Management Form Of Procurement Construction Essay

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As Experienced Client which employed our company on several occasions to advise on and manage projects, we could expect good communications and relationships between the Client, the Manager and the other members of the building team. This category of clients usually is well aware of real scope of the work required and the level and type of risks involved with the process. The Client operates in highly commercial and competitive environment, where to satisfy shareholders is a primer need. So we could expect some of his main requirements to be accountability meaning, controlled and predictable process, certainty of completion date and value for money.

Scope of work

The project is a privately financed. There is no specific cost and quality constrains set by the Client, however 'value for money' could be set as an objective. The main constrain for the project is the time, requiring the project to be completed and running before 1st April 2013. Generally the design of the project is of low/medium complexity, however there is high complexity in terms of programing and project management.

Procurement strategies and forms of contracts used to date

Traditional lump sum contracting.

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The design process is separate from the construction process. The Clients enters into a separate 'lump sum' contract, usually 'JCT standard form', with the contractor. This way there is cost risk to the contractor as he agreed to carry the works for lump sum. However The Client also carries a lot of risk. The employer is responsible for procuring the design, and retains the power to change it. However after the design is finalised, variations to the works reflect on the price, so he carries the risk of rising cost. Generally with Traditional Procurement the Client have a control over the quality but has to pay for flexibility to achieve that.

Design and build

One contracting organisation takes responsibility for custom-built design and construction for a lump sum fixed price basis.

The initial prise is usually higher as the contractor builds into the price 'risk premium, also any post contract variation are usually very costly. However it could be very cost effective if the design allows repetition so the contractor can use his expertise and experience. Although the design is very good in terms of 'buildability', the Client has very low control and influence over the design as this procurement route does not allow flexibility in respect of design changes.

Introduction to management orientated form of procurement

Management contracting

The Client engages a Management contractor in the early stages of the project to provide his construction expertise as an equal member of the design team. The management contracting is responsible for defining packages of work and managing the carrying out those works through separate trade contracts. All the work is subcontracted and directly from the management contractor though the client usually is to approve the terms and conditions of the contracts. The management contractor is responsible for the administration of the works contractors however he is not liable for defaults by works contractor as long as he complained with the particular requirements of the contract.

The preliminaries and management fees can be fixed allowing degree of certainty of price, even though a cost plans is utilised to control the development cost the final cost cannot be obtained before all the packages are awarded.

The quality can be controlled by the design team and could easily accommodate client changes. As a member of the design team Construction manager could advise them on 'buildability' form the early stage of the design.

This procurement route is particularly beneficial for fast track projects where minimal design information is available at the start of the project.

Construction management

It is a fast track strategy where individual elements of the project are let before the design of later work packages or elements have been completed. The Client appoints a Construction Manager to manage the overall contract in return for a management fee as with Management Contracting. Also, as before, the project can benefit from early involvement of the Contractor. In this process the contracts for the sub-contractors are placed directly between the Client and the sub-contractor and the Client will need to have a high level of involvement during the design development and the construction phases of the work. As with Management Contracting, the final costs will only be known once the final work elements have been awarded.

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As the Client is more in control of the process through the employment of the construction manager and the direct contracts with the trade contractors he has better cost and budgetary control. However, the client retains the contract risk of non-performance of the trade contractors, and the process requires the client to have mechanisms for entering into direct contracts with trade contractors and for making monthly payments to many individual contractors.

As the Client retains control of the design team performance he will be more vigorous to undertake the risks of using innovative and practical alternatives if he could see the benefits of undertaking those risks. Also because the design and construction processes are integrated these could be easily incorporated into the project.

The lead-in period before commencement can be shortened, however because of the general flexibility of the process, inexperienced and indecisive Client could cause prolonged on-site period.

Forms of contracts available to suit Management Procurement

The main forms of contract used in Management Procurement are JCT Management contract, JCT Construction Management (all based on agreed interim payments) and NEC3

JCT suite although introducing partnering in his latest version remains more of separation between different parties within the project.

The New Engineering Contract NEC3 gives itself most, to multi-party types of project, as it endorses strong collaboration ethos to be exercised by all parties, responsibility by either party for design, a choice of pricing mechanisms, clarity and simplicity and good risk management processes including a largely effective early warning mechanism governed by a proactive project manager with decision-making responsibilities.

There is tendency to use a particular contract because it is familiar, however it is important to understand the underlying allocation of risk that each form of contract uses, its commercial balance and the likely effect of its provisions.

The culture of partnering which is strongly underlined in NEC3 contract could be highly advantageous to management orientated procurement, where good communication and organisation is essential for successful project, they are also recommended by the Government.

Conclusion

Management

Design & Build

Traditional lump sumThe aim of good procurement strategy is to achieve the optimum balance of cost, quality and time risk the Client requires.

Risk for the time and cost more in the line of uncertainty. The quantity depends on experience and expertise

Risk of disputes around what is included in the lump sum affect the time and cost

Cost of variations

Cost

Quality

Time

Cost

Quality

Time

Time

Cost

Quality

Buildability issues

So far the Client used fixed priced contracts, lump sum/traditional and design and build, which more or less allocated the risks involved with the project to other parties and encountered 'risk premium' payment.

As the Client gained experience in undertaking this type of projects we could expect his attitude and drivers to change. If he chooses to allocate greater risk to himself he would experience some benefits in terms of cost, quality and time. Those could be eliminating the' risk premium', greater control over the design, the materials the programme and the construction process. Note that these benefits highly rely on Clients' capability and experience in handling risk.

Assumptions

'Value for money' is an objective

It is a legal requirement placed by Sale of Goods Act

Design of the project is of low/medium complexity

Based on clients background and the short time scale given, it is reasonable to assume that the new project is a factory which in general are not very complex.

There is high complexity in terms of programing and project management.

Generated by the short time scale and probable intention for the factory to work during the construction time.