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Procurement Analysis Implementation

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The development of procurement strategy follows the stages in the life of a project. Initially, a preliminary strategy is determined. It is based on a broad definition of objectives and is an essential step in establishing the way forward

for the project. It encourages the client to consider strategy early. The preliminary procurement strategy is usually developed with help from the

client's adviser and possibly other consultants.

Procurement strategy development has three components:

• analysis - assessing and setting the priorities of the project objectives and

requirements;

• choice - considering possible options, evaluating them and selecting the

most appropriate; and

• implementation - putting the chosen strategy into effect.

During strategy preparation, it may be necessary to seek specialist advice from other consultants, for example, in relation to expected costs for the project. The adviser should advise the client on this. Specialist advice should besought when developing the strategy for novel or especially difficult projects. Until construction contracts are let, the client, with help from his adviser, must systematically ensure that the strategy is on course to meet the project's established objectives. This is important because objectives sometimes change.

Procurement Methods

There are various methods of procurement which can be broadly classified under the following headings:

  • Traditional
  • Design and Build

  • Two Stage Tendering

  • Public Private Partnerships / Private Finance Initiative

  • Management Contracting

  • Construction Management

  • Framework Agreements

Each method has different aspects of risk transfer and no one method can be classed as best overall.

Traditional Procurement

In this method the Contractor builds to a defined scope of works for a fixed price lump sum. The client retains the responsibility for the design and the project team. The contractor will be appointed normally following a tender process or negotiation and will sign up to a contract for the works. There are a number of standard forms of building contract available for this purpose.

Design and Build Procurement

The Client appoints a building contractor, as before standard forms of contract are available for this purpose to provide a completed building to an agreed cost and programme. The Contractor is responsible for design and construction. The Contractor can be chosen through a tender process or through negotiation. The Client can appoint a consultant to oversee the works. Maximum risk is transferred following this method of procurement, although a commercial response to design in order to address contract conditions can result.

An alternative is to appoint a contractor when designs have been developed in order to retain control of the important elements of design and specification. The Design Team can then transfer their contractual obligations to the contractor and complete the designs on behalf of the Contractor. This process is called Novation.

Two Stage Tender Procurement

In this process, the Contractor is appointed on the basis of a first stage tender which determines the level of overhead and profit for each Contractor. The Contractor then works with the Project Team during the second stage to develop the designs and establish detailed costings for separate project work elements. This process will provide for a fixed price on a detailed design basis. The provider can then enter into a contract on this fixed price basis and also pursue the opportunity to novate the Design Team as with the Design and Build Procurement route as previously noted. This process requires a long second stage period in which to design and tender the different work elements and therefore a start on site would occur later than normal.

Public Private Partnerships

Public Private Partnerships (PPP), particularly Private Finance Initiatives (PFI) projects are created for the provision of services and not specifically for the exclusive provision of capital assets such as buildings. It is therefore preferable to investigate PPPs as soon as possible after a user need has been identified rather than leaving it until a conventional construction project has been selected as the solution. It should be noted that the tendering process in this procurement route is expensive and requires negotiation rather than competitive tendering. In comparison with other procurement routes the time from commencement of the project to attaining a start on site is substantially longer.

Management Contracting

This is a fast track strategy which overlaps the design and construction stages and allows early elements of the construction process to be commenced before design has been completed. The Management Contractor is engaged to manage the overall contract in return for a fee. The Management Contractor can therefore be appointed early in the design and can advise on buildability and programming. In addition to the contract with the Management Contractor, the contracts for the individual work packages are between the Management Contractor and the individual sub-contractors. A cost plan is utilised to control the development costs although actual costs cannot be obtained until the final work package has been awarded.

Construction Management

This is also a fast track strategy where individual elements of the project are let before the design of later work packages or elements have been completed. The provider will appoint a Construction Manager to manage the overall contract in return for a management fee as with Management Contracting. Also, as before, the project can benefit from early involvement of the Contractor. In this process the contracts for the sub-contractors are placed directly between the Client and the sub-contractor and the Client will need to have a high level of involvement during the design development and the construction phases of the work. As with Management Contracting, the final costs will only be known once the final work elements have been awarded.

Framework Agreements

Framework Agreements can be established with single suppliers or with a limited number of suppliers. Frameworks can allow suppliers to be brought together with the relevant expertise and experience which can result in savings to both parties where a number of projects are involved. These agreements can cover different forms of procurement including Design and Build, Traditional, etc. The LSC are currently developing framework agreements for consultancy services accross the country. These should be available for use by colleges by early 2008. Following on from this, the LSC will also be working on developing a contractors framework.

London Heathrow Airport (LHA/EGLL) Terminal 5, United Kingdom

Terminal 5 is one of Europe's largest and most complex construction projects. With 16 major projects and over 147 sub-projects, it has encompassed a vast and hugely complex programme of works.

Key Data

Start Year

September 2002

Project Type

New terminal construction

Location

London, UK

Contract Value

£4.2bn

Completion

Phase 1 - April 2008Phase 2 -

2011

Key Players

Sponsors

BAA, private investment, HM Government

Lead Architect

Richard Rogers Partnership

Strategic Planning and Design Services

Halcrow Group Ltd

Cost Consultant Services

E C Harris Group Ltd

Turner and Townsend Group

Planning Supervisor

Bovis Engineering Ltd

Structural Tunnel and Rail Consultant

Mott MacDonald Ltd

Project Management and Support Services

Parsons Brinkerhoff Ltd

Civil construction infrastructure and logistics delivery

Laing O'Rourke Civil Engineering Ltd

Architectural station design consultant architectural production and brief development

HOK International Ltd

Construction management

Mace Ltd

Technical features:

In addition to the main terminal building, Terminal 5 also consists of two satellite buildings (the second of which will be completed by 2010), 60 aircraft stands, a new air traffic control tower, a 4,000 space multi storey car park, the creation of a new spur road from the M25, a 600 bed hotel, the diversion of two rivers and over 13 kilometres of bored tunnel, including extensions to the Heathrow Express and Piccadilly Line services.

This work encompasses a multitude of construction related skills including civil engineering, building, highway engineering, mechanical and electrical engineering, tunnelling, railway engineering, specialist systems technology and project logistics management.

The Stages of Construction:

Stage1:

Site preparation and enabling words Firstly the 260 hectare site was surveyed and excavated by archaeologists.  Preparation for construction then involved levelling the site, removing the sludge lagoons and building temporary facilities including roads, offices and logistics centres.

Stage 2:

Groundworks & substructures This phase included the earthworks and the construction of the foundations and substructures for the terminal basements. It also included building the drainage systems and the rail tunnels.   A total of 9 million cubic meters of earth will have been excavated during the earthworks phase. A proportion of this earth was used to create the embankments for the M25 spur road and landscape the Colne Valley, while the rest is used to backfill the main site.

Stage 3:

Major structures This phase included erecting the huge free standing roof structure of the main terminal building (T5A), and its interior superstructure. It also included the superstructure and roof of the first satellite (T5B) as well as the multi-storey car park and ancillary buildings such as the energy centre.

Stage 4:

Fit out This involved the fit out of the buildings' interiors including, the building services modules (ie, power, heating and ventilation systems), the baggage system, the track transit system (people mover) and specialist electronic systems.  It also included the fixtures and fittings and the retail areas.

Stage 5:

Implementation of operational readiness Operational readiness is necessary to ensure that Terminal 5's infrastructure and systems are fully complete and tested, that staff working in the terminal are properly trained and that all the necessary operational procedures for Terminal 5's opening day on 27 March 2008 are in place.

Phase 2:

Construction for the basements for the second satellite building (T5C) and additional aircraft stands commenced in 2006.  However, the main building structure will not be completed until 2010.

Procurement Strategy Adopted

T5 Agreement

From the outset BAA recognised that the risk associated with such a huge and complex infrastructure project required a fresh approach to construction management. Research conducted by BAA into major construction projects highlighted two key areas that seemed to undermine progress; cultural confusion and the reluctance to acknowledge risk.In a move to prevent Terminal 5 from suffering from costly delays and budget over-runs, BAA developed a unique and bespoke commercial partnering agreement with contractors and suppliers called The Terminal 5 agreement. A contract based on relations and behaviours, it was designed to expose risk rather than transfer it to other parties.

Advantages:

a)UK construction best practice is expected as a minimum standard on, and in light of this the project has had to ensure key milestones are met on time, on cost and to high quality and safety standards.

b)An incentive scheme encourages teams to work together in order to find the most efficient way of achieving these milestones.

c)Through the agreement BAA accepts that it carries all of the risk for the construction project.

d) Focus on managing out the cause of problems, not the effects if they happen

e) Work in truly integrated teams in a successful, if uncertain environment

f) Focus on proactively managing risk rather than avoiding litigation.

g)With the burden of accountability lifted, those working on T5 can do so innovatively and positively. While traditional arrangements can result in a highly unproductive culture of blame and confrontation if something goes wrong,

h)Under the T5 Agreement a premium is placed on delivering solutions and results.

I)Many of the suppliers involved in Terminal 5 were brought on-board at the earliest stages of the planning process. This enabled completely integrated expert teams to work together to identify potential problems and issues before designs were finalised and fabrication and construction began. As a result the teams of suppliers and consultants are in a position to add value whilst designing safe solutions within the time, quality, cost and safety targets.

j)UK construction best practice performance on Terminal 5 is expected as a minimum standard. In light of this, the project has to ensure key milestones are met on time, on cost and to high quality and safety standards.

k) BAA only has a direct contractual relationship with ‘First Tier' suppliers, of which there are around 60. It is the First Tier supplier's who are responsible for the appointment and management of ‘Second Tier'suppliers or subcontractors. In doing so they too are expected to operate within the spirit of the T5 Agreement.

The English national stadium project at Wembley

Key Facts about Wembley:

The stadium will be used primarily for football and rugby league but will also, after adaptation, be capable of hosting major international athletics events.

! The project is expected to cost £757 million and is scheduled for completion early in 2006.

! The Football Association is contributing £148 million to the project and

commercial lenders have provided debt facilities of £433 million.

! The public sector funders are providing £161 million (£120 million of lottery

money from Sport England, £20 million from the Department for CultureMedia

and Sport and £21 million from the London Development Agency) to the project.

! The stadium will be owned and operated by Wembley National Stadium Limited,a wholly owned subsidiary of the Football Association.

! Profits from the operation of the stadium will be used by the Football Association in accordance with its objects for the benefit of football.

! Starting five years after the stadium opens, Wembley National Stadium Limited will donate one per cent of its turnover each year for distribution to sports education and other projects.

Key Features:

With 90,000 seats, the new Wembley is the largest stadium in the world with every seat under cover. This capacity is separated into 3 tiers of seating, with the lower tier holding 34,303 spectators, the middle one 16,932 and the upper one 39,165[14]

The stadium contains 2,618 toilets, more than any other venue in the world.[15]

The stadium has a circumference of 1 km (0.6 mi).[2]

At its peak, there were more than 3,500 construction workers on site.[16]

4,000 separate piles form the foundations of the new stadium,[2] the deepest of which is 35 m (115 ft).[2]

There are 56 km (35 miles) of heavy-duty power cables in the stadium.[2]

90,000 m³ (120,000 cu yds) of concrete and 23,000 tonnes (25,000 short tons) of steel were used in the construction of the new stadium.[2]

The total length of the escalators is 400 m (¼ mi).[2]

The Wembley Arch has a diameter greater than that of a cross-channel train.[17][18]


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