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Cinnamon Grand is the privately owned large hotel chain in UK, they offer comfortable accommodation across the UK and are committed to preserving their rich heritage therefore they are very passionate about the outlook of their hotel buildings. A recent period of bad weather and severe storms has resulted in three Cinnamon Grand hotels being significantly destroyed in the south east of the UK. All destroyed hotel buildings are located in prime locations in town settings. The hotel management has decided to reconstruct the three hotels to a better quality than they were before with budget of £120 million in two phases.
I, Pattusamy Subramanian appointed as a main consultant by the client (cinnamon Grand) for the above projects, as a part of my role is to prepare a report to the client to advise on the most appropriate procurement route for the above project.
Purpose of Procurement
A Person or Company commissioning construction projects will require an end product which will satisfy their needs as to form a quality and which they can taken possession of the agreed time which they will obtain for a competitive price.
It is important that procurement decisions are justifiable on the basis of documented facts and analysis. Soundly based decision involve a comprehensive exploration of a range of potential delivery models and procurement methods to determine the approach best suited to each project, by methodically exploring all available options, projects owners can ensure that opportunities for achieving increased value-for-money.
Client is very concern about the building features as they have strategy of adopting neglected landmark buildings and bring them back to their former magnificent look. In line with client policy on architectural significance and aesthetics of the buildings, client will invest a great deal of time, cost and effort to ensure that reconstruction is always sensitive and does not compromise the dignity of the buildings and services provided. The client planned to carry out the reconstruction works in two phases as follow;
Phase 1: Requires the following areas to be handed over by 28th February 2015 and able to start work on 1st March 2014 (12months) and client Planned to re-opening on 1st April 2015.
Phase 2: the intension to enhance opportunities for health and well-being of the visitors through new facilities. The following facilities will be newly constructed under this phase.
Health and Fitness centre
Conference and meeting rooms
There are few key points need to consider from the client profile as follows;
Client very experienced in renovation of neglected Heritage building.
Client did not have an in-house executive to be actively involved in this project design and construction.
Client wants to avoid the Project time and cost risks and looking for value for money.
Analysis of Procurement route options
There are four main key methods of established procurement routes available, each of those involving different types of contract, contractual relationship, information flow, roles and responsibilities with in the team. The Four key procurement routes are;
Design and Build
4.1 Traditional Procurement route
In the traditional approach, the employer accepts that design work will generally separate from construction, consultants are appointed for design and cost control, and the contractor is responsible for carrying out the works. This responsibility extends to all workmanship and materials, and includes all work by subcontractors and suppliers. The contractor is usually appointed by competitive tendering on complete information, but may if necessary be appointed earlier by negotiation on the basis of partial on notional information.
Accountability and Competitive equity as all tendering contractors bid on the same basis.
Design lead and the client is able to have a direct influence which can facilitate a high level of functionality and improve the quality in the overall design.
Price certainty at the award of the contract.
Variations (changes) to the contract are relatively easy to arrange and manage.
Traditional procurement route is very familiar in the market.
Process time takes longer to produce the full contract documentation. Tenders documents from an incomplete design can be produced but can lead to less cost and time certainty and may lead to disputes.
Overall project duration may be longer than other procurement methods as the strategy is sequential and construction can not be commenced prior to the completion of the design.
No input into the project design by the contractor as they are not appointed during the design stage.
Cost risk is low due to lump sum contract.
Time risk is medium due to fixed contract date but the same time contractor has right to claim extension if time.
Quality/design risk is low as the majority of the works designed by consultant who is working for client directly.
Traditional procurement route is not suitable for this project due to no time certainty.
4.2 Design and Build Procurement route
Design and Build procurement contractor accepts responsibility for some or all of the design. There should be express reference to this in the contract, and the extent of design liability should always be set out as clearly as possible. Some design and build forms limit the design liability of the contractor to the normal professional duty to exercise reasonable care and skill. Independent consultants engaged by the contractor are therefore under a liability no greater than normal. If the contractor does not have in-house designers, which is often the case, and the contractor uses external consultants, their identity should be established before the tender is accepted.
The client’s requirements might be stated briefly and simply, perhaps little more than a site plan and schedule of accommodation. On the other hand, they may be a document of several hundred pages with precise specifications. The contractors input might be restricted to taking a scheme design supplied by the client and developing details and production information. It is however better to specify in terms of performance requirement rather than to prescribe in details, because this leaves the responsibility for design and selection with the contractor.
With a design and build method, it is possible ensure a quicker start on site, and the close integration of design and build can result in more effective programming. Time, however, is needed by the client’s consultant to prepare an adequate set of requirements, and time is needed to compare and evaluate the schemes from the competing tenderers. Once a contract is signed, any changes by the client can prove costly.
Client has to deal with one firm and reduces the need to commit resources and time to contracting designers and contractors separately.
Price certainty is obtained before construction commences as client’s requirements are specified and changes are not introduced.
Overlap of design and construction activities can reduce project time and improved constructability due to contractors input into the design.
Difficulties can be experienced by clients in preparing an adequate and sufficiently comprehensive brief.
Difficulty in comparing bids since each design will be different, project program will vary between bidders, and prices for the project will be different for each design.
Client is required to commit to a concept design at an early stage, often before the detailed designs are complete and design liability is limited to the standard contracts that are available.
Cost risk is low due to lump sum contract.
Time risk is low due to contractor fix the time and be committed to it.
Quality/design risk is high as the contractor control the design limitation, the risks related to the capacity of the contractor to perform the task based on the design.
Design and Build Procurement is most suitable for this project as it’s giving time and cost certainty and contractor is liable for the all the risks.
4.3 Construction Management Procurement route
In construction management route, the construction manager engaged to advise the employer on fees basis. The employer directly involve in the contracts with various specialist contractors throughout the project life. The specilised contractors are direct communicating with employer to get clarification and instruction as this process is faster than the other procurement methods.
The construction manager will be co-coordinating the design and construction programs and ensures that the specialist contract packages were considered properly. Through these arrangements, the employer is at substantial risk, however the final responsibility for these issues may be hang on to the employer, depending on the form of contract used.
Potential time savings in overall projects as the design and construction activities are overlapped.
Increased competition for construction work due to work packaging.
Improved constructability through constructor input into the design.
Roles, risks and responsibilities are clear to all parties
Flexibility for changes in design.
Price certainty is not achieved until the final works packages have been let.
Informed and proactive client is required.
Client must provide good quality brief to the design team as the design will not be complete until resources have been committed to the project.
Close control required on time and information.
Client loses direct control of design quality which is influenced by the constructor.
Cost risk is medium as it is unknown until the final package has been let.
Time risk is medium as the responsible shared by several trade contractors works directly under client.
Quality/design risk is low as the link between client, designers and contractors are close.
Construction management procurement is not suitable for this project due to no cost and time certainty.
4.4 Management Contracting Procurement route
Management Contracting and Construction Management procurement routes are similar. The only key difference is; In Management Contracts, the client entering into a contract agreement with management contractor who, in turn, contracts with the individual trade contractors. The client pays the cost of the works contracts as well as a management fee for the management services. In Construction Management, the client engaged construction manager on fee basis to arrange trade contractors and monitor them and the individual trade contractors direct contract agreement with the client.
The advantages, disadvantages and risks are similar as above stated in the construction management.
Management contracting procurement is not suitable for this project due to no cost and time certainty.
Recommendation on appropriate procurement route
After appraise through the various methods of procurement routes, considering the client requirements, client resources, project characteristics, project budget, project quality, delivery time and risk factors, I would like to recommend the Design and Build procurement route is an appropriate method for this project in this circumstances. The reasons to reject the other procurement routes are described in detail above and the summery as follow;
Traditional procurement route is not suitable for this project due to no time certainty.
Construction management and Management contracting procurement are not suitable for this project due to no cost and time certainty.
Discuss the liability of Alexander contractor to the employer for the additional cost that the employer had to incur as a consequence of being required to employ a more expensive tenderer to carry out the construction project.
Scenario given in relevant to Alexander contractor liability
The Alexander contractors returned the tender document to the employer with conditions that it is open for acceptance for six weeks. Upon completing the tender review, the employer establishes that the Alexander contractor is its preferred tenderer. However, before the employer is able to write to the contractor to accept its offer, the Alexander contractor wrote to the employer stating that it is withdrawing its tender.
General rules in the contracts – There is no contract liability between the tenderer and the employer until the letter of offer is accepted, in the mean time the tenderer may withdraw the tender anytime before the issuance of letter of acceptance. It shows that the Alexander contractor may not be liable to the employer at the same time if the conditions of tendering state any clause like tenderer not able to withdraw till stipulated time, then the Alexander contractor may be liability for breach of the tender conditions.
If there is a clause stated in the conditions of tender documents then both party have to appeal to court to settle disputes on the lose and damages, judge will assess the case with the evidence of facts and documents and use the law clauses to make a decision.
Support for this belief come from the leading textbooks on contract law, such as Chitty on contracts. In the Twenty Seventh edition of this famous work, published in 1994, it is stated:
“The general rule is that an offer may be revoked at any time before it is accepted. The rule applies even though the offeror has promised to keep the offer open for a specified time for such a promise is unsupported by consideration”
In support of this statement the case of Routledge v. Grant (1824) 4 Bing 653 is quoted where the defendant offered to buy a house giving the plaintiff six weeks to give a definite answer. It was held that the defendant was free to withdraw at any time before acceptance event though the six week period has not expired.
The result of this that where a tendering period is very short tenderer sometimes rush to submit a tender seemingly safe in the knowledge that they can check their figures once the tender is submitted, and if errors are found, withdraw their tender at any time prior to acceptance.
Discuss the clerks of works power to issue a direction as detailed in the given scenario and its implications on the loss and expenses incurred by the contractor.
Scenario given in relevant to clerk of works power
The contractor about to start to construct the pile caps then they realized that the concrete quantities in the BOQ are wrong as the sizes of the pile caps had wrongly been transferred from the design drawing in to the BOQ. The contractor re-calculated the quantities as per the drawing and found that the concrete work require 250 cubic meters instead of 160cubic meters shown in the BOQ. The contractor informed the Contract Administrator of this discrepancy in writing and copied to Clerk of Work. The Clerk of Work issued a Direction to construct the pile caps according to the drawing and ignore the quantities shown in BOQ. The Clerk of Works pointed out that the payment would be made on physical measurement of the work.
Clerk of Works is employed by the client and known as Site Inspectors, Site Supervisors or Building Quality Officers, monitor the entire site works for their client. The main responsibility is to make sure that work is carried out to the client’s standards, specification and schedule. In most cases, the specifications are prepared by Architects or Engineer employed by the client. Clerk of works make sure that the correct materials and workmanship are used and that the client is given quality work and value for money. Clerk of works are either on site all the time or make regular visits, they need to be vigilant in their inspections, use contract administrator approved drawings and written instruction as a reference and all works must meet the Authorities requirements and client standards.
In Scenario stated that the contractor did informed the contract administrator about the pile cap concrete quantity discrepancies and Clerk of work issue directions to proceed the works as per drawing. The contractor has also highlighted that needs to change the concrete curing method due to increase in concrete volume and limited contractor recourses as per original program. The contract administrator issued instruction approving this arrangement. The work was accomplished within four days as per contract administrator approval with increased expenses additional concrete quantities, incurred additional manpower and loss of time (Two days) due to changes in concrete curing method. Hence, under the JCT conditions of contract, the contractor has complied with the contract administrator instruction, which fall under variations in relevant matters and the contractor allowed to claim the loss and expenses from the employer.
(JCT Standard Building Contract with Quantities 2005 Edition Revision 2 2009, Clause 3.4)
Clerk of works are authorized to issue directions to the contractor. The direction shall not valid unless confirmed by the contract administrator and issue instruction to the contractor within next 2days, the date of such confirmation shall be deemed the date instruction is issued.
(JCT Standard Building Contract with Quantities 2005 Edition Revision 2 2009, Clause 4.23)
In the execution of this contract the contractor incurs or is likely to incur direct loss and expense for which he would be reimbursed by a payment under likely to be materially affected by any of the relevant matters (See clause 4.24).
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 SBS05) Revision 2 2009.’
Scenario given in relevant to possible claims
Discrepancies in pile cap concrete quantities as per the design drawings, the work require 250 cubic meters instead of 160cubic meters shown in the BOQ.
Changes in concrete pile cap concrete curing method due to the pile cap size and concrete volume increased compared to the original program.
The first floor collapsed during curing of concrete. It is partially due to structural instability of the existing load bearing walls. Contract administrator decided to replace the damaged ground flooring and repair the walls to carter for structural stability.
The employer on several occasions has failed to pay interim payments to the contractor by the final date agreed in the contract.
According to the JCT condition of contracts (clauses 2.14, 2.15, 2.16, 3.14 & 4.24), the contractor did notified the contract administrator on the discrepancies in concrete quantity and copied clerk of work. The Clerk of work issued direction and subsequently contract administrator issued instruction to proceed. In this case the contractor has complied with the contract administrator instruction and allowed to claim for the additional materials, plant, man power which used to complete the works. The additional works to be measure by standard method of measurement and calculate using schedule of rates stipulated in the contracts.
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