DOUGLAS FRASER CEE498 CONSTRUCTION PROJECT MANAGEMENT PROF AWAD HANNA HOMEWORK #1:

13 SEPT 2007

CEE 498

Dr. A.S. Hanna Assignment #1 Conflict of Interest Due: September 13, 2007

Fall 2007

University of Wisconsin - Madison Department of Civil and Environmental Engineering The article entitled "Construction Management Performance Under Dual Service Agreements," appeared in the December, 1987 issue of the Journal of Construction Engineering and Management of the American Society of Civil Engineers. Read the article and answer the following questions: 1. What is meant by a "Dual Service Agreement?" A dual service agreement is an arrangement occurring in places such as project management systems - where one entity serves two roles, such as contract manager and constructor. This is necessary in the pure construction management approach to projects. 2. Explain with example how the article agrees and/or disagrees with your understanding of the "Pure Professional Construction Management Approach which is presented in the lecture. The pure construction management approach, as I understand it, has three separate units operating over the subcontractors: the owner, a design professional (DP), and a construction manager (CM). The CM takes over the traditional role the general contractor. This system also operates using the fast track method, condensing/overlapping the design and construction phases. The construction manager primarily serves in an advisory role (oversight of cost, design planning). The owner coordinates with both the CM and DP, and vice versa. In the pure model, there is a large accountability issue. The CM carries none of the project risk nor is he operating on a fixed budget or guaranteed maximum price. With nothing at stake, there is little intrinsic motivation for the CM to perform. The article discussed the agency form of CM which we defined as pure construction management. It developed a number of issues we discussed concerning pure CM, such as the potential conflict of interest, time involvement, quality control, responsibilities, and checks and balances. The checks and balances found in other project systems are obscured in pure CM, which allows the potential for conflicts of interest. If the CM lacks proper business ethics, he can put his interests above that of the owner/customer, since he has input into the design phase and controls the logistics and contracting for the project. For example, if the owner isnt knowledgeable of

all the possible variations in design, the CM can easily overlook a more cost or quality effective design in favor of using his friends contracting firm I also noticed two aspects of PCM we talked about in lecture that werent defined in the article. It did not mention who was responsible for the project risk, or how difficult it was to budget this system without a guaranteed maximum price. 3. Indicate how the information contained in the article would guide you in the development of the "Contract Administration Procedure and Policies" for the hospital project, if you were a "PCM Expert" who is serving as a consultant for the State of Wisconsin. I am not well versed in the current hospital project or its scope, but if I were serving as a PCM expert I would first ensure the ultimate decision making entity (owner) fully comprehends the organizational structure, job description/key responsibilities, and the decision making flow (chain of command). Hopefully the decision-maker has prior experience with PCM. It is critical that the owner/CM relationship is well defined and understood by both sides. I would also explain the inherent problems associated with PCM, such as the potential for conflicts of interest and the project risk is still on the owner. Secondly, the decision making body should ensure proper checks and balances are emplaced in the project system or operating procedures. I would recommend creating separate contracts for the various required services needed to build the project, which will preserve checks and balances necessary for quality control. This means drawing up separate contracts for the designer and construction manager. Since this is a large project, a well defined team organization will be needed. The owner, design professional and construction manager must have representatives at all levels of management including the executive, operational, and field leaders for each entity. Since the function of a hospital is critical for modern communities, there is much importance on the duration of the project. Therefore, it is vital that timely decisions are made. To ensure this happens, all organizational units involved must maintain clear lines of communication. In addition, if we do decide on a PCM style project approach, we must carefully choose the CM based on his reputation and track record, since the owner will be handing over large responsibilities with little accountability.