Examining Available Procurement Methods For A Project Construction Essay

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The purpose of the report is to examine multiple procurement methods available which suites the project most.

The client has stated that the building hast to be carbon neutral and must be constructed to the highest aesthetic and qualitative standards whereas value for money given the current economic climate must not be neglected.

The budget to cover the total development cost, inclusive of construction works, external works, roads and statutory and professional fees is estimated to be £35 million. The completion date is critical, as the building requires handover by 1st July 2013 at the very latest, due to conditions in place in relation to the funding which has been acquired for the project.

The proposed site will require the demolition of a number of existing structures along with the installation of a road to facilitate access prior to construction of the new building. The new facility will contain:

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library and ICT

teaching facilities

community activity and meeting rooms

café

swimming pools

health and fitness centre including squash courts

dance studios

sports hall

crèche

medical practice and pharmacy

External facilities will include:

walking and cycling paths

external sports areas including artificial pitches

skateboarding and BMX cycling facilities

community park and playgrounds

floodlit sporting venues

INTRODUCTION TO PROCUREMENTS

There are many different kind of risks in construction. These risks include completing a project which does not fulfills the requirements, which is delivered late or ran out of budget which the client cannot pay or fund. All these risks have a very serious impact on the client's core business. The procurement strategy adopted must balance risks against project objectives at an early stage. When considering any procurement, the client must consider the 3 main points which are time, cost and quality. However, the client's responsibility, risk, degree of competition and controllable variation also must not be neglected.

Time (speed or certainty of completion date)

Cost (price level or cost certainty)

Quality (functionality and performance)

The table below shows proportions of procurement strategies used in the UK today

( Adopted from "Construction Planning, Programming and Control" (2009) by Cooke. B and Williams. P)

As can be seen from above table, Design & build is the most popular procurement strategy as it occupy 43% of the overall percentage followed by Traditional procurement method with 37%. Target, Partnering, Management Contracting and Construction Management have a total of 20% added up together.

PROCUREMENT STRATEGIES

There are many types of procurement strategy in today's industry however only some of them will be concentrated as they are most likely would offer most practical approach and at the end of this report, only one procurement strategy would finally be appraised for recommendation. These procurement strategies would be;

1)Traditional Method

This kind of procurement method is more suitable for inexperienced or occasional construction clients. It is seen as the least risk approach as there is a level of certainty about design, cost and duration inherent in the strategy if it is properly implemented (R.Morledge & A.Smith & D.T Kashiwagi, 2006). The design has to be completed before any competitive tenders are called to and before the main construction contract is made. As a result, construction cost can be determined with reasonable certainty, assuming there are no changes introduced before construction starts.

Cooke and Williams (2009) state, "A variety of contractual arrangements are available with traditional procurement:

A lump sum contract based on:

Drawings and specification where the builder prepares quantities

Full documentation with bills of quantities

A re-measurement contract based on approximate/notional quantities

The contract price is determined at the end of the contract by measuring the actual work carried out"

As from the above statement, the client must consider a number of decisions before making their final decisions as to which contract they are going to use. If traditional procurement were chosen, it is more likely that a lump sum contract should be used as it gives the client a larger degree of price certainty. Unlike a re-measurement contract, project is completed the final cost will not be known until the.

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The client can use the competitive tendering in order to be sure that he achieved the best value for money. Selected contractors will have to submit a price for carrying out all aspects of the works and usually the contractor with the lowest price will be awarded with the contract. From this tendering method, the client would receive a number of different quotes and the works can usually carried out within the budget cost.

As the client has a direct contractual relationship with the design team, they are able to influence the development of design to suit their requirements. Through the architect, the clients are able to influence but not control the construction process when the construction begins.

The figure below shows the relationship between the client, client's design team and main contractors under a Traditional Procurement Route using JCT 2005 with Quantities Contract.

( Adopted from "Construction Planning, Programming and Control" (2009) by Cooke. B and Williams. P)

The advantages of Traditional Procurement.

Design-led, as the client able to have direct influence, therefore facilitating a high level of functionality and also bespoke quality in the design.

As the design is mostly complete before the tendering begins, cost can be certain providing changes and variations are kept to a minimum throughout the construction process.

Changes are very easy to arrange and the value where the design needs vary due to changes in client need or technology.

The client has control over the design team.

The completion dates are set.

The disadvantages of Traditional Procurement.

All the risks in terms of design and financial risk lies with the client.

The strategy is based on price competition therefore might result in adversarial relationships developing.

In the case of lack of information might present at tender stage then as the project progresses and designs are developed extra works and costs will most probably arise.

Due to the client having to elect a representative before any design work is completed there are often large design fees before any construction work even begins.

2) Management Contracting

Management contracting involves the client employing a management contractor to manage the construction works. The client can request quotes from a number of different contractors for managing the contract and usually the contractor with the lowest rates will be awarded the contract. The contractor is paid a fee for doing so. The management contractor, therefore, bears the responsibility for the construction works without actually carrying out any of that work, (R.Morledge & A.Smith & D.T Kashiwagi, 2006). Some of the common services on sites such as office accommodation, tower cranes, hoists and security, may be provided by the management contractor but in pure management contracting such works are let as a self-contained work package. The client have to bear the risk of the design team de laying construction for reasons other than negligence as the design team is employed by them.

Cooke and Williams (2009) state of management contracting, "The work package approach allows maximum overlap between design and construction activities. As each section of the work is designed, the work package subcontractor may commence the works on site. This tends to result in a reduced overall contract period." As the consequent, it is a strategy with low certainty for the client at the outset. Cost certainty will not be achieved until all works contractors have been appointed thus a high level of cost management is required.

The Figures below shows the relationships between Client, Design Team, Management Contractor and Sub-Contractors in a typical management contracting arrangement.

( Adopted from "Construction Planning, Programming and Control" (2009) by Cooke. B and Williams. P)

The advantages of management contracting.

The overall project is relatively time-saving due to the overlapping of design and construction processes.

Changes can be made provided packages affected have not been let and there is little or no impact on those that are already let.

At the time the work is let, the works packages are let competitively at price.

The disadvantages of management contracting

As the design will not be complete until the client has committed significant resources to the project, the client must have to provide a good quality brief to the design team.

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At early stage the price certainty offered is very poor and the potential cost commitment depends upon design team estimates.

It reduces resistance to works contractors' claims where such demands are passed on to the client by the management contractor.

3) Design and Build

Design and build is also another fast-track strategy type of procurement method. Construction can start before all the design is fully complete, but the contractor has to bear all the risks. The contractor is responsible for the designing and building the project, in return for a fixed-price lump sum. Although there are several variants of design & build the key properties remain the same.

Before entering into this kind of contract, it is important that they key performance or quality specifications are fully and unambiguously defined and if they are not specific, the client will have to provide the contractors himself at the tender stage. The contractors are responsible to develop the design from the specifications and the clients are therefore, in strong set to make sure that their interpretation of the specification takes preference over the contractor's.Usually the client will hire a design team to carry out the pre-tender documents and sometimes, the successful.

In (R.Morledge & A.Smith & D.T Kashiwagi, 2006) stated that, "if a design and build strategy is identified as a possibility at an early stage, then the basis of the appointment of the design team should reflect the possibility of novation". The client will have to pay for the fee of termination to the design team if it does not go this way.

The selected contract is obligated to provide the employer with a building that is fit for its purpose and is shown that is a significantly higher duty than that anticipated by an architect under a traditional strategy. The client can still ensure that he gets a large degree of value for money by using competitive tendering.

(Adopted from "Building Procurement" (2006) by Roy Morledge, Adrian smith and Dean T.Kashiwagi).

The figures above shows the relationship between the client, contractors and the design team under a design and build strategy.

The advantages of Design and Build.

A degree of price certainty is guaranteed early on in the project which is probably a major importance to the client

The contractor is responsible to bear the brunt of the cost of the designs changes after the design stage and this should give the client a peace of mind that the budget will most likely stay in budget on best interest.

The client has only have to deal with one firm as the main contractor provides point of contract for both the design and construction aspects of the construction process.

The completion dates are also fixed as the designs processes are early in this procurement strategy.

Total project time can be reduced due to overlapping in activities.

The disadvantages of Design and Build

Client might experience difficulties as they will have to provide an adequate and sufficient comprehensive brief.

As the contractor will be bearing all the risks, this could be reflected onto the price.

There is no design overview unless separate consultants are appointed by the client for this purpose

Client changes to project scope can be expensive.

The tender period is much longer than other procurement strategy.

The project may become price driven which may lead to a decrease in quality.

Procurement systems

 

Client's priority :

Traditional

 

Design and build

 

Management

 

Essential

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

Sequential

Accelerated

Direct

Competitive

Develop and Construct

Management contracting

Construction management

 

Desirable

3

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Do without

1

Utility

Score

Utility

Score

Utility

Score

Utility

Score

Utility

Score

Utility

Score

Utility

Score

Time

 

 

 

 

 

 

 

 

 

 

 

 

 

Is early completion required?

 

5

10

50

50

250

100

500

90

450

60

300

100

500

100

500

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Is a firm price needed before any

5

90

450

40

200

100

500

100

500

90

450

20

100

10

50

commitment to construction is formed?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flexibility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Are variations necessary

 

3

100

300

90

270

30

120

30

120

40

120

80

240

90

270

after work has begun on site?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Complexity

 

 

 

 

 

 

 

 

 

 

 

 

 

Is the building highly specialised,techno-

4

40

160

20

80

20

80

10

40

40

160

100

400

100

400

logically advanced or highly serviced?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Is high quality important?

 

5

100

500

60

300

40

200

40

200

70

350

90

450

100

500

Certainty

 

 

 

 

 

 

 

 

 

 

 

 

 

Is completion on time important?

 

5

50

250

30

150

100

500

90

450

70

350

90

450

90

450

Is completion within budget important?

 

4

30

120

30

120

100

400

100

400

50

200

70

280

60

240

Division of responsibility

 

 

 

 

 

 

 

 

 

 

 

 

 

Is single-point responsibility wanted?

4

30

120

30

120

100

400

100

400

70

280

30

120

10

40

Is direct professional

 

3

100

300

100

300

10

30

10

30

50

150

70

210

100

300

responsibility wanted?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Is transfer of responsibility for the

4

30

120

30

120

80

320

100

400

70

280

30

120

10

40

consequence of slippages important?

 

 

 

 

 

 

 

 

 

 

 

 

Result

 

 

 

 

2370

1910

3050

2990

2640

2870

2790

Ranking (High to low)

 

 

6th

7th

1st

2nd

5th

3rd

4th

The above priorities are based on personal assumptions.

The figures below shows the amount of risks which spreads between the client and the contractor from different procurement strategy.

(Adopted from "Which Contract", Fourth ed. (2007) by Stanley Cox, Hugh

Clamp & Sarah Lupton)

Conclision.

Each of the above procurement has their own advantages and disadvantages towards suitability for Gamestown project. It offers a large degree of Value for money especially when tendering method is adopted is seen as the least risk approach as there is a level of certainty about design, cost and duration inherent in the strategy if it is properly implemented. A high financial control can be achieved as the designs are almost complete before the construction work begins which means variations and extras are kept to the minimum. The main disadvantage of traditional procurement is however that the client takes all the risk in terms of design and financially. For these reasons it is believed that this procurement strategy would not be suited to the Gamestown project

Management Contracting has a major advantage over traditional procurement as the overall construction periods are shorter. This means that the construction can be completed before the handover date by 1st July 2003. It reduces resistance to works contractors' claims and therefore, the client takes all the risk and again for this reason it is believe that this procurement strategy will not be suitable for the proposed project

It is believed that the most suitable procurement strategy to follow would be the design and build. The drawings which are already produced can be used by the client as an outline brief which then sent out to a number of design and build constructors so they can further develop and price them. By doing this, the client is transferring all the risk to the contractors. The contractors will be responsible for all the design aspects and they will have to bear the brunt of the costs. As the result, the client can be confident knowing that their budget will not overrun. However the only main disadvantage which will affect the project as a whole is that due to the contractor bearing all the risks alone, the initial cost of the project may be higher. Nevertheless, being the advantage for the procurement strategy, it is believed that this is outweighed by all the advantages and therefore this procurement strategy should be recommended to the Gamestown project.