Contract strategy

Traditional ApproachTraditional Approach IncreasingIncreasing Accelerated TraditionalAccelerated Traditional integrationintegration Management ContractingManagement Contracting of designof design Construction ManagementConstruction Management andand Project ManagementProject Management constructionconstruction Design and Build/TurnkeyDesign and Build/Turnkey Build Operate TransferBuild Operate Transfer

CONSULTANTSCONSULTANTS THE THE CLIENT’S CLIENT’S and/or MINISTRYand/or MINISTRY CONSTRUCTION CONSTRUCTION OWN OWN of WORKSof WORKS PROJECT PROJECT

RESOURCESRESOURCES

SUBCON-SUBCON- CON- CON- SUPPLIERSSUPPLIERS TRACTORSTRACTORS TRACTORSTRACTORS

Procurement : the acquisition of project resources

1. Client concern to1. Client concern to 2. Competitive tendering 2. Competitive tendering ‘ ‘get the best deal’get the best deal’ for all aspects of the for all aspects of the projectproject 5. Increase surveillance5. Increase surveillance and control systemsand control systems

4. Contractor/professional4. Contractor/professional 3. Reduction in expected 3. Reduction in expected opportunistic behaviour opportunistic behaviour profit for contractor/ profit for contractor/ directed at increasingdirected at increasing professionals professionals expected profitexpected profit

Vicious circles in construction procurement

Organisation theory and the project process

InterdependenceInterdependence

Differentiation & specialisationDifferentiation & specialisation

Integration & coordinationIntegration & coordination

Universal vs contingency approachesUniversal vs contingency approaches

appointmentappointment appointmentappointment consultantsconsultants main contractormain contractor

designingdesigning + + constructingconstructing GENERICGENERIC

The traditional approach

appointmentappointment design and construct companydesign and construct company

tendering tendering designing designing constructing constructing

The design-and-construct approach

appointmentappointment appointmentappointment consultantsconsultants specialist contractorsspecialist contractors

designingdesigning tenderingtendering earthworkearthwork frameworkframework mechanical work mechanical work electrical workelectrical work completioncompletion

The divided contract approach

Selection Process Selection Process

ExerciseExercise

Draw up a list of criteria that a Draw up a list of criteria that a typicaltypical client client might have in selecting a procurement path.might have in selecting a procurement path.

What were/are the criteria of the client on What were/are the criteria of the client on your current project?your current project?

A comparison of USA and UK practice

USA practice

Client

C.M.

Design Construction

Client

C.M.

Design

Principalarchitect

Q.S.

Construction

UK practice

Construction Construction Management Design and Management Design and Design,Design, managementmanagement contracting contracting manage manage andmanage manage and constructconstruct

ProfessionalProfessional Contractoral Contractoral

The range of management systems and their professional contract

Management contracting systems

Construction management

Constructionmanager

Designorganisation

Workscontractors

Client

(a)

Management contracting

Management contractorDesign

Works contractors

Client

(b)

Management contracting systems (cont)

Design and manage

Design and managecontractor

ScopeDesigners

Client

(c)

DesignersWorks

contractors

Design, manage and construct

Design, manage andconstruct contractor

ScopeDesigners

Client

(d)

DesignersWorks contractors(portion of works)

Criteria for your projectCriteria for your project

timingtiming

variationvariation

complexitycomplexity

qualityquality

price certaintyprice certainty

competitioncompetition

division of responsibilitydivision of responsibility

professional responsibilityprofessional responsibility

risk avoidancerisk avoidance

Contract strategies variables

Organisation formOrganisation form Payment methodPayment method

Contract strategy variables

Overlap of project phasesOverlap of project phases Contractor selection processContractor selection process Source of project financeSource of project finance Contract documentsContract documents Leadership / AuthorityLeadership / Authority

Organisation formOrganisation form Payment methodPayment method

Selection Exercise Selection Exercise

Using the chart in “Thinking about Building” select Using the chart in “Thinking about Building” select a contract strategy for your current project.a contract strategy for your current project.

Is the path with the highest score the one that you Is the path with the highest score the one that you actually chose?actually chose?

If not, why not?If not, why not?

Construction contracts

FlexibilityFlexibility

Price to be paidPrice to be paid

The fallacy of cost certaintyThe fallacy of cost certainty

Release of controlRelease of control

Comparisons Comparisons

Pros & ConsPros & Cons

TraditionalTraditional

Design BuildDesign Build

ManagementManagement

Comparisons - Traditional Comparisons - Traditional

Advantages Competitive tendering; Bill of quantities makes for ease of valuation of varieties; High quality and functional standards; Cost certainty at start of construction; Independent advice on most aspects of the process; Clear lines of accountability; Combination of best design and construction skills possible; Flexibility for design changes.

Comparisons - Traditional Comparisons - Traditional

Disadvantages

Slow and convoluted decision processes; Total project time longest of all options; Low levels of buildability; Many organisational interfaces to be managed.

Comparisons - Design build Comparisons - Design build

Advantages

Single point responsibility;Integration of design and construction;Fixed price bids;High levels of buildability;Short total project times;Client involvement in the process can be minimised;Package deal systems offer off-the-shelf solutions;Competition on price and product.

Comparisons - Design build Comparisons - Design build

Disadvantages

Lack of independent advice;Valuation of variations Detailed brief at outset;High levels of buildability;Changes can be expensiveClient control of quality is minimised;Tender process can be expensive ;Lower levels of competition at tender.

Comparisons:DB Organisation Comparisons:DB Organisation

O :BuilderQ :QSEo :Services EngineerI :Structural Enginr :Architect

* :Sub-contractor PURE DESIGN BUILD

INTEGRATED DESIGN BUILD

FRAGMENTED DESIGN BUILD

Comparisons - Management Comparisons - Management

Advantages

Early start to construction work;Quick total project times;Value management and buildability ;Flexibility for change;Competition for each work package;Increased specialisation of trades contractor inputs;Extra layer of management leads to strong organisation ;In-depth planning of the whole process.

Comparisons - Management Comparisons - Management

Disadvantages

No firm price at start of construction;Complicated contractual relations and unclear liability;Extra layer of management leads to extra costs;Client must be deeply involved ;Conducive to “buck-passing”;Risk taken by client;Conflict between professional participants ;Changed roles.

Comparisons Comparisons

Time vs CostTime vs Cost

TraditionalTraditional

Design BuildDesign Build

ManagementManagement

Selection Processes Selection Processes

Mini-assignmentMini-assignment

Write a 2500 word report outlining a Write a 2500 word report outlining a methodology for selecting a contract methodology for selecting a contract strategy. This should be written from the strategy. This should be written from the perspective of an advisor to a prospective perspective of an advisor to a prospective client.client.

Submit by March, 2003Submit by March, 2003

to steverowlinson@.hku.hkto steverowlinson@.hku.hk