Looking At The Developments Of The Construction Industry Construction Essay

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In order for this report to be carried out a literature review was developed to understand the concept of the topic Early Contractor Involvement (ECI) and also to use the information to explain how it relates to the author's report. This was done through searching libraries, databases, newspaper articles, journals and the use of the internet. Further to this review a particular case study was carried out on a project which is using the particular method discussed in the report. Through this case study a structured interview was carried out with an organisational body, who were involved with the project, to retrieve further in-depth information. The key findings are expressed throughout each of the different sections of the report and mainly discuss the process of the topic itself, its advantages, disadvantages and how the process has provided a means of 'fitness for purpose'.

Introduction

As the construction industry develops throughout the years, many different procurement routes have developed to successfully complete projects. Although not one of these has been clearly used for every project carried out. The reason for this is that different procurement routes have different characteristics which are suitable for projects. One of the well known routes is the traditional "Design, Bid, Build".

Through the past this route has successfully completed projects, however it has shown that the design stage and the build stage are split apart. Song et al (2009) explains that the main disadvantage of this effect is that contractors have no input into the design stage. The process itself normally starts with a designer liaising with a client in order to facilitate their needs in relation to the construction of a facility. A bidding process then occurs where the process of elimination selects a contractor to carry out the build stage. Further to this, Song et al (2009) cited Arditi et al (2002) in highlighting the fact that the impact on design is limited as the designer will have a lack of knowledge and understanding of the actual construction of the facility in comparison to the contractor.

The results of this have an effect on the project's cost, quality and time. For example, the schedule of the project can be severely affected by the designer guessing the length of time it takes to complete a task instead of asking the contractor, who will be carrying out the work, how long it will take them to do it. Quality can also be affected similarly as the designer may not know the best products to use, or for the contractor to use, in order to complete the project according to schedule. If one of these factors is affected so is the other.

http://www.the-self-build-guide.co.uk/images/Time-Cost-Quality-Triangle.jpg

(http://www.the-self-build-guide.co.uk/images/Time-Cost-Quality-Triangle.jpg)

This sort of construction knowledge and understanding held by contractors, with regards to cost, quality and time, has been analysed by many researchers and organisations. One such organisation is the Construction Industry Institute whereby they have categorised techniques of contractors and called them "14 best practices" and "44 value management practices" The practices can be found on the CII's website and the "14 best practices" can be seen in appendix A.

This concept of knowledge and understanding of contractors has been implemented into a new procurement route to try to improve past procurement routes. This has been called the Early Contractor Involvement (ECI) procurement route. The objective of this report is to explain this new type of procurement route and how it provides improvements in 'fitness for purpose' through its process. As this process is so unique and only building its foundations in the construction industry there is one project which will be the first to use this method of procurement in Northern Ireland. The author will use this project as a case study to try and achieve the objectives of this report. The information on this case study can be seen later on in the report.

Early Contractor Involvement (ECI)

As mentioned above different procurement routes suit different projects and also client's requirements. One main factor to consider by the client when determining their critical needs is the time spent in the design stage of a project. This new procurement route uses the concept of implementing the contractor into the design stage to not only speed up the process but also to add a higher quality. Through this process the design team and contractor must liaise with each other in order to ensure the project will be 'fit for the purpose' whilst 'best value for money' is also obtained.

Song et al (2009) defines Early Contractor Involvement as:

"A relationship between a contractor and an owner or a designer that engages the contractor from the early design stage and allows the contractor to contribute its construction knowledge and experience to design".

As the route itself mainly focuses on the design stages of the process it is also similar to the Design and Build route, however the main difference, is that the contractor is involved far earlier in the ECI route. Bishop (2007) explains the process of this ECI route, in that the contractors are selected by the assessment of the company's track record and from their ability to complete construction projects. He also states that the main problem with Design and Build route is that by the time the contractor gets involved there is no room for input, from the contractor, into the design as it is already 80% fixed, whereas with the ECI route the contractor joins the design team right at the start of the design stage.

The contractor who is involved with this design stage is normally selected on a two-stage tendering process. However the contractor must first pass the pre-qualification stage. This is where the contractor is assessed on past contracts completed by the contractor.

"ECI selects contractors not by lowest price bid, since there is not yet a design to bid for, but by an assessment of the company's track record via its Capability Assessment Toolkit." Bishop (2007)

Once the contractor has passed this stage they are then given an invitation to tender through the two-stage tendering process. This is a quality; cost based tender process on a basic design which is made from information available at this time. According to Mosey (2009, p.72) the first stage establishes the following criteria of the contractor:

"Main Contractor's Profit

Overheads

Preconstruction Phase Costs

Approach to Risk Pricing

Other Cost Components (that can be accurately priced on the information available at that time)."

He also states selection in this stage should also be based on quality elements, such as those outlined in the CIRIA (1998) report "Selecting Contractors by Value":

"Technical knowledge and skills - experience in engineering specialist elements; appropriate design capacity.

A number of management skills - managing time, cost, value, quality, risk, health & safety, etc.

Effective internal organisation - clear communications; sound administration and empowered staff;

Collaborative culture - record of 'partnering'; positive lead from the top; client focus;

Appropriate human resources - qualified and enthusiastic personnel available to do the job;

Supply chain management - sound dealing with subcontractors/suppliers; established relationships;

Financial resources - sound balances and cash flow; reliable reference;

Generally - a sound, relevant and demonstrable track record."

This will have a major affect on whether or not the contractor will be 'fit for the purpose' if selected for the contract. The second stage of the tendering process involves the main contractor interacting with the client's consultants to competitively assess subcontractors and suppliers for selection. This stage takes advantage of the pricing of the contract to a more accurate figure due to more information from the input of the contractor. If this figure is then satisfactory this becomes the formal contract sum. The main factors which will influence this figure are the "contractors input to design, risk management and programming." (Mosey, 2009, p.73)

Once the client is satisfied with the selection of the main contractor from the quality and financial assessments the contractor then works with the client's consultants to develop a target price. This is done on a pain/gain share formula states Bishop (2007):

"The two sides then work together on an open-book basis to develop a target price. The contractor is incentivised to design and construct the scheme within this target price, based on a pain/gain share formula."

A major outcome of the use of this type of procurement route is the creation of long-term relationships between client and contractor. This is achieved through team co-operation on all sides involved with a project. Egan (1998) explains in his report, Rethinking Construction, how the construction industry needs to improve the performance of delivery for projects, as it has been seen in other industries that the creation of long term relationships has achieved this improvement.

"An essential ingredient in the delivery of radical performance improvements in other industries has been the creation of long term relationships or alliances throughout the supply chain on the basis of mutual interest. Alliances offer the co-operation and continuity needed to enable the team to learn and take a stake in improving the product. A team that does not stay together has no learning capability and no chance of making the incremental improvements that improve efficiency over the long term."

Egan also stated on numerous occasions throughout his report that there is a need for partnering and integrated team co-operation. This is the key element of this new procurement route.

"The challenge for the construction industry is to develop their own integrated teams to deliver the same benefits to occasional and inexperienced clients." Egan (1998)

Technically ECI derived from Egan's report as it is a form of partnering, something that Egan has long pushed for to be implemented into the construction industry.

Advantages of ECI

The two main benefits of the ECI procurement route is the reduction of time and the increase in quality. These apply to the overall project's performance. Bishop (2007) relates to the reduction in time by citing Nichols (2006) in stating that the key benefit of this newly developed route is that it "potentially reduces preparation time for projects by 30% to 40%, by carrying out some parts of the development process simultaneously rather than consecutively."

Other benefits also apply, such as the reduction of risks. For example when the contractor is taken on board during the design stages of the contract, due to the construction knowledge and understanding held by the contractors, they will notice any certain risks which will arise or be embedded with regards to the build-ability of the design. This is a major advantage as it will make the construction stage not only easier to carry out but also safer.

A reduction in cost is also another advantage due to the 'Target Costing' aspect which is generally associated with ECI as a procurement route. It is normally stated during negotiations whether or not it applies to the contract. In most cases of ECI it will apply. It means if any money is saved due to 'Value Engineering' (which is explained later on in this report) from the contractors input the saving made on the formal contract sum is usually split between the main contractor, client and consultants to an agreed ratio. This encourages the contractor to produce better quality work ethics in order to achieve this saving of cost, thus resulting in better 'value for money' and in some cases improving the projects 'fitness for purpose' depending on the impact of the change.

Disadvantages of ECI

Through research, one of the main disadvantages with the use of ECI is the time taken up of higher management employees by the consultation of the main contractor. However this should change throughout the future if training programmes are implemented so that sub-ordinates can replace this role.

Another disadvantage is that that contract consultants need to adjust to the new procurement method. The author has noticed through previous projects that expenditure has over-run budget and in most cases even before the construction phase has begun. Bishop (2007) relates to this in stating that "Mike Nichols, chairman and chief executive of the Nichols Group, was commissioned by the secretary of state for transport in July 2006 to review the HA's Major Roads Programme following increases of up to 300% in the estimated cost for individual road schemes."

An even bigger topic which can be seen as a disadvantage or an obstacle is that this new procurement route must be put together with a form of contract for legality terms. Stowe (2005) believes that this can be achieved by amending a standard form of contract such as the NEC form to incorporate ECI concepts like target costing. "The end result would be a more robust document whose provisions would be more familiar to contractors in this market".

Measuring 'Fit for the purpose' of ECI

The HM Government stresses for the need to have good procurement practice. They explain how achieving 'fitness for purpose' is strongly linked to securing whole life value of a project.

"Good procurement practice is crucially important to reduce the overall cost of projects, to improve the economic efficiency of the construction industry and to ensure that projects, when complete, are fit for purpose, thereby securing whole life value"

HM Government (2008)

Further to this the HM Government found, through a NAO (National Audit Office) report in 2005 "Improving public services through better construction", that through the use of good procurement practice benefits of 2.6 billion pounds were saved of the public's pocket. They further state that "this represents a powerful business case to base procurement on whole life costs (rather than cheapest option) and to engage at an early stage with the supply chain".

One concept which is usually applied with ECI, to achieve fitness for purpose, is value engineering. Song et al (2009), explains how value engineering is used in the design stage of the procurement route and is used as an audit procedure:

"Value engineering identifies essential functions and develops methods to achieve these functions with lowest life cycle cost. To achieve this goal, knowledge from a multidisciplinary team, including construction expertise, is required to perform the function analysis, identify high costs areas, and formulate alternatives."

Stowe (2005) concurs with this statement by stating that the idea of ECI is "that the contractor will bring to bear its expertise in value engineering from a very early point in the schemes development phase."

Another method which ECI will have integrated in its process in order to achieve 'fitness for purpose' on a project is the use of Constructing Excellence's Key Performance Indicators (KPI) data. The HM Government hope that this data will be used for projects like those procured by ECI by 2012. The Government state in the report 'Strategy For Sustainable Construction' (2008, p.10&11) that the use of integrated teams within the construction industry should deliver a more sustainable finished product and that this will be reviewed through the use of the Construction Excellence's KPI data annually.

Case Study: A5 (Aughnacloy - Derry) Western Transport Corridor

This project is the first project in Northern Ireland to use this new procurement route of ECI. In researching this project through the internet, contacts of organisations were found that are involved with the A5 scheme. This also led into an investigation of the A8 scheme. The client, who was Roads Service on both schemes, was one of the main bodies involved, so they were interviewed in order to retrieve more information. The interviewee from Roads Service, was more than obliged to help obtain information.

The A5 scheme itself is called split up into three different sections:

Section 1: New Buildings to Sion Mills (23Km)

Section 2: Sion Mills to South of Omagh (31Km)

Section 3: South of Omagh to Aughnacloy (32Km)

Each of these sections amounts up to 86km in total. The main objective of this scheme is to improve connections between Dublin and the North West. This includes sub-objectives:

"To improve road safety

To improve the road network in the west of the Province and North/South links

To reduce journey travel times along the A5 Western Transport Corridor

To provide increased overtaking opportunities for motorists along the A5.

To develop the final proposals in light of safety , economics, environment, integration and accessibility considerations"

Under Roads Service guidelines when proposing any highway project a three stage assessment process must be carried out in order to review options available, identify scope and effects of the project.

Stage 1 - consists of the selection of preferred corridor. This is completed by analysing four main aspects of Environment, Engineering, Economics and Traffic. By analysing these aspects major factors are identified which influence the route selection. These major factors include:

Existing geography across the study area,

The presence of planning policy areas,

Areas of special ecological or historical significance

Stage 2 - consists of a detailed analyses of the lands incorporated with the preferred corridor selected. This analysis is based on key criteria used to create designs for the development of the route; such designs would include for example engineering design of earthworks involved. The key criterion mainly revolves around five main aspects:

Safety

Economics

Environment

Integration

Accessibility

Stage 3 - consists of a more detailed development of the 'Preferred Route' as to carry out a detailed assessment of the route and its effects on the environment. The detailed assessment will establish mitigation works required to reduce these effects if necessary and also determine the amount of land required for the project.

These stages can be seen in Roads Service's Programme Flowchart in appendices B where the timeline in relation to the A5 project can be seen against these stages. It also shows where exactly they are at this present time.

Roads Service's representative explains that one of the main reasons for the 'go ahead' for this project was the input of finance from the Irish Government. Approximately £400 million was the input from the Government he further explains and stated that without this it might have been a PPP project but said that this would be unlikely to happen.

The interviewee explained that the three major factors which revolve around the new ECI procurement method, these consist of:

Timing

Supply Chain

Input to Design

The timing aspect was vital in this project as he described that the Irish Government wanted any project which they are funding to start before 2013 to tie into their national development plan. He elaborates on this by answering question 3 during the interview and states that any other procurement method would not have been effective meeting the time programme due to procurement starting after public enquiries.

Steve Rowsell, who introduced ECI into the HA and is procurement director of the HA, relates to this in Bishop's (2007) report. He states that timing is one if the key benefits of ECI: "The biggest saving comes from having the contractor ready to start without having to go through the procurement process after public inquiry. That saves approximately two years."

With regards to the supply chain, the interviewee coincides with many of the above statements made earlier in this report , regarding the contractor's input and stated that "It is better to have the contractor in earlier as they can influence the design of the road and also fencing before confirmation." What he meant by this is that contractors would know how much space they will need to work with so then the designers will know how much land they will need to obtain.

Contractors input to design is also major factor, as the interviewee describes by answering question 2 it's in the interest of the contractors to increase quality to achieve target costing. This concept is negotiated on rates which were submitted in the pre-qualification stage. So there is a sharing of the bonuses if delivery is under target to an equal split of 25% to each party involved.

While answering this question he also explained some of the process of the ECI route. He stated that 8 tenders started out in the pre-qualification stage however only 6 passed the pre-qualification. He also stated that this stage is mainly based on previous projects completed by the contractors, i.e. track record. The contractor is then selected based on quality - 80%, price - 20% submission.

With this particular project the client asked the industry what would be the best solution to complete this project. The answer they received was mainly to split the project up into 3 different sections as it was such a long road. The client took this on solution on board made basic designs split up into 3 different sections, however when it came to tender for the projects some contractors said they could do the whole lot for £600 million and some said they could do it for £100 -200 million. The client assessed this and thought it best to give some contractors the choice to tender for 2 sections if they wanted to. Therefore there would be a minimum of 2 contractors on board.

Due to the present stage of this project, the author found it hard to measure whether or not the use of ECI is beneficial to achieve 'fitness for purpose' as a procurement process. However Roads Service's representative did enlighten us on how they will ensure this on this project. The interviewee describes that there is a need for consistency of design. What is meant by this is that integration is a necessity in order to look at the scheme as one scheme. This is done by integrating certain factors such as Health & Safety, Design, i.e. have one integrated Health & Safety team, and the same for a Design team. Roads Service's consultants will be in charge and they will use the contractor's consultants to tie into the design. Further to this the interviewee states that this will also be measured against 5 main factors:

Cost

Health & Safety

Sustainability

Quality

Project Management (how consultants will negotiate with one another)

Once these measuring factors are in place further KPI data will be developed to accompany these. To help with the development of this project in such key areas like measuring such factors mentioned above Mouchel, who are the client's consultants, have appointed Russell Wright as the clients advisors. Russell Wright a company who is experiences with working with ECI contracts in the U.K.

Further information on this case study can be seen in Appendix C and E

Conclusions

From the author's research and investigation of the case study, findings have helped him to fully understand not only the process of this new procurement method but also the pros and cons of the concept itself. The author believes that there is a true future for this method in the construction industry if the controlling of certain aspects is perfected. It can clearly be seen from previous projects which have used this method that the pros outweigh the cons and when integration is at its best performance excellence will follow.

With regards to ECI as a means for providing 'Fitness for purpose' Matt Cunningham, Head of Roads, WYG Ireland Engineering believes from his experience's in working with this newly developed procurement route that an ECI project will run as smoothly as any other project:

"ECI seems to encourage people to raise their expectations. It is NOT a panacea for all problems commonly experienced on major infrastructure projects. What does happen is that by working together to try and solve problems as they occur and controlling expectations, the project WILL run as smoothly as any other project."

However the author believes from his investigation on the case study that it is too early to tell whether the use of ECI has provided 'fitness for purpose' with this particular project as the procurement process is still going through its stages. Only time will tell if this major aspect can been achieved.

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