New in Contracting

8/14/2019 New in Contracting

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Unique Contract No disputesWhy does a owner enter into a construction

contracts? in the construction industry What is unique or new about it?

A cost reimbursable form of contract in whichsuppliers profits are ring-fenced and

The client retains the risk.

Non-adversarial style on the causes of risk and

Risk management through integrated teamapproaches.

No claims for additional payments and nopayment disputes so far on the project

Will save 24 months of construction time!!!


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Unique Landmark ContractThe T5 agreement is a unique legal contract in

the construction industry What is unique or new about it?








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Case StudyHeathrow Airport Extension

Europes largest and most complexconstruction projects.

HEATHROW TERMINAL 5

4.3 billion Pound; Nov 2001 start; March 2008finish

260 Hectare site; 16 projects; 140 sub projects

1500 contracts; Monthly 80 million Poundswork; over 8000 workers.

Gives 50% additional capacity to the terminal.


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BAA uses cost information from otherprojects, validated independently, to set cost

targets. If the out-turn cost is lower than thetarget, the savings are shared with therelevant partners.

This incentivises the teams to work togetherand innovate. It is the only way to improveprofitability: all other costs, including theprofit margin, are on a transparent open-bookbasisAgreement focuses on managing the cause

and not the effect and ensures success in anuncertain environment. High performancelevels and high benchmarking standards aredemanded from all parties.

The idea is to have the best brains OFALL companies working out solutions to


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BAA selected a consultancy frameworkfor cost consultancy on the T5 projectcomprising the Turner & Townsend Groupand EC Harris Group Ltd (known as

TechT).

Both companies were selected under thesame terms of commission and eachprovided 50% of the staff.

On this project these two majorconsultancy companies became one teamjoined at the hip. At its peak the cost

consultancy team comprised 120 staff,


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Few Interesting Features of Contracts

Performance Incentive (3% of the

stage cost)

When work is done on time, (for anymilestone)

A third goes to the contractorThe second third goes to the project(BAA)

Last third goes to common kitty to beshared at the end of project by allpartners.

Insurance One single policy for


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Few Interesting Features of Contracts

Protection for 2nd contracts

BAA draft form provides similarprotection on proportionate basis downto the last supplier or work package

contractorKey messages : working on T5 meanseveryone anticipating, managing and

reducing the risks associated with what weredoing


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PROJE CT MANAGEMENT PHI LOS OP HYBAA expected - high degree of design evolution

throughout the projectNew technological solutions -changes insecurity, space requirements or facilities

functionality.On such a complex project early freezing of thedesign solution was not realistic.

BAA system - actively manage the cause (theactivities) through the use of integrated teamswho display the behaviour and values akin to

partnering.


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Conclusions1. Preparing development

appraisals Development of the business caseand master planning.

Producing the facility cost modelallowing option appraisals within themaster planning phase and functionallybased cost planning.

Executing the business casesensitivity analysis to test each optionsrates of return on investment.

International benchmarking of airport


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Conclusions

2. Advising clients on project brief,

preferred procurement route andcashflow

Design of the procurement strategy withincentives and resultant contract terms and

conditions involving the development of aninnovative strategy and framework agreementagainst which contracts could be let.

TechT and Laing ORourke provided

comprehensive commercial benchmarkingacross the whole T5 program to enable BAA to

judge whether the Anticipated Final Cost(AFCs) provided good/poor value for money

compared to other BAA and non BAA projects.

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Conclusions3. Analysing whole life costs

Implementation and management of aninnovative value improvement process, whichsecures cost and time based on themes ofdesigning, buying and delivering better.

4. Planning the construction processProject management of the PlanningSupervision process.

Project planning undertaken jointly between

BAA/Laing ORourke based on overall T5Strategic Plan using Primavera; however QSrole minimal.

Sub-Project Planning - each sub-project (75-

100m) has its own cost and program target -

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Conclusions5. Monitoring control of cost during pre-

contract stageTechT cost managers engaged with supplierscost managers to verify the cost plans andensure alignment with the schedule. The aim

was to achieve a cost plan that was 95%bottom up i.e. based on figures from suppliersby BAAs D Day(the milestone before the site assembly starts

but when most of the manufacture is completeand design is 95% complete).

Contractors were required to monitor their

pre-contract costs and continually update BAA

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Conclusions

6. Preparing tender and contractual

documentationTechT supported BAAs Supply Chainteam to negotiate and periodically review

the Commercial Model Agreements(CMAs) between BAA and each of the 1sttier suppliers.

TechT supported BAAs Supply Chain inproviding advice on appropriateprocurement routes and choice of Supplyfor each work package then utilized theCMAs as a basis for agreeing the AFC.

contractors cost contro an


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contractors, cost contro ansettlement of final accounts

Majority of 1st tier contractors were reimbursed

on an actual cost based form of contract;interim payments and final account based onactual cost.

TechT work in conjunction with BAAs cost

verification team to check, audit and then verifythat the costs approved for payment are valid.

All partners use COINS (accounting package)to collate costs;

BAA/TechT had read-onlyaccess to COINS toverify that costs were properly incurred.

BAA ran the project using Oracle/Artemis;Contractors feed information into Artemis on a

weekly basis, updating costs, progress andforecasts on a work breakdown structure WBS


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Laing ORourke developed their own data-base systemof weekly capturing costs against WBSs, recording

progress and forecasting final costs, this was loadedelectronically into BAAs Artemis system everyWednesday for the previous week.

8. Controlling the project on behalf of theiremployer

Supporting BAAs integrated team in the preparationof the project process and procedures andimplementation of a project control system andsoftware including change control and riskmanagement.

Introduction of performance management system withKPIs based on cost, time and quality criteria.

Provision of monthly earned value analyses (linkingtime and cost) and schedule performance indices.

TechT have driven the production of and are the


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9. Negotiating with client or subcontractors

TechT work with BAA in agreeing AFC targetsthroughout the duration of the program; each projectand sub-project has its own AFC target, progressagainst which is reported on and discussed on amonthly basis.

TechT together with BAAs supply chain and 1st tiercontractors work as collaborative teams.

10. Reporting on the program and financialmatters

The TechT cost managers are integrated within theirproject and sub-project teams, they report to theproject leader, who in turn reports to the T5 Directors;

TechT are also represented at Program Office level.

The Heads of Cost Management, Commercial

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Conclusions11. Risk and value management

Ongoing option appraisal and valueengineering of construction systems.

On going value improvement initiativefocusing on productivity improvementsand global acquisition combiningleverage and partnering based buying.

Development of bespoke Risk

Management Process aligned to the T5insurance cover.

12. Giving contractual advice in case ofdispute

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Conclusions

The example of the present running

project gives an overview of what isexpected of contracting &management in the context of the

mega projects with greatcomplexity that are coming up.

Avoiding disputes & speeding upwork by collimating the primary,secondary & tertiary interests of allparties contracting to the project indifferent capacities.Thank You

New in Contracting

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