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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 companys 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. 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.
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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 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; Page 4 of 15

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.
HWU (Client) Consultant Main Contractor

Architect

Subcontractor Named Subcontractors Suppliers

Fig. 1 Typical Project Structure under the Traditional Procurement Route

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.
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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 costoverrun.

HWU (Client) Clients Consultant Design and Build Contractor

Project Manager

D&B Contractors Consultant

Subcontractor Suppliers

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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

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
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skilled and experienced management contractor who will supervise and coordinate the works contractors and hence potential variations also can be minimised.

HWU (Client) Project Manager Management Contractor Clients Designer Sub Consultants

Works Contractor

Works Contractor Suppliers

Works Contractor Suppliers

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.

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
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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.

HWU (Client)

Construction Manager

Clients Designer

Clients Designer

Works Contractor

Works Contractor Subcontractors

Works Contractor Suppliers

Consultants

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

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
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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 Clients 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.

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.

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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 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
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Cost certainty / guaranteed maximum price Early involvement of supply team Possibility of transferring risks to the contractor

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
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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 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 clients 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 clients 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 Page 13 of 15

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