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This report has been prepared as a requirement of the Assessment of Professional Competence, for the Royal Institution of Chartered Surveyors.
1.2 Aims and Objectives
The aim of this report is to ascertain the level of experience that I have achieved throughout the structured training by evaluating my role and responsibilities and how these were used to tackle key issues that arose during my specified project.
The key issue is to award the Sewage treatment plant (“STP”) of the project to give a cost effective solution within the budget and to provide value for money for Sama Dubai (“the client”).
In this report I analyzed the key issues of Initial Cost, Time, Scope/Quality and Life Cycle Costing for the supply, erection and commissioning the Sewage treatment plant within the allocated budget.
I have included the following:
- A background of the project.
- My personal involvement along with my roles and responsibilities.
- A comprehensive analysis of the four options which arose on the project.
- Options/Courses of action to tackle the issue identified.
- Reasons why options were selected or rejected
- Recommendations/Lessons learned.
- Analysis of experience gained.
I have incorporated in the appendices where relevant and appropriate illustrations such as calculation tables, plans and photographs which are professionally substantiated.
1.3 Confidentiality Statement
Permission was sought and granted from my employer, Sama ECH LLC (“the Project Manager”) and Sama Dubai LLC (“the Client), to use this project for my critical analysis. Both parties granted permission.
1.4 Chosen project
1.4.1: The Vision
As part of the vision of His Highness Sheikh Mohammed, “the Client” decided to construct a “Labour Village” at Jebel Ali Industrial Area No - 8, which had the mission to act as a future model for all labour accommodation in Dubai.
1.4.2: Description of project
The Project consists of thirteen accommodation buildings along with amenity blocks like super market, clinic, multipurpose hall and grand Mosque. The project shall cater to a population of approximately ten thousand labourers.
The full contract for developing the ‘Labour Village' was awarded to M/s SYSTEM CONSTRUCT (“the Contractor”) as a “Design and Build” Contract and with M/s Shadid Engineering (“the Engineer”).The total Contract price for constructing the entire labour village development was AED 202,500,000 and in which a provisional sum of AED 3,450,000.00 was allocated for “STP” including “the Contractor's ‘Overhead and Profit' of 15 percent.
2.0 Project Particulars
- Gross Build up Area
- Total Cost per Area
- Scope of Works
- Project Value
- Type of Contract
- Form of Contract
- Commencement Date
- Completion Date
- Current status of the project
92,000 square meters
AED 2000.00 per square meters
13 Accommodation Buildings, Super Market, Clinic, Multipurpose hall and Grand Mosque
Design and Build
17th February 2006
Phase 1 - 7th December 2007
Phase 2 - 7th April 2008
Phase 3 - 7th August 2008
Defects Liability Period ends on 7th August 2009
3.0 Client Requirements
The client's main requirements are summarised as follows:
Since there was no municipal sewer line in the vicinity of the site, the viable option was to have a standalone sewage treatment plant (STP) of 3000 metric cube capacity. Even though the project construction budget was capped at AED 202,500,000 in which AED 3,450,000 was allocated as a provisional sum for constructing the “STP”. Due to the unique importance of the Project, the Project Manager has decided to investigate the possibility of recycling the waste water originating from the toilets to be treated in the “STP” which can then be used for the purpose of Landscaping /Irrigation, provided the initial cost of STP is within the allocated budget and by considering the “Life Cycle Cost” and obtaining “Value for Money”
4.0 Appointment/Key Role Players
5.0 My role and responsibilities
My role as a commercial manager entailed the following:
- Project Cost Control and reporting
- Administration of Interim Valuations
- Maintaining good commercial practice and timely agreement of contract variations
- Prepare overall project cost calculation and project accruals
- Advising on potential cost implications of proposed variations and likely risk
- Negotiation and agreement of Final Account
- Procurement and finalisation of Contractors and Subcontractors
- Attendance at regular site progress site meetings
As commercial manager deputed for this project, I took up the challenge to call upon contractors specialized in this field and decided to proceed with optimizing the long term cost effectiveness of the system in terms of future maintenance cost, ie “Life Cycle Costing” and use professional commercial negotiation and cost analysis techniques.
6.0 Key Issues
The Key issues considered are;
- Initial Cost
- Life Cycle Cost.
7.0 Available options to counter key issues
The Contractor has submitted 3 proposals from specialist contractor's M/s Metito (Overseas) Limited, M/s Global Engineering Systems and M/s Eagle Electro Mechanical Company for the amount of AED 5,040,000, AED 4,110,000 and AED 9,290,000 respectively excluding Contractor's OH & Profit, Civil Works & Operation & Maintenance Cost to the Engineer,M/s Shadid Engineering.
Given that the proposals were greater than the identified budget, I explored different possibilities and types of system used in “STP” in the GCC region as follows:
Option 1 - Membrane Bio-Reactor (MBR) - Metito
Submerged membrane technology is a process whereupon the traditional activated sludge is separated with a membrane. The essence of the process is based on membrane.
Option 2 - Moving Bed Bio Film Reactor (MBBR) - Global Engineering
Option 3 - Moving Bed Bio Film Reactor (MBBR) - Eagle Electro Mechanical
In Option 2 and 3, communities of mirco-organism, called biofilms grow protected inside plastic carriers. The micro organisms remove the organic material from the sewage and multiply to greater numbers. This increase in number of micro organisms results in excess activated sludge.In essence the process is based on Bacteria growing on Biofilms.
Option 4 - Request for additional funding in the order of AED 2,934,920 to the project budget to cover the extra cost for the construction of the “STP”.
8.0 Reasons for rejecting certain options:
The Engineer has recommended option 1, METITO for MBR system even though they were higher than Global's proposal by AED 1,378,560.00 for the following reasons.
- METITO is an established firm in the Market with a high reputation compared to Global Engineering which is relatively new in UAE Market.
- METITO with the track record can achieve the targeted project completion date.
- Quality of water is much better than that of the other System.
As commercial manager, I had certain budget limitations and keeping this in mind, I discussed the technical and future maintenance aspects of each system with the technical team.
Given that Metito's proposal was much higher than that of Global Engineering and since the budget allocation was insufficient to accommodate any additional cost, I discussed with the project manager and he requested me to assess the system from a commercial perspective given that technically speaking both system's are viable for the required purpose.
Technical team advised that although MBR system by Mettio is superior to Global's MBBR system in terms of the quality of water provided but both systems are equally capable of providing water quality acceptable for Landscaping/Irrigation which was in turn our main intention.
The reasons for rejecting the third option were:
- M/s Eagle Electro Mechanical's price was much higher to the lowest bidder Global Engineering by AED 6,770,860.00
- M/s Eagle Electro Mechanical was reluctant to work under contractor “SYSTEM” due to history of nonpayment on time.
- Less cooperative with consultant on clarification stage.
The reasons for rejecting the fourth option were:
- I was reluctant to advise the project manager to request additional funding to the budget to increase the provisional sum for the “STP” without having a detail cost analysis and direct negotiation with the specialist contractor. Therefore proceeded with assumption that this option would be rejected.
Hence I decided to carry out a detail analysis between the options one and two, looking in particular at:
- Initial Cost
- Life Cycle Cost.
9.0 Analysis of Options in line with Key issues
9.1 Initial Cost
Metito's initial proposal of AED 5,530,000 includes an amount for AED 257,000 for treated water tank, AED 981,000 for “STP” related civil works and AED 490,000 for first year operation & maintenance cost.
It was decided by the Client that yearly operational and maintenance for the “STP” will be treated as a separate Contract (Excluded from the Project budget). Hence the proposal for Metito was considered for AED 5,040,000, excluding AED 490,000 allocated in the initial proposal for the cost of Operation & Maintenance.
Global's initial proposal of AED 4,110,000 includes AED 345,000 for treated water tank and AED 175,000 for “STP” related civil works.
Even though “the Engineer” has recommended Mettito for the job, I called upon both parties Metito and Global separately for an initial meeting and explained to them the importance of this project and future potential on them after successful completion of the project. It was noticed that the basic cost for the “STP” was comparatively close for both Metito and Global with a difference of AED 212,000.The major difference is observed for the cost of civil works compared to Metito's AED 981,000 to Global's AED 175,000.
The above observation indicates that Metito have excessive civil works to carry out compared to Global which involves higher cost and time. This was highlighted to Metito and requested them to reconsider the overall cost of civil works.
I requested both parties to review their proposals again and agreed that we would meet to discuss further after their revised proposals had been analysed.
Subsequently I met both parties again; Mettito gave a discount of AED 59,000 and their revised priced became AED 4,981,000.00. Metito was reluctant to further reduce their proposal and stuck to the revised sum of AED 4,981,000.00.
Meanwhile I had a serious of conversations and meetings with Global Engineering and I managed to convince them to consider the long term relationship with the Client and to consider this project as a stepping stone for Global Engineering for future projects with the Client.
I applied the Golden principles of Negotiations, that's “IF and THEN”. After discussing and getting the consent from Project Manager, I explained to Global about our budget limitations and hence offered a suggestion that “IF” they could provide a discount of AED 1,510,000/- from their original proposal of AED 4,110,000 and to finalize the Contract price to AED 2,600,000 Million, highlighting that the given discount may be considered as an advertisement cost for getting a stepping stone in SAMA DUBAI projects and for the long term relationship with the Client THEN” I can consider awarding the Contract to Global.
After considering my proposal, Global Engineering agreed to provide the discount.
Negotiated Initial Price
- Metito's final price after discount was AED 4,981,000 which includes AED 200,000 for treated water tank and AED 981,000 for “STP related civil works.
- Global's final price after discount was AED 2,600,000 which includes treated water tank and “STP related civil works.
Both Metito and Global have the capacity and recourses to “Supply, Erect and Commissioning” the “STP” in the allocated four months time as in line with the Contractor's program.
- Company Profile including Quality assurance /Health & Safety policy
- Site Visit
METTITO was founded in 1958 and are an international engineering group specializing in design and manufacturing of water treatment plants. The company employs more than 800 engineers and operates in fourteen countries. While GLOBAL “is a U.A.E based company operating here for the past seven years and employs about 40 engineers in association with a Norwegian company Anox Kaldnes. Global has completed projects valued AED 50,000,000 in the last five years.
Both Companies adheres to ISO 9001: 2000 Quality Assurances and has an inbuilt health & safety policy.
As METITO is an established firm in the Market with high reputation in terms of resourses and corporate capabilities. I decided to verify the information in hand of Global Engineering. I along with the project manager visited one of their completed projects in Sharjah free zone. It was observed that Global have completed the project as per local authority standards with adequate quality and on time.
We also visited Global's UAE Head quarters in Sharjah free zone to access their office setup and to check whether they have competent staffs to achieve their design responsibilities and management & operational capabilities. We found Global have a young dedicated professional team who is capable of achieving the target in terms of Quality, in time and have a financial capacity to complete the project within the budget.
9.4 “Life Cycle Costing”
Life span for “STP” has been considered for 20 years in aggregate for both Metito and Global. Life Cycle Analysis has been provided considering the following:
- Initial cost of “STP”
- Operation & Maintenance cost
- Spare parts and chemical cost
- Power consumption cost.
9.4.1 Life Cycle Cost analysis - Metito
Metito's Life Cycle Costing for ten and twenty years was AED 13,924,285.00 and AED 22,577,460.00 respectively which includes Initial cost of “STP”, Operation & Maintenance including sledge disposal, spare parts & all consumables and power consumption.
9.4.2 Life Cycle Cost analysis - Global
Global's Life Cycle Costing for ten and twenty years was AED 9,342,790.00 AED 16,089,370.00 respectively which includes Initial cost of “STP”, Operation & Maintenance including sledge disposal, spare parts & all consumables and power consumption.
Global has excluded accommodation cost for three supervisors and inflation cost of spare parts after five years. An amount of AED 2000 per month was allocated for accommodation cost for three supervisors for the first five years and 20 percent increase for every subsequent five years. Also AED 78,000.00 ie 3% of “STP” Contract value was allocated for inflation for the replacement of spare parts for every five years.
9.4.3 Comparison in “Life Cycle Cost” for twenty years in aggregate:
- Global's “Life Cycle Cost” for twenty years was AED 16,089,370 compared to Metito's AED 22,577,460.00.
- Hence Global's anticipated “Life Cycle Cost” for twenty years will be less than 28.74 percent than Metito's.
The reasons for rejecting the first option were:
- Metito's proposal was rejected because they were less responsive and reluctant to further reduce their proposal, as engineer has already recommend and so stuck to the revised Initial price of AED 4,981,000.00 which was higher than the identified budget
- Metito's “Life cycle cost” for twenty years in aggregate is much higher than Global's by 28.74 percent.
As commercial manager, I considered various aspects related to Initial Cost, Time, Quality and Life Cycle Cost, while giving my recommendation.
- Global's final Price was AED 2,600,000 compared to Metito's AED 4,981,000. While considering contractor's OH& Profit of fifteen percent (15%) (AED 390,000) and excluded Civil Works (AED 400,000), the final amount will be AED 3,390,000 which was within our allocated Budget.
- Global's proposed completion time for supply, erection and commissioning will be in line with main contractor's program.
- Global adheres to ISO 9001: 2000 Quality Assurances and they have separated Quality assurance team.
- Global's “Life Cycle Cost” for twenty years in aggregate was 28.74 percent less than that of Metito's.
I submitted my recommendation to project manager based upon the critical analysis outlined above to award the Contract for “Supply, Installation and Commissioning of “STP” to Global Engineering and to recommend the Client to provide a separate Contract for the Operation & Maintenance to Global Engineering for first ten years and subsequent renewal of the Contract with the same conditions for next ten years after reviewing their performance.
In effect, whilst the proposal from the Engineer was based primarily on “Quality/Scope” and “Time”, it was to the determent of “Cost” as it did not meet the Client's budget.
After analysis and negotiation, the recommendations I made met the three parameters of TIME, COST and QUALITY/SCOPE.
10.2 Personal Development/Lessons Learned
- Firstly, I learnt not to accept at face value of the recommendations provided by the Engineer without detail analysis of all parameters.
- I learned to consider not just the “Initial cost” of a supplier but by communication, negotiation and detailed analysis of long term cost (Life Cycle Cost) a clear picture emerges of what the best option is.
- I realised the importance of my role in the overall process with regards to cash flow management and preventing additional financial costs.
- This issue also strengthened my communication, negotiation and interpersonal skills.
- I got an opportunity to learn in-depth various competencies like Communication and Negotiation, Project Financial Control and Reporting, Commercial Management of Construction, Team Working, Leadership, Managing People and Contract Administration.
- Continued professional ethics and obligations in my job which was appreciated by my Employer (Appreciation letter attached in Appendix - F)
It would be fair to say that the method I used to obtain a more competitive cost ie long term relationship with the Client, would not be expected to work every time.
Should the situation has arisen that I could not have got the cost below the identified “Provisional Sum” then I would have to request additional funding from the Client to meet the project requirement or value engineering of other aspects of the development would have needed to be investigated.