be achieved by each member of the team being able to play their role fully.
This is with regard to integration of data, exchange of knowledge, devising a design solution that is compatible and coherent and ensuring that value has been added to other design parts and to the entire project. Consequently, building companies will come up with a new method of building design. A wide professional field will be then be created out of this new approach (Melhado, 1998, p. 5).
Moreover, there is the problem of decision making. Making a decision is the most important factor in construction management. It will have effects on the project in both short and long term ways especially in the design process.
Even more, every design is based on several factors. However, the process for decision making include: to define the problem, collect all information that related to the problem, thinking of all solution, comparing all advantages and disadvantages and to choose the best option.
For example, with regard to the systems perspective, it is imperative to look at the purchasing process before making procurement decisions that are coherent (Eriksson, 2010, p. 6).
Finally, there is the problem of maintaining finishing material. To keep the material in a standard condition during construction work is an issue facing site managers because of late use of these materials. To get over this, the finishing material should be available at any time in a safe place that keeps it in standard condition in any weather condition.
Conclusion
The contemporary lean construction problems can only be solved by the application of lean construction principles and remedies. Lean construction has waste reduction and value increase has its main aims. Maximising value is important in ensuring that the needs and expectations of the client have been met.
On the other hand, waste reduction is important in increasing the efficacy of the work environment and ensuring that workers can conduct their duties effectively. It is these two parties: clients and workers that play a crucial role in the construction process and meeting their needs besides involving them in decision making is very crucial in the construction project delivery.
The construction site is riddled with numerous problems. These have to do with waste, safety, coordination, handling clients, manufacturing quality, continuous production, product lifecycle, the supply chain and project delivery, just to name a few. These problems can only be solved through the application of lean strategies and principles through the Toyota way.
Applying the procedures of construction and control into building construction reveals the limitations of the conventional construction process if the construction process has to be strictly specified and defined.
Requirements of the production process cannot be addressed by a conceptual design that has mere details. It must have a close correlation with the procedures that various designers had not learnt of but which they need to apply in their jobs.
Reference list
Ballard., G. Harper., N. & Zabelle., T. 2003. Learning to See Work Flow: An Application of Lean Concepts to Precast Concrete Fabrication. Engineering Construction and Architectural Management, 10 (1).
Bertelsen., S. 2004. Lean Construction: Where are we and how to proceed? 1 (1).
Eriksson., P. 2009. A Case Study of Partnering in Lean Construction.
HSE. 2010. Provision of Welfare Facilities at Fixed construction Sites: Construction Information Sheet, 18 (1). Web.
Melhado., S. 1998. Designing for lean construction.
Pasquire., C. & Connolly., G. 2002. Leaner Construction through Off-site Manufacturing..
Salem., O. et al. 2006. Lean Construction: From Theory to Implementation: Journal of Management in Engineering, 22 (4).
Song., L Liang., D. & Javkhedkar., A. 2008. A Case Study on Applying Lean Construction to Concrete Construction Projects.
The case study shows how employees can be motivated by managing cultural diversity in the Japanese Construction Company. The company is Japanese leading contractors with around 300 employees from diverse backgrounds including Japanese, Filipinos, British, Turks, and Nepalese.
The company mainly works for tunnels with the Japanese government and MTR in Hong Kong. Therefore, it can be considered as an international enterprise.
The current problem with the Japanese Construction Company is a mixed culture brought about by the different races among the employees. Employee turnover rate is very high, approximately 25 percent per year. Similarly, there is high sick leave rate for both male and female employees. In addition, there is poor communication among the employees as well as between the management and the lower staff.
The firm cannot provide attractive benefits to the staff, yet they are overworked. No training schemes are put in place and the employees do not see any future career development. Relationship between staff and management is weakening further due to poor working conditions.
Evidently, very few people are joining the company though the firm has advertized new posts. The new employees are not even oriented to the company workings. The management lacks innovation hence cannot meet societal changes.
The need to investigate the relationship between cultural diversity and employee motivation arose from the fact that the problem is escalating, yet nobody seems to bother about it. The firm is losing potential employees and the output per employee is very low. I was employed in the company as the human resource manager on a three-month contract. What I understand is that HRM is critical to any issue pertaining to employees.
Despite weaknesses in other management fields, most of the problems perceived are related to HRM directly. I expect the report from my investigation to change the perspectives and actions of the management for the wellbeing of the employees and the company at large. It is also my wish to put theoretical knowledge about cultural diversity and motivation into practice.
Conceptually, the issue at Japanese Construction Company is multidimensional as the problem suggests. Motivated workforce consists of employees who decide consciously to devote substantial effort to attaining something they perceive value in it. The relationship between cultural diversity and employee motivation emerges in this problem.
Hence, implicit theory of motivation is important since it explains motivation in the cultural context. Likewise, the problem in Japanese Construction Company is related to leadership concept. The relationship is reflected in the definition of leadership as the influence that an individual apply upon the goal attainment of others in the organization context.
The influence can simply be summarized as the ability of an individual to motivate others. Leadership development is not evident in the case of Japanese Construction Company whose workforce consists of employees from diverse cultures. Issues such as high rate of sick leave and turnover suggest lack of influence exerted upon the goal attainment of the employees.
Literature review
Although the issue of motivation seems to revolve around the area of human resource, it actually touches every other business discipline. Indeed, the issue starts to be addressed during the conception of the business plan.
The numerous factors that involve motivation surround organization’s response to aspects such as cultural diversity, organizational culture, performance metrics, and rewards. Evidently, this observation brings the issue back to leadership as the core driver of motivation.
Indeed, leadership is a vital concept that influences motivation in many contexts. It has been a concept considered as the ability of a person to influence, motivate, and make others able to contribute towards organization’s effectiveness and success.
Leadership theories have been used to explain attributes of good leadership, perceptions, and genuine behaviors. Motivation theories have been applied to different settings to assist in understanding how various organizational factors can influence leadership. The explanation indicates the direct relationship between leadership theories and motivation theories.
Implicit leadership theory defines individuals as having viewpoints, assumptions, and convictions about the behaviors and attributes that differentiate leaders from one another (Hartog, House, Hanges, Ruiz-Quintanilla & Dorfman, 1999). The theory leverages the ideals people place on certain attributes and behaviors, and their intentions pertinent to approval and ratification of the leader’s behavior.
Leadership qualities are associated with individuals based on the level of similarity or fit between the behaviors enacted and the leadership concept held by the creditors. The theory manages the leadership exercise, the sanction of leaders, and the discernment of leaders as effective, influential, and acceptable.
Hofstede (1984) argues that the beliefs and ideologies held by members of different cultures influence the level to which behaviors of groups, societies, and individuals within the cultures are sanctioned. They also leverage the level to which they are perceived as effective, satisfactory, and justifiable (Hofstede, 1984).
Hofstede’s version of this theory includes four core dimensions of cultural principles and values: Power Distance-Power Equalization, Masculinity-Femininity, Individualism-Collectivism, and Tolerance-Intolerance. The dimensions underline the cultural variations that exist in organizations. They are therefore essential in understanding other cultures and knowing how to work with people from different cultures.
At the same time, implicit motivation theory is a model of non-conscious motivations. It argues that the crucial nature of human motivation can be apprehended through three unspoken motives: affiliation, realization, and power. Implicit motives contrast the conscious ethics and behavioral intentions by being extrapolative of motives in a long span of time.
The theory normally explains the factors that establish employee motivation in a complex environment while predicting on the long-term behavior, adaptation, and enactment of the preferred leadership. In the cultural perspective, the theory predicts the way members of the societies can be motivated and the meticulous leadership that can apply to those cultures and allow for continued enthusiasm.
Studies such as that conducted by Shahin and Wright (2004) indicate that the factors that determine the ideal leadership style differ across countries. The explanation is that the leadership styles are not universal. Indeed, there are variations among cultures pertaining to attributes such as power distance, uncertainty avoidance, and masculinity-femininity.
Nevertheless, attributes like prudence, motivation arouser, accountability, communicative, appealing, confidence builder, and energetic are considered to contribute to ideal leadership. For example, studies on leadership styles demonstrate that transformational leadership style predicted different attributes in some cultures unlike transactional leadership style (Walumbwa, Lawler, & Avilio, 2007).
Therefore, the leadership styles may not be appropriate in all countries, but as long as any of the style is used appropriately and in the proper environment, the response of the followers will be positive.
Motivational techniques that uphold employee involvement in the company’s operations are considered very effective (Taleghani, Salmani & Taatian, 2010).
Essentially, employee involvement in Japanese Construction Company can be reinforced by differential rewards allotment; allowing workers to participate; approaching individual workers; charismatic leadership; and highlighting on the intrinsic motivation. The meaning of each technique depends on the cultural ideals evident in the self.
Worker appraisal of the reward system in addition to motivation potential can be shaped by the two core principles of power distance and collectivism in opposition to individualism. In an individualistic culture, people make use of independent personal principles to review the effect of motivation incentives on their sense of comfort and confidence.
Conversely, a group-focused culture employs interdependent, group-based ideologies. In cultures characterized by high echelons of inequality or power distance, companies ensure that the staff has strong respect for their leaders and circumvent criticizing. Hofstede, Neuijn, Ohavy and Sanders (1991) note that there are large disparities in status symbol, rewards, and quality of work-life.
Three allocation philosophies guide compensation systems for companies characterized by cultural diversity. They include the key ideas of equality, equity, and need. The ideologies fluctuate across cultures and symbolize the outcomes of preferences between collectivism opposed to individualism and high power differential opposed to egalitarianism.
Equity leads to individual incentive plans based on individual valuation of employees’ performance. Performance that establishes the benefits assigned to a particular member of staff by the company. In societies of collectivism or low power differential where teamwork is promoted over personal attainment, the tuneful canon is that of equality.
Allowing employees to participate vigorously in a company has been associated with three emotional factors. First is the motivational aspect that satisfies intrinsic work motivation properties by allowing greater control, accountability, and independence.
Secondly, cognitive aspect of sharing information is aided by open communication amidst all group members. Finally, group participation develops a vibrant process that wields pressure on staff to augment group decision.
Cultural ideals often leverage adherence to the group. In some groups for example, worker participation is leveraged by cultural identities and is attached to the cultural arrangement that supports certain ideals. Hence, worker participation in a company stresses on harmonizing with cultural standards, but in the shape of participation via representatives.
Assurance to the team’s goals is dictated by group solidity, which is exposed to cultural constraint such as cultural taboos and viewpoints. Erez, Earley and Hulin (1985) explain that such essentials have sometimes constrained individual employees from becoming totally dedicated to all group activities.
Besides, the challenges of integrating human capital strategy into the culture do not look like other cultural transformation initiatives. These challenges begin with the guarantee from leadership and if the leader is not dedicated, the effort is hardly considered a priority. To great failure, leaders who do not perceive to lead the diverse teams fail to involve every member in the daily processes of diversity management.
Data and sources
The methodology for the case study involved a comprehensive investigation of secondary sources that could be acquired. The human resource department that I work in became the major source of information. I began by reviewing the opinions, suggestions, complaints, and advices posted through the suggestion box located at the entrance to the department premises.
I then reviewed documents within the department particularly the HRM strategies, policies on training and development, and company’s business plan. The information from these sources was very helpful, though I considered it incomplete and targeted different settings. The next sources were company’s advertisements for new jobs and government policies on construction contracts.
The reason for engaging in extensive research was to eliminate biasness in the information. Cultural diversity is a sensitive issue that would require the opinion of different parties. My aim was to acquire information on the areas that the employees feel the company has failed as much as the effort that the firm has put towards addressing the ethnicity issue.
Moreover, I considered it important to get information on government input towards workforce diversity. The information acquired was comprehensive and detailed as the sources from different origins could be compared. However, as a new staff in the company, the reliability of the information from the company could not be guaranteed.
It took several weeks after request to get the documents from the head office. I concluded that a senior staff was not willing to release them. Therefore, I decided to analyze the information using qualitative content analysis technique as an effort to validate the information.
My focus was on diversity and cultural aspects such as discrimination, inequality, racism, slavery, my business, colleagues, nationality, gender and so on. I investigated in details the reasons, themes, and situations that led to the emergence of these aspects.
The case
Leaders who uphold an individualistic culture lead the Japanese Construction Company. The company however has its operations in a culturally diverse region. Concerning power distance, the company leadership is not focused on impressing employees with low power distance.
The company has a hierarchical organization and the management style is not supportive. The working environment in the company is not friendly and cooperative. It lacks sound structured selection and recruitment process, performance appraisal system, clear goals for employees, and standardized service mapping. The service mapping is not modified according to the culture of the respective employees.
The uncertainty avoidance for the company is extremely rated and the employees do not receive enough training on team working. Individualism is high and the leadership sometimes has to focus on collective achievement. The company has extreme masculinity and therefore exist different opportunities for male and female employees.
Stakeholder relationship is not the important value for the company. In addition, the company does not look for long-term and short-term orientation. Conclusively, the company leadership is characterized by high power distance, high individualism, extreme uncertainty avoidance, extreme masculinity, and short-term orientation.
Japanese Construction Company operating on a national scale has culturally diverse employees and customers. Hence, it should emphasize on giving the greatest value by focusing on their diverse cultures. To ensure success of the business, leadership development should account for cultural differences.
However, the diverse culture, views, and ideas of all employees and suppliers are not taken into consideration. The management does not understand that the gusts hail from some cultures where certain practices or behaviors are considered as taboos.
In order to get the best from the organization’s cross-cultural employees, enterprises have learnt as much as possible about the manner in which cultural principles are applied. The management in this case lacks the knowledge about the culture it interacts with as much as possible. In addition, it does not trust preconceived stereotypes or perceptions.
All learning involves some level of culture shock and is an important factor in any successful strategy (Connerley & Pedersen, 2005). Organizations that have acknowledged that the differences among cultures can benefit them in many ways have allowed for the development of a wide range of leadership skills. The best leadership is about empowering and motivating others to cultivate for a common goal.
That leadership can be achieved regardless of the barriers created by cultural diversity. Unfortunately, the Japanese company lacks clear understanding and recognition of a society’s unique procedures and standards hence the leaders are unable to get value from the employees.
In addition, respecting different cultures is not an important step in developing leadership skills across cultures for the Japanese Construction Company. Cultural aspects such as ethnicity, race, religion, and nationality do not often shape individuals although it is important to adjust and accommodate them accordingly. Cultures acknowledge and explore cultural issues in a manner that they are at ease.
For example, some cultures that use a hierarchical structure will perceive the leadership style of another society as being weak. Cultural-conscious organizations apply the most appropriate approach to ensure a leadership that avoids cultural collisions, ensures equality among the employees, and promotes workforce diversity.
Cross-cultural misunderstanding in the Japanese Construction Company is not minimized by improving communication skills. Despite the leaders having the role of ensuring that all people understand any message conveyed, the essential communication lacks in the company.
Cross-cultural leadership within the firm lacks a clear understanding of the differences that exist among cultures that embrace direct and indirect communication. The leaders are unable to understand the cultural differences, hence do not adjust their behaviors and techniques accordingly.
Unlike many businesses that attend to culturally diverse employees, the Japanese company does not consider the needs and expectations of the host community. It is important to know the perceptions and understanding of the communities in construction business and recognize that culture will probably have contradictory fads (Wassler, 2010).
The reaction of host communities depends on the cultural differences and the benefit the response brings to the organization. The observation in our case is that different personalities have different implications on the relationship among the employees. Their perceptions and expectations differ.
The company does not acknowledge that the best response to the differing needs and expectations is that which will bring satisfaction and promote employee relationship. Ap and Compton (1993) proposed a model that can lead to such a response as to include four strategies: embracement, tolerance, adjustment, and withdrawal.
The company does not embrace the differences of the employees through the cultivation of positive feeling about the impacts. Management does not tolerate the impacts and motivate the employees in order to cultivate acceptance. Likewise, the employees neither adjust to the changes emerging from diversity nor encourage the others to adjust. Therefore, negative perceptions are allowed to take over.
Likewise, employee expectations will differ according to cultural variations. They also influence the effectiveness of management strategies. Management of these expectations in the Japanese Construction Company is not focused on identifying the specific expectations as well as developing strategies to meet the expectations.
The process does not involve planning where the management anticipates the employees next move; communicates the expectations with stakeholders; and develops initiatives to meet the expectations. The most important idea here is team working where the employees can encourage and support each other in order to meet the diverse needs and expectations.
Productive work groups that nurture good team working are essential to an effective workplace culture. The company’s diverse community ideally means a culturally diverse workforce. Failure to ensure that the work teams developed are culturally diverse has negative outcomes.
The teams do not contribute to high performance since they lack the potential to identify problems from a range of perspectives and to enhance problem solving as well as decision-making and innovation.
For successful organizations, team development starts by establishing benchmarks for diversity that will lead to the proper selection of team members. A good example is observed in Ford Company whose natural groups of operators based on geography, process, size, reporting relationships and so on, work together to achieve a common goal.
The Sluggish performance of the construction company is an outcome of careless planning, an edge on team structures, disloyal senior management, ignorance, incomplete training, and lack of reward programs.
Diversity goals are not included in the appraisal systems and performance plan. In fact, these weaknesses heighten the situation when they align with the service policies, practice, and procedures. Leaders in the company ignore cultural diversity and do not even ensure a sustained process, especially when ‘the moment of truth’ sets in.
Conclusion and recommendations
Managing cultural diversity generally refers to the acceptance of the workforce as that consisting of people from diverse backgrounds. The diversity may consist of visible and non-visible variations that include aspects like sex, age, personality, nationality, ethnicity, race, and the working style. It is based on the idea that harnessing these variations will build a productive environment.
An environment in which all people feel valued, where talents are nurtured, and organizational objectives met. Through proper and effective approach to this dilemma, the organization can rationalize the relevant training and development strategies and policies. The involved workers may perceive respect from the organization and the management can notice and bring satisfaction to the employees.
In order to manage cultural diversity in the workforce, the construction company can engage various activities. In this respect, the organization can create a strong involvement culture, where workers are developed, encouraged, and empowered to work as a group.
Structuring diversity initiatives in a manner that emphasizes on previous discriminations or differences has a negative outcome on the aptitude of the company to manage cultural diversity effectively (Cooper & Burke, 2010). Stressing on integration and learning view has a rousing outcome on both the employees and management and ensures an enduring success of the policy.
Similar to other strategies for organizational change, the company management should show commitment to cultural diversity. It is very accountable to ensure that diversity strategies are implemented successfully within the organization.
Williams, Champion and Hall (2011, p.249) lament on the polarizing effect a strategy has on the staff members if the strategy focuses on one demographic group. Managing cultural diversity in the company must involve valuing the cultural differences of all members to fuse them under a common banner.
Developing working teams and emphasizing their solidarity facilitates integration and communication of work as well as creating pride and trust. Evaluation of the effectiveness of change strategies ensures that cultural barriers that exist are identified and addressed earlier before they accumulate into a bigger problem.
References
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Connerley, M. L. & Pedersen, P. (2005). Leadership in a diverse and multicultural environment: developing awareness, knowledge, and skills. Thousand Oaks, CA: SAGE.
Cooper, C. I. & Burke, R. J. (2010). Risky business: psychological, physical and financial costs of high risk behavior in organizations. Farnham, UK: Gower Publishing, Ltd.
Erez, M., Earley, P. C., & Hulin, C. L. (1985). The impact of participation on goal acceptance and performance: A two-step model. Academy of Management Journal, 28(1), 50-66.
Hartog, D. N., House, R. J., Hanges, P. J., Ruiz-Quintanilla, S. A. & Dorfman, P. W. (1999). Culture specific and cross-culturally generalizable implicit leadership theories: are attributes of charismatic/transformational leadership universally endorsed? Leadership Quarterly, 10(2), 219-256.
Hofstede, G. H. (1984). Culture’s consequences: international differences in work-related values. Thousand Oaks, CA: SAGE.
Hofstede, G., Neuijn B., Ohavy D. D. & Sanders, G. (1990). Measuring organizational cultures: A qualitative and quantitative study across twenty organizations. Administrative Science Quarterly, 35(2), 286-316.
Shahin, A. I. & Wright, P. L. (2004). Leadership in the context of culture: An Egyptian perspective. The Leadership and Organizational Development Journal, 25(6), 499-511.
Taleghani, G., Salmani, D. & Taatian, A. (2010). Survey of leadership styles in different cultures. Iranian Journal of Management Studies, 3(3), 91-111.
Walumbwa, F. O., Lawler, J. L. & Avolio, B. J. (2007). Leadership, individual differences, and work-related attitudes: A cross-culture investigation. Applied Psychology: an International Review, 56(2), 212-230.
The Issue of Project Collaborating in Construction
Construction companies sometimes encounter excess commitments and since they work in partnership with other companies, they occasionally opt to work in collaborative construction contracts (Manuel 2014).
Collaborative construction contracts are forms of building arrangements and agreements or other forms of mechanisms that allow the involvement of companies to work together in a single project.
Whereas the collaborative construction contracts may prove significant especially when contractors are dealing with mega construction projects that require skill combination and timely completion, they are sometimes challenging.
According to Manuel (2014), such project partnerships or collaborations act as effective strategies of managing project risks and completing the projects within the stipulated timeframe.
Companies that engage in collaborative construction contracts normally possess the aim of achieving the common goal of ensuring an effective project execution (Manuel 2014). Nonetheless, the arrangements for the collaborative construction contracts have often been doubtable and the achievement of the common goal often proves impossible.
Construction contracting is normally a complex process that requires trust building among the parties due to time, project quality, and financial issues (Mead 2007). Projects undertaken through collaborative construction contracts have regularly attracted economic, legal, trust and accountability disputes (Osipova & Aleberger 2007).
Such scandals between the partnering companies have reduced the adoption of the collaborative contracts across the world.
In most circumstances that involve collaborative contacting, there is normally no guarantee about the successful completion of the construction projects, the quality of the final project, or the responsibility of taking the construction risks among the project partners (Osipova & Aleberger 2007).
The complex nature of the collaborative construction contracts also poses the issues of mistrust, and the scandals concerning the accountability of the parties involved in the contract agreements.
Companies have reported several procurement cases concerning the ambiguities in the partnered projects and the lack of accountability between the members.
Issues of Trust and Accountability
Maintaining trust and accountability in the collaborative construction contracts has been a prevalent menace to the employers, the contractors, and the subcontractors (Mead 2007). It has remained to be a legal fact whether parties to a commercial contract have confined themselves to any written contract.
The construction law often assumes that whether the written contract existed or not, there was or should have been some form of agreement reached between the construction parties.
Additionally, most of the collaborative construction agreements rely on the unprofessional terms of voluntary arrangements, mutual trust, good faith, and mutual beneficence (Mead 2007). Building the trust and following the complex parameters of the framework agreements are challenging tasks.
In the 1990s, when the British Petroleum Company wanted to reduce the costs associated with project construction, several challenges pertaining to trust, construction costs, time efficiency and the quality of the completed projects emanated (Mead 2007). The first controversy was the Andrew Field Project.
The first scandal that emerged in the Andrew Field Project was mistrust. This showcase trial project was a successful deal, although trust between the members took a long time to prevail. British Petroleum wanted to prove how collaborative projects could be cost effective, time efficient, and successful with minimal efforts (Mead 2007).
The first case of mistrust began with the initial process of tendering because the company subjected the contractors to a competitive bidding process. Due to the rigorous process of bidding, almost a third of the contractors pulled out because they suspected that the company worked with biasness (Mead 2007).
After a successful bidding process, the BP project manager, John Martin was oblivious about the estimated amount for the construction. The contractor estimated the total cost to about 373 million sterling pounds, but the actual cost went down to 320 million sterling pounds (Mead 2007).
To be contented with the deal, John Martin had to hire external auditors.
Ambiguities of Contractual Terms & Budget Compliance
Collaborative contracts in the construction sector might sometimes turn out to be unsuccessful because construction partnerships often evolve in complex situations, their parameters are often unclear, and there exist a lot of mistrust between the project owners, the contractors, and the subcontractors.
According to Osipova and Aleberger (2007), collaborative contracts are normally unclear at their beginning, and one of the parties often tends to breach the agreements due to the nature of the unstable contracts. One of the controversial construction cases in partnered projects was the maintenance of Danish Main Roads.
The Danish Directorate of Roads has the responsibility of managing about 3800 km of the Danish main roads. In 2003, the institution entered into a partnering agreement with three other companies to manage and maintain the Danish roads (Mead 2007).
The contracts involved agreements that ranged between 200 thousand sterling pounds to 6 million sterling pounds. In total, the projects amounted to over 20 million sterling pounds.
Although the partnering agreement managed to record some significant cost reductions in the first three years, 3%, 6%, and 4.5% correspondingly, the contractors complained about excessive wastage of time and financial resources (Mead 2007).
In a separate auditing report done by independent auditors, the company seemed to have used more resources in the planning and implementation of the project (Mead 2007).
During the process of negotiating the terms and conditions of the agreements involved in the partnership, the company took the contractors through strenuous and time consuming consensuses, meetings, public procurement regulations and other strict procedures (Mead 2007).
Given that the project was under three collaborating companies, the time and resources used to go through the various agreement processes, made the project seem tricky and costly to some of the constructors.
According to the independent auditing firm, several other expenses went unaudited and the estimated improvements were therefore untrue.
Issues Pertaining to the Project Quality
In collaborative construction contracts, the issue pertaining to the quality of the project is often a disputable concept. Collaborative projects comprise agreements between several contractors, suppliers, and other construction agencies (Manuel 2015).
Managing the quality of the project to meet the expected design standards and the project requirements is often a challenging factor because different construction companies have different ways of enhancing the quality of the projects assigned to them (Manuel 2015).
In the process of trying to beat the given deadlines and work within the provided budgets, some contractors may work with constrained finances to make considerable financial savings.
In April 2013, the Bangladesh government faced a challenging task of unraveling the causes of a collapsed building that caused serious fatalities amongst some civilians (Manuel 2015). Three different contractors had collaborated to construct an eight-story building at the capital city of Bangladesh, Dhaka.
Thought to be a mysterious tragedy, the government launched an investigation to determine the causes of the collapse.
The first insight from the government officials revealed that the building had collapsed due to several construction lapses that the joint constructors caused. The contractors used shoddy construction methods to avoid some government levies that come from the construction permits (Manuel 2015).
A government civil engineering expert known as Henri Gavin established that the partnering contractors had wanted to ensure a quick start of the project. This meant that they had to use substandard material, poor construction methods, and fake tendering of the materials to reach their first construction targets (Manuel 2015).
In a report, Henri Gavin revealed that the contractors developed an uneven footing and had a poor following of the project plan. They used unstable reinforcing steel, little concrete and several other substandard materials to fight against time and the construction cost (Manuel 2015).
The contractors hired in this project used an illegal tendering process to acquire materials that would kick-start the project before the government could discover their deal.
The Concept of Framework Contracting
Constructors sometimes engage in long term contracts due to the arrangements made based on their performance with the employers (Glover 2007).
A framework contract is a form of a constructional agreement that entails a long-term procurement plan with the clients to secure the construction service of quality contractors or reliable suppliers through ensuring them a stable supply of jobs in future.
According to Glover (2007, p. 1), “the Framework agreement, often known as an umbrella agreement, is an agreement, which is reached between two parties to cover a long-term collaborative arrangement.” Contractors engage in framework contracts during the low seasons in the construction industry.
According to Glover (2007), when the scarcity of the construction jobs is over and the jobs have reemerged, the constructors compete veraciously for construction jobs available in the market.
The implications arise due to the long-term procurement strategies because contractors would often feel that the framework agreements have restricted them from winning better tenders.
Terms of Termination and Scandals Involved
A constant issue that arises in the framework contracts that involve long-term agreement in the supply of products and services in the construction deals is the terms of terminating the framework arrangements.
According to Glover (2007), when the contractors feel that, the construction jobs have reemerged in plenty and the moment of unemployment is over, they often way the benefits of remaining within the framed arrangements and the benefits of searching for other new tenders.
It is often uneasy because one of the parties will often feel disadvantaged and disappointment with the withdrawal of the disagreeing partner or the insistence of the other partner to commence the framework (Glover 2007).
Framework agreements do not normally have a fixed duration of existence and in legal terms, both parties must abide to the durational conditions. In normal circumstances, parties can often terminate the framework agreement at any time, at their own will, and within their terms of agreement.
Claims of wrongful termination, loss of contract profit, and waste of time in the framework agreement have been persistent in many cases.
While engaging in framework agreements, the parties must always observe and uphold the stipulations of the JCT Framework Agreement that governs public and private sector framework procurements (Sakal 2005).
According to Clause 22 of the JCT Framework Agreement, that controls the termination of frameworks, “no task with duration of more than 12 months is to be instructed in the final 3 months before the framework end date” (Glover 2007, p. 8).
Such a section protects the parties from engaging in long-term relationship and commitments that are non-beneficial. The section states that either of the parties can terminate the agreement through a one-month notice the last month of the framework contract ends (Glover 2007).
Cases involving uninformed, untimely, and ill-motivated terminations have often struck the efficiency of the framework agreements.
Unmet Promises supply of future work
Although the companies that procure contractors on framework contracts believe that they have the ability to continue providing their clients with a steady supply of future work, sometimes their promises turn out unachievable.
Glover (2007) explains that contractors at this moment find themselves losing important tenders, contract profits, and waste time needed to engage in new contracts with stable companies. Therefore, they often prefer to quit the framework contract.
In a Northern Ireland case, a contractor lost profits and made him feel underprivileged to lose a framework contract. However, those who stay in a unprofitable frameworks miss the chances of securing some important tenders that present themselves in the market during the period of the long-term procurement engagement (Sakal 2005).
This is because the contractor would possibly lose the promised benefits of future work and other privileges that were to accompany the long-term procurement strategy.
A failure of the employer to make genuine promises becomes a legal dispute because the contractor would always want compensations concerning the time wasted in the abortive framework agreement.
False promises in the frameworks contracts are prevalent and making legal and ethical claims exists among the involved parties.
According to Glover (2007, p.13), “the ability to make claims for loss of chance or loss of receiving is difficult because a claimant must establish on the balance of probability that there is some link between the defendant’s negligence and the claimant’s loss.”
False promises contravene the principles of good faith in the framework contracts and override the requirements of transparency in the endorsement of the construction contracts (Sakal 2005).
As witnessed in some framework cases, unless there are verifiable facts that the employer made some promises in the framework agreement, the courts can rarely assist the contractors to get their payments concerning the promised future benefits.
In case of a legal issue, Glover (2007) argues that unless the defendant agrees that there existed some promises in the framework agreement; the contractor will often remain to be a loser in the construction deal and in the profit claims.
The Problem of the Unforeseen Uncertainties
Sometimes constructions face enormous challenges such as collapses or destructions that result from the natural catastrophes and other uncertainties. Uncertainties are normally unpredictable and unforeseen (Osipova & Aleberger 2007).
Constructors serving in a framework contract that faces such challenges normally feel frustrated and would often want to terminate the framework arrangements made in the construction contract. When perhaps the employer failed to insure the project, contractors in that framework agreement will often incur considerable financial losses.
According to Glover (2007 p. 13), “where the quantification of the claimant’s loss depends on future uncertain events, the loss has to be determined on the court’s assessment of that risk materializing.”
Uncertain events such as the natural calamities are often unforeseen and setting up a claim for any form of compensation due to the damages is normally a challenging issue for the both parties.
Problems in framework agreement
Framework agreements have never missed scandals due to the issues of fairness, equality, financial losses, project quality, and mistrust in the provision and arrangements of framework tenders (Burnnet & Wampler 2003).
One of the controversial cases that marked a series of arguments is the case of Henry and the Department of Education in Northern Ireland. Henry Bros as a contractor engaged in a framework contract with the Department of Education of Northern Ireland.
Henry complained that the construction contract was inappropriate in its contracting agreements (Burnnet & Wampler 2003). Henry Bros disputable about the framework agreement when he presented the legal claim based on the foundations of the 2006 Procurement Regulations of Northern Ireland.
By awarding a construction tender to Henry without following the basic standards of tendering a construction process, the high court of Northern Ireland considered it illegal because the Department of Education for Northern Ireland seemed to have breached the Procurement Regulations of 2006.
Another similar case to that of the Northern Ireland contractor and a school department is the 2003 public procurement case that involved the New South Wales vs. the Austeel Pty Ltd (Burnnet & Wampler 2003).
The New Wales sub national government, which was the defendant, had entered into a framework agreement with Austeel Pty Limited to construct a large steel plant around the city of Newcastle (Burnnet & Wampler 2003).
The scope of the construction contract and the terms of the contract were extremely diverse and consisted several parameters of contract agreements pertaining to urban planning and designing.
The government disputed the construction progress because certain processes of the deal were disputable because they failed to follow a certain dispute resolution framework.
The government was unsure about the continual performance of the contractor, was not sure about the entire tendering process, and was not even sure amount the possible amount that the project could not exceed. The government feared to lose money and waste time.
The Concepts of Risk Allocation and Commercial Balance
The risks of engaging in construction contracts are extensive even in the concepts of risk allocation and commercial balance (Sakal 2005).
Sometimes the employers would want to dominate the ultimate results of the projects and the issues of time certainty through using fixed costs, may sometimes be unrealistic in a construction project (Mead 2007).
Such concerns explain the reason as to why it is significant to determine risk allocation and commercial balance during the process of entering into a construction agreement to avoid time and money losses.
In most circumstances, financial issues and risk management are some of the major concerns that arise in a construction contract due to the complex nature of materializing the project and the presence of some unprecedented risks (Mead 2007).
Using fixed costs in a construction project has become an issue for the contractors because of the nature of the fluctuating prices of building materials and the nature of framework contracts.
Since the construction risks are diverse and often unforeseeable, when the employers seek to control, the ultimate results of the project and at the same time maintain time certainty and fixed costs, the constructor will be vulnerable to most risks (Mead 2007).
When the employers tends to control the three major factors of determining the management of risks, there is often a likelihood that the project is financially impracticable, the site of the project is dubious, the insurance systems on the project are incompetent, the construction material is fake and illegal, the authority approvals are unmet, or the land possession is suspicious.
Working in a dynamic environment where contractors have little say on the socioeconomic issues also places them in a quandary when the employer tends to force a fixed pricing on the construction (Sakal 2005).
Such scenarios have occurred persistently in several construction cases and required the intervention of the court to resolve the imminent disputes.
Allocation of Risks in a Construction Project
Risk is normally an inevitable aspect in a construction and both the employer and the constructor always wish that risks never befell them. According to Glover (2007 p. 3), “on each project-specific underlying contract, remember it will still be necessary to consider the scope of work and/or services, allocation of risk, completion date, price and payment particular to that project.”
Most risks are unforeseeable and both parties can never determine the occurrence of a risk at any point of the construction process. It is very vital for the contractors to analyze the aspects of risk allocation due to several unforeseeable issues that may affect their contractual agreements (Osipova & Aleberger 2007).
Assessment of risk allocation in a construction projects makes the contractors aware of the unreasonable excuses and manipulations that the employers can cause in a construction deal.
Knowing the risks associated with a construction contract such as the risks of project financing, discrepancies, and omissions helps the contractors to assess the contracts.
Commercial Balance in a Construction Contract
The construction sector often experiences challenges of market fluctuations in the procurement processes and especially in the procurement of the construction materials, whose prices change occasionally (Glover 2007).
As witnessed in the above cases, working on a fixed budget from poor estimation made by the employer puts the contractor at risks of encountering the risks of material shortages, shortage of hiring skilled workers, and shortage of hiring some construction related services such as transportations.
Such shortages significantly expose the contractors at risks of settling claims related to inadequate designing of the intended project, incompletion of the assigned project, and poor selection of the construction material (Manuel 2014).
According to Glover (2007), contractors must understand principles of agreeing to certain standards of projects to ensure that cost estimations take into account the issues related to the price and quantity of the project.
Therefore, on risks associated with fixed costs, the contractors must analyze the financial feasibility, the budgetary allocation, and the market prices.
Time Certainty in a Construction Contract
Time is a considerable factor when it comes to construction of projects that require quick completion (Darrington & Lichtig 2010).
As witnessed in many construction cases, when the employer tends to control the aspects of time related to the completion of a project, there is normally a high likelihood that the contractor may encounter some serious time implications (Manuel 2014).
In a scenario where the employer tends to control the aspects of time and budget, the contractor will likely fall short of the expectations of the employer concerning the quality of the project or the state of the project, the poor designing of the project, inappropriate construction standards, and delayed progress of the project (Darrington & Lichtig 2010). Contractors would often want to work on low budgets and make some considerable profits from the construction projects. Manuel (2014) states that because some natural occurrences may delay the construction project; contractors should often assess the constructional costs and the time certainty issues.
Scandals Associated with Fixed Cost Projects
One of the controversial cases that pertain to risk allocation and commercial balance is the 2009 case of the family of Godbold and Mr. Camilleri who was a local contractor. The case entailed a fixed-price construction contract of $363,446 between the constructor, Mr. Camilleri, and Mr. and Mrs. Godbold (Darrington & Lichtig 2010).
The project was a construction of a personal house, which the employers promised on pay on eight installments depending on the progress of the construction.
Due to the dynamism of the construction market and the related market fluctuations, Mr. Camilleri found himself in financial difficulties and opted to request for more money from the project owners (Darrington & Lichtig 2010).
Mr. and Mrs. Godbold continued to pay the installments based on the progress of the construction, but remained reluctant to answer the request of Mr. Camilleri concerning the increment of the construction funds.
When Mr. Camilleri informed the owners that the project would probably take another $163,523.03 to complete, they terminated the deal.
Mr. Camilleri left the house unfinished due to financial constraints and time limitations. The house project finally ended on a sum of $44,157.23 through different contractors (Darrington & Lichtig 2010).
However, the contractors who completed the construction project were unable to complete the house in accordance with the design and quality expectations.
The increased cost of completing the house, made the Godbold family to limit their efforts in completing the project, rather than getting the best out of the expected design (Darrington & Lichtig 2010).
Although the case went to the court and the court could not ascertain the level of the unprofessionalism of the constructor in underestimating the cost of the construction project.
This was due to the reason that there was no evidence about a complaint concerning a defective building work, Mr. and Mrs. Godbold (Darrington & Lichtig 2010). The court requested the defendant to pay complainant a sum of $44,157.23 as compensation based on the stipulations of the statutory home warranty scheme.
Such a scenario explains that the projects assigned to the contractors on fixed costs normally have the likelihood of facing financial instabilities (Darrington & Lichtig 2010).
Projects carried out on fixed costs normally put the contractors at risks of constructing substandard projects, because the contractors, like in the case of Mr. Camilleri, fail to balance the commercial factors and the expected quality of the project (Darrington & Lichtig 2010).
The case of the two parties reveal the manner in which fixed cost projects are risky engagements for the contractors especially when one considers the persistent changes in the prices of the materials, the services of other builders, and other costs related to construction (Darrington & Lichtig 2010).
The scope of construction normally shifts from the intention of constructing highly standard projects, to the aim of ensuring that the project meets the standards of the estimated costs and the financial parameters provided by the employer.
References
Burnnet, J & Wampler, B 2003, ‘Unit Price Contracts: A practical Framework for Determining Competitive Bid Price’, The Journal of Applied Business Research, vol. 14, no. 3, pp. 63-72.
Darrington, J & Lichtig, W 2010, ‘Rethinking the “G” in GMP: Why Estimated Maximum Price Contracts Make Sense on Collaborative Projects’, The Construction Lawyer, vol. 30, no. 2, pp. 1-12.
Mead, P 2007, Current Trends in Risk Allocation in Construction Projects and Their Implications for Industry Participants’, Construction Law Journal, vol. 23, no, 1, pp. 23-45.
Value management comprises an important aspect in the management of construction projects. It promotes the value of a project to various internal and external stakeholders. The value of the project improves due to the consideration of various value elements.
Therefore, in a bid to be successful in value management, it is imperative for project owners to define the project objectives clearly. Secondly, the value driver in the project should be outlined clearly. Furthermore, it is also imperative for the project owner to appreciate the existence of risks, which might affect the project outcomes.
The consideration of these elements fosters the value of the project to the various project stakeholders. This report illustrates the value management and risk management aspects to be considered by the local government authority in the UK in implementing a construction project aimed at improving the society’s welfare.
Introduction
Projects have become a fundamental approach through which governments are adopting in an effort to improve the welfare of the general population. Some of the major projects that have been initiated by different governments relate to the construction of public utilities such as sports centres and transport networks.
Additionally, the degree of complexity and costs of projects vary across different set ups. Nevertheless, it is crucial for contractors to adopt effective project management practices in order to deliver value to the target stakeholders. Therefore, the incorporation of optimal value and risk management practices is critical in the delivery of projects.
Dallas (111) proposes that value management ensures that the end-user requirements and the project owners’ values are maximised. Thus, value management focuses on maximising the functional benefit of the project. Conversely, risk management minimises deviation from the desired project outcome.
The definition of value is subjective, which means that it depends on the prevailing context. Some of the major contexts of value relate to the exchange value, environmental value, social value, the use value, and image value.
Despite variation in its meaning, value is comprised of different value drivers. Dallas asserts that values drivers “include the benefits that contribute to the value of the completed project to the different stakeholders” (125). Failure to incorporate value drivers limits the effectiveness with which a project attains its desired objectives.
The concepts of risk and value management are based on results. Therefore, it is essential for project managers to formulate performance measures to assess the outcomes attained. This goal can be attained by incorporating a number of generic drivers (Dallas 126).
Purpose
In its quest to improve the welfare of its citizens, the local government authority in the UK has allocated £ 9.5 million to be used in a high profile construction project. The project intends to at bring together and provide citizens with access to a number of local authority, leisure, and community services within a single facility.
In a bid to succeed in improving the welfare of the citizens, the local government authority [project owner] should ensure that the project delivers high value to the end users.
This report analyses the value and risk management aspects that should be considered in improving the project’s capacity to deliver value for money (VFM) and enrich the citizens’ experience.
Strategic definitions and value drivers
Bontempi emphasises that value engineering culture “is focused on holistic maximisation of value for money” (89). Thus, the client should consider the different elements in the delivery of the project.
The local government authority is committed to delivering a high social value by enhancing the connection between its citizens and fostering positive interaction through the construction project.
In a bid to improve the project outcome, the local government should adopt a holistic approach in managing the value and risk within the construction project. The local government authority should consider a number of generic value drivers as explained herein.
Achieve desired financial performance
The local government should assess its financial capacity to construct the intended facility by conducting a cost analysis in order to estimate the total cost of the project. Thus, the client will compare the budgetary allocation for the project and the estimated cost.
This move will provide insight on the possible financial constraints that might be incurred in implementing the project. Consequently, the client will determine the need for contingency budgeting. Furthermore, the client will determine the source of additional funds such as loans from financial institutions in advance.
This aspect will improve the clients’ capacity to deal with unprecedented project cost overruns. Cost estimation will enable the client to establish an effective basis for cost control. Therefore, the likelihood of the project being delivered successfully will increase.
Operational efficiency
The decision by the local government authority to invest in the construction project was motivated by the need to transform the community and improve the quality of life amongst citizens within the city and its surrounding.
The client intends to achieve this goal by ensuring that citizens access diverse local government, leisure, and community services under one roof. In a bid to achieve this goal, the local government authority should ensure the attainment of a high level of operational efficiency upon the completion of the project.
Some of the elements that the client should ensure involve the facility’s capacity to enhance interaction between various units established. Ensuring a high level of operational efficiency will improve the level of satisfaction amongst the end-users [citizens].
Dallas is of the opinion that a “building should actively enable the work and activities that it is designed for by offering opportunities for interaction and communication” (127).
Environmental dimension
In the process of implementing the project, the client should not solely focus on the cost of the project. On the contrary, a holistic engineering management and value management approach should be taken into account.
Therefore, the local government authority should adopt a culture that recognises different stakeholders who might be affected by the project in order to enhance the VFM. One of the aspects that the client should consider entails ensuring that the project is environmentally sustainable.
For example, the construction should not affect the prevailing biodiversity adversely or cause environmental pollution.
Cost of maintenance
The value of the intended construction project to both the end user and the project owner will be affected by the cost of maintenance. Thus, the project owner should ensure that the cost of maintenance is significantly low in order to enhance its long-term sustainability.
Additionally, the cost of maintenance should be minimal because the project will require annual funding by the local government authority. Therefore, minimising the cost of maintenance will ensure that the end-users are not over-burdened, for example, by increasing the levies in order to access the services provided within the facility.
Compliance with third-party constraints
The project owner should ensure that the construction project complies with the implemented legal requirements. Some of the elements that the project owner should ensure entail the safety and health of the end-user.
For example, the local government authority should comply with the building recommendations stipulated by the Commission for Architecture in the Building Environment [CABE]. Furthermore, the owner should ensure that the project aligns with the stipulated legal requirements.
Compliance with legal requirements should be ensured during the delivery process and after completion of the project.
Project delivery efficiency
The project owner should ensure that effective project management processes are adopted in order to improve the outcome. One of the areas that the local government should consider relates to the management of the project procurement process.
Bower emphasises that procurement “is seen as an adjunct in the delivery of value” (195). In a bid to achieve a high level of efficiency in the project procurement process, the project owner should assess the various activities that constitute an effective project value chain.
By adopting the concept of project value chain, the project owner will perceive the various project tasks as value-adding activities.
Consequently, the project owner should ensure that the project materials and resources are utilised optimally. Furthermore, the project manager should ensure that the right people are engaged in the project delivery process.
Ability to attract and retain occupants
The project owner intends to improve citizens’ wellbeing through the project. However, this goal is only attainable if the constructed project attracts employees or occupants. The facility should be characterised by a favourable working environment. Furthermore, the facility should inspire the target stakeholders by fostering a positive experience.
Project stakeholders
Hill (183) defines project stakeholders as the various individuals or entities that have some stakes in the outcome of a project. Projects have two main categories of stakeholders, viz. the internal and external stakeholders.
In the process of implementing a project, it is critical for the project manager to ensure that the affiliation of the stakeholders to the project is understood extensively. Furthermore, Hill (183) proposes that project stakeholders have a significant impact on project management environment.
Subsequently, effective profiling of stakeholders will provide insight on how to manage their influence on the project. The intended construction project will be influenced by the divergent interests of a number of stakeholders as evaluated below.
Internal stakeholders
This category of stakeholders is comprised of project participants who provide decisions and senior-directions that guide project implementation in order to achieve the desired objectives (Hill 183).
Project Sponsor – the local government authority in the UK constitutes the principle project sponsor. The sponsor’s decision-making authority is relatively high, as evidenced by the capacity to make decisions on project continuation and termination.
Project Management Office Director – the PMO Director should conduct project management control and oversight. The director should also assess the status of the various project activities continuously.
Project Team [technical staff] – the project team should be comprised of members characterised by different expertise in order to ensure the successful delivery of the project activities. The integration of different experts into the team will ensure that the project team deals with complexities that might arise during the implementation process.
Project Manager – the project manager will be charged with the responsibility of overseeing the various project management activities that need to be executed during the project’s life cycle.
External stakeholders
The project owner should identify the external stakeholders. Some of the external stakeholders that should be considered include
End users – these involve the final consumers of the project. In this project, the end-users entail the citizens living within the city and its vicinity. The end users will be interested in deriving maximum satisfaction by consuming the services offered by the facility upon its successful completion.
External public parties – these include the public organisations such as government agencies, trade associations, labour unions, and government authorities, for example, the construction planning departments [CABE and the Royal Institute of British Architects]. Chinyoi and Olomolaiye (82) argue that these stakeholders have legitimate authority to ensure that the intended constructions adhere to the building regulations on top of being approved by the relevant authorities.
Project risk management
Raftery (76) asserts that construction projects are complex and they consume a substantial amount of resources. However, the occurrence of unexpected events or risks may affect project delivery adversely.
Therefore, it is imperative for the project owner to identify and manage the possible risks that might occur at different phases of the implementation process. Some of the risk events that might be encountered during the construction project are illustrated below.
Pre-design stage – the occurrence of conflicts amongst the various interest groups might lead to project delays, hence increasing the cost of the project due to changes in the market environment. Moreover, cost estimation errors might affect the execution of various project tasks.
Concept design stage – one of the major risks that might be encountered during this stage relates to delay in the approval of the project, for example, by the construction authorities.
Tendering stage – submission of incomplete project tender documents and unqualified bidders might also increase time management risk.
Construction stage – the project completion might also be affected by delays and acquisition of the project site among other factors like bad weather. Additionally, the increment in the cost of the project might affect the project outcome adversely.
Considering the impact of risk on a project, it is critical for the project manager to adopt effective risk management techniques such as cost analysis and time management.
Furthermore, the project owners should outsource construction experts in order to ensure that the project risks are identified and managed effectively. The project owners’ commitment in managing risk influences the extent of support received from the various project stakeholders.
Evaluating project success
The project sponsor should consider a number of parameters in assessing the success of the project. Some of these parameters include
Adherence to the predetermined timeframe – projects should be delivered within a specific pre-determined timeframe in order to increase their value. Thus, the Project Manager should adopt effective time management techniques. Failure to manage project time optimally might increase the cost of the project due to economic changes.
Quality of the project outcome – the project outcome should comply with the quality specifications outlined by the project owner. In a bid to improve the quality of the project, it is imperative for the project manager to assess continuously the quality attained in the various phases of the project.
Cost analysis – the project sponsor should evaluate whether the project has been implemented successfully within the budgetary allocation.
Stakeholder satisfaction – the local government authority should also assess the extent to which the project outcome has met and exceeded the stakeholders’ goals.
Project development and value studies
The project sponsor is committed to ensuring that the desired outcome is attained. In a bid to achieve this goal, the project sponsor has allocated 5 days of study time that the project team will undertake on value management/ value engineering concepts in the project timeframe.
The value studies will be conducted with reference to the stages outlined by the 2013 RIBA plan of work. Best and Valence (243) emphasise that value management studies play a fundamental role in enhancing project delivery by promoting a consensus between the various project participants.
In order to improve the project outcome, it is imperative for the project sponsor to consider two main value study activities as explained herein.
Core objectives – the success of the project in delivering the intended outcome will depend on the extent to which the project stakeholders understand the project’s core objectives. Therefore, it is essential for the project owners to train the stakeholders on the diverse project objectives such as quality objectives. By gaining prior knowledge on the project objectives, the project team members will be focused at executing the assigned tasks. Integrating the core objectives as one of the study elements will lead to the improvement of the project outcome.
Project sustainability – another aspect that the project owner should consider during the value management studies relates to project sustainability. This study should focus on ensuring that stakeholders develop a comprehensive understanding on the various sustainability targets to be achieved. Some of the elements that should be considered during the project sustainability workshop relate to the adherence to environmental requirements, for example, the climate parameters that will be ensured in the project.
The two value management studies should be conducted at different points of the project lifecycle. The value management study with reference to the project’s core objectives should be conducted during the project preparation and brief stage.
The study will promote a high level of information synthesis amongst the project stakeholders, hence increasing their level of orientation towards the project.
The main participants during the value management-study workshop on the project’s core objectives will include the project sponsors, project manager, the project team, the end-users and the government, and non-government regulatory bodies in the construction industry.
Conversely, value management study on sustainability should be conducted at the concept design stage. Kelly, Male, and Graham (43) assert that during the concept design stage, a comprehensive structural design of the intended project is developed.
Additionally, the concept designing stage also involves outlining the preliminary project cost information and the project strategies to be adopted. The study on sustainability should mainly involve internal project stakeholders such as the project sponsor, project owners, project team members, the regulatory authorities, and the project manager.
One of the agendas that should be taken into account during the sustainability study session relates to how the project will deliver sustainable benefits amongst the target end-users. Furthermore, the study should also illustrate how sustainable VFM will be attained.
By considering these stakeholders in the value management and engineering studies, the project owner will entrench the level of participation and support during the implementation process. Thus, the probability of attaining optimal outcome will increase.
In order to improve the effectiveness of the value management studies, it is essential for the project owner to conduct the study through an isolated workshop environment. Therefore, the project owner should identify an effective location within which the value management studies should be conducted.
Adopting an isolated workshop environment will minimise interruptions from outside agents. Furthermore, this approach will foster collaboration amongst the various project participants, hence increasing the project outcome.
Value management study on the projects core objectives should take 2 days while study on project sustainability should take 3 days in order to ensure that the various stakeholders understand the various elements associated with the project such as the project cost, project strategies, and project design.
Appraisal of the effectiveness of the value management studies
The project owner should evaluate the effectiveness of the value management studies by assessing two main elements. First, the project owner should evaluate the level of understanding amongst the project participants on the value management studies undertaken.
Secondly, the appraisal process should also evaluate the project participants’ degree of commitment to ensuring that the desired outcome is attained.
Conclusion
It is important for the project owner to ensure that effective value management and risk management practices are adopted in order to achieve the project objectives.
Some of the value management practices that the project owner should consider include defining the value drivers and the parameters to be adopted in assessing the success with which the value drivers have been integrated into the project.
Furthermore, the project owners must ensure that the external and internal project stakeholders are involved in the project planning and delivery process. The project owner decision to integrate value management studies will play a vital role in improving the level of commitment, focus, and support amongst the project participants.
Works Cited
Best, Rick, and Gerard Valence. Building in value; predesigned issues, New York: Routledge, 2013. Print.
Bontempi, Franco. Structural and construction, Chicago: CRC Press, 2003. Print. Bower, Denise. Management of procurement, London: Thomas Telford, 2003. Print.
Chinyoi, Ezekiel, and Paul Olomolaiye. Construction stakeholder management, Chichester, UK: Wiley-Blackwell, 2010. Print.
Dallas, Michael. Value and risk management: a guide to best practices, Oxford: Blackwell Publishers, 2006. Print.
Hill, Gerard. The complete project management methodology and toolkit, Chicago: CRC Press, 2009. Print.
Kelly, John, Steven Male, and Drummond Graham. Value management of construction projects, Oxford: Blackwell Science, 2004. Print.
Raftery, John. Risk analysis in project management, New York: Routledge, 2003. Print.
The construction of projects and related contracts has highly increased in the UAE over the last decade. This has with no doubt has given rise to significant numbers of claims either between contractors and employers or even between contractors and sub-contractors.
These disputes are resolved either by way of conciliation or arbitration and are predominantly held in the English language, with specialist arbitrators appointed due to the technical nature of the aspects involved. Litigation is a less preferred mode of dispute resolution in the construction industry; however there are a number of Court rulings on important aspects of construction law.
As a consequence of this, focus on construction law is increasing. The articles set out herein seek to address some of the most often encountered issues in construction law related disputes.
Rational for the study
The reason for studying Alternative Dispute Resolution (ADR) methods in construction industry is to get information about the number of construction projects, the related contracts and whether they have increased largely in the United Arab Emirates (UAE) over the last decade. A number of claims arise among the contractors and owners and between contractors and sub-contractors.
The disputes are resolved by way of conciliation or negotiation and are mostly held in the English language with specialist judges appointed due to the technical nature of the aspects involved (Hinchey & Schor 2002, 63).
Court cases are a less preferred means of dispute resolution in the construction industry although there are a number of Court rulings on vital aspects of construction law. As a result of this, focus on construction law has increased. This paper will seek to tackle some of the most often encountered issues in construction law related disputes (Rhys-Jones 1994, 147; Gibbs 2007, 44)
Aim
The aim of ADR (alternative dispute resolution) development is to critically analyse the causes, impacts and sources of claims in UAE construction industries and come up with solutions to avoid or reduce those claims and to gather detailed information on national out-of-court bodies and facilitating co-operation among these bodies.
The aim of every construction project stakeholder is to complete a project that meets time, cost and quality.
Negotiation in construction industry dispute an assessment of UAE situation
Surprisingly, negotiation is often overlooked as a means of resolving disputes whenever they occur. Whenever a dispute arises under a contract, often the first reaction of the aggrieved is to instruct lawyers to send a letter of demand and then commence legal proceedings if payment is not made immediately. This approach often does not work but in most cases will only serve to put the other party on the defensive.
However, an approach from a senior representative of the aggrieved party to a senior representative of the other party to determine whether a negotiated solution can be reached will achieve a more positive result without the need to involve lawyers. In most contracts, the dispute resolution clause will require the parties to have a negotiation at the senior executive level as a precursor to arbitration or court proceedings.
It is not necessary, reasonable, to include such provision in the contract in order for them to negotiate. The parties are mostly free to negotiate a resolution to their dispute at any time at their willingness (Kangari, 1995).
With its history of resolving disputes in the majalis, the Middle East is well suited for negotiation at senior executive level as a form of ADR. It is probably not used as frequently as it should be.
There are advantages of negotiation that are there, that is if the parties act responsibly, there is minimal cost to either party other than the time of those persons involved in the negotiations. If a negotiated solution can be reached in brevity, legal costs will be avoided. These negotiations can also help the parties to preserve their contractual relationship so that they are able to do business with each other in the future.
In order for negotiation to work out, both parties need to act in good faith and be prepared to make concessions where appropriate. The parties also need to make sure that they take care to identify what is actually in dispute; otherwise the parties might be at cross purposes resulting in wasted time on both sides.
Individualists tend to view conflict as a natural part of human interaction, but one of the leading United States books on conflict resolution systems design states that disputes are inevitable when people with different interests deal with each other regularly. In Getting to Yes, the best definition on principled negotiation, the authors describe conflict as a “growth industry.”
An author of an authoritative mediation textbook from Texas noted that while conflict often has a negative connotation, in some cases it can be positive, in such that an exciting and inspiring experience and it is at the root of personal and social change. Collectivists, however, tend to view conflict as an aberration, at least where in-group relationships are concerned.
However, a survey of Korean-Americans found that the respondents looked at conflicts as a shameful inability to maintain harmonious relationships with others. The Japanese, however, abhor direct personal confrontation and, by avoiding it, they almost always operate by consensus.” Among collectivists, avoiding issues is a common, and often preferred, approach to conflict (Kumaraswamy & Chang, 1998).
Key questions
The key questions asked frequently are;
How have disputes among contactors affected employer/employee relationship in UAE construction industries?
What are the types of disputes that mostly occur in UAE construction industry?
What means do you use to solve disputes in the UAE construction industry?
What do you do in order to avoid the disputes?
Have these disputes ever occurred in the past or this is the first time they are happening?
Literature review
The study will review the pertinent literature on the subject of disputes in order to attain the objectives; a thorough review is to be conducted by studying old books, reading the journals on how disputes among contractors were solved in the past years and also by looking at conference papers to get information and find a solution to these disputes.
According to Fleming (2003, 21), the most important items to consider in ADR include; the factors that currently impede the efficient, productive, timely and cost effective performance of projects, source of disputes and practical strategies to avoid disagreements or reduce the impact of disputes, general degree of the direct and indirect costs of disputes to clients, contractors, other industry stakeholders and the community, primary principles of conflict management in the context of commercial disputes and practical dispute resolution strategies for facilitating the equitable, certain, amicable, timely and cost effective resolution of disputes.
Main study and analysis
The main aim of this study is to come up with an analysis on alternative dispute resolution method in construction industry in the United Arab Emirates so as to identify and analyze projects in which various ADR methods were used, to analyze the responses from questionnaires and interviews, to recommend compatible methods and further research and to conduct interviews with the selected representatives (Harmon 2004, 47).
Interviews with construction professionals
Questionnaires will be prepared and distributed to contractors and their employees to fill in information about the disputes, the main causes of these disputes and their recommendations or rather how they feel about these disputes and what they think should be done to reduce these disagreements in the UAE industries.
Writing the research report
Alternative Dispute Resolution in the construction industry is the main source of concern for anyone concerned with the construction process (Essex 1996, 67). Negotiation, mediation and arbitration remained the main methods for resolving the disputes but new techniques were being explored. Writing a research report inquires the introduction, background of the study, methodology, data analysis, and the conclusion. The commercial construction industry has steadily increased in complexity over the last few years (Cheung 1999, 55).
Proposed structure of dissertation
Chapter one. Introduction
This chapter will talk about the construction industry in UAE and how the contractors solve their disputes, talk about the construction projects and how they have increased or decreased in the last decade, introduce any claims made by contractors or owners and employers or between contractors and sub- contractors and how they solve their disputes and lastly introduce future plans of the construction industry.
Chapter two. An overview of disputes
At this chapter will talk about;
The UAE construction industries.
Disputes in the UAE construction industries.
Dispute resolution method.
Institutional and legal framework for dispute resolution in the UAE construction industries.
Chapter three. Types of disputes
This chapter will talk about the types of disputes that occur in a construction industry and these are; domestic/family, personal injuries, workers compensation, construction, bankruptcy, employee benefits and many more disputes that arise in the UAE construction industry from the information you get from the employees through the questionnaires.
Chapter four. Examine the relationship between disputes and contracts.
It will talk about the disputes and how they have affected the employees/ employers relationship in the construction industry.
Chapter five. Causes of disputes in the UAE construction industry
In this chapter, it will talk about the main causes of disputes for example misunderstandings, lack of communication, delay in delivery of materials, shortage of labour, financial difficulties by contractors, poor site management, slowness in decision making by client and many more causes as stated by contractors in the questionnaires. (Groton J.P, 1997, 56)
Chapter six. Methods of solving disputes
In this chapter, it will talk about all the methods of solving contraction disputes for example, mediation, conciliation, negotiation, arbitration, litigation and dispute resolution boards.
Chapter seven. Analysis of grounds for disputes
In this chapter, it come up with an analysis of the study by tables and charts and come up with a table about types of disputes and another one about methods of solving disputes as per the questionnaire.
Conclusions and recommendations
It will focus on conclusions and recommendation of the study according to the information that was got from the questionnaires that were distributed to the contractors and employees of the UAE contraction industry.
Reference
Cheung, S.O., 1999. “Critical Factors Affecting the Use of Alternative Dispute Resolution Processes in Construction.” International Journal of Project Management, 56.
Essex, R., 1996. “Means of Avoiding and Resolving Disputes during Construction.” Tunneling and Underground Space Technology, 7(1), 10-77.
Groton, J. P., 1997. “Alternative dispute resolution in the construction industry.” Dispute Resolution Journal, 76.
Harmon, J., 2004. “Construction conflicts and dispute resolution boards: attitudes and opinions of construction industry members.” Conflict Resolution Journal, 47.
Hinchey, J.W., & Schor, L., 2002. “The Quest for the Right Questions in the Construction Industry.” Dispute Resolution Journal, 63.
Kangari, R., 1995. “Construction documentation in arbitration.” Journal of Construction Engineering & Management, 1(2), 63-123.
Kumaraswamy, M. M. and Chang, D. W., 1998. “Contributors to construction delays.” Construction Management and Economics, 78-9.
Rhys-Jones, S. 1994. “How constructive is construction law?” Construction Law Journal 5 (147).
Over the past decades, auditing has been widely associated with accounting and maintenance of financial records. Gupta (2005, p.7) asserts that auditing is aimed at enabling auditors to develop an opinion regarding the effectiveness with which firms financial statements and records have been prepared. That is, the financial records have to be in line with a particular financial reporting framework.
Therefore, auditing can be regarded as a process aimed at verifying the accounting data (Gay& Simnett, 2009, p.46). This means that it entails a comprehensive evaluation of the accounting data and the evidence available in a firm’s accounting books.
For an auditor to complete his or her job successfully, he or she should consider using external evidence for example by confirming bank balances from financial institutions and conducting physical counts of the evidence. The auditor must follow a particular procedure in his or her auditing process.
For example, in Australia, the auditor must follow the Auditing Standards (Australian Accounting Research Foundation, 2002, p. 1). In its operation, a certain construction company has a substantial amount of mobile construction equipments.
Additionally, the firm maintains a subsidiary ledger of the construction equipments. This paper is aimed at identifying and describing the substantive procedures that the auditor would conduct in examining mobile equipments and the related depreciation of a construction company.
Auditing procedure
The following procedure will be used in examining the mobile equipments.
The auditor will make a decision on the most efficient work-paper approach to use in auditing the mobile equipments. According to Vallabhaneni (2005, p.325), consideration of work paper approach aids in the identification of any fraudulent activities. In order to be effective, the auditor will use the company’s record of mobile equipments. Prior to this, the auditor will require the company’s paraprofessional to update the property accounts accordingly. Additionally, the auditor will also evaluate the lead schedule which will show all the transactions that have been conducted with respect to each particular account. This will aid in identifying all the changes with regard to the property.
To ensure effective preparation of the federal income tax return for the company, the auditor will obtain different information regarding the mobile construction equipments. The date they were acquired, their respective cost, their useful life and the method of depreciation used in order to effectively determine the tax return. In the event that some equipment were retired, the auditor will identify the date that they were retired, the depreciation method used through to their retirement, the proceeds received from the sale of the retired equipments and the date the equipment was acquired.
The auditor will also take into considerations all the additions of the mobile equipments. This will be achieved by requesting the company’s manager to give a summary of all mobile equipments that the firm has acquired during the year. This will include all the purchased and the leased equipments. This will aid in eliminating any possible omissions of the firm’s mobile property from the work-papers. The auditor will compare this information with the additions that were identified during the physical observation of the mobile equipments.
The auditor will also obtain an analysis of all transactions that the firm might have conducted on its mobile equipments. One of accounts that the auditor will take into consideration relate to repair and maintenance account. If there are such transactions, the auditor will further examine all significant invoices with regard to the repairs and maintenances conducted.
A document of the items tested will be prepared.
The auditor will also examine whether there are any significant expenses that could be capitalized as additions to the equipments during the current year.
The auditor will also enquire from the company’s manager whether there have been any major sales of equipments, abandonments and retirements in the firm’s equipments that have not been recorded in the firm’s books of account.
The auditor will also evaluate the firms’ revenue accounts to determine if there are any significant amounts of proceeds from such sales. The auditor will also determine whether all the costs and depreciation related to the equipments have been reflected in the firm’s retirement work-papers.
The auditor will also test the adequacy of the depreciation amount with regard to the mobile equipments. To achieve this, the auditor will inquire from the firm’s manager whether there have been any changes that have been made to the depreciation methods used.
Additionally, the auditor will also conduct an analytical procedure in order to determine whether the current year depreciation to the mobile equipments is reasonable. The auditor may also recompute the depreciation expense on all the firm’s mobile equipments. The auditor may also conduct a cross reference of the firms’ current depreciation with the depreciation that has been recorded in the expense account.
The auditor should evaluate whether the value of the equipments have been appropriately determined.
Conclusion
Through this procedure, the auditor will be able to effectively audit the firm’s mobile equipments and the related depreciation. The results of the audit should be documented with the company’s work-paper.
The BBC Constructions is determined to ensure that it provides quality services in the real estate market. Its urge to construct houses is motivated by the high demand in the building and construction industry. BBC Construction has noticed that most constructing firms in the industry fail to provide quality services and products in the real estate market (Porter 1980, p. 104).
Coupled with the high demand in various classes of markets such as high-end, middle and lower-end market, BBC Construction Company is determined to make substantial profits through provision of quality services and products to various clients. It will be involved in construction of both commercial and residential buildings.
However, due to lack of enough funds that would be required to start developing executive properties in urban areas, BCC Construction would kick start its operations in rural regions (Kanniainen & Keuschnigg 2005, p. 68). Nevertheless, it would be expected to extent its operations in urban regions once it has attained enough capital in the near future.
Market analysis and strategy
BBC Construction understands that an extensive analysis is to be undertaken in order to come up with the best strategies that would enable the company excel in the building and construction industry (Ghemawat 1999, p. 93). This industry has five main competitors that have various weaknesses and strengths.
An in-depth analysis had to be done regarding competition in the industry, which enabled BBC Construction to set its own procedures intended to earn it a large market share. Clear view Constructions is well established in the market. However, it is alleged that it has disputes with VCAT regarding its poor quality work.
Maniatis and Company limited on the hand is proud of having an adequate experience in the industry considering that it was established in the year 1987. The long-term experience in the construction industry has enabled Maniatis and company to acquire adequate contacts at the local level (Wittner 2003, p. 43).
Conversely, a number of analysts claim that the company lacks sufficient knowledge regarding the modern construction methods and management requirements (McGahan 2007, p. 36).
With its establishment in the year 1987, Comdain Homes currently claims 40% of the market share. The company has also established extensive testimonials of satisfied clients, as well as adequate capital for display homes. However, the company only deals with highly priced houses. Most investors in both residential and commercial buildings prefer less executive houses due to limited capital.
Although A & C Quality Constructions is the oldest company in the construction and building industry, the company only owns 10% of the share market. Analysts claim that even though the company has developed adequate local contacts, the firm still faces the problem of limited marketing exposure and testimonials (Hollingsworth 2000, p. 599). Amberstone Constructions is a novel company in this industry.
The company claims 10% of the market share and has engineering background with specialty in design. However, the company has limited diversity in construction principles. Other small companies in the industry own the remaining 20% of the market share.
BBC Construction is determined to start developing properties in the rural region considering that it lacks adequate capital to compete effectively with other companies that focus on developing luxurious townhouses and bungalows in urban regions (Porter 1990, p. 81).
BBC Construction believes that starting its operations in the rural regions would enable it to establish contacts that would be used in building a substantial customer base (Hall & Soskice 2001, p. 58). Moreover, the company will utilize the modern construction methods and engineering background with specialty in design to woo most rural clients.
However, with time, the company will extend its operations to the urban areas by offering quality services at fair and reasonable prices. Cost-leadership strategy is the best that the firm would use to make sure it increases its market share considering that most clients embrace companies that charge reasonable prices.
In addition, the company would continue offering quality products and services in the industry in order to retain a large market share (Besanko & Dranove 1996, p. 67). Along with this strategy, BBC Construction will continue adhering to the regulations of the government to ensure that it does not find itself in conflicts with the government regarding its standards and quality of services.
The target market
The company is determined to start its construction and building activities in the rural and suburb regions. The rural region is expected to have little competition given that large companies such as Comdain Homes targets construction of executive homes mainly in the urban and suburb regions.
BBC Construction Company believes that constructing buildings in the urban regions is more competitive for a novel company (Ghemawat 1991, p. 78). Given that BBC Construction will largely construct quality residential homes, it would be more beneficial to invest in developing rural regions, which demand few commercial properties. The company will start by developing apartments and flats in suburb regions.
However, it would also consider constructing townhouses in suburb regions (Oster 1994, p. 91). The firm will also focus on developing the rural region, which is mainly regarded as the lower end market because the number of companies operating provides their clients with poor quality services at fair prices (Peteraf 1993, p. 101). BBC Construction will provide quality services.
List of References
Besanko, D & Dranove, D 1996, Economics of Strategy, John Willey & Sons, New York.
Ghemawat, P 1991, Commitment, The Dynamic of Strategy, Free Press, New York.
Ghemawat, P 1999, Games Businesses Play: Cases and Models, MIT Press, Cambridge.
Hall, PA & Soskice, W 2001, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford University Press, Oxford.
Hollingsworth, RJ 2000, “Doing Institutional Analysis: Implications for the Study of Innovations”, Review of International Political Economy, Vol. 7, no. 1, pp 595–644.
Kanniainen, V & Keuschnigg, C 2005, Venture Capital, Entrepreneurship, and Public Policy, MIT Press, Cambridge.
McGahan, MA 2007, “An Interview with Michael Porter”, The Academy of Management Executive, Issue 16, no. 1, pp 2-44.
Oster, SM 1994, Modern Competitive Analysis, Oxford University Press, Nueva.
Peteraf, MA 1993, “The Cornerstone of Competitive Advantage: A Resource-Based View”, Strategic Management Journal, Issue.14, no.1, pp 179-191.
Porter, ME 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, London.
Porter, ME 1990, The Competitive Advantage of Nations, London, MacMillan Press.
Wittner, P 2003, The European Generics Outlook: A Country-by-Country Analysis of Developing Market Opportunities and Revenue Defense Strategies, Datamonitor, London.