Procurement Routes in Construction

The main purpose of this report is to evaluate key procurement issues that the client has to consider in selecting an appropriate procurement route for the rapid reconstruct of three hotel building project. We have analysed four kinds of procurement routes such as traditional procurement route, design and build procurement route, management contracting procurement route and construction management procurement route. After the analysis, we have chosen a most suitable method to meet our objective, in terms of cost certainty, construction within the planned period and quality of the building. Also, creating a sparkling and luring environment for hotel guests in the near future. We too have considered the economic benefits as such if the hotel re-opened on time within the budgeted cost, we can also recover the investment costs as soon as possible. Therefore we have recommended the design and build procurement route for this project.

Introduction

In construction industry, many factors cause the results of the project. The right procurement route is one of the factors to achieve project successfully. In order to select best procurement route, we need to analyse client’s background, objective, project requirements, technical complexity of the project, construction risk (cost, time and design/quality) and etc.

Analysis

Client Background

“Cinnamon Grand” is a privately owned large hotel chain in the UK. They offer comfortable accommodation across the UK and are committed to preserving their rich heritage. They are very passionate about the outlook of their hotel buildings and they are experienced at renovation of buildings. But they have lack of in-house executive who is either experienced enough or enable to devote sufficient time in advising the reconstruction of their properties.

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Project Requirements

As the hotel has planned to reopen on the 1st April 2015, we have started planning for the project on August 2012 and construction will be started on 1st March 2014. Lastly, the hotel will be handed over to the owner latest by 28th February 2015.

Reconstruct in two phases

Phase 1 – Rapid reconstruction for the main areas of the hotels such as swimming pools, roofs, restaurant and guest rooms, which allows the hotel to be re-opened for business within a period of 12 months (from 1st March 2014 to 28th February 2015).

Phase 2 – Newly construction of some facilities such as health and fitness centre, conference and meeting, rooms dance studios. High technology multimedia facilities with air conditioning shall also be provided for conference and meeting rooms. During construction, good service will also be provided to hotel guests.

Quality of the buildings is also important. The new constructed hotel must create sparkling and luring environment that can be enjoyed by all hotel guests. It has to match the existing hotel or even better which allows the former magnificent look to be brought back.

Design requirements

Design quality should at least match the existing hotel or even better.

The tender document submitted by the tender contractor should include scope of works, construction methods, programming, management methods, availability of resources and costing.

The material application will submit through template or sample and requires strict inspection and approval by client.

Contractor’s typical design proposals require approval by client, due to client experienced in the renovation of buildings.

Client requires retaining the ancient architectural style- rich heritage for the external features of the hotel

Using green materials in order to lower impact to the environment. For example: using green roof.

Demolitions works will minimize the damage to the building when using suitable method.

Maintenance proposals should be done during the preparation time (from August 2012 to 1st March 2014).

Good construction planning and planning should include safety, environmental and health issues and solution. Especially during the phase 2 constructions, the normal business of the hotel will not be affected by the construction. Hotel guests will also not be subjected to the influence of the construction.

Client Objectives

To complete project within the budget of £120 million by choosing the best possible procurement route.

To complete the building within the planned schedule.

To enhance the quality of building and facilities provided, creating a sparkling and luring environment after renovation of the building

During phase 2 constructions, good service must be provided to the customer.

Analysis of the Procurement Route

There are three generally accepted standard approaches to construction procurement in the UK construction industry: traditional procurement; design and build procurement and management procurement (management contracting and construction management). Different procurement route has different approach. Hence, we will analysis the traditional procurement, design and build procurement, construction management and management contracting.

3.4.1 Analysis of traditional procurement route

The client’s consultants will complete fully the design before contractors tender. Then the tender will be usually awarded to the contractor with the lowest price.

Advantages

• Good design quality due to design completed by client’s consultants.
• Client will choose the lowest tender price as contractors will tender based on the same information given.
• Procedures well known by both party

Disadvantages

• Long preparation time, due to design fully completed by client’s consultants before tender.
• Construction will only start on site upon the completion of the design.
• Client is fully responsible for the design risk

Risks

Lump sum contract will bring the cost risk to low risk as same information given by client.

As for fixed contract date, the contractor might have the right to claim for extensions due to design or contraction issues, therefore it is medium time risk.

As design quality control by client’s consultant based on client’s requirement, therefore it reduces design risk to low design quality risk.

In conclusion, traditional approach is suitable for inexperienced clients or occasional construction clients and project without critical time requirements. It is not suitable for some large and complex project which requires advanced management systems, structures and skills.

3.4.2 Analysis of design and build procurement route

The design and construction is undertaken by a single contractor for a lump sum contract, which allows overlapping. Design is not fully develop by contractor before the contract is awarded.

Advantages

• Single contact point due to contractor is responsible on design and construction.
• Early start and shorter project duration due to design and construction is overlapping.
• Client can control project cost due to lump sum basis.

Disadvantages

• Tender need to be awarded before design fully complete.
• Client has the difficulty to prepare the adequate brief.
• After the tender has been awarded, changing of design can be expensive for the client.

Risks

• Lump sum contract will reduce the cost risk to low risk.
• Design and construction can be overlapping; therefore it is a low time risk.
• Design and build contractor is responsible for the design, if client’s design requirement is not clearly indicated, then maybe it is a high risk for design quality.

Therefore Design and build approach is suitable for all clients including inexperienced or client requiring cost certainty and fast track projects. Not suitable for complex or high quality buildings.

3.4.3 Analysis of construction management procurement route

Construction Management, in which the design is developed by the Employer’s consultants and construction commences before the design is complete. A fee-earning consulting “Construction Manager” works for the Employer to define and manage several Works Packages, each representing a specialised or functional aspect of the project.

Advantages

• Shorter overall project duration
• Clarity of roles, risks and relationships for all participants
• Client requires late design change easily due to contact awarded by different package

Disadvantages

• Client doesn’t have control on cost.
• Need a good quality project team to manage the project.
• Needs effective control of time and information.

Risks

• Actual cost will only be known until the last package is awarded, so cost risk is medium.
• Because job is awarded by individual package, so does not has the main organisation to overall control the construction time. Therefore time risk is considering as medium risk.
• Project done by individual specialist contractors to reduce the design risk to low risk.
• Construction Management approach is suitable for experienced clients, fast track projects, complex building and not suitable for project requiring cost certainty.

3.4.4 Analysis of management contracting procurement route

Management Contracting, in which the design is developed by the Employer’s consultants and construction commences before the design is complete. A “Management Contractor” is appointed early to let elements of work progressively as a series of trade or package contracts (called ‘works packages’). As with Construction Management, the final cost can only be determined when the last packaged has been let.

Advantages

• Overall project duration shorter
• Client requires late design change easily due to contact awarded by different package
• Work packages let competitively

Disadvantages

• Poor cost certainty, client will only know the final price till the last package been awarded.
• Need a good quality project team to manage the project
• Need a good quality brief to every works contractor, if not the case, contractor may not make client requirement.

Risks

• Actual cost will only be known till the last package is awarded, so cost risk is medium.
• The total construction duration is a consequence of package selection. Therefore time risk is considering as medium risk.
• Project done by individual specialist contractors to reduce the design risk to low risk.

Management contracting approach is suitable for experienced clients, fast track projects, complex building, and fairly large project. It is not suitable for project requiring cost certainty.

Conclusion

No procurement route is best suited in all circumstances. We can only base on the key elements and to select a most suitable procurement route. Time within planned schedule, cost certainty and quality of the building are the key elements we need to consider in this project.

Both traditional and design and build can achieve client’s objective of cost certainty. Management contracting, construction management and design and build can achieve client’s objective of time within planned schedule. Management contracting, construction management and traditional can achieve client’s objective of quality of building.

Based on above analysis, out of 3 key elements we only can choose two most important elements as following:-

Cost is the first consideration. Both management contracting and construction management procurement routes, the cost can only be known till the last package is awarded. But due to client concerns for cost overrun, they want to know the cost before project start. So both routes are not recommended.

Time is the second consideration. Hotel must be re-opened on 1st April 2015. As only 12 months is given for phase 1 construction and the opening before the tourist season has a great impact on the hotel business, therefore traditional is not suitable for fast track construction. Design and build is well suited to warrant maximum price contracts and design and construction overlapping. This will involve considering return on capital investment, the likely benefits to operational efficiency or income flow. So we are not considering using traditional in this project.

Quality of the building is the third consideration. It is generally felt in the construction industry that quality is the first thing to suffer in design and build contracts. However, the evidence does not support this. Quality of the building is the result of how we management the construction process. There is no correlation between procurement method and perceived quality of the product.

After consideration, we will recommend design and build procurement route for this project. The appointed contractor is responsible for the design, documentation and construction of the project, based on the client project brief and requirements through lump sum cost. So the speed of construction is faster and the client will know the costs of the project earlier. Whether the quality of building can be achieved, it is depending on how well our project requirements have been defined and delivered. Project manager will be responsible for co-ordinated design and construction programme. This may considerably reduce revisions after contract award and minimise possible interferences. All team members must build up well communication channels, to solve the problem as soon as possible when construction is going on.

Referencing

John Murdoch and Will Hughes (2008), Construction Contract Law and Management, Fourth edition

School of the Built Environment © Herriot – Watt University (2012), Procurement & Contracts

Task 2

Option A

Discuss the liability of Alexander Contractors to the Employer for the additional costs that the Employer had to incur as a consequence of being required to employ a more expensive tenderer to carry out the construction project.

Discuss the Clerk of Work’s power to issue a Direction as detailed in the given scenario and its implications on the loss and expenses incurred by the Contractor.

Detail the possible claims with respect to the given scenario, the main facts that can be included in the claims and the contractual provisions available to substantiate the claims according to the ‘JCT Standard Building Contract With Quantities 2005 Edition (JCT SBC05) Revision 2 2009’.

If you were the Contract Administrator prepare a report outlining your assessment of the Contractor’s claim including the process you have followed, the pertinent issues of the dispute and the contractual provisions relevant.