Coursework 1 - CP

Heriot-Watt University

MSc Construction Project Management

Construction of a new Auditorium Development

for

Heriot Watt University (HWU), Dubai Campus

Assignment for

D31PZ Contracts and Procurement

Student ID – 071330800

Name: Mufeez Ahmad Lebbe

Semester - 1 (2012/2013)

1. Introduction

This report is prepared for the Principal of Heriot Watt University (HWU, the Client) who is

planning to build a new auditorium in Dubai Campus with 800 seats, high specification technology,

multimedia theatre with air conditioning and comfortable tiered seating that provides excellent

visibility. The client requires a full size interactive screen and computer driven presentation

facilities in this auditorium to be used for conferences, lectures and presentations.

The report will outline to the Client how a strategic approach to procurement can be developed,

alternative procurement routes and examination of advance procurement practise suitable for the

project. Based on the above, a suitable procurement route is recommended. In addition to that, the

report will evaluates factors that would influence the development of an appropriate procurement

strategy and how it could be implemented and provides some of the potential benefits of adopting

alternative procurement strategies.

Assumptions made to prepare this report are as follows:

The head of the Heriot Wall University (HWU) is considered to be an experienced and

knowledgeable client since the University employs highly experienced staffs. Since the University

will be not restricted to the budget available, project financing is not a constraint. It is therefore

assumed that quality and time is of higher importance.

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2. Strategic Approach to Procurement Strategy

Procurement is recognized as a key process in a company’s business that contributes to its

objectives and aims. In order achieve the best value for money for the client, it is important to have

a procurement strategy for procurement of goods and services of the company. It defines the

relation and balance between risks, constraints, funding, quality, time and cost due to the

procurement of a project. It helps to formulate the best procurement route.

The Office of Government Commerce explains, “The procurement strategy identifies the best way

of achieving the objectives of the project and value for money, taking account of the risks and

constraints, leading to decisions about the funding mechanism and asset ownership for the project.

The aim of a procurement strategy is to achieve the optimum balance of risk, control and funding

for a particular project”. Thus, procurement strategy is essential in ensuring procurement success

and has a major impact on cost and time required for the project.

The following factors are considered when drafting a procurement strategy.

Project Objective:

This is the client brief of his objective of the project. The auditorium should accommodate 800

seats, high specification technology, multimedia theatre with air conditioning and comfortable

tiered seating that provides excellent visibility. The auditorium will feature a full size interactive

screen and computer driven presentation facilities, perfect for conferences, lectures and

presentations.

Project Constraints:

The main constraints are project budget, available funding and the time frame to complete the

project. It is to be noted that the Client has not mentioned the duration to complete the project and

the budget available. This gives an idea that the Client is more considered about the quality of the

project.

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Project Risks:

Higher specification is required by the client for this project. It means the quality is of higher

priority and therefore the material selection in this project must be appropriate.

Project Feasibility:

Any variation in the design may not be considered after the construction commences because it may

change the completion date and the client is very much sure of his specification.

Project Complexity:

Since the auditorium is considered to be of high specification technology, the design may be

complex. It is has to be noted that the auditorium has to included multimedia theatre with air-

conditioning and comfortable tiered seating. This construction project should be a modern building

and should be technologically advanced and highly serviced.

The procurement strategy will be drafted keeping in mind it should respond to the following eight

issues.

1. Outside factors

2. Client Resources

3. Project Characteristics

4. Ability to change

5. Risk management

6. Cost issues

7. Time

8. Quality and performance

3. Procurement Routes

The procurement route delivers what is defined in the procurement strategy. Any procurement route

should ensure that design, construction, operation and maintenance are treated as a whole. Selecting

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an appropriate procurement route will assist in achieving best value for money and reducing

procurement risk. It will make effective use of resources, and balance critical factors such as:

Value for money;

Cash flow rate;

Timeliness;

Quality of design; and

Quality of construction.

From the above procurement strategy, the following procurement routes are explained with benefits

and risks associated with each of them.

3.1 Traditional:

This procurement route is the oldest but still in use in the construction industry. The client appoints

teams of architect and consultant to prepare a design. Once the design, specification and drawings

are completed, the client will call a selection of contractors for a tender and a competitive contractor

is selected by the client to do the construction of the works for a lump sum contracts. The contractor

is not responsible for the design of the works but only for the workmanship.

Fig. 1 – Typical Project Structure under the Traditional Procurement Route

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HWU (Client)

Main Contractor

Named Subcontractors Subcontractor Suppliers

Consultant Architect

Risks:

Project duration is longer in this route since the design and construction are carried out

sequentially, meaning, only if the fully detailed design is complete, then the tender will be

invited and the contractor is selected and then only the construction will commence at site.

Client has to be experienced and knowledgeable since he has to manage and administer the

consultants and the contractor; otherwise there is high potential for adversarial relationships.

Since the design and construction phases are sequential and the contractor being not

involved the design process; there is a chance for buildability issues of the project during the

construction phase.

High potential for Contractors to claim for variation if the design is not detailed and not

complete thus making the cost and time over run.

Benefits:

Well-known procurement route to all clients

Reasonable price certainty at contract award

Higher degree of quality in design and construction can be met

The client keeps direct contractual relationship with the designer and the contractor

3.2 Design and Build:

Design and Build procurement routes is when one single experienced contractor is appointed by the

client who is responsible for design and construction. This procurement route allows time frame

required to complete the project to be compressed due to overlapping design and construction. The

client is informed of price certainty at the beginning of the project. However the client is not in a

position to monitor the quality required. Any changes required by the client during the course of

construction may be expensive to adopt and hence may affect the completion of the project and

cost-overrun.

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Fig. 2 – Typical Project Structure under the Design and Build Procurement Route

Risks:

Changes by the client after the contract signature may be expensive.

Since the Contractor is responsible for design and construction , the Client has little control

on design of the project

Liability for design by the Contractor is limited

Benefits:

Tending cost will be less compared to other procurement routes

Client will need to have a single point for communication/contractual issues

Buildability advice by the contractor due to contractors early involvement in the design

May result schedule saving due to design and construction phase overlap

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HWU (Client)

Design and Build Contractor

D&B Contractor’s Consultant Subcontractor Suppliers

Client’s Consultant Project Manager

3.3 Management Contracting:

This will be favourable if the project is quite large in size and requirements are complex (Murdoch,

J. Hughes, W. 1999). This procurement route is good for clients who need an early completion of

the projects. Management contractor involves at the right time as a coordinator during design,

planning and estimation to complete the project. Packaging of works to subcontractors allows

overlapping between design and construction and they can start working as they enter into contract

with the main contractor. Therefore overall construction time will come down and the client will

benefit as they start generating revenue as early as possible. High quality of works can be expected

if the client appoints a skilled and experienced management contractor who will supervise and

coordinate the works contractors and hence potential variations also can be minimised.

Fig. 3 – Typical Project Structure under the Management Contracting Procurement Route

Risks:

Final contract amount and project duration cannot be forecast until the last package is

awarded to last works contractor.

The client should be able to manage the design consultant and the management contractor

Possibility of delays and increased cost due to ineffective administration by the client.

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HWU (Client)

Management Contractor

Works Contractor Works Contractor Works Contractor Sub Consultants

Suppliers Suppliers

Project Manager Client’s Designer

Benefits:

Early completion of projects even for complex projects due to design and construction

overlap

Since the client control the design team, the management contractor together with works

contractors can contribute to early design development contributing buildability of the

construction.

Management will take some risks of the works contractor employed under them.

Changes are possible in works packages provided it has less impact on time and cost of the

project

3.4 Construction Management

This is fast track procurement strategy. Subcontracts can be let as soon as the design is completed.

The client appoints a construction manager for a fee to supervise the construction works like in the

management contracting procurement strategy. The clients enter into agreement directly with works

contractor. Therefore the client has high level of involvement during design and construction

phases. The final project cost will be known only after the last package has been let.

Fig. 4 – Typical Project Structure under the Construction Management Procurement Route

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HWU (Client)

Works Contractor Works Contractor Works Contractor Consultants

Subcontractors Suppliers

Construction Manager Client’s DesignerClient’s Designer

Risks:

Final contract amount and project duration cannot be forecast until the last package is

awarded to last work contractor.

Since the client manages all the works contractors, the client is exposed to high risks of

delays, contractual issues and contract administration.

The construction manager is not responsible for achieving programme and cannot instruct

third parties.

Clients need to be experienced to administer the separate design team and many works

contractors

The Client will have to pay a high premium on risk management in construction

management than under other procurement approaches

Benefits:

Early completion of projects even for complex projects due to design and construction

overlap

Changes are possible in works packages provided it has less impact on time and cost of the

project

Good for complex projects as buildability is possible

The Client’s direct involvement with works contractors could result in lower prices and

monitor the poor performance of works contractors.

The construction manager can resolve disputes directly with works contractors provided

they have a good relationship

Based on these procurement routes and the client objective, it is recommended to HWU to use

Design and Build procurement route as a suitable for this project. It is good for a fast track project

due to overlapping design and construction.

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4. Advance Procurement Practices

In this section, the following advanced procurement routes (integrated procurement routes) are

discussed. It is ultimately the client responsibility to select the best suitable procurement route based

on procurement strategy and clients objectives.

4.1 Prime Contracting

A public sector client appoints a contractor as the sole point responsibility to the client and the

supply chains who will be responsible to manage and deliver the project on time and within budget

and with the required quality, He is also responsible operation and maintained of the building.

Before the construction commences, the whole life costing model for the project will be developed.

There are many benefits through prime contracting such as long-term value for money through

improved supply team, partnering and incentivised payment mechanisms. Prime Contacting route

gives the following benefits to the client

- Complexity: deliver technically advanced building

- Prime contractor adopts all risk

- The Client can recover damages from the Prime Contractor

- Buildability as the Prime Contractor involves at an early stage of the project

4.2 Partnering

Partnering is not a procurement route but a management approach which can be applied to any

procurement routes discussed above. It is a way of collaborative working and problems solving. It is

characterized by commitment, trust and mutual advantage between partners. All organizations in a

supply chain can implement partnering to improve their performance by effectively organizing all

the resources. Since HWU is recommended to use Management Contracting which involves

different specialists such consultant, project manager, works contractors, suppliers and

subcontractors, partnering will definitely will benefit all the parties involved. HWU is

recommenced to adopt partnering arrangements in order to benefit from reduced costs, less

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construction time, reduced contract price, minimal conflicts and disputes and higher project

performance.

4.3. Two-Stage Tendering

Two-stage tendering is a process of engagement of a contractor by a client based on a preliminary

concept design at an early stage of a project. Then the contractor works with the client and his

consultant to contribute to design and project planning. In first stage, the client selects a contractor

by prequalification from many bidding contractors based on information made available to them by

the client. In second stage the client negotiate with the winning contractor (from stage one) the price

of the project after the design is complete and at least 70 to 80% of the works have been

subcontracted. There are many benefits as mentioned below that the clients can achieve by two-

stage tendering over the traditional tendering process.

- Works can commence earlier due to less time required for tendering process (for

second stage)

- Design and construction can overlap

- Quality can be controlled

- Cost certainty / guaranteed maximum price

- Early involvement of supply team

- Possibility of transferring risks to the contractor

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Fig. 5 – Two-Stage Tender Process

4.4 Novation

The transferring of contractual relationship between the client and his professional consultant to a

winning design and build contractor is called novation. This is normally applicable in design and

build procurement route. Novation helps to keep continuity of the design carried out by the

consultant when working for client at the beginning and later to the design and build contractor.

This will greatly eliminate the design responsibility issues that may arise during the course of the

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project. This will improve the design since the same designer is allowed to continue to develop the

concept design he prepared for the client.

5. Factors influencing Procurement Strategy and Implementation

The following factors will influence the development of a procurement strategy

The project objectives – for example, to provide office space for x people to deliver a

specific service.

Constraints – such as budget and funding, the timeframe in which the facility is to be

delivered, and exit strategy.

Cultural factors – such as considerations about the workspace environment that will best

support the way people work.

Risks – such as late completion of the facility; innovative use of materials

The client’s capabilities to manage a project of this type.

The length of operational service required from the facility.

6. Conclusion

Procurement strategy will be a basis for selecting a right procurement route for the client’s project.

All of the procurement routs discussed above have merits and demerits. The client is the ultimate

decision maker to finally select the best suitable procurement routes.

For the development of new auditorium for HWU, the following procurement routes with advanced

Procurement practices can be utilised

Design and Build route is recommended for this project. This will benefit the client in time and cost

but at the expense of quality. The Clint desires the building to be a high specification but this

building an just an auditorium only and does not require the highest quality. Even though, project

quality can be improved involving a contractor at an early stage by way of two-stage tendering. In

order to avoid and design responsibility/risk it is recommended also that consultant is novated to the

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contractor after the concept design and the design risk will be under contractor/consultant

responsibility. Since many specialists are involved in this projects such as design and build

contractor, design consultant, client, clients project manager and other subcontractors and suppliers

are recommended to work collaboratively under partnering in order to avoid or minimize any

adversarial relationship between supply teams, and disputes and improve administration and

communication.

7. References

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1. Cooeje, B. Williams, P (2004) Construction Planning, Programming & Control, Blackwell

Publishing.

2. Murdoch, J. & Highes, W. (1999), Construction Contract, 3rd Edition, Spon Press, Tyler &

Francis Group

3. Office of Government (2007). Achieving Excellence in Construction Procurement Guide

006: Procurement and Contract Strategies. London: Office of Government Commerce.

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Coursework 1 - CP

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