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Procurement Methodology Guidelines For Construction

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Question:

Discuss about the Procurement Methodology Guidelines for Construction.
 
 

Answer:

Introduction

The procurement approaches have different effects, which they are able to bring to a project. The successes of the projects are highly affected by the kind of the procurement approaches, which are employed. From the cost implications to the efficient of implementations and also the implementation periods are some of the key elements which are affected by the choice of the procurement approach chosen. The analysis of the [procurement approaches on the given projects must be done to determine the best approach. The different approaches are able to perform on different projects based on the specifications of the projects itself. This means that the failure of one approach on a particular project does not mean that it will not succeed on another project. The differences in projects specifications are able to lead to the performance differences in the projects. The main aim of the procurement approaches is to make sure that the projects are completed within the specified timeline, able to meet the cost estimated and able to meet the client’s quality requirements. This paper will be able to analyze the different procurement approaches. In addition, it will be able to look for the best appropriate approach for the federation square project. It will be able to recommend that procurement approach which would help to perfectly implement this project and the way it would improve the performance factors for the implementation of this project.

The federation square is located north of the Princes Bridge and bounded by Flinders Street and the Yarra River. The project covers an estimated area of 7.9 acres and is estimated to cost about $345 million. Moreover, the project is fixed to provide three note-worthy public areas which include St Paul’s court, The square and the Atrium. Moreover, the construction of this project is based on a concrete deck, which is above the railroad on the cross points of Flinders street and Swanston Street on Kilda road.

This project is able to provide key cultural and civic celebrations to the residents in Melbourne. With an estimated 6 million residents who visit the federation square each year, the project is key to enhancing the livelihood and economy of these people. The execution of the project is in terms of collaboration between Victorian government which had the support of the Commonwealth government and Melbourne City Council. The project had an initial cost estimate of $128 million. Nevertheless, the implementation cost rose up to $345 million and was found to have delayed with 26 months rendering the initial cost as unrealistic figure. The cost difference on the initial estimate was found through the available funding which was available at this moment. The federation square project is one of the key mega project which is able to offer a proper analysis of the way the procurement approaches are able to perform on a project. The changes were able to happen from the tendering amount to the award amount. In the end, Lab architecture and Bates Smart came together and collaborated where they were to design the project. The collaboration was able to lead to different problems and successes on the project implementation.

The needs and implementation process were able to offer critical elements which led to the project being a fast tracking one. The government used the fast tracking mechanism on the project and became the key driving force for the project. The strategy was meant to help the design tem to be able to come up with the best documentation of the project. Nevertheless, the complexity of this project offered a major challenge to this method of implementation of the project and resulted to the various challenges on the project such as the cost increments and delays experienced. On the process of the fast tracking implementation, Multiplex was appointed without any competitive tendering process. On the process, eleven months after the start of the works, Multiplex was able to place forward a claim of $19.1 million to the government in order to cover the delays and damages which were caused by absence of the lack of proper contractual agreement between the parties. This is a small part of the problems which were experienced on the project due to the wrong choice of procurement approach.

In addition, in 2002, the contract agreement was altered which was able to lead to ‘construction Management’ arrangement. The main reason for the alteration was due to various issues which were able to include; the ever changing and incomplete designs and documentations, the reluctance of the Office of Major Projects to compromise the architecture in order to be able to risk the allocation for design to Multiplex. Moreover, other reason for the alteration is the more disputes, which were coming over arrangement fee for the additional costs and the developments of the designs, which were continuing through the tender period.

The procurement approaches are key in ensuring that the projects are able to meet the different specifications of the projects. The success of the projects is largely connected with the kind of the procurement approaches which is assumed. Moreover, the uses of some key approaches in some projects are able to mitigate the problems, which are experienced on other approaches. Use of some procurement approaches would have been able to solve some key problems in the federation square project. The cost and timeline of implementation are some of the key areas where the project was able to fail a lot.

 

Procurement methods analysis

Each of the procurement approach is able to have it merits and demerits when used in a particular project. In order to increase the chances of proper project Management, right procurement approaches must be chosen from the beginning. The timeline, costs and the quality of the project are the key areas, which the procurement approaches, are able to enhance in their applications. Some of the key approaches, which are employed, on the construction projects include, traditional or design bid and build, design and construct procurement, Management procurement and collaborative procurement among other projects. The risks elements in the projects are the main area, which the procurement approaches, are able to address (Smith and Love, 2001). Moreover, the procurement approaches are able to specify the responsibilities of the different parties and the manner on which the construction procedure will be carried out. The risk management is also key element where the different parties are able to share the risks involved in the project. Moreover, the procurement approaches are able to enhance the effectiveness in the cost implementation, the quality of work execution and effectiveness in the time of completion. At the end, the best strategy will be able to reduce the risk which is associated with the project. The procurement management is able to show the risks, which are involved between the different parties, and the way they share the risks.

This is one of the key procurement approach which has been used in the construction industry. in this method, the client is able to assume only the risks which are not associated with the construction activities. The contractor bears all the risks which are related to the construction activities. A consultant is also involved, where he is appointed to carry out the design and cost control of the projects (Centre for Excellence and Innovation in Infrastructure Delivery, 2010). Moreover, the contractor has risks related to workmanship and materials including all the activities, which the subcontractors are able to carry out, and the suppliers. Moreover, through this approach, early start of works is possible. Other key sub approaches, which include, lump sum contracts in which the contract sum is determined before the beginning even the construction and the amount is agreed upon. The other sub category is the cost reimbursement where the contract sum is achieved through the basis of actual cost of labor, plants and material and then the fees to cover the overheads and profits are added.

Traditional procurement strategy

Under this sub approach, the contractor is able to define the amount of work which he or she has done and in return is compensated the agreed amount. Fluctuations are able to happen on the agreed sum on the basis of fluctuations of the labor, plants and materials, which are then, covered using a formula or checking the invoices. The drawings and filled bill of quantities are used to arrive at the contract sum through this method.

Through this method, the work which is carried by the contractor is not easily measurable accurately through the tendering. This method is also known as the re-measurement contract. The design is usually used to accurately amount to the amount and quality of what is required and given to the tenderer (Holt, Proverbs and Love, 2000). Moreover, the employer has to accept the risk involved when the works are starting without accurate idea on the total cost.

Through this method, the contactor is able to carry out an transitional amount of work on the basis that he will be paid the prime amount or simply the actual cost of the labor, plants used and materials (Mortledge, Smith & Kashiwagi, 2006). Moreover, the management fee is also agreed upon to cover management, overheads and the profits of the contractor.

  • It is a competitive approach in the selection of partied.
  • Design is influenced by both the client and consultant hence facilitating high level of functionality and quality improvement
  • Certainty in price at the contract awarding is achieved
  • Changes are easily made on the contract are easily made to arrange and manage

Dis advantages

  • It takes long time to construction using this approach. When produced without completion, disputes usually arise during the implementation leading to changes which might be costly
  • Projects usually take longer time on implementation due to variations
  • Lack of input into design or planning of the project by the contractor
 

Reflection on this project

The major boost from this approach on the federation square is able to come from the fact that the competitiveness on the contractor selection. This will ensure that the project gets the best contractor to perform the different tasks on the construction. Qualified contractor is selected through this approach. Certainty of the price is key for such project and this is a key element which the federation square would be able to benefit. This ensures that the funding of the project can be arranged before the construction works begin. In addition, correction of errors can be done easily meaning that amendments are easily made. This ensures that the sure construction of elements is achieved.

Nevertheless, it would not be wise to implement this approach on the federation square project. Key delays are able to arise due to the numerous disputes which the different parties are able to produce. For instant, Multiplex construction was able to apply for the different disputes which was able to hinder the construction process for this project. This shows that this project was not effective and the best choice to be used in this project. The disputes takes time to resolve and this consumes a lot of time which could have been meant for the implementation of the project. The federation square is a fast tracking project meaning it was required in the shortest time possible. Tis method was able to prove that it was ineffective to be used in this project due to the increased disputes, which needed to be resolved, and therefore altering with the schedule. In addition, these disputes were related with monetary compensations which increased the cost of the project implementation. This was able to mean that the project cost was able to exceed the expectation and thus affecting the funding plans. In addition, this approach lacks the input by the contractor during the pre-construction stage. The time is able to affect the implementation period of the project and it was clearly evident in the federation square implementation leading to the late delivery of the project. For complex project such as the federation square project, the input by the contractor is key to ensure that they understand the way to enhance the construction of the project. Due to these reasons, it is clear that the traditional method is not effective in proper delivery of the federation square project.

Design and construct procurement

Through the design and construct procurement approach, the contractor is able to bear some of the risks which are involved in the design activities. Moreover, the contractor is able to take several responsibilities which are involved in the design. The determination of the contract sum is done through competitive pricing (Hayford, 2006). There are different design and construct types such as:

Through this method, there are number of variations which do happen in this approach which include;

  • Direct – mostly applied when there is no competitive tendering
  • Competitive – through this method, tenders are obtained from different documents and compared in order to come up with the designs and prices
  • Develop and construct – this processes starts with consultant who offers partial design and then contractors are selected.
  • Package deal – used when competing contractors are required to use part of their own properties building system
  • Novation – used when contractor is able to take over from the consultant for the design and then goes ahead to construction works

Advantages

  • Contractor is involved in design leading to improved construction stage.
  • Overlapping of design and construction is possible leading reduce the time of implementation
  • Reduction on cost and construction time is achieved through guaranteed maximum price
  • Client deals with one contractor reducing the need to commit resources and time contracting designers and contractors differently
  • Cost of the project is received from commencing of works since clients requirements are specified

Disadvantages

  • The project brief may change according to client making it expensive.
  • The approach requires comparison with other designs, their contents and prices which may consume a lot of time.
  • Client need the commitment in order to accept design at an early stage
  • Client may find it difficult when preparing an adequate and sufficient brief
  • The design liability is limited to the standard contracts which are available
 

Reflection to this project

This approach would have enhanced the time of completion of the project and within its Management budget. Since the contractor is involved in the design stage, this would have helped the project in the construction stage since the contractor would be aware of what is required. The overlapping of design and construction would have been perfect considering the federation square was a fast tracking project to enhance the completion timeline. The guaranteed contract sum would have enhanced the reduction of construction cost for the project. Moreover, the client would have to deal with one contractor enhancing the different resources commitment to the project.

Nevertheless, this approach has its own flaws, which would have led to the failure of the project if it was used. The implementation strategy require functional building which is not available for the case study of the federation square project. Moreover, this approach is ideal for the simple projects. The federation square is a complex project meaning that this approach would not be able to function well. In addition, the approach requires a single firm to be in charge of the activities. Considering the magnitude of the federation square project, it would be difficult for a single firm to take all that risk. In addition, the changes on design can be made easily through this project meaning many alterations would have to delay the construction and completion of this project. The time for the comparison of designs and other elements of this project would be able to lead to delay on implementation. This is another reason why this approach would be able to fail on implementation of this project. This should have led to delays and therefore unable to meet the designed schedule, therefore making it improper choice of method to be used.

In this approach, the client is able to have the project manager who is able to advise the client on different elements of the project. Several approaches, which are available in this approach, include management contracting, construction management and design and manage (Hayford, 2006). The following is the follow of relationship which this method id able to apply.

On the management contracting, the client appoints an independent professional team, which is done during the pre-construction stages. The team also enhances the execution of works through direct contracts (Austroads, 2007).

In addition, on the design and manage, the contractor receives a fee and is able to assume the responsibility for the works contractors and for the design team. Contractors and consultants do take different responsibilities in this approach.

Advantages

  • The time takes for the design is easy the client deals with a single firm.
  • Overlapping of activities is easy leading to time saving
  • Less risky to the client since, the contractor is able to assume risk and responsibility for integrating design and construction
  • Value for money is achieved since works package are sometimes competitive at prices
  • Contractor input at the design is able to enhance construction
  • The specification of the roles, risk and responsibilities for all parties is well done
  • Flexibility in design is done easily

Disadvantages

  • Price certainty is arrived at after the project completion
  • The client need to be conversant with the construction activities.
  • The approach requires full commitment of resources and client brief before the works begin to ensure completion of works
    • The client does not have control of design which is influenced by contractors
 

Reflection to the project

The value of money is one of the key factor which would have been key in the federation square construction. This would ensure that the project is able to meet its economic nature and therefore meeting the cost effectiveness. In addition, this approach would have led to few alterations in design since the client deals with single firm. More importantly, the client has not risks on the construction and design since the contractor and contractor assumes all of them. Increased construction is another key benefit which this method would be able to offer to the federation square since the contractor would be involved on design. Overlapping of design and construction would ensure that the project is completed within the stipulated timeline. All these are key advantages which this method would be able to offer to the federation square project when selected to be used.

For the project of federation square magnitude, the commitment of the funding is required and therefore certainty of the different factors is required at the beginning of the project. The price certainty is only arrived after the completion of works meaning it would be difficult to finance this project. This approach offers this certainty at the end of the project. For the expensive project as the federation square, it is best when the resources are offered at the beginning of the project. It is not easy to get a client who is conversant with the construction. This means that for this project, the contractor and consultant will take time to explain to the client more on the construction projects, which will lead to wastage of more time. This means that this would not be possible for this project. Moreover, the client has no control over the design meaning that the contractor will be able to design what suits them.

In this approach, the government and the private sector come together and enter into an agreement to implement the projects. The private sector took over a government project, design it, fund and supervise the construction and use it for a specified duration before handing it over to the government (Walker, Sidwell & Hampson, 1999). Since the private sector finances the project, the risk of the borrowed money by the government is reduced (Infrastructure Australia, 2012).

Advantages

  • The project is completed within budget and at stipulated deadline bringing value for money.
  • The cost estimation methods and predictions are perfect ensuring proper funding strategies.
  • Efficient on the cost and timeline of construction
  • Low cost due to the transfer of the management risks and risk transfers
  • Transparency in the procurement and execution of the projects is high

Disadvantages

  • the project is able to increase of the transaction costs and capital cost
  • the project may delay when specifications of the project are not clear

Reflection on the project

During the use of this method, the project budget and timeline of completion are highly observed leading to the effectiveness on the project implementation. In addition, this method is able to suit the fast tracking projects such as the federation square project. In addition, the effectiveness of the cost and time estimation methods in this approaches shows that it will be able to perform on the federation square project. Risk transfers are easy in this approach leading to low cost. This is an aspect which will be critical on the implementation of the federation square project. Moreover, looking on the high cost and delays on the project, this method is effective to be able to solve some of these key problems. The private sector would have controlled the execution of the project within timeline and cost. The federation square project cost is high and this requires an additional party to get in. Moreover, this is a risky project and this method is able to enhance the risk transfer and therefore ensuring that some parties are not burden by the risks. As a fast tracking project, there was need to have the approach, which will be able to observe the implementation timeline and the budget, and the PPP is the key approach which would have done that.

Conclusion

In the analysis, it is clear that the PPP will be able to enhance the different aspects which are found on this project. The PPP will be able to solve the issue which are connected with the cost and delays as well as the numerous delays and disputes which were raised in the implementation of the federation square project. As a complex project with fast tracking component, the PPP will be able to enhance the implementation of such projects considering all the procedures. The timeline for the execution is one of the key element which the strategy would have helped to solve. The method is able to reduce the key risks and enhance the cost effectiveness of the method. The complexity of this project means that it was associated with high risks which needed to be solved.

 

References

Victorian State Government (2006).  Project Alliance Practitioners Guide. Department of Treasury and Finance (https://www.dtf.vic.gov.au/projectalliancing)  

Walker, D., Sidwell, A. & Hampson, K. (1999), Project Procurement and Alliances – A Continuum of Competition to Cooperation, RMIT, Melbourne

New South Wales Government (2005). Procurement Methodology Guidelines for Construction. Version 1, February, NSW Government, Sydney, Australia.   

Mortledge, R., Smith, A., Kashiwagi, D.T. (2006).  Building Procurement. Blackwell, Oxford, UK. 

Holt, G.D., Proverbs, D., and Love, P.E.D. (2000). Survey findings on UK construction procurement: Is it achieving lowest cost, or value?  Asia Pacific Building and Construction Management Journal, 5, pp.13-20.

Smith, J., and Love, P.E.D. (2001). Adapting to client needs in construction – a dialogue. Facilities, 19(1/2), pp.71-78.

Austroads (2007). Guide to project delivery: part 2: project delivery planning and control, by R Brown and P Robinson, AGPD02/07, Austroads, Sydney, NSW.

Centre for Excellence and Innovation in Infrastructure Delivery (2010). Infrastructure procurement options guide, Centre for Excellence and Innovation in Infrastructure Delivery, Western Australia, Perth, WA. 

Hayford, O. (2006). ‘Successfully allocating risk and negotiating a PPP contract’, Paper presented at Annual national private public partnerships summit, 6th, 2006, Australia, Clayton Utz, Sydney, NSW, 18 pp.

Infrastructure Australia. (2012). Efficiencies in major project procurement: volume 1: Benchmarks for efficient procurement of major infrastructure, Department of Infrastructure and Transport, Canberra, ACT, viewed 20 July 2012, https://www.infrastructureaustralia.gov.au/publications/  

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