Essay: Procurement For Long-Term Projects: Advantages, Disadvantages, And Factors.

Using the case study OSPEDALE Papa Giovanni XXIII: Fixed-Price or Public-Private Partnership. You should answer all of the following three questions.

1. Discuss the main advantages and disadvantages of the procurement arrangements for both projects from the client’s perspective. What mechanisms, if any, should be put in place to protect the advantages or mitigate the disadvantages?

2a. Discuss whether the method selected for procuring each project’s contact was appropriate.

b. What factors should be considered when selecting between Fixed-Price and PPP contracts?

3. Discuss the main characteristics of Availability-Based Contracts as a type of PPP contracts. What would be your main recommendations to the RCL for strengthening future project contact procurement?

Advantages and Disadvantages of Procurement Arrangements from the Client's Perspective

This paper is discussing the issues that relate to the long-term projects of the RCL organization. A project is any task that needs a lot of effort and time. The early stage of any project mostly consumes a lot of time and money. RCL is an organization that attempts to undertake two types of projects. The projects are building of the new Hospital and construction of parking areas s. In this paper, there is a critical examination of techniques and tools useful for planning project procurement processes. The paper also evaluates the available kind of contracts and also evaluated the project outsourcing tools and techniques. For easier understanding of all the processes, the paper is separated into parts with each sections containing a set of questions. There are a total of three questions. The first question provides answers relating to the disadvantages and advantages of procurements arrangement from the perspective of the Client. The second part deals with the methods of choice for procurement and the factors that should be considered when choosing between PPP and Fixed-price contract. The last part discusses the features of the Availability based contracts and the recommendations for the strengthening of the RCL future project requirement.

1. The main advantages of the procurement arrangements for the projects or the perspective of the Client

Procurement arrangement s of any project or investment aimed at quick transfer of resource, satisfactory implementation and achieving efficiency and economy in the project (Mahapatra, Levental and Narasimhan 2017).

RCL uses Traditional as a method of the procurement arrangement for the construction of the Hospital project. The main feature of this method is that the design process is different from construction.

Advantages

•    The client is capable of controlling the design team (consultant team)
•    The client is capable of controlling the quality of work
•    The client is capable of getting the best price in the market through competition tendering
•    The Traditional method can easily accommodate works’ variation as demanded by the Client.

It protects the interest of the Client by the consultants. The Consultant serves as independent certified and advisors in the building contract.

Disadvantages

It may be difficult to ensure that there is smooth coordination between the Client and various consultants

The completion of the project may take longer time because the longer time is needed during the early stage (longer time required to design the building)

Mechanisms to protect advantages:

The management should to empower and motivate employees. It should also offer training and provide incentives to employees.

The construction of the parking area made use of the Integrated or partnering method.

Advantages:

This method is beneficial because it reduces conflict of all the members that are in the project team. Such conflicts that may be reduced include the conflict between contractor and client as well as subcontractor and contractor. The number of claim and disputes will also be reduced.

Mechanisms to Protect Advantages and Mitigate Disadvantages

It also improves communication of all the people that are in the project team. It leads to the establishment of the shared objectives thus ensuring that the objectives and needs of the client are understood and known by all of the people involved (Kerzner and Kerzner 2017).

The record of greater productivity and efficient working as a result of continuous improvement will, in turn, benefit all the members that are in the project including the Client.

This method also allows all participants to acquire innovative thinking and development and research that are mostly being carried out because of the tendency of pooling resources and sharing ideas.

Disadvantages

•    There are higher chances that the client will fail, or be able to honor the arrangement to offer as much work thereby leaving the other remaining partners to record void in their order books.
•    Problems can arise because of conflicts that may happen between the framework and partnering.

How to mitigate disadvantages

•    The government should come up with suitable mechanisms for control. For example, the government should try to control proper affordability analysis and aggregated exposure.
•    Use of insurance: the company can also mitigate risks through the provision of insurance cover (comprehensive) for the all project.

2a. The methods selected for procuring each project include:

The method selected for the procuring of a new hospital building is known as Two- stage tendering. According to me this type of procurement method is the best for this type of the project (construction of the hospital). This is because it enables the project teams to hunt and acquire the most marketable, best-valued items to bring for use in the development process of the project. It also enforces the Clients to prove that they have the required qualifications needed.

The next project is the Construction of the area for parking: Open tendering; according to me this method is not appropriate for complex or large acquisition because it focuses mostly on the output process instead of following the standard needed.  This procuring also experiences difficulties in outlining by the procuring organization. This method of procuring is also not suitable for complex requirements.

2b. Factors that should be taken into consideration when choosing between PPP and Fixed-price contract

The uncertainty of the scope of work needed: Before selecting any contract, it is essential to consider the risks that are involved with the project (Baily 2017). The uncertainty will in turn help to determine with the contract will increase the net worth of the business in the long run (Lopez, Mascione and Liu 2017).

The significance of meeting the milestone dates of the schedule: Milestone planning is the essential aspects of any plan of a project since project milestones are the primary indicators of successful project progress. Milestone generally marks an essential point of critical decision, the completion of any task in significant projects.

The need for predictable the cost of the project: project costs are estimated expenditure or any expenditure made, or monetary obligations estimated or incurred. It is a requirement to predict the cost of a particular project to manage the costs of that project as well as to authorize the budget of the project.

Method Selection for Procuring Projects

The party was assuming there is an increase in the cost of unexpected risk: There should be consideration of the party regarding unexpected risk. This is because every project whether planned or unplanned can run into any trouble. The project will always be affected by unforeseen problems. The team member may quit or get sick; resources may be limited. The management should, therefore, learn on how to do away with risks that they can avoid, and reduce the chances that they can’t avoid.

Other factors which should be considered include:

Price analysis, the analysis of price without or with competition, may offer a foundation for selecting the type of the contract.

Price competition, usually, effective price competition leads to realistic pricing.

Cost analysis, if there is no effective price competition as well as the existence of insufficient price analysis, the estimation of a cost of the government and the Offeror provide the ground for negotiating the pricing arrangement of the contract.

Availability based contract came into use because of the rapid shift by customers with high availability requirement from buying the real system to buying Systems’ availability (Soecipto and Verhoest 2018).

The following are the characteristics of the Availability based contract

The main component of the ABC (availability based contract) is that the Private sector receives payments from the public sector by the availability of the Assets and the payment is made regardless of the usage by the Private sector. The public contributes periodic payments to the partner that are connected with the defined services being offered and infrastructure that are available for use. The availability based contract is useful as it helps in the collection of risk and removal of demand from the private sector. The next feature is that the payments which are made to the contractors depend on the amount of time that a particular asset is available. Thirdly, Availability based contract allows the public sector to incur higher costs. The public sector mostly suffers the huge cost about build-own-operate than in build-own-operate-transfer. This is because, in BOT, there is payment of capital expenditure for the asset by the public sector.

A valid contract procurement process can significantly enhance the Company’s bottom line as well as increasing profitability and efficiency (Carbonara and Pellegrino 2018).  This will, in turn, add substantial value to any institution as a whole. Therefore, RCL as an organization should make the following changes which in the long run will increase the performance.

Factors to Consider When Choosing Between PPP and Fixed-Price Contracts

The organization should also increase the capability of the employees through development and training. These two factors that are training and development can improve the performance of the organization. It will help RCL to reduce the chances of stroke occurrence in the organization since employees will be motivated thereby ensuring successful business continuity.

The RCL should learn in future how to manage the sub-contractor by performing the following: The organization should request for the contractor right to audit. The details will be different according to the situation. The process may include the right to review and visit the facility of the contractor. The next is to use the Company standards when dealing with the Contractor. These documents contain essential policies and rules that govern the activities of the organization.

Managing the bidding (Bid) process: The RCL as an organization should know that a bid process that is poorly managed creates a lot of problems. Mismanaged bids often attract negative media attention to most of the Public sector and government (Iossa and Saussier 2018).

The RCL should also review its procurement requirements: the management should understand the needs of the organization before they proceed with the bidding process.  

Using negotiation and analytical skills: The organization should first look for multiple options and select the best deals through consultation, price analysis,  To maximize the use of these skills, the organization should learn to apply them in different areas in the process. This will also help in strengthening a good relationship between the two parties.

To strengthen future procurement, RCL should learn how to use more advance Public-Private Partnerships (PPPs) where the Private sector is granted the rights over surplus land by the public sector to allow the private sector to start development project on that land. In order to ensure better performance of the PPP in future projects, the management closely controlled and monitored costs to ensure that there are cost-effective solutions.

Conclusion

The paper discussed two types of contracts applied to a project. There are application PPPs and fixed-price contracts. PPPs help in offering advantages and benefits. It also acts as a procurement option, nevertheless, one that has potential disadvantages and weak spots.  The factors that should be considered when choosing between PPPs and fixed price are: The party assuming there is an increase in the cost of unexpected risk, price analysis, price competition, the need for predictable the cost of the project and the significance of meeting the milestone dates of the schedule. It is more complex than Traditional methods. A fixed price contract is that type of contract where the amount of payment does not depend on time extended or resources used. There are different methods of procuring a building or any construction. The methods available offer a variety of options. The selection of any method to be used depends on the types of the project and Client’s concerns. An example of the procurements arrangement is the use of the Traditional and partnership contract. It is true that project planning is the core of any successful organization. The organization should consider the duration of time and the risks that are involved with a particular project. There are statements on a recommendation that the RCL should put in place to ensure that the procurement process of projects is strengthened.

An example is the management of the bidding process, and the organization should review its procurement requirement. This paper is useful for any Investor wishing to ventures for any business. This is because it can offer valuable information on how to manage future business risks and uncertainty.

References

Baily, P., 2017. Procurement. In Contracting for Project Management (pp. 105-116). Routledge.

Carbonara, N. and Pellegrino, R., 2018. Delivering innovation in public infrastructure through Public Private Partnerships. Geography, Open Innovation and Entrepreneurship, p.81.

Iossa, E. and Saussier, S., 2018. Public private partnerships in Europe for building and managing public infrastructures: an economic perspective. Annals of Public and Cooperative Economics, 89(1), pp.25-48.

Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Lopez, R., Mascione, D. and Liu, H.J., 2017. Management of issues in the delivery of airport infrastructure within Western Australia. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law, 170(5), pp.207-217.

Mahapatra, S., Levental, S. and Narasimhan, R., 2017. Market price uncertainty, risk aversion and procurement: Combining contracts and open market sourcing alternatives. International Journal of Production Economics, 185, pp.34-51.

Soecipto, R.M. and Verhoest, K., 2018. Contract stability in European road infrastructure PPPs: how does governmental PPP support contribute to preventing contract renegotiation?. Public Management Review, pp.1-20.