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Construction projects cannot simply be defined from the concept of production that it is assembling materials and products (Gould and Joyce, 2009). The construction process is fundamentally a different kind of production (Ballard and Howell, 1998). However, recognising a recent development of knowledge and technology, it would not be impossible that the process of construction activities may adapt the concept of production, where, the construction process should follow production procedures, such as ‘input, process, output, and evaluation’. Construction projects inevitably require ‘resources’ as an input, to support ‘activities’ where the process mainly occurs, for acquiring output such as ‘jobs, projects, or services’, and this construction cycle needs a proper ‘control’ as an evaluation.

Kirkham (2007) refers to the construction process, in which construction projects are categorised into two types: (1) building construction and (2) civil engineering. Hendrickson and Au (1989) introduce four major types of construction projects based on clients’ interests and powers on acquiring specific types of constructed

25 facility: (1) residential housing construction, (2) institutional and commercial building construction, (3) infrastructure and heavy construction, and (4) special industrial construction. Ostwald (2001) breaks down construction projects into four types of different processes: (1) residential houses, (2) commercial buildings, (3) heavy engineering and infrastructure, and (4) industrial buildings. Further, Gould (2005); Sears et al (2008); and Gould and Joyce (2009) classified construction projects into four project types with similar meanings with what was introduced by Hendrickson and Au (1989) and Ostwald (2001), as: (1) residential projects, (2) building construction projects, (3) heavy construction projects, and (4) industrial projects. These four projects types are briefly discussed below.

2.3.1.

Residential Building

Residential buildings are affected by government roles on taxes, fiscal policies, and laws, and are developed for the living space of individual people or families; e.g., individual home, multifamily dwellings, condominium, small/ simple apartment, etc.

2.3.2.

Commercial Building

Commercial buildings tend to be technically complex which require tighter financial controls and a managerial practice during project planning and construction operations; e.g., government buildings, offices, sport stadia, hotels, resorts, large/ complex apartments, hospitals, universities, schools, churches, shopping malls, retail stores, theatres, and warehouses, etc.

2.3.3.

Infrastructure and Heavy Engineering

Infrastructure and heavy engineering usually serve public needs, tend to be long in construction duration, and mostly publically funded: e.g., airports, roadways, bridges, dams, flood control systems, hydro power stations, canals, tunnels,

26 irrigation systems, storm-water collection, water treatment and distribution, and urban rapid-transit systems, etc.

2.3.4.

Industrial Buildings

Industrial buildings maintain production activities and are often privately funded (e.g., mills, mine development, petroleum refineries, petrochemical processing plants, automobile plants, nuclear plants, fossil-fuel plants, synthetic-fuel plants, oxygen-fuel plants, and heavy duty manufacturing plants, etc.).

2.3.5.

Justification on Commercial Building’s Focus

Every type of projects has its particular uniqueness and complexities. Different types of projects may have to maintain different purposes and processes. Construction building projects are quite challenging areas to be investigated. Construction projects were highly affected by market conditions and slightly increasing in total demand that cause a substantial investment in construction execution with potential risks or rewards (Hendrickson and Au, 1989). The commercial project is typically demanded by sophisticated construction clients (CIOB, 2009) for commercial purposes which require a financial return on the investment within a specific period of time. The commercial building type of construction projects are recognised as capital-intensive projects and very high risk as well as providing opportunities on the fluctuation of global market conditions. Project participants may have to be aware of construction processes related to investments, and arrange the financial plan and tighter control for executing construction projects (Hendrickson and Au, 1989). Hence, the commercial building projects may be more sensitive to financial losses or benefits compared to other types of construction projects as described before, such as residential, infrastructure and heavy engineering, and industrial projects. Therefore, this research is focused on investigating the commercial building project such as office buildings, hospitals, villas, apartments, hotels, and resorts.

27 Construction projects are generally characterised by consuming a large number of materials and other resources (Clough et al., 2005). Project complexity and an intricate nature will result in a higher investment and spending of funds and time. Also, construction projects are critically linked, and are very much dependent on a wide variety of other sectors (Alarcón et al., 2009), such as material productions, consultancy and professional services. The increasing sophistication of construction clients and the complexity of their needs have caused their selection criteria for contractors to be based on the best value principles, instead of project costs (CIOB, 2009). Main contractors prefer to incorporate specialist subcontractors for multifaceted projects to share project overheads (Kim and Ballard, 2002 and 2005).

Project complexities, the intricate nature, sophisticated demands, fragmented project packages, and diversified activities cause a construction operation on site to become very difficult to manage, which involves other parties with different organisation interests, and which are also complex businesses in their own right. Project environments like this should involve good experienced organisations, and may require higher investments, advanced technologies, skilled human resources, and knowledgeable personnel. These considerations could affect the increasing importance of project overheads significantly.

2.3.6.

Importance of Project Overheads

Project complexities are often characterised by differentiation, e.g., different types and locations may use different construction methods and technologies. A shopping mall of commercial projects is typically built in a crowded area of central cities, and this would require more complex construction methods, equipment, and operations compared to a still mill storage of industrial projects in a quieter area. The project’s interdependency to other production and service sectors (Alarcón et al., 2009) due to different companies with each of their interests often increases

28 project complexities during construction operations. These project complexities could result in increasing project overheads more rapidly compared to direct costs.

Assaf et al (2001) argued that the majority of contractors have had increased project overheads during recent years, based on a survey carried out among practitioners of 61 large building construction companies in Saudi Arabia. Up to 77 per cent of contractors had a significant increase in overheads, while 9.8 per cent remained unchanged, and only 13.2 per cent reported a decrease in overhead costs. Enshassi et al (2008) reported the outcome of a survey questionnaire among forty (40) building contractors in Palestine, which showed a much greater change in overheads than what Assaf et al (2001) reported. A significant increase in overheads has been claimed by the large number of these contractors. About 93 per cent of contractors in Palestine showed the increasing trend in overhead costs. This implies that project overheads contribute a considerable portion of the construction cost.

Relevant literature such as Ostwald (2001) and Enshassi et al (2008) describe that project overheads range between 8 per cent and 15 per cent of total construction costs depending on the project complexity. Project overheads are required to sustain the entire construction activity. Assaf et al (2001) suggested that project overheads are easily overlooked and extremely important in construction, and some contractors have been forced out of business (financial losses) due to neglecting project overheads.

In the global competitive market, all project resources are accounted as accurately as possible and budgeted quite tightly. Cost overruns in construction projects must be prevented, and eventually have to be run under budgets to help avoiding any financial losses. The project contract price should recover all components of project costs such as materials, labour, contingency, overheads, and extra profits for the contractor (Aretoulis et al., 2006; Giammalvo, 2007 and 2009; and Šiškina et al., 2009).

29 Construction materials and labour are typically costed very close to the price of informed open-markets. Overheads are becoming an important component for being well planned and controlled to sustain project activities. The project overheads would therefore be considered as fundamental costs to be potentially manipulated in a total project price for generating real benefits during the construction stage of construction projects. The succeeding section discusses about project overheads in detail.