Procurement Systems For A Racecourse Project Construction Essay

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This report will describe various factors influencing the selection of procurement systems for the racecourse project of Janus Leisure Plc. at Melchester. Janus leisure Plc, one of the UK's largest operators of horseracing which hosts 5000 guineas stakes every year. They are proposing plans for the renovation of their grandstand and also expansion plans. Renovation and expansion play an important role on the projects long term plan. In order to achieve the project goals a suitable procurement method is essential and this could be achieved by analyzing the key procurement issues for Janus leisure Plc to review project success. Also provide comprehensive appraisal of potential procurement methods for both design and construction of Phase 1(refurbishment option) and Phase 2(New construction Option). The selection of procurement system will be done to attain the client objectives with respect to time, cost and quality. The type procurement systems that have been described in the report are the traditional method, Design and Build Method, Management contracting system and collaborative Method. The success of the project depends upon the selection of an appropriate procurement method. The selection criteria used for choosing an appropriate procurement method are speed, certainty, flexibility, quality level, complexity, risk avoidance & responsibility, Price competition. Design and Build is considered to the best form in terms of achieving the client's requirement for the phase 1(refurbishment option). Risk Assessment is also described which will be beneficial for projects success. Design and build will be able to deal with the time and cost requirement, so as to improve the efficiency of the project delivery and meet the quality standards a supply chain management is also recommended. Phase 2 (New construction option) is a 120 bed hotel facility and casino and whose important factors are cost time and quality. Time & cost will be the most important factor so as to start trading earlier for hotel and casino. To meet the standards of the construction industry for hotel facilities and casino numerous consultants will be involved. In order to meet all of these requirements design and build will be the best option for the Phase 2.

1. Overview of the work:

The work has been divided into the phases depending on the requirement of its completion.

Phase 1:

Demolition of existing grandstand

The construction of new 5 storey grandstand to include an extensive conference and exhibition centre (1000m2 total) and associated external works (Budget £25M)

Refurbishment of two existing stands circa 100 years old (Budget £5M).

Phase 2:

Construction of a new 120 - bed hotel facility and casino (Budget £ 12M).

1.1. Goals of the project:

Janus Leisure Plc portfolio includes one of the oldest classic races in the world , the 5000 guineas stakes , as well as other high profile race meetings throughout the year it aims that phase 1 construction of 5 storey grandstand and refurbishment of two existing stands circa was set to achieve for the 2012 5000 guineas stakes , scheduled for mid- September . Also the hotel facility and casino to be made operational for 2013 5000 guinea stakes meeting in mid September. The project is aimed to be completed within the schedule and given budget. It also expects high quality and functionality in order to obtain value for the project.

1.3. The categorization of client:

The three main client divisions are as follows:

Public experienced clients, Private experienced clients and Private partially experienced and inexperienced clients. The categorization of client is shown in Appendix 1. The Public Experienced Client is further sub-divided into Primary (Central Government funded) and Secondary (central and local government funded).

On the other hand, private clients are sub-divided into Private Experienced (both primary and secondary) and partially experienced and inexperienced. In the public sector the clients' emphasis is usually on minimizing cost, public accountability, value-for-money and certainty of final cost and date. In the private sector, the most important feature is criteria such as certainty of the construction completion date, the level of the client's involvement in the project, commercial accountability and value for money.

1.4 Clients Requirement:

Project within Scheduled Timetable: As Janus Leisure plc hosts 5000 Guinea stakes every year and hence the completion is expected to be done in stipulated period of time.

Project within Scheduled Budget: As Janus leisure Plc is constantly investing in all of its venues and also aims to expand his group in coming years. The client needs value for money.

Project with high quality, Contemporary facilities and functionality: Client requires grandstand keeping in view of change and also to upgrade the facilities. Client wants the venue to be provided with a lavish entrance, more seating spaces, and proper circulation spaces. Client also wants conferencing and banqueting facilities so as to please the viewers and facilitate them with the best.

2. Procurement Methods:

'A procurement system is the organizational structure adopted by the client for the implementation, and at times eventual operation, of a project.' as defined by Masterman (2002). Different types of procurement methods are described below:

2.1. Traditional Method:

This approach involves the pre-assumption of the client that the contractor carries out the works. Designs are prepared by the consultants and the cost control and contract administration are also taken care of by them. The contractor, on the other hand, takes care of the workmanship, materials which also involve subcontractors and suppliers.

The contractor has the full liability of the performance where the client selects the sub-contractors to be employed by the contractors. They are also responsible in some way or the other for a collateral warranty between the client and the sub-contractor.

The contractor can either be appointed through negotiation or previous work relationship but in most of the cases it is selected after a competitive bidding and after providing complete information. Negotiated tendering is also known as "Accelerated traditional method". This method has its own pros and cons. On one hand it allows design and construction to run parallel to each other but the downside to this process is that the uncertainty of the project cost increases significantly.

There are several factors relating to procurement techniques which can affect a project output. In the traditional approach, the cost factor is more certain at the nascent stages of the project. The client is in a comfort zone in this case since he has access to a competitive price and the design and working drawings are detailed and complete prior to sending out a tender. This helps in get rid of any kind of irregularities which often leads to overall budget changes. Wherever the bill of quantities is used, it leads to a fairer bidding contest and the project cost sums up to be lower. There is better cost control all around as variations are minimized, except for cases where the work is disrupted due to unforeseeable circumstances. The downside of the traditional approach is the time issue. Since the process is like a one-way street, it has been identified as one of the slowest processes. The upside is that it does give a clear picture of the design, construction, quality and the costs involved. It results in a longer pre-contract stage; the engineering team as well as the client gets more time to overview the entire process.

2.2. Design & Build Approach:

Design and build is one of the most popular procurement routes in construction now-a-days. In this procurement method the client appoints one contractor who is solely responsible for both design and construction. This helps to minimize the authority of responsibilities and client do not have to blame different parties for any problem if arises. The contractor takes all the responsibilities of design development and also plays a role to supply work and material. Here contractor appoints designer, consultants and other working organization and so he is responsible for any addition and alterations in the design and during construction. As one single firm is responsible for all aspects there is proper communication and co-ordination between the members of the team. Design and build helps to satisfy client's requirements and deliver the project as fast as possible and at a lower cost.

Advantages:

Single Point Responsibility: Client has advantage of dealing with one single organization which would be responsible for all aspects of the progress.

Cost Certainty: Contractor cannot make any claims for loss or expenses as a result of late receipt of instruction from architect/client.

Speed: In this approach detail design is carried out when the work actually starts on site. As contractor is not relying on other parties for design or for the supply of information work can be started earlier on site.

Time: Contractor is responsible for delivering the project on time and hence little risk of claims.

Final Cost: Cost certainty is greater as any change in client's requirement will affect the contract sum.

Benefits on Performance: As Designers, contractor, estimators and consultants all work together they can share knowledge of current market situation and price in order to improve the performance of the project.

2.3. Management Method:

The most common method among the several management procurement practiced are management contracting and construction management.

Management Contracting:

In management contracting the management contractor is appointed early in the design stage through tenders and interviews

Management contractor is not directly responsible for the construction work but is responsible to manage the execution of the work.

The contract for individual work packages is between Managing contractor and the individual sub-contractor.

Even though cost plan is utilized to control the development costs, actual cost cannot be obtained until the final work packages has been awarded.

Construction management:

Here also project benefits from the early involvement of the contractor.

In this method client will appoint a management contractor who will purely carry management function.

The construction manger will be responsible for co-ordination of design, tender and construction process.

There is a high risk of Cost as there is no fixed cist at the start of the project; only a cost plan is prepared by quantity surveyor.

2.4Collaborative Approach:

Collaborative procurement has long been seen as the theory to save money. Partnering is one of the methods of collaborative approach. It also focuses on the requirement of the client provided that benefits all the organizations involved in the project. Partnering empowers designer and specialties to build goodwill and trust improving co-operation in teamwork.

Benefits of partnering:

Working Together increases the efficiency of the project

Minimum changes schedule helps in completion of the project within time.

Entire focus of team is on requirements of the client and cost efficiency.

Even though there are benefits for the partnering, final cost is not agreed and hence there is high cost uncertainty in this procurement approach as compared to other approaches.

3. Evaluation of the Procurement Methods:

To minimize the impacts and enhance the long term performance of value of construction key factors should be considered in evaluation and selection process. After all the consideration of the procurement systems it has been seen that design and build seems to be appropriate procurement system for the project.

The Factors those are necessary to be considered while deciding the procurement path include: (Masterman 2002)

Speed

Certainty

Flexibility

Quality Level

Complexity

Risk Avoidance and responsibility

Price competition

As per the requirement of the project each of the factors will be discussed in detail. In order to achieve an appropriate procurement method for the project, it is advisable to first discuss all the factors and their influence on different types of procurement methods. This will give us the clear idea of which procurement method is likely to be beneficial for the successful completion of the project.

Speed :

Janus Leisure plc. group is constantly seeking to develop its business forward and also investing in projects so as to develop their other facilities. The primary aim of the project should consider speed of the project as important factor as client aims to complete the project within scheduled time. To choose a procurement method that will benefit the project in terms of speed will depend upon construction time required in the particular procurement route. Shorter construction duration can be achieved by acceleration or fast- tracking some key phases in the construction project, and this would favor the use of design and build or management contracting (Rowlinson and McDermott, 1999).

Certainty:

2. A) Certainty of Price:

As the client expects to complete the project in given project, an appropriate procurement method which will render an effective cost certainty has to be selected. Our client type being a private client certainty of price is important since they can control their financial budget by getting the certainty in price.

In order to achieve client's objective, it is also important to concentrate on defining the projects and prioritization of the objectives. According to Turner (1990), "Certainty "should not be conceived as an absolute assuredness, but instead a relative or sliding scale i.e. "how certain" the price that a procurement approach could offer. Design and build or traditional lump sum method can offer highest price certainty.

2. B) Certainty of time:

Time certainty is important for those projects that tend to complete on time for a particular event. Janus Leisure Plc. also keeps his requirement in phase 1 to complete the construction for 2012 5000 Guineas stakes, Scheduled for mid - September. Procurement methods offering greater speed can offer high certainty of time.

Flexibility :

Flexibility is needed where there is lack of consideration of exact requirements of the project. It is particularly needed in large and complex projects. Some projects require flexibility to enable design changes.

Management contracting allows more variations to be introduced without provoking significant contractual claims.

Quality Level :

Quality level of the project depends on requirement of project in terms of:

Levels of quality of materials

Workmanship and Design

Aesthetical Appearance

Innovation and Creativity

It depends upon the type of the client and his requirement for the project whether quality should be considered important factor. If quality of project is important traditional method of procurement will benefit the project. Design and build will benefit the project where early completion is required and so quality will be affected. The contractor's vast experience and knowledge can help in achieving innovative quality solutions through management contracting.

Complexity :

While choosing an appropriate procurement method complexity should be considered as procurement method required for simple projects might vary from complex projects.

Complexity of the projects depends on the following factors:

1. High Specialization

2. Level of technology

3. Project Activities (highly serviced)

Private client demand for higher complexity of project because their priority is mainly on the prestige value of the project. Traditional and management type procurement approaches may be useful for higher complexity of the project.

Risk Avoidance and Responsibility :

It is important for client to know how, and to what degree risk has consciously been passed to another organization or how it is been shared in some proportion between him and organization (Turner 1990). Risk avoidance is considered to be an important factor towards project success by private clients. The most crucial need of private client is elimination and reduction of financial risk. All risks of design, management , cost and time slippage or errors can be handed over to single organization, In design and build all risk can wholly with the contractor. In traditional method risk will be generally fair balanced between parties to the contract. Most of the risk will be retained in management contracting method.

Price Competition :

Every stage of construction sets forward a competition in building process.

Building designers, building constructors will compete on certain issues related to them. Issues that will cover price competition are as follows:

Value for money

Quality of Service

Fees

Competitive tendering.

Private clients mostly require competition for obvious commercial reasons. Turner (1990).Turner (1990) however asserts that the level of price competition may be restricted by the speed, time, certainty, quality level and the complexity of the building.

4. Procurement Selection and options:

The contractor or consultant are selected in two ways either competition or by negotiation with a single organization. Selective competition is the traditional and most used method for awarding construction contracts. In this method several reputed and capable firms are invited to bid against each other for a project. To create a short list of interested firms to invite for tender following points are to be considered: (1A Procurement Practices - Learning Package)

Financial Standing

Technical Capacity

Reputation on previous similar type projects

Adequacy of management

Adequacy of capacity

5. Effect of Procurement systems on the performance of project:

As Janus is planning to move his business forward, he tends to expand the group and develop several of their other facilities over coming years. So the project had to be delivered on time. During the redevelopment of Phase 1, 2011 Guineas stakes meeting and others will be relocated to other courses but he desires 2012 5000 Guineas stakes scheduled for mid - September return to Melchester. Therefore procurement strategy developed should meet all the requirements of the project considering the criteria's carrying risk. According to the brief, the key criteria interdependent and often in risk are listed below with the factors to be considered:

Time : ( phased completion , Completions dates , Speed )

Cost : ( Price certainty , Variations , Final cost )

Quality : ( Performance & Function )

The above listed criteria being very important and also client's essential requirement needs to be managed properly and be given identical importance in order to avoid its negative impact upon each other. According to the clients requirement the most important and risky criteria is to be determined.

6. Selection Criteria for Procurement Method for phase 1 & phase 2:

The factors that are responsible are listed above and explained in detail and which procurement system has got better performance on what factors is also explained in detail. Considering these factors and their influences over different procurement methods enables us to choose the best suited methods for the respective Phases. This will be done through a decision chart (Appendix 2), incorporating various utility factors, which is intended to be completed as follows: (Masterman 2002).

Once all the clients priority questions are considered , and criteria is rated in the column on a scale of 1 to 20

The priority rating is then calculated for each criterion by dividing individual priority ratings by the sum of all ratings and entered into the chart. The total of all rationalized priority ratings should always be equal to 1.

All priority ratings are then multiplies by each of the utility factors for the various procurement paths and the results are entered into the chart

The results for each procurement system are then totaled and ranked on the basis that the most appropriate method had the highest total Score.

6.1Procurement Option for Phase 1: (Refurbishment Option)

After careful considerations of the selection criteria's chart for Phase 1 in appendix 1.2 and also advantages and disadvantages of the procurement systems, it can be believed that Design and Build procurement system is suitable for the Janus Plc Leisure. It can be adopted for Janus as it offers single point responsibility and high degree of cost certainty which is required for the project; a design team will be involved throughout the project development which will help to achieve a greater focus on quality. As the construction will commence at early stage and at the same time detailed drawing will be done in parallel, chances conflicts between designer and builder will be reduced which will help to deliver project faster than any other procurement system. As design and build gives greater cost certainty, project will be completed in given budget. As contractor, designer, consultant, estimator will work together right from the start of the project it will help to achieve cost effectiveness, quality control and deliver project within the scheduled time.

Design and build procurement system can increase the value for money that the building provides across its whole life. It involves completing the project to meet the requirements of time, cost and quality.

Time: In order to achieve the value for money time is one of the essential aspects of the project as 2012 5000 guineas stakes has to return to Melchester by mid- September 2012.The most important concern of client is timely completion of the construction. As both design and construction run parallel and contractor is the only one who controls the construction time as well as the time required for designing of the project , reduces the overall duration if contract. In this type of process contactor has got experience and knowledge of the design which will help him to reduce the construction time.

On the contrary if the project design fails, it will have direct impact on the time performance. That is why a proper co-ordination between the design and construction is required which will help us to achieve project objectives in specified time.

Cost: Cost is one of the most significant aspects for achieving value for money. (Flanagan & Tate) states cost should not simply be monitored but needs to be controlled and managed from the early design stage through project completion. A project can be worked out in given budget only by developing efficient and effective cost control system. (Oberlender, 1993) concurs identifying that cost control is far more than controlling expenditure. Cost control includes the control of revenue making sure that all possible and justifiable income is recovered from the client and that no preventable wastage of money or unauthorized increase in cost is allowed to happen.

In this type of procurement, cost is fixed at the time of the tender stage. Even if design is subject to change, once accepted the tender price will be final contract sum and will not change unless variations required by client. However cost saving in this type of procurement system is possible through the reduction of the overall development period. Contractor's knowledge and vast experience will help to simplify the design which will ultimately result in considerable cost savings.

High quality design & functionality: As the contractor is responsible for both designing and construction he uses the best way to make design simple and improve the quality of work. Therefore if the requirement of the design is of High quality, design and build may not be the appropriate option.

Quality in the context, then, may include the following:

Level and type of services provided - air conditioning, communications, lightning and the like.

Performance of services - how well the services fulfill their intended functions

Flexibility - the capacity for re-use or change of use

Fitness for purpose - how well the final product serves the intended functions

Uniqueness: this may have value if building is corporate headquarters or had some other symbolic role e.g. as a model of environmentally sensitive design.

Exclusion of external climatic factors - wind, rain, temperature extremes.

A suitable supply chain management will be proposed for effective delivery project and to obtain quality of work.

6.2 Procurement method for phase 2: (New Construction)

According to the considerations of the Decision chart in appendix 1.3 and requirement of the project Design and Build will be preferable. This methods can be used in order to achieve the efficiency of work with cost effectiveness within a stipulated period of time can be achieved. Janus Leisure Plc. is planning to build a new 120- bed hotel facility and casino with a budget of £12M and also expects it to be operational for 2013 5000 Guineas stakes meeting in mid-September. Important factors are categorized as Speed time certainty, cost certainty, flexibility, Quality, risk avoidance & responsibility, complexity, price competition. Time will again play an important role in hospitality industry. It will be beneficial for trading of hotel as well as casino if they are completed in short period. For a budget hotel cost & time are both very important. As the hotel will foster huge conference rooms, guestrooms and other facilities there will be great emphasis on current market rate in order to meet the overall budget, comfort and level of design. As a brand new hotel facility it will have to meet the requirements of current high standards in hotel industries. In order to meet the time requirements and to complete the project within the budget it will have to compromise on quality but spend more on expensive finishes. This is will help to improve the quality standards. In addition, a supply chain management in order to improve the project delivery and to improve the quality of the project. Improving standards and high technology required for hotel facilities and casino there will be number of consultants involved engineers, designers, Quantity surveyors, landscape designers, environmental efficiency assessors will be required to be appointed. As design and build method facilitates early involvement of contractor and is responsible for both construction and designing. This will help Janus to deal with one single organization who is responsible for all the aspects of the project. Cost and time being the most important design and build procurement method is adopted for this phase.

Design Build will benefit the project and also provide good value for money in terms of cost, time and quality. This will be described below:

Time: Completion dates are always of major importance in hotel projects. Earlier the completion of the project and short period required more will be the benefits gained. As hotel will be having conference rooms and meeting rooms they might be booked prior to the completion of the project. If not done so it would have an adverse effect on the financial and reputation of the hotel. In design and build method , detail design actual starts when work is carried out on the site and as contractor is not relying on any other organization for design details or for the supply of information. This allows contractor to proceed well and take his own decisions and complete the work in scheduled period.

Cost: As Janus is planning for 120 bed hotel facility and casino cost will be most important factor for the project as it will be required to earlier completion so that the hotel and casino are ready for trading. As design and build provides better cost certainty it can be used for budget hotel projects. Hotel will cater guestrooms, conference rooms, meeting rooms, banqueting halls and other landscaping details to enhance and beautify the hotel and its facilities. This will require proper cost planning and cost certainty and will be gained in Design and build.

High Quality and functionality: Being a hotel project it should meet the current market standards of star hotels. It would be difficult to achieve desired quality in design and build project. Use of high quality finishes can furnish the project and enable us to meet the quality standards of the hotel facility and casino. Contractor's vast experience and knowledge can help the project to have a functional and good design. Innovative ideas can improve the quality of the project.

A strong teamwork and good co-ordination between the team members will help achieve the requirements of the project and complete the project within time and given budget.

7. Risk:

Although risk can never be eliminated it can be reduced. Clients always tend to transfer the risk to contractor which may not be always beneficial as evaluation of risk is decisive. The risk attached to this approach is lack of control over quality in design. As contractor is responsible for all the aspects there is little scope for changes in design for consultants and designers. Clients should also restrict to make any changes as it will be add cost to the budget. Management of risk is possible by considering the following factors:

Risk evaluation

Risk sharing

Risk transfer

Risk control

8. Supply Chain Management:

The supply chain is the network of organization that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of ultimate customer( Christopher,1998). The proper management of supply chain helps to achieve the project within the budget and also to deliver it within the scheduled time. This ultimately helps in achieving the cost and time targets. In order to achieve an effective project delivery and quality of work an effective construction supply chain for Janus Leisure Plc is recommended.

8.1An Effective Construction Supply chain for Janus Leisure Plc:

Design and build system will provide of the strongest platform from which supply chain management can flourish. In order to complete the project on time Janus should adopt a supply chain which will take less time for construction as well as reduce the cost required. A design and build contractor is party to all important relationships, upstream and downstream and is in best position to lead the effort to add value and reduce costs. To increase the potential for successful use of supply chain management client needs to bring contractor in the process of project at a very early stage. The early interaction of contractors with all consultants will help in to run supply chain management successfully.

8.2Effect of procurement method on supply chain management:

In supply chain management the real competition is between the supply chains. As one organization is responsible for design and construction uncertainties are reduced. All details of delivery of material at which place and what time is all known by one organization which helps in having effective performance for construction. In design and Build type of procurement method contractors may have previous contacts with the suppliers who can help him to procure materials on time and also at good rates. This will in turn help in saving of money and time. As there will mutual understanding and trust developed between the supplier and contractor which will be beneficial to have effective communication, negotiation and better understanding for the requirement for the project type.

Recommendation and Conclusion:

The report outlined that as Janus Leisure Group is constantly seeking development of their racecourse in phases: Phase 1 (Refurbishment Option)

&

Phase 2 (New Construction option)

Based on findings and critical analysis the report recommends that design and build procurement method as the best for Phase 1(refurbishment option). Design and build will enable the timely completion of the project and also provide effective cost for the project. The report also recommends risk assessment which is very important for the success of the project. In order to enhance the quality of work and achieve efficient project delivery, supply chain management is also recommended.

After successful selection of the procurement method for Phase 1, it was also important to choose best option for phase 2 (new construction option). The report recommends that as per the requirement of clients cost time and quality are important factors. Design and Build will provide a better option as cost and time are considered to be most important. Quality will be compromised but may be improved by use of high quality finishes. In design and build method contractor will be involved earlier and will be responsible for design and construction, one single responsible organization which will be responsible for all the aspects of the project will be beneficial for the successful completion of the project.

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