Integrated Contracts By Dutch New Build Schools Construction Essay

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The need to create durable and sustainable buildings becomes nowadays more clear. To make durable and sustainable design, it might be necessary to bring the vision of the contractor as close as possible to the needs of the end user of a building. This idea appears in the Living Building concept. However, in the building industry this can be rather hard to establish.

In the regular procurements, the tender is often realized in separate phases. But now the integrated contract is becoming slowly more popular. The impact on the future management of a building can already be included, during the design and construction process. In this way the contract becomes an integrated contract, and the probability of unpleasant surprises after completion of the building is minimal.

The main question in this essay is:

What are the possibilities of integrated contracts, with special focus on the DBMFO contract, when building new schools, and what are the lacks and advantages of this form of contract?

In this essay, this development in the contracting and tender of school-buildings in the Netherlands will be discussed. The idea behind this form of tendering is considered and will be illustrated in the view of the Montaigne Lyceum in Ypenburg, The Hague , the Netherlands. At the end, a personal view to this development is given.

integrated contracts

Integrated contract as possible solution

Public Private Partnership (PPP) is a form of contract in which client and contractor see each other as full partners. Creativity is encouraged, which creates innovative ideas. A Design-Build- Finance- Maintain -Operate (DBFMO)-contract is an integrated contract for PPP. A public partner and a private party (consortium) sign the contract for a long-lasting period. The basic idea behind the integrate procurement is the life cycle approach. With the building of schools, this means that the municipality and the board of the school work together and combine the financial flows. This because by combining the financial flows the municipality manages the investment budget and the school board manages the budget for exploitation, the life cycle of the school building is covered.

In a traditional building process, the various activities that take place in these phases of investment and exploitation are separately tendered. In principle, different parties are involved and selected and contracted by the client. In the most extreme case the design, construction, maintenance and operation are outsourced separately. When the building is completed maintenance and repair will be outsourced separately.

This fragmented organization ensures coordination problems and often unnecessarily high failure costs. When an organization makes a contract, they will always try to ensure that their price / performance ratio is as optimal possible. This self-interest is the most important for a company. The joint importance to implement a good project is second placed. This can results in poor building quality and high failure costs.

Forms of integrated contracts

An integrated contract will combine the various activities, which results in an integrated contract tender. A number of variants within these tender can be distinguished, depending on the degree of integration of the building phaces. The main variants are mentioned here, but in reality there are many possible variations which are usually traceable to one of the main forms.

Design-Build (DB)

As the name suggests, in a Design and Build contract the design and the construction is integral outsourced to a party. This party is responsible for the design and execution of the building.

Design-Build-Maintain (DBM)

Within these form of contract, the maintenance of the building is part of the contract too. The contracted party will also design the building, leading to an optimization in design choices and materialization.

Design-Build-Maintain-Operate (DBMO)

This contract form also covers the operation part; the exploitation is also a responsibility for the contractor. Because the contract also includes not technical services, the contractor should consist out of a consortium of several parties. This contractor is also made responsible for the optimal operation of the building. The remuneration of the contractor is based on the agreed performance.

Design-Build- Finance- Maintain -Operate (DBFMO)

In this contract a private party, usually a consortium, is responsible for the financing of the project for a longer period. The client sets the desired output and leaves as many tasks around housing, maintenance and operation to the contractor. The contractor obtains maximum latitude to use his creativity. Because the contractor is also responsible for the financing, this contract adds importance to a punctual performance of the contracted service obligations.

Main differences between traditional and integral contracts

The contract form used in a certain situation depends on the wishes, requirements, budget and the planning of a project. The main differences between the integral contract and the traditional contract form are shown in figure 1.

Contract form

Traditional

Integral

Type of demand

Technical demands

Functional Demands

Type of tender

Each phase separately tendered

Multiple stages tendered at once

Number of counterparties

Multiple counterparties

One counterparty

Type of building process

Short preparation, long construction time

Long preparation, short construction time

Possibilities more work

Chance of more work

Risk more work limited

Exchange knowledge

Little input market expertise

Exchange of expertise between designing and executing parties

Figure - Comparison between traditional contract and integral contract

Figure two shows the relative height of design and construction risks for the client, in the different forms of contracts. Besides it visualizes the client's influence. In summary, the graph learns us that the traditional way of contracting brings many risks, but also much possibility to influence the project. An integrated contract limits the risks for a principal, but also prohibits the principal's influence on the project.

Figure 2 - Comparison of traditional contract versus integral contract forms

Montaigne lyceum

Introduction

The Montaigne Lyceum in Ypenburg, The Hague is a good example of the development of the integral form of contracting. This school building was build three years ago. In that days, it was the first building in the Netherlands constructed according to the 'public-privates-partnership' -concept. It was tendered with a DBFMO-contract. This process of tendering and the problems that occurred during the realization are described in this chapter.

The building of the new Montaigne Lyceum was contracted to a consortium called "TalentGroep Montaigne". The "Talent Group" consisted out of Strukton, Imtech and ISS Facility Services. The Bank of Dutch Municipalities (Bank Nederlandse Gemeenten, BNG) toke care of the financial part of the project and was involved as well. These interested parties were responsible for the DBFMO contract; the contract that the Lyceum has signed with the consortium for 30 years. An overview of the connection between the different companies within "the TalentGroep" is shown in figure 3.

Figure 3 - Schematic view of build-up of the "Talent groep".

Operation and maintenance were part of the contract, so the Montaigne Lyceum had to decide at an early stage exactly which parts of the operation and maintenance needed to be covered in the contract. The Lyceum decided the following items to be part of the contract:

- Maintenance of building and grounds

- Cleaning and waste disposal

- Furniture, equipment and permanent devices

- ICT infrastructure

- Gas, water and electricity

- Catering

- Reproduction Services

Expectations

Before the project started, there were some expectations about the possibilities and consequences of applying a full contract and which problems it would entail. However the contract did not end yet.

In this paragraph the different point of views and expectations will be discussed and evaluated.

Expectation 1

The first expectation was that the project would set an example and that it would be a learning possibility, to be used in future projects by the involved parties.

Looking back now, this expectation proved to be correct for almost all parties involved. However, the direction of the school itself had less profit from this learning curve compared with the other actors. Indeed the directors of the school will not build a new school again soon, but for the governance it was a nice try out. The information gathered in this project has already been used in other projects.

Expectation 2

Another expectation was to obtain more quality for the same amount of money, or the same amount of quality for a lower amount of money. In the case of the new Lyceum, there was choosen to try to maximize the quality for a certain static budget.

Integrated contracts offer the opportunity to offer more quality for the same money, because various disciplines work on the project from an integral perspective. Good coordination between the management and maintenance disciplines on the one hand and between design and construction disciplines on the other hand ensures that the right solutions are chosen, in comparison to the lifetime of the building. For example, to lower the maintenance costs, good quality and low-maintenance materials are chosen. This requires a good cooperation within the consortium. In case of the Montaigne Lyceum, this integrated approach did not continue in an optimal way, after the contract was tendered. This happened due to a lack of experience with this tender form, as well as due to the loss of external consultants after the finishing of the tender process.

Expectation 3

Before the start of the tender, the expectations were that the use of a DBFMO contract would ensure less time needed to be spend on organizational matters by the direction of the school such as management the maintenance work and cleaning of the building.

However, in reality this is not the case. Due to the insufficient communication between the school and the consortium the ultimate outcome the school had in mind , was not achieved. Therefore various alignments and defects needed to be corrected afterwards. To complete these changes and the discussion about who was liable for the expenses of the defects, took a lot of time. This shows there are major shared responsibilities in some areas, between the different parties. For example: who is responsible for the cost caused by vandalism of the students? Is it part of the maintenance or part of the responsibility of the school? To ensure that both parties cooperate, thay have to share their responsibility. The unexpected financial profits, such as a low energy bill will partly be a benefit of the school. Therefore the user remains involved in the responsible use of the building and to use it in a durable way.

Expectation 4

A DBGMO-contract gives little room for changes. See also figure 4. The graphs visualize what research has shown; in a traditional process, there are for a principal more possibilities to makes changes in the design than with an integrated process. The development of the design follows a gradual, natural way, while in an integrated process the tender moment is emphasized.

The changes that can take place are also very expensive, as the principal is depended of one contractor only. Therefore, at the tender special attention is given to the possibilities to adapt the building. Future adaptations to the building have to be easily to implement.

Figure 4 - Influence of the principal on the design in both traditional contracts (left) and integrated contracts (right)

In practice, many changes were necessary duo to the bad description of the wishes from the school 's point of view and the not optimal of the design. The fact that the client is dependent on one contractor is generally not a pleasant experience. But at the end of the project of the Montaigne Lyceum it turns out to be sometimes a good thing. An additional instructional space was needed. At a reasonable cost and very quickly it was implemented by the consortium. If there would have been no consortium, this was probably not so quickly achieved because all kinds of connections (such as the ventilation flow) must fit well into the rest of the system.

Expectation 5

When an integral contract like the DBFMO contract is used, a bank plays and active role in the process. The bank monitors the risks and the quality over time. The bank will try to limit these risks. Because the bank is part of the consortium, there is a financial incentive to deliver the project on time and to make sure that the quality is fine. A lack of quality will have impact on the management phase and on maintenance phase. This progress in those different phases is also the responsibility of the consortium. Therefore it will create an optimal balance between quality, price, and risks.

It is clear that the intervention of banks leads to on time finalization of a project within budget. During the operation phase, the value of involvement by banks is not easily proofed. Small (?) problems in this phase will cause no immediate large risks for banks. Therefore they will only start interacting with … when many mistakes are made. To maintain a high quality, the school should take over part of the control task of the bank and communicate often with the consortium. This understanding is important for the school in order to estimate to what extent they should control themselves and to what extent the banks will control it.

So it turns out the consortium does make sure the project finishes on time, because the school will only the amount (money? Of waar gaat het om?) if the building is completed. So the consortium depends on a quick delivery. To create more quality, the schools should take over part of the control task of the banks and communicate with the consortium.

Advantages and disadvantages

Main advantages and disadvantages of integrated contracts are summarized in figure 5. Not every advantage or disadvantage is in practice for 100% true. As mentioned in paragraph 3.2 some theoretical expectations about the use of integrated contracts turn out to be not totally valid in practice.

Main Advantage

Main Disadvantage

Money

Early in the project certainty about the price

Fees have to be paid to several providers that signed in for the job, to meet them for the cost they made in their work in the tender phase.

Organization

The client has one party to communicate with

The preliminary process requires much knowledge and skills of the client

Traditional managing work for the principal is taken over by the contractor

There are fewer corrective opportunities during the realization process

Time

There is time saving in the construction, because the design is specifically fitted to the implementation

The preliminary process takes much time.

Information

The client has one central commination partner (the consortium)

After the preliminary process, the principal has little influence

Quality

High qualityand connections between different parts of structures are well made.

The principal has little influence on(?)the quality when realization has started.

Figure 5 - Advantages and disadvantages of the integrated contract.

Personal vision

Personally I think this new way of dealing with contracts and tendering processes might give a good opportunity to create more durable and sustainable buildings. Of course it is no total solution for all problems that occur during a building process. By using this integral contract forms, it must be ensured that the problems are not just moved from the user to the contortion. With traditional contract forms problems often occurred when a contractor did not deliver good quality. When the contractor is responsible for the maintenance and operation of a building it can happen the user does not care very much responsibility for the building. If this is the case the problem is only moved from the user to the contractor.

If this kind of contract forms are used more often in the future, more time will be spend on design. This gives a nice opportunity for future engineers. But one must realize not every uncertainty can be known from the beginning. Changes in thinking will occur during the project and changes in the building project might be necessary. By depending on one consortium, the price for the changes might be relative high.

Conclusion

In the regular procurements, the tender is often realized in separate phases. But now, the integrated contract is becoming slowly more popular. During the design and construction process the impact on the future management of a building can already be included. In this way the contract becomes an integrated contract, whereby the probability that a building yields unpleasant surprises after completion is minimal.

Integrated contracts offer the opportunity to offer more quality for the same amount of money, because various disciplines work on the project from an integral perspective. Good coordination between the management and maintenance disciplines and between design and construction disciplines ensures that the lifetime of the right solutions are chosen.

When we look to the Montaigne school as an ultimate example of the application of the integrated contract concept we see that good communication is still very important. Especially after the preliminary phase, it is very hard to make changes in the design of the building. The traditional way of contracting brings many risks, but also much possibilities to influence the project. An integrated contract does limit the risks for a principal, but also prohibit the influence the principal has on the project during the building pahse.

Integrated contracts can be very useful to create a sustainable and durable construction. The following statement forms a nice summary of what can be reached with integrated contracts: "Sustainability does not cost any extra money when is looked at the longer term. By working together and understanding what the other 'needs' space will be created and extremely challenging concepts will arise"

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