5

Construction Contract
Construction contract, contract document, classification of engineering contracts, bidding
process, CPWD contract conditions, FIDIC form of contract agreement, subcontracting

5.1 CONSTRUCTION CONTRACT

Contract as per the Indian Contract Act 1872 means ‘agreements which are enforceable as such
having been made by free consent of the parties, by persons competent to contract for a lawful
consideration and lawful object and which are not expressly declared to be void by any statute.’
From the definition, we can infer the criteria required for a contract to be valid. These criteria
are:

 There must be mutual agreement between the two parties.

 There must be an offer made by one party called the promisor.
 The other party, called the promisee, must accept the offer.
 There must be considerations, which is usually payment in the form of money for doing
of an act or abstinence from doing a particular act by promisor for promisee.
 The offer and acceptance should relate to something that is not prohibited by law.
 The offer and acceptance constitute an agreement that when enforceable by law becomes
a contract.
 The contracting parties entering into agreement should be competent, i.e., not disqualified
by either infancy or insanity to make such agreement.

Theoretically speaking, there could be an oral contract (one that is not in written form).
However, it is virtually impossible to enforce it in the context of construction since keeping track
of the scope of agreement reached between the parties will be difficult. Construction contracts
are invariably in the written form. The purpose of construction contract essentially is to help
achieve a quality construction project within stipulated time and cost, while adhering to all the
safety norms.

Various types of contracts have been evolved to suit the various subject matters of contracts
complying with the legal requirements. However, the discussions on contracts will be restricted
to construction contracts. Important sections of the Indian Contract Act 1872 are covered in
Appendix 2. Construction contracts also have many variants and these vary from country to
country. In Appendix 3, a brief note on some of the important acts applicable to establishments
engaged in building and other construction works have been provided.

5.2 CONTRACT DOCUMENT

A construction contract comprises essentially the following documents:

 The contract drawings

 The specifications
  The general conditions of contract (GCC)
 The special conditions of contract (SCC)
 The agreement
 The bill of quantities (BOQ) if applicable

The turnkey tender documents may be having only the preliminary system drawings and may not
have the bill of quantities.

5.2.1 The Contract Drawings

The contract drawings are the means through which the physical, quantitative and visual
descriptions of the project are conveyed to the contractor. These are normally provided in the
form of a two-dimensional diagram, referred to as the plan or the blueprint; however, in some
cases, the drawings could be provided in the form of a softcopy consisting of ‘read only’
Autocad drawing files. The drawings are classified into—(a) site drawings, (b) architectural
drawings giving all the details to convey to the contractor an overall picture of the total work, (c)
structural drawings, (d) HVAC—heating, venting and air conditioning, and other services
drawings, (e) electrical drawings, and (f) special details. Depending on the nature of work, there
could be fire-fighting details, public-announcement system details, building automation details,
etc.

5.2.2 The Specifications

Specifications, or technical provisions, are written instructions to carry out a work. It also
contains information not possible to show on a piece of drawing. Drawings mentioned earlier
together with specifications furnish the complete instructions to convert an architect’s and a
designer’s imagination into reality. The drawings and specifications are also useful for preparing
the cost estimates of work items of a project. Specifications commonly deal with the following
aspects:

 The quality of materials

 The quality of workmanship
 The frequency of testing
 The approved manufacturers
 The relevant Indian standards describing the material
 The inspection and installation method

The specification could be of any type mentioned in Figure 5.1.

5.2.3 The General Conditions of Contract (GCC)

The general conditions of contract are an essential part of the contract. The term ‘general’
implies that the document is a standard one used in all the contracts entered by a party (the
owner). Different owners such as CPWD, MES and IOCL have evolved standard forms of
general conditions. The GCC evolved by American Institute of Architects is a popular document
and many owners have formulated their GCC along these lines.
Figure 5.1 Types of specifications

The general conditions of contract set out the responsibility and obligation of parties to the
contract. It spells out the scope and performance of the contract, valuation and payment terms,
arbitration and laws, labour regulations, safety code, various forms used for the tender and
required deeds under the general conditions of contract. It is advisable to use standard general
conditions of contract since most of these conditions have been tested in court over a period of
time.

In India, for government jobs, CPWD conditions of contract are most widely used, though there
is a growing trend of use of FIDIC contract conditions in large projects, especially those funded
by World Bank (WB) and Asian Development Bank (ADB). The FIDIC conditions of contract
are discussed elsewhere in the text.

5.2.4 The Special Conditions of Contract (SCC)

Certain amendments/additions/deletions are made in general conditions of contract in order to

make it suitable for a particular project. These amendments are contained in a separate document
called special conditions of contract (SCC). SCC may commonly address the following issues
depending on the requirement of a project:

 Materials provided by the owner

 Site visits
 Mobilization advance
 Start date of construction
 Requirement of various reports related to progress

5.2.5 The Bill of Quantities (BOQ)

The bill of quantities shows the net quantity to be executed in each item of work. Items are
classified into earthwork, anti termite treatment, waterproofing, brickwork, concreting,
whitewashing and painting, flooring and finishing, doors and windows, structural steel,
aluminium works, stonework, etc.

5.3 CLASSIFICATION OF ENGINEERING CONTRACTS

This section focuses on a brief description of some of the commonly used types of contracts in
the construction industry.

It should be pointed out that the discussion here is particularly relevant to large and complex
construction projects that are multidisciplinary in nature. It may further be borne in mind that the
‘owner’ organization, which finally owns and operates the facility, need not have specialized
knowledge related to the very diverse engineering issues that may be involved in the design and
construction of the project. For example, if a business house wants to enter the oil business and
set up a refinery to refine crude oil, it may find that instead of handling all of it in-house, it may
be much easier to hire the services of a consultant for the technical details such as process and
instrumentation diagram, drawing up of appropriate specifications, design of equipment,
identification of suitable contractors and vendors, and supervision of construction and
commissioning works.

While the above example is for a refinery project, it is not difficult to see that a similar
breakdown can be drawn up for other major civil engineering projects such as construction of a
power plant and other industrial complexes. In fact, in the construction of a bridge or a housing
complex also, there is an involvement of several agencies.

The activities in a construction project can be taken to comprise largely the following classes:

Engineering

These activities include issues related to process finalization, structural analysis and design,
technical issues related to equipment design and selection, etc.

Procurement

The procurement of materials equipment, etc., comes under this category, which may also be
taken to include identification of suitable vendors.

Construction

This covers the construction, installation and test run of a constructed facility before it is handed
over to the owner for actual operations.

Thus, it is clear that in a construction project several agencies are involved, and the owner needs
to have well-defined ‘contracts’ with each of them, clearly defining the scope of goods and
services to be rendered, and the payment to be made to the contactor in return for these services.
Apart from issues related to (partial) payments, etc., contracts also need to address aspects
related to risk allocation, compliance with schedule, safety and labour norms, liabilities for delay
in completion, rectification of defects, performance guarantees, arbitration, etc.

Traditionally, contracts were made with a clear description of different measurable items, and
payments made for the quantities of work actually executed. Although the contracting process
has been explained separately, it should be recalled that at the outset the client carries out a
preliminary estimate based on diverse factors such as past experience and the likely quantities
and rates of different items involved, etc. Now, based on the method of contracting to be
followed, the contractors submit a ‘bid’, which is evaluated by the client before the job is
awarded to a contractor.

While it is not the intention here to trace the evolution of the different modes or types of
contracts that are commonly used in the construction industry, it may be noted that almost all
over the world, civil engineering projects were largely in the domain of varying degrees of state
control till quite recently, and each society developed different contracting procedures. The
ongoing privatization and globalization in the construction industry have led to a sea change in
contracting procedures, and the following paragraphs only briefly describe some of the more
important categories of contracts that are used in the construction sector today.

Broadly speaking, in execution of civil engineering works, the categories of contract systems
used can be classified as given in Figure 5.2.

In addition to the above, sometimes other methods such as rate contracts or term contracts are
also used. A brief discussion on some other forms of contract, such as BOT, is also included in
the following paragraphs.

Figure 5.2 Categories of contract

5.3.1 Separated Contract

The separated contract, which is a sequential process, has been the traditional system adopted for
construction contracts. In separated contracts, there is a clear division between the design and
construction responsibilities. The design phase comprising project briefing, feasibility studies,
outlining proposals, scheme design and detail design is taken care of by some entity, while the
construction is taken care of by some other entity. The preparation and approval of drawings, and
the mistakes found in design documentation are frequent causes of delay in the design phase. In
this method, sufficient time is needed (sometimes, it may need several months) for the
preparation of full documentation by all consultants and for the quantity surveyors to complete a
final estimate prior to calling tenders. The construction phase normally does not begin until the
design is completed. As a result, the whole of the development process gets delayed.

Such type of traditional procurement requires a lengthy tendering period, to allow for complexity
of the work and for tenderers to read the documentation, visit the site, and prepare for the tender.
The traditional system, therefore, is often recommended for fairly simple small- to medium-sized
projects, where time is not a critical factor. The major criticisms of the traditional system
identified in literature are:

 Time-consuming aspects of the development process

 The effect of cost uncertainty
 The effect of buildability
 Fragmentation of organizational interfaces

Some of the variants of separated contracts are discussed briefly in the following paragraphs.

Lump-sum Contract

In this form of contracting, from the drawings and other details of the project provided by the
client, the contractors quote a single lump-sum figure, which is the total contract value of the
work. Obviously, the contractor arrives at this figure on the basis of his own analysis of rates and
estimated quantities. This lump-sum amount refers to the total sum of money for which the
contractor agrees to build the required facility, accepting all responsibility for factors relating to
the supply of raw materials, uncertainties relating to construction hazards, and other difficulties.
From the point of view of the client, this form of contract has one big advantage—he knows the
exact amount of funds required for the completion of the structures.

For a lump-sum contract to be successful, it should be ensured that:

1. The quantities of the different items involved are calculable at the stage of tendering
itself. In other words, the design and specification must be fully developable.
2. The nature of the work to be done must be reasonably measurable.
3. The contractor must be given all the facilities to which he is contractually entitled.

It may be noted that the amount in a lump-sum contract is also subject to a revision under certain
conditions, which may be considered outside the contractor’s control. A change in the design or
specifications made by the client could be one condition requiring a revision of the lump-sum
amount. Also, a change in the cost of certain important items, such as statutory wages,
transportation charges and customs duties, would justify a change in the lump-sum value.
Normally, the stages or milestones are specified for the payment of bills to the contractor on a
certain predefined percentage.
Measurement Contracts

In turnkey and lump-sum contracts, by the very nature of the agreement, there is no need to do
any detailed measurement of the work carried out by the contractor. However, a large body of
contracts requires that payments be made according to the actual work carried out, which should
be determined on the basis of physical measurements. Such contracts are referred to as
‘measurement contracts’ and could be either (a) item rate or (b) percentage rate, as briefly
discussed below.

Item rate contract This contract is so called because more than the total amount or the
quantity of work in any item, it is the rate of the item quoted by the contractor that is held
sacrosanct. In other words, it is held that the contractor agrees to carry out a unit quantity of a
particular work (may be in units of cubic metres, square metres, numbers) for a particular sum of
money. This form of contract is in contrast to a lump-sum contract, where the agreement is for
delivering the entire project for a certain sum.

In the item rate contract, the tender document contains a detailed bill of quantities (BOQ), where
an estimated quantity of the work for each item involved in the particular work is listed, along
with a detailed description. The contractor carries out a detailed analysis to determine the rate of
each individual item and writes the same in a column next to each item. The total contract value
of the work is found out by multiplying the quantity of each item by the quoted rate of the
contractor and adding the cost of all items. A sample of a few items in a BOQ is given in Table
5.1, along with the applicable units of measurements. As the details of the estimated quantities
are also available, the contractor works out his rates for each item and fills them under the rate
column.

Although the list of items in the BOQ is supposed to be exhaustive, the possibility of an item not
being covered in the BOQ, but essential for the completion of a job, cannot be ruled out. In such
cases, the applicable rates are determined on the basis of labour, material, equipment and
overheads involved.

Naturally, in such contracts, an accurate account of the actual work (for each item) is kept, and
the payment is made only for the actual work carried out. In other words, there can be a
difference in the quantities of work actually executed and those foreseen in the estimate.

Percentage rate contract In this form of contract, tender documents also contain the analysed
schedule of rates for each item, in addition to the detailed estimated quantities expected in the
execution of the works. Thus, an estimate of the total value of the work is clearly available to the
contractor. Now, the contractor works out his rates for the items in the usual manner, and arrives
at his total price, which is converted to a percentage (positive or negative) by which his amount
differs from the estimate given. This percentage is submitted as a quotation by the contractor—in
other words, there is an overall modification in the rates of the contractor with this factor. An
illustrative example showing the operation of this method is given in Table 5.2.
Table 5.1 Sample illustrative extract from a BOQ

Table 5.2 Sample illustrative example of a percentage rate contract

The contractor has worked out the total amount to be z.

If z < the given amount of w, the % rate quoted would be = × 100% above w.

If z > the given amount of w, the % rate quoted would be = × 100% above w.

In this contract, for additional quantities of work done, and for items not included in the bill of
quantities, payment is made on the basis of actual costs worked out on the basis of appropriate
analysis of rates, which are then modified in accordance with the percentage agreed upon.

The method requires a detailed analysis of the rates to be carried out by client organizations, and
usually only government departments or large organizations adopt this system. From the point of
view of a client, the method results in tenders that are easier to evaluate and removes problems
such as front-loading. However, it is important that the rates used are frequently updated lest
there are anomalies in the escalation clause, or the percentages quoted become too high.

Cost Plus Percentage

In this kind of contract, the client agrees to pay the contractor a certain percentage of the (actual)
cost incurred by the contractor while completing a job, in addition to the cost itself. Thus, the
tenderer only quotes this percentage. Often, the client makes a part of the material available to
the contractor, who is otherwise required to keep a detailed account of the expenses incurred in
order to be able to claim them in his (subsequent) bills. This type of contracts is usually used in
an emergency, when time may not be available to draw up an estimate and work out details of
items involved. The contract may also be used for very small jobs where the traditional forms of
contract may not be justified. Since all costs related to material, labour, etc., are borne by the
client, only the final measurements are taken and the cost of materials involved is worked out on
the basis of established guidelines. In certain cases, the cost of the material brought to site is
directly paid for (against appropriate bills), and any material remaining after the completion of
the project is retained by the owner for future consumption.

5.3.2 Management Contract

There are, in general, three variants under management contract.

Management Contract

In this type of contract, the managing contractor is appointed at the earliest possible time. This
helps the client to avoid dealing with a large number of small contractors. In management
contract, the client has to deal with a single (principal) contractor besides a designer. The
principal contractor provides planning, management and coordination services to the client. The
design services are provided by the designer, who is separately appointed by the client. Some of
the responsibilities assigned to the management contractor are:

 Preparation of overall construction schedule

 Preparation of work package schedule
 Coordinating with the designer to steer through the design stage
 Assistance in subcontractor(s) selection
 Coordinating among different subcontractors

Usually, the principal contractor is barred from executing the construction work himself, though
in some cases the principal contractor can contribute some resources such as formwork, cranes,
etc., to the subcontractors.

Construction Management Contract

In the construction management contract, construction manager is appointed by the client at an

early stage to provide planning, management and coordination. The owner also appoints the
designer and contractors for different works. The role of construction manager, therefore, is
mainly coordination among different contractors, besides ensuring timely completion of project
within the budgeted cost according to the specifications. Some of the responsibilities assigned to
the construction manager are:

 Advising the designer

 Advising on drawing suitable work package
 Assisting in procurement
 Managing the bidding process

Similar to the management contract, here too, the construction management firm is barred from
executing the construction work on its own.

Design, Management and Construction Contract

In this arrangement, the client appoints a single (principal) contractor to take care of design and
construction. Thus, the client has to deal with a single agency for both design and construction.
The basic design concepts may be provided by the client himself or through an independent
agency. After the basic design concepts are frozen, the client calls for the tender and selects the
appropriate agency for providing design, management and construction services. In practice, the
design, management and construction contractor sublets the design and construction work to
subcontractors and suppliers, and coordinates among them.

5.3.3 Integrated Contract

Design—Build

This is a form of contract in which the contractor takes up the responsibility for both design and
construction, based on basic plans drawn up by the client. In other words, design and
construction are handled within a single organizational structure, and a perennial conflict
between the designer and the contractor is avoided. This also facilitates application of uniform
standards. In most cases, a cost-plus-fee contract or a lump-sum contract that includes both
design and construction costs may be adopted. Contracts of this form are often adopted when the
client has no in-house design and engineering departments, and when subcontracting (or
outsourcing) only the design to a separate agency is considered inappropriate. Obviously, the
contracting agency in such cases should have expertise in both design and construction. In very
large projects, however, separate companies specializing in design and construction can always
form a joint venture and bid for such a project, with appropriate financial and legal
arrangements.

Apart from encouraging a holistic and comprehensive approach that tends to bring the costs
down, the method also stimulates development of technical prowess in contractors, and reduces
the number of disputes and lawsuits.

The Turnkey Contract

As the name suggests, this comprehensive contract entrusts the responsibility of all activities
involved to the contracting agency, and the owner simply wants to ‘turn the key’ at completion
to take over the facility. Thus, in such contracts all activities related to surveying, drawing up
specifications, design, project planning, construction and test operation are entrusted to one large
contracting organization, which may break the activities down and engage other agencies to
carry out specific jobs. At times, the contract may also include operating the facility for a limited
period. Such contracts have been found to be especially useful in projects involving a
combination of civil, electrical, mechanical, chemical and mining engineering, and are seen
typically in design and construction of industrial complexes including petrochemical plants and
nuclear power stations.

The following developments have contributed to the growing popularity of this method of
contract:
 1. Modern construction has become very complex and the client prefers to deal with a single
organization rather than with a multiple of specialist contractors, each with his own
contractual peculiarity.
2. Large contracting firms have both the technical and managerial skills to take up such
works. Several large public-sector contracting agencies like Engineers India Limited
(EIL), Bechtel, Larsen & Toubro, and Hindustan Construction Company (HCC) often
handle turnkey projects in India and abroad.

At the outset of such a project, the client first prepares documents stating the requirements of the
facilities to be constructed, and either selects the best proposal from those submitted by multiple
bidders or designates a specific contractor from the beginning and enters into a contract when
negotiations begin.

From the viewpoint of a client, the system has the merit of clearly laying out responsibility.
These comprehensive contracts may include not only civil engineering and building works, but
also procurement and installation of equipment and systems. In fact, depending upon the scope, a
contract may also include training of operators in the operation of a facility. The terms ‘package
deal contract’ and ‘general turnkey contract’ are often used to describe the kind of contract
described here.

Build, Operate and Transfer (BOT) Contract

Apart from the responsibilities of the turnkey contract, this throws in the responsibility of
fundraising for the project in the contractor’s court. In return, the contractor is allowed to
‘operate’ the facility for an agreed period of time to recover the cost incurred in the design and
construction of the facility. This system of contracting is useful when the client does not want to
invest directly in the project, and wants to encourage development projects through external
funding and investment. It is also a method of attracting and involving the private sector in
public projects and infrastructure development, which typically involve very heavy capital
investment. For example, a power corporation may ask bidders to set up a power plant on BOT
basis, wherein the bidder agrees to design and construct the plant in return for rights to operate
the plant for, say, 10 years, during which the contractor can generate and sell the power. Design
and construction of certain toll highways or airports can also be similarly done on a BOT basis.
Very often, financial institutions are an integral part of such a contract, precisely to take care of
long-term financial implications.

Since these contracts often involve long-term relationships and commitments, it is crucial that
the contractor carries out his own research into not only the economic and technical feasibility
but also the social and administrative aspects of the project. A judicious system for risk
allocation is called for to address some of the concerns of a contracting agency. Often, the client
somehow guarantees the contractor’s operating income. For example, the contractor needs an
assurance that the power produced will be used and paid for, at a rate to be determined in an
agreed manner, with or without a base minimum. A contractor may also seek a mechanism to
redress a situation when estimates go awry — for example, the traffic on a toll highway does not
grow at an anticipated rate for whatever reason, and the contractor is unable to ‘collect’ at the
estimated rate.
5.3.4 Discretionary Contract

The important variants under discretionary contract such as partnering and joint venture are
discussed in the following sections.

Partnering

This is a new form of agreement or system, adopted within normal construction contracts or
design–build contracts, in which the client and the contractor together form a project team based
on mutual confidence and then work together to manage the project to a successful conclusion,
yielding a profit for both parties.

The fundamental philosophy behind partnering is the mutual trust among parties involved in the
partnering. The concerned parties meet before the start of the project to set out the project goals
and then strive to achieve them. The dispute arising during the execution of project and
afterwards are settled based on the agreed method of dispute resolution. The relationship
between the parties is called a partnership or an alliance. One agreement is usually valid for a
number of years, but agreements for shorter periods or those for a single project are also
possible. The agreement typically covers planning, design, engineering, procurement and
construction supervision. Payment provision is made based on a cost-plus-fee basis.

The advent of partnering was fundamentally to avoid contractual confrontations and disputes.
How far this has been achieved is yet to be reported, as partnering has been in use since the early
1980s only. Besides, there are very few examples of partnering in public works.

Joint Venture

In large projects, very often no single contracting company has adequate expertise and/or
resources to be able to bid alone and become the main contractor. In such cases, several
contractors pool in their resources and form a joint venture, and bid for the project together. Very
often, a company is formed especially for that particular project.

The companies usually sign an MOU and form such a venture. Naturally, the MOU spells out the
terms and conditions of this ‘mini-merger’ or ‘part-merger’, including the individual shares of
the participating companies. The company providing the project leader (resident manager) is also
specified in the MOU. In a manner of speaking, the MOU defines a kind of common minimum
programme—which is usually a one-point agenda of bidding and completing a particular project.
A copy of the MOU is submitted along with the tender document, and thus, the client is also
aware of the objective-specific new company.

In the case of a JV, the proportions of shareholding among partners vary. A partner with 51 per
cent or more shareholding usually controls ownership of the joint venture.

It may also be pointed out that the different participating companies contribute staff to a JV, as
may be clearly spelt out in the MOU. Such personnel are often treated as staff of the JV, and
treated as on deputation from their parent organization. Of course, once the project is completed,
they return to their parent cadre.

5.4 BIDDING PROCESS

For the purpose of discussion, the process that starts with the owner inviting parties to ‘bid’ for a
project and culminates in a contract being signed between the owner and a party identified to
carry out the job has been called the bidding process.

Open Bidding

Open bidding is adopted for small-value projects that involve typical nature of work. The risk
involved in the project is less here. The owner specifies some minimum eligible criteria for issue
of the tender document. If these criteria are satisfied by a contractor, the tender document is
issued to him. Upon issue of tender document, the owner may invite separate technical and
financial bids or may ask for a single-package bid.

Selective Bidding (Limited Tender)

Selective bidding is adopted for very specialized projects. In this approach, a two-tier procedure
is adopted. The first step is the pre-qualification process for selection of a set of contractors. In
selective bidding, the tender document is issued only to selected bidders who had qualified from
the pre-qualification process. The selective bidding is normally adopted for projects having large
contract value, difficult construction, etc. Indeed, the risk involved in such projects is substantial.

As is discussed in the following paragraphs, the bidding process can be looked upon as the sum
total of the following—notice inviting tenders (NIT), submission of completed bids, analysis of
submitted tenders, acceptance of tender, letter of intent (LOI), work order and agreement in case
of an open bidding, whereas the pre-qualification of contractor also gets added to the bidding
process in case of selective bidding. In case of selective bidding, after the completion of pre-
qualification process the tender documents are issued to the selected contractors. The selected
contractors bid for the project and the contract is awarded usually to the lowest responsive
bidder. In the following sections, we discuss about the pre-qualification process.

5.4.1 Pre-qualification Process

Construction procurement is a risky proposition. An owner has a lot at stake. He tries to make
every move cautiously. He realizes that a wrong move in the very beginning itself such as
choosing the wrong contractor for his proposed project may not augur well for his project. The
terms ‘right’ and ‘wrong’ contractor are subjective and have to be dealt with on a project-to-
project basis. How to choose a set of right contractors for the project, is the essence of the pre-
qualification process.

The term ‘right contractor’ signifies ‘fitness of purpose’ for the proposed project. The term ‘right
contractor’ has nothing to do with a large or a small contractor, since it may so happen
sometimes that the large contractor may not be the right contractor for a proposed project if it is
of low value. Similarly, a contractor, even if he is a leader in the heavy civil construction sector,
may not be the ‘right contractor’ for a project that involves buildings with complex architectural
features. The process of selecting a pool or set of right contractors is the purpose of the pre-
qualification process.

A typical pre-qualification process would take anything between 8 weeks and 10 weeks, and may
involve considerable efforts on the part of the owner organization. Selection of the ‘wrong
contractor’ has been identified as one of the causes of project failures. Hence, the gains in long
terms that result from pre-qualification process are worth the time and effort spent on it.

There are other terminologies and processes that closely serve the function of the pre-
qualification process. These are licensing, registration of contractors, enlistment of contractors,
and rating or grading of contractors. Some organizations, instead of resorting to the pre-
qualification process again and again, enlist or register some contractors for doing a particular
type of work, and they also specify the limit of contract value (say, up to Rs 5 crore, Rs 5 crore–
Rs 25 crore, more than Rs 25 crore, and so on) for which the contractors are eligible. As and
when any project of certain value is undertaken by these organizations, the tender document is
issued to the contractors enlisted for the said contract value. Indeed, this process saves time and
effort for the owner as well as the contracting organization. The enlistment or registration is done
for a particular period. Upon the expiry of the registration period, fresh application may have to
be submitted in order to be registered.

In some countries, there is a system of providing license to the contractors. Under this system, a
project beyond a certain value can be executed by a licensed contractor only. Under the licensing
system, the contractors are awarded license in different categories, such as common contractors,
and special contractors for different types of works such as civil works, plumbing and sanitary
works, and electrical works. These classifications are done based on the amount of work
executed by the applicant and a number of other factors including experience of the contractor in
relevant construction work; available staff strength; sales volume of completed projects;
financial parameters such as ratio of current assets to current liabilities, ratio of fixed assets to
capital, ratio of net profit to total liabilities and net worth; construction machinery owned by the
contractor; and safety and labour relations record.

As explained earlier, the enlistment or registration system helps in saving time as every time the
pre-qualification process need not be repeated. However, for any unusual or specialized kind of
work, pre-qualification process is carried out afresh. Pre-qualification of contractors is done by
government as well as private organizations.

The announcement of pre-qualification process is advertised in leading dailies, trade journals,

etc., and sometimes also intimated individually to reputed contractors.

Notice for Pre-qualification

Upon receipt of pre-qualification document from the owner, the contractor fills up the different
information required for the purpose. Although the information required for pre-qualification
varies from project to project and from owner to owner, there are certain aspects that are
typically desired by an owner or employer for selecting the prospective bidders for a proposed
project. These are discussed in the following sections.

Typical Documents Required for Pre-qualification

Letter of transmittal Sometimes, in order to maintain uniformity, even the sample letter to be
submitted along with the pre-qualification document is provided. The applicant has to write his
name and address in the specified places in the letter of transmittal. The essence of the letter of
transmittal is to convey to the owner that the contractor has read the documents carefully and the
information provided by the contractor is true to the best of his knowledge. Letter of transmittal
also gives a list of enclosures with the pre-qualification document.

Power of attorney A copy of power of attorney stating the signing authority is also required to
be furnished along with the pre-qualification document.

Financial information This statement shows the financial information of the applicant
organization. Information such as gross annual turnover details of the applicant in the last 3 or 5
or 7 years as well as profits earned for the same period are asked.

Further, the financial arrangement for carrying out the proposed work is also asked from the
applicant. The applicant can utilize his own funds through reserves or can show proof of credit
limit enjoyed by the applicant with different banks. For the latter, the applicant needs to show the
banker’s certificate. A typical format is shown in Figure 5.3.

Owners also ask for income tax clearance certificate (ITCC), usually for a three- or five-year
period. However, some Government organizations do not ask for ITCC these days. Sometimes, a
certificate from the chartered accountant indicating the value of liquid assets and a solvency
certificate from nationalized banks are also asked from the applicant. In addition to the above,
the owners may also prefer to review the balance sheet and the profit-and-loss account of the
applicant. For a typical government organization, all of the above-mentioned information are
given in a typical form called Form ‘A’.
Figure 5.3 Typical certificate issued by the bank showing credit limit enjoyed by the applicant

Figure 5.4 A typical format for details of similar works done

Figure 5.5 A typical format for showing concurrent commitment

Details of similar works Usually, owners ask for details on the experience of the applicant in
executing projects of similar nature in the last five or seven years. This is expected since owners
would like to award the project to those contractors who have sufficient experience and, hence,
will be in a better position to anticipate problems and sort them out. A typical format in which
such details are desired is reproduced in Figure 5.4.

Concurrent commitment ‘Concurrent commitment’ means the projects under execution by

the applicant or just awarded to the applicant. This information is required to assess the bid
capacity of the applicant as well as to know the intention or willingness of the applicant to take
up the proposed project. A typical format in which such details are desired is reproduced in
Figure 5.5.

The applicants establish their claim of concurrent commitment by producing letter of intent or
agreement copy for running projects.

Certificates for completed jobs The applicants are supposed to establish their claim of
experience by producing completion certificates of the completed projects. Sometimes, the
applicants also furnish photographs of the projects executed by them in order to create a better
impression.

Structure and organization Through this questionnaire, information related to structure and
organization is obtained. Some of the answers that an owner typically looks for are:

 Name and address of applicant, contact details such as telephone and fax numbers, email
ID
 Legal status—this information is required to know the legal status of the applicant, such
as whether the applicant is an individual, a proprietary firm, a partnership firm, or a
limited company or corporation. In order to verify the legal status, owners ask for copies
of documents such as incorporation certificate defining the legal status
 Particulars of registration with various government bodies such as CPWD, MES, or
department of sales tax. For verifying this, attested photocopy of the enlistment certificate
is submitted by the applicant
 Names and titles of directors and officers who are going to be concerned with the
proposed work
 Designation of individuals authorized to act for the organization

Figure 5.6 A typical format for showing details of technical and administrative personnel
Figure 5.7 A typical format for showing details of plant and equipment

Details of technical and administrative personnel The owners may wish to know about the
proposed organization structure for the project, with details of qualification, responsibility and
experience of the key members. A typical format in which such details are desired is reproduced
in Figure 5.6.

Although for a smaller organization it may be easier to provide exact names, qualifications and
experiences of the personnel proposed to be employed, for large contractors a tentative list of
personnel proposed for the project is furnished along with the total list of staff available with the
contractor.

Details of plant and equipment The owner may wish to know about the availability of
required plant and equipment with the applicants. A typical format used for extracting such
information is given in Figure 5.7.

Some other questions In addition to the above information, the pre-qualification document
contains some typical questions as given below:

 Was the applicant ever required to suspend construction for a period of more than six
months continuously, after you commenced the construction? If so, give the name of the
project and the reasons for suspension of work.
 Has the applicant or any constituent partner ever abandoned the awarded work before its
completion? If so, give name of the project and the reasons for abandonment.
 Has the applicant or any constituent partner, in case of a partnership firm, ever been
debarred/blacklisted from tendering in any organization at any time? If so, give details.
 Has the applicant or any constituent partner, in case of a partnership firm, ever been
convicted by a court of law? If so, give details.
 In which field of civil engineering construction do you claim specialization and interest?
 Specify the minimum and maximum values of contracts executed by you.
 Would you be prepared to work with nominated subcontractors? If yes, what type of
arrangement do you propose?
 Specify the list of disciplines that can be executed in-house.
 Specify a list of subcontractors.
 Do you have any minimum value of contract that will be acceptable to you?
 Why should you be hired for construction for the proposed project?
 Any other information considered necessary but not included above
 References
Other details The following details may also be desired in some cases of pre-qualification
process.

 Quality assurance plan: Contains questionnaire regarding quality policy, responsibility

and statement of purpose
 ISO certification (if any)
 Safety, health and environment management plan: Questionnaire related to policy,
responsibility and statement of purpose
 Planning, scheduling and monitoring plan, and reporting methodology
 Commissioning and handing over plan
 Project close-out strategy
 Questionnaires related to penalties in case the time schedule, the agreed quality
standards, and the safety, health and environment standards are not adhered to/complied
with

Construction methodology A typical construction methodology for a project is given in

Appendix 4. Needless to say, construction methodology will change from project to project.

Upon receipt of the completed pre-qualification document from interested applicants, owners—
either themselves or by appointing a consultant—evaluate each application in the light of the
predetermined criteria. A panel of reputed contractors is drawn up for issue of the complete
tender document.

The criteria are framed in such a way (see Box 5.1) that it results in neither too many applicants
qualified for bidding for the project nor too less applicants. The idea is to encourage fair
competition among the selected contractors. Usually, the number of applicants is restricted
between five and seven. In a nutshell, the pre-qualification process provides a level-playing field
for competitors and eliminates the odd one among the various applicants.

5.4.2 Notice Inviting Tender

For execution of work through contract, especially in an open bidding system, the jobs need to be
given due publicity. A common practice is to publish a formal ‘notice inviting tender’ (NIT),
with the following details:

 Name of the authority inviting the bids

 Name of the project
 Conditions for eligibility of contracting agencies to submit a bid
 Brief details of the project
 Estimated cost and time of completion of the project
 The cost of the tender documents
 Earnest money to be deposited with the completed tender
 Date and time by which the bids are to be submitted and the place of submission
 The date and time of opening of the bids

The detail of a typical NIT is given in Box 5.2.

Box 5.1 Suggested guidelines for establishing pre-qualification criteria

1. Minimum annual financial turnover for construction works in any one year (from among
last five years of operations) should usually be not less than two-and-a-half times of the
estimated annual payments under the contract.
2. The contractor should have satisfactorily completed three works costing not less than the
amount equal to 40% of the estimated cost, two similar works costing not less than the
amount equal to 50% of the estimated cost, or one similar completed work costing not
less than the amount equal to 80% of the estimated cost.
3. The contractor must show proof of carrying out concrete and excavation items usually 80
per cent of the expected peak rate for the proposed construction.
4. The contractor must show the availability a project manager with not less than five years
experience in implementation/construction of similar work for the proposed project.
5. The contractor must show credit lines/letter of credit/certificates from banks for meeting
the funds requirements, etc., usually the equivalent of the estimated cash flow for three
months in peak construction period.
6. Bidders who meet the minimum qualification criteria will be qualified only if their
available bid capacity is more than the total bid value. The available bid capacity is
calculated as under:

Assessed available bid capacity A × N × 2 – B

where N = Number of years prescribed for completion of the subject contract

A = Maximum value of works executed in any one year during last five years (at
current price level)

B = Value at current price level of existing commitments and ongoing works to be

completed in the next N years

7. In spite of contractor’s meeting all the criteria, they can be disqualified if it is established
that the contractor made misleading statements and has dubious records in terms of
abandoning the works, not properly completing the contract, inordinate delays in
completion, litigation history, or financial failures.

Box 5.2 Notice inviting tender, ABC Institute, New Delhi

Job No. XXX Date of NIT 05.05.2003

Last date for sale of tender forms 15.05.2008 up to 2 pm
Last date for receipt of completed tender forms 16.05.2008 up to 3 pm
Date and time of opening of tender forms 16.05.2008 at 3:15 pm

Sealed tenders are invited by the works department of our institute for earthwork involving
cutting, filling, compacting and making level a part of the campus located at Hauz Khas, New
Delhi.

Tender forms along with terms and conditions and specifications can be obtained from the office
of the undersigned upon payment of Rs 2,000 as tender fee payable in cash between 10 am and 2
pm on any working day till 15.05.2008.

Duly completed tender forms along with earnest money, ITCC and all other required documents
should be submitted at the office of the executive engineer before 3 pm on 16.05.2008. Tenders
will be opened in the presence of the officers of the institute and tenderers present at 3.15 pm on
the same day. The institute reserves the right to reject any or all the tenders without assigning
any reason whatsoever. Conditional tenders may be summarily rejected.

Executive Engineer

Works and Estate Division

ABC Institute, New Delhi

Notices inviting tenders are generally publicized through press or the Internet. In the latter case,
owner organizations upload the required information on their websites. Some websites are also
dedicated to hosting information related to business-related opportunities in the construction
industry. It may be pointed out that an online bidding process is still not very common, though
there are growing numbers of cases where tender documents, along with the drawings and other
conditions of the job, can be downloaded directly from a website.

5.4.3 Submission of Bids

Once a contracting agency, through an NIT or otherwise, learns of the availability of an

opportunity, and decides to make an offer, it obtains the required tender documents and other
details, carries out its own analysis of the job, and determines the cost at which it is willing to
carry out the project. Normally, contracting agencies carry out a survey by visiting the site to
check the availability of water, labour, power, transport, etc., and study issues like the kind of
construction methodology and temporary infrastructure that would be required to be set up.

Depending upon the nature and size of the project, the bids may be submitted as a single package
or in two parts containing the technical and financial parts separately.

5.4.4 Analysis of Submitted Tenders

As mentioned above, contracting agencies may be required to submit their offers in a single
package or break it up into technical and financial packages (with the two being submitted
separately). Evaluation of offers is generally carried out by an evaluation committee usually
consisting of three persons, with one person being from the finance department. The seniority of
members of the committee depends upon the value of the contract. The committee scrutinizes the
submitted tenders, prepares a comparative statement containing the rates of all the offers and
conditions, if any, and submits a recommendation for the award of the job. The committee is
authorized to negotiate with the tenderer, wherever necessary, to lower the rates and also
regarding any conditions if included by the tenderer. Normally, negotiations are first done with
the lowest tenderer (L1). At times, if the rates remain high even after negotiations, the next
lowest tenderer is called for negotiation, and so on. The objective is to make all possible efforts
to save the resources spent in the bidding process, though the owner clearly reserves the right to
reject all offers, without assigning any reason. The final recommendation is based on the rates
and conditions agreed upon after negotiations, after the committee has scrutinized the financial
and technical competence of the agencies and their experience. It may be noted that the
committee is usually not empowered to enter into the contract, and only make the final
recommendation, which itself may or may not be binding on the competent authority. In case of
public works, negotiation with only L1 is permitted under specified conditions.

The process needs to be appropriately modified in cases where the technical and financial bids
are submitted separately. It should be reiterated that such separate bids are invited only in large
projects, where the client is desirous of holding negotiations on technical issues related to the
project, without the negotiations being at least directly influenced by the financial details.
Further, this practice can be followed in both open and designated systems of bidding.

In such cases, as a first step, only the technical bids are opened, and negotiations held between
the owner and the contracting agencies on the technical details. This exercise is followed by the
opening and analysis of financial bids, and the issue of letter of intent (LOI) to the contractor
chosen to carry out the job. A brief description of the technical and financial bids is given below.

Technical Bid

The package should contain all the information that may be required to establish the credentials
of the tenderer, and exclude financial requirements and conditions relating to the particular
project. Therefore, the technical package usually contains (a) earnest money deposit (EMD), (b)
copy of power of attorney, (c) valid financial papers such as income and sales tax clearance
certificates, (d) details of concurrent commitments and past experience, (e) proposed project
schedule, (f) the proposed organization chart for the project with appropriate details, including
description of personnel responsibilities and bio-data of key personnel, (g) detailed cash-flow
projections, (h) details of subcontractors proposed to be used, (i) list of plant and machineries to
be deployed, and (j) details of materials proposed to be used, including their source and brand
names, where applicable.

Financial Bid

The financial package consists of total price of the contractor to complete the project. The total
price and discount or rebate, if any, is conveyed to the owner by means of a cover letter included
in the financial bid. Further, the financial bid also contains filled-up bill of quantities in which
the contractors enter their rates in words and figures for all the items of the project.

5.4.5 Basis for Evaluation and Acceptance

Indeed, while the quoted cost is perhaps the most widely used basis for drawing up a
comparative statement, other aspects of past performance of a contracting agency such as safety,
compliance with quality standards, and dispute resolution are also being increasingly considered.

It should be noted that a system based purely on the lowest cost is highly vulnerable to

1. issues like safety and quality being compromised by an agency due to the intense
competition that the method seeks to generate
2. formation of pre-bidding ‘ring’ among contracting agencies, which is the equivalent of
‘cartels’. This tendency is essentially an outcome of a conviction among the contracting
agencies that the owner has no alternative but to execute the works, and that all
contractors benefit if they ‘agree’ to a certain minimum cost
3. a tendency among the contracting agencies to first submit a low bid to get the job, and
then try to obtain additional payments through dispute resolution

It is obvious that these factors can vitiate the atmosphere of goodwill between the contracting
agency and the client, and are detrimental to maintaining of schedule, quality and safety.
Besides, there is also the danger of the project turning out to be more costly than estimated.
Therefore, acceptance of an offer needs to be done very carefully, keeping a comprehensive view
of the situation in mind. It should, however, be pointed out that increasing efforts are being made
to develop other criteria than cost.

5.4.6 Letter of Intent

If the competent authority approves the recommendations of the tender committee, a letter of
intent is issued to the contractor requesting him to submit necessary documents like partnership
deed in case of partnership firm, and income tax clearance (if not submitted earlier). At this
stage, the earnest money deposit of the successful tenderer is converted to a security deposit, and
the contracting agency is requested to pay any balance amount towards the security deposit. At
times, there is also a provision in the conditions of the contract that such amounts could be
adjusted against the initial running bills.

5.4.7 Work Order

After the contracting agency accepts the offer and submits necessary documents, a work order is
issued detailing the special terms and conditions, the mode of payment, the payment of security
deposit, the total value of the contract, etc. In the work order, the contractor is asked to enter into
an agreement with the owner and initiate the work.

5.4.8 Agreement
At this stage, the contractor contacts the engineer-in-charge of the project, and while preparing to
start work at the site, enters into an agreement with the owner. The agreement includes previous
relevant documents like the letter of intent, the work order, the general conditions of contract, the
special conditions of contract, and the specifications and drawings. After the documents are
signed by both parties, it becomes a contract, which is legally binding.

5.5 CPWD CONTRACT CONDITIONS

As pointed out earlier, CPWD conditions of contract are widely used and, hence, our discussion
keeps these as a reference point. In Appendix 4, a brief description of contract clauses from
CPWD Form No. 7 and Form No. 8 is given. Some of the important contract clauses that
ordinarily find place in various projects are:

 Compensation for delay and incentive for early completion (Clause 2 and 2A)
 Determination and/or rescission of contract (Clause 3)
 Time and extension for delay (Clause 5)
 Payment on intermediate certificate to be regarded as advances (Clause 7)
 Completion certificate and completion plans (Clause 8)
 Escalation clauses (Clause 10C, 10CA, 10CC)
 Deviation/Variations (Clause 12)
 Action in case work not done as per specification (Clause 16)
 Work not to be sublet and action in case of insolvency (Clause 21)
 Settlement of disputes and arbitration (Clause 25)
 Employment of technical staff and employees (Clause 36)
 Return of material and recovery for excess material issued (Clause 42)

Compensation for delay and incentive for early completion (Clauses 2 and 2A) These
clauses refer to recovery of compensation from the contractor for delays and defaults on his part.
This clause can be divided into three parts:

1. Observation of time allowed for completion of work

2. Payment of compensation by contractor for non-commencement, not finishing in time, or
slow progress during execution
3. The decision of the superintending engineer regarding compensation payable by the
contractor shall be final

Clause 2A provides for incentive payable to the contractor in case of early completion of work.

Determination and/or rescission of contract in the event of breach (Clause 3) This clause
is very important. It empowers the owner organization to determine or rescind the contract in the
event of breach of contract by the contractor. It further allows the department to complete the
balance work either departmentally or through another contractor at the risk and cost of the
original contractor. In the event of recourse to this clause, the security deposit of the contractor is
forfeited.

Time and extension for delay (Clause 5) Time is the essence of the contract on the part of the
contractor. This is, however, not the case as far as the department is concerned. Accordingly,
there is a provision for granting extension of time for the delay that may be caused by the
department in meeting its obligation to the contractors in terms of handing over the site,
furnishing of drawings/designs, etc., in taking appropriate decisions from time to time, and in
issuing departmentally materials required for the execution of works. Extension of time may also
be given in the event of increase in scope of work.

Payment on intermediate certificate to be regarded as advances (Clause 7) This clause

deals with the circumstances under which the intermediate payments can be made to the
contractor. To claim the payment, the contractor has to submit the bill.

Completion certificate and completion plans (Clause 8) According to this clause, a

completion certificate is to be given by the engineer-in-charge to the contractor on completion of
the work. This completion certificate is also a prerequisite for the contractor claiming the final
bill.

Action in case work not done as per specification (Clause 16) This clause is important as it
casts an obligation on the contractor and the departmental staff to ensure execution of good-
quality work. Under this clause, the contractor can be asked to make good the defects in work at
his own expenses, or re-execute the work if it is not in accordance with the specification, design,
etc.

Work not to be sublet and action in case of insolvency (Clause 21) This clause specifies the
circumstances under which tender accepting authority can rescind the contract. Under Clause 21,
permission to sublet or assign the contract to another party should not be given to a contractor by
the divisional officer without prior reference to the authority who accepted the tender.

Settlement of disputes and arbitration (Clause 25) This clause provides for appointment of
an arbitrator in case of questions and disputes arising at any stage between the parties. This
clause, however, does not apply to actions taken under clauses for levy of compensation for
delay, determination of contract in the event of breach, extension of time in the event of delay
caused by the department, and derivation of rates for additional and altered items. The contractor
cannot go to a court of law for the redressal of his grievances unless he has exhausted the
channel of arbitration. The Government of India has appointed a panel of arbitrators in the
ministry of works and housing, and the disputes between the Government and the contractors are
referred to arbitration by one of them. The authority of an appointed arbitrator can be revoked
only with the order of the court. The award of the arbitrator is final and binding on the parties to
the contract, unless it is set aside by the court.

Employment of technical staff and employees (Clause 36) This clause casts an obligation on
the contractor to deploy well-trained, qualified and skilled professionals at site of work to
execute quality work, and spells out the consequences that would arise on his failure to do so.

Return of material and recovery for excess material issued (Clause 42) This clause
imposes an obligation on the contractor to manage an effective inventory control of the
expensive and essential stipulated materials, and spells out the consequences in case of non-
observance of diligence in their usage by the contractor. The intention behind the clause is to
ensure that the contractor shall take only the required quantity of materials, and if any such
materials remain unused at the time of completion or determination of the contract, it has to be
returned to the engineer-in-charge.

Escalation clauses (Clause 10C, 10CA, 10CC) According to Clause 10C, the contractor can
be reimbursed due to increase — caused as a direct result of coming into force of any fresh law
or statutory rule or order (but not due to any change in sales tax/VAT)—in price of material
incorporated in the work and/or wages of labour, compared to prevailing rates at the time of
receipt of tender for the work. Clause 10CA provides for varying the amount of contract due to
increase or decrease in prices of various materials pertaining to the work. In the contract where
clause 10CC is applicable, this clause shall not be operational. For materials covered under
clause 10CA, price variation under clause 10C shall not be applicable.

Price escalation clause According to this clause, the contractor is entitled to compensation for
such increase as per provisions detailed in the clause for all major works. In the event of
escalation in the price of material, labour and petroleum, oil and lubricant (POL), the cost of
work on which escalation is possible is reckoned as 85 per cent of the cost of work as per the
bills, minus the amount of the value of materials supplied departmentally as per the terms of the
agreement. Thereafter, the compensation is worked out as per the increase in material cost index,
consumer price index, consumer price index for industrial labour, and average index number of
wholesale price for fuel, etc. The components of material, labour and POL are taken as certain
percentages, and are predetermined for every work and incorporated in the tender document. In
the case of building works, the component of POL is negligible and the components for material
and labour are taken as 75 per cent and 25 per cent, respectively.

The compensation for escalation for materials, labour and POL is worked out as per the formula
given below:

1.

where, VM = Variation in material cost, i.e., increase or decrease in the amount (in rupees) to
be paid
W = Cost of work done
X = Component of materials expressed as percent of the total value of work
MI and = All-India wholesale index for commodities for the period under reckoning, as
MIO published by Economic Advisor to Government of India, Ministry of Industry and
Commerce, for the period under consideration

2.

where, VL = Variation in labour cost, i.e., increase or decrease in the amount (in rupees) to be
paid or recovered
W = Cost of work done
 Y = Component of labour expressed as percent of the total value of work
LI and = Consumer price index for industrial labour (all-India) declared by Labour Bureau,
LIO Government of India, as applicable for the period under consideration and tenders,
respectively

3.

where, W = Cost of work done

Z = Component of POL expressed as percent of total value of work, as indicated under
the special conditions of contract
FI and = Average index number of wholesale price for group (fuel, power, light and lubricants)
FIO as published weekly by the Economic Advisor to Government of India, Ministry of
Industry, for the period under reckoning and valid at the time of receipt of tenders

4. The following principles are adhered to while working out the indices mentioned above.
o The index relevant for any month is the arithmetic average of the indices relevant
to the three calendar months preceding the month in question.
o The base index is the one relating to the month in which the tender was stipulated
to be received.
o The composition for escalation is worked out at quarterly intervals and it is with
respect to the cost of work done during the previous three months. The first such
payment will be made at the end of three months interval.
5. In the event the price of materials and/or the wages of labour required for execution of
the work decrease/s, there is downward adjustment of the cost of work, so that such price
of materials and/or wages of labour are deductible from the cost of work under the
contract.
6. The escalation is normally not applicable for project duration of less than 18 months.
Earlier this duration was taken as 6 months.

Addition, alternation, substitution, derivation of rates This clause empowers the department
to order addition, alternation and substitution as may be required during the execution of the
work. The rates for the altered, additional, or substituted items are to be derived in accordance
with the priority set out in the clause—such as derivation of rates from tendered rates for similar
items, scheduled rates plus enhancement, or based on market rates.

5.6 FIDIC FORM OF CONTRACT AGREEMENT

FIDIC stands for Federation Internationale des Ingenieurs Conseils (International Federation of
Consulting Engineers). It was founded in the year 1913 in Europe, and now has about 70
countries as members. The secretariat is situated in Switzerland. The FIDIC form of contract has
evolved over a period. The contract conditions are equally suitable for use on domestic contracts.
Prior to 1999, FIDIC had three forms of building and engineering contracts—the Red Book for
civil engineering construction, the Yellow Book for electrical and mechanical works, and the
Orange Book for design and build contracts. In September 1999, FIDIC published four new
editions of the forms of contract (see Box 5.3). They are briefly described in the following
sections.

Conditions of contract for construction These include the set of conditions recommended for
building or engineering works where the employer provides most of the design. However, the
works may also include some contractor-designed civil, mechanical and/or electrical
construction works (Red logo).

These days, it is very common for the contractor to design a significant portion of works on his
own and, accordingly, the conditions of contract for construction contains more provisions that
are applicable under such cases.

Conditions of contract for plant and design–build These include the set of conditions
recommended for the provision for electrical and/or mechanical plant and for design and
construction of building or engineering works (Yellow logo). Under the usual arrangements for
this type of contract, the contractor designs and provides, in accordance with the employer’s
requirements, the plant and other works; this may include any combination of civil, mechanical,
electrical and/or construction works.

The conditions are also suitable for the design and construction of building and engineering
works. These contract conditions require the employer to appoint ‘the engineer to administer the
contract.’

Conditions of contract for EPC (engineering-procurement-construction)/turnkey

projects These are suitable for use in projects of turnkey basis, such as projects for a power
plant or a process factory, an infrastructure project, or any developmental works. In this type of
contract, there is a higher degree of certainty on the price and time. The contractor undertakes
total responsibility for the design and the execution of the project, including the guarantees for
the performance (Grey logo). Under the usual arrangements for this type of contract, the entity
carries out the engineering, procurement and construction, providing a fully equipped facility
ready for operation (at the turn of a key). This type of contract is usually negotiated between the
parties.

In such contracts, the contractor has a greater freedom to satisfy the requirements of the end user
as specified in the contract. The contractor enters into such a contract with the expectation that it
would be more profitable than under the traditional procurement principles and is, thus, prepared
to accept a greater degree of risk.

Short form of contract This form of contract is suitable for small works (small capital value)
of short duration, or for relatively simple and repetitive works. This form of contract is suitable
for any discipline of engineering irrespective of who provides the engineering (Green logo).
Depending on the type of work and the circumstances, this form may also be suitable for
contracts of greater value.

Box 5.3 FIDIC forms of contract

In this form of contract, the contractor constructs the works in accordance with the design
provided by the employer or by his representative (if any), but this form may also be suitable for
a contract that includes, or wholly comprises, contractor-designed civil, mechanical, electrical
and/or construction works.

5.6.1 Need and Principles of FIDIC Contracts

The conventional contract forms being used in various government departments in India are
considered to be one-sided. Due to globalization of economy and many multinational companies
contracting for various infrastructure and developmental projects in India, the conventional form
of contract is not considered to be suitable and the global contract form such as that of FIDIC is
in vogue. The FIDIC form of contract is considered to be a well-balanced and equitable form that
clearly defines the role and responsibility of all parties to a contract. It has a fair apportioning of
risks, rights and obligations between the parties. It is in wide use for international contracts and
is supported and recommended by various development banks such as World Bank and Asian
Development Bank. It contains a set of effective, clear and complete conditions. It has time
limits specified for different actions to be taken by different parties. Besides, it also has effective
provisions for adjudication.

The basic principles behind all FIDIC contracts are given below:
  To achieve optimum results by not expecting contractors to quote for risks that could not
be reasonably foreseen or evaluated
 For the employer to assume responsibility for costs arising from events that may never
occur, which lie outside the contractor’s control or which cannot be covered by insurance
at a reasonable premium (i.e., employer’s risks)
 Close cooperation and teamwork between employer/contractor and engineer within the
framework of the contract, with a mutual desire to produce a satisfactory end product
 To remove mistrust or lack of confidence, with all parties performing their duties under
the contract responsibly and correctly
 The use of independent ‘engineer’, who is required to exercise his discretion with
impartiality, even if he is an employee of the employer

5.6.2 Salient Features of FIDIC Form of Contract

Obligations

In FIDIC, the obligations of contractor as well as owner/employer and engineer are set out
clearly. The obligations under a building contract for the contractor, employer and engineer are
given below:

Employer

 To give possession of site

 To make payment
 To nominate a supervising officer (engineer/architect)
 To supply instructions to carry out the works
 To supply necessary plans, drawings and data
 Not to interfere with the progress of the works
 To nominate specialist subcontractors and suppliers
 To supply materials for use in the works (where applicable)
 To permit the contractor to carry out the whole of the works

Contractor

 To complete the works (including defects liability period)

 To ensure suitability or effectiveness of the works using the materials specified
 Design responsibility (where not specified) especially in relation to materials and
workmanship (e.g., concrete mix and reinforcement)
 To warn the employer in relation to an impracticable design

Engineer Under FIDIC conditions, the engineer may be the employee of the employer
department, but he is not a signatory or party to the contract between the employer and the
contractor. He has to perform as an interpreter of the contract and as a judge of its fulfilment by
both the parties. Decision/opinion taken by the engineer may be opened up, reviewed, or revised
by the arbitrator if challenged within the stipulated time.
Delay and Extension

Procurement of all materials, plant, equipment and other things required for execution of work is
the responsibility of the contractor. However, if the delay is caused due to failure or inability of
the engineer to issue any drawing or instruction for which notice has been given by the
contractor, or due to failure on the part of the employer to give possession of the site, then the
contractor is entitled for (1) extension of time and (2) additional amount (compensation).

Performance Security

Performance security shall be refunded to the contractor within 14 days of the issue of the defect
liability certificate. The performance security/guarantee shall be in the form annexed to these
conditions or in such other form as may be agreed upon between the employer and the
contractor. Generally, the guarantees are conditional.

Suspension of Work

The engineer can order suspension for any reason. Contractor shall not be entitled for any
compensation if suspension is—(1) otherwise stated in the contract; (2) due to default of
contractor; (3) necessary by reasons of climatic conditions on the site; or (4) necessary for proper
execution of work or for safety of the works (except in the case of defaults by engineer or
employer, or when involving employer’s risk).

If such suspension exceeds 112 days (after 84 days of suspension, contractor gives notice for
restoration within 28 days), the contractor may elect to treat the suspension, where it affects the
whole of the work, as an event of default by the employer and terminate his employment. In the
event of such termination, the contractor is entitled for reasonable compensation.

Deviation

The engineer can make any variation in the form, quality, or quantity of the work, or any part
thereof that in his opinion is necessary. No deviation limit is specified; however, if deviations
exceed 15 per cent of the effective contract price, then the contract price shall be adjusted.

Sharing of Risks

This form contains various conditions regarding obligation of both the parties towards the risk.
‘Employer’s risks’ are generally events or circumstances over which neither party will have any
control (e.g., war, hostilities and the like), or events or circumstances caused by the employer,
directly or indirectly. For example, some of the employer’s risks are—loss or damage due to the
use or occupation by the employer, loss or damage due to defective design provided by the
employer or the engineer, and so on.

The contractor is required to take full responsibility for the care of the works, materials and
plant, from the commencement date until the taking-over certificate is issued for the works. If
any of the contractor’s equipment, plant, or temporary works on or near or in transit to the site
sustain destruction or damage by special risk, then the contractor shall be entitled to payment for
replacing or rectifying such equipment.

If during the execution of the works the contractor encounters physical obstructions or
conditions, which an experienced contractor cannot foresee, then the contractor shall be entitled
to (1) extension of time and (2) reasonable compensation.

Additional Claims

FIDIC describes the procedure for additional claims under Section 53 as given here:

 Notice of claims by the contractor

 Contractor to keep contemporary records to support claims
 Inspection of such contemporary records by the engineer
 Substantiation of claims
 Payment of claims

Payment of Bills

The contractor shall submit to the engineer after the end of each month a statement showing the
amount to which the contractor considers himself to be entitled. The engineer shall, within 28
days of receiving such statement, deliver to the employer an interim payment certificate, and the
payment is to be made by the employer within 28 days after receipt of the engineer’s certificate.

Taking Over of Completed Work

The engineer shall issue a taking-over certificate within 21 days after receipt of the contractor’s
notice and undertaking, if work is substantially completed in his opinion.

Dispute Resolution

Unless the parties otherwise agree, reference to arbitration may be made before completion of
work (during execution of work) or after completion of work.

Contract Price and Payment

Contract price is to be agreed to and determined under Sub-clause 12.3, and subject to
adjustments under the contract. The price is inclusive of all taxes, duties and fees, and not to be
adjusted except for the reasons as stated in Clause 13.7 (adjustments for changes in legislation).
The quantities mentioned in the bill of quantities are estimated quantities.

Employer is to make advance payment in the form of an interest-free loan for mobilization. The
engineer shall issue the first interim payment certificate after receiving the application for the
same and the performance security and guarantee for advance payments, with such advance
payments to be repaid through percentage deductions.
The engineer shall issue to the employer an interim certificate of payment within 28 days of
receiving a statement and supporting documents, which shall stipulate an amount that the
engineer fairly determines to be due, with supporting documents. Withholding of the interim
payment certificate shall not be done, but in cases where anything supplied or work done by the
contractor is not in accordance with the contract, the cost of rectification or replacement may be
withheld till it has been completed, and if the contractor has been failing to perform any
obligation under the contract and has been notified earlier, the value of work or obligation may
be withheld until performed.

Measurement and Evaluation

The engineer is to proceed in accordance with Sub-clause 3.5 (determinations) to agree to or

determine the contract price by evaluating each item of work, applying the measurement agreed
to or determined in accordance with 12.1 and 12.2, and the appropriate price for each item.

5.7 SUBCONTRACTING

The major construction agencies are essentially civil engineering organizations. More often than
not, they are required to engage a variety of vendors and subcontractors for execution of
specialized works in a modern-day project. Any project involves a number of items. For
example, a multi-storey building may have works similar to the ones listed below that need to be
executed:

 Waterproofing work, woodwork, painting work, aluminium works, plumbing (internal

and external) and sanitation, flooring and tile work, false ceiling, electrical works
(internal and external), air conditioning, interior works, networking, telephone wiring,
horticulture and landscaping, thermal insulation, automation, acoustic control, external
development, fit-out, façade work, building management services (BMS), and
mechanical, electrical, and plumbing (MEP) services etc.

As can be seen from the above list, it is very difficult to be a specialist for all the activities/works
involved in a project. In such cases, a part of activities is sublet or subcontracted by the main
contractor to other contractors, known as subcontractors to the main contractor for this project.

Works are subcontracted to avail the expertise of other agencies in order to do it economically,
within a given time schedule and given quality standards. Subcontracting normally results in
speedy mobilization. It also increases the productivity of staff of the main contractor, as with the
limited staff a large quantum of invoicing or billing can be done. Sometimes, subcontracting is
resorted to in order to avoid legal hurdles, to do away with directly employing a huge fleet of
workforce, and to honour contractual commitments entered into by the main contractor for the
project. Subcontracting also helps in risk-sharing.
Figure 5.8 Different types of subcontract agreement

For ensuring the engagement of quality vendors, it is imperative to provide a list of reputed
vendors in the contract itself, wherein the contractor may be given a choice of three vendors
each. Alternatively, the qualification of each vendor may be defined in the contract and the
contractor may be given the freedom to employ a vendor who fulfils the eligibility criteria.

5.7.1 Classification of Subcontractors

There are different types of subcontractors, depending on the type of agreement that the main
contractor has entered into with subcontractors. The subcontract may also be of different types
such as — item rate contract; work with materials, labour and plant; work with material and
labour; work with labour alone; and lump-sum contract. The classification of subcontractors can
be understood from Figure 5.8.

Labour Only

The subcontractors undertaking such works are known as general subcontractors (piece-rate
workers [PRW]) and sometimes also referred to as petty contractors.

Material Only

When the requirement is that of supplying materials alone, the supplying agencies are also
known as vendors or suppliers, and the contract is known as supply contract.

Equipment Hiring

General contractors hire equipments for a variety of reasons. The hiring rate depends on market
conditions, duration of hire, payment terms and other terms and conditions, besides a host of
other factors. The terms and conditions of hiring should be clearly spelt out. It should contain
information such as equipment model and capacity, responsibility for providing operators and
helpers for maintenance, minimum working hours, responsibility of fuel, lubricants, other
consumables and spares, responsibility of mobilization cost, and period of mobilization. It is
always better to check hire charges from different agencies before finalizing the hiring rates.

Back-to-Back

Sometimes, general contractors also resort to subcontracting a work package in totality. Needless
to say, these subcontractors are cash-rich contractors and command respect in the industry. Such
arrangements should be thoughtfully considered, though. The terms and conditions should be
spelt out clearly, and details such as performance guarantee, mobilization advance and bank
guarantee, retention, item description and general conditions of contract be made very clear right
in the beginning. The responsibility towards preparing drawings and maintaining the desired
quality should be well-defined.

Labour, Material and Equipment

They are referred to as specialized subcontractors or speciality contractors. Sometimes, these

contractors are specified by the owners themselves. In such cases, they are called nominated
subcontractors.

After going through the tender documents and studying the scope of work, the general contractor
splits the entire bill of quantities into two broad heads — one that would be performed by the
general contractor himself, and the other that would be performed by the subcontractors. The
subcontracting involves selection of subcontractors, inviting quotations from them, and selecting
the most suitable rates for the subcontractors. The first set of role played by the subcontractor
ends here.

The next important role is played out after the award of the contract in favour of the general
contractor. At this stage, some general contractors re-invite the quotations from normally those
subcontractors who had participated during the tendering process. Out of these subcontractors,
the most suitable subcontractor is selected and the work awarded to him by issuing the work
order by the general subcontractor.

During the execution, subcontractor’s measurement is made and he is paid according to the
agreed terms and conditions. At the end of the total scope of work in the subcontract, the general
contractor prepares the final bill, does reconciliation and closes the contract. The process
described here is the usual process adopted in the industry for subcontracting. Some issues
related to subcontracting are discussed below in detail.

5.7.2 Selection of Subcontractors

The process adopted for subcontractor selection is similar to the general contractor selection
process adopted by an owner, though the process may not be rigorously followed. It consists of
floating enquiries, collecting quotations, evaluating and short-listing subcontractors.

Similar to the contractor selection methodology adopted by owners, the main contractor also lays
down some criteria for selecting his subcontractors. These criteria may include past experience
of the subcontractor, technical capability to execute the work, mobilization capacity in terms of
human resources and plant and equipment, financial capacity, the quality of works executed in
the past, record in terms of working relationships with the main contractor, record of work safety
and workers’ welfare, and capability to chalk out construction methodology and work as per the
same. Indeed, the rate offered by subcontractors is an important criterion as well.

The general contractor may also wish to inspect the facilities of subcontractors, if required.
Finally, the rates submitted by the subcontractors are negotiated. Before negotiating the rates, the
general contractor usually prepares his own estimates for the subcontracted items.

Usually, these estimates are a rough order of magnitude estimates based on past experience,
existing rates in the project locality, or productivity. However, if required, the general contractor
may sometimes carry out a detailed rate analysis of the subcontracted items as well. This helps
him in comparing the price quoted by the subcontractors for these items. While negotiating on
the subcontract after the general contractor has been awarded the contract, he also keeps the
tender provision in mind.

Further, the registration of the subcontractors with the provident fund (PF) and sales tax (ST)
authorities are also noted.

5.7.3 Work Order

Once the subcontractor has been finalized for a work, work order is prepared. This is a legally
binding agreement between the main contractor and his subcontractor, and should be treated as a
sacrosanct document in order to avoid disputes at a later date. The preparation of work order
should be given considerable thought and all the terms and conditions clearly spelt out.

Table 5.3 Tax and deductions

Retention 5%
Income tax 1.1% to 2.2% for specialized subcontractor
Workmen compensation 1.0%
Administrative expenses 0.5%

The work order should contain scope of work (what it includes and what it does not), clear and
unambiguous specification, relevant drawings, provision of samples, mock-ups and inspection,
and clear mobilization and delivery programme/schedule. The work order should mention the
mode of measurement as many a time, disputes arise due to ambiguity in mode of measurement.

It should also mention all the taxes and deductions that are applicable. The taxes and deductions
are made to account for income tax, workmen compensation, administrative expenses and
retention money. Table 5.3 shows typical details of taxes and deductions that are usually there in
a work order. The amounts shown may vary from company to company, and from work order to
work order.

There can be a number of types of work order issued to a subcontractor. The work order may be
a running work order; a first and final work order; a labour supply work order; a work order for
individual bill of quantity items such as concrete, erecting and dismantling scaffolding,
formwork and reinforcement; or even a work order for non-bill of quantities activities such as
construction of temporary structures, housekeeping and miscellaneous repairs.

Before issuing the work order to the subcontractor, it has to be approved by the competent
authority within the general contractor organization. Depending on the value of the work order,
different levels of management personnel such as resident engineer, construction manager, or
project manager are given authorization to approve a work order within a general contractor
organization. Work order is issued after getting their approval. Sometimes, it may be required
that work orders are issued to a subcontractor who is not the lowest bidder; in such cases, the
specific reasons for doing so should be mentioned in order to get the approval of the competent
authority.

5.7.4 Terms and Conditions

The following terms and conditions are usually mentioned along with any subcontract to spell
out the obligation and responsibility of each party (general contractor and subcontractor) to the
subcontract. These are:

 Performance guarantee to be deposited by the subcontractor

 Commencement and completion dates
 Applicable taxes and duties on works contracts, insurance, value-added tax and income
tax deduction
 Variation in rate
 Site working and access
 Method of measurement
 Variation in scope of work
 Liquidity damages
 Maintenance and defect liability period
 Payment terms
 Obligation towards labour
 Subcontractor’s obligations and responsibility
 Facilities to be provided by general contractor
 Arbitration clause in case any dispute arises

5.7.5 Subcontractor Management—Some Guidelines

Subcontractors are important team members for any multidisciplinary project. It is important that
mutual trust and faith exist between the general contractor and the subcontractors. Although
there are instances of bitter fight among them during execution, it is essential to maintain good
coordination not only among the general contractor crew and the subcontractor, but also among
different subcontractors working at a project site. The process of managing the subcontractor
right from their selection till the subcontract is closed out is essential for the success of a project,
given the fact that in some projects more than half of the project value is subcontracted.

Screening of subcontractors is an essential first step in subcontract management. Care should be

taken that run-of-the-mill and fly-by-night subcontractors are not selected even if the rates
offered by them are relatively low. These subcontractors do not show any commitment towards
the subcontract assigned to them, and they run away at the slightest instance of loss in sight
during the execution of contract. It is always better to lay down a set of guidelines for
subcontractor selection. Only those subcontractors should be encouraged who have registered
themselves with the provident fund and income tax authorities. It is preferable to maintain a data
bank of subcontractors who have left the subcontract in between and have been blacklisted in
some other project sites.

Once a subcontractor has been selected, and his rates negotiated, it is a good practice to get the
performance security from the subcontractor as well as get the work order signed from the
competent authority, before the work is started at site by the subcontractor. These actions save a
lot of harassment later during the execution and payment stage.

In order to maintain better coordination at sites, it is preferable to award the subcontract to a

single subcontractor which involves interface at work. For example, a single subcontractor
should be engaged for formwork, reinforcement and concreting, since it becomes very difficult
to coordinate, say, three subcontractors for the purpose. The involvement of a number of
subcontractors for these operations results in idle time for one or the other subcontractor, leading
to different kinds of dispute at the time of payment.

During the execution of the subcontract, the representative of the general contractor should
ensure that necessary fronts are released and all inputs given to the subcontractor to avoid idling
of the subcontractor’s crew. The work carried out by the subcontractor should be promptly
measured and bills of the subcontractor promptly made. These things keep the subcontractor
motivated enough to get involved with the work and show his commitment. Further, before
making payments the general contractor should also ensure that the workmen of the
subcontractors are paid their due. No miscellaneous measurements shall be made by site engineer
for adjusting any payments, as this sets a wrong precedence and subcontractors try to take
advantage of it.

General contractors do engage some labour from the subcontractor on supply basis, in which the
number of labour days is counted for making the payment. As far as possible, this practice
should be avoided since it is very difficult to monitor the productivity of the supply workers.
Subcontractors sometimes even engage physically unfit workers as well as some child workers
for these supply works, exposing them to hazards of construction activities.

Finally, all the final bills pertaining to a subcontract should be prepared before the closing of site.

REFERENCES
1. Central Public Works Department (CPWD), http://www.cpwd.gov.in.

2. Federation Internationale des Ingenieurs Conseils (International Federation of Consulting

Engineers), FIDIC, http://www.fidic.org.

3. Harris, F., and McCaffer, R., 2005, Modern Construction Management, 5th ed., Blackwell
Publishing.

4. Indian Contract Act (1872).

5. Lutz, J.D., and Halpin, D.W., 1992, ‘Analyzing linear construction operations using
simulation and line of balance’.

6. Schexnayder, C.J., and Mayo, R.E., 2004, Construction Management Fundamentals,

Singapore:
McGraw-Hill.

REVIEW QUESTIONS

1. State whether True or False:

1. When time is the essence of contract, the completion time can be extended.
2. When time is the essence of contract, liquidated damages clause can apply.
3. When time is the essence of contract, penalty can be charged for delayed
completion.
4. When time is the essence of contract, full payment by employer is delayed.
5. The agreement is voidable under Indian Contract Act when both parties are under
mistake.
6. The agreement is voidable under Indian Contract Act when awarded without
consideration.
7. The agreement is voidable under Indian Contract Act when the objective is
unlawful.
8. The agreement is voidable under Indian Contract Act when agreement is without
free consent.
2. Explain the common types of engineering contracts and compare the following types of
contract:
1. Item rate contract v/s lump-sum contract
2. Cost plus contract v/s turnkey contract
3. What is pre-qualification of contractors, and what criterion is applied for taking a
decision by the client? Suggest weightage rate for merit rating.
4. Write short notes on CPWD contract conditions and special conditions of contract.
5. How is a contractor normally qualified to carry out certain types of work for
government’s departmental work?
6. What are the conditions of contract in a contract document? Why is it recommended to
use standard forms of contract? What are the matters to be defined in the conditions of
contract? Elaborate.
7. What are the contents of a tender document? Enumerate the complete tendering
procedure with illustrations.
8. Write short notes on (a) price escalation clause and (b) liquidated damages and penalty.
9. Explain the necessity of involving private participation in infrastructure development.
What are the structure and salient features of BOT form of public–private partnership?
You may explain with the background of road construction on BOT basis.
10. What is a bid? How is it submitted? What are the various stages and types? How does the
presentation of the bid and its evaluation take place?
11. What is the content of specification? What are the different types of specification?
12. What are the criteria that ensure validity of a contract?
13. Discuss in brief different contract documents.
14. Collect a few contract documents and list out the common general contract conditions.
15. Analyse some special contract conditions for a few projects being executed in and around
you.
16. What do you mean by bill of quantity and how is it important for a construction project?
Prepare a bill of quantity from the set of drawings for a project under construction in your
locality.
17. Discuss different categories of contract in detail and differentiate them with respect to
their important characteristics.
18. Differentiate between design–build, BOT and turnkey contracts.
19. What is meant by earnest money deposit?
20. Why do general contractors use subcontractors rather than performing all the work on a
project?
21. What risks do general contractors incur by using subcontractors?
22. Why might a project manager require performance and payment bonds from a
subcontractor?
12
Project Cost and Value Management
Project cost management, collection of cost-related information, cost codes, cost statement, value
management in construction, steps in the application of value engineering, description of the
case, value-engineering application in the case project

12.1 PROJECT COST MANAGEMENT

A project consists of a number of activities. Each of these activities consumes resources.

Resources cost money. We can take certain steps through which we can control the costs of these
activities. Project cost management is all about controlling cost of the resources needed to
complete project activities. Apart from these controllable costs, there are certain aspects over
which we do not have any control. These are called uncontrollable costs and they are the subject
matter of risk management, taken up separately elsewhere in the book. The subject of project
cost management can be taken up in four broad steps, as explained below.

12.1.1 Resources Planning Schedules

This aspect was discussed in the previous chapters. The objective here is to prepare different
resources schedule such as labour and staff schedule, material schedule, plant and equipment
schedule, and subcontractor or specialist’s schedule. As mentioned earlier, these schedules show
the quantity requirement of each of these resources either on a weekly basis or on a monthly
basis. The basis for preparing these schedules is the project time schedule.

12.1.2 Cost Planning

Once the resource requirement is obtained, the estimate to complete each of these can be
prepared based on the unit cost of the resources and the total units of the resources required. This
process is called cost planning and it is a must for project cost management. The essential
components of a cost plan are the project schedule and estimates. We have already discussed the
project scheduling aspect in Chapter 7. The estimation aspect was covered in Chapters 4 and 8. It
can be recalled that the estimate of a project is progressively developed as the project gets
underway. To start with, a rough estimate based on previous projects of similar size and nature is
prepared at the conceptual stage. This is gradually refined and finally a detailed estimate is
prepared when the scope gets clearer and a detailed design is ready.

Cost planning aims at ascertaining cost before many of the decisions are made related to the
design of a facility. It provides a statement of the main issues, identifies the various courses of
action, determines the cost implications of each course, and provides a comprehensive economic
picture of the project. The planner and the quantity surveyor should be continuously questioning
whether it is giving value for money or whether there is any better way of performing the
particular function.
At the detailed design stage, final decisions are made on all matters relating to design,
specification, construction and others. Every part of the facility must be comprehensively
designed and its cost checked. Where the estimated cost exceeds the cost target, either the
element must be redesigned or other cost targets reduced to make more money available for the
element in question—through all this, the overall project cost limit must remain unaltered.

The planner and the estimator should be continuously examining the cost aspects throughout the
design process, and keep asking certain typical questions—‘Is a particular feature, material, or
component really giving value for money?’ ‘Is there a better alternative?’ ‘Is a certain item of
expenditure really necessary?’ Cost planning establishes needs, sets out the various solutions and
their cost implications, and finally produces the probable cost of the project while maintaining a
sensible balance between cost on one hand and quality, utility and appearance on the other.

12.1.3 Cost Budgeting

Cost budgeting is the process of allocating the overall cost estimate to individual work items of
the project. Work items are groups of similar activities taken from bill of quantities. It is not
necessary to go into each item of bill of quantities since that would require too much of the
planning engineer’s efforts without commensurate results. In practice, similar activities such as
excavation in open might be clubbed with excavation up to depth of 1.5 m, and excavation from
1.5 m to 3.0 m depth under one common head, excavation work. Similarly, concreting of
different grades given in the bill of quantities can be grouped under one common head
‘concrete’. Although the rates quoted by the contractor may be different for different grades of
concrete, it will be a huge task to allocate the cost to individual grades of concrete since that
would require creating large numbers of cost codes. The same result can be achieved if the work
items are created based on some weighted average techniques.

12.1.4 Cost Control

The objective of cost control is to ensure that the final cost of the project does not exceed the
budgeted or planned cost. Project cost control can be seen as a three-step process:

1. Observe the cost expended for an item, an activity, or a group of activities.

2. Compare it with available standards. The standard could be a predefined accepted cost
estimate (ACE) or it could be the tender estimate.
3. Compute the variance between the observed and the standard, communicating any
warning sign immediately to the concerned people so that timely corrective measures can
be taken.

The initial stages of the project such as conceptual and design stages offer the maximum
possibility for influencing the final project cost. Thus, regular and close monitoring is needed
during these stages of the project. The details of cost control aspects are discussed in Chapter 16.

12.2 COLLECTION OF COST-RELATED INFORMATION

In this section, we discuss the collection of actual cost figures or data and the different reports
that are prepared to collect such data. The cost of an item or an activity is collected essentially
under the following broad heads (refer to Figure 12.1):

1. Labour costs, which include departmental labour and subcontract labour

2. Material cost
3. Plant and equipment cost
4. Subcontractor cost
5. Consumables cost
6. Overhead cost

Figure 12.1 Major cost heads and relevant documents to assist in cost compilation
In some cases, there may be further split-up of the above cost heads in terms of direct expense
and indirect expense. For example, the total labour cost would be the sum of direct labour
expenses and indirect labour expenses.

There are certain standard reports maintained at sites to record the above-mentioned costs, as
illustrated in Figure 12.1.

12.2.1 Labour Cost

As mentioned earlier, in a project there can be two types of labour—one that is directly
employed by the main contractor and the other employed by the subcontractor of the main
contractor. While the former is referred to as departmental labour, the latter is called
subcontractor labour. There are different costing processes adopted for these two categories of
labour.

Figure 12.2 A typical format for recording daily labour attendance

While the source document for collection of departmental labour cost is the daily labour
attendance and allocation form, the source data for knowing the subcontract labour cost is the
subcontract bill. In addition, there is a certain component of miscellaneous labour that cannot be
associated with any activity cost codes; they are termed as miscellaneous labour and find their
place in overhead cost.

Normally, two accounts are maintained, one each for departmental labour and subcontractor
labour. Daily labour attendance is maintained mentioning the relevant cost code.

It is possible that a worker may be used for more than two works having different cost codes. In
such a situation, it is advisable to keep the worker’s expense under only one cost code for that
particular day. While preparing the labour attendance sheet, it is a good practice to check the cost
codes against each such worker. The labour cost for each cost code is determined by multiplying
the number of days in each cost code with the average man-day rate for that month. Average
man-day rate is worked out from the total gross wages divided by the total man-days worked in
that particular month. To keep the calculation simple, although the overtime amount paid to
workers is taken in the gross wages, overtime hours are not considered in the denominator while
calculating the number of days.

The cost code mentioned in the wage sheet is also summarized in labour cost allocation on a
monthly basis to arrive at the total number of man-days worked for each cost code. It is a good
practice to check whether the total of cost code-wise man-days and the total man-days worked
are matching.

Notice pay, retrenchment compensation and employer’s contribution to provident fund for labour
are part of indirect labour costs, and these go under the project’s indirect costs.

12.2.2 Material Cost

Materials used at construction project sites are basically of two types:

1. Client’s supply: This is issued by the client for the execution of project. The owners may
issue it on free-issue basis or on chargeable basis. While the former will not have any
effect on cost statement, for the second case it is imperative that total quantity of the
supplied material consumed is allocated cost code-wise and pricing done at agreed rates.
Necessary provisions for wastage and inventory-carrying cost (like cost of storage sheds,
handling charges, etc.) should be made for both categories of materials.

2. Own purchase: The materials that a construction company purchases could be of the
following types:
1. Bulk or basic materials

Items such as aggregates and sand can be termed as bulk or basic materials. For
costing purpose, the total quantity consumed, including wastage, needs to be
allocated cost code and priced on periodic weighted average rate (PWAR) basis.

2. Heavy tools

For such items, indents are prepared each month for write-off as suitable percent
of cost on written-down rate basis to cover wear-and-tear and allocated to relevant
cost codes. If any item is rendered unserviceable, the entire residual value is
written off.

3. Scaffolding/staging materials

For these items, indents are to be prepared for rentals at suitable rates of value of
materials cost per month and allocated to relevant cost codes.

4. Temporary structures/installation
 Some common temporary structures at a typical site would be contractor’s office,
client’s and consultant’s office, workshops, labour colonies, etc. For costing
purposes, proportionate cost to invoicing done till each month-end is written off.
Necessary credit for possible/realistic salvage value is also sometimes considered.

5. Small tools

Small tools are charged fully at the time of first issue. In other words, the value of
the small tools is written off at the time of issue by stores and charged to relevant
cost code.

The source document for collection of material cost is the indent, which is shown in Figure 12.3.

In a large organization, material can be procured either locally at project site or from the central
depot of the organization through centralized procurement. The moment any material is received
at a project site, site stores personnel prepare the material receipt note, commonly referred to as
MRN, and the total cost of the material is booked in this project by the central procurement
department. The cost allocation at site is done by looking at the cost code mentioned in the
indent received from project engineers.

Suppose a project engineer needs a particular material. He will raise the material indent in which
details such as item description, brief specification, unit of measurement, quantity, rates and cost
code of the work head for which this material is needed are required to be filled up. The project
engineer fills up the indent form leaving aside the rate part, which is usually filled up by the
stores personnel. Care should be taken to fill the cost code correctly. Wrong entry of cost codes
can give an erroneous result while reconciling the material cost for a particular work head. This
is the reason indent-raising authority is given only to a few people at site, and moreover, these
entries are usually crosschecked by the planning engineer on a day-to-day basis.

Construction companies follow certain guidelines while compiling materials cost. No material
cost is debited unless material receipt note is prepared at site. The value of goods purchased is
based on purchase journal. The issue of material to the site is made on the basis of periodic
weighted average rate. In case of transfer of materials from one site to another, debits are raised
at site at PWAR based on acknowledged copy of delivery challan. For certain items of work (like
concrete, formwork, or excavation) where there are subdivisions and for which collection of cost
for each of the subdivisions may be difficult, the sub-items should be clubbed together under one
single code.
Figure 12.3 A typical indent format for requisition of material used in projects

Soon after the monthly bill is submitted, the cost statement, indicating the cumulative cost of
each item under the relevant cost code booked till the date of the monthly bill, will be prepared.
The cost statement will contain the split-up cost for each item of work (under corresponding
code)—i.e., amount spent on labour (departmental and subcontract), materials (basic materials
and consumables and spares), and overheads. Plant costs will be taken from plant cost statements
(hire charges + operating costs) and included into work items as far as possible. Corresponding
quantities of work done will be taken from the monthly bill to be included in JCR.

The costs in the cost statement may include amounts spent on portions of work in progress but
not billed, as also amounts spent on certain enabling works like staging for formwork, precasting
yard, partly fabricated structures, erection tools and tackles, which may be used for the balance
work. It may, therefore, be necessary to remove from the cost all such amounts so as to assess
the true cost of the quantities invoiced. The planning/billing engineer will assess the quantum of
such costs that are to be removed from the total costs incurred till then. He may apportion such
costs in proportion to the quantity billed or compute these through any other rational means. The
amounts thus removed from the costs will be carried over as ‘deferred expenses’ and are to be
included in ‘estimates to complete’.

Similarly, care should be taken to include accrued expenses (provision for expenses) into the
above cost. Accrued expenses are those expenses for which works were already carried out but
payment not yet made. Thus,

job status to date cost = actual cost incurred − deferred expenses + accrued
expenses (12.1)

Site accountant will keep track of all transactions that are likely to take place outside his site,
concerning his project, and maintain a register of such items for preparation of the cost
statement. In case of delay in receipt of debit advices for such items, he should estimate the cost
based on reasonable assumptions. Since all transactions take place as a result of actions taken by
the site or actions known to have been taken on behalf of the site, sufficient information would
be available for the site accountant to compute such costs.

12.2.3 Plant and Equipment Cost

The components of plant and equipment cost include hire charges, labour, fuel and oil, spares,
running and maintenance cost, one-time installation and erection cost, and dismantling cost.
While some of the plants and equipments can be owned by the company directly, other plants
may be rented from agencies. Even when some plants are owned by the company, they have a
practice of debiting hire charges as if these were taken from outside agencies. This is done to
know the exact usage cost of plant and equipment in a particular work cost head. Generally, for
each of the plant and equipment, the companies maintain an asset code. Plant and equipment cost
statement (contains hire charges + operating costs) is prepared for each of these asset codes
being utilized at project site. From the log book of each of these plant and equipment assets, the
cost is ploughed back to the relevant cost codes of activities for which these assets have been
utilized. The operator costs are collected from the labour cost details discussed earlier. Expenses
towards fuel, oil and spares are collected from the details available through stores department.

12.2.4 Subcontractor Cost

The source document for calculating subcontractor cost on a project is work order issued to the
subcontractor by the main contractor and the periodic measurement bills. Relevant cost codes
should be mentioned against each item of work in a subcontractor bill.

The subcontractor labour cost is recorded from relevant cost codes for which the particular
subcontractor is engaged, through the subcontractor bill for the month. One can also mention the
cost code for the subcontractor labour in the work order or the measurement sheet. Issues of
materials to the subcontractor by the main contractor are done on a chargeable basis and are
normally compiled under a separate cost code. Recovery from subcontractor’s bill is made at
predetermined intervals and is appropriately considered in the costing.

12.2.5 Overhead Cost

The overhead cost can be directly taken from the ledgers and grouped under fewer cost codes,
averting costing of individual vouchers at sites. Once the basic elements of cost are collected for
the period, some of the costs can be reallocated to work items and overheads, if necessary. Also,
the general overheads need to be allocated to all projects being undertaken by the company in
proportion to the contract value of the project. The expenses related to staff that can be directly
identified to ‘specific projects’ shall be taken to the respective jobs. The common staff expenses
and other administration expenses are allocated to all the projects being undertaken by the
contracting organization in proportion to the invoicing of each of the projects.

It can be observed from the above discussion that cost collection for a large project is a big
exercise that involves a number of people such as planning engineer, billing engineer, plant and
equipment staff, storekeeper and accountants. Planning engineer is supposed to coordinate the
process. It is expected that all the involved people do their part in time so that project cost is
compiled at regular intervals and made use of in an effective manner.

12.3 COST CODES

These codes are designed based on the nature of the activity for which a particular cost is
incurred. Cost codes are allocated by the planning department depending on the nature of activity
at site. The cost codes should be such that these are easily compatible with the bill of quantity.
The number of cost codes should be neither too large nor too small.

The basic point is that all the expenses incurred in and for the project should be recorded in one
of the cost codes, no matter how small or how large the number of cost codes for a project. Some
companies maintain additional cost codes for staging and shuttering, temporary structures,
operating cost of plant and equipment, and installation cost of batching plants and quarry.

While on the subject of cost code, another point that merits attention is the comparison of cost
with some standard such as accepted cost estimate. Harris and McCaffer (2005) suggest adoption
of coarse-grained system that describes no more than 15 cost codes. They quote the study by
Fine which finds the following interesting results.

If there are 30 cost heads in a project, about 2 per cent items are misallocated, while for a project
with 200 cost heads about 50 per cent items are misallocated, and for a project with 2,000 cost
heads, about 2 per cent of items are correctly allocated.

The activity codes are widely circulated to the authorized project staff so that correct allocation
of costs to different cost heads is achieved. These allocations are further checked centrally by the
project-planning engineer on a daily basis.

12.4 COST STATEMENT

Costing is a method of collecting expenses at the job site under various heads of accounts called
cost codes. The cost codes are to be finalized at the beginning of the job and communicated to all
section heads at the job site and all staff who are empowered to authorize the indents.

In preparing the cost statement, the following system has to be adopted:

1. Allot cost codes: This has already been discussed

2. Collect (a) labour costs, (b) subcontractor costs, (c) materials cost, (d) consumables, (e)
plant costs, and (f) overheads cost. The method of collecting the costs and the documents
through which these are collected have already been explained
3. Determine provision for expenses
4. Determine deferred expenses
5. Compile above costs in the given formats, finalize total costs code-wise, and arrive at
project costs
The cost statement will reflect both the cost during the month and the cumulative costs for the
job. The application of cost statement is in the preparation of project cost report, which has been
discussed later. Typical formats of cost statements are given in Figure 12.4 to Figure 12.7.

The source of plant and equipment charges is the plant and equipment department. Time office
and stores maintain the records of labour cost and material cost, respectively, while the voucher
payment is used to know the other expenses concerning a particular plant and equipment.

Figure 12.4 Cost statement of plant and equipment for a given month

Figure 12.5 Cost statement—without plant cost allocation

Figure 12.6 Integrated cost statement
Figure 12.7 Cost statement summary

12.5 VALUE MANAGEMENT IN CONSTRUCTION

The concept of value management (VM), also known as value analysis (VA) or value
engineering (VE), evolved during World War II. It is a systematic approach for obtaining value
for the money spent. VE is one of the most effective techniques known to identify and eliminate
unnecessary costs in product design, testing, manufacturing, construction, operations and
maintenance. VE involves answering the question—‘What else will accomplish the function of a
system, process, product, or component at a reduced cost?’ (Dell’Isola 1982)

The core of value management lies in the analysis of function and is concerned with the
elimination or modification of anything that adds cost to an item without adding to its function.
In value engineering, ‘function’ is that which makes the product work or sell, and accordingly,
we have ‘work’ functions and ‘sell’ functions. All functions can be divided into two levels of
importance—basic and secondary. The basic function is the primary function of a product or a
service, while the secondary functions are not directly accomplishing the primary purpose but
play a supporting role and provide additional benefits.

Some other related terms used in value engineering are worth, cost and value. Worth refers to the
least cost required to provide the functions that are required by the user of the finished project.
Worth is established by comparison, such as comparing it with the cost of its functional
equivalent. Cost is the total amount of money required to obtain and use the functions that have
been specified. Value is the relationship of worth to cost as realized by the owner, based on his
needs and resources in any given situation. The ratio of worth to cost is the principal measure of
value.

Thus, value may be increased by—(1) improving the utility with no change in cost, (2) retaining
the same utility for less cost, and (3) combining improved utility with less cost. The situation in
which worth and cost are equal represents ‘fairness of deal’, while the situation in which worth
of a project is more than the cost paid represents a situation of ‘good bargain’. The situation in
which worth is less than the cost paid for a project represents ‘poor value’. An optimum value is
obtained when all utility criteria are met at the lowest overall cost.

Value engineering can be applied to any phase of a construction project, though the best results
may be expected during the initial stage of a project. VE has its best chance for success in the
integrated design–build organization. Beginning at the pre-design stages, when the potential for
value engineering is the highest, the owner meets his entire integrated project team and provides
inputs. As the integrated team begins work, multiple facets of value delivery are hypothesised,
tested and enacted continuously. Team members across different functional lines consider the
project in a holistic sense.

When applying value engineering, all expenditures relating to construction, maintenance,

replacement, etc., are considered and through the use of creative techniques and the latest
technical information regarding new materials and methods, alternate solutions are developed for
the specific functions. It is claimed that application of value engineering can result in a saving of
about 15 per cent–20 per cent of the construction costs.

Construction is one among many types of project-based production systems—shipbuilding,

movie-making, software engineering, product development and all forms of work-order system.
The aim is to provide the required functions to the user and ensure that anything else is
eliminated, thereby reducing unnecessary costs. So, the moot question is—how are value
engineering (VE) principles relevant to the construction industry?

VE principles are dovetailed with the construction type of temporary production system where
production starts only after the user defines its needs specifically, as part of the exercise of
eliminating wastages. As such, each activity of production is targeted towards fulfilling user
requirements. Such is not the case with the manufacturing or product development industry,
where in many cases a product’s required function is decided by the producer and not by the
user, whether it is the case of mobiles, laptops, automobiles, or a number of other products where
the customer has to pay for many additional features which may not be user-specific and may
even be undesirable to him. In the manufacturing industry, the scope for modification or
elimination of the undesirable features of a product to a particular customer is limited, while the
construction industry offers unlimited scope for alterations specific to the user.

It is an irony that construction projects, whether big, small, or of national importance, get
delayed or often have long gestation in many countries. Also, there are large variations in the
final cost of constructed facilities and the originally proposed cost of the projects. The delays and
the cost overrun could be due to many reasons, but ultimately these lead to decline in the value to
a great extent. There is, therefore, a need to move from the traditional method of construction to
alternative approaches that can deliver fast-track constructions. The ‘design and build’ approach
is an alternative. It may be noted that the last few years have witnessed a growing trend in the
adoption of ‘design and build’ construction contracts.

In the ‘design and build’ approach, a particular entity forges a single contract with the owner to
provide for architectural/engineering design services and construction. Here, the designer works
directly under the project manager, unlike in the traditional design–bid–build projects where a
designer works under the owner and there is no contact between the project manager and the
designer. The ‘design and build’ approach has been found to be extremely beneficial when
applied to fast-track projects in different countries. Fast-track construction is generally based on
the norms for the industrial plant structures where the design and the construction work can go
on simultaneously leading to reduction in the project-cycle time. Further, single-point
responsibility eliminates the scope for blaming others for delay, cost overrun, value loss, etc. The
integrated design–build team focuses not on getting money out of the project, but on putting
value into the project for the duration of the facility’s useful life.

In the subsequent sections, we discuss the applicability of value engineering at different stages of
a design–build project through a real-world case study. For this, first we discuss the different
steps in the application of value engineering.

12.6 STEPS IN THE APPLICATION OF VALUE ENGINEERING

As mentioned earlier, the different steps described here are for the application of VE in design-
and-build projects. With few modifications, however, the steps can be applied to different types
of construction projects. The schematic representations of these steps are given in Figure 12.8.

1. Within the scope of design-and-build industrial projects, different plant and non-plant
structures are compared with respect to their cost. Normally, only a few structures would
be responsible for a very high cost. Accordingly, only these structures merit attention and
application of VE, subject to the constraints of time and resources.
2. Further, within a given structure, various elements such as foundation and superstructure
construction, and material aspects are analysed cost-wise. Here also, only the elements
with high cost implications are explored and analysed from the viewpoint of VE.
3. The above step is followed by the construction of a FAST1 diagram, which assists in
breaking up a large problem and helps us to orderly identify the basic and secondary
functions of the element under consideration. The ‘why’ and ‘how’ questions are closely
linked to each other logically.
4. All the possible alternatives/ideas are then generated to cater to the functions as identified
in the previous step, through a brainstorming session. Let us assume that for some
element the alternatives generated are identified as x1, x2, x3, x4 and x5.
 Figure 12.8 Schematic diagram depicting different steps in the application of VE in
design-and-build project

5. The identified alternatives/ideas are then evaluated in two stages. The first stage
comprises a rough screening process. This is done by enumerating advantages and
disadvantages associated with each of the alternatives. These are ranked based on the
subjective assessment of the evaluators. The evaluation is done not merely by counting
the number of advantages or disadvantages, but also by taking into account the strength
or importance of a particular advantage or disadvantage associated with a particular
alternative. Some of the seemingly unattractive alternatives are dropped here itself and
removed from the subsequent analysis. The ideas retained at this stage are taken to the
next stage. For example, let us assume that out of the five alternatives x1 to x5 generated
earlier, two alternatives x1 and x2 are rejected at this stage. In that case, the alternatives
x3, x4 and x5 only will be taken in the next step of analysis.
 6. Now, in order to select the best alternative/idea from the remaining ones (x3, x4 and x5),
performance criteria are identified through literature review or interaction with experts. In
this study, the identification and preference of each of the performance criteria was
carried out using a questionnaire survey. For each of the performance criteria,
respondents were asked to give a rating on a five-point scale in which ‘5’ represented
‘extremely important’, ‘4’ represented ‘major important’, and ‘3’, ‘2’ and ‘1’ represented
‘important’, ‘minor important’ and ‘slightly important’, respectively. The performance
criteria were then ranked based on the mean values of the responses. The criterion with
the highest mean value was rated as the first rank and the criterion with the lowest mean
value was rated as the last. Intermediate values were assigned depending on the mean
values of the responses.
7. Evaluation matrix was then used for obtaining the weights of each performance criterion.
Each criterion was assigned a letter of the alphabet and then compared with the other
criteria based on the preference of the owner/designer for each particular project. The
importance of one criterion in relation to another can be measured in terms of a four-
point scale in which ‘4’ represents ‘major preference’, ‘3’ represents ‘medium
preference’, ‘2’ represents ‘minor preference’, and ‘1’ represents ‘slight preference’.
After all the comparative evaluations are made, the raw scores of each criterion are
totalled by summing up the assigned letters in the matrix. After this, the raw scores are
adjusted to a scale of 1–10, wherein 10 is assigned to the criterion with the highest raw
score and the other criteria are adjusted accordingly, which finally gives us the weights of
the criteria (Hammond and Hassanani 1996).
8. Then, the alternatives x3, x4 and x5 are evaluated against each of the performance criteria.
It is assumed that all the alternatives that have survived meet the minimal needs or basic
functions of the owner or the user. The scoring system used for this purpose is a five-
point scale in which the extremes ‘1’ and ‘5’ represent ‘poor’ and ‘excellent’,
respectively. The ranks were given by experts for each of the alternatives x3, x4 and x5 for
their corresponding performance criterion.
9. The ranks of each alternative are multiplied by the corresponding weights of the criteria,
and thereby the resulting scores are calculated. The total scores are thus known, through
summation of the resulting scores, for each alternative.
10. The alternative with the highest score is thus selected to cater to the desired function. The
same process is adopted for all the elements in a particular structure.

The application of the above methodology is illustrated through a live case study discussed in the
subsequent section.

12.7 DESCRIPTION OF THE CASE

The real-world design-and-build construction project that we have chosen for our case study is
an industrial building of a reputed glass manufacturer (the client). A leading Indian construction
company was awarded the contract for civil and structural work for integrating float-glass plant
as a design-and-build lump-sum contract. The project is located in the northern parts of India.
The initial contract value of the design and construction project was Rs. 92 crore. This industrial
project was chosen as our case project since its construction was focused mainly on satisfying
the functional requirements, while the aesthetic requirements were not given much attention
except in the case of a few buildings in the plant such as administrative building. Hence, VE
becomes a potent tool for realizing maximum benefits.

The scope of work for the glass plant consisted of formulating the
architectural/structural/services designs and preparation of working drawings, preparation of the
required plans/drawings for approval from the necessary and appointed authorities, and
execution of the works in accordance with the drawings and contractual specifications.

The glass plant under construction consisted of more than thirty plant and non-plant structures.
Some of the major structures in the project were batch plant, furnace, float bath, annealing lehr,
cold end and warehouse. Based on the Pareto Law, it has often been noticed that only about 20
per cent of the items constitutes nearly 80 per cent of the cost. This was found to be true for this
plant as well. Only five structures—namely, warehouse, annealing lehr, float bath, furnace and
main office building—constituted about 76 per cent of the total cost (see Figure 12.9). As
suggested in VE, the main focus should be restricted to the structures having higher saving
potential. Further, out of the five structures mentioned, in-depth VE analysis was done only for
the warehouse, mainly due to constraints of time and human resources. The cost break-up for the
civil items showed that the items contributing to most of the total cost were pile foundation,
flooring, granular sub-base (GSB), fabrication and fit-up structural steel (refer to Figure 12.10).
Figure 12.9 Break-up of cost of different structures for the case project
Figure 12.10 Break-up of cost of different items/elements in warehouse structure

As seen from the cost break-up of the warehouse (Figure 12.10), the cost of the foundation forms
a major part of its total cost. It is taken up first for the VE study as it has the maximum saving
potential.

12.8 VALUE-ENGINEERING APPLICATION IN THE CASE PROJECT

As mentioned, the cost of foundation was a major element in the case project. Accordingly, this
has been taken up for VE application. Besides, VE has been considered on flooring system,
superstructure construction, material selection for sub-base, etc.

12.8.1 Foundation Design

In the case project, the soil stratum at the warehouse site had a low bearing capacity such that the
spread foundations were found to be infeasible and uneconomical, which, in turn, necessitated
the deep foundation such as piles. The bearing capacity of the soil as obtained from the plate-
load test was 8 t/m2. The groundwater table was at an average depth of 2.5 m. In the warehouse
alone, there were, in all, 134 pile caps resting over two piles running 22 m deep on an average.

A FAST diagram was drawn in order to identify the basic and secondary functions (see Figure
12.11). Some of the functions of the foundations identified are—transfer load, compact soil,
resist settlement, and avoid liquefaction. The functions thus identified helped in thinking up new
alternative ideas. The alternative solutions for the foundation of warehouse are:

1. Strap footings
 2. Concrete piers—a pair of columns (each of size 400 mm × 500 mm) carrying a load of
600 kN each, resting on a pile cap of dimension 2.5 m × 1.5 m supported by two piles
running 22 m deep
3. Deep vibratory compaction (Baker, undated)
4. Vibrated stone columns (Farel and Taylor 2004)
5. Rammed aggregate piers (RAP) as per the details given in Majchrzak et al. (2004)

Figure 12.11 FAST diagram for warehouse foundation

To explain the last mentioned in detail, reinforce the soil with four rammed aggregate piers 10 m
deep of 750 mm diameter, with total area equal to 30 per cent of the footing area. Crushed
aggregates of 20 mm–37.5 mm are used for the RAP. Conventional isolated footing is designed
on top of RAP. Aggregates are rammed using 10 kN–20 kN hydraulic hammers. From the design
calculations for RAP, it is found that four RAPs of 750 mm diameter and 10 m depth increase
the bearing capacity of the soil from 70 kN/m2 to 250 kN/m2, and are sufficient to substitute 22
m deep pile foundation. The settlement as found from the previous case studies is within 8 mm–
20 mm, which is less than the permissible settlement of 50 mm for the warehouse. The
productivity of piles and RAPs per foundation is the same for the pile driving and RAP
installation equipment, respectively, and so, the time to construct will be almost the same.

The advantages and disadvantages corresponding to each of the above alternatives for the
foundation are enumerated in Table 12.1. The top three alternatives—namely, vibrated stone
column (rank 1), rammed aggregate piers (rank 2), and deep vibratory compaction method (rank
3)—were selected for further analysis.

In order to arrive at the best alternatives, nine performance criteria for evaluating the alternatives
were identified with the help of experts. In order to know the preferences for these nine criteria, a
questionnaire survey was undertaken in which the respondents were asked to evaluate the criteria
on a five-point scale. The responses obtained from the 20 respondents are shown in Table 12.2.
The mean value of each criterion and the corresponding rank are shown in Table 12.3. For
illustration, let us take cost as the criterion. Twelve respondents have rated it as ‘extremely
important’, five have rated as ‘major important’ and three respondents have rated it as
‘important’. Thus, the mean value for ‘cost’ criterion works out to be (12 × 5 + 5 × 4 + 3 × 3) ÷
20 = 4.45. In a similar manner the mean values of other criteria have been worked out. The
criterion with the maximum mean value (incidentally, it is for the cost criterion) is ranked one
and so on.

Furthermore, a pair-wise comparison, i.e., matrix evaluation, is done to get the weight of each
performance criterion. This is shown in Table 12.4. For pair-wise comparison, one criterion is
taken at a time and is compared with the remaining criteria on a four-point scale, as mentioned
earlier. For illustration, let us take the entry A-2 in row 1 and column 1 of Table 12.4. Here, the
entry A-2 means that the criterion A has minor preference over criterion B. The other entries in
the table can be similarly interpreted. Then, the raw scores of each criterion are totalled. For
example, the raw score of criterion A works out to be 20 (2 + 3 + 1 + 2 + 3 + 4 + 4 + 1).
Similarly, these scores are calculated for all the criteria. The raw scores are finally adjusted to a
scale of 1–10, with 10 being assigned to the criterion with the highest raw score. The other
criteria are adjusted accordingly. The assigned score for each criterion is shown in Table 12.5,
which also shows the ranks assigned by the experts on a five-point scale for each criterion for the
three alternatives, viz. deep vibratory compaction, vibrated stone column and rammed aggregate
piers. For example, in respect of the cost criterion, the experts have given a rating of 4, 4 and 3,
respectively, to the three alternatives. Similarly, for the soil compaction criterion, the experts
have assigned the ratings 3, 4 and 3, respectively, to the three alternatives.

Table 12.1 Comparison of qualitative features of various alternatives

The ratings given by the experts for each criterion corresponding to an alternative are multiplied
by the weight of the criterion obtained earlier to get the score. The individual scores of each
criterion are added to get the total score of a particular alternative. It is observed that the total
scores obtained for the three alternatives are 92.0, 130.0 and 138.0 respectively.

Table 12.2 Evaluation of criteria governing foundation selection

Table 12.3 Evaluation criteria and their relative weights

Hence, it can be concluded that under the given circumstances, the alternative of providing
rammed aggregate piers will give the best result. Without going through the VE process, the
actual alternative selected was the arrangement of pile and pile caps for the foundation. It would
be interesting to see the difference in costs of the actually implemented alternative and the best
possible alternative as suggested by the VE process.

The original design consisting of a pair of piles and pile caps supporting the columns costs Rs.
103,420, whereas the cost of proposed isolated footings with RAP is Rs. 49,866, which is less
than half the cost of the original design. The figure of Rs. 49,866 has been arrived at by adding
the cost of RAP (which includes the excavation, the cost of aggregates, and the owning and
operating cost of equipments for RAP) and the cost of constructing spread footing (which
includes the cost of excavation and the cost of reinforced cement concrete including formwork).
The total saving with the proposed modification, thus, works out to be Rs. 7,176,236 for the
warehouse structure alone.

12.8.2 Flooring System

The flooring for the warehouse consists of grade slab, which is designed for the load of 60
kN/m2. The presence of high groundwater table at an average depth of about 2.5 m may result in
building up of upward water thrust on the grade slab. The total plinth area of the warehouse was
25,950 m2 (with length = 250.00 m and breadth = 103.80 m).

As per the specification of the existing design, the layer below the flooring consisted of granular
sub-base (GSB) of compacted thickness of 225 mm in single layer, with specified graded stone
metal as per the relevant Indian Standards specification, including conveying of material to the
site and spreading in uniform layers on prepared surface, watering and compacting with
vibratory roller having minimum 80 kN–100 kN static weight and at OMC (Optimum Moisture
Content) to achieve desired density including all material, labour, machinery with all lead, lifts,
etc. With an area of 25,950 m2 and allowing for some deductions, the total quantity of the sub-
base material was found to be 5,618.31 m3.

Table 12.4 Pair-wise comparison matrix for performance criteria evaluation

Table 12.5 Analysis matrix

The main function of GSB provided under grade slab is to transfer load from the grade slab to
the soil beneath, and at the same time provide for dissipation of upward water thrust due to the
presence of high water table. Suitable drainage system consisting of perforated pipes is provided
for this purpose (Arm 2003). At the same time, the GSB material should have sufficient strength
so that it does not get crushed during compaction, as the finer crushed particles will try to clog
the air voids and help in building the water pressure.

Applying the same methodology as adopted for the foundation system, the functional evaluation
for the GSB has been done and various alternatives have been proposed:

1. MSWI bottom ash (Maria 2001)

2. Recycled concrete (Prasad 2001)
3. Air-cooled blast furnace slag (AcBFS)
4. Coal fly-ash stabilized bases (Mudge 1971)
5. Quarry waste

As already discussed, the advantages and disadvantages corresponding to each of the five
alternatives were listed out for preliminary screening process. These are provided in Table 12.6
and are self-explanatory.

After the preliminary screening, the alternatives ‘coal fly-ash stabilized bases’ and ‘quarry base’
were dropped and the remaining three alternatives were taken up for subsequent analysis. These
chosen alternatives were evaluated using the same procedure as described for the foundation
system. The matrix evaluation and the relative weights obtained for the performance criteria are
presented in Tables 12.7 and 12.8, respectively.

It can be observed from the tables that the maximum raw score has been obtained for the
‘availability’ criterion, and accordingly, it has been assigned a weight of 10. Other criteria have
also been assigned weights in a similar proportion. The information on the assigned weight and
the rank of each criterion for each alternative is provided in Table 12.9, and on this basis the total
score for each alternative is calculated. According to the results obtained from the analysis
matrix, the most viable substitute for sub-base material is found to be AcBFS with a total score
193.2, followed by the recycled crushed aggregates with a score of 158.2, and MSWI bottom ash
with the least score of 126.7. AcBFS has been used at some places on an experimental basis and
has shown very good performance. AcBFS and clean crushed concrete could be used as
embankment fill, as a capping layer and as a sub-base. Their properties are best utilized in a sub-
base.

Table 12.6 Comparison of qualitative features of various alternatives for sub-base

Comparative cost calculation for the originally designed material and the proposed material has
been made and summarized in the results. The original design consisting of GSB costs Rs.
150/m2 (this is the sum of Rs 110/m2 cost of material and Rs. 40/m2 for cost of labour and plant
and machinery). The cost of suggested material AcBFS works out to be Rs. 96/m2 (Rs 56/m2 for
material cost and Rs. 40/m2 towards labour and plant and machinery). The cost saving in this
item for the warehouse alone works out to be Rs. 1,349, 340.

Table 12.7 Pair-wise comparison of performance evaluation criteria

12.8.3 Precast vs in-situ Construction

Warehouse is a cast-in-situ RCC framed structure with a number of columns and tie beams at
different levels. The roof is covered with sheeting material supported on steel trusses.
Considering the intended functions of the complete warehouse itself, the possible alternatives
were generated. Some of the alternatives satisfying the functional requirements have been
proposed and they are analysed. Although there could be a large number of possible alternatives
such as pre-cast construction, construction using structural steel, etc., this study compared the
original alternative with the pre-cast construction alternative. Here also, the analysis focused
only on replacing a few cast-in-situ members with pre-cast construction. The structural elements
that have been analysed in the study are gantry beams, tie beams, rib slabs and roof truss
sheathing beams. The basic assumptions made for cost comparison between cast-in-situ and pre-
cast construction take into account the saving in construction cost as well as the saving in
construction time. The saving potential of pre-cast construction is estimated for the pre-cast
gantry girder, the truss sheathing beam, the tie beam (+3.25 m), and the tie beam at truss level in
174, 83, 48 and 83 elements, respectively. The cost comparison for these elements for both the
alternatives show that there is a saving potential of Rs. 247,828 if the mentioned cast-in-situ
elements are replaced with the pre-cast elements. Although the amount is not significant, the
time saved in using pre-cast construction would be of interest. It was found that replacing the
cast-in-situ elements with pre-cast construction could save about 49 days of construction time,
considering a cycle time of 21 days for the cast-in-situ gantry girder and 14 days for the cast-in-
situ tie beams and truss sheathing beam. The time saving has been converted into monetary value
and it works out to be Rs. 1,025,000 from the expression used by Warszawski (2000). The total
saving, thus, works out to be Rs. 1,272,828 for the elements under consideration in the
warehouse structure alone.

Table 12.8 Evaluation criteria and their relative weights

Table 12.9 Analysis matrix for material selection

12.8.4 Discussion of Results

Value engineering study for the foundation implies that various alternatives available for the
design of the system need to be explored at the time of design itself, and designers should not try
to optimise their own productivity without considering the cost implications of their design, since
in many cases design flaws contribute to about 50 per cent of the value loss. In our study, it has
been found that poor selection of the foundation system has resulted in a loss of value to a
similar extent. The foundation unit that could have been constructed at Rs. 49,866 without
compromising on the intended function has been performed at a cost of Rs. 103,420. According
to our findings, the pile foundation gave a poor value of 0.48 (49,866 ÷ 103,420) for RAPs.

It has been observed in many cases that contractors have better knowledge regarding the
availability and cost of local materials, as compared to the designer, and are in a better position
to provide feedback to the design team about the possible alternatives. The applicability for the
intended function can be verified by the designers. In this respect, design-and-build projects offer
an ideal opportunity. However, as has been found in this study, lack of VE application has
resulted into loss in value to the tune of Rs. 1,349,340 in just one item of one structure.

Although the cost comparison of cast-in-situ and pre-cast construction has resulted in a marginal
saving in construction cost, the possible saving in time has been neglected due to lack of VE
application during design stage, thereby resulting in a considerable loss in value.

While VE application can be done in all the phases of a project, in the case study we have
illustrated its applicability primarily in the design stage. Also, it should be noted that the cost-
saving potential diminishes as time progresses from commencement to completion. Therefore, it
is desirable to apply it as early as possible in a project. Looking at the increasing trend of
adoption of design-and-build projects vis-à-vis traditional projects, it is further desirable to apply
VE techniques for avoiding loss of value to the different stakeholders of a project.

REFERENCES

1. Arm, M., 2003, ‘Mechanical Properties of Residues as Unbound Road Materials’, PhD thesis,
Stockholm, Sweden.

2. Baker, Hayward, Undated, Vibro System, available at. http://www.HaywardBaker.com.

3. Dell’Isola, A.J., 1982, Value Engineering in the Construction Industry, 3rd edition, New
York: Van Nostrand Reinhold.

4. Farell, T. and Taylor, A., 2004, ‘Rammed Aggregate Pier Design and Construction in
California—Performance, Constructability and Economics’, SEAOC Convention Proceedings.

5. Hammad, A.A. and Hassanain, M.A., 1996, ‘Value Engineering in the Assessment of Exterior
Building Wall System’, Journal of Architectural Engineering, September, p. 115.
6. Kaufman, J.J., 1990, Value Engineering for the Practitioner, 3rd edition, North Carolina State
University, Raleigh, N.C.

7. Majchrzak, M., Lew, M., Sorensen, K. and Farrell, T., 2004, ‘Settlement of Shallow
Foundations Constructed over Reinforced Soil: Design Estimates vs Measurements’,
Proceedings of the Fifth International Conference on Case Histories in Geotechnical
Engineering, Paper No. 1.64, New York, April 13–17.

8. Maria, I., Enric, V., Xavier, Q., Marilda, B., Angel, L. and Feliciano, P., 2001, ‘Use of Bottom
Ash from Municipal Solid Waste Incinerator as a Road Material’, Paper No. 37, In International
Ash Utilization Symposium, Centre for Applied Energy and Research, University of Kentucky.

9. Mudge, A.E., 1971, Value Engineering: A Systematic Approach, New York: McGraw-Hill.

10. Prasad, M.M., 2001, Utilization of Industrial Waste Byproduct in Road Construction, IRC
(19) 94.

11. Parker, D.E., 1985, Value Engineering Theory, The Lawerence D. Miler Value Foundation,
Washington, D.C.

12. Warszawski, A., 2000, Industrial and Robotics in Building, New York: Harper & Row
Publishers.

REVIEW QUESTIONS

1. State whether True or False:

1. Four broad steps involved in project cost management are—resource planning
schedule, cost planning, cost budgeting and cost control.
2. The cost of an activity is collected under these broad heads—labour costs,
material costs, plant and equipment costs, subcontractor costs, consumable costs,
and overheads.
3. Cost planning aims at ascertaining cost before many of the decisions are made
related to design of a facility.
4. Cost budgeting is the process of allocating the overall cost estimate to individual
work items of the project.
5. The objective of cost control is to ensure that the final cost of the project does not
exceed the budgeted or planned cost.
6. Labour cost accounting is done under heads of departmental labour and
subcontractor labour.
7. The two types of materials used in construction project are client-supplied and
owner-purchased.
8. The job status to date cost is given by actual cost incurred—deferred expenses
and accrued expenses.
9. Plant and equipment cost = hire charges + operating cost.
2. What are the different steps taken for project cost management? Discuss in brief.
3. What do you mean by project overheads?
4. What are the critical aspects that should be considered as vital while cost planning?
5. Differentiate between cost budgeting and cost planning?
6. Discuss in brief three steps involved in cost control and why cost control is important?
7. Why is the cost code important?
8. How is the cost statement prepared? Discuss its importance in brief.
9. Visit a construction site and collect the cost information on various cost heads as given in
the text.
10. Study cost statement of any significant project being executed around you.
11. What is value engineering? In what stage of the project value engineering can provide
maximum advantages?
12. Discuss the various steps involved in the application of value engineering.
13. Draw FAST diagram for (a) plastering of wall, (b) flooring, (c) roof slab construction.
14. Clearly explain (a) worth, (b) cost, and (c) value.
15. Apply the value engineering in the context of (a) road construction project, and (b)
building project.
13
Construction Quality Management
Introduction, construction quality, inspection, quality control and quality assurance in projects,
total quality management, quality gurus and their teachings, cost of quality, ISO standards,
CONQUAS—construction quality assessment system, audit, construction productivity

13.1 INTRODUCTION

The quality of construction is one of the matters of great concern with most civil engineering
constructions. Collins (1996) while describing quality as the world’s oldest documented
profession reports that poor quality can have far-reaching consequences. The following statement
recorded during the reign of a Babylonian king is worth mentioning:

If a builder constructed a house but did not make his work strong with the result that the house
which he built collapsed and so caused the death of the owner of the house, the builder shall be
put to death.

Existing laws might prevent such harsh penalties in the present scenario, but the consequences
may rather be in terms of loss in productivity, additional expenditures by way of rework and
repair, re-inspection and retest in the short term. In the long term, poor quality can hurt
reputation, and if the company continues in the same way it might have to close its shop for want
of new projects. If a number of construction companies of a country start neglecting the quality
aspects in their projects, this also starts reflecting on the reputation of the country.

There is a great difference between the quality of constructed facility and the samples that are
submitted for testing. For example, quality of concrete is checked from the cube that is cured
very well, but the actual constructed facility might not have received adequate curing. Similarly,
there may be defects like faulty slopes in any flooring and roofing works, leading water to
stagnate; there could be dampness on walls due to some bad brick used or bad workmanship; or
there may be deliberate saving on material quality.

According to a conservative estimate, the cost of poor quality could be as high as 200 per cent to
300 per cent of the cost of construction in the early ages of works in some of the cases, which is
a severe drain on our precious resources. Contractors are asked to rectify the defects, but many
times they are irreparable and users are forced to take over the facility even with a long list of
defects, as fait accompli. The user then suffers throughout the life of the structure by way of
attending to recurring defects from time to time, or he sacrifices his comforts and keeps quiet and
ends up paying much more cost than what contractor would have paid to do the right quality of
work.

Construction quality has not got enough attention also due to the policy of awarding the project
on bid price alone (lowest bidder system). The inherent assumption in adopting such a policy is
that given the same set of drawings and specifications, all contractors including the contractor
with the lowest bid price will produce similar construction quality. Unfortunately, this is not
often the case. The lowest bidder reeling under cutthroat price tries to cut corners and starts
compromising on quality. The majority among such contractors tend to neglect the complaints of
the customer and produce bad quality of work. In the short run, such contractors do rise very fast,
but in the long run they ultimately fail. On the other hand, there are some contractors who
consistently make attempts to produce good-quality work. In the short run such contractors may
seem to be on the losing side; in the long run, however, they prove to be quite successful and, in
fact, some customers engage them even by paying extra price (premium).

Quality has widely been recognized as a distinctive competency that can be used by business to
increase profitability and market share. The recognized success of Japanese firms with low cost,
high quality, reliable and innovative products has had considerable impact on the western
attitude to quality, particularly in forcing them to rethink their belief that quality is expensive
(Love et al. 1995). While this concept is well understood in the manufacturing industry, the same
cannot be claimed for the construction industry.

Customer satisfaction, which is of paramount importance in quality management, deals with life-
cycle cost, that is, after-sales service or the cost to users. Incidentally, in the construction
industry, while the supplier (constructor) is responsible for any defects up to defect liability
period or six months to one year from the date of completion, there is no provision that can hold
the supplier responsible for defects. Many times, the customer (user) takes possession of the
constructed facility much after the defect liability period is over and spends a huge sum of
money in rectification, which may at times be irreparable too. Also, most customers are not so
demanding with regard to the supplier (constructor/developer) because of their ignorance of their
rights.

13.2 CONSTRUCTION QUALITY

13.2.1 Definition of Quality

The term ‘quality’ has many connotations when used by different stakeholders. Some of the
ways in which ‘quality’ has been defined are given in Box 13.1:

Box 13.1 Quality definitions

It is the fitness for purpose.

It is conformance to specification.

It is about meeting or exceeding the needs of the customer.

It is value for money.

It is customer satisfaction/customer delight.

It is doing it right the first time and every time.

It is reduction of variability.

No matter what definition we follow for quality, it becomes very complex when we try to put it
into actual practice. For a user, quality is nothing but satisfaction with the appearance,
performance and reliability of the project for a given price range.

The term ‘quality’ is often associated with products that are costly; however, it does not mean
that products of low price cannot be of good quality. If the product meets the stated and unstated
(intended) requirement of the customer, it can still be called a quality product. Most of the works
in ‘quality’ are reported from the manufacturing industry, while very few are reported in the
context of construction quality.

In the context of construction, suppose the contractor provides (i) a 110 mm thick RCC slab or
(ii) a 95 mm thick RCC slab, against the customer’s requirement of 100 mm thick RCC slab. Can
these be considered quality products? Suppose the owner has desired that M25 grade of concrete
be used in the slab, and the contractor has provided M25 grade concrete but the concrete that was
supposed to have been received by the customer on Monday reached him on Tuesday. Has the
contractor done a quality job?

How do we define construction quality? Is it the quality of materials being used in construction,
the quality of workmanship, or the fulfilment of the end user’s ultimate requirements?
Schexnayder and Mayo (2004) extend the definition of construction quality beyond just
‘supplying the right materials’ and add that construction quality is also about finishing the
project safely, on time, within budget, and without claims and litigation.

Suppose a contractor has not used the specified material in the specified quantity and he is still
able to achieve the strength and serviceability requirement. Can this product be called a quality
product? In another example, suppose the materials specified have been followed properly for
the construction of a roof slab, but the slope that should have been provided as per the
requirement is not provided. Can this qualify as a quality product? As a final example, suppose
that out of 100 components in a construction project, about 10 components are not as per the
requirement. Can this be called a quality project?

Most of the questions posed above can be addressed reasonably well if quality is assumed to be
‘sticking to specification’—in other words, fulfilling the promises (contractual obligation) or
delivering what has been promised. In construction, the promises are made by agreeing to ‘do
something’ or ‘not do something’ in the form of signing the contract document.

Specifications, bill of quantities, general and special conditions of contract, drawings, etc., are
part of the contract document. In the context of quality, specifications and contract drawing play
the most important role. It would be virtually impossible to achieve the desired quality if the
specifications and drawings for a project are unclear and confusing. Thus, specifications and
drawings should try to capture the requirement or need of the customer in clear terms. These two
documents should spell out clearly the materials to be used, the manufacturers, the guidelines for
ensuring quality of materials at the time of purchase, the work method, the sequence to be
followed, the tools and equipment to be used, the information on line and levels, and so on.
The relevant standards governing material and workmanship must be clearly specified. More
importantly, qualitative terms describing the material-selection process or workmanship should
be avoided as far as possible because this may bring in subjectivity and make the predefined
quality a debatable issue. In summary, the objective of construction quality is to ensure that the
constructed facility will perform its intended function.

According to International Organization for Standardization (ISO), quality is an inherent

characteristic (distinguishing feature). Some of these characteristics are obtained from the stated,
implied, or obligatory needs. Let us assume that the need of a particular concrete slab is to attain
20 N/mm2 strength at 28 days of casting, in which case ‘strength’ becomes one of the quality
characteristics for the concrete slab. The quality characteristic is not restricted to products such
as concrete slab, but can be extended to include the process of construction, person, machine, the
company as a whole, and so on. Each of the entity can have different quality characteristics.

Total quality in the construction industry can be defined as a measurable process of continuous
improvement that is focused on the needs and expectations of the customer. Success requires a
partnership characterized by input, involvement, commitment and action from owners,
contractors, architects, engineers, subcontractors and suppliers (Deffenbaugh 1993).

13.2.2 Evolution of Quality

Modern quality control techniques were developed in the United States in the 1920s. In 1924,
Shewart applied statistical quality control (SQC) in manufacturing in which statistical techniques
are combined with conventional quality control methods. In 1928, H.F. Dodge and H.G. Roming
published a theoretical consideration of stochastic statistics applied to sampling inspections.

In the early 1940s, a number of developments took place in the use of sampling tables for
acceptance inspection. During World War II, the need for strict quality control became a
necessity due to increased production of war materials. The quality control techniques used by
Department of Defense (DOD) propelled their suppliers also to adopt such techniques. Quality
control techniques and statistical analysis techniques in particular have advanced greatly since
that time. After World War II, the emphasis was on promotion of quality control techniques on
the part of suppliers and quality assurance on the part of inspection agencies of DOD.

In 1969, Feigenbaum used the term ‘total quality’ for the first time and it referred to wider issues
such as planning, organization and management responsibility. Feigenbaum applied the
statistical quality control techniques of Shewart to cover the whole company and not just one
operation of a company. During this period itself, Ishikawa explained the term ‘total quality
control’ and interpreted it to be ‘company-wide quality control’. He emphasised the need for all
employees, from top management to workers, to study and participate in quality control. Thus, in
the 1960s and the early part of 1970s, the keywords in quality were ‘zero defect’ and ‘total
quality control’, or TQC.

The TQC route was religiously followed in Japanese industries including in construction. TQC
was not only applied to ensure the product quality but was also used to ensure management
effectiveness. This saw a rise in the operation of Japanese companies worldwide. Japanese
products were synonymous with the term ‘quality’. The Japanese concept of TQC has come to be
known as total quality management (TQM) in modern quality parlance (Burati, Jr, et al. 1991).

The 1980s were a time of intense global competition and a country’s economic performance and
reputation for quality was made up of the reputations and performances of its individual
companies and products/services. Countries were striving to take lead in producing quality
products at cheaper price. Quality management got a major thrust and it was now regarded as a
key variable in the competitive positioning of firms and in ensuring market share. Quality gurus
such as Deming, Crosby and Juran contributed a lot in the development of the quality field. The
emphasis now shifted from the traditional approach of making the product—tracking the mistake
by inspection and correcting it—to ‘making it right the first time’ and ‘zero defect’.

During the 1990s, ISO 9000 became the internationally recognized standard for quality
management systems. ISO standards specify the requirements for documentation,
implementation and maintenance of a quality system. TQM became part of a much wider
concept that addresses overall organizational performance and recognizes the importance of
processes. People started realizing the benefits of total quality management.

In the 21st century, TQM has developed in many countries and it has helped organizations in
achieving excellent performance, particularly in customer and business results. The quality
movement is now gradually moving towards the much wider ‘business excellence’ or
‘Excellence’ model.

13.3 INSPECTION, QUALITY CONTROL AND QUALITY ASSURANCE IN PROJECTS

Quality standards obtained from modern construction projects have not kept pace with
developments in technology and management in construction industry. Recurring incidents of
faulty design and construction have caused untold damage and loss of life and property.
Economic and legal implications of construction failures are nothing compared to the human
lives that are lost and the permanent or temporary physical, mental and psychological suffering.
Construction quality can be affected by:

 Whether a clear set of design and drawings is available—sometimes the confusion in

design and drawings may show up in poor quality of construction
 Whether a clear, well-laid-out and unambiguous set of specifications is available
 Whether a clearly defined quality-control methodology exists
 Whether there has been usage of proper materials, workers and equipments during the
construction processes

A major cause of controversy in quality control is delegation of responsibility and authority

pertaining to quality assurance. Traditionally, designers as the agents of the owner are
responsible for ensuring compliance as per specifications (design specifications). The
responsibility of supervising the contractor’s performance can be delegated to the designer’s
field staff—the clerk of works. He is responsible for seeing that the work is performed according
to specifications, but he has no power to enforce compliance.
To alleviate (overcome) the problem of responsibility and authority in quality control, a linear
responsibility chart (LRC) that describes all the persons within the quality control programme,
their responsibilities, authority and interrelationships relative to quality control tasks is proposed.
LRC is facilitated by the quality control matrix, which clearly defines the quality control
requirements and the quality control methods. The two charts form the basis for developing the
quality control programme.

A well-defined quality control programme should be established for each project and the
organization structure of the programme should be very explicit. For an efficient quality control
system, it is essential to develop and encourage cooperation among the participants so as to
minimize the adversary relationships the traditional contract methods tend to generate. Designers
should work closely with contractors to meet project quality objectives. Situations in which the
designers ‘police’ the contractor’s performance do alienate them from the latter.

Quality control is the responsibility of the entire project team (including owner). Quality control
inspections should be done with the motive of encouraging and ensuring good workmanship
rather than to catch culprits. Specifications should be realistic and these must consider natural
variations in workmanship. In spite of the diverse factors influencing construction quality
control, it remains a possible goal.

The process entails a system approach that makes participants in the construction process work
together as a team. By taking better care and offering incentives for good workmanship, quality
construction can be obtained. Legislation and regulations can ensure and safeguard the health,
safety and welfare of the public by securing better construction quality.

13.3.1 Inspection

Inspection usually entails checking the physical appearance of an item against what is required.
Activities such as measuring, examining, testing and gauging one or more characteristics of a
product or service and comparing this with specified requirements are part of inspection.

It is generally a non-destructive qualitative observation such as checking performance against

descriptive specifications and, thus, it could be subjective in nature. In some cases, gauges or
machines may be required to do some simple measurements or examinations. Collecting
concrete cube samples and testing them for quality interpretation is one of the most common
examples of inspection in concrete construction operation. The three common levels of
inspection are—(1) at the time of receiving the raw materials, parts, assemblies and other
purchased items; (2) at the time of processing; and (3) final inspection prior to acceptance of
product. The process of inspection is undertaken in a structured way using checklists. One such
sample checklist is shown in Figure 13.1. Needless to say, the checklist helps to compare the
characteristics required out of a product vis-à-vis what is inbuilt in the product.

13.3.2 Quality Control (QC)

Oakland (1995) defines ‘quality control’ as essentially the activities and techniques employed to
achieve and maintain the quality of a product, process, or service. It involves a monitoring
activity, but also concerns finding and eliminating causes of quality problems so that the
requirements of the customer are continuously met. According to ISO, quality control is defined
as a set of activities or techniques whose purpose is to ensure that all quality requirements are
being met. In order to achieve this purpose, processes are monitored and performance problems
are solved. Thus, quality control describes those actions that provide the means to control and
measure the characteristics of an item, process, or facility against the established requirements.
Quality control is basically the responsibility of the production personnel. A typical quality
control programme would consist of defining quality standard, defining procedures for the
measurement of attainment of that standard, execution of the procedures to determine probable
attainment or non-attainment of the standard, and the power to enforce and maintain the defined
standard as measured according to the defined procedure.

Figure 13.1 A sample checklist for formwork inspection

In the context of construction, quality control is administered by the contractors or by the

specialist consultants such as consulting engineers or testing laboratories. Construction quality
control entails performing inspection, test, measurement and documentation necessary to check,
verify and correct the quality of construction materials and methods. Primary objectives of
construction quality control are to produce a safe, reliable and durable structure so that the
owner gets the best value for his investment.

The construction industry does not abide by a formal quality control programme as do the
construction-related industries. Quality control on some projects could be haphazard and
inconsistent. Because of heterogeneity, it is impossible to employ a uniform approach to check
quality standards of construction work. Three major quality control methods commonly used on
construction projects are:

 Inspection
  Testing
 Sampling

Techniques used vary from subjective evaluation to objective assessment of quality attained. The
type adopted depends on the characteristics of construction activities or systems being examined
and the degree of certainty desired. While all the methods may be feasible, not all of them are
applicable on a particular activity. It is necessary that the methods to be used are as defined in
the contract documents, to eliminate any confusion. Because of the nature of construction work,
absolute compliance with specifications is impractical. The objective of quality assurance
examination is to determine the degree of compliance with contract quality standards. A realistic
approach is to first establish a minimum quality standard that will be the basics of acceptance or
rejection. Appropriate quality control methods can thereafter be used to judge if variations are
within the acceptable tolerances. Best results are obtained if quality control is consistent and the
techniques used are appropriate.

13.3.3 Quality Assurance (QA)

According to Oakland (1995), quality assurance is broadly the prevention of quality problems
through planned and systematic activities (including documentation). These will include the
establishment of a good quality management system, the assessment of its adequacy, the audit of
the operation of the system, and the review of the system itself. According to ISO, quality
assurance is defined as a set of activities whose purpose is to demonstrate that an entity (such as
product, processes, person, department and organization) meets all quality requirements. QA
activities are carried out in order to inspire the confidence of both customers and managers, that
all quality requirements are being met.

In the context of construction, quality assurance activities include all those planned and
systematic administrative and surveillance functions initiated by project owner or regulatory
agents to enforce and certify, with adequate confidence, compliance with established project
quality standards to ensure that the completed structure and/or its components will fulfil the
desired purposes efficiently, effectively and economically. The increase in complexity in a project
has further increased the need for more efficient QA measures to ensure compliance with
contract specifications.

Quality assurance programmes encompass the following:

 Establishing the procedure for defining, developing and establishing quality standards in
design, construction and sometimes the operational stages of the structure and/or its
components
 Establishing the procedure to be used to monitor, test, inspect, measure and perform
current and review activities to assure compliance with established quality standards,
with regard to construction materials, methods and personnel
 Defining the administrative procedure and requirements, organizational relationships and
responsibilities, communications and information patterns, and other management
activities required to execute, document and assure attainment of the established quality
standards
It can be commonly observed that engineers/contractors use the term QA and QC
interchangeably, which is not correct. While QA is a construction management process, QC is a
sampling or inspection process. The focus in quality assurance is on defect prevention, while the
focus in quality control is on defect detection once the item is constructed. In fact, it can be said
that quality control is an element of a quality assurance programme.

13.4 TOTAL QUALITY MANAGEMENT

According to Oakland (1995), TQM is a way of planning, organizing and understanding each
activity that depends on each individual at each level. Ideas of continuous learning allied to
concepts such as empowerment and partnership, which are facets of TQM, also imply that a
change in behaviour and culture is required if construction firms are to become learning
organizations.

This is a complete management philosophy that permeates every aspect of a company and places
quality as a strategic issue. Total quality management is accomplished through an integrated
effort among all levels in a company to increase customer satisfaction by continuously
improving current performance. TQM is a management-led approach applicable in all the
operations of a company and the responsibility of ensuring quality is collective. The philosophy
of TQM is one of prevention rather than defect detection. According to Pheng and Teo (2004),
TQM is a way of thinking about goals, organizations, processes and people to ensure that the
right things are done right the first time. It is an approach to improving the competitiveness and
effectiveness, and flexibility of the whole organization. The essential elements of TQM are:

 Management commitment and leadership

 Training
 Teamwork
 Statistical methods
 Cost of quality
 Supplier involvement

It is believed that adoption of TQM by construction companies will result in higher customer
satisfaction, better quality products and higher market share. However, adoption of TQM
requires a complete turnaround in the corporate culture and management approach, as compared
to the traditional way of top management giving orders and employees merely obeying those.

Construction, being different from manufacturing and other industries, has many unique
problems that cause hindrances in adoption of TQM. Some of the major problems identified are:

1. lack of teamwork
2. poor communication
3. inadequate planning and scheduling

The causes identified for the above problems are:

1. no team-building exercises at the inception of projects

 2. lack of understanding of team members’ expectations
3. little or no team-oriented planning and scheduling

13.5 QUALITY GURUS AND THEIR TEACHINGS

Deming, Juran and Crosby are some of the world-famous quality gurus. All of them have come
out with their own ideas and concepts on quality. These are briefly discussed below.

13.5.1 Deming

Deming modified the ‘plan, do, check, act’ (PDCA) cycle originated by Shewart. He named this
as PDSA (plan, do, study, act) cycle. Conceptually, PDSA cycle, now also known as Deming
cycle, is one of the problem-solving methods. The cycle is shown in Figure 13.2.

As the name suggests, PDSA cycle suggests preparation of a plan of things to be done as a first
step, followed by its execution (doing whatever has been planned) as a second step. In the third
step, results of the plan during execution are studied. Issues regarding the execution exactly as
per plan and any variations are studied during this step. Finally, in the fourth step, the results are
checked by actually identifying what went according to plan and what did not follow the plan.
Using this insight, a revised and improved plan is worked out and the entire process is repeated.

Figure 13.2 The PDSA cycle

Deming’s fourteen points provide a theory for management to improve quality, productivity and
competitive positions. These points were first presented in his book Out of the Crisis and are
briefly presented below:

1. The management should create and publish a statement of the aims and purposes toward
improvement of product and service of the company (for example, to become competitive
 and stay in business, and to provide jobs). It should be accessible to all employees. The
management must constantly demonstrate their commitment to the statement.
2. Top management and employees must learn and adopt the new philosophy. In a new
economic age, management must awaken to the challenges and take on leadership for
change.
3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on
a mass basis by building quality into the product in the first place.
4. End the practice of awarding business on the basis of price tag. Instead, minimize total
cost. Move towards a single supplier for any one item, on a long-term relationship of
loyalty and trust.
5. Improve constantly the system of production and service, to improve quality and
productivity, and thus constantly decrease cost.
6. Institute training on the job.
7. Teach and institute leadership. The aim of supervision should be to help people and
machines to do a better job. Supervision of management is in need of overhaul, as is
supervision of production workers.
8. Drive out fear, and create trust so that everyone may work effectively for the company.
9. Break down barriers between departments. Optimize the aims and purposes of the
company, and the efforts of teams, groups and staff areas. People in research, design,
sales and production must work as a team, to foresee problems of production and in use
that may be encountered with the product or the service.
10. Eliminate slogans, exhortations and targets for the workforce asking for zero defects and
new levels of productivity. Such exhortations only create adversarial relationships, as the
bulk of the causes of low quality and low productivity belong to the system and, thus, lie
beyond the power of the workforce.
11. Eliminate numerical quotas for production. Instead, learn and institute methods for
improvement. Learn the capabilities of processes, and how to improve them.
12. (a) Remove barriers that rob the hourly worker of his right to pride of workmanship. The
responsibility of supervisors must be changed from looking at sheer numbers to quality.
(b) Remove barriers that rob people in management and in engineering of their right to
pride of workmanship. This means abolishment of the annual or merit rating and of
management by objective.
13. Institute a vigorous programme of education and self-improvement for everyone.
14. Put everyone in the company to work to accomplish the transformation. The
transformation is everyone’s work.

13.5.2 Juran

Joseph Juran developed the idea of the quality trilogy—quality planning, quality control and
quality improvement. Juran emphasised the necessity for management at all levels to be
committed to the quality effort with hands-on involvement. Juran recommended project
improvements based on return on investment to achieve breakthrough results. He concentrated
not only on the end customer, but identified other external and internal customers as well.
According to him, quality is ‘fitness of use’.
Figure 13.3 Juran’s quality trilogy

Juran suggested his trilogy (see Figure 13.3) for process improvement. The trilogy has three
components—planning, control and improvement. The planning part consists of:

 establishing the goals and identification of both external and internal customers
 identification of needs of both external and internal customers, and translating these into
deliverables that are understandable by the organization and its suppliers
 developing the product and/or service according to the needs of the customer, at an
optimum cost
 developing the processes capable of producing the product and/or service
 putting plans into operation

The control part consists of:

 determining the variables to be controlled and the means to measure these variables
 setting goals for the control
 measuring actual performance
 comparing the actual performance with the goals set during planning
 acting on the difference between actual performance and performance goals

The improvement part consists of:

 attaining a performance level that is higher that the current level of performance
 identifying the different improvement measures and adopting an effective problem-
solving method
 implementing the solution of the problem found during this stage to the quality planning
process

The process thus adopted is repeated starting from setting a fresh goal.

Juran is also known for his ‘triple-role concept’ (see Figure 13.4) of quality involving customer,
processor and supplier. In the context of construction, according to the ‘triple-role concept’ it can
be said that each stakeholder at every level (for example, corporate level, region or branch level,
department level, section level and individual level) has three roles to play—that of supplier,
processor and customer. It may be recalled that some of the stakeholders in a construction project
are architect/engineer, owner and contractor. The construction process works when the owner
communicates his requirement to the architect/engineer, a step that converts the requirement into
the form of plan and specifications, which when provided to the contractor are realized in the
form of a constructed facility.

Figure 13.4 ‘Triple role’ concept as applied in construction

Now, according to the ‘triple role’ concept, the architect/engineer plays the role of a customer to
the owner when he receives the requirement from the owner, that of a processor when he
processes the design for the proposed facility, and that of a supplier when he supplies the plan
and specifications to the contractor to convert these into reality. The contractor plays the
customer to the architect/engineer when he receives the plan and specifications from him
(architect/engineer), the processor when he processes the actual construction, and the supplier
when he hands over the constructed facility to the owner. The higher the satisfaction of each of
the stakeholders in the construction process, the better the project quality.

13.5.3 Philip Crosby

Philip Crosby is known for his concepts of ‘do it right first time’ and ‘zero defects’. He believed
that doing it right the first time is less expensive than the cost of detecting and correcting the
non-conformities. He defined quality as conformance with requirements that the company itself
has established for its products, based directly on customer needs. He emphasised prevention
management in every area. The four absolutes of quality management according to Philip Crosby
are:

 Quality is conformance with requirements.

 Prevention of non-conformance is the objective, not appraisal.
 The performance standard is ‘zero defects’, not ‘that’s close enough’.
 Measurement of quality is the cost of non-conformance.

13.6 COST OF QUALITY

Construction projects are capital-intensive and cost of quality acquires a great significance.
According to Juran, the cost of quality can be considered in terms of economics of the
conformance quality. The quality cost breakdown shown in Figure 13.5 is based on the work of
Feigenbaum (1983), who first described the concept in 1956.

From Figure 13.5, it is clear that

Quality costs = Quality control costs + Failure costs (13.1)

Where, Quality control costs = Prevention costs + Appraisal costs (13.2)

and Failure costs = Internal failure costs + External failure costs (13.3)

The prevention costs used in the above equation refer to the cost of quality control activities
undertaken before and during production. In other words, prevention cost is the cost of efforts
undertaken to prevent failures. The appraisal cost is given by the costs incurred for quality
control or quality assurance after production—for example, the costs of inspection, testing and
examination to assess that the specified quality is being maintained.

Figure 13.5 Quality cost breakdown

The internal failure cost is the cost resulting from a product or a service failing to meet the
quality requirements—for example, warranties and return, liability costs, product recall cost, and
direct cost or allowances.

The external assurance costs include:

 Costs relating to the demonstration and proof/objective evidence to customers

 Cost of testing by recognized, independent testing bodies for quality assurance
provisions, demonstration and assessments
 Cost of independent assessment/third-party agency performing a detailed and in-depth
study of company’s QA activities

The prevention and appraisal costs being optional, they have also been referred to as
discretionary (Blank and Solarzano 1978) or controllable costs (Besterfield 1979). A failure
refers to the non-achievement of requirements. The relationship between cost and quality level is
also shown pictorially in Figure 13.6 and is self-explanatory.
Figure 13.6 Cost versus quality level — classic view (adapted from Brown and Kane 1984)

For illustration, let us take an example of a leaking roof. The costs associated with this will be as
described below.

Conformance Cost

Prevention cost: This includes costs of various components that help to prevent the defect,
such as preparation of specification and work procedure for construction joint preparation,
stripping time of formwork, and training of staff and workmen.

Appraisal cost: This includes costs of all such activities that result in the cost of checking
whether it is right. In this case, it will include checking the concrete-making materials against
agreed specification, inspection before placing concrete, the calibration and maintenance of
equipment used for testing of concrete, and the assessment and approval of all suppliers.

Non-conformance Cost

This has two main components: internal failure cost and external failure cost. Together, they
indicate the cost of getting it wrong.

Internal failure cost: This includes cost due to wastage of materials, grouting the roof slab by
waterproofing compounds, and re-examination of works that have been rectified.

External failure cost: This includes repairing and servicing the defective parts, replacement of
flooring components including transportation cost, cost associated with handling and servicing of
customer complaints, and the impact on reputation and image which impinges directly on future
prospects of sale.
Organizations in the construction industry spend money for prevention and appraisal, but the
magnitude of these costs is very less when compared to the total cost of the project. It is widely
believed that if the prevention and appraisal costs are more—that is, the cost of conformance is
more—the failure or the non-conformance cost will be less. Typically, while the conformance
costs are controllable variables, the non-conformance costs are the resultant variable.

The cost of quality includes direct and indirect costs associated with labour, materials and
equipment used in quality management activities and for correcting deviations (Davies et al.
1989). Joseph Juran is widely credited with making the earliest references to losses due to poor
quality of products and services. His broad-based, general application of a ‘cost of quality’
philosophy represented a considerable expansion of the existing body of knowledge when he
first introduced it in 1951. Since that time, many significant contributions have been made by a
number of prominent authors. Juran, along with Armand Feigenbaum, was primarily responsible
for the writings that led to the development of current ‘cost of quality’ concepts (Feigenbaum
1961, Juran and Gryna 1988, Bajpai and Willey 1989, and Companella 1990).

Many quality experts, including W. Edwards Deming, Philip Crosby and Genachi Taguchi, have
put forth numerous ideas and principles related to cost of quality (Logothetis 1999). Juran refers
to two types of quality costs—control costs, which include the prevention and appraisal
categories, and failure costs, which include both internal and external failure categories (Juran
and Gryna 1988). American quality consultant Philip Crosby stresses the price of conformance
and the price of non-conformance classifications. These translate into the prevention/appraisal
and internal/external failure categories, respectively, and the ‘cost of quality’ information is used
as a managerial tool in assessing cost-related expenditures, for tracking costs, and to augment
other forms of information on the operational and strategic decision-making process (Shank and
Govindarajan 1994). Crosby’s approach begins with discrediting the assumption that there is a
correlation between quality and cost. He maintains that doing a job right the first time is more
cost-effective than making mistakes, tracking them, and correcting them. Companies without the
benefit of this wisdom probably spend more doing inferior work than they would if they adopted
a clear, uncompromising and high-quality standard of zero defects (Burati et al. 1991). While
there are some differences in the approaches and philosophies pertaining to cost of quality, there
is much consensus regarding the broader nature of what constitutes a continuous improvement
process and how customer satisfaction may be achieved.

The concept of cost of quality has been developed and used in manufacturing industries
(Feigenbaum 1983). As for the application of the concept in construction industry, some research
work has been reported in the United States. Construction Industry Institute’s (CII) preliminary
analysis of nine industrial-type projects indicates that the cost of ‘failing to meet the quality
standards’ is in the range of 12 per cent to 15 per cent of the total project cost (Needs and
Ledbetter 1991). At a national conference on quality assurance in the building community
(USA), it was suggested that the cost of poor quality was at least 7.5 per cent of the value of new
non-residential work (Shilstone 1983). In another study, the causes of quality deviations in the
design and construction were investigated in nine fast-track industrial construction projects.
Analysis of the data showed that deviations on the projects accounted for an average of 12.4 per
cent of the total project cost (Arditi and Gunaydin 1998).
Use of quality concepts did not start in Japanese construction companies until the mid-Seventies.
People in construction industry were sceptical about ‘quality control’ success in construction due
to the above-named differences between the construction and manufacturing industries. The
1973 oil embargo and the steep increase in oil prices adversely affected the prospects of future
construction contracts in Japan. Construction companies started thinking about methods for
reducing the cost of operations. In other words, the decrease of potential work quantity
stimulated a drive to decrease the cost while keeping the quality levels as high as possible (Gilly
et al. 1988).

In India, a large number of workshops have been organized by Consultancy Development

Centre, Indian Oil Corporation and other private and multinational construction organizations to
educate their staffs on the concept of ISO 9000 certification and type of documents. However,
very little research work has been reported in the area of evaluating cost of quality. Rao (2000)
has emphasised the achievement of quality and performance through training of workmen,
proper contract clauses and certification.

13.7 ISO STANDARDS

The growing need for common quality standards throughout the world in manufacturing,
inspection and test specification, and the need for standardization led to the formation of an
international committee with the objective of producing an international quality standard. The
committee considered many national inputs, especially the stringent quality requirements for
defence contractors, and in 1987 produced a series of standards. These standards were called ISO
9000. These are a set of guidelines to effectively manage the important activities in an
organization which affect quality. These standards only specify generic guidelines—applicable
to any industry/service organization. These are system standards and not product standards, and
are generally considered as a milestone on the path to total quality management (TQM). These
establish a metric to evaluate continuous improvement. International Organization for
Standardization (ISO) located at Geneva, Switzerland, is the approved body for issue and
guidance of international standards today.

13.7.1 Benefits of ISO 9000

The ISO standards are advisory in nature and have worldwide acceptance under two-party (for
example, client–contractor) contractual situations. There are agencies that certify that a particular
company is following ISO standards. ISO 9000 is more than a certificate hanging on the wall of
an organization. Some of the benefits of implementing ISO standards are listed below:

 It is increasingly becoming the requirement for global export/tender and increases access
to global supply to large indigenous companies.
 It is increasingly becoming an effective marketing strategy and provides decisive edge
over competition. It also helps in acquiring new customers.
 It ensures consistently dependable processes, less field failures, less wasted time,
materials, and efforts, and reduction in scrap and rework. Thus, it helps in improving
overall productivity and profit.
Some documented case histories of ISO 9000 benefits
(http://www.isocenter.com/9000/benefits.html) for different categories of business include:

 Ten per cent sales increase directly attributable to ISO and a reduction in costs yielding
$300,000 per year in case of a wholesale distributor
 Return on investment being achieved in less than two years for a manufacturing-assembly
shop
 Savings of $250,000 in the first year following registration in case of a service and repair
shop
 Eighteen per cent reduction in customer focus and 25 per cent increase in production
backlog in case of hardware manufacturers
 In case of process-control systems and instrumentation manufacturer, inventory reduction
of 50 per cent; product-cost reduction of 5 per cent; decrease in lost workdays of 80 per
cent; increase in on-time deliveries of 12 per cent; reduction in credit memos of 70 per
cent; increase in market share of 15 per cent
 Two per cent increase in overall margin in case of a keypad manufacturer

A company following the ISO standards provision may wish to get certified by an assessment
agency and thereby get ISO registration. Of course, these registrations are audited at certain
specified intervals by both external and internal auditors.

13.7.2 Principles of Quality Management Systems

The ISO 9000 series of standards, being generic in nature, can easily be tailored to fit the needs
of a construction organization. The crux of these standards is to say what it is doing to ensure
quality, to do what it says, and to document what it has done is in accordance with what it has
said. The quality management systems adopted by ISO 9000 (http://www.iso.org/iso/iso9000-
14000/iso9000/qmp.html) is based on the following broad principles:

1. Customer focus: This involves understanding current and future customer needs and
meeting or exceeding the same.
2. Leadership: Organizations rely on leaders and, therefore, the leaders should create and
maintain an internal environment wherein people are involved completely, trying to
achieve the organization’s objectives in a collective manner.
3. Involvement of people: Organizations must encourage people’s full involvement so that
their abilities are used for the benefit of the organization.
4. Process approach: This involves managing activities and related resources as a process to
achieve the desired results efficiently. Organizations are most efficient when they use a
process approach.
5. Systems approach to management: Organizations must achieve effectiveness and
efficiency by identifying interrelated processes and treating them as a system.
Organizations must use a systems approach to manage the interrelated processes.
6. Continual improvement: Organizations must improve their overall performance on a
continual basis and this should be one of the permanent objectives.
 7. Factual approach to decision-making: In order to make an effective decision,
organizations must make their decisions based on an analysis of factual data and
information.
8. Mutually beneficial supplier relationship: Organizations and their suppliers are
interdependent and, thus, a cordial relation benefits both parties.

13.7.3 ISO 9001–2000 Family of Standards

ISO 9001 standard has eight sections. Out of the eight sections, the first three are provided for
information and the remaining five lay down the requirements to be followed by the organization
that is implementing the standard. The International Organization for Standardization developed
a series of international standards for quality systems (ISO 9000, 9001 and 9004).

1. ISO 9000 describes the fundamentals of quality management systems and specifies the
terminology for quality management system and that used in the other two standards.
2. ISO 9001 specifies requirements for a QMS wherein an organization needs to
demonstrate its ability to provide products that fulfil customer and applicable regulatory
requirements, and aim to enhance customer satisfaction.
3. ISO 9004 provides guidelines that consider both the effectiveness and efficiency of the
QMS.
4. ISO 19011 provides guidance on auditing quality and environmental management
system.

The outline of different sections of ISO 9001–2000 is given in Table 13.1. The main sections
deal with scope, normative reference, terms and definitions, quality management system,
management responsibility, resource management, product realization, and measurement
analysis and improvement.

Table 13.1 Sections and subsections—ISO 9001–2000

1. Scope Scope specifies the purpose of the standard. For example,

for a construction company the contents of the scope could
be—procurement, construction, inspection, testing and
commissioning.
2. Normative The section provides the reference to all the concepts,
reference definitions and applicable documents.
3. Terms and The section deals with the definition of key terms such as
definitions client, supplier, third-party inspection, authorized
inspection agency, quality assurance and control, quality
plan, inspection, calibration, test certificates, and so on.
The section also explains the meaning of abbreviations
used anywhere in the document.
4. Quality 4.1 General It deals with identification of processes for product
management requirements realization, determination of sequence involved with the
system processes, ensuring resources required for the processes,
monitoring, measuring and analysing the processes, and
finally, the implementation part.
4.2 Documentation It deals with establishing and maintaining quality manual,
requirements and control of documents and records.
5. Management 5.1 Management It deals with the commitment of management to the
responsibility commitment development, implementation and continual improvement
of the quality management system.
5.2 Customer The section seeks to ensure that customer requirements are
focus determined and met to the complete satisfaction of the
customer.
5.3 Quality policy It deals with the quality policy of the company in line with
the company’s mission.
5.4 Planning The section deals with the objectives, planning for quality
management system, project quality plan and the details of
procedures for maintaining and controlling the quality
records.
5.5 Responsibility, It contains the organization chart specifying the
authority and responsibility and authority for the key positions marked
communication for implementing/managing the quality system at project
level.
5.6 Management This relates to review of the quality system at specified
review intervals for the stated objectives, with reference to quality,
cost, timely completion, safety, etc.
6. Resource 6.1 Provision of The objective and scope of resource management are
management resources specified. For example, for a construction company the
objective could be to establish and maintain a procedure for
resources in construction activities at site, and the scope
could be describing the methods adopted for the
administration of resources to the satisfaction of the
customers.
6.2 Human It deals with personnel executing the work, their
resources competence, their awareness towards achieving quality
objectives, and the training details of personnel.
6.3 Infrastructure It deals with the requirement and maintenance of
infrastructure to achieve the desired quality level.
6.4 Work It deals with the provision of a suitable work environment
environment that can influence positively the motivation and
performance of personnel involved with the processes.
7. Product 7.1 Planning of In the context of a construction organization, it could be
realization product realization establishing and maintaining the planning and control
manual for construction activities, establishing work
methods, and the contract administration procedures. The
 details of activities and the persons responsible for
executing these are also defined.
7.2 Customer- It deals with the requirements specified by the product, and
related process these could even be the ones not stated by the customer but
essential for proper functioning of the product. It also deals
with the communication arrangement to be followed by the
organization for communicating with the customer.
7.3 Design and This section deals with the planning aspect for product
development design and development, the determination of inputs for
design and development, the description of outputs
resulting from the design and development, and the review
process for the design and development.
7.4 Purchasing This section deals with the purchasing processes such as
defining who is responsible for purchasing, what process is
adopted for the purchasing, the inspection process of the
purchased product, and so on.
7.5 Production and This section deals with establishing, implementing,
service provision maintaining and validating the procedures for control of
production and service provision. The process of treating
and storing the client-supplied materials (customer
property) is also provided. The process of informing the
customer of any loss, damage, incompleteness, or other
discrepancy regarding any products supplied by them is
also mentioned.
7.6 Control of The section deals with establishing and maintaining the
monitoring and procedure to calibrate and maintain the inspection and test
measuring devices equipment, to ensure that the equipment are capable of
performing to required accuracy.
8. Measurement 8.1 General It deals with establishment of procedures for implementing,
analysis and monitoring, measurement, analysis and improvement
improvement process in all activities to achieve customer satisfaction,
product quality and QMS effectiveness.
8.2 Monitoring and It deals with monitoring the information relating to
measurement customer’s perception as to whether the organization has
met customer requirement. The details on internal audit
process are also specified.
8.3 Control of non- It describes the responsibilities and methods used by the
conforming management for control of non-conforming
products product/system/process and to ensure that the defective
processes and products are prevented from use.
8.4 Analysis of It deals with establishing and maintaining a system for
data application of statistical techniques that will enable
decision-making and demonstrate the suitability and
effectiveness of QMS.
 8.5 Improvement It deals with establishing, implementing and maintaining a
procedure for continual improvement and for elimination
of potential non-conformities.

13.8 CONQUAS—CONSTRUCTION QUALITY ASSESSMENT SYSTEM

Construction Quality Assessment System, also known as CONQUAS, is a standard quality

assessment system introduced by Building and Construction Authority (BCA) of Singapore. The
system objectively measures constructed works against workmanship standards and
specifications. In order to measure the project quality, the system uses a sampling approach to
represent the whole project. The samples are distributed as uniformly as possible throughout the
project, and the number of samples is dependent on the size of the building. The emphasis in this
system is on ‘doing it right the first time’. Once a project has been evaluated and a score
assigned, there is no re-scoring in the CONQUAS—that is, rectification and correction made
after the assessment is not taken into consideration. Over the years, the CONQUAS system has
gained acceptability as a benchmarking tool across several countries including India. Some
Indian companies have also got their projects evaluated under CONQUAS.

BCA conducts evaluation of all types of buildings, viz. commercial and industrial, institutional,
public housing and landed housing. The assessment is conducted at the invitation of
developer/contractor for private sector projects, while it is a must for all public sector projects.
For the scoring, the project is divided in three major components—structural, architectural, and
mechanical and electrical (M&E) works. These components are further divided into different
subcomponents. For example, under structural components the different subcomponents are
formwork, rebar, finished concrete, concrete quality, steel reinforcement quality, NDT-UPV test
for concrete uniformity, and NDT-Electro-cover meter test for concrete cover. Under
architectural components, inspection of internal finishes, roofs and external walls, etc., are
carried out, while under M&E, inspection of air conditioning, mechanical ventilation, electrical
works, fire-protecting works, sanitary and plumbing works, etc., are covered. The assessment is
done primarily through on-site testing/inspection prior to installation/construction, during the
installation/construction, and after the installation/construction.

The CONQUAS score of a building is obtained by summing the scores obtained in each of the
three main components mentioned above. The maximum score in each of the three components
varies according to the type of building being assessed. For example, in case of commercial,
industrial and institutional buildings referred to as CAT A, the structural components have a
weightage of 25 per cent, architectural works have a weightage of 50 per cent, and M&E works
have a weightage of 20 per cent. The individual subcomponents under each of the three
components are also given weightage. For example, under structural components, formwork,
rebar, finished concrete, concrete quality, steel reinforcement quality, NDT-UPV test for
concrete uniformity, and NDT-Electro-cover meter test for concrete cover are given a weightage
of 15 per cent, 20 per cent, 25 per cent, 5 per cent, 5 per cent, 15 per cent and 15 per cent,
respectively. The quality of these subcomponents is assessed against standards. If the
subcomponent complies with the requirements laid out in the standards, ‘S’ is given against that
requirement; else, an ‘X’ is recorded. The number of ‘S’ obtained against a subcomponent
determines the quality score. This process of awarding an ‘S’ or an ‘X’ is carried out for all the
subcomponents, and the final CONQUAS score is obtained. The companies implementing
CONQUAS have an opportunity to benchmark their workmanship quality on an international
basis. Besides, the companies with a consistently high CONQUAS score gain competitive
advantages and their reputation in the international and domestic market also gets better.

The advantage with this system is that there is no subjectivity involved in the measurement of
workmanship. Thus, product quality can be easily measured by gathering data for different
projects spread across the country. The data gathered can be analysed to see whether the product
meets the conformity requirement. The data can also be used for establishing characteristics and
trends of product including opportunities for preventive action. The data collected can also be
used for measuring supplier’s workmanship.

13.9 AUDIT

Audit is a systematic and independent examination to determine (1) whether quality activities
and related results comply with planned arrangements; (2) whether these arrangements are
implemented effectively and are suitable to achieve objectives; and (3) whether quality policy is
understood and implemented properly.

Auditing builds confidence in management. It also points out to system deficiencies, if any, as
well as highlights system weaknesses before a potential problem occurs. It has been found to be
a convenient framework for investigating problems in particular areas. It also allows personnel
from other departments to know how their work affects others. Auditing creates opportunity for
interchange of ideas and thereby results in improvement of process in a cost-effective manner. It
also results in increased motivation for improving performance.

Audit Types

First-party audit: This is conducted by, or on behalf of, the organization itself for internal
purposes.

Second-party audit: This is conducted by customers of the organization or by other persons on

behalf of the customer.

Third-party audit: This is conducted by external independent organizations, usually

accredited, and provides certification or registration of conformity with requirements such as
ISO 9001.

Why to Audit?

This is a mandatory requirement laid down in ISO 9000. It helps in determining system
conformity against a quality system standard/procedure. It also helps to determine the system
effectiveness to meet the objectives as well as provide the auditee with information to use in
improving the system.

ISO 9001–2000 requirements for internal audit

 1. Audits are conducted at planned intervals to determine quality management system
conformity with planned arrangements and laid-down policies and objectives. It needs to
see whether the quality management systems are effectively implemented and
maintained.
2. Plan a program of audits, covering processes/areas to be audited. This is considered based
on the status and importance, and the audit history.
3. Define audit criteria, scope and frequency, as well as methods of auditing.
4. Choose an objective, impartial and trained auditor.
5. Documented procedure defining: This involves planning for conducting audits, reporting
process and records-keeping process.
6. Management responsibility: Taking actions (without delay) and eliminating non-
conformity and their causes are part of management responsibility.
7. Follow-up activities shall include verifying action taken and reporting results.

Guidance documents

Audit guidelines
ISO 19011 Guidance on auditing quality and environmental management system
Audit standards
ISO 10011-1 Auditing
ISO 10011-2 Qualification criteria for auditors
ISO 10011-3 Managing an audit programme

Non-conformance

Non-conformance is the non-fulfilment of requirement. It can be there for quality management

system, or ISO 9001: 2000, or customer satisfaction, or legislation, or regulatory body. Non-
conformance can be either major or minor. It is graded as a major non-conformance if no
evidence of adherence to a procedure/system element is found or if there is a major risk to final
product or service quality. The non-conformance is a minor one if there is limited evidence of
compliance with the procedure or there is no appreciable risk to final product or service quality.
The non-conformance report should contain the relevant clause of the audit standard, the
reference of procedure, the location, the mention of particular activity where non-conformance
has been observed, the nature of problem, the evidence, and the scale of problem mentioning
whether non-conformance is to be graded as major or minor.

13.10 CONSTRUCTION PRODUCTIVITY

Productivity is defined as the quantum of production of any work within the estimated cost, with
an acceptable quality standard under the defined duration with respect to nature of work.
Increased productivity means within the defined time frame the production increases without any
cost variation per unit. This implies more sales in the same period with the same overheads.

With respect to the construction industry, the following factors govern productivity:
 1. Well-planned work: This is work done through the thought process covering all aspects
of planning.
2. Skilled manpower: If suitable and skilled manpower is deployed, we stand to save
substantially in labour and material. Material wastage, rework and rectification can be
avoided. Proper screening of labour should be done before they are actually pressed into
service.
3. Good and suitable equipment: We should use equipment of good condition. Also,
periodic maintenance of the equipment enhances productivity.
4. Defined methodology: Prior to starting any new activity, it is preferable to work out a
step-by-step method of working and foresee the possible pitfalls in the process. This will
enable trouble-free accomplishment of any task.
5. Right type of hand tools: The workers must be provided with the right type of tools to
carry out any work.
6. Neat and tidy workplace: A good housekeeping habit can make this happen. If the
workplace is easily accessible, the worker will not have any problem in carrying out his
task. A site that is scattered with materials will result in accidents, material wastage, etc.
7. Staff productivity: The staff and supervisory personnel must be proactive. The usage of
modern methods and equipments leads to better quality and productivity.
o Optimum usage of inputs, effective utilization of construction materials, and
recycling the shuttering items lead to economy in expenditure resulting in
boosting up the normal productivity norms.
o Awareness of, and in-house training programmes in, the latest versions in
construction industry can prove to be the best method to increase productivity.
o Motivation and moral support to the needy at workplace can boost the capability
of an individual, resulting in higher productivity.
o Coordination with interrelated disciplines can help to execute a task without
delay.
o Advanced communication networks aid in speedy transfer of requisite
inputs/documents required to complete a target well in time, resulting in better
productivity.
o Curtailing unnecessary overheads can bring down production cost against sales
price, resulting in profit.

13.10.1 Typical Causes of Low Labour Productivity

Worker’s Low Morale

 Non-fulfilment of employment terms and conditions by the management

 Insecurity of employment
 Substandard working conditions
 Frequent transfers
 Frequent changes in the scope of work and work methodology
 Conflicts between supervisors and workers

Poor Pre-work Preparation by Supervisors

  Excess workers employed for the task
 Insufficient instructions for the execution of work
 Incorrect sequencing of work activities
 Shortage of tools and materials at the site
 Wastage resulting from frequent shifting of materials and poor-quality/defective work

Directional Failures of the Project Management

 Failure to set performance targets

 Failure to make provision for timely resources support
 Failure to provide feedback
 Failure to motivate workers

The type of manpower required at a typical project site and the typical productivity values of
civil construction activities are given in appendices 11 and 12 respectively of this text. These are
provided for information and preliminary planning.

REFERENCES

1. Arditi, D. and Gunaydin, H.M., 1998, ‘Factors that affect process quality in the life cycle of
building projects’, ASCE Journal of Construction Engineering and Management, 124(3), pp.
194–203.

2. Bajpai, A.K. and Willey, P.C.T., 1989, ‘Questions about quality costs’, The International
Journal of Quality and Reliability Management, 6(6), pp. 9–17.

3. Battikha, M.G., 2002, ‘QUALICON: Computer-based system for construction quality

management’, Journal of Construction Engineering and Management, 128(2), pp. 164–173.

4. Besterfield, D.H., Michna, C.B., Besterfield, G.H. and Sacre, M.B., 2005, Total Quality
Management, 3rd ed., New Delhi: Prentice Hall.

5. Blank, L. and Solorzano, J., 1978, ‘Using quality cost analysis for management improvement’,
Industrial Engineering, 10(2), pp. 46–51.

6. Brown, F.X. and Kane, R.W., 1984, ‘Quality cost and profit performance’, Quality Cost: Ideas
and Applications, American Society for Quality Control, Milwaukee, WI.

7. Burati, J.L., Farrington, J.J. and Ledbetter, W.B., 1992, ‘Causes of quality deviations in design
construction’, Journal of Construction Engineering and Management, 118(1), pp. 34–49.

8. Burati, L.B., Michael, F.M. and Kalidindi, S.N., 1991, ‘Quality management in construction
industry’, Journal of Construction Engineering and Management, ASCE 117(2), pp. 341–359.
9. Burati, Jr, J.L., Matthews, M.F. and Kalidindi, S.N., 1991, ‘Quality Management in
Construction Industry’, ASCE Journal of Construction Engineering and Management, 117(2),
pp. 341–359.

10. Campanella, J. (ed.), 1990, Principles of Quality Costs, 2nd ed., ASQC Quality Press,
Milwaukee.

11. Chitkara, K.K., 2006, Construction Project Management: Planning, Scheduling and
Controlling, 10th reprint, New Delhi: Tata McGraw-Hill.

12. Collins, Jr, F.C., 1996, Quality: The Ball in Your Court, New Delhi: Tata McGraw-Hill.

13. Crosby, P., 1979, Quality is Free, New York: McGraw-Hill.

14. Davis, K., Ledbetter, W.B. and Burati, J.L., 1989, ‘Measuring design and construction
quality costs’, Journal of Construction Engineering and Management, ASCE, 115(3), pp. 385–
400.

15. Deffenbaugh, R.L., 1993, ‘Total Quality Management at Construction Jobsites’, ASCE
Journal of Management in Engineering, 9(4), pp. 382–389.

16. Deming, W.E., 1986, Out of the Crisis, Centre for Advanced Engineering Study, MIT,
Cambridge, Mass.

17. Eldin, N. and Hikle, V., 2003, ‘Pilot study of quality function deployment in construction
projects’, Journal of Construction Engineering and Management, 129(3), pp. 314–329.

18. Feigenbaum, A.V., 1983, Total Quality Control, 3rd ed., New York: McGraw-Hill.

19. Feigenbaum, A.V., 1961, Total Quality Control, New York: Mc-Graw Hill.

20. Gilly, B.A., Touran, A. and Asai, T., 1988, ‘Quality control circles in construction’, Journal
of Construction Engineering and Management, ASCE 113(3), pp. 427–439.

21. International Organization for Standardization (ISO), 1987, Family of quality management
standards, ISO 9000, Geneva, Switzerland, http://www.iso.org/iso/iso9000-
14000/iso9000/qmp.html

22. Juran, J., 1951, Quality Control Handbook, 1st ed., New York: McGraw-Hill.

23. Juran, J.M. and Gryna, F.M. (ed.), 1988, Juran’s Quality Control Handbook, 4th ed., New
York: McGraw-Hill.

24. Logothetis, N., 1992, Managing for total quality: From Deming to Taguchi and SPC, 1st ed.,
New Delhi: Prentice Hall.
25. Love, C.E., Guo, R. and Irwin, K.H., 1995, ‘Acceptable quality level versus zero-defects:
Some empirical evidence’, Computers and operations research, 22(4), pp. 403–417.

26. Needs, T.A. and Ledbetter, W.B., 1991, Quality performance and management in
engineering/construction, AACE Transactions, New York.

27. Pheng, L.S. and Teo, J.A., 2004, ‘Implementing Total Quality Management in Construction
Firms’, ASCE Journal of Management in Engineering, 20(1), pp. 8–15.

28. Rao, S.K., 2000, ‘Aspects of quality and performance in construction industry’, Proceedings
of the Third National Conference in Construction, February 10–11, 2000, Construction Industry
Development Council, Vol. 3, pp. 49–54.

29. Schexnayder, C.J. and Mayo, R.E., 2004, Construction Management Fundamentals,
Singapore: McGraw-Hill.

30. Shank, J.K. and Govindarajan, V., 1994, ‘Measuring the “cost of quality”: A strategic cost
management perspective’, Journal of Cost Management, 8(2), pp. 5–17.

31. Shilestone, J.M., 1983, ‘Welcome, background and program objectives’, Proceedings of the
National conference on Quality Assurance in the Building Community, Shilestone and
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32. The Construction Quality Assessment System (CONQUAS), details available at

http://www.bca.gov.sg/professionals/IQUAS/others/CON21.pdf

33. www.isocenter.com/9000/benefits.html.

REVIEW QUESTIONS

1. State whether True or False:

1. Lower bidder system is one of the major setbacks for achieving construction
quality.
2. Quality can be defined as:
1. Fitness for purpose
2. Conformance with specification
3. Meeting or exceeding the needs of customer
4. Value for money
5. Customer satisfaction
6. Just in time
7. Reduction in variability
3. Construction quality is about finishing the project safely, on time, within budget,
and without claims and litigation.
4. ‘Zero defect’ and ‘total quality control’ are two major catchwords for which
construction project should strive.
 5. A major cause of controversy in quality control is delegation of responsibility and
authority pertaining to quality assurance.
6. Linear responsibility chart (LRC) describes all the persons within the quality
control programme, their responsibilities, authority and interrelationships relative
to quality control task.
7. Quality control is essentially the activities and techniques employed to achieve
and maintain the quality of a product, a process and a service.
8. Three major quality control methods commonly used on construction projects are
inspection, testing and sampling.
9. Quality assurance is broadly the prevention of quality problems through planned
and systematic activities to fulfil desired purposes efficiently, effectively and
economically.
10. TQM is a way of planning, organizing and understanding each activity that
depends on each individual at each level.
11. Juran’s quality trilogy involves planning, control and improvement.
12. State whether the following are true or false:
1. Quality costs = prevention costs + appraisal costs
2. Quality control costs = internal failure cost + external failure cost
3. Failure costs = quality control costs + failure costs
2. Discuss the concept of ‘quality’ for construction industry. How do you define
construction quality?
3. Discuss inspection, quality control and quality assurance in a construction project.
4. Explain the ISO 9000 family structure and its benefits. How will you develop a quality
system in your organization if you wish to be accredited with ISO 9000?
5. Discuss Juran’s suggested steps for quality improvement.
6. What is Juran’s quality trilogy?
7. What is total quality management? To what extent is it different from quality assurance
system?
8. What are the various types of checklists and inspection reports that have to be designed to
ensure proper monitoring and control of quality assurance on the job?
9. Explain the concept and meaning of productivity in general and also in particular with
respect to construction. What are the factors affecting productivity? Also, enumerate the
main hurdles that are often encountered in construction projects which tend to keep
productivity down.
10. What do you mean by total quality management?
11. Discuss the contributions of Deming, Juran and Crosby in the field of quality
management.
12. Estimate the quality cost under different heads.
13. Discuss in brief different ISO standards for quality.
14. Discuss the importance of audit in the context of quality conformance.