China: The Art of Construction Project Management in China

Until December 1, 2004, project management services in China were largely unregulated. That is not to say that they were not being performed effectively and efficiently, but rather that the Ministry of Construction ("MOC") did not take an active interest in these services.

That all changed on November 16, 2004, when the MOC issued the Provisional Measures on Construction Project Management ("the Provisional Measures"), to come into effect on December 1, 2004. Despite the extremely short consultation period, the Provisional Measures have the potential to radically alter the way in which project management services are undertaken in China.

The field of project management has grown dramatically, and in many respects, project management means different things to different people. In its broadest sense, project management covers a wide variety of project delivery systems in which a project manager oversees all or any one of the following:

• Constructability review

• Pre-construction project management

• The bidding process

• Negotiation of construction contracts

• Construction management and supervision

• Scheduling

• Cost control

• Quality control

• Safety management

• Claims management

In some cases, the project manager also acts as general contractor, in which case he will be assuming responsibility for completing the project on time, within budget, and will assume all the responsibilities of the traditional general contractor.

Some people argue that project management is a science; in other words, there is a set of principles or rules that ought to be followed, and by so doing it is possible to obtain a certification or qualification as a project manager. In essence, according to this argument, the principles of project management can be mastered by following these principles or rules. There is another school of thought that argues that project management is an art; in other words, good project managers learn from experience and observation rather than from principles set out in books. It is probably fair to say that the MOC inclines towards the first view but acknowledges aspects of the second view. For example, a Grade A supervision qualification requires that the enterprise have at least 15 personnel who are qualified as supervision engineers (the science position), but also requires the manager of the enterprise to have more than 15 years’ working experience in the construction and engineering field (the art position).

It is fair to say that project management services in China are very much in their infancy and on the whole tend to be undertaken by foreign enterprises rather than domestic Chinese enterprises. The Chinese construction industry remains organized in the traditional manner, with the design institutes on one side and contractors on the other. As such, procurement systems such as design-build and turnkey EPC are rarely seen or used.

In light of this, the MOC has been encouraging Chinese construction enterprises to adopt the project management model for a number of years. On February 13, 2003, the MOC issued a guidance opinion on fostering the development of general contracting and project management. This opinion stressed that in order to assist Chinese construction enterprises to "go out," it was necessary to adopt the international practice of project management in China. To this end, Chinese construction enterprises were encouraged to establish project management organizations and systems.

As part of this process, the MOC in August 2004 issued a Code of Management of General Project Contracting for Construction Projects. This Code is essentially a National Standard and prescribes standards for, amongst other things, construction management, schedule management, cost management, quality and safety management, as well as contract management.

Accordingly, the Provisional Measures are in many ways a continuation of the MOC’s drive to educate and improve the standard of construction in China by placing more emphasis on project management as a means of procuring successful construction project delivery.

The Provisional Measures are intended to apply to all construction project management activities conducted in association with construction works in China. Construction project management is very widely defined as "professional management and service activities carried out by enterprises engaged in project management at the authorization and entrustment of the project owner, throughout the works or during an individual stage."

This definition clearly encompasses all of the elements of project management identified above, and this view is strengthened by the list of items that project management is said to cover in Article 6 of the Provisional Measures, namely:

• Assisting the owner in preparatory planning, economic analysis, ad-hoc evaluations and determination of investment; in other words, assisting the owner with feasibility studies;

• Assisting the owner in acquiring land and obtaining planning permits;

• Assisting the owner in organizing and managing the design process;

• Assisting the owner in procuring appropriate construction, equipment supply, and supervision services;

• Assisting the owner in negotiating and executing appropriate contracts with the construction contractor as well as suppliers of building materials, equipment, structures, and fittings, as well as assisting with supervision of their implementation;

• Assisting the owner in managing the construction process including budgeting, schedule, and claims management;

• Assisting the owner with post construction management

Clearly, therefore, the Provisional Measures apply to all project management services provided on construction projects in China, regardless of whether those services are provided by foreign or domestic enterprises.

Prior to the issue of the Provisional Measures, project management service providers were not required to hold a formal Chinese qualification certificate. Indeed, there is no such thing as a project management qualification certificate, and strangely even now this remains the case.

However, the Provisional Measures now require project management enterprises to have qualifications in one or several of the following fields: survey, design, construction, supervision, cost advisory, or tendering agency. This means that all enterprises undertaking project management must hold one or more of these qualification certificates.

This is an odd position to adopt because project management involves experience and elements of all of these fields, and to suggest that a qualification in one enables someone to be an effective all-around project manager is somewhat naïve. Having said this, if a project management enterprise can only undertake the scope of work specified in its qualifications, for example cost advisory, does this mean that an owner will have to employ separately qualified supervisors and tendering agencies? If so, this rather defeats the purpose of having one overall project manager. The Provisional Measures appear to suggest that to provide a total project management service, a project management enterprise must hold all of the required qualifications. However, this is at odds with the actual requirements of the Provisional Measures. Therefore, it would have been preferable for the MOC to establish a specific project management qualification. We understand that the MOC is presently drafting Administrative Provisions to cover project management.

One of the significant initiatives introduced by the Provisional Measures is the concept of independence. The Provisional Measures dictate that project management enterprises cannot own or be associated with any of the construction companies on the projects that they are managing. The reason behind this requirement is made clear by the activities that are expressly prohibited in the Provisional Measures, such as accepting bribes or asking for kickbacks or other favors, or conspiring with the contractor to use substandard construction materials.

While there are very good reasons why, in the China context, it is beneficial to have the project manager independent from the contractor, internationally it is not uncommon for the project manager to be connected with the contractor, and in some cases (for example, in the United States) the project manager acts as the contractor. Of course, when the project manager also acts as the contractor, there is an inherent conflict between the interests of the owner and the interests of the project manager. For example, when the project manager acts as the owner’s representative, its only concern is the protection of the owner, whereas when the project manager also acts as contractor, there is a split of loyalty. Nonetheless, it is possible to incorporate checks and balances in the project management agreement to address and mitigate this issue.

Accordingly, the blanket prohibition is not entirely appropriate and will no doubt deter many large foreign project managers or contractors who commonly act as integrated total construction solutions providers. Such organizations provide engineering, procurement, construction management, and general contracting services often on a "turnkey" basis and as such deliver potentially significant cost savings to their owner clients. It is often the potential cost savings that convince owners to put less emphasis on the issue of split loyalty.

Another area where the Provisional Measures promote international practice is accountability. On every project, it is vital that the project owner has confidence and trust in the entity managing the project – in many cases, the project manager acts as the owner’s representative and therefore has a high degree of responsibility. For this reason it is common for named individuals to be appointed for the duration of a project who can only be removed with the owner’s consent. In this regard the Provisional Measures promote accountability by not permitting project management companies to subcontract their management business or allow other companies to undertake project management in their name.

The Provisional Measures allow project owners to reward the project management enterprise by granting them a certain percentage of any cost savings that result from recommendations proposed or implemented by the project management enterprise. The parties are free to agree to the percentage in their project management contract.

Effective project management is a key component in successful construction project implementation. In the context of a property development or construction project, where the owner is not experienced in the administration and organization of building or engineering projects, it is important to engage a construction professional with the necessary qualifications who is able to make decisions for the owner in relation to carrying out the project.

An effective project manager will assist the owner in deliberating and decision making in connection with the project. An experienced project manager, by bringing to the project his particular expertise to ensure that the project comes in on time and budget, allows the owner to reduce the risk of cost overruns and project completion delays.

The MOC should be applauded for encouraging project management as an effective means of improving construction quality and safety. However, the MOC’s somewhat unimaginative and scientific approach to regulating the market is at odds with international practice and may not advance the discipline of project management as quickly or effectively as is necessary for the ultimate benefit of construction project delivery in China.

The concern is that the Provisional Measures send an unintended message, namely that the key to becoming a successful project manager in China is to take a course, memorize some rules, pass an exam, and become qualified. This type of project manager can articulate all the theories of project management but has little experience in the practical application of these theories on a real-life project. That is the last thing that China needs at this stage of the development of its construction industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.