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Procurement Methods in Australia

Discuss about the Research Paper On Traditional And Design.

The Australian construction industry is the fourth major contributor to the Australian Gross Domestic Product (GDP) according to the Australian Bureau of Statistics. It is approximated that A$16 billion from the period 1974 to 2016. There are numerous procurement approaches that are used in Australia, different countries use different methods in evaluation of the best deliver, build, and plan. There are numerous procurement methods to choose from, namely; Alliancing, PPP, Design and Construct, Traditional, Project bundling, Single-select, and contract management (Ross, 2013). The government of Australia is planning to spend approximately A$ 320 Billion on infrastructure in the next ten years, the traditional method is considered the oldest and easy to implement procurement method over huge infrastructural projects (Lenon, 2015).

Many infrastructural projects are very costly and highly complex, employing new technology and materials of advanced constructional methods. Naturally, demands are being made upon the process of construction not just in terms of quality, cost, and time, but also in those project procurement, management, and organization. Before mid-1980s, the mainstream of the infrastructural industry were using traditional procurement method. Numerous clients however are currently not satisfied with the traditional method and its characteristics of operation and actively seek other methods of procurement, management, and organization to fulfil their increasing complex demand (Kelly, 2016).

The major result of the above case has been the implementation of new and alternative methods of procurement such as Alliancing, PPP, Design and Construct, Traditional, Project bundling, Single-select, and contract management. The design and construct procurement method is currently gaining a lot of popularity in the Australian infrastructural industry since 2004. This is because majority of the clients have decided to use designers to design the project before the contractor to carry out the construction work (Brook, 2016). This procurement approach is the most suitable for both inexperienced and experienced clients since there is full development of the design before tender provides the client surety concerning the design cost and quality.

There is a significant body of evidence that shows the failure of traditional method for complex infrastructure and construction projects. The evidence shows that the failure of the traditional method is as a result of the failure of government agency in the input specification, operation and construct elements for the project, the design separation, inter-agency friction, and preparation of business case.  Some of the traditional procurement projects in Australia include Opera House in Sydney, Federation Square in Melbourne, The National Broadband Network, and Oakajee Port and Rail projects (Clamp, 2013).

Traditional Method

Design and construct is also one of the fast growing procurement approach in complex infrastructure and construction project in Australia. Some of the reasons why this procurement approach is not fully developed compared to Alliancing or PPP is due to risks associated with long-term management of complex projects, little regard to lifecycle costing, low levels of design and construction innovation, and underestimation of costs and overestimation of benefits (Younker, 2013). Some of the projects that have been successfully delivered through the design and construct procurement approach include the Airport Link- Brisbane, Queensland and Epping to Chatswood Rail Line.

Previous research has been done between PPP and traditional procurement approaches in Australia, however, there are very few studies comparing the traditional and design and construct procurement methods. Hence this have given a rise to the question of which of the two procurement methods between traditional and design and construct are majorly used in the infrastructural projects in Australia. Therefore, a comparative study of the traditional method and design and construct procurement methods is implied.   

For successfully providing large projects of infrastructure, which method of procurement among traditional and design and construct is better?

This research will assist in examining the performance, drawbacks, and benefits of traditional and design and construct procurement aims and method to conclude the most appropriate procurement method for enhancing the performance of the major projects of infrastructure in Australia. The research also aims at minimizing the potential risks while choosing the method of procurement and hence promoting the rate of success of the project.

The research seeks to obtain the following objectives:

  • To evaluate performance of traditional and design and construct procurement in Australia
  • To have a clear understanding for the barriers, benefits, and factors such as project team relation, quality management, cost, and time which affects tradition and design and construct procurement methods.
  • To promote the better method of procurement in provision of large project of infrastructure in Australia among the traditional and design and construct methods.

This section provides details into the traditional and design and construct procurement method. An additionally, the advantages and disadvantages of both the procurement methods have also been discussed in this section.

A procurement method can be defined as a method through which an organization uses its system to acquire goods, works, and services. The procurement methods are systems which defines the relationship between numerous elements relating to the system and process of construction which assigns the project members their responsibilities and roles.

The methods of procurement are very important for any project hence it is critical to choose a flexible method of procurement which satisfies the needs of the client or employer. The methods of procurement determines the rate of success of the project directly and numerous factors are considered while determining the method of procurement to select, these factors include client demand, site condition, and project finance.

Design and Construct Method

There are numerous procurement contracts that are currently used by the Australian Government. Some of these procurement contracts include:

Alliance: This is a way of procuring and managing major assets. The contract of alliance makes the members in the private sector to collaborate with the agency of the state contractually for project delivery.

Traditional Method: The appointment of a contractor is normally done through tendering that is competitive on full information concerning the project. In this method, the design work is separate from the construction work.

Design and Construct: The main contractor is appointed to design and construct the construction as opposed to the traditional where the employer appoints the consultant to design the work and then appoints the contractor to do the construction.

PPP: This is the relationship between two sectors namely the public sector and the private sector who are working together to provide huge infrastructure facilities or projects. The terms of the contract is set by the sectors involved which defines rewards, risks, responsibilities, and rights.

Construction management: In this procurement approach, the construction manager is the integral project part and has an agreement with the client who owns the project.

In traditional procurement method, the client agrees that the infrastructure work will normally isolated from construction, the contractor has the accountability of carrying out the construction work, and the consultants are selected for cost and design control. The appointment of a contractor is normally done through tendering that is competitive on full information, however, the appointment may be through negotiations if necessary on the basis of notional or partial information (Ali, 2010).

In traditional procurement method, it is possible to define the nature and quality of some work precisely, it is also possible to adopt this method on the basis of cost reimbursement, provisional sums, or approximate quantities. All matters of payment and valuation are the responsibility of the consultants of the employer. It is the decision of the employer on which expert firms the contractor is to use, even though the contractor may need some protections concerning the performance. The contractor heavily depends upon the critical (Baron, 2011).

The tradition procurement approach is the oldest procurement method is Australia and numerous projects have been contracted using this method. Many construction industries in Australia used this method before the year 2000 since it was the only method that was prevalent at that time.

The traditional procurement method have been used din the constructional industry in Australia for many years due to some of its critical benefits. It has assisted in the development of numerous projects across the country. This method normally come out with high construction quality since the team of consultant must deliver a design which satisfy the client requirements. There is an opportunity for the client to consider and compare the design and budget is more appropriate for the project because of the construction experts and advices that are provided by the contractor and consultant (Ashworth, 2015).

Advantages and Disadvantages of Traditional and Design and Construct Procurement Methods

In this procurement method, every tenderer produces a tender based on the similar information provided. Hence the client may acquire the lowest and best price through competitive tendering. The cost of construction will also be more accurate since the tender is based on the fully complete specifications and design. Traditional method is easier to adopt compared to other methods of procurement.  This is because this approach has been used commonly for a long duration hence both the consultant and contractor teams are familiar with it (Battaglini, 2011)

Despite being one of the best procurement methods that are currently being used in big infrastructural projects, the traditional method has certain drawbacks which may not be avoided. In this method, the client may make it hard to manage the project since there is need of communication with some parties at the same time. The contractor and consultant do not have contractual relationship, therefore, in case they have to communicate with one another, they have to communicate first with the client which may be very inconvenient.

This method of procurement also needs more duration for the project to be completed fully. This is because the tender will only be given to the contractor after the full completion of the design. In case of an issue, the contractor and consultant may deny the responsibility of the problem and blame each other. The whole period of the project may be longer than other methods of procurement since the strategy is successive and construction cannot be underway before the design is completed (Battaglini, 2011). 

In this type of procurement method, a contractor accepts responsibilities for the majority or the whole of the design. The design liability is an absolute liability through which the contractor permits fitness for the intended purpose unless the contract states otherwise (Brook, 2016). In the design and construct procurement approach, the benefits can arise from estimators and designers having to work together closely. It is difficult to evaluate competitive tender convincingly. There is greater certainty of the cost, to a level if needed, then the responsibility for site investigation and condition of subsoil may entirely be made by the contractor. The accountability for completing on time depends with the contractor (Flyvbjerg, 2010).

This procurement approach is not very much competitive in Australia as compared to the traditional method. However, there are numerous projects which were contracted using the design and construct procurement method in the construction industry between a period of 2000 to 2006.

Objectives of the Research

The design and construct procurement method has some of the benefits which makes it also desirable in the construction industry in Australia. This method enables am integrated contractor to contribute to the project planning and design. This may improve the quality of the design and make the construction to be more effective. This method also provides multi-disciplinary approach and integration since it forms contractor-designer team at an early phase in the construction process (Rowlinson, 2010).

The use of the procurement system that is integrated enables the construction and design to be overlapped and may lead to improvement in communication being developed between the contractor and client. This enables the project to have a shorter duration for completion and also efficiency in project management and achievement. Given that the requirement of the client are specifies accurately, there will be certainty in the final cost of the project and this cost is normally less than when using other methods of procurement (Pearl, 2013).

Although aesthetic and well-designed constructions can be achieved through the design and construct procurement approach, the control of the client over the project is less compared to other procurement approaches. Only a few organizations provide the services of design and construct method in Australia hence the competition is low. The performance of this method is questionable since it depend upon the fragmentation, integration, and purity of the organization (Battaglini, 2011).

The absence of quantity bills makes the evaluation of changes difficult and hinder the freedom of the client to make alterations in the project design during the period of post contract. There is difficulty if the comparison of bids since every design vary, the program of the project will also vary amongst bidders and the cost of project will be dissimilar for every design (Thomson, 2014). There can also be difficulty by the client in preparation of sufficient and adequate comprehensive brief.

It has been noted that the traditional method is one of the oldest and widely used procurement method in the construction industry. The life Cycle Cost of a traditional contract project is determined majorly by the fundamental interactions and quantities, which has led to the inefficiency and ineffectiveness of the projects. It is being said that the design and construct method is the best form of procurement to deliver a project (Pearl, 2013). To prove this argument, numerous research has been carried out to compare the tradition and design and construct procurement methods. The major factors that have been considered in the comparison between the two procurement methods include performance, quality, cost, and time. In conclusion, design and construct is more advantageous than the traditional method of procurement in regard to time and cost (Greve, 2013).

Conclusion

This section explains the methods that were used in this research on the comparison of the traditional and design and construct procurement approaches in the major infrastructural projects in Australia. These two procurement methods have been used to deliver complex and large projects successfully in the Australian Construction Industry. The research method that will be used for this research will be qualitative approach along with literature review to attain the research objective intended and to respond to the research questions. Therefore, in this research paper, the appropriate research methodology is qualitative research method together with literature review and case study.

The case studies which are used in this research are limited to only the projects in infrastructure in Australia. The four case studies were chosen out of which two are the traditional procurement projects and two are the design and construct procurement projects. 

  1. Case Study 1: The Opera House in Sydney (Traditional)
  2. Case Study 2: Federation Square  in  Melbourne (Traditional)
  • Case Study 3: Airport Link- Brisbane, Queensland (Design and Construct)
  1. Case Study 4: Epping to Chatswood Rail Line (Design and Construct)

The large and complex infrastructural projects in Australia which have been delivered using the traditional procurement approach include the Opera House in Sydney and the Federation Square in Melbourne, while the projects which have been delivered using the design and construct procurement approach include the Airport Link- Brisbane and Epping to Chatswood Rail Line. These four projects provided numerous information concerning the case studies which were vital in comparing the two procurement approaches.

This is a multi-venue centre for arts performance in Sydney, New South Wales in Australia. The planning of this project began in 1940s and the authorization of its construction was issued in 1958 by the government of New South Wales.

The contractor has the responsibility of carrying out the infrastructural project of Sydney Opera House, and the consultants are appointed for cost and design control. Some of the objectives of the traditional contract include:

  1. To complete the project within the stipulated deadline
  2. To have open and easy communication between parties involved
  3. Supporting all parties involved in the project
  4. Risks are equally shared among all parties involved in the project

The New South Wales government authorized the construction of the project in 1958 with the construction being directed by Utzon. The government decided to use the design from the Utzon after the international design competition launched by Cahill in 1955. The construction later began in 1959 by the construction firm Civil and Civic through monitoring by Ove Arup and Partners.

The following were the parties involved in the traditional procurement of the project:

Project Components

Players

Design, construction and refurbishment

Utzon, Civil and Civic, and Ove Arup and Partners.

Finance and contracting

New South Wales government

Operating contractor

Utzon, a Danish architect.

The Opera House was completed in 1973 having cost 102 Dollars. The Stage III was done by The Hornibrook Group and cost $56.5 million. The stage II involved the construction of the roof and cost approximately $12.5 million and was done by the same company. The Stage I involved the construction of interiors and was done by Civil and Civic Pty Ltd and cist $5.5 million.

The sharing of risks among the project members is one of the advantages of the traditional procurement approach of this project. Hence it is in order for the project members to exercise necessary measures to ensure quality project delivery without any mistake.

The construction later began in 1959 by the construction firm Civil and Civic through monitoring by Ove Arup and Partners. The construction of the project was later completed in 1973 instead of the original expected date of 1963.

The Federation Square was a project constructed for a venue of public events, culture, and arts on the edge of Melbourne CBD. The project covers a region of 7.9 acres at the intersection of Swanston Street and Flinders Street.

The parties that are involved in the construction of the Federation Square project include:

Project Components

Players

Design, construction, and refurbishment

Lab Architecture Studio

Finance and contracting

Victorian State Government, Commonwealth Government, and City of Melbourne

Operating contractor

Royal Australian Institute of Architects (RAIA) Victoria

The Federation Square was constructed so as to incorporate major cultural institutions such as Koorie Heritage, and Ian Potter Centre. The centre will serve as retail space, a cinemedia centre, a gallery, and performing art facility.

The final construction cost was A$467 million which was four times the cost that was estimated at the beginning. The major funding of this project included Victorian State Government, Commonwealth Government, and City of Melbourne, with the City of Melbourne contributing $64 million.

Key Performance Indicator

The Melbourne City Council comprehends the failure and success of the project. The major failure of the project was the estimated cost being four times the final cost of the project. However, the design and quality of the project was been recognized to be of high quality standard.

The construction of this project began in 1998, and in 2006, there were numerous proposals which were to be included in the construction such as the redevelopment of vaults under Princes Walk into a larger bar. The square was later opened in 2002 October.

Numerous agreements have been put in place by the government so as to ensure that the project will be of high quality after its completion. The agreement reached by the parties involved in this project majorly focus on the maintenance, operation, and construction of the Federation Square. Some of the approaches that have been put in place to ensure that the project is of good quality include specification of the project quality and Australian standards of quality.

The project has very high risks concerning the operation, construction, finance, and design. The sharing of risks among the project members is one of the advantages of the traditional procurement approach of this project. It has been noted that there is high risks prominence in this section, these risks include design, construction, finance, and operation.

The Airport Link is a toll, motorway grade, tunnelled and toll road on the north side of Brisbane in Australia. This is one of the infrastructural projects that have been delivered and procured using the design and construct procurement approach. The Airport Link project involves 15 kilometres tunnel, 7 kilometres new roads, and 25 bridges.

BrisConnections was pronounced to be the preferred bidder on 2008 May and the final contract was issued to the company in 2008 June. The following were the members involved in the contract:

Operation

Members

Design and build

BrisConnections, John Holland, Thiess, and Macquarie Group

Finance and contracting

Brisbane City Council

Operation contractor

BrisConnections


The estimated cost of construction of the Airport Link project is $4.8 billion. The Macquarie Group charged a fee of $110 million for the financial engineering.

Brisbane City Council provides a clear insight and input concerning the objectives of the project. This project is expected to provide the longest road tunnel which is over 7 kilometres as well as 25 bridges. The tunnel would also provide the safest transport system in Australia with a speed limit of 80 km/h.

Brisbane City Council comprehended the success or failure of the project. The design and construct agreement also determined the performance of the project by considering the community, risk allocation, design, time, and quality. The quality of the project as stipulated in the contract was achieved since all the specifications in the design were implemented.

After the major contractor was announced to be the preferred bidder for the Airport Link in 19th May 2008, the official commencement of construction began in November 2008.  The construction work was later completed on 2016 April after the Transurban announced the financial close of the project. The time stipulated for construction by the contractor was attained as expected.

The aspect of finance of the Airport Link project was hindered in controversy from the beginning. In 2009 August, the major contractor TF Group went into receivership having a debt of subcontractor amounting to $2.8 million making the group of the subcontractors to threaten blockade of the project.

Numerous agreements were developed by the concessionaire to ensure that the project quality is attained. Some of the activities that were carried out with an aim of achieving the required quality include correction, notification, and identification of materials that are not conforming to the required standards.

The Airport Link project had the high level of risks concerning the operation, construction, finance, and design. Both the parties involved in the contract were aware of these risks and put necessary strategies to deal with these risks. In the design and construct method, the risks are managed by the contractor on daily basis.

The rail link of Epping to Chatswood was initially a part of Parramatta Rail Link. This rail link is a railway line in the northern suburbs of Sydney which joins the suburb of Chatswood and the suburb of Epping on the Northern line. This is one of the infrastructural projects that have been delivered and procured using the design and construct procurement approach. The construction of the rail link project commenced with the section of the Epping to Chatswood in November.

The team that was involved in the procurement and construction of the project entails:

Project Components

Players

Design, construction, and refurbishment

Hochtife and Thiess

Contracting and finance

Department of Transport, NSW

Operating contractor

Hochtife and Thiess


Hochtife and Thiess delivered the project as a joint venture which includes the construction and design of a four completely mined station and driven railway.

The major objective of the Epping to Chatswood Rail Line was to deliver the first fully-automated railway system in Australia with a train every 4 minutes in the peak. There would be technical aspects of the program of upgrade such as the importance of installing platform screen safety doors on the new platforms of the metro. 

The department of transport comprehends the failure and success of the project. The major requirements of the project were to construct a 12.5km twin underground rail tunnel with every tunnel having a diameter of 7m. There was also need of development of intermediate stations namely Macquarie University, Macquarie Park, and North Ryde stations. The success and failure of the project can be determined by considering factors such as community, risk allocation, design, time, and quality.

The construction of Epping to Chatswood Rail Line project commenced on 2002 November and was completed on 2008 December instead of the expected 2006 due to the NSW Transport Minister delaying the section of Epping-Parramatta indefinitely.

The original budget of the project was estimated at $1.4 billion despite the actual budget realized after completion was $2.3 billion. In 2003 August after the commencement of the construct, some section was postponed since the cost of the project of $1.2 billion could not be justified.

There were numerous agreements that were developed by the concessionaire to ensure that the right quality of the project is attained. The agreement majorly focused on maintenance operation, and construction of the project. Some of the factors that determined the quality of the project include cracks in the ceiling, problematic concrete sleepers, and excessive noise levels.

Just like any other infrastructural project, this project involved high risks regarding its operation, construction, finance, and design. Both the parties involved in the contract were aware of these risks and put necessary strategies to deal with these risks. In the design and construct method, the risks are managed by the contractor on daily basis.

From the information and data got from the case studies and literature review, a table of comparison is developed between the case studies. The relative structure is based on the major performance of the project:

                                             Traditional Procurement

Design and Construct

Key Parameter/factor

The Opera House in Sydney

Federation Square in Melbourne

Airport Link- Brisbane, Queensland

Epping to Chatswood Rail Line

Risk management

Sharing risk

×

×

Risk transfer

×

×

Relationship b/w the project members

Coordination

×

×

Knowledge sharing

×

×

Communication

×

×

×

×

Mutual objectives

Rapid and collective decision

×

×

Bonuses for the workers

×

×

×

Trust/Honesty

×

×

Quality management

Sustainability

System for quality measurement

×

×

×

×

Individual quality control team

×

×

×

×

Pre-planning

×

×

Periodic meetings

×

×

Site investigation

×

×

×

×

Planning recourse

×

×

Reviewing/Checking raw materials

×

×

Cost management

Straightforward financial accounts discussion

×

×

×

×

Cost overrun

×

×

×

On budget

×

Time management

Time overrun

×

×

×

On time

×

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Baron, D., 2011. Regulation and information in a continuing relationship. Perth: Information Economics and Policy.

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Coss, L., 2013. Procurement Methods: Effective Techniques: Reference Guide for Procurement Professionals. Sydney: BookBaby.

Flyvbjerg, B., 2010. PPPs in Education. Melbourne: Project Finance Advisory.

Gibson, G., 2013. What Is Preproject Planning?. Melbourne: Journal of Management in Engineering.

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Hart, O., 2011. Incomplete Contracts and Public Ownership. Perth: Economic Journal.

Jefferies, M., 2015. New Forms of Procurement. Brisbane: Routledge.

Joshi, N., 2014. Diversification of infrastructure projects for emergent and unknown non?systematic risks. Gold Coast: Journal of Risk Research.

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Masterman, J., 2012. An Introduction to Building Procurement Systems. Melbourne: Spon Press.

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Rowlinson, S., 2010. Design Build Its Development and Present Status. Perth: The Chartered Institute of Building.

Thomson, C., 2014. Public-Private Partnership. Perth: Prerequisites for Prime Performance.

Walker, D., 2012. Procurement Systems: A Cross-Industry Project Management Perspective. Gold Coast: Routledge.

Younker, D., 2013. Value Engineering: Analysis And Methodology. Alice Springs: CRC Press.

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