Strategic Procurement Issues Inherent In A Hospital Project Construction Essay

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Health care of the society is the top concern of the government. The government is committed to improving the quality of care of all the people therefore the poor quality of the hospital building became a major concerned. The aim is to restore and improve quality delivery of health services to local community required betterment of the facilities. There are two options available in front of trust and as per the government report; the trust has forty eight months to improve the hospital infrastructure. The chief executive and the head of the estate at trust with the consultation of central government have been provided two options:

To renovate the existing building or

To build a new hospital on a derelict site, this was formerly used by heavy industry owned by city council.

This project is an assessment of the procurement options design and build novation procurement method under the private finance initiative and the issues that awake using the strategy during the project. After examine the carefully and assessing the entire clients (the Trust) requirement, for the proposed hospital, the report recommends building of a new hospital on the derelict site and the use of design and build procurement system. This is because the design and build procurement option offers cost effective, time bound, good quality and sustainable project delivery.

The proposed design and build procurement system has the characteristics of achieving the issue of clients requirement appropriately and under the P.F.I. (private finance initiative) will give the best value for money - with a focus on the public sector procurement as mentioned in the project brief. It also leads to time savings and achieve value for money and the required quality as per ground situation. The report also assessed the risks using the supply chain management under the scheme of private finance initiative involve in the project and their solution as the success of the project is concerned.

Finally an effective supply chain management with T.P.I (Third party inspection) procedure has also been recommended for efficiency in the project delivery in order to meet the quality standard required by the hospital trust.

INTRODUCTION

This report seeks to address all the strategic construction procurement issues inherent in a hospital project and an appropriate advice given to the chief executive of the trust. The process is to map the effective stakeholder's and their influence on the project.

There is a brief of the project from initiation through design with drawing of the new build building as required a lot of detailed changes to convert the derelict industry into hospital building to make a proper use of the building as well as to make an appropriate use of the surrounding of the building.

The operation and maintenance after construction in long run is major concern for providing a better and superior quality of services therefore design and build novation under P.F.I. is best option available.

STATEMENT OF WORK

2.1 Scope of project

Client Objectives:

The time seems to be major constant as the Trust has given only 48 months of time to improve the structure and facilities and for the Construction of the new hospital building.

As the estimate are final to 90 m Pounds the cost is also the major constant for the client obtained the certainty in cost to obtain best value for money - with in a focus on the public sector procurement.

The quality is also the major concern as the new build site is not developed properly and the trust has to Develop the road works, parking, hard and soft landscaping, drainage and other external works for the use of hospital running, Provision of office accommodation, a restaurant / café area and obviously some form of warehouse and delivery areas.

To preserve and develop and make appropriate use of the existing flora and fauna at the site of new build to make it more eco-friendly environment for the hospital patient and working of staff.

It has been assumed that the present derelict bridge is just opposite the site of the building and near the flora and fauna to make appropriate use of the derelict pedestrian bridge, it can be develop for the site scene / landscape. s

The study prevails that there is an existing mineshaft, which has to be close effectively so that it should not effect the environment of hospital surrounding in the future.

There is need to adopt the construction management program to maintain supply chain management for effectively completion of project on time and maintain quality of material used and be in cost effective.

Scope of the project

Supply chain management procedures to be adopted so that all the material should be procure well in advance for the timely completion of the project and as all the material has to be procure by contractor by T.P.I. (third party inspection) by Independent body has been suggested to maintain the quality if the material used.

The client has maintained PEP plan for control and performance measurement

Comparison between the New builds site and Old Refurbishment.

The following point has been taken to make comparison between New Building by using derelict industry and the Refurbishment of old building as per the client (TRUST - Hospital) requirement. The survey team after analysing following points comes to conclusion that the use of new building for the construction of the hospital as an appropriate decision:

The Survey team has assumed that the derelict Industry was closed due to competition in market and is not old more than 10 years as the Old hospital is approximately 70 to 80 years old. So structure needs more maintenance after construction

It has been analysed that the old building has to be Control demolished which is still not possible with the current running of the hospital in the existing building.

As it's suggested that ramp should be used in hospital instead of stairs for the movement of patient from one floor to another and even in case of emergency like fire etc, when lifts can't be operate. So the construction of ramp in new building is easy else it's very difficult to provide ramp in the old building.

The derelict industry site has a wide range of flora and available in its surrounding which is best for the environmental policy of the NHS.

From the studies of project brief it has stated that the hospital used for the acute care and accident and emergency so there will be a helipad will be preferred to Trust at the tar macadam area for landing of helicopter in case of emergency services through the helicopter, as well the new build site is well connected to road for quicker services through road as well.

The new build site is also have provision for the future extension as the development are taking place in the surrounding area over decades of time.

The specialist installation such as heating, ventilation and air condition is easy in new building while during the refurbishment it is quite difficult to replace the new with old one and difficult in after maintenance.

Project Stakeholders'

The stake holders are important part in the overall process of project success so all the beneficial stakeholders are identified related to subject and their influence are clarify properly. As Walker and Marr states that a stakeholder is a term used for individuals or groups who have a connection to or an association with an organisation. They have a stake, claim, or vested interest in the day - to - day operation of the Project.

The only way of business to know their value will be to determine exactly who their stakeholders are…………..and to ask them. The urgency to adapt to stakeholder power and leverage it as a business strategy is not just a business fad; it is a winning approach and the more satisfying way to do business ---- WIN - WIN Solution.

A commitment to sustainability is broader, deeper and of substantially greater strategic value to a company than merely reporting on environmental outcomes. One goal of sustainability initiative is to realize long term business benefits by building non-financial performance measures- issues key stakeholders care about - into business processes. When we have gained commitment from our stakeholders, it enhances our business performance, growth and higher stock value over time. All stakeholders may be important, but nobody said they were all equal.

(Walker and Marr, 2001)

Extended Stakeholderism

The customers, employees, and owner, or investor would consider the immediate, or core, stakeholders because these are the one we "live with" every day. But as in our families we have close relation with and obligation to the rest of the family as well - the extended stakeholder of the business.

Business depend upon on forging powerful relationship with what we would call "extended stakeholders", those individuals outsides an organization beyond customers who are important to the business, such as suppliers, alliance partners, community leaders, the media , and the government.

Immediate Stakeholders

Extended Stakeholders

Individual investors

Institutional investors

Customers

Employees

Unions

Suppliers

Alliances Partners

Industry associations

Local communities

Consumer/ user association

Special interest group

Media

Government regulators

Competitors

Outside board directors

The general public (Beyond local communities)

Financial Analysis

Lenders

Education leaders

The Status of Stakeholder Loyalty

There is value in evaluating and classifying stakeholders according to different levels of commitment to the project. Survey research can/has determine people's position regarding the firm and their loyalty to it. Their answers can/has used to position the stakeholders on a spectrum of:

. How positive or negative they feel towards the firm and

. How likely or unlikely they are to remain loyal or continue supporting the firm in the future.

We would normally people in a simple matrix. There are four possible combination of high and low attitude and behavior in this matrix, so we can segment the stakeholders as being truly loyal, accessible, trapped, or high risk

Behaviour

Positive Negative

Truly Loyal

Accessible

Trapped

High Risk

High

ATTITUDE

Low

The successful stakeholder relationship passes through four stages, called the Four Gates of Engagement: Awareness, Knowledge, Admiration, Action.

(Walker and Marr, 2001)

Recognition of project through from initiation through design, construction, operation, and maintenance and their consequent impact on the project procurement issue

As the new build site has proposed the following points are suggested for the construction

As there was a mine shaft present in the surrounding of the site so a case study has been done to investigate the Bearing capacity of soil for the construction of the hospital building.

The design is be eco-friendly basis on the following points:

Their should be proper ventilation and natural Light and air arrangement for the patient health and to keep staff working spirit up for efficient working.

The CLC (cellular light weight concrete) blocks are hollow and hence will help in maintaining the internal temp of the room and also help in reducing sound level as hollow blocks are good insulator of heat and sound. As CLC blocks are also help to eliminate the crack between the brick and concrete and hence it will lead to less maintenance in future - better value for money.

The large tar macadam area, surrounding the site should be developed as the helipad so that the emergency cases can be carry through the helicopter easily and further land will be used for the recreational activities of the staff.

The derelict bridge can be developing for pedestrian to cross the road as the adjacent arterial road will become more congested during peak periods.

Risks

Miler and lessard (2001) states that "the successful projects are not selected but shaped with risk resolution in mind. Risk is the possibility that event, their resulting impact and dynamic interactions may turn out differently that anticipated" and construction is nothing special compared with other industries because we simply carry out projects to a specified timescale using teams of specialist for design and construction by marshalling appropriate resources to overcome the physical and technical power involved. So to manage risk is most important for the successful completion of project in Time to keep certainty in cost and achieve the appropriate quality.

RISK MANAGEMENT PROCESS

RISK ASSESSMENT

IDENTIFYING HAZARDS

Assess probability and consequences

Priorities

Risk control measure

Remove

Contractually

Insurance

Retain

Self - finance

Reduce

Eliminate/substitute

Reduce chance

Reduce effect

Residual risk

RISK MANAGEMENT

Risk management Process

(Gunn - 2008)

To monitor the risk, the risk register should be maintained at site

RISK REGISTER

Item

Description

Risk

Without control

Controls

Residual risk

Action

H

M

L

Cost Impact

Time impact`

Others

(CIOB (2002) (Chartered Institute of building code of practice for project management, 3rd edition. Blackwell edition)

PROCUREMENT RISK

Procurement Method

Balance of Risk

Client

Contractor

Traditional Lump sum

Client - Led design and built

Contractor -led design and built

Management contractor

Construction management

Contractor Finance (PFI)

Finance

Design

Construction

Finance

Design

Construction

Finance

Design

Construction

Finance

Design

Construction

Finance

Design

Construction

Finance

Design

Construction

Hughes and Murdoch (2000) states that "the apportionment of risk in design and build contracts is unique among procurement methods. This uniqueness is brought about by the single point responsibility and by the nature of the relationship between employer's requirement and contractor's proposal.

The following points are considered for risk management in Design and built:

Money

Completion of the project

Default by employer or contractor

Time

Quality"

Measurement of performance and benchmarked

Akintoye, Beck and Hardcastle (2003) indicated the PEP plan is a live, dynamic management document that records the project strategy, organisation, control procedure and responsibilities. It is updated regularly during the project's life cycle and used by all parties both as a means of communication and as a control and performance measurement tool. Value management and other activities lead to the completion of various reports that are contained in the PEP.

Examples of items that PEP should contain are:

The options appraisal incorporating the client's value system.

The user needs the strategic brief.

The performance statement of all aspects of the project, the project brief

The project execution strategy

The form of contract, partnering agreement, etc

The contract specifications / drawings etc

Project reporting procedure and particularly the procedure for information distribution, and communication, between the client's project team consultant and the contractor

The executive summaries and action plan from value management workshop reports

The risk management strategy and latest risk analysis

The required completion date including for any phase

Holroyd (2003) considered that "this is not about lowest price, but ultimately about best overall value for money. Partnering implies selection on the basis of attitude to team working, ability to innovate and to other efficient solutions. We think that it offers a much more satisfying role for most people engaged in construction and the introduction of performance measurement and competition against clear targets for improvement, in terms of quality, timeliness and cost, as the principal means of sustaining and bringing discipline to the relationship between clients, project team and their suppliers. The evidence we have seen is that these relationship, when conducted properly, are much more demanding and rewarding than those based on competitive tendering. There are important issue here, particularly for the public sector." He also consider Latham Report that effective partnering between client and contractor with teamwork and a 'win-win' approach helped to bring the Sizewell nuclear power station to completion on time and within budget. But there is still scope of improvement in productivity and cost reduction, especially if design and construction team could be kept together. Akintoye, Beck and Hardcastle (2003) consider that "PFI is the principle model of PPPs in the UK NHS."

Procurement Route:

To choose an appropriate procurement strategy is most important to achieve value for money, cost certainty and in time and of best quality. Holroyd (2003) states that "client's who know what they want, who do not change their minds, and who states clearly what they want, tend to procure projects that do represent value for money."

As Masterman states that "the formulation of the most appropriate strategy is one of the most important tasks that the client has to undertake the project's life. The project strategy consist of a number of sub strategic areas, which needs to be examines in detail so that appropriate decisions can be taken as to which sub strategy should be adopted."

The following points should include:

Milestone schedule - time;

Quality;

Financial objectives, funding and cost planning

The role of the client and the third parties;

The client project objectives;

Environmental issues;

Safety;

Legal and insurance issues;

Technical and design philosophy

Project/ work breakdown structure;

Risk management;

Project constraints;

Public relation/ communication

The appropriate method of procurement mostly depends upon the following:

Whether the organisation is publicly or private owned or funded

The level of knowledge and experience within the organisation in dealing with the construction industry and implementing building project.

Whether the project is needed by the client to accommodated his/her own industrial or commercial activities or whether the project is needed to lease, or sell, to other.

The activities carried out by the organisation and the resulting project typology.

Categorisation of building procurement System:

Separated Integrated Management Discretionary

Oriented

The

Conventional

System

Design Variation British partnering

& of Property

Build Design & Federation

Build System

Package Develop Construction

Deals & Management

Turnkey Construct Management Design &

Contracting Manage

Design and Build

In D&B there is a single point responsibility for both the design and construction of the project. The clients benefits from the contractor's expertise early in the project.

Research (Gidado and arshi - 2004) suggest that there may be as a many as six versions of design and build. For instance, Rawlinson (2008) reports on the recent successful use of develop and construction with a two stage tender and tendering arrangement, a novated design, open - book accounting and with the risk and value benefits of a Collaborative approach - all on the same project.

Types of Design & Build Arrangement

Extreme Variety

A Employer - led Design Develop and construct

Design and Build (Single stage tender)

Z Contractor - led design Design and build (two -stage tender)

Negotiated design and build

Design and manage

Turnkey

The client may wish to provide the contractor with minimal information in the form of an outline brief. This will leave the design and built contractor fully responsible for the conceptual and detail design in order to meet the employer requirements.

An alternative twist on develop and construct, is to novate the architect or design team to the contractor once the contract has been awarded. This variant is known as novation design and build because the client's architect, and may be other member of the design team, are legally passed over to the contractor in order to produce the detailed aspects of the design. The novation arrangement should be agreed with the architect when he is first appointed.

In this way, the client will maintain an interest in the design but the contractor will pay the continuing design fees through to contract completion and become responsible for the entire design.

The Tender documents will contain details of the client's consultation and the proposed novation procedure, together with a requirement that the contractor who is eventually awarded the contract will have to accept responsibility for the total design of the project, including the initial work carried out under the client's aegis. In other words it is as if the consultants by the contractor, including the level of fees, have been predetermined by the client, although normally this is a matter for negotiation between the contractor and the design team.

DESIGN AND BUILD CLIENT - LED DESIGN RELATIONSHIP

The Team being novated to D&B Contractor

.

(WILEY-BLACKWELL, 3rd edition, construction planning, programming and control 2009: 32)

Procurement strategy

The choice of building procurement systems available to clients is now so wide that the need to carry out the selection of the most appropriate method depends upon the critically study of the clients (TRUST) requirement in a disciplined and objective manner. (Masterman 2006)

The procurement of a construction is chosen upon the client's project requirement and a balance between time, quality and cost. After considering entire client requirement's critically and the forecast budget. JCT Design and Build novated system contract is most appropriate for the construction of hospital for the trust as According to International Commission on building (CIB W92) the procurement process is a strategy to satisfy client's development and/ or operational needs with respect to the provision of constructed facilities fro a discrete life cycle. (Masterman 2006:26)

Under the JCT 05 design and build conditions, it is perhaps worth noting the practice that the employer identified a design team and the same team will become the contractor's team once the contractor's is appointed under a design and build form of contract and the payment terms may be either stage payments or periodic payment. Periodic payments are normally monthly, whereas stage payments are based on agreed cumulative values linked to stages or milestone as stated in the contract particulars. The payments period from the payment request date is specified in the contract as 14 days. (Davison - 2006)

We can write it as the option chosen for the design and build is on the cost effective and time management as steffen and Jeffery in Stakeholder Power states that as proven by the corporate raiders, one of the fastest means of raising stock value is to boost profit by cutting costs. This ushered in the era of "crash dieting" by large companies also known as reengineering or downsizing. (Walker and Marr - 2001)

The Procurement strategy is chosen on the basis of following criteria noted in the NEDO report. NEDO has suggested eight procurement factors to be considered at the procurement stage. Of these, the three main considerations are:

Cost - certainty of the market price at the bid submission and final account stages.

Time - the overall timing of the project from inception to completion.

Quality - the client's required standard of design and workmanship as expressed in the specification.

Five other considerations were also highlighted as being influential on the choice of the procurement route. These are:

Complexity - Complexity of the building design, layout and services provision.

Controllable variation - How sure is the client of his requirements? The cost of variation of the contract may prove difficult to agree and assess.

Degree of completion - Does the client wish to create competition at the design and construction stage of the project?

Client Responsibility - Does the client wish to be directly involved in the decision making during the project.

Risk in the project - Commercial risk, occupation risk, design and construction risk.

Taking the following factors into account, decisions has made in relation to:

Choice of appropriate Procurement strategy for managing the contract (JCT- Design and Build)

The Client's requirement stated in the Task

Considering the client's brief and assessing the project's feasibility

Considering the Project Finance

Decided how to procure and manage the design and construction

Considering the realistic time period for the overall project.

(Williams and Cooke - 2009)

As the time period is of high priority and the early starting of the project is the must as the Clients required the project to be:

Completed as quickly as possible (because time is money - a month delay in project not even counted the construction charges but also a lot of overhead and industrial charges also)

Completed by specific date (that must be achieved - to ensure the govt about the proper running of the hospital)

Completed on time once it commence (with no time slippage by starting the project at once under design and build procurement method)

50

40 35%

30%

30

25 %

20

6%

10 2% 2%

0

JCT98 JCT JCT JCT JCT Other

Standard Intermediate Minor with Management

Form Form Works Contractors +

Agreement Design Major Projects

SUPPLY CHAIN MANAGEMENT

HOLROYDS (2003) suggest that "the supply chain role is critical to achieving sustained improvement and forward thinking. In the context of extensive sub-contracting this is perhaps more so. Partnering, correctly implemented, will provide benefits comparable to those obtained by the integrated project process." (Trevor M. Holroyd, Buildability, Thomas Telford Publishing, Thomas Telford Ltd, 1 Heron Quay, London - 2003)

Some major clients have assembled their own standing lists of preferred suppliers according to requirement of their projects so that their project can be managed on a more long term and integrated basis while retaining an appropriate degree of competition and control. These suppliers or supply chain partners, include architects, engineers, main contractors, specialist contractors and suppliers of a variety of goods and services. The "supply chain" can be defined as the entire chain of processes that exist between the point at which a need for goods or services arises to the point at which the end user receives them and payment is made to the supplier. Problem is that one part of the chain impact directly on all subsequent stages, and proactive management of the supply chain is therefore fundamental to providing an efficient and effective procurement services to the organisation.

(Cooke and Williams - 2009)

The contractor should be given the whole responsibility for the procurement of all material under the contract and a T.P.I (Third party Inspection by Individual body - Trust) must be considered to achieve the best quality of material procurement.

The essential point here is that the supply chain links, all the activities between suppliers and customers in a timely manner. The material will be procured at least 8 weeks before the schedule of use to maintain progress in time.

Adversarial Relationship Collaborative Relationship

Fragmented Lack of Process Customer

Processes Customer Focus integration Satisfaction

The role of SCM (supply chain Management) addressing the key problems in construction.

(Fewings - 2005)

Cooke and Williams - 2009 describes that "the fast track system as a management approach aimed at the early completion of the construction phase using a combination of innovative procurement methods, industrialisation of the construction process and the use of work package contractors in order to benefits from their expertise, especially as regards their design input. The benefits of system include:

Overlapping of work package both during design and construction

Less duplication of effort and waste

Less uncertainty and inefficiency at work package interface

The use of innovative construction methods

Incorporation of cutting - edge technologies

More emphasis on the standardisation, pre-assembly and modularisation of the construction process

As a consequence, the fast-track system has the propensity to deliver completed projects in remarkable timescales."

Identification and justification of relevant forms

The purpose if this work is to examine the standard forms of contract most commonly used in the construction industry today. Standard forms look in at least three directions at once. One of these is towards the wider law, be it the law of contract, and be it statute law or common law, with its constant accretion arising out of decided cases. In addition all of this forms considered are 'entire contracts' that is contracts in which each party is committed to a single, undivided or whole consideration in exchange for that of the other: the contractor undertake to complete the work; the client to pay for it. But they are entire contracts modified in respect of specific matters such as the introduction of variations, when payments to be made, and who is carrying the risk; but where there no modifications the basic concept of entirety remains in full.

A second direction of vision for standard forms is towards the other contract documents. They attempt to define what those documents are and also, within limits, how they are related to each other, in the event of any accidental conflict or even deliberate drafting that is intended to make one document take priority over another.

(Fellow - 1983)

JCT main contract forms:

Davison (2006) has considered that "the four forms to be the most important of the new 2005 JCT forms. These are:

Standard Building Contract With Quantities 2005 Edition

(SBC/Q 2005) - This contract replaces JCT Standard form of Building Contract 1998 edition 'Private with Quantities' and the 'Local Authorities with Quantities'1998;

Design and Build Contract 2005 (DB 2005) - this contract replace JCT with Contractor's Design 1998;

Intermediate Building Contract 2005 (IC 2005) - this contract replace JCT Intermediate Form of Building Contract 1998;

Minor Works Building Contract 2005 (MW 2005) - this contract replace JCT Agreement for Minor Building Works 1998.

Design and Build Contract 2005:

The JCT Design and Build Contract 2005 (DB 2005) is the latest version of the JCT Standard Form of Building Contract with Contractor's Design 1998 (WCD 1998). The drafting and layout of the terms and conditions have been improved and a number of existing processes have been sharpened. Davison - 2006 states that "it is perhaps worth noting the practice that has developed whereby the employer identifies a design team and require that team to develop the design with the explicit intention that the same team will then become the Contractor's team once the Contractor is appointed under a Design and Build form of contract. The transfer of the design team from Employer to Contractor is usually carried out by some form of novation. Neither the DB 2005 form nor any of its predecessors have addressed this thoroughly established practice by providing a mechanism in the main contract, or by creating a set of professional appointments that take account of this inevitable transfer.

Condition of Contracts:

Defining the appointments:

In SFA/99 the appointment is defined with recitals and articles of agreement, in a pattern familiar to users of JCT building Contracts. The appendix and schedule are placed immediately after the articles of agreement.

Definition of services

The condition governing the relationship between consultant and client are generally separate fro the detailed description of the precise services to be undertaken under the segment.

General Conditions

Obligation and authority of the consultant

Obligations and authority of the client

Assignments and sub-letting

Payments

Copyright

Liabilities and determination

Dispute resolution

Conclusion:

This report seeks on the comparison of the constructions of new built project for the hospital construction on the basis of Client's (trust) requirement. Major stakeholder's has been identified and their influence has taken in to account for the selection of procurement strategy and the project has recognised through different stage of construction. On the critical analysis of client's requirement, risk inherent in the project and procurement strategy and their affects has identified and risk register and PEP plan is recommended for the proper record of performance and benchmark measurement. Design and Build (novation) with PFI procurement strategy is considered as suitable to the construction and running of hospital based on life cycle cost in terms of time, cost and quality. A supply chain management procedure has also developed for the quality efficient and timely completion of project as per requirement of client.

The relevant Forms and Condition of contract is identified and justified for the chosen procurement strategy.

Recommendation:

The following points are recommended:-

Development of new built project under sustainable strategy

Selection of Design and Built - Novated system for efficient completion of project

Stake holder's analysis for the successful completion of Project

Development of proper SCM (supply chain management) for the timely, cost and quality efficient completion of project

TPI (third party inspection) is also recommended to ensure the appropriate quality of the material being purchased and supplied to overcome the previous negative history of PFI based procurement strategy for hospital construction.

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