Material and Equipment

UNIT 12 MATERIAL AND EQUIPMENT

Objectives

Study of this unit will sharpen you:

• understanding of vital, role of materials and equipment in project implementation

and control
• Appreciation of how arrival of materials and equipment in the sequence of their
erection smooths construction without any holdup or hindrance
• Comprehension of intimate relationship among arrivals of materials and
equipment and their erection, testing and commissioning
• Competence in planning, negotiating and administering contracts and enhance
your skills in achieving quality, cost and timely deliveries of projects.
Structure
12.1 Introduction
12.2 Importance of Materials and Equipment in Project Implementation and
Control
12.3 Financial Aspects of Materials and Equipment
12.4 Contracting of Materials and Equipment
12.5 Fail-Safe Management of Materials and Equipment
12.6 Summary
12.7 Self-Assessment Exercises
12.8 Further Readings

12.1 INTRODUCTION
Materials and equipment form the core of entire project. Besides, these are rather
expensive. Direct materials and equipment have to be pieced together like the various
cut pieces of a jigsaw prr7zle. Every machine or equipment may have components
procured from different suppliers spread across the countries or continents. These
must be ordered and delivered in a sequence that facilitates their erection and
commissioning as a composite plant which performs, the functions it was designed
for.
Even construction services have to synchronise with the availability of materials and
equipment - different agencies should harmonise like individual artists who execute
their piece of music to create a symphony.
In hard projects all engineering and technical functions aim to organise flow of
materials and equipment in a manner that leads to their uninterrupted implementation
and control.
12.2 IMPORTANCE OF MATERIALS AND EQUIPMENT
IN PROJECT IMPLEMENTATION AND CONTROL
Project construction involves civil works which require, materials like cement, stone,
sand, brick etc, and structural works which need rolled steel sections, plates, welding
machines, electrodes or welding rods etc. Mechanical equipment result from a large
number of manufacturing processes which require different types of materials,
consumables, tools, tackles and machines. Similarly, pipig, electrical and
instrumentation works entail a large array of materials, equipment etc.
For smooth management of construction jobs, it is essential that the requisite
materials, equipment and drawings/instruction reach construction sites on time. It is
easy to 17
Implementation and comprehend that it may be possible to manage the project construction if drawings
Control are not available but it is impossible to build the project without the materials and
equipment which form the core of organisation's hardware.
Project implementation flounders if the materials and equipment do not arrive on
time or if they arrive in haphazard sequence or if they get damaged during
transportation to
contraction sites or after arrival there. Problems arise if there is faulty erection,
testing and commissioning damaging the costly equipment. The problems crop up
largely because most of these equipment are of specialised nature which are made to
order and their replacements are not easy to organise. Mature project organisations
have developed procedures which take care of all such eventualities. Nowhere the
following principles are more applicable as in project implementation and control of
materials and equipment :-
1) If anything can go wrong, it will.
2) If everything is going right, something will wrong.
Effective management of materials and equipment, therefore, plays an vital role in
enhancing our skills in project management.
Activity 1
A critical equipment was air-freighted to construction site to save time on its erection
and commissioning. On its receipt at site, it was discovered that the `foundation bolts'
for the equipment were neither designed nor procured nor were they embedded in the
foundation cost. What are the lessons to be learnt?
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12.3 FINANCIAL ASPECTS OF MATERIALS AND

EQUIPMENT
Project materials and equipment are expensive. For all major equipment, one has to
make advance payments immediately after the purchase order has been placed.
Thereafter, progressive payments have to he made on delivery, on satisfactory
commissioning either by suppliers' personnel or in their presence. Usually, such
contracts provide for a percentage of money to be retained by the purchaser which is
released back to him on the satisfactory completion of defect-liability period. Various
milestones linked with progressive payments should be defined clearly and
unambiguously to preclude the possibility of multiple interpretation.
Since transactions for materials and equipment are directly linked to money
payments, adequate care has to be taken at the stage of planning of these packages
i.e., even before these are floated for obtaining competitive bids for contracting.
Projects cannot be implemented alone - a large number of suppliers and contractors
are required and have to be completed in specific timeframe, suppliers and
contractors have to be viewed as our extended arms and resources. Purchase orders
negotiated and contracts awarded to them must be fair, equitable and rumenerative. If
these purchase orders or contracts are good for only one party, it would be the
germination ground for major conflicts. The approach in India of outwitting each
other has already snowballed into a grave situation a large number of contracts,
notably from government and public sector undertakings, are landing into arbitration.
At any rate, faulty contracts act as major stumbling blocks to project implementation
leading to protracted delays and procrastination when everyone around is expecting
18 its commissioning and contributing to revenue generation.
12.4 CONTRACTING FOR MATERIALS AND Material and Equipment

EQUIPMENT
Project require a large variety of materials and equipment for which purchase orders
have to be placed for supplies and contracts have to be negotiated for services.
Purchasing plays a major role in ensuring our capability to achieve quality, cost
effectiveness and timely completion and delivery the three key critical success
factors.' In India, owing to feudal and bureaucratic systems inherited from colonial
regime, we have to discard and revise many of the terms and conditions of contract
and bring them in line with, if not better, the current practices in internationally
funded contracts. FIDIC guidelines for model contracts provide comprehensive
directions.
A number of our public sector organisations who have been beneficiary of loan from
the World Bank, Asian Development Bank etc have already incorporated quite a
number of these practices in their contracts and are reaping the benefits but a large
number of organisations like Public Works Departments, Railways, Military
Engineering Services who have smothered project management in India, today are
struggling with nineteenth century tools in solving problems of almost twenty-first
century.
A large number of knowledgeable persons were surprised when a multi-billion
project in Europe which was considered to be almost impossible to be executed
within set targets was completed on time. A survey conducted among the personnel
of various agencies connected with its implementation returned the verdict in favour
of rather imaginative terms of payment evolved for the project. A number of
computers were installed at site as a part of project implementation and control
systems and every week, representatives of contractors and clients would agree and
capture into the computers the quantities completed by them. Since the data on
agreed rates and schedules of work were already input the computers, it was possible
to work out the total value of works completed by all the construction companies on
the last working day of the month and consequently the total payment that became
due to their for the works completed during the month.
All data on payments etc made to the parties was also entered into the computers and
the net amount payable to them was worked out 90% was teletransferred to their
bank accounts on that day itself and remaining 10,% was paid within seven days
thereof after crossing all the is and dotting all the is'.
Indian contracts notably from government organisations are totally one-sided - they
would define all the obligations of contractors in details but clines major obligation
viz., making periodic payments to their contractors is often not spelt out in any detail
or is kept blissfully vague. The ancient system of making payments through
`
measurement books (MBs) needs to be discarded without delay since although it is
not difficult to request the client's supervising engineers to record measd3'ements of
work done, it is well high impossible to hold their hands to make these entries into
MBs - they are so used to greasing !
Good contracts should be based on a realistic appraisal of cash inflow and outflow of
the concerned contractors so that there is a reasonable return to them: instead with the
tyranny of lowest ' tender unleashed and clever manouvers to outwit each other, a
large number of contracts in government and public sector undertaking are landing
into arbitration. It is being increasingly talked about in contractors' circles that one
cannot make money at the time of executing the project but only later when it is
arbitrated upon.
Contracting has three phases viz.,
a) Contract Planning
b) Contract Negotiations
c) Contract Administration
Most companies tend to focus on the last two stages-contract negotiations and
administration; negotiations are conducted centrally and consequently , role of
construction sites is reduced to contract administration only. Correct understanding of 19
project management
Implementation and would reveal that contract planning is like the foundation and contract negotiation
Control and administration are the `superstructure' of a building. The superstructure can be as
strong as the foundation to which little or no attention is given in conventional
contracts management.
a) Contracts Planning
Experience gained in executing past projects are a great source of learning.
Unfortunately, persons engaged in contract administration are quite different from
those who negotiate the contracts and there is no regular communication among
them. As a result, the learning from past projects do not get reflected in future
contracts. Learning from past projects would highlight those terms and conditions of
the contract which are restrictive and unsatisfactory in resolving issues and require
rephrasing or rewriting. If these changes are not incorporated in the new contracts,
these would, once again, lead to :-
-- inadequate or ineffective communication between the contracting parties
-- defective, unsatisfactory or incomplete specifications
-- ambiguous contract language
-- lack of timely notice
-- cashflow problems resulting from one-sided terms of payment
However, for arriving at contracts that can be managed effectively, we must define
the followings clearly :-
i) conceiving and specifying work packages
ii) ensuring timely availability of work fronts
iii) choosing among suitable and comparable parties
iv) obligations of both parties are reasonable
b) Contract Negotiation
In this phase the objective should be the highest utilization of resources, engineering
skills, labour, materials, time and money such that both the parties receive maximum
benefit from the contract. A contract is not good if it is good only for one party. If an
agreed contract is not capable of being executed by reasonable means, it will call for
unreasonable effort and resources to succeed. To ensure that contracts are negotiated
and executed within the realms of possible only and not transcend into probable state,
following aspects must be gone into:-
i) determining suitability of a party for a specific task at the time of floating the
tender.
ii) negotiating prices that are remunerative to the contractor
iii) choosing contract language which is not subject to wrong interpretation
iv) cautious use of safety and protective clauses in the contracts
We should always remember that safety provisions by owners are construed as risk
clauses by the contractors. These are :
-- indemnity
-- guarantees and liabilities
-- liquidated damages
-- time extensions
-- suspensions
-- termination
c) Contract Administration
During execution, difficulties between contracting parties can arise as below :-
20 -- extra work including excess quantities of work
-- deleted work including lower quantities of work
-- non-compliance with specifications Material and Equipment
-- delays in time schedules
-- late payments
-- taking over of completed works
-- warranties
-- contract close out
As and when problems arise, these must be resolved by agreeing to procedures based
on the provisions of agreed contract. These procedures must cover checks and -hold
points, known and unknown deviations, non-compliance with contracts and dealing
with emergencies. Procedure for obtaining approval of higher authorities must be laid
out in respect of the followings :-
i) value of individual variations
ii) aggregate value of all variations
iii) extension of time completion
iv) effect on design or operating costs
Resolution of conflicts must be done with speed and efforts should be directed
towards avoiding negative aspects of delays besides avoiding further delays. This can
ensue from an approach of constructive negotiations or proactive strategy to solve
problems before they blow up into major disputes. This is possible by :
-- reviewing the progress under the contract at regular intervals- estimated value
of the contract to complete balance work has a direct impact on the smooth
running of contracts or taking advance action
-- issuing promptly certificates of interim and final payment, provisional
completion certified, takeover certificates etc.
-- Settling contractors claims expeditiously
-- providing comprehensive procedure for recording, approving, dispensing with
changes from the scope of contract.
,Activity 2
Usually contract planning and contract negotiation stages are located in a control
project office and contract administration is done at remote construction sites. What
are the disadvantages of this distance gap?
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12.5 FAIL-SAFE MANAGEMENT OF MATERIAL AND

EQUIPMENT
For want of a nail, a battle was lost. Projects can also get completely out of gear, if
any component of it is not engineered and indented in correct sequence so that it can
be procured and erected on time. In a large project involving a very reputed project
consultant when everyone thought that project was coming on time and would be
commissioned shortly, it was suddenly discovered that a system, although small, was
missed out; some people had overlooked designing the system; consequently, the
materials and equipment required for it was neither indented nor procured nor
erected. This put off commissioning of the plant by nearly six months. As a result,
heavy investment made in erecting most of the main plant and utilities had to remain
idle until the materials and equipment for that small system were designed, procured
and erected.
It is perhaps easy to understand the extreme importance of total quality management
environments for project work and the need to make everyone on the project loyal to
project procedures and documentation. Project teams have to learn to do the right
thing 21
Implementation and right first time always. Experienced and mature project organisations operate-
Control procedures and systems such that all, the items covered in thee scope of project at the
time of cost-estimating are designed and indented, all the items materials and
equipment indented are ordered on vendors and contractors, all items ordered are
infact delivered to site in good conditions (if anything is damaged enroute,
replacement or alternate solutions are worked out and implemented) and lastly, all
materials received at site are properly tagged before storage and erected at the
designated positions. If there is any one weak link in the long chain, it would make
the entire project vulnerable. There is just not time available later to correct the
mistake as any slip would have major consequences on project parameters of time
and cost. Organisations which donor have stable systems, work by fits and starts lead
to situations that result in impairment of quality and higher levels of inter-personal
conflicts.
A large number of projects get delayed in execution because the requisite materials
and equipment do not arrive on time upsetting the construction tempo, momentum
and schedule which has a catastrophic effect on time cost and performance
parameters. These types of delays lead to tantrum in working', frayed tempers and
inter-personal conflicts. A fail-safe procedure for ensuring against these pitfalls
would involve additional checks and balances in specified formats, at specified
intervals so that project is completed on time, within budgeted costs.
Activity 3
Think of a basic document in project work so that it can be adopted as the basis for
defining the ' scope' of the Project.
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12.6 SUMMARY
Materials form the kernel of project management, we design materials & equipment,
we procure materials, equipment & services for erecting them and then we assemble
these materials and equipment in a predesigned sequence to convert them into a
viable, operable plant after duly testing and commissioning these equipments. Any
slippage or gap in designing, procurement or erection of these materials and
equipment can be very costly and can impact very adversely on the profitability of
projects.
12.7 SELF-ASSESSMENT EXERCISES
1. What is the role of project cost-estimates in defining the total scope of a
project?
2. 'Contract Planning' phase of project is often compared with constructing the
foundations of a building - building will be as strong or as weak as its
foundation. Justify.
3. Describe the advantages and disadvantages of locating project procurement
functions at a construction site.
4. What is the role of progressing and expediting vendor supplies in project
management.
12.8 FURTHER READINGS
1. Donald W Dobler & Darid N Burt, Purchasing and Supply Management - Text
and Cases, Tata McGraw Hill.
2. Gopalakrishnan, P. and Sundaresan, M., Materials Management - An
Integrated Approach, Practice Hall of India.
3. World Beaut and UNDP Guidelines on Contracts.
4. FIDIC Guidelines on Contracts.
22 5. Fearon, HE., Dobler WE & Killen KH, The Purchasing Hand book, McGraw
Hill, New York.