Construction Management

Theory and Practice

Chris March

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781315528151
• Edition: 1
• Topic: Architecture
• Subtopic: Architecture General

Construction Management: Theory and Practice is a comprehensive textbook for budding construction managers. The range of coverage makes the book essential reading for students studying management courses in all construction related disciplines and ideal reading for those with non-cognate degrees studying construction management masters courses, giving them a broad base of understanding about the industry.

Part I outlines the main industry players and their roles in relation to the Construction Manager.

Part II covers management theory, leadership and team working strategies.

Part III details financial aspects including: sources of finance, appraisal and estimating, construction economics, whole life costing and life cycle analysis, bidding and tendering as well as procurement methods, types of contracts and project costing.

Part IV covers construction operations management and issues such as supply chain management, health and safety, waste, quality and environmental management.

Part V covers issues such as marketing, strategy, HRM, health, stress and well-being.

Part VI concludes the book with reflections on the future of the industry in relation to the environment and sustainability and the role of the industry and its managers.

The book keeps the discussion of current hot topics such asbuilding information modelling (BIM), sustainability, and health and well-being included throughout and is packed with useful figures, tables and case studies from industry.

Part I
The players

1 The main participators

Before considering the development, design and construction process, it is important to realise the wide range of different people who can become inƒvolved. Not all those described will be involved as it depends upon the type and scale of the development. In certain instances some of those identified are described in more detail than others, especially if their role extends into the construction phase as well as the development. There can also be overlap in the roles, whereby a developer could employ several specialists, or for smaller development projects, go to a more generalist service provider. A large developer might have some of the personnel employed in its own organisation supplemented by outside specialists as required.

1.1 Landowners

All developments need either virgin, previously used or reclaimed land, all of which will be owned by an individual, group of people, corporate body or public authority. Without their permission, unless compulsorily purchased, a development cannot take place. Landowners may either initiate the development or be approached by others to release land for the development to take place.

1.1.1 Traditional landowners

These include:

• the Church
• the landed aristocracy
• the landed gentry
• the Crown Estate.

Jointly they own a significant amount of the national land bank. For example the Duchy of Cornwall comprises some 57,000 hectares, the late Duke of Westminster owns an even greater amount of land including 120 hectares of Mayfair and Belgravia in London. The Church owns 5000 hectares of agricultural land, some 16,000 churches, of which 12,000 are listed as being of special architectural or historic interest; some of these are coming onto the market as ‘redundant churches’. The Crown Estate is part of the hereditary possessions of the Sovereign from which the profit is paid into the Exchequer. It incorporates an urban estate that includes significant London holdings in Regent Street, Regent’s Park and St James’s, as well as just under 5000 hectares of agricultural land and extensive UK marine assets.

Generally, in these cases, the motives for ownership are more than just capital return and include social, political and ideological reasons often based on tradition and heritage.

1.1.2 Industrial and commercial landowners

These include:

• farmers
• manufacturers
• industrialists
• extractive industries
• retailers and a variety of other service providers such as banks
• public authorities such as central, local and nationalised industries that also own land.

The value of the land is usually incidental to their main purpose. Primarily, farmers use the land to produce crops or rear livestock. While the initial purchase price of the land is a contribution to the overheads the farmer incurs, the fact that the land may be an appreciating asset, doesn’t affect the price of the produce as this is determined by others and only comes into play if the farm is sold. The only other occasion when the value of the land is likely to be taken into account is if the farmer wishes to borrow money against it. The same logic can similarly apply to the others listed above.

While the land is fundamental to their business, it is not perceived as an asset in the same way as those who purchase land with a view to capitalise upon it. This means that the economic reasons for releasing land are not always obvious to them. As a result, they may be reluctant to cooperate with a potential developer unless a good case can be made to them. An example of how the land value could be of importance is, if it is of high value it may be profitable to sell the land and with the monies released relocate elsewhere and build up-to-date, purpose made, energy efficient premises, thereby reducing the overheads and becoming more profitable.

1.1.3 Financial landowners

These people and groups purchase land, with or without property built on it, as an investment and therefore are more likely to cooperate with a developer and include:

• builders
• property developers
• pension funds
• insurance companies.

The latter two have invested from between 5 and 15 per cent of their funds in property investment over the last 20 years and have a considerable portfolio of property.

Those purchasing land are playing a long-term game anticipating healthy profit in the future, knowing that the land, even if not appreciating in the short term, will almost certainly become saleable. Land banks are crucial for the long-term viability of residential developers if they wish to maintain a flow of completed properties. This can include green belt land, held in hope the Secretary of State will release it for building as a result of pressure in the housing market. It can be derelict areas in inner cities where it can be seen there is a potential for future development, and many areas in inner cities that are being regenerated due to the demand for having accommodation closer to one’s place of work. In essence the purchaser is looking for potential opportunity.

1.2 Private developers

Private sector developers come in a variety of sizes, from one person to multinationals that may be publicly quoted on the Stock Exchange. Their purpose is to make a direct financial profit from the process of development. They operate as either traders who sell the property they develop or as investors who make their money from renting the property and from an appreciating asset. They may also develop the property for their own occupation and use. Examples of the latter include the banks and building societies that have a considerable property portfolio.

Traditionally those involved in residential development were usually traders who build to sell. However, in recent years housing associations have had a significant impact on the housing stock and they build with a view to let. The other major change in development has been with the advent of the Public Finance Initiatives (PFI). These fall into two main categories. The first is where a new building with a specific purpose in mind such as a hospital or school is built and the developer then rents the property back to the user and contracts to maintain the building over a period of years, usually 25 to 35 years. This form of maintenance contract is usually referred to as Facilities Management. The second is where an existing building is to be refurbished, and the whole or part is to be handed back to the client supported with a facilities management contract. The Treasury Building in London is an example of being able to use half of the floor area for development other than Treasury business. In essence the contract was to find alternative accommodation for the Treasury employees during the refurbishment, redesign the interior in a more effective way so that on returning they could function in half the footprint of the building and then the developer could use the other half for other purposes that were acceptable to the client. The developer could then make a profit from this development as well as from the facilities management provided for the client.

In the total development process it is the developers and those that provide the finance for the project who take the greatest risk. Post-war history is littered with examples of those who have made great profits when the rents and property values have risen, and failures when the bottom has dropped out of the market. It is extremely difficult to predict market trends with certainty as fluctuations in the world economy can occur as a result of unpredictable events. The high increase in oil prices in 1973, the miners strike during the Thatcher era, the dismantling of the Berlin Wall and the unification of Germany, the Exchange Rate Mechanism crisis, September the 11th, and a deterioration or improvement in major economies such as the American, Chinese and Japanese economies, are examples of such events.

1.3 Public sector and government agencies

There was a time when central government carried out or supported the local authorities in doing a considerable amount of direct development; Socialist administrations more than Tory, but in recent years, the policies of both parties have converged to one of carrying out little direct development. Increasingly, if Government requires work to be done, it uses the PFI and other variants (see 11.7) of this, using finance other than monies direct from the Treasury.

Local government can become involved in local developments within their boundaries, but it depends much on the community’s interests. If the area is derelict or run down, developments that improve the local amenities are likely to be welcome, whereas if the area is highly sought after, the community may not wish development to occur as they may consider this to be a loss of amenity.

Some interesting work has been done in partnership with the private sector. An example of this is the Barnsley Metropolitan Borough Council and Costain Construction partnership where the local authority enlisted the help of the construction company to plan and improve the area as well as seeking financial support and investment, for which they obtained a fee. While the company was also able to tender for construction work they were not always successful as systems were put in place to ensure the local authority got best value for money (see 11.6).

The more active authorities can act as a catalyst by supplying the land, which they lease to the property developer or by investing in the infrastructure. Salford Quays was an example of the latter. The authority with the aid of central funding carried out the refurbishing of the harbour structures themselves and installed good quality paved roads to attract developers and at the same time set a standard of quality that would encourage the developers to follow. For example, the materials used for the car park areas provided by the developer are generally of similar quality to those used by the local authority.

In attempting to foster development, especially in inner cities, government have produced urban regeneration initiatives administered through various government agencies such as:

• Urban Development Corporations
• Homes and Community Agency
• Scottish Enterprise.

These groups see themselves as assisting developers with land assembly, site reclamation, provision of infrastructure and financial grants.

Other initiatives aimed at attracting occupiers with financial incentives include Enterprise Zones and Regional Selective Assistance. There are also Regeneration Zones specified by the EC, which also give financial incentive for development.

1.4 Planners

The most significant change in the planning system in the UK occurred with the enactment of the Town and Country Planning Act 1947, from which all subsequent legislation has been developed.

Both politicians and professional planners control planning. The former in both local and central government are responsible for approving or refusing development plans in accordance with the policy laid down by them. They will be advised and guided by the professional planners who also administer the system on behalf of the politicians.

This normally means that unless the development is controversial, the politicians will accept the planner’s recommendations. The basis for determining permission is laid down in statute and a variety of central government policy guidance notes. Local authorities are obliged to work to these, but will determine their own local policy normally using the local development plans that will have been approved by central government.

There are two main reasons for planning. The first is to prevent development that is undesirable in so far as it is, for example, out of character with its surroundings aesthetically, is for a use not compatible with other users in the area, such as positioning industrial premises in the middle of a residential area, or places excessive demands on the existing infrastructure. The second is to encourage development where it is appropriate. For example, if an area is declining it is important to encourage investment to breathe new life into the area either by improving the overall amenities or by attracting new industry and commerce.

In practice there are a lot of opportunities for interpretation of the local plans and developers may employ their own planning consultants to assist in negotiating with the planners. There is also the issue of ‘planning gain’. Developers may be expected to, or offer to, provide something extra as part of the agreement. This may be an improvement in the local roads, landscaping or other amenity for the local community.

There is no national standard as to what development is acceptable. This depends upon the local area and whether or not there is a need to encourage development. Clearly if the authority wishes to attract investment, it is likely to require lower standards, and impose higher standards if it wishes to slow down or deter development.

There has been an increasing trend by developers to use the planning appeal procedures as a result of conflict between the developers and the planners and sometimes because of intervention by the politicians who have ignored their planners’ advice.

Planning for some of the larger government-driven contracts infrastructure projects, such as Crossrail in London and the High Speed 2 (HS2) railway, is complex as ways to speed up the planning and development processes have been introduced.

1.5 Financial institutions

Financial institutions usually refers to pension funds, insurance companies, clearing and merchant banks (both UK and foreign) and the World Bank. Building societies also provide finance although most of their funding is for the private residential market. The types of financial institutions and how they provide finance is discussed in more detail in Chapter 5 Sources of Finance.

1.6 Agents

Commercial or estate agents (in the case of residential) may see a potential opportunity for development and bring together the key players in the process. Increasingly, they are more likely to be commissioned by the developer to find suitable sites or properties for development, redevelopment or refurbishment.

The knowledge these players bring to the process at the early stages is an awareness of the current market – for example, what the current demand is, and what current rents and prices are – essential to assess the project viability. Linked to this is advice on potential occupiers, the mix of tenants and their likely requirements in terms of design, layout and space. However, it should be noted this is a specialist area and if the agent does specialise the developer would commission market research independently...