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Design and Build is a new type of procurement strategy where the contractor takes the sole responsibility of doing the designing of the project as well as constructing it. The contractor, on a fixed price basis, does this. The biggest advantage a client can have by a Design and Build (DOB) type of a contract is that the project is done exactly according to the client requirements and the client has to only go to a single organization to fulfill its specifications and also in case of a problem, it has to deal with a single entity. When the client enters a design and build contract with its contractor, the contractor has two options - it can either do the designing by the its in house team or it can also outsource the designing to another agency for which it takes responsibility, but in most situations, the contractors work on the former basis.
The DOB method has its own advantages and disadvantages. The biggest advantage of this method is the "single point responsibility". The client has to go to the contractor with all its requirements and according to clients need; the contractor would give multiple options to the clients from which the client would choose. The consolidation also improves the administrative burdens of the client since it does not have to keep coordinating with the design and the construction teams. This also reduces the risk of miscommunication and misunderstanding between the two teams. Due to the single point responsibility, the contractor cannot blame anyone for any delay or poor quality of work.
Another advantage of this method is the price certainty to the client. The contractor has already been awarded the tender at a fixed price, which would not change unless there are major changes by the client. Hence, the client would know initially the total cost of its project. All extra cost apart from the ones decided in the tender, would have to be borne by the contractor. Also any kind of delay or for other financial liabilities, the client would have to only deal with a single organization instead of multiple parties and the contractor would not be able to play the blame game.
A DOB system also increases the speed and efficiency of the project. In such a situation, the contractor can start the initial construction process with a preliminary design instead of the traditional way of starting after getting the final design. This is possible, as the contractor is not relying on any other party for the supply of the necessary designs and other information. Also any designing problems or technical difficulties can be addressed much quicker than the traditional way. Studies suggest that the DOB method can be done in almost half the time than the traditional methods as in this method the design and the construction processes overlap which in turn saves a lot of time. Also the redesigning, bidding period for construction, designing delay and other such periods which can cause significant delay can be eliminated. Faster projects also means a lot of cost saving. Unlike the traditional methods, in this method, the client knows the total cost of the project initially hence the project is well in budget unless there are significant changes. Hence we can say that in this method, we can have quicker, more efficient and a cost effective project as the contractor is responsible for the quality, schedule, budget and performance.
The Design and Build method also has a few disadvantages. Although it is said that it is cheaper and faster than the traditional methods, not all projects can really accomplish this. Here, the client may have very limited scope to make changes onto the project and his requirements since the contract is already agreed upon. This can also lead to extra costs to the client. In the DOB system, form start to finish, the entire process is very complex and characterized by many uncertainties. If the proper risk management is not done to identify and solve problems, it can lead to a failure. This failure is due to the unexpected occurrence of events, which have not been identified, analyzed and managed properly since it a single organization to do all this. Also all the discussions and decisions before and during the project and during a troubleshooting, would be done by the client and the contractor without professional consultancy. This can mean less accuracy due to no professionalism.
Another disadvantage of this method would be that the designing is not done by the actual professional agency. The contractor may have his own in house trained designers who would not generally consult the experts. Hence if a client is not really satisfied with the designs of the contractor, he would have to consult a designing expert which would increase his cost.
To summarize, we can say that the DOB type of procurement system is a very complex system but if given to an efficient and experienced contractor who can exploit the advantages well, it is a very helpful system to a client as it ensures the schedule, administrative responsibility, sustainability and budget of the project. This system can be used for any scale or type or projects as long as the team selection and formation is done appropriately. Having put this team together, the DOB method can produce the best quality of a project in terms of time and finance and can prove to be the best procurement method for a project.
Dermosil is one of the biggest clients of YIT. Both Dermosil and YIT are Finnish companies and hence YIT is aware of the construction standards required to be fulfilled by them while doing this project. YIT is the biggest contractor company of Finland and is capable of working at such international standards in Finland but this project is based in Russia, hence to achieve such high standards would be a task. There are many human resource issues, which will come up during the production phase of this project, which will have to be handled very sensitively by YIT in order to, complete the project on international standards. Some of these issues are listed below:
YIT is a Finnish company operating in Russia. All the managers, supervisors, engineers, technicians, designers would speak Finnish or English and not Russian but the labor workforce is from Russia who may not be very fluent with English. Due to this language barrier, communication becomes extremely difficult. The on site personnel of YIT would not be able to communicate directly with the workers unless they appoint a Russian sub contractor fluent with English or hire a translator.
Culture, Ethics & Law
Finnish and Russian cultural are totally different. The Finnish people have a very mild approach on how to go about managing and implementing things where as the Russians do it the stricter way. This would be a major problem for the YIT contractors on how to get their tasks achieved.
Even ethically they are completely different. The Fin's are very hard working and loyal whereas the Russians are more on the diplomatic front and have a culture of bureaucracy and "mafiaism" in their style of working.
Also the construction and labor laws of Russia are completely different from Finland and YIT has to do an extensive research on them so that they do not break any laws unintentionally.
Since the project demands high international standards, recruitment of workers is of utmost importance. It is very essential to get skilled laborers who are pretty well versed with working on such standards and also who understand working in English and are adaptive changes in working methods. They should also keep in mind not to choose from very young or old age group. It should be somewhere in the middle and these workers should be active, alert and experienced so as to carry out their work efficiently. YIT would also need to employ certain professional workers who can use the heavy machinery skillfully.
Since many workers would come from different rural parts of Russia, mobilization of these workers on site is very essential. This also would save a lot of their time, as they would have to commute daily. Apart from managing their staying, YIT would also have to manage their welfare such as sanitation, canteens etc.
Since YIT and Dermosil are both Finnish companies, the payment to YIT would be in Euro but since the project is in Russia, YIT would have to convert a lot of their Euros into Russian Ruble for the payment of sub contractors, workers, buying of machinery locally and for their staff welfare and daily expenses in Russia. This would also cost tem currency exchange would be a financial loss to them.
There is never a common consensus on technology world over. There are many forms of new technology, which the Fin's are comfortable with and not the Russians and vice versa. In such an environment, working together is not very easy to achieve good quality of work. Also since many Russian laborers are unskilled or just trained with basic skills, it is very difficult for them to use such new technologies and the language barrier also plays an important role here. Training these workers in a different language on new machines would be a task for YIT in achieving a scheduled project with international standards.
Health & Safety
Health and Safety is an important aspect for all construction works. YIT has been offered a "zero accident bonus" as an incentive by Dermosil, but the Russian accident record rate is very poor. Hence YIT would have to take extra precautions than regular while working on the project. YIT needs to train these workers effectively to achieve this goal. The ability to work under such safe restrictions in a cost affective manner is a key issue for YIT.
Waste Management is a very important factor for every construction site. Different countries have different laws regarding waste management. YIT would have to study the Russian laws before recycling or disposing of the waste in Russia. Not only this, but they would have to also train their workers on how to eliminate the use of unwanted stuff, reuse the material till its possible, recycle the materials if possible and dispose of the unwanted materials in a legitimate way. YIT would have to keep in mind to use environmental friendly materials to make an environmental friendly building and teach the local workforce the same as both Dermosil and YIT pay utmost attention to environment protection.
Working Environments in Russia
Although Finland and Russia are both very cold countries, their working environments are completely different. They also have different work timings. Language barrier is the biggest problem.
To achieve a high quality scheduled project with international standards with such HR issues is a very complex and difficult task.
YIT will have to make a constant effort in motivating its workforce under such conditions to achieve their goal. Once they do that, they would earn themselves a good name in the Russian construction market and also an edge over their competitors, which would help them in expanding their base in Russia, which is their ultimate goal.
Health and safety is the most important aspect of a construction site. Even though YIT is a very reputed company, the project manager has to check their planning policies and organization regarding health and safety standards in the ongoing project in Russia and also its implementation.
Every precaution should be taken to prevent an accident and in case it happens, it should be properly taken care of. The key to achieving healthy and safe working environments is to ensure that these health and safety issues are well planned, organized, controlled, monitored and reviewed.
There are many ways how an accident can take place, like a fall from a height or material falling from a height on the workers below, accident by movement of heavy vehicles or machinery, trips or electrical accidents.
All these can be fatal. Apart from these, there can be serious illness to the human body due to excess noise and vibration, manual handling of materials and exposure to asbestos and other chemicals. All this can be avoided by checking and ensuring of simple and basic things such as can every worker reach his point of work safely and there are adequate barriers and railing at open edges, holes, corridors, steps etc, is the structure stable enough to carry the load, is the area properly lit, is the site tidy and materials stored in a proper place in a proper way and is the waste being properly managed. Also there should be appropriate management for the workers welfare facilities such as water, sanitation etc and if adequate rest is given to them, if there are proper emergency procedures and there should be proper first aid in case of an accident.
There are many things and aspects that the project manager should check regarding health and safety of their workers; few of them are listed below:
All the scaffolds and work platforms should be erected and dismantled by efficient people and they should have handover certificates. There should be a safe access to the scaffolding platform. All the uprights, ledgers, struts and braces should be in position. The scaffolding should be stable enough to prevent collapse and should have intermediate guardrails fitted properly.
GUARDRAILS & TOEBOARDS
All toeboards should be atleast 150 mm in height. The upper guardrail should be atleast 910 mm above the work area. There shouldn't be a gap of more than 470 mm between the upper guardrail and the toeboard else an intermediate guardrail should be used. The working platforms should be properly placed to avoid tripping or tipping. All incomplete structures should have proper signboards.
POWERED ACCESS EQUIPMENT
An equipped person should properly erect the equipment and the fixed equipments should be rigidly connected to the structure against which it is operating. All the operators and sub contractors should be trained and competent enough to use these equipments and should take adequate care that these equipments don't harm the people moving around it or by the falling materials. They should also responsibly put the equipment in an isolated area at the end of the day.
All the ladders used on site should be in good condition and should be kept in proper position so that they do not slip sideways or outwards.
These ladders should be rested on solid surfaces and the height should be above the landing.
There should be enough barriers on the edges of the roof to prevent the workers or materials falling from the top. The roof battens should be sturdy enough for the workers to climb and a harness should be available to the workers. Crawling boards should be fitted at fragile places and the project manager should make sure that there is no worker working below that point.
There should be an adequate supply of timber, trench sheets, props or other supporting material during the excavation process and these materials should be strong enough to support the sides. A safe method is to be used to put the support and if the sides of excavation are sloped back then the angle should be good enough to prevent collapse.
The excavation should not affect the neighborhood and the edges should be properly railed to prevent any person, vehicle or material from falling off. This should be regularly checked.
All the workers should avoid manual handling of heavy blocks and bags. Equipments such as hoists, telehandlers, wheelbarrows should be used so that lifting becomes easier. All the manual handling injuries should be assessed properly.
HOISTS, CRANES AND LIFTING APPLIANCES
The hoist should be protected by substantial enclosure and the landing and the path should be kept clear. The hoist should be operated by a competent operator from one place, and the working load should be clearly marked.
All cranes should be working from a firm leveled base and should have a test certificate clearly indicating the load. The signaler should be well trained and should know the weight and the centre of gravity of the load attached. There should be regular inspection and noting of the cranes and the hoist.
An emergency procedure should be developed in case of a fire or an accident and all workers should be aware of it. There should be adequate alarms and there should be enough escape routes.
The quantity of flammable material should be minimum on site an they should be stored in proper areas. All gas cylinders should be in a good condition and the valves should be closed properly. There should be right number and type of fire extinguishers and all combustible waste materials should be disposed regularly.
Adequate personal protective equipment, e.g. hard hats, safety boots, gloves, goggles, and dust masks should be provided to the workers and all these gear should be in a good condition.
PROTECTING THE PUBLIC
There should be a proper fencing along the perimeter of the site to protect the public. All materials and flammable substances should be properly stored and the heavy machinery and equipment should be properly locked from unauthorized use. All excavations and openings should be properly fenced.
All welfare facilities such as toilets, canteens, changing and storing rooms should be adequately provided and easily accessible to all. It should all be clean and hygienic. There also should be resting options and proper first aid in case of an injury.
In order to make an environmental friendly building, YIT should come up with a proper Waste Management Plan (WMP) taking into consideration all the factors affecting it. The WMP shows how every resource is used and how its waste is managed. It shows who is responsible for the management, what type of waste will be generated, how will it be managed, how much and what type of waste is generated. A WMP is required to comply with the law, save money and most importantly protect the environment. A good WMP can be done in a few steps
Plan and Prepare
It is very important to make the WMP in the very initial stages of the project. There are 5 policies, which one should consider in this stage of the project for a good WMP namely:
Eliminate - to avoid producing waste in the first place
Reduce - to minimize the amount of waste you produce
Reuse - to use items as many times as possible
Recycle - to recycle whatever you can after you've used it
Disposal- to dispose of whatever is left in a responsible way
Allocate responsibility for the WMP
The contractor should appoint a person who is responsible for the waste management on the site. He should know how to use the above 5 policies in the best way and make sure everyone is doing it on site. The person should clearly understand his responsibility and should have the authority so that the others can cooperate with him.
Identify the Waste
It is very important to identify the nature an quantity of the waste to be produced during the construction period. The person should have a systematic table of the materials used at every stage and should be able to identify the quantity and quality of the waste to be produced and whether it should be reused, recycled or disposed of. This will also help in responsible disposal of hazardous waste.
Identify how to manage your waste
The person should make sure that he knows where, when and what type of waste materials can be reused and work out the best options for waste to be recycled or disposed of onsite or off site. He should take care that the waste do not get mixed up.
Identify where and how to dispose the waste
The person disposing the waste needs to make sure how the waste is being disposed. If a waste management contractor is being hired, then it needs to be made sure that the waste is being disposed of safely and legally. The contractor should have a legal waste carrier registration number and the sites where the waste is being dumped should be the appropriate site for the waste disposal.
Organizing the materials and its waste
Significant savings can be made in ordering the materials for the project. Materials should be ordered as per design specifications, so that over ordering and cut off wastage is reduced. Reusing of previous materials should be considered to help protect the environment and the finance of the project. All ordering and speculation of waste should be recorded for future reference of minimizing of waste.
Measuring the waste
Once the project is underway, all the waste should be regularly measured and treated as per its nature. The waste could be wood, paper, chemicals, plastic, metal, gypsum, soil etc. they are to be measured in their respective units and to be decided the next procedure for it i.e reuse, recycle or dispose. All this should be recorded as it can be used for future projects for volume, value and weight.
A track is to be kept of all the waste moving around and out of the site and also who carried the waste and where. By the end of the project, the WMP gives the accurate record of how effectively you have managed the materials on site and how the WMP targets were met.
This information will be helpful for YIT in their future projects.
Building Information Modelling (BIM) is an innovative method to seamlessly bridge communication within the architectural, engineering and construction industry. This new methodology makes the construction process faster and easier for everyone involved.
The designers of YIT have no experience on working on BIM, so they should either train their designers to work on this system or outsource this work to an experienced professional knowing how to use this system.
Since they already have their project on hand and training their designers a the last minute would only mean delaying the project designing, hence the latter option seems to be more viable.
A formal implementation strategy is an essential component of any successful BIM system and must go well beyond a simple training & rollout schedule. It should address the head-on the workflow and organizational changes in YIT inherent to BIM. This new strategy also needs to address how the new solution will initially co- exist with existing 2D drafting or 3D modelling applications. Total abandonment of
these old design applications is impractical and not advisable.
Firms should look at how the BIM can be accessed by related
Applications such as energy analysis, cost-estimating and specifications. For firms that handle very large projects such as YIT, implementation strategy should include guidelines for creating and working with large models, additional hardware requirements and techniques for reducing model complexity.
BIM shows the graphical and non-graphical building information for a construction project by the use of relational databases, which would be provided, by the designers of YIT. To use the BIM system to its best ability, the contractors should identify the correct people who are competent enough to use this system and collect the accurate database of requirements from their clients. It uses the consistent coordinated information from the project. This information will help to visualize the design and content of the project, accurately measure performance, analyze real world structural behavior and make design decisions much earlier in the process as compared to the old methods. All this makes the architects, engineers and construction professionals to streamline their activities, increase their productivity and to create projects of the best quality by pushing the earlier design boundaries to another level of perfection. New efficiency of work would be realized in the YIT, after the use of this system. Once YIT is well versed with the BIM system, it will have an upper hand in the market due to the following benefits:
BIM provides a good estimation during bidding and procurement
BIM improves coordination in construction sequencing
Effective marketing presentation of construction approaches
BIM helps in identifying possible conflicts that may arise during building construction
Biggest advantage of using BIM is lesser amount of errors and hence rectifications - saving costs and resources
BIM allows for more "what if" analysis, such as construction sequencing options, shuffling of human resources, fine-tuning cost factors, etc.
BIM helps clients and end-users in understanding and visualizing the end product
BIM helps owner in taking informed decisions about the proposed project.
BIM allows designer to use sophisticated web-based tools which connects the project's program to other BIM tools such as Tekla, Revit and ArchiCAD.
Designer has a scope of incorporating eco-friendly design aspects before the commencement of the project.
BIM model allows for better cost estimation of human resources, raw materials and structural components.
YIT is the largest Finnish contracting companies, but currently they
are struggling to find work in Russia. With the ongoing Dermosil project, it can use this opportunity and experience to market and expand in Russia. The best way for YIT to market them in Russia is their performance on this current project. For effective marketing, YIT should do an extensive survey of the Russian markets to get to know their demands and requirements and also to study the strength and weaknesses of their competitors. After this research, they should formulate a marketing strategy of their own. There are 3 main points YIT should consider while marketing:
YIT is the largest company of Finland. Since it has a good turnover and cashflow, it should invest a lot of money in doing market research in this field and investing in new technologies, innovations and expertise.
Focus or Specialization
YIT should know their strengths as a company. They should focus on their specializations like "Design and Build" type projects, friendly HR policies, excellent health and safety standards, a good waste management plan, timely and well budgeted projects etc. These factors help in marketing the company
This is the most important factor for marketing which makes a company a "niche" kind of a company. These are the positives which a company has which the others generally don't have like the ability to use the BIM system which makes project more efficient, the "aero accident policy" which not many companies can achieve etc. These are the factors, which makes YIT stand out of the rest. Apart from this, the company should also have different and unique advertising and promotional skills to market themselves.
To understand the Russian markets in a better way, so that YIT can market themselves better, they should carry out the PEST analysis of the Russian markets. PEST analysis is the political, economical, social and the technological factors affecting the Russian Construction Industry.
Since YIT is a Finnish company trying to get project in Russia, it should be well versed with the Russian construction, labor and finance laws. YIT also knows that Russia is holding the XXII Winter Olympic Games in 2014, hence there are many projects of infrastructure and hotels underway. The Russian Government is also promoting Public Private Partnerships (PPP) for such projects. The way to obtain a construction project in Russia is fairly traditional and the government norms for foreign firms are also pretty relaxed. Bribery is a situation, which YIT needs to take care of specially on bigger projects.
The Russian construction industry has enjoyed something of a boom period in recent years, prior to the credit crunch occurring in late 2007. The real impact of the downturn in Russia was in mid 2008 onwards. In the past 3 months, the Russian Construction Industry has seen an increase in orders.
The annual construction sector volume in 2007 was 3,375 billion rubles (US$111bn) (and 3,093 billion rubles for the first 9 months of 2008) and, with the construction materials industry, contributes about 7% to GDP.
Language is a problem with the workforce of the local people. English is spoken in the business community but the construction industry mostly still speaks the local language. Many construction materials are imported. Russia has the ability to produce steel and concrete, but advanced materials and components are
imported from overseas. The workforce is skilled in basic trades but language is the biggest barrier. Also the weather condition go extreme in the winters.
Russia is not very well versed with technology and is not really updated with the latest developments of the technology related to the construction industry but it is growing and improving at a fast rate in the urban areas with growing infrastructure. YIT can use its technological skills to a good extent to market and grow a good base in Russia.
When YIT was awarded the DOB project by Dermosil, a contract was signed which stated that YIT would get 15% of the project cost at the start and the remaining money on completion of the project. Even though YIT is Finland's largest construction company, Dermosil would still want some kind of security that its money would not lost and if ever YIT would go into liquidation, it would be able to get back its total money. There are many types of securities or guarantees used by clients but the most commonly used are Insurances, Collateral Securities and the most frequently used are Bonds.
Professional Indemnity Insurances are used by the clients to cover their contractors.
The client can take any form of an asset of the contractor such as land, shares etc as a collateral security. In this case, Dermosil can take the Industrial Park from YIT as a collateral security incase YIT goes into liquidation. This security automatically becomes the clients property if incase the contractor goes into liquidation due to any reasons and is unable to pay back the clients initial sum.
A bond is a legally enforceable financial guarantee given by a third party (the guarantor) to the purchaser (the client) to guarantee the obligation of the supplier of goods, works or services (the contractor) under a contract. The guarantor agrees to pay the sum to the client incase the contractor defaults on his obligations. Bonds can be of several types:
Unconditional On-Demand Bonds
An unconditional on-demand bond allows the client to call the bond at any time. These bonds can only be provided by banks and are as good as cheques. Since these bonds are not performance based, the client can call the bond at any time without any justification. Hence the bonds can be used unfairly and are not fair to the contractors.
A performance bond is usually made at the time of signing the contract for an agreed percentage of the total contract value. Generally the values do not reduce, but performance bonds should have an expiry date. If the value of the contract or if there is a delay in completion of lack of quality, then the client can redeem the bond for compensation.
Parent Company Guarantees
This form of a guarantee is given by the parent company to guarantee proper performance by its subsidiary company (contractor). This can only be given when the contractor is a small part of a larger group. Such a guarantee is free of cost to the client. The disadvantage is that there is no third party involved but a bigger advantage is that it becomes the responsibility of the parent company to complete the project.
Advance Payment Bonds
A party uses advance payment bonds are the ones, which are given when goods are purchased or services. Incase the party defaults payment, the other party can redeem this bond. These bonds are issued by the banks but are not very famous in use.
These bonds are being increasingly used in the construction industry. These bonds are beneficial to the contractors as they get their full amount without the client deducting any retention amount.
Hence we have seen that Dermosil can be fully covered by such securities and bonds in case YIT goes into liquidation.
Ericsson is a leading brand in the world in telecommunications and IT services. Dermosil wants a state of the art communication system, which is expandable at a future date, as it would also help them in their future expansion in Russia or other countries. There are very few companies in the world, which can match Dermosil's requirements and Ericsson is one of the best in the world. The reason Dermosil directly dealt with Ericsson and not through YIT is so that they can strike a cheaper deal, but Ericsson would have to work with YIT to ensure that their clients, current and future Information and Communication Technology requirements are met. Since Ericsson is not a client of YIT, dealing and working with them would not be very smooth as they don't have direct communication and access with YIT. Due to this, there can be many problems on site like:
Wastage of Time
Since Ericsson is not in direct contact with YIT, Ericsson would do their work at their own pace. On the other hand, there is also a probability that Ericsson gets delayed as they are waiting for YIT to complete their job at a certain stage
Ego/ Personal Issues
As there is no formal relationship between Ericsson and YIT, and since they are working together, there is a very high probability of their workers having personal differences, which can hamper their coordination and as a result, delay the project for Dermosil.
Dermosil, YIT and Espoo are Fin companies whereas Ericsson is Swedish and Zorky and the local workers are Russian. Not all would know fluent English hence communication with each other would always be a problem.
Since there are so many people of different origins involved in the project and language would be a problem, there would often be miscommunication with the system, which could lead to misunderstandings and confusion within each other. This would create mistrust and lack of confidence within each other resulting in the delay the project as well as it will affect the quality of the project.
Since there is no contract within Ericsson and YIT, YIT would not be responsible for any quality or time related issues concerned with the ITC system of Dermosil. They would also not take any responsibility concerned with issues like the health and safety or the waste management systems of Ericsson and their work
All the above problems can delay or stall the project and can also compromise on the project quality. To avoid this Dermosil should take extra care in making their contract with YIT. It should also be in regular touch with its project manager to check regularly on the on site working. It should have regular meetings with all the parties involve to sort out differences if any. This would also create transparency and trust within the parties involved and will help them work together as an integrated team with a sense of cooperation with each other. When there is such a collaborative working atmosphere with each specialist doing its own bit, the project would definitely be on or before schedule and with the highest standards of quality. This landmark project would also help each company involved to market themselves better for the future.