There are several procurement methods available to meet the Clients need. In order to select the appropriate route, Clients objectives and priorities must be considered. An understanding of the characteristics of the different routes is required before a recommendation is made to the Client and these characteristics are described in this report.
Not all types of procurement route are suitable for particular project as Client objectives and priorities vary. The objectives and priorities of the Client need to be matched to a procurement route. To do this effectively, it is important that the characteristics of the routes are understood by Client before a procurement method is selected.
The Client owned a huge hotel chain, Cinnamon Grand in UK. Their objective is to provide comfortable accommodation across the UK and to maintain their rich heritage, therefore, they are very concern of the hotel buildings’ outlook. Cinnamon Grand have a strategy of renovating the neglected historical buildings and bringing them back to their original appearance. By doing so, the hotel management board is experienced at renovation of buildings over the years.
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In August 2012, the hotel management board decided to reconstruct the three hotels located in the prime locations in the South East of the UK, which are destroyed by the adverse weather. Quality is one of the key procurement issues that the Client has to consider. In this case, quality of the buildings is very important to the Client as their reputation was founded on quality of accommodation and service, therefore the Client is willing to take this reconstruction project as an opportunity to improve the quality of buildings and facilities provided as compared to what they were before the severe storms and they will be using similar design solutions adopted for previous hotel buildings. Cinnamon Grand is use to dealing with construction of hotel buildings, however, Cinnamon grand do not have an experienced in-house executive who is able to devote sufficient time to advise the reconstruction project. Therefore, risk avoidance/allocation must be taken into consideration.
In order to meet the client’s policy on architectural significance and aesthetics of the buildings, Cinnamon Grand have to invest a great amount of money, time and effort to ensure that the reconstruction is always sensitive and does not compromise the dignity of the buildings and services provided. The Client has decided to obtain an estimated amount of £120 million from a Commercial bank. The Client is very concerned about the possible project delays and overrun of budgeted cost, therefore, price certainty is most important. The final price is required to be known at the outset. Under the current economic climate, value for money is also a key consideration.
The reconstruction of the three hotels will be undertaken in two phases. In phase 1, the planned start date on site is 1st March 2014 and is required to handover by 28th February 2015. Due to the opportunity cost of closing down business, the completion date is critical. As such roofs, guest rooms, restaurant and swimming pools must be completed in order for them to re-open to business which is planned to be scheduled on 1st April 2015 to meet the summer crowd. Therefore time is also a key procurement issue to consider.
In phase 2, dance studios, health and fitness centre and conference and meeting rooms will be newly constructed to enhance opportunities for health and well-being of the visitors. During this phase, the hotel guests must be well taken care of while the construction is going on. And also, conference and meeting rooms require high technology multimedia facilities with air conditioning, this will be a complexity issue to be considered.
After analysing the client, we understand that the client is under private sector with experience. Please refer to the diagram below.
(understanding client box diagram)
Appraisal of Procurement Routes
Having a procurement strategy at the initial stage is key to a successful outcome. A review of the UK Construction Industry called Áccelerating Change’ identified ‘Six Key Steps’ that a Client should take to devise a procurement strategy.
There are three generally accepted procurement routes in the UK, namely traditional procurement route, design and build/construct procurement route and management procurement route. There are three main factors (time, quality and cost) affecting the procurement route to be chosen, and at any one time, only two parameters can be controlled.
Traditional Procurement Route
In traditional procurement route, the Client employs an Architect as its principal agent and appoints a team of consultants to prepare the contract document which include specifications, drawings and tender documentation. This allows the contractors to tender and cheapest contractor is usually awarded the contract. The key feature is that the design is fully complete before the construction starts and it follows the sequential RIBA Plan of Work.
One of the traditional procurement route is lump sum contract. Under this contract, the design is fully completed and the contractor will tender base on the drawings and complete bill of quantities. As such, the cost risk on quantities is on the contractor. As the quantities are known, assuming there is no changes, the contract sum will be exact and known at the tender stage. However, under this procurement route, the overall project duration may be longer as construction will only start after design is completed. Therefore it is not recommended for client’s scenario as time is a critical issue for the Client.
Another traditional procurement route is remeasurement contract. Under this contract, there is no firm bill of quantities. As the design is not fully completed, the contractor will tender base on the drawing and schedule of rate with approximate quantities. The contract sum is not finalised at the tender stage as the quantities used to prepare the tender will be re-measured after completion. As such, the cost risk between the finally measured and tendered approximate quantities rest with the Client. Although as compare to lump sum contract, this route allows the contractor to tender earlier when the design is partially completed, however, the price certainty will be reduced. Therefore, this route is not recommended as Client wanted to know the final price at the outset.
Design and Build Procurement Route
In Design and Build procurement route, the contractor will tender against client brief. The design is not fully developed until the contactor is appointed as the contractor will be responsible for both the design and construction.
One of the Design and Build procurement route is two-stage tender. The contractors will prepare design proposals based on Client’s requirement and the scheme design which the Client deem best suitable is then adopted and completed by the appointed contractor. In this procurement route, the Client liaises with a single point of contact, thereby simplifying the process. As construction work can commence before the design is fully completed and there will be minimum changes from the original design due to design is under contractor’s control, the project duration will be reduced which eventually result in time and cost saving. This route is recommended as it meets the Client’s criteria on time and cost issue.
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Another Design and Build procurement route is Package deals and Turnkey solutions. In this route, the Employer has minimal involvement in design development and it tends to be associated with the provision of standardised óff-the-shelf’ design solutions for standard building types. This route is not suitable for complex, high quality building. As the Client’s project involve reconstruction of three hotels which are not simple buildings, this route is not recommended.
Management Procurement Route
There are two management procurement routes, namely Management Contracting and Construction Management procurement route.
Under the Management Contracting procurement route, the Employer will appoint a Management Contractor who will become a member of the design team, giving construction knowledge and management expertise. The Management Contractor together with the designer will decide on the appointment of subcontractors, thus making use of a wider range of experience.
In this route, work packages are let competitively as contracts are entered into when commencement of work draw nearer, making firm price tender possible. However, the final cost is not known until the last package is confirmed and Employer retains the cost risk on the project, thus this route is not recommended.
Under the Construction Management procurement route, the Employer appoints a construction manager who will coordinate the design and construction programme, making sure that the trade packages are properly considered. Employer will then enter into contracts with individual specialist contractors. As such, direct communication between the Employer and Contractors enabled faster response to decision and Employer is able to identify and act upon poor trade contractor performance. However, one to one contractual relationships of Employer with all team members will result in added complexity and increased administration role of Employer. Therefore, this route is not recommended as one of the Client’s limitation are they do not have a experienced in-house executive who is able to devote sufficient time on the project.
Conclusion and Recommendation
After analysing the Client’s background, objectives and business together with the different type of procurement routes, two-stage tendering procurement route is recommended.
Client had emphasized on time and cost is critical, they are concerned of the project delay and overrun of budget. In this route, the project duration is reduced as compare to traditional route because design and construction can take place concurrently. This route usually has minimal changes from the original design because design is under contractor’s control, this result in time and cost savings which benefit the Client. Time savings reduce the Client’s financing charges, inflation has less effect and the hotels can operate sooner which produces an earlier return on the capital invested.
Another important factor that Client is concern is quality. With this method, although there is no professional to advise on the technical quality of the designs, the Client’s agent may supervise the works and ensure that the contractor’s proposals are complied with and the work is of the required standard. In Design and Build contracts, people will feel that first to suffer is quality, however, the evidence does not support this (Pain and Bennett 1988). There are good quality buildings from Design and Build and poor quality building from other procurement method. There is no direct relation between procurement method and quality. If Client highest priority is aesthetic quality, he can engage a contractor with a reputation for architectural merit.
In conclusion, every method had their characteristics to suit different circumstances. No procurement route is best suited in all situations. In this case scenario, the most appropriate route will be two-stage tendering in terms of time, cost and quality as compare to other procurement routes.
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