Examining The Impact On Project Performance Construction Essay

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The traditional method has been in use in the UK since the early nineteenth century. Under this approach, the client usually enters into a separate contractual relationship with different design consultants and a contractor. In theory, reimbursement of the design consultants is on a fee and expenses basis whilst the contractor's price is a lump sum or based on work completed on an admeasure basis. It is assumed that all the detailed work will be completed before the contract documents are prepared (Rougvie, 1987; Morledge et al., 2006). One of the essential characteristics of this approach is the rigid separation of the design and construction processes. The process begins with a client who may have a need for a building. After confirming the need for a new building, the client briefs an architect who will then assist him/her to develop a business case for the project and advise on other consultants required. The design consultants produce design drawings, specifications and contract documents, upon which competitive tenders are obtained from contractors. The successful contractor is then appointed by the client to convert the design into a finished facility, under the supervision of the architect who usually acts as the lead consultant and contract administrator.

The two variants of this approach are:

ï‚· Sequential: Where completed design drawings, specifications and cost documents are prepared for contractors to bid, generally, in competition; and

ï‚· Accelerated: Under this approach, the contractor is appointed earlier in the sequence of design based on partially developed design information, either by negotiation or in competition (Turner, 1997).

The process follows a strictly sequential path with each of the activities involved carried out in isolation. This often leads to poor communication, undermine relationships between project team members and produce problems of buildability (Masterman, 2002). Rougvie (1987) points out a mismatch between the contractual system and the communication system. The client is in direct contract with the contractor but has no rights of communication or instruction under the contract. Similarly, the architect is expected to control the other members of the design team, without having 6

any contractual influence or authority over them. Historically, the traditional procurement method has been prone to extensive confrontation, adversarial relationships and a culture of litigation (Hardcastle & Tookey, 1998). However, the traditional approach has been in use in its present form for over 150 years; it is well understood in the industry. It can offer a high degree of certainty in terms of cost and specified performance at contract award.

The traditional procurement is a low-risk option for clients who wish to minimise their exposure to the risk of cost overrun and design failures, as it offers cost certainty and time predictability. It is suitable for both experienced and inexperienced clients and for projects where functionality is a prime objective (Constructing Excellence, 2004). The accelerated option is best applied for large or complex projects, where the solution may not be derived without specialist construction input, or when it is necessary to accelerate the construction programme (Cox and Townsend, 1998: p.37). According to Murdoch & Hughes (2008), the traditional procurement strategy is selected when the client makes no explicit choice and the advisors do not raise the issue. In other words, it is adopted when no one plans the means of procurement.

4.2 Integrated Procurement Strategy -Design and Build

Under the design and build (D&B) approach, the contractor takes full responsibility for the design, management and construction of the project. It has become one of the most popular procurement methods in the UK building industry (Loptun, 2009). The process starts with a client identifying a need for a building and employing design consultants to prepare outline design and/or performance specifications for invitation of bids from contractors. Once appointed, the successful contractor then goes on to develop the design and construct the building.

Several variants of the D&B approach have been identified by recent researchers (Chapell, 2007; Hughes et al., 2006; Knight et al., 2002; Masterman, 2002), including:

ï‚· Novated design and build: The client employs the services of design consultants, who are assigned to the contractor on their appointment. This means that the original contract between the designers and client is replaced by a new one between contractor and design consultants (Knight et al, 2002);

ï‚· Package deal: Under this, the contractor provides standard buildings or system buildings, which are adapted to suit client requirements. It particularly refers to systems of industrialised buildings, which are usually purchased and erected as a 'package' (Chappell, 2007);

ï‚· Turnkey contract: The term 'turnkey' means that after completion, when the client takes possession of the building, all that remains to be done is to turn the key. The contractor


accepts responsibility for everything required for the design, construction, completion, commission and hand over of the facility; and

ï‚· Develop and construct: The client appoints design consultants to prepare conceptual design drawings or sketches. Once appointed, the contractor will complete the design and construct the project.

Although the contractual relationships among the parties seems simplified when compared with other procurement methods, Masterman (2002) declares that this simplicity is deceptive and that 'a detailed analysis of the process reveals the fact that the various constituent parts are, in themselves, relatively complex and contain a number of pitfalls for the unwary and inexperienced client' (p42). Parallel working is facilitated in the D&B strategy, making it analogous to aspects of the concurrent engineering in the aerospace and other industries (Hardcastle & Tookey, 1998; Anumba & Evbuomwam, 1997). The most important factors affecting the choice of a D&B approach are single point of responsibility; the need for guaranteed maximum price; and the transfer of design and construction risks (Cox & Townsend, 1998). D&B is suitable for all clients, including inexperienced clients. It is also suitable for cost certainty and fast track projects, but not suitable for a developing client brief.

4.3 Management-orientated Procurement Strategies - Management Contracting & Construction Management.

This category of procurement methods place the emphasis upon the overall management of design and construction of the project with the later aspect being carried out by works or package contractors (Chan, 1995). The procurement methods, which are considered under this category include Management Contracting, Construction Management and Design and Manage procurement. However, the most commonly used are the Management Contracting and Construction Management.

Management Contracting: Where a management contractor is appointed to 'provide management services to control and co-ordinate all site activities, sub-letting the actual works to package contractors on a competitive basis' (Cox and Townsend, 1998: p38). An important feature of this approach is the appointment of the contractor alongside the design team to develop a programme for construction and to contribute to the design and costing of the works (Constructing Excellence, 2004). The mechanism of payment is usually on a cost-reimbursement basis plus a management fee, making this a low risk option. The RICS Contract in Use survey (2010) reveals a consistently declining trend in the use of this approach, suggesting that it is losing out in favour of other procurement methods such as the Construction Management.

Curtis et al. (1991) provides guidance as to the best conditions for employing this approach: 8

ï‚· on large and complex projects, where there is possible need to change requirements during construction (flexibility);

ï‚· where there is a need for early completion;

ï‚· where there is concern for labour availability, material and transportation, and local labour relations;

ï‚· where the client and advisors have insufficient in-house management resources; and

ï‚· where a large number of different contractors are required, resulting in many interfaces for co-ordination.

However, this approach is less suitable for inexperienced clients, cost certainty before commencement of construction and for clients who want to pass risk to the contractor (Constructing Excellence, 2004).

Construction Management: This approach is similar in concept to the Management Contracting Strategy. However, under the Construction Management approach, the client enters into a separate contract with the design consultants, package contractors and a construction manager who provides management services on a consultancy basis.

Construction Management approach is best used when the client wishes to have:

ï‚· separate contractual responsibilities for the professional management and the design of a construction project;

ï‚· flexibility to use competitive tendering and/or negotiation for procuring separate elements of construction;

ï‚· an early start on site and a fast-track project;

ï‚· a less adversarial form of contract; and

ï‚· scope for variations throughout the project.

(Cox and Townsend, 1998)

The Construction Management strategy requires constant involvement by the client, so it is only suitable for experienced clients.

4.4 Discretionary Procurement Strategies - Partnering Agreement

Partnering has been described as a structured management approach, which facilitates team working across contractual boundaries by integrating the project team and smoothing the supply chain (Hackett, et al., 2007). The UK Office of Government Commerce (OGC, 2007) identifies two forms of partnering:

ï‚· Project partnering involves the integrated supply team and the client organisation working together on a single project, usually following a competitive procurement.; and


ï‚· Strategic partnering involves the integrated supply team and the client organisation working together on a series of construction projects to promote continuous improvement.

In other words, partnering can be project-specific or for a series, or programme, of projects. Partnering is applicable to all projects, including those that are very straightforward and limited in scope (OGC, 2007). However, it is said to be particularly appropriate in situations where:

ï‚· the project is technically complex and business requirements are difficult to specify;

ï‚· the client has similar project requirements over time, giving scope for continuous improvements in cost and quality; and

ï‚· construction conditions are uncertain, solutions are difficult to foresee and joint problem solving is essential.

According to Bennett & Peace (2006) 'Partnering delivers significant improvements in performance by empowering designers and specialists to do their best work' (p.8). However, Samuelsson-Brown (2002) argues that the full benefits of this approach can only be realised when the lessons learned on projects are transferred to future projects.

4.5 Common Variants - Target Contracts & Cost Plus Fixed Fee

Some of the well established procurement methods, such as the traditional and D&B approaches, have produced variants that are common to most of the main procurement approaches (Masterman, 2002). Masterman (2002) identified the UK common variants to be Two-stage Selective Tendering, Negotiated Contracts, Continuity Contracts, Serial Contracts, Cost plus Contracts and Target Cost Contracts. However, judging from the RICS Contracts in Use Survey (2010), the most common variants are the Prime Cost plus Fixed Fee and Target Contracts.

Prime Cost plus Fixed Fee

Under this approach, the appointed contractor will be reimbursed by payment of the actual cost of the works plus a fee to cover overheads and profit. It is suggested that the use of this system can be advantageous to the client when:

ï‚· there is inadequate definition of the work at the time of tender (Walker & Hampson, 2003);

ï‚· high inflation is prevalent;

ï‚· the project is extremely complex and there is a major or unquantifiable risk; or

ï‚· an emergency occurs.

Prime Cost plus Fixed Fee would be suitable if a number of these characteristics are in combination within the one project (Masterman, 2002). The absence of a tender sum and an estimated final cost generally prevents the use of this system on projects that are subject to rigid accountability requirements. 10

Target Contracts

In fixed price contracts, contractors take the risk of their estimates being wrong, while the reverse applies to cost plus fixed fee contracts where the client is at risk in relation to the final cost. Target contract provides a medium for splitting the risk between the client and the contractor (Hackett, et al., 2007). The client agrees with the contractor to share any savings or additions if the actual cost is lower or higher than the target cost.

Muriro & Wood 2010

The specification for most of the projects reviewed is an average of three storey, reinforced

concrete strip and pad foundation, steel frame, face brick/block walls and aluminium


From the remaining 49 projects 35 were tendered using the D&B procurement method and 14 were

tendered using the traditional method.

Contractor selection methods used was varied across the projects reviewed but selected

competition was the most common method used (49% of the projects analysed) followed by

open competition (37%), Negotiation (12%) and Two stage tender (2%) as represented in

Figure 1 below.

The high percentage in competitive selection methods used in appointing contractors is in line

with perceptions noted in the review of related literature in which clients are viewed as

seeking to have their end products at the lowest price. Competition, whether selected or open,

is perceived to generate this aspiration.


5.5 Causes of Poor Profitability

5.5 Impact on Stakeholders

5.6 Impact on Project Performance

5.7 Summary