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The procurement of highly accomdated hotel building is always linked with costly and complex problems due to insufficient coordination of building and engineering services. These issues are crucial to the success of any industry project, and require to be resolved via proper project management planning from the initial design to construction stage. Given the difficulties faced in designing cannot be solved by coordination, knowledge of the client's intent, engagement ofdesigner & contractors is pertinent. Therefore it is important that the building design and installation are properly managed in both design and construction stage. Elected procurement system can affect the progress of project coordination and non-traditional procurement method has better chances in ensuring project success.
Cinnamon Grand is a privately owned, large hotel chain in United Kingdom (UK). They offer accommodation across UK, committed in preserving their rich heritage and very passionate about the outlook and the quality of the building. The hotel management gain experience through renovation and together with the committed passion, they have higher expectation.
Three of Cinnamon Grand hotels located south east of UK, was destroyed in the recent storms. The management decided to reconstruct these buildings to create a vibrant, attractive environment to improve the quality of facilities provided. The design developed similar design that was adopted for previous hotel buildings.
The nature of damage varies from one building to another with all sites require demolition of existing structures that are not structurally.
The three hotel buildings will be undertaken in two phases;
Phase 1, the handover of the building needs to be completed by 28th Feb 2015. Planned start date on site is 1st March 2014. Priority should be given to the key areas so that the hotel can resume. The planned reopening is scheduled on 1st April 2015.
Phase 2, looks at opportunities to enhance the health and well-being of the visitors via new facilities that will be constructed.
Health and fitness centre
Conference and meeting rooms
Other key issues to consider:
Cinnamon Grand does not have in house executive who has sufficient experienced to provide advice on the reconstruction of their properties.
The client is concerned about possible project delays and the overrun of costs. Thus, the final price needs to be quickly confirmed and if possible at offset.
As the reputation has established based on the quality of accomdation & Services, the client place great emphasis on the buildings quaility.
Complexity is faced in the second phase of the work. Conference and meeting rooms require high technology multimedia facilities with air conditioning.
Purpose of Procurement:
The nature of building services cannot be designed and installed independently since integration with other elements requires high level of coordination. It is difficult to obtain client's intent of design and the right price due to inexperience and/ or lack of appropriate advice. Procurement management requires a series of decisions at the start of the project and the efficiency can be increased by cutting costs and maximising existing resources. Procurement involves the use of a specialised method to address risks and manage finances to overcoming difficulties. Procurement addresses the difficulties arising from the following;
To understand the client's intention on how the delivery of the project. It includes method or process used in the projects but doesn't include the design solution.
To organise and coordinate necessary specialised organisations to deliver project solutions. It is subjected to series of risk and uncertainties and involves a number of organisations to work as a team so as to determine the procurement strategy.
To reflect any overarching philosophy or principle that can support and guide project activities.
To agree and formally document the responsibilities of each specialised organisation involved and distributing the risk among the other organisation.
To agree and formally document processes used to manage the project.
To define and identify at the beginning of the project, measures that will be undertaken if things go wrong or if any organisation come into a conflict.
To organise and coordinate day-to-day running or administration of the project
Procurement looks at how the client requires the project to be structured and managed. By making appropriate choices or suitable procurement path, client's priorities can be managed to ensure delivery of the project.
Factors affecting selection of procurement route:
The key element is selection of a suitable procurement method which is utilised to implement, design, construct and complete the project. The selection of a suitable route is crucial and contributes to a project's success. There are eight basic issues to consider when selecting a procurement route:
Factors that are not within the control of the project team. E.g. change in finance cost or the availability of required skills from the construction industry.
Client's resources include the necessary experience and knowledge of the personnel from the client's organisation that will be involved in the project.
Project characteristics. E.g. technical complexity and the likely reason for possible cost and time overruns.
Adaptation to changes in situation with the client being willing to exchange cost certainties for the flexibility to accommodate changes in later stage of the project.
Risk management ensure appropriate distribution pf risks to the organisation with the ability to handle the issues, thereby preventing the need for additional costs.
Cost issues - the level of cost certainties required at each stage as the project progress.
Timing - whether possible to deliver the project as a whole or in phases. The consequence of late or early deliverable has impact on client's business.
Quality and performance - to ensure that the project focuses on providing the functionality and not be over or under specified.
Potential Procurement Route Path Selected:
Different procurement strategies provide different ways to allocate risks and responsibilities to the organisations contributing to the project. The main types of procurement strategy selected are summarised as follows:
Traditional: The design is to be fully completed by the Client's consultants before tender from the contractorand start of construction.
Construction Management: Designed and developed by the client's consultant and construction commences before the design is completed. A fee-earning consulting construction manager works for the client to define and manage several work packages representing a specialised or functional aspect of the project. All contracts are between the client and the trade contractor. The final cost of the project may be known accurately when all packages have been assigned.
Design and Build: Detailed design and construction are undertaken by a single contractor in return for a lump sum. The procurement strategy is known as Develop & Construct. When the design concept is prepared by the client before the contractor is appoitned to finish & construct the design
Appraisal of the traditional route:
The traditional procurement system has been used for many years and it is sequential, thus making it simple & easy to understand. It was fully comprehend by all groups of the building organisation team.
The client is inexperience, hence required to appoint a team of consultant consisting of an architect, engineer, and surveyor to prepare the design specification, drawing and other tender documentation to allow the selection of contractor. The risk is being transferred to the appointed contractor who oversees the progress of the project. Subsequently, risk is being distributed to the subcontractors.
There are competitive fairness and public accountability in the system. Although there will be reasonable price certainty during contract award, price can be subjected to changes or variation order. If there are any changes, it is easy to arrange or coordinate and manage the cost of project. It is important project that will not over their projected budgeted allowance.
However, the traditional method's sequential and fragmented nature resulted in long design and construction periods. The duration of the design and construction is very important to the client, as the building has to be completed by 28th February 2015 and there is a reopening scheduled on 1st April 2015. The planned start date has to commence on 1st March 2014, hence it is necessary that the schedule is properly planned and design changes are addressed in the initial stage to avoid any increase in cost or delay.
Appraisal of Construction Management:
Construction management procurement route works concurrently on the design and construction stages. Thus it is more time saving than the traditional procurement route.
Construction management procurement route appoints a construction manager to advise the client on a fee basis. The construction manager is expected to manage and coordinate the design planning and construction process. These are to ensure that the trade packages interfaced were carefully selected. This arrangement places the client at a considerable risk. The ultimate responsibilities are however still retained by the client.
Construction management structure is adaptable throughout the project. It reduces the level of technical complexity and reduces many site coordination problems. It is suitable for technically complex and simple projects.
However the system is more expensive and the client has to take on more risk on time and cost and responsibilities. The project has no cost certainty at outset, until the full packages are fully assigned which is a disadvantage for the client where cost certainty is a priority. Cinnamon Grand has gained some experience through dealing of hotel building construction. But they are not experienced enough or able to devote time for them to engage closer involvement in the construction process.
Appraisal on Design and Build:
Design and build procurement route allow the client to liaise with a single point of contractor. The contractor is fully responsible to the client delivery time, cost and stated quality. The Employer is not necessary to be experienced for the process. Therefore it simplified the process for the client. It allows the client to understand it total financial commitment at the initial stage of the project, where price certainty is the critical path for Cinnamon Grand.
Design & Build Contractor
Specialist is appointed to target the particular technical complex problem. Design and build contractors will accommodate the specialist within the Employer's requirement. However, it requires a more comprehensive pre-contractual documentation for the technical complex project.
Design and build involves a multi-disciplinary approach, integrating and coordinating both designer and contractor at the initial stage of the process. It enables the organisation to meet the tight delivery date by reducing project time and reducing any possible project delays, which can lead to over-projected allowances.
The contractor is responsible for design and construction planning, organisation and control over project process. Work on the building can be commenced as soon as local authorities have been approved and relevant information on site operation is available. Design is not necessary to be finalised before work is commenced. Design and build is to integrate both design and construction team together. Thus, the architect can be closely involved tobetter meet Cinnamon Grand's expectations.
Comparison on Procurement Route:
Design and Build
-Designer and construction team are separated, making it harder to integrate and coordinate design and construction
-Contractor providing the services is not involve in design, will require coordination of contractor selection of services equipment
-Coordination and allocation of design are always not clear
-Design and construction team are integrated, thus easier to coordinate design changes and construction process.
-Client needs to be experienced
-Appoint construction manager to manage and advise on the project process
-Design and construction teams are integrated, thus easier to integrate and coordinate design changes and construction process.
-Good teamwork and better control
-Single point of contact, main contractor manages all coordination work among the organisation
-Not able to know the project cost soon.
-No cost certainty at outset
-Able to know project cost at the initial stage of the project.
-Longer design planning and construction process.
-Design planning and construction is conducted concurrently, minimising the project overrun.
- Design planning and construction is conducted concurrently, minimising the project overrun.
-Client undertakes the most risk as they are responsible for many areas including coordination of design.
-Client undertakes the most risk although a construction manager is appointed.
-Contractor & sub contractors undertake the risk for all coordination in design planning and construction process.
Given that the Contractor undertakes the design work, work can be start early. Design and Build progress concurrently along with the design planning and construction process. This minimises the possibilities on project delay and overrun cost that exceed the budget. They are also able to provide quality building work that match their existing building design and can be of even better quality.
Due to the complexity of the project at second phase, it is very crucial that information is being delivered to the individual sub contractors working on the building services. Design and build requires a more comprehensive pre-contractual documentation. Proper documentation is in place to minimise any disagreement. On the other hand, communication can be more effectively transmitted and the expected scope of work can be achieved.
There are similarities between Construction Management and Design & Build method. However, Cinnamon Grand does not have any in-house personnel that are experienced to give advice on their reconstruction. Construction Management requires the Employer to be experienced to undertake the project and to advise on the project. Design and build provides personnel who are experienced and able to commit to the project development. As a result, Cinnamon Grand does not have to undertake the risk as the contractor appointed will undertake the risk and distribute among their sub-contractors.
Looking at the comparison of the procurement routes, Design and Build would be a more appropriate procurement route for Cinnamon Grand.
Discuss the liability of Alexander Contractors to the Employer for the additional costs that the Employer had to incur as a consequence of being required to employ a more expensive tenderer to carry out the construction project.
The Employer called tenders for the new development of a major shopping complex. Alexander Contractors tender for the project and was the preferred tenderer. Before the Employer was able to write to the Alexander Contractors, the Tenderer wrote to the Employer that it is withdrawing its tender. The Employer had no choice but to award the project to another Tenderer with a higher cost.
At the point of withdrawal, no contract was officially signed or accepted. Identifying the offer and acceptance may prove to be more difficult. The Tenderer, Alexander Contractors has the right to withdraw the tender anytime before the acceptance of the contract. Thus, it appears that the Tenderer, Alexander Contractors is not liable to the Employer.
However, if the conditions of tendering stated that the offer cannot be withdrawn once the Employer has decided on the preferred Tenderer, they shall remain open for acceptance within the stipulated time frame, and there is probably liability for breach of condition.
Illustrated by the New Zealand case of "J&JC Abraams Ltd v Ancliffe (1978) 2 NZLR 420". The defendant wanted to develop a building plot behind his house, and was given an estimated quotation by the claimants and began work. The defendant has requested the claimant to provide a firm price as the contract had not been finalised. They realized that the work would cost more than what was originally provided. Eventually, the claimants submitted a price that is double the estimate quotation. When the claimants brought up action for the price of work, the defendant made a counterclaim for his loss. The claimants were held guilty for negligence in not informing the defendant of changed circumstances and escalating the price till it was too late for the defendant to withdraw from the project and reduce his losses. They were held liable in the tort of negligence for all extra losses incurred.
Discuss the Clerk of Work's power to issue a Direction as detailed in the given scenario and its implications on the loss and expenses incurred by the Contractor.
The Contractor realised that the concrete quantity in the BOQ is wrong, due to the wrong pile cap size transferred from the design drawing to the BOQ (160m3 instead of 250m3). The Contractor informed the Contract Administrator in writing and copied the Clerk of Work. The Clerk of Work issued a direction to construct the work according to the drawing.
The instruction is given and confirmed by the Clerk of Work and the Contractor will need to comply with the confirmed instruction. It will allow the Contractor to proceed with the loss and expense to the employer. However if the instruction is not confirmed by the Clerk of Work, the Contractor can choose not to carry out the work provided that it was not frivolous or vexatious.
Under the Section 3 Clause 3.4, the Clerk of Work is an inspector appointed by the Employer to oversee the works on behalf of the Employer under the Architect/ Contract Administrator's directions. However, any direction given to the Contractor by the Clerk of Work has no effect. Unless such direction is expressly empowered by the Conditions to issue instruction, confirmed in writing by the Architect/ Contract Administrator within 2 working days of the direction given. Any direction given and confirmed shall be deemed as an instruction of the Architect/ Contract Administration as of the date of confirmation is issued.
As illustrated in "Sika Contracts Ltd v Gill (1978) 9 BLR 15" where a letter accepting a supplier's tender was signed: 'BL Gill, Chartered Civil Engineer', the engineer was held personally liable to the supplier for the price even though the engineer knew that he was only acting as an agent.
The instruction related to discrepancies fall under the relevant matters, under Clause 2.15, Clause 18.104.22.168 & Clause 4.24.4.
Clause 2.15 states that if the Contractor is aware of any discrepancy in the design drawing or BOQ, he shall immediately give notice to the Architect/ Contract Administrator shall issue instruction in that regard.
Clause 22.214.171.124 states that in relation to any discrepancy or divergence it shall be referred to in Clause 2.15.
Clause 4.24.4 states that suspension by the Contractor under clause 4.14 of the performance of his obligations under this contract provided the suspension was not frivolous or vexatious.
Detail the possible claims with respect to the given scenario, the main facts that can be included in the claims and the contractual provisions available to substantiate the claims according to the 'JCT Standard Building Contract With Quantities 2005 Edition (JCT SBC05) Revision 2 2009'.
The main facts include the discrepancy between drawing design and BOQ, from 160m3 instead of 250 m3. Since the volume of concrete had increased due to the increase of pile cap sizes, the work cannot be carried out as scheduled. The additional pile cap was affected by the limited availability of the resources on-site. It resulted in change of the construction method which was put into writing and was approved by the Contract Administrator. The changes in structural specification require additional cost for resources. Thus the schedule and the progress of work are greatly affected and require longer time to complete the additional work. An estimated quantity of BOQ for additional quantity of wall finishes was not reasonably estimated. As illustrated in "Wharf Propertied Ltd v J Devonal Williams & Eric Cumine Associates (No2) (1991) 52 BLR 1" , in which action against architect for negligence was struck out because the pleading did not seek how various act of negligence can led to various losses.
The Contractor will require Architect/ Contract Administrator's instruction to put into writing. The Contractor will have to provide the direct cost such as labour, materials and plant for variation to the Employer under Clause 5.2, Clause 5.6.5. In addition, Contractor should provide preliminaries site overheads and head office overhead.
Disruption to the progress of work resulted in the contractor incurring administrative costs at the head office. It is pertinent to ensure that the cost is justifiable and must be specified and well supported with supporting documents. As illustrated in "Peak Construction (Liverpool) Ltd v McKinney Foundation Ltd (1970) 1 BLR 111",the contractor must be able to show that the organisation worked elsewhere during the period of delay.
Clause 5.6.5 states that any unreasonable estimation of quality of work shall include a fair allowance for the difference in quantity, provided that Clause 126.96.36.199 & 188.8.131.52 applied to the extent of work has not been altered or modified other than in quantity.
If you were the Contract Administrator, prepare a report outlining your assessment of the contractor's claim including the process you have followed, the pertinent issues of the dispute and the contractual provisions relevant.
The report of assessment of the contractor's claim includes:
To quantify & substantiate whether claim from the Contractor to the Employer is valid. It will be important to determine whether it is justifiable to verify the existence & the extent of the relevant issues pertaining to the claim. It must also be determine the relevant issue has any impact or effect to the schedule and progress of work.
To examine all documents on the cost and expenses that was put up for claim for the project. The appropriate amount claimed on loss & expense based on Clause 4.23.1, Clause 4.23.2, Clause 4.23.3 & Clause 4.25. As illustrated in "Croudace construction Ltd v Cawoods Concrete Product Ltd (1978) 8 BLR 20", a contract to supply masonry block to the main contractors on a school project states that the suppliers should not be liable for any consequential loss or damage caused by late delivery or defect. The blocks were found defective and the contractors claimed the damages for loss of productivity and inflation cost resulting from the delay and cost of meeting brought up by the sub-contractor.
Disruption to the progress of work resulted in the contractor incurring administrative cost at head office. Verify that the cost is justifiable and must be specified and properly supported with supporting documents. As illustrated in "Peak Construction (Liverpool) Ltd v McKinney Foundation Ltd (1970) 1 BLR 111", the contractor must be able to show that the organisation worked elsewhere during the period of delay.
Under Clause 4.23.1, Clause 4.23.2 & Clause 4.23.3 indicated that the application submitted to the Architect/ Contract Administrator or to the Quantity Surveyor detail on the loss and/ or expenses should be reasonable.
Under Clause 4.25 indicated that any amount, from time to time, ascertained under Clause 4.23 shall be included to the Contract Sum.