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Miss Joanne Larmour Thesis Interdisciplinary Design for the Built Environment June 2011 Word Count: 14,679
Abstract
The choice of procurement route may have a significant effect on the construction of a building project. Through a review of previous research on the history and use of different procurement routes, and analysis of procurement routes in use in the commercial sector, this thesis seeks to identify any trends and determine what, if any changes need to be made to improve procurement routes in order to improve construction. A summary of the factors which should be considered in the decision to choose a particular route is also included. In order to conduct analysis of the use of procurement routes, it is necessary to set certain constraints for comparison. This paper includes an analysis of the procurement of large scale, new-build commercial projects in Central London, completed within the last decade. Whilst the results are specific to this particular sector, some of the conclusions are relevant to client bodies across many sectors. It is of particular note that the sector analysed primarily includes experienced clients, and there ought to be a dissemination of knowledge of these clients and their practices to the inexperienced or one-off client in an attempt to improve the industry as a whole.
Contents
1. Introduction 1.1. Procurement History and Background 1.2. Analysis of recent projects and procurement data 1.3. Issues to be addressed for future procurement 2. History of Procurement in Construction 2.1. Procurement categories 2.2. Contract types 2.3. The evolution of procurement 3. What influences the procurement system chosen? 3.1. Project strategy 3.2. Client organisation 3.3. Financial objectives 3.4. Method of organising design and construction 3.5. Risk management 3.6. Project constraints 4. Limitations with existing procurement systems 4.1. Demand issues 4.2. Supply issues 4.3. Common issues 5. Trends in the UK 5.1. Contracts in Use 5.2. Trends from Contracts in Use 2004 5.3. Trends from Contracts in Use 2007 6. Trends in London Commercial Sector 6.1. Criteria for selection 6.2. Trends in the commercial sector 6.3. Cost and time analysis 6.4. Further analysis required 7. Client opinion 7.1. Procurement strategies 7.2. Market trends 7.3. Risk allocation 7.4. Preferred contractors 7.5. Use of contracts 7.6. Design stages 7.7. Sustainable design and cost 7.8. Off-site manufacture 7.9. Summary 8. Conclusions and recommendations for the future of procurement 8.1. Procurement history 8.2. Project strategy 8.3. Analysis in the commercial sector 8.4. Market influence 8.5. Industry problems to be addressed 3 5
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Appendix 1 Data from Hibberd and Djebarni survey Appendix 2 Data from Masterman survey Appendix 3 Data from Contracts in Use 2004, and Contracts in Use 2007 Appendix 4 Client Interviews 2011 Appendix 5 Project data
List of Figures Figure 1 Procurement route characteristics ............................................................................... 8 Figure 2 Time/Cost/Quality model .......................................................................................... 12 Figure 3 Client Objectives (Hibberd and Djebarni study) ....................................................... 15 Figure 4 Client objectives (Masterman study) ........................................................................ 16 Figure 5 Risk Matrix (Cox and Townsend) ............................................................................. 19 Figure 6 Risk Management - The Mace Approach ................................................................. 19 Figure 7 Contract Options (Latham, 1994) ............................................................................. 20 Figure 8 Methods of Procurement by number of contracts (2007) ......................................... 25 Figure 9 Methods of Procurement by value of contracts (2007) ............................................. 26 Figure 10 Method of Procurement across ten years ................................................................ 29 Figure 11 Method of Procurement per year............................................................................. 30 Figure 12 Cost of Construction (/sq foot).............................................................................. 31 Figure 13 Construction Rate (sq foot/week) ........................................................................... 32
1. Introduction
The choice of procurement route may have a significant effect on the design and construction of a building project. This thesis includes a review of previous research on the history and use of different procurement routes and the factors which might be considered in the decision to choose a particular route.
market conditions offers an insight into the decision making process involved in procuring a new building. What is clear is that there is no one route which is considered best practice for all clients. If the experienced developer client is taken as an example, the strategy adopted appears to be focused on knowledge of the route, and the particular client drivers which can be achieved within that route (e.g. cost certainty, or control of quality). These drivers vary depending on the client. There are increasingly opportunities for the client to choose a route which offers both cost certainty, and a good degree of control of design quality. For example the use of pre-construction agreements with a contractor for a defined period prior to moving to Design and Build, and a decision to take design of architecturally important elements to a later design stage, before moving to Design and Build.
activities, sub letting works to suitable contractors on a competitive basis. In Construction Management the client enters into separate contracts with the construction manager, designers, and trade contractors. Construction Management is generally associated with programme savings, and a higher degree of control for the client in terms of design quality, but less cost certainty. Partnering Partnering involves two or more organisations working together to improve performance through agreeing mutual objectives, devising a way for resolving any disputes, and committing themselves to continuous improvement, measuring progress and sharing gains and pains. Examples include framework agreements and joint ventures. This is a relatively new form of procurement and although discussed in the Latham report in the 1990s, has taken a long time to come into general use. It is more commonly seen within large civil engineering projects, than individual building projects. The relationship between each route is summed up in the Construction Industry Board best practice guide to procurement. (Rowlinson, et al., 1999) The diagram below is an adaptation of the information within this guide.
Traditional
Management Contracting
Construction Management
Professional
Contractual
Construction Management
Management Contracting
New Engineering Contract (NEC) suite of contracts including: - NEC3 Engineering and Construction Contract (EEC) o Option A Priced contract with activity schedule o Option B Priced contract with bill of quantities o Option C Target contract with activity schedule o Option D Target contract with bill of quantities o Option E Cost reimbursable contract o Option F Management contract There are other standard forms related to different types of project and sector which are not covered in detail within this thesis.
examined purchasing polices and procurement practices in construction (within the public sector). In 1976 a private client body published a report for the first time. The Slough Estates Report (Slough Estates, 1976) found that the overall time to implement an industrial project in the UK was considerably longer than other countries, and the final cost considerably higher in all but one of seven other countries. The reason attributed to this was an unnecessarily lengthy and complex design and pricing process, and the time taken to obtain statutory permits. A number of other reports were also published around this time including Construction for Industrial Recovery (NEDO, 1978), and Royal Institution of Chartered Surveyors, UK & US Construction Industries: A comparison of Design and Contract Procedures. (Bennett, et al., 1979) As Masterman (Masterman, 2002) summarises, the theme of the 1970s reports reflected conservatism, as a diminishing number of clients were prepared to commit to projects in an uncertain economic climate. Phase 3: 1981 - 1990 Post recession recovery This was a period of post recession adjustment and recovery. Changes such as labour only sub-contracting emerged due to long term shifts in the structure of the industry. The British Property Federation (BPF) launched a new procurement system System for Building Design and Construction in 1983. (British Property Federation, 1983) The BPF concluded that many existing procurement systems were inefficient, could increase costs, and could cause and sustain confrontational attitudes between clients, consultants and contractors. Whilst this new system attracted much comment, there is little evidence to suggest it was adopted by many clients. There were also a number of government sponsored reports during the 1980s. Faster Building for Industry (Building Economic Development committee, 1983) provided statistics for the use of different procurement routes, with almost half of projects using conventional methods, about one third design and build, and the remainder other methods (including management). Faster Building for Commerce (Building Economic Development Committee, 1988) was specific to the commercial sector and stated that two thirds of projects used conventional procurement, one sixth design and build, and one sixth management. The 1980s also saw the emergence of an expert client sector with in-house resources to manage large projects. There was ongoing construction and therefore clients developed bespoke methods of procurement, mainly based on Construction Management, to ensure their needs were met. This client sector is typical of those interviewed in Section 7. Phase 4: 1991 - 2000 Recession and recovery The early part of this decade saw low economic growth, uncertainty in business and finance, social pressures and environmental issues emerge. In addition to government capital spending cuts, there was little enthusiasm for major projects in the private sector. The results were a major downturn in the construction industry with more than 500,000 construction related jobs lost, and more than 16,000 construction companies becoming insolvent. (Cox, et al., 1998b) In 1997 there were signs of recovery, but annual input was still 20% below 1990 levels. During such a volatile time there were two defining reports published; Constructing the Team (The Latham Report), (Latham, 1994) and Rethinking Construction (The Egan Report) (Egan, 1998) The Latham Report concentrates on a number of problems to be tackled including the clients role, management of the project process, fragmentation of the industry, competitive tendering, the reputation of the industry and barriers to attracting the best people. 10
The Egan Report focuses primarily on promotion of an integrated project process around four key elements; product development, project implementation, partnering of the supply chain, and production of components. Masterman (Masterman, 2002) suggests that the reason the Egan report was criticised upon publications, was for its provocation and unnecessarily hostile approach, and failure to address the needs of occasional/one-off clients and implementers of small to medium sized projects. This could be particularly relevant given that current figures show that in all sectors over 90% of projects are for a value of less than 5 million, and with the exception of public housing over 75% of new orders are for a value of less than 1 million (Office for National Statistics, 2010). There was a lot of government support for the implementation of Egans recommendations with a 500M programme of demonstration projects being established. This programme was implemented by Constructing Excellence in 1998, and continues today (Constructing Excellence, 2010). Between 1998 and 2007 there had been a total of six hundred and twelve demonstration projects (Olayinka, et al., 2007). These include projects such as Bleak Hill School, St Helens, which was chosen as a demonstration project for its pioneering approach to procurement, and Great Notley Primary School, Essex, which was selected for its sustainability and technology credentials. During this period the use of Design and Build procurement routes and Management procurement routes fluctuated, but with an overall increase compared to their use throughout the 1980s. There was also an increase in the use of partnerships and alliances, perhaps resulting from the Latham and Egan Reports. Phase 5: Sustained economic growth, followed by recession (2000-2010) This decade saw continued growth with major projects throughout the UK constructed in the first half of the decade. The financial crisis towards the latter part of the decade resulted in recession from June 2008 Dec 2009, the longest UK recession since the 1950s. During this decade, the growth period saw an increase in the use of Construction Management for large scale projects, and an increase in the use of Design and Build. This may partly be due to the requirement to bring new buildings to the market in very short timescales. The impact of the recession in the last few years of this phase is difficult to determine at present, however it appears to have caused an increase in use of Design and Build procurement routes, and a more competitive market for consultant fees. The results of this are likely to be felt over the next few years in various parts of the construction industry. This decade also saw a shift in the procurement route for public sector projects. The increased use of private finance to fund public projects, and a desire to meet the partnering aspirations of the Latham and Egan Reports have resulted in a change in the way in which public sector projects are procured.
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TIME
QUALITY
Figure 2 Time/Cost/Quality model
It is generally accepted that only two of the three criteria above can be achieved, and therefore the procurement route should be chosen to maximise the most important criteria. However, these very broad criteria are often used inappropriately to define project requirements. For this reason there are a series of pre-procurement strategies which should be followed to define, for example, the project requirements prior to choosing the preferred procurement route. These strategies are described in more detail below.
Role of client and third parties Client project objectives Financial objectives Legal and insurance issues 12
Employment and industrial relations Environmental issues Quality Safety Technical and design philosophy
Those considered directly relevant to the choice of procurement route are listed below and considered in further detail in this chapter.
Role of client and third parties Clients project objectives Financial objectives Method of organising design and construction Risk management Project constraints
Egan (Egan, 1998) describes the project strategy in terms of a process. An integrated project process should utilise the full construction team, bringing the skills of all the participants to bear on delivering value to the client. The process should be explicit, transparent, and easily understood.
Public sector clients are often inexperienced one-off clients (for example a local authority project). As such they tend to be more risk averse. They are often required to justify costs and safeguard funds. Private sector clients are typically a mix of experienced and partially experienced clients. Experienced clients are more likely to have management teams in place which will broaden the choice of procurement routes available to them. 13
However, this delineation between public and private sector clients is becoming less relevant. The introduction of Private Finance Initiatives to fund public sector projects, and the increase in joint ventures or additional funders for private sector projects, has resulted in the characteristics above being present in many projects regardless of the client sector. Cox and Townsend (Cox, et al., 1998a) have a more idealistic view of the client (and indeed the rest of the project team). They argue that practitioners need to adopt a way of thinking, rather than specific practices, to attain better management. In other words, clients must choose wisely from a range of tools and techniques for each individual set of circumstances. It is perhaps most noticeable in the experienced client sector that clients aspire to the type of project leader described by Cox and Townsend. The external drivers for inexperienced or public sector clients may make it more difficult to adopt the way of thinking described. Client needs or objectives It is important that the clients needs or objectives are defined at the outset of the project strategy to ensure that the systems chosen throughout the process are tailored to meet those objectives, however these objectives can be difficult to quantify. Latham (Latham, 1994) defined client wishes as: Value for money Pleasing to look at Free from defects on completion Delivered on time Fit for purpose
These are fairly broad objectives with language which is open to interpretation. Bennett and Flanagan (Bennett, et al., 1983) propose an expanded list of typical client requirements which could be a starting point to help a client define their objectives for a particular project.
A functional building, at the right price Quality, at the right price Speedy construction A balance between capital expenditure and long term ownership costs Identification of risks and uncertainty Accountability (particularly in the public sector) Innovative design/high technology buildings Maximisation of taxation benefits Flexibility to enable design to be changed A building which reflects the clients activities and image Minimisation of future maintenance Ability to keep any existing buildings operational during construction Involvement in and need to be kept informed about the project throughout its life
One of the weaknesses of this type of list however is that there is no typical client. A public sector owner-operator will have different requirements to a private sector owner-operator client which in turn will be different to a developer only client. The Commission for Architecture and the Built Environment (CABE) focus more on the design aspects of requirements. Their procurement guidance very much focuses on the process of agreeing a procurement strategy, and therefore identifies the need of establishing 14
the vision and objectives at the outset of a project, p and communicating these hese requirements appropriately (Commission for Architecture and the Built Environment, 2009). 2009) It is also clear that often, particularly particul with inexperienced clients, the perceived objectives at the outset of a project are different to the actual objectives which only come to light as the project progresses and perhaps there are constraints which prevent a particular objective from being achieved. The difference between en perceived objectives and actual objectives is demonstrated through the work of Hibberd and Djebarni. Djebarni (Hibberd, et al., 1996) They used a series of questionnaires to obtain information from clients and consultants relating to procurement choice and satisfaction with method chosen. Respondents were asked to rank the criteria below for importance, on a scale of 1 to 10. The original data can be found in Appendix 1. The ranking has been reversed for the purposes of illustration (i.e. (i.e. on the bar chart below, 10 is most important, 1 is least important)
Rank Mean
10
The results ts showed that predictable cost, accountability and speed of completion are the most important criteria. Working relationships and transference of risk were least important, yet risk is often perceived as the being one of the most important criteria. More than 50% were satisfied with h the current procurement route and most were dissatisfied with the previous procurement route used. 15
The paper coincided with a five year period which saw an increase in Design and Build but many respondents were still using traditional methods, which would align with the results that predictability of cost and accountability were most important. Its difficult to draw conclusions from the results relating to time as the different procurement routes result in time being perceived in different ways. A study by Masterman (Masterman, 1994) uses a similar set of criteria asking sixty client organisations to rank them in order of importance. The results are summarised in the chart below. The original data can be found in Appendix 2.
Certainty of final cost Certainty of completion date Active involvement Lowest possible tender Min design and construction time Minimise risk Single point of contact Value for money High Quality/Innovative architecture Accountability Ability to change design 0 1 2 3 4 5
Mean value Private Inexperienced Secondary Private Experienced Secondary Public Experienced Secondary Private Part Experienced Secondary Private Experienced Primary Public Experienced Primary
Predictability of cost, and certainty of completion date (which the study recognized is different to speed of construction) are the most important criteria, however accountability is most important to experienced clients. The Masterman survey aligns with the Hibberd and 16
Djebarni research in relation to risk as both surveys show this to be a low priority for clients. One of the gaps in the Masterman survey is that inexperienced clients in the public sector are not represented. It is unclear if this is due to the experience of the specific respondents, or if it was felt that this set of clients did not exist frequently.
A lead manager who acts as the main point of contact is essential. To achieve coordination of consultants, a design responsibility matrix is recommended. This is an interlocking matrix contained within the consultant appointments to define responsibilities, and coordination for each design item. Definition of scope split between consultants and specialist contractors is also crucial. It is important that the client understands the design proposals, and that there is formal sign off of all stages, but with sufficient flexibility to accommodate the commercial wishes of the client.
Within the contracts for the project there are common features which are desirable whatever form is chosen. A general duty to trade fairly, with specific requirements relating to payment. Clearly defined work stages, including milestones, or other forms of activity schedule. Pre-pricing of any variation (The NEC contract has some good mechanisms in place for this). An adjudication system which is independent of contract administration. 17
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There are three basic approaches to risk according to Cox and Townsend (Cox, et al., 1998a): 1. Qualitative identify the most significant risks and provide management with a focus for appropriate action 2. Pragmatic Quantitative both qualitative and quantitative aspects of the approach 3. Precise Quantitative attempt to quantify risk in exact terms (e.g. impact = likelihood x consequence) The appropriate approach is dependent on a set of circumstances. This selection matrix explains the proposed method of selection.
High
Medium
Low
Low
High
If risks can be quantified in financial terms, it is possible to provide a more effective approach to cost management. In other words, rather than one large number to account for risk, there is more discipline to the estimating process, and a differentiation between how much an item should cost to construct, and how much is apportioned to the management of risk. The risk management process can also be used to establish project priorities (and identify the real value criteria), roles in the process, and number/type of packages. Key issues for the contract strategy can then be addressed such as:
Once the risks are identified a process of prioritisation and management should be adopted. The Mace Approach (Cox, et al., 1998a) is reproduced below.
Consequence of Risk
High Low
Manage
Probability of occurrence
Figure 6 Risk Management - The Mace Approach
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Latham however links contract options with the transfer of risk, and defines who holds different risks dependent on procurement route. The routes are categorised differently in this document, so the equivalent terms are highlighted to the left.
Management
Traditional
Single Source
Lathams view is that management contracts result in all the risk being held by the client. The central options can be broadly classified as Traditional with the client retaining a degree of risk. A package deal and Design and Build are the procurement routes which are likely to transfer a majority of the risk to the contractor.
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Legal/political constraints this is often linked to the funding mechanisms for the project. If a project is publicly procured it must comply with the EU procurement rules which will therefore have an impact on programme and selection criteria for the project team. If a funding mechanism involves a separate party it may be that that party places certain restrictions on the procurement process to safeguard investments. Programme some projects are dependent on project completion dates, or in more complex situations, windows of opportunity for construction (e.g. construction on existing school sites may require certain activities to be limited to school holidays). This may have a knock on effect of either prolonging a construction programme, or accelerating a programme to the detriment of a particular quality aspect, or at a financial premium.
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Many of these aspects were discussed in the previous section as pre-requisites for forming a successful project strategy, but it appears the absence of them leads to an adversarial culture. Fragmented industry structure Various recessions have forced an end to vertical integration by contractors. Many main contractors no longer undertake work directly and traditional craftsmen are in decline. There has been an increase in labour only subcontracting, buying in materials, and plant hire. This has resulted in reduced training and the symptoms of the decline in skills discussed above. In addition the move away from traditional procurement routes has resulted in the designers being further fragmented, as consultants become more specialised, and the development of specialist sub-contractors continues. This increased volume of interfaces can lead to inefficiencies, and less trust amongst design parties. This ultimately leads to increased cost and reduced efficiency. Rowlinson (Rowlinson, et al., 1999) identifies this problem when describing the project team as small groups of professionals working in different locations, on specialist tasks which are all interdependent. Whilst some of the limitations, such as fluctuating demand are difficult to tackle, issues such as changes in specification, inappropriate selection criteria, and risk allocation are problems which can be tackled through the procurement process and education of clients. In addition issues such as public image and investment and research and development are industry wide problems which are being actively tackled. There has been much improvement in the way organisations advertise positions, and equality and diversity policies are often published by organisations wishing to attract a diverse workforce. Initiatives such as the Considerate Constructors Scheme (Considerate Constructors Scheme Ltd, 2010) are also seeking to improve the image of the industry with the wider public. The issue of a fragmented industry is likely to continue to be a problem, and therefore future procurement routes will need to embrace this to ensure the industry can take advantage of the specialist skills developing instead of this being a barrier to efficient design and construction.
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5. Trends in the UK
There is a wealth of analysis available for the decades up to the late 1990s by various authors however there is limited information currently available on the most recent decade. The Royal Institution of Chartered Surveyors (RICS) have completed UK wide surveys of contracts in use within the industry since 1985, with the most recently available editions being Contracts in Use in 2004, and Contracts in Use in 2007.
60 50 Percentrage use 40 30 20 10 0 1985 1987 1989 1991 1993 1995 1998 2001 2004 2007 Year Lump sum Firm BQ Lump sum D&B Remeasurement Approx BQ Management Contract Partnering Agreement Lump sum spec & dwgs Target contracts Prime cost plus fixed fee Construction Management
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60
50
40 Percentrage use
30
20
10
0 1985 1987 1989 1991 1993 1995 1998 2001 2004 2007 Year Lump sum Firm BQ Lump sum D&B Remeasurement Approx BQ Management Contract Partnering Agreement Lump sum spec & dwgs Target contracts Prime cost plus fixed fee Construction Management
It is important to note that these surveys only capture between 10 and 20% of the total value of new orders in the UK. In addition the 2007 survey captured approximately half the number of projects compared to previous years, but almost double the value of projects, therefore a greater number of large value projects are included in the 2007 results. This will inevitably distort the figures and make comparisons per year more difficult. There are a few trends which can be identified across the years, such as the rapid decline in the use of Bill of Quantities from the mid 90s onwards (most notable when reviewing by value) and an associated increase in use of Lump sum Design and Build. Management Contracting continues to decline, but is still in use. The introduction of Partnering agreements in 2001 has seen a steady rise, although is still a small percentage of the overall contracts used.
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Smaller projects continue to be dominated by Plan and Specification procurement, and Lump-sum contracts, whereas larger projects prefer Construction Management or a form of Design and Build. The use of Bill of Quantities is still in decline with just 13% by value using this method of procurement, compared to 23% in 2004. The use of negotiated methods of procurement showed a further increase with Partnering agreements increasing to 15% by value which is big jump from the 2004 results. There was also an increase in two-stage tendering which may partly be due to the type of size of projects captured in the 2007 survey compared to previous years. It is therefore too early to tell if there will be a major impact on the market.
The 2007 survey confirms the continued decline of Management Contracting. Construction Management continues to be most prevalent for larger projects, which aligns well with the data captured in the next section. The use of contract types clearly shows a slow switch from JCT to NEC. The use of JCT shows a further decline from the 2004 figures. Design and Build with standard contract form is most popular, with Quantities form second. The intermediate form is more prevalent for smaller projects. The impact of the Major Projects form is also starting to be seen. NEC suite was strongly supported by Egan and Latham, but has taken a long time to become common use. The contract is now firmly embedded in the industry and the results of the survey clearly show an upward trend in use of NEC over the last six years. One of the concerns though will be industry familiarity with the NEC form and the potential for inappropriate use of options which is likely to emerge in the coming years. The 2007 survey overall reinforces the dominance of Design and Build in the middle market, and that JCT still dominates as a contract type, but the alternative forms are growing in use, particularly NEC.
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13% 26% Two stage D&B 13% Design and Build Two stage Traditional 5% 4% JCT 98 with CDPS Construction Management CM bespoke
39%
This shows that Construction Management was the most popular route from 20012001-2010, with use on almost two thirds of the projects. Design and Build was also popular with use on a 29
quarter of the projects. Whilst this shows an interesting split, , it is likely to be specific to the commercial sector. It is also possible to look at the use of different routes across across the ten year period. Figure 11 compares the use of procurement routes per year.
4
Number of projects
Traditional
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year of completion
The results of 2003, 2004, and 2009 should be discounted as there was only one project in the data set completed ompleted in each of these years. years. There appears to be an increase in use of Design and Build during the later part of the decade, and a reduction in use of Construction Management, although with only a few projects completed in each year this may not be representative of the wider industry. This may be attributed to decline in the economy, and perceived need to gain cost certainty tainty early in the procurement process.
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300.00 250.00 Cost (/sq ft) 200.00 150.00 100.00 50.00 0.00 Two stage Traditional JCT 98 with CDPS Two stage D&B Two stage D&B Design and Build Design and Build Two stage D&B Construction Management Construction Management Construction Management Construction Management Construction Management Construction Management Construction Management Design and Build CM bespoke CM bespoke CM bespoke CM bespoke CM bespoke CM bespoke Construction Management Construction Management
The cost of construction for each project varies. The cost per square foot ranges from approximately 150 per sq ft to almost 280 per sq ft. This large range is seen within the projects which were all procured through Construction Management. The large range which cannot be attributed to choosing a particular procurement route suggests there are other factors which influence the cost of the project, regardless of how it is procured. This could be factors such as complexity, quality required, or project constraints similar to those identified in section 3. As the data is also from a number of different sources, it is also possible that different costs have been included within the results which are not always considered to the shell and core costs. The results for these particular projects suggest that Construction Management (including CM bespoke) can achieve the lowest costs with the six lowest costing projects being procured through a form of Construction Management, but also highlight that other factors will influence the cost of a project.
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9000 Construction rate (sq ft/week) 8000 7000 6000 5000 4000 3000 2000 1000 0 JCT 98 with CDPS Construction Management Construction Management Construction Management Two stage Traditional CM bespoke Design and Build CM bespoke Design and Build Design and Build Construction Management Two stage D&B Two stage D&B CM bespoke Construction Management Construction Management CM bespoke Construction Management Two stage D&B CM bespoke Construction Management Construction Management CM bespoke
Project Procurement Route
The rate of construction varies significantly within each type of procurement route. The rate of construction for Two Stage Traditional and JCT with Contractor Design Portions will be discounted as these include only one project and are not necessarily representative. The remaining results suggest that Construction Management and Two Stage Design and Build achieve a similar construction period. Design and Build (including two stage) could be considered the best performing route in terms of construction period, with most projects in the data set achieving almost 5000 sq ft per week. One of the benefits of Design and Build is often considered to be that the contractor has more control over the design and can therefore choose the optimum solutions to maximise on site efficiency, however the results are fairly inconclusive for this analysis.
influence the construction period such as site constraints, the proportions of the building, and the inclusion of significant substructure works. The results whilst not showing any conclusive trends broadly show that the procurement route does not have a significant effect on cost, but they suggest that Design and Build may have significant programme savings. There must therefore be other reasons for many projects being procured through a Construction Management Route. The client interviews in section 7 offer some insight into this apparent anomaly.
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7. Client opinion
As part of this research, clients in the London commercial sector were interviewed to gain their opinions on procurement routes. The author used industry contacts to set up meetings with five of the major developers who are active in the London commercial building market. For each client body, individuals who fulfil the Project Director role of commercial projects were interviewed (with the exception of Client Interview 4). The following questions were posed to each participant: 1. Does your organisation have a specific procurement strategy across all projects? 2. Given the current downturn in the market have you adjusted your procurement strategy? 3. How do you perceive the allocation of risk within procurement? 4. Where do you see the design portion best sitting? 5. Do you have preferred contractors you work with? 6. Do you have a standard contract agreement for all projects? 7. What are your thoughts on capital costs against running costs (whole life costs)? 8. What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? 9. What are your thoughts on the use of off-site manufacture? The individual interviews can be found in Appendix 4, however some of the more interesting similarities and differences are highlighted in this section. It is important to note that each of the clients interviewed would be considered an experienced private client, and therefore the opinions and trends identified are specific to this client type.
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One interviewee felt that market conditions indirectly affected the choice of procurement route. For example the current downturn has required increased use of external funders, many of whom are more risk averse than developers and therefore insist on a lump sum agreement.
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It is however contradictory to the results of the some of the analysis by Hibberd and Djebarni (Hibberd, et al., 1996) referenced in section 3.
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7.9 Summary
The purpose of conducting structured interviews with clients within a similar sector was to understand the drivers behind how buildings are procured from the clients perspective and identify if there were any similarities with the information extracted as part of the literature review in sections three and four. A number of themes can be identified: Knowledge of the process it was clear from most of the interviews that each organisation choose to have a preferred route which individuals were familiar with and therefore able to use to achieve the best outcome for the project. Risk management whilst the approaches to risk management varied between different clients, it was clear that there is a risk management strategy which influences the procurement route chosen. In general terms, those clients most concerned with cost certainty tended to choose the lump sum Design and Build route, choosing to move to contractor design at a relatively late stage (usually RIBA design stage D or E). Those clients most concerned with quality and control tended to choose Construction Management ensuring maximum client involvement, but an acknowledgement that the client retains more of the risk on the project. Programme as most clients choose the Construction Management or Design and Build route, there was little discussion about programme benefits. One client still occasionally used traditional procurement, however stated this was specific to certain circumstances and is only viable when programme considerations are not critical. Market influence all clients identified that regardless of the preferred route, the market conditions can have an influence on the chosen route for a project. For example in a period of high demand it may not be possible to achieve a reasonable lump sum price as the contractor will attach a large price to the risk portion of the cost, in such cases Construction Management may be the only available route to enable to client to obtain value for money. Conversely in a period of low demand, a client who normally uses Construction Management may choose lump sum Design and Build to reduce risk associated with trade contractors going out of business and to take advantage of lower bids as a result of market conditions. One client emphasised that whilst it is prudent to take advantage of market conditions, it is important that the supply chain is treated fairly to maintain good working relationships and avoid deterioration into the adversarial claim culture. This is an important point for procurement routes generally. Only by treating all parties fairly, can a project have any chance of a successful outcome.
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was also suggested that this is the best route for particularly large and complex projects which need a lot of front end design. However it was identified as a route which required experienced clients willing to manage risk. When Design and Build was the preferred route this was typically because of the need for cost certainty and some transfer of risk. It seems to be a good value route when demand is lower, but needs to be balanced with a fair price for all those involved.
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The key to improving the industry may be to tackle the problems identified above during times of upward market conditions when perhaps many parties can see the benefits.
8.6 Conclusions
The conclusion that may be taken from this thesis is that there is no best practice solution for procurement of construction projects. Cox and Townsend (Cox, et al., 1998a) are very much of this view, but for slightly different reasons. Their argument is that the essence of better practice, is the ability to know the full range of tools and techniques that are available to allow individuals (or companies) to leverage their business position effectively. They argue that for every project there is a different set of circumstances for which a particular procurement route will achieve desirable results. Rowlinson (Rowlinson, et al., 1999) is also clear that the view that a best solution exists can be detrimental to the process. All key issues and participants need to be defined before a suggested procurement route can be devised. In fact, whilst the author agrees with the theory that there can only be better practice, it is clear from the client interviews that knowledge of a process, whatever that process is, seems to be the simplest way to achieve the best outcome for a project. Whilst the private developer client appears to have settled on a process which is successful, it would be desirable if those projects with a one off client, particularly those in the public procurement sector could take some of the ideas of the experienced clients and put them into practice to achieve successful projects which represent value for money. It is likely that procurement routes will continue to develop and change as the industry does, and that there will never be a perfect formula which works for every project. Only by understanding procurement routes, establishing an experienced project team and ensuring fair trading mechanisms for all parties can we begin to improve the image of the industry by producing successful, value for money projects in a non adversarial atmosphere. It is important that some of the wider industry issues identified above are tackled to ensure that procurement routes develop in a way which improves the industry as a whole.
40
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Bennett J and Flanagan R For the good of the client [Journal]. - [s.l.] : Building, 1983. Bennett J. [et al.] UK and US Construction Industries: A comparison of Design and Contract Procedures [Report]. - London : Surveyors Publications, 1979. Briscoe G The Economics of the Construction Industry [Book]. - [s.l.] : Mitchell/Chartered Institute of building, 1988. British Property Federation Manual of the BPF System for Building Design and Construction [Report]. - London : British Property Federation, 1983. Building Economic Development Committee Faster Building for Commerce [Report]. London : National Economic Development Office, 1988. Building Economic Development committee Faster Building for Industry [Report]. London : National Economic Development Office, 1983. Building Economic Development Committee The Public Client and the Construction Industries (The Wood Report) [Report]. - London : National Economic Development Committee, 1975. Central Council for Building Works The Placing and Management of Building Contracts (The Simon Report) [Report]. - London : HMSO, 1944. Commission for Architecture and the Built Environment Client Briefing: Agreeing a Procurement Strategy [Report]. - London : Commission for Architecture and the Built Environment, 2009. Commission for International Building The International Commission for Building [Conference] // W92. - 1992. Considerate Constructors Scheme Ltd [Online] // The Considerate Constructors Scheme. Considerate Constructors Scheme Ltd, 2010. - http://www.ccscheme.org.uk/. Constructing Excellence Demonstrations | Introduction [Online] // Constructing Excellence in the Built Environment. - 28 February 2010. - 23 April 2011. http://www.constructingexcellence.org.uk/resources/demonstrationprojects/default.jsp. Cox A and Townsend M Stategic Procurement in Construction [Book]. - London : Thomas Telford, 1998a. Cox A. and Thompson I. Constructing for Business Success [Book]. - London : Thomas Telford, 1998b. Economic Development Committee for Building Action on the Banwell Report [Report]. London : National Economic Development Office, 1967. Egan J. Rethinking Construction [Report]. - London : HMSO, 1998. Godfrey P S A guide to Systematic Management of Risk from Construction [Report]. London : CIRIA, 1996. Hibberd P. and Djebarni R Criteria of Choice for Procurement Methods [Conference] // Cobra '96. - University of the West of England : [s.n.], 1996. Kirkup G [et al.] Women and men in science, engineering and technology: the UK statistics guide 2010 [Report]. - Bradford : The UKRC, 2010. Laing O'Rourke Infoworks, Issue 2 [Online] // Innovation Focus. - Laing O'Rourke, 2010. http://www.infoworks.laingorourke.com/Issue1/Pages/innovation.aspx. Latham M. Constructing the Team [Report]. - London : HMSO, 1994. Masterman J. W. E A study of the bases upon which the clients of the construction industry choose their building procurement systems [Report]. - University of Manchester : unpublished PhD Thesis, 1994. Masterman J.W. E. Introduction to Building Procurement Systems [Book]. - London : [s.n.], 2002. Ministry of public building and works The Placing and Management of contracts for building and civil engineering work (The Banwell Report) [Report]. - London : HMSO, 1964. Ministry of Works Report of the Working party on the Building Industry (The Phillips Report) [Report]. - London : HMSO, 1950. Ministry of Works Survey of problems before the construction industry (The Emmerson Report) [Report]. - London : HMSO, 1962. 41
Morris P W G The management of projects [Book]. - London : Thomas Telford, 1994. NEDO Construction for Industrial Recovery (Graves Report) [Report]. - London : H.M.S.O, 1978. NEDO Thinking about building - a successful business consumer's guide to using the construction industry [Report]. - London : Building Economic Development Committee, 1985. Office for National Statistics New Orders in the Construction Industry, Additional Annual Tables 2010 [Document]. - [s.l.] : Office for National Statistics licensed under the Open Government Licence v.1.0., 2010. Office of Government and Commerce EU Procurement guidance, Introduction to the EU procurement rules [Report]. - Norwich : Office of Government and Commerce, 2008. Olayinka R and Smyth H Analysis of Types of Continous Improvement: Demonstration Projects of the Egan and Post-Egan Agenda [Conference] // COBRA. - Atlanta : Royal Institure of Chartered Surveyors, 2007. Perry J G and Hayes R W Risk: A guide to the systematic management of risk from construction [Report]. - London : CIRIA, 1985. Rowlinson S and McDermott P Procurement Systems, A guide to best practice in construction [Book]. - London : Construction Industry Board, 1999. Royal Institution of Chartered Surveyors Contracts in Use [Report]. - London : RICS, 2004. Royal Institution of Chartered Surveyors Contracts in Use [Report]. - London : RICS, 2007. Slough Estates Industrial Investment. A case study in factory building [Report]. - London : Slough Estates, 1976. Walker D T H The influence of client and project team relationships upon construction procurement performance [Journal]. - [s.l.] : Journal of Construction Procurement, 1995. Vol. 1. Working Party of the CIC Research & Development Committee Private Funding for Construction Innovation and Research - Options for a National Initiative, a Discussion Paper [Report]. - [s.l.] : CIC, 1994.
42
43
6 1 4 8 3 10 9
Appendix 2 Data from A study of the bases upon which the clients of the construction industry choose their building procurement systems
44
Certainty of final cost Accountability Value for money Lowest possible tender Active involvement Single point of contact Minimise risk Min design and construction time Certainty of completion date High Quality/Innov ative architecture Ability to change design
3.75
=8
5.00
=1
5.00
=1
4.17
=2
4.46
4.35
3.25
10
2.00
11
3.50
=8
2.67
=11
3.15
11
3.13
2.75
11
3.00
=7
3.50
=8
3.17
3.29
10
2.89
11
(Masterman, 1994)
Appendix 3 Data from Contracts in Use 2004 and Contracts in Use 2007
45
Lump sum D&B Target contracts Remeasurement Approx BQ Prime cost plus fixed fee Management Contract Construction Management Partnering Agreement
Type contract
Lump Firm BQ Lump sum spec & dwgs Lump sum D&B Target contracts Remeasurement Approx BQ Prime cost plus fixed fee Management Contract Construction Management Partnering Agreement
2004 % 23.6 10.7 43.2 11.6 2.5 <0.1 0.8 0.9 6.6
2007 % 13.2 18.2 32.6 7.6 2.0 0.2 1.0 9.6 15.6
46
Client Interview 1: Date of interview: March 10th 2011, 9am Does your organisation have a specific procurement strategy across projects? Yes, Construction Management (CM) is our default procurement route. However the funder for a project can sometimes influence the chosen procurement route. For example, on recent projects funders have been more likely to request a guaranteed maximum price (GMP). We have on some occasions managed to persuade the funders that this is not the route to choose. We do this by comparing the GMP with the CM price at each stage. If they diverge in such a way that the CM price is significantly lower than the GMP for early packages this can be persuasive. Given the current downturn in the market have you adjusted your procurement strategy? We occasionally use design and build, which is a completely market driven decision. We will use the market to gain the best value for money for a project. Construction Management is still the preferred route in the current market however it is only sensible if the CM companies still breakeven. Our strategy is to ensure the supply chain is treated fairly to safeguard the project. (i.e. if the CM doesnt breakeven there is potential for a lower level of service). How do you perceive the allocation of risk within procurement? Risk doesnt go away, its just transferred between parties. Ultimately as a client we cannot remove time risk. Through the contract this risk could be transferred to the contractor, however if there is a delay, whilst the contractor may have to pay financial penalties, the client still suffers the time delay. Where do you see the design portion best sitting? Our preference is to retain the design team under direct contract as the CM route. If design team are novated under D&B its likely that any further design work required (e.g. changes for fit-out if a tenant is secured) come at a cost premium A word of warning though: CM is only suitable for the experienced client. A large degree of client input is required due to direct contracts with the different trade contractors. The client therefore needs to have good knowledge of the industry, processes etc. Do you have preferred contractors you work with? Yes, we have 3 preferred CM contractors. For us its all about the project team, not necessarily competitive tender. We may ask two or three contractors to put a proposal forward for a project, but what is important is seeing the proposed project team in action. We like to use those we know from previous projects, or for newer teams review them in action on a current project. Do you have a standard contract agreement? We have basic agreements in place with all preferred contractors which will be adjusted as necessary for the project. Legal appointments are 90% agreed between the parties as standard. There are frequently some additional requirements added to satisfy the funder, or account for a tenant. We generally use the Major Project form of contract. What are your thoughts on capital cost against running (whole-life costs?) Both are important but to understand why you need a bit of history.
We were an owner-developer with subsidiaries which dealt with tenant fit out, and facilities management respectively until the recession of mid 1990s. At this time the subsidiaries and most properties were sold off to deal with the recession. We have always had an interest in the long term running costs, and this has been retained although we are no longer owners. We often use the facilities management organisation to provide a review at Stage D design to ensure the FM requirements of a building have been incorporated. Post Occupancy Evaluation (POE) would be an ideal way to gather info, but it doesnt seem to happen enough in the industry. Agreed it is much harder to complete POE unless you are the owner of the building. For those which we do own were completing POE on both a technical and social level. What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? Yes we have a published strategy which sets criteria and measurement requirements for all projects. We are starting to gather more data in relation to sustainability. Example waste recycling. Contractors are probably ahead of developers with monitoring of this, but the question we should be asking is how do we reduce the amount of waste produced in the first place? Example We have set a general target of achieving 20% better than Part L, however with the recent changes in legislation this is becoming harder. What are your thoughts on off-site manufacture? My personal view is that the mechano kit style of off-site manufacture is the best approach. There is no point transporting a box full of air, but transporting completed walls, floors etc which can be connected together have benefits. Benefits of off-site are primarily quality control. By working with familiar suppliers, we have more influence over the developments of pre-fabrication and can suggest products to focus on. An example is the challenge set to a toilet fit out contractor to develop service pods for toilets. This has resulted in huge time savings which is now utilised on many projects. Ease of construction is important to us due to the time and cost benefits usually achieved. We are much more able to do this type of work under a construction management route as we have a direct link with the trade contractors.
Client Interview 2: Date of interview: March 14th 2011, 3pm Does your organisation have a specific procurement strategy across projects? We are entirely a cyclical industry which is market driven. In the current climate we have a preference of fixed price design and build Given the current downturn in the market have you adjusted your procurement strategy? D&B fixed price wherever possible. As a business, cost certainty if very important to us and we believe this gives us cost certainty. There are exceptions though, large and complex projects often go Construction Management route. As an example on one project recently completed, the D&B contractors where quoting a risk budget of approx 20% due to complexity of the project. This wasnt good value for money, so Construction Management route was chosen, and worked well for the project (on time, in budget). Equally in boom times contractors can afford to increase prices for risk etc, and therefore the client gets less value for money from a Design and Build route. How do you perceive the allocation of risk within procurement? We like to eliminate risk, hence our preference for lump sum. As a business we dont like Construction Management due to the risk for example if a contractor goes bust, the client must deal with consequences, whereas with D&B the contractor picks up any cost. CM is however good for big complex projects as sometimes the risk in these cases is too uncertain to cost. Where do you see the design portion best sitting? Normally we would develop a scheme to Stage D/E then go D&B, sometimes with novation of the design team, sometimes not. The last 2 projects weve taken more of a chance due to the recession and gone D&B at stage C/D. Generally we use novation to retain consistency of design, but sometimes contractors have a proposed team for a specific reason e.g. good delivery architects. Do you have preferred contractors you work with? Yes, we generally only ask 3 or 4 contractors to price a project. We sometimes use pre-construction agreements, but Im not a personal fan. Do you have a standard contract? Yes we have a consistent contract wherever possible. Its a modified version of JCT. What are your thoughts on capital cost against running (whole-life costs?) We have a whole range on our portfolio, so both are important. Develop & own Develop & trade Develop & manage We often have to hold buildings for a time, so running costs are important. Generally high quality is important as its easy to let, however the specification (and therefore cost) is usually market driven. Internal Rate of Return (IRR) is very important this is what your money is earning you, which is very time dependant and can influence construction programme required.
Construction time period can be critical for a pre-let. Design period is not generally such an issue What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? We strongly believe in incorporating sustainable strategies into our projects. Yes, it costs more in capital, but the tenant gains. (e.g. put lots of PVs on the building, costs money, but tenant sees benefits hard to charge a premium for this). Legislation is much easier as it puts all developers on a level playing field. What are your thoughts on off-site manufacture? (not discussed) Final thoughts: All projects are D&B at present which is entirely market driven, we have no doubt this will change in the future.
Client Interview 3: Date of interview: March 16th 2011, 4pm Does your organisation have a specific procurement strategy across projects? Yes, our strategy is, D&B, single stage competitive tender, transfer of risk. We generally design everything visible to Stage E for cost certainty. Services usually performance spec. Given the current downturn in the market have you adjusted your procurement strategy? Were still using D&B however in the current market this can go wrong. If a tenant (or we) make a late change we pay a premium for these changes. In retail for example, repeat business from tenants is very important, therefore the developer will concede late changes and pay for them. How do you perceive the allocation of risk within procurement? Market risk this is something the client cant deal with. In D&B the risk is transferred to the contractor at a certain point in time. Value we have little control over (dependent on market), costs we can control. Risk reduction prior to and during the tender process. On 2 stage tenders: 1st stage contractors price overall project (packages tested but not tendered). Contractor selected on a pre-construction services agreement for 6-9 months. Contractor during this time tenders approx 80% of project and must take the risk on final 20% to give the client a lump sum. We operate a risk schedule which is shared with the contractor throughout the tendering process. The intention is to eliminate risks where possible and identify residual risks to the contractor prior to contract agreement, Where do you see the design portion best sitting? For architecture, up to Stage E with client is best, then switch to D&B. For Structure and Services Stage C (or less) with client. Contractors often propose alternatives to engineering and start from scratch to use their preferred construction methods. We often novate and retain a compliance team. One of the problems with the D&B process is that often the contractor proposes a list of VE items which we agree to that can be taken after contract, but planning constraints or programme constraints then prevent the contractor taking these savings which can cause problems. Do you have preferred contractors you work with? Yes, there four main contractors we would consider for large >100M projects in UK. Normally ask 3 to competitively tender, then continue negotiations with two. Selection criteria for contractors is wide ranging and strict: Money, Programme, Team (individuals), Contract conditions, sustainability, community relations, Corporate Social Responsibility, H&S strategy, and in this market financial integrity. Do you have a standard contract? Shared savings pre-contract sometimes used.
What are your thoughts on capital cost against running (whole-life costs?) In retail we retain centres for their design life. An additional engineer specification is imposed on tenants to ensure equipment meets the FM requirements. Dept stores do all their servicing. Small units are provided with a route to the roof, and power/water, and sprinklers. Benefit capital costs are lower, and running costs reduced as retailers (tenant) is responsible for the servicing of equipment etc. Part L is proving an issue requiring a change of strategy. Part L is pushing towards centralised plant, but retailers are unwilling to pay for this. We have produced a Low Carbon Fit out guide in an attempt to educate retailers. What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? We have a corporate strategy to implement sustainable strategies. We have set targets such as BREEAM very good for all projects. This is much harder now as BREEAM considers whole development, but retailers wont cooperate. Legislation is the only way forward, and we can see this happening to make retailers fall in line with the requirements. We believe retailers are committed at corporate level, but not at operational level. Yes we definitely pay more for sustainability. There is a specific line in the funding structure for environment and Corporate Social Responsibility. What are your thoughts on off-site manufacture? Its a good idea. Some supermarkets are already acting on this. For example supermarkets made of timber glulam frames. A kit of components manufactures off site and constructed quickly on site. Use of precast systems is another example of off-site being utilised. Final thoughts: Negotiation route probably wont happen, we will continue to use the current strategy. Weve tried target cost didnt work well Weve tried open book better, but still not enough trust
Client Interview 4: NB: This was not a full interview, but a general discussion with head of procurement rather than project directors. Date of interview: March 22nd 2011, 9am Does your organisation have a specific procurement strategy across projects? Yes achieve planning before procurement. Then procure under D&B. Reduces risk and means we are ahead of the market. Do you have preferred contractors you work with? Yes, three main contractors, they all know the terms of our contracts Do you have a standard contract agreement for projects? Yes we have a consistent contract wherever possible. Its a modified version of JCT. CM contracts all grew out of the Broadgate development Cyclical industry. When the market is rising its better to go CM route. When the market is in decline and at a low its best to go D&B lump sum Stage D+ Procurement time for a average 150M project, a 5 month procurement period maximum to agree contract. (In reference to public sector projects, this is much faster)
Client Interview 5: Date of interview: March 24nd 2011,2pm Does your organisation have a specific procurement strategy across projects? Yes, however we are fairly flexible. Typically we use CM for larger projects. Sometimes use two stage lump sum, sometimes traditional. More recently weve started using single and two stage D&B, but this is relatively new. Given the current downturn in the market have you adjusted your procurement strategy? Depends on the project. One project we bought the site from a contractor developer with the agreement that the contractor would build D&B from a certain stage On another project weve just recently agreed to D&B for significant reasons. Originally CM, but project stopped in recession. Start up is a JV with a funder. An acknowledgement that the funder is sharing the risk and requires more cost certainty, therefore we have agreed D&B route. How do you perceive the allocation of risk within procurement? We have concerns about D&B due to the loss of control. CM is better for flexibility, programme benefits, and change Traditional can still be used if circumstances are right Management we prefer the ability to manage the process with CM. This is usually done by a third party development manager Where do you think design best sits? For finishes best to develop design as far as possible with design consultants. For engineering this could be contractor designed at an earlier stage. Retail lots of D&B and early contractor appointment Commercial Stage E for certainty of scheme Engineering could be performance spec Do you have preferred contractors you work with? Yes, we have three preferred CM companies that we use. We look at lots of things the actual project team, H&S attitude, CSR, supply chain auditing etc. What is the relationship are we an important client to them Do you have a standard contract agreement? Yes, bespoke been developed over the years What are your thoughts on capital cost against running (whole-life costs?) Costs for CM generally ok, but programme is usually the main driver Capital and running costs important weve only started monitoring this more recently. Running costs are important as generally the tenant pays and if services charges are too high, then you cant get tenants in What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? Yes, sustainable strategy, but only if they actually contribute and are commercially viable. As a general rule our strategy is to minimise energy use in the first instance, then look a renewable etc.
What are your thoughts on off-site manufacture? Lots of benefits such as programme and quality. We must design building to not preclude use of off-site manufacture elements.
Client Interview 6: Date of interview: March 25th 2011 , 9am Does your organisation have a specific procurement strategy across projects? Yes, we are dealing primarily with a multi-phase long project, so the development strategy is important for why procurement route chosen. Buildings were delivered to demand, not as speculative developments. The same model spec/brief is fine tuned to the tenants requirements. Procurement strategy therefore had to be flexible. CM was preferred route for each building, but also used two stage and single stage traditional lump sum for some projects. Funding primarily from one bank. First projects were two stage contracting, but moved to CM for larger projects, and as funders trust in the development increased. Potential problems with CM include risk of scope gaps, but easier to manage change. Given the current downturn in the market have you adjusted your procurement strategy? (not applicable) How do you perceive the allocation of risk within procurement? Lump sum traditional if the design is fully completed first. Not good for changes, no good if design isnt fully resolved. D&B one of the issues is lack of access to the real problems i.e. a trade contractor problem can escalate and become programme critical if not identified to the client early enough. CM shortens the communication chain, and gives more access to the real problems. It also takes out the commercial interest. Where do you think design best sits? (not discussed) Do you have preferred contractors you work with? Yes, we typically used the same steel and concrete contractors for each building. Benefit that the teams knew each other and therefore lessons learned were used to influence the next project. One CM contractor used throughout the process good relationship developed, and therefore maintained throughout. Do you have a standard contract agreement for projects? Yes, Bespoke CM, consultant, and trade contracts. JCT by exception What are your thoughts on capital cost against running (whole-life costs?) Cost model for buildings depends on tenant occupancy. If a building is 100% occupied, the tenant will manage the running costs and maintenance. If there is multi occupancy, estate management will manage running costs and maintenance. At development it is still often debated high running costs will put tenants off, therefore its good business sense to reduce running costs. What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? Balance is to have low capital cost which doesnt preclude the options to reduce energy usage. Yes, it matters. A great deal is actually about common sense, but increasingly meeting legislation. BREEAM ratings one good example is that a tenant wanted to reach BREEAM outstanding, so we made changes to the base build design in order to facilitate this.
CM is good for this as we had access to suppliers to have the right conversations to make changes for the better. The key to sustainability is flexibility for improved technology or change in technology And what are your thoughts on off-site manufacture? (not discussed) Final thoughts: Its the clients job to build a team You need the right individuals on top of the base answer
Client Interview 7: Date of interview: Wednesday 5th May 2011 Does your organisation have a specific procurement strategy across projects? No, we look at each project and the circumstances individually. The type of project, funder, programme requirements, market conditions all impact on the way in which we procure a building. In the last ten years, many of our projects have been procured under a hybrid of construction management and lump sum design and build agreement. Given the current downturn in the market have you adjusted your procurement strategy? The market conditions definitely influence our procurement strategy. In the current conditions were more likely to choose a lump sum design and build route, although this is not necessarily our preference. How do you perceive the allocation of risk within procurement? Our strategy is to minimise risk by ensuring that as much as possible cost can be predicted, however its dependent on the circumstances of a particular project and what the drivers are. For example, on one project we had a pre-let and therefore a defined deadline for completion of the building. This made it necessary to use a hybrid Design and Build route, due to the programme constraints only about 85% of the packages were secured at the time of contract, which left 15% in provisional sums, we generally prefer to have approx 95% of packages secured. Reduction of risk has become very important to funders and therefore we need to choose a route that provides this comfort to secure funding for a project. Where do you see the design portion best sitting? Its best to design as much as possible to a late stage, and where contractor design portions are required, bring those trades into the project team as early as possible. Do you have preferred contractors you work with? Yes, although the situation has changed significantly in the last 10 years. For a design and build route, mid 2000s there was only a limited number of main contractors who could take on large scale commercial projects, it was therefore important to develop good relationships with those contractors. Do you have a standard contract agreement? Yes, but its a modified version of JCT for design and build contracts. What are your thoughts on capital cost against running (whole-life costs?) Both are important. Whether the project is speculative for development for a pre-let tenant, the ability to offer low service charges is a benefit. What are your thoughts on sustainable strategies? Does your organisation have a strategy, and are you willing to pay more for sustainable design? Yes, we have a strategy across all projects. Many of our major projects have incorporated innovative environmental strategies in the last ten years, and we continue to support use of new design developments to improve the sustainability of buildings. What are your thoughts on off-site manufacture? Not discussed.
47
A study of procurement routes and their use in the commerical sector Appendix 5 - Selected Project Data - Central London Jun-11
This information was collected either directly from the clients interviewed in Section 7, or from the Cost Consultant the client referred the author to. Projects 4 to 20 were issued to the author in an non-identifiable form from a leading cost consultant who collates information for the relevant client for benchmarking. As projects 4 to 20 are from the same source, the author is confident that these can be directly compared as the information is consistently collated. The remaining projects may introduce some inaccuracies as these are from a variety of sources and therefore consistency cannot be guaranteed (for example, shell and core cost definition may vary according to the client). Completion Date Dec-03 Sep-10 Feb-10 Oct-05 Oct-05 May-07 May-07 Jun-06 Mar-05 Jun-02 Jan-05 Oct-08 Sep-08 Jun-07 Jul-06 Nov-04 Jan-05 Sep-02 Sep-01 Nov-01 May-08 Aug-07 Jul-09 Total length of Construction Cost weeks /sq ft 152 150 169 134 120 124 124 108 82 90 100 178 98 122 75 109 116 72 79 82 125 190 99 198.67 208.22 227.69 208.75 144.45 184.00 168.24 179.94 168.29 156.78 155.61 277.78 263.36 203.44 170.66 146.80 155.61 189.11 178.01 184.83 181.82 173.30 247.74
Project 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Gross Floor Area sq foot 750,000 730,000 650,000 602,000 560,600 200,000 369,700 177,000 205,000 225,800 729,400 320,500 205,800 569,700 212,700 228,200 729,400 181,900 355,600 334,900 1,100,000 1,200,200 645,834
Net Floor Area sq foot 550,000 560,000 451,000 398,000 417,200 121,400 257,000 132,000 138,000 162,100 495,100 222,300 129,400 422,300 160,300 179,500 495,100 121,100 249,000 207,400 692,000 753,400 541,000
Efficiency 73 77 69 66 74 61 70 75 67 72 68 69 63 74 75 79 68 67 70 62 63 63 84
Construction Procurement Route Two stage D&B Two stage D&B Two stage D&B CM bespoke CM bespoke CM bespoke CM bespoke Two stage Traditional JCT 98 with CDPS CM bespoke CM bespoke Construction Management Construction Management Construction Management Construction Management Construction Management Construction Management Construction Management Construction Management Construction Management Design and Build Design and Build Design and Build
Total Cost Pounds 149,000,000 152,000,000 148,000,000 125,670,000 80,980,000 36,800,000 62,200,000 31,850,000 34,500,000 35,400,000 113,500,000 89,030,000 54,200,000 115,900,000 36,300,000 33,500,000 113,500,000 34,400,000 63,300,000 61,900,000 200,000,000 208,000,000 160,000,000
Time sq ft/week 4.934E+03 4.867E+03 3.846E+03 4.493E+03 4.672E+03 1.613E+03 2.981E+03 1.639E+03 2.500E+03 2.509E+03 7.294E+03 1.801E+03 2.100E+03 4.670E+03 2.836E+03 2.094E+03 6.288E+03 2.526E+03 4.501E+03 4.084E+03 8.800E+03 6.317E+03 6.524E+03
Source Client A - direct Client A - direct Client A - direct Client B - Cost Consultant A Client B - Cost Consultant A Client B - Cost Consultant A Client B - Cost Consultant A Client B - Cost Consultant A Client B - Cost Consultant A Client B - Cost Consultant A Client B - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client C - Cost Consultant A Client D - direct Client D - direct Client E - direct