Public Projects and Procurement †Free Samples to Students

Question: Discuss about the Public Projects and Procurement. Answer: Introduction This report is being prepared to understand the importance of project procurement strategies in determining the success or failure of a contrition project. The report explores the case of construction of a bridge by Federation Square. The report explores various different strategies of procurement that could be used on construction projects and analyzes the same to come up with the recommendations for the choice of best strategy for the federation Square project. Federation Square is a mega project that involved construction of the Princess Bridge in Melbourne over the Yarra River. Around $345million funds exceeding way beyond the initial budget of $128 million have already been spent on the project which also delayed by 26 months. Additional fund was provided by Federal Fund the main causes behind these delays were construction and administrative problems. Budge was set based on the project requirement rather than actual design. The design responsibility was given to LAB + Bates Smart in 1997. Before they could finalize on the design, a deck sub-structure was constructed with expenditures of $14 million because of political pressure on Federation. The deck was completed on time by Leighton Contractors and was within budget. The fast track method revealed that program was driven by ability of the design team to produce the design documentation. However, because of complexities in design, the government could not take the fast track route for remaining work as there were many design revisions and political interventions tat cased delays. The delays were attributed by the government to absence of formal contractual agreement that costed $19.1 million to the Government for delays and damages caused by the absence of a formal contractual agreement. Thereafter a lump sum and fix free contract were awarded to the Managing Contractor, Multiplex, and it was expected that the contract would minimize risks and eliminate discrepancies. However, in 2001, the agreement was altered because of multiple complexities involved such as incomplete design, reluctance of office of major project to make a compromise on architecture, disputes over costs due to increase in scope and delays, and constructability issues. Considering the case, the key problem was the wrong choice of procurement strategy that resulted into major issues on the project. In this report, various procurement strategies would be studied and recommendations would be made on what could be the best choice for the federation Square Project. Factors influencing Procurement Strategy Irrespective of the procurement method to be chosen, a project team must have a collaboration strategy in place involving all contractors as partners on the project. The performance of contracts as well as the consultant have to be monitored with predefined measures such the output can be evaluated and accordingly, incentives can be disbursed. Once these factors are taken care of, a procurement strategy can be chosen upon careful evaluation. There can be several factors that can be helpful in determine the most appropriate procurement strategy such as: External factors: The project can be affected by economic, political, commercial, social, legal and technological factors that must be considered for the entire project life cycle such as interest rate fluctuations, legislative amendments, etc. Client resources: The knowledge and experience of the client organization in building similar projects can affect the choice of procurement strategy Project Characteristics: The size, location, complexity, and uniqueness of the project can influence risk, cost and time on a project and thus, make important considerations for the choice of a procurement strategy Ability to make changes: Changes on project during its execution can affect the scope and cost. Procurement must thus have flexibility to make changes in designs if needed. Cost Issues: Contractors need to give price certainty for client unless there are delays in receiving tenders and project allotment after initial submissions (Andersen Rask, 2003) Time: Projects are required to be completed within a time frame. It can only be possible if the design is safely completed before construction. Thus, planning and design approvals must be timed in such a way that it promotes early completion of the project. When considering these factors in a procurement contract, time and cost trade-offs have to be evaluated(Appel, 2010). Procurement Methods A procurement system involves defining of construction project elements and assigning of responsibly and authorities to organizations and people associated with the project. Procurement systems can be of several types such as traditional, design and construct, allowancing, and so on. Detailed descriptions and analysis of each of these procurement strategies are explored in this section. For each procurement strategy, the case of current project would be assessed considering the benefits and risks such that decisions could be taken on the choice of most appropriate procurement strategy for the construction project(Bamford Casey, Building and Construction Procurement Guide Principles and Options, 2014). In the traditional approach to procurement management, design is separated from construction such that consultants are hired for managing designs while suppliers, contractors and sub-contracts would be responsible of the construction work. A tending process is used to negotiate with multiple contractors and awarding one. A two stage tendering process is used for designing and construction and they run parallel. There can be several types of traditional procurement methods such as Lump sum that determine contract sum before making an agreement, measurement contracts that involve determination of contract sum on completion based on agreed measurements, and cost reimbursement where contract sum is calculated on actual spent on labour, plant, material and other overheads(Davis, Love, Baccarini, 2008). Lump sum contractors execute a decided amount of work for an agreed upon sum which is not subject to recalculation and thus, no variations are possible. Provisions can only be made for tax changes or unforeseen events caused at the time of tendering. The pricing in such contracts is based on drawing and bill of quantities. Itemwise breakdown is created considering the priced items. The company initially used this kind of contract but when scope changed, the contractual arrangement caused the problem because of lack of flexibility which is why new contracts were made. Thus, lump sum contract is not the right choice for the bridge construction project(Government of South Australia , 2015). In measurement contracts are used when accurate measurement of costs is not possible before tendering. Measurements are submitted in the tender based on drawings with the tentative quantities, and a Schedule of Rates for project completion. This can be useful strategy when quantities of work are not certain at start but at the same time, it poses risk when there is no accuracy of data at the start of the project. Because of inaccuracies of the data and designing fluctuations, the project already suffered from delays and losses and thus, this type of contract may not be suitable as it would not push determination of detailed requirements at the start(Government of South Australia , 2015). In cost reimbursement or cost plus contracts, an indeterminate work would be carried out that would be paid in actual upon completion. In addition to these actual, there would be an agreed fee for services. There can be several hybrids of these types of contract such as Cost-plus percentage fee where fee is paid on a flat rate percentage or a sliding scale. However, this does not provide any incentives when contractor works with maximum efficiency. Another variant is Cost-plus fixed fee which provides incentives in the form of an agreed fee. Cost-plus fluctuating fee is another method in which fee can vary with cost increases from estimations. Traditional procurement methods need different parties for designing and construction work. A consultant is usually appointed to provide advice on cost and designing aspects. In these contracts, contractors are highly dependent on information and instructions given by architects. These methods are most appropriate when the quantity and scope of work can be sufficiently defined at the start with fewer changes required during execution of the construction plan(Jurimae, 2010). There are some benefits of traditional contractors such as price certainty, direct influence of client on project, accountability for competitive selection, ease of making changes, and familiarity with methods. However, there are some significant disadvantages of traditional methods such as extensive documentation, price related conflicts resulting from changes, and no input from contractor for designing. These methods are most appropriate in the cases when design is warranted and risks are balanced between contractor and client. As into the current case, the design is subject to change, this arrangement may not be recommended for managing procurement(Mead Gruneberg, 2013). Design construct In design and construction contracts, all or some responsibilities of both designing and construction are taken by the contractor. In such an arrangement, the contractor usually has to assume the liability of the design that should be made fit to the purpose of construction. In some cases, this liability can be limited to normal professional duties. A contractor may engage independent design consultants but the liability would still remain with the contractor. In such cases, the identities of these external consultants must be accepted in the tender. A tender presents specific requirements more than the site plan and schedule such as production information and design scheme. The responsibility of selecting design is on the contractor(NCPPP, 2017). These methods provide several benefits such as contract sum certainty, cost benefits, integration of design and construction methods, freedom of utilizing purchasing power to contractors for competitive pricing, faster beginning of the project, and more effective programming. However, an extensive set of requirements have to be prepared in advance before tender and any changes made later can prove out to be costly. These contracts can have several variations such as: direct contract given to contractor without competition, competitive process of tendering that assess contractors based on design and price submissions, Develop and construct which involves partial design of building and then tendering is done for selecting contractors for complete designing and construction. Package deal in which contractors use a repetitive theme from another proprietary building system constructed by them earlier. There is a limited scope of innovation in this approach. Novation involves a contractor taking over a previous work from another contractor involving design and construction(NHS London Procurement Partnership, 2014) There are certain disadvantages of this arrangement in procurement contracts such as reduced liability of the contractor towards contribution, difficulties in preparing extensive brief of project at the start, expensive scope changes, limited design liability, lack of innovation, single contractor taking the entire risk, early commitment required for design selection and lack of control from employer over the sign(NHS, 2013). However, it also has some significant advantage such as parallel processing of construction and designing providing operational flexibility and reduced time for project completion, no risk of getting claims for delays for employers as full reasonability of designing and construction is with the contractor leading to enhanced responsibility(Davis, Love, Baccarini, 2008). Early contractor involvement (ECI), Early Contractor Involvement ensures that the contractor is involved from the start of the planning process such that risks are minimized and transparency is increased. Alternatively, in traditional procurement methods, a significant amount of time, money as well as human resources was required and thus, it was not cost effective in case of very large construction projects. Moreover, clients and contractors would be pressed on taking early decisions. Some of these inefficiencies of traditional methods are improved in ECI by proving a cost effective and more efficient method of contracting. In ECI, responsibilities are shared between the owner and the contractor which reduces conflicts and chances of getting into litigations. However, this method is not required if sufficient data is available for planning and for projects involving repetitive work. The method is more suitable for highly complex infrastructure projects such as large reclamation, port expansion, and bridge construction . Contractors hired in projects using ECI are experts and have high level of technical knowledge. They can assist in developing more reliable schedules and costs estimates. Contractors would know equipments to be used as well as understand their impacts on project such that they can help project organization in developing plan and estimates(NHS, 2013). The method has fewer risks as well as costs are minimized. Another benefit of using this method is that involve net of contractor is from the beginning of planning and thus, mechanism can be developed easily for managing consequences of events that may be foreseen. Because of the close involvement of contractor on the project, a clear and transparent relationship is formed between the two such that both parties have ownership, decision making freedom, and responsibilty for risks. ECI involves people from top management of both parties. Integrated teams are developed with open communication capabilities enhancing performance and the adding value(Royal Academy of Engineering, 2014). With transparency comes the trust between client, consultant and contractor. But trust can only be founded on transparency. ECI also helps in optimising construction efficiencies; improve profitability through reduction of the operating costs and increase of the delivery efficiency. With ECI, moor funds are spent on the constriction work instead of litigation, public protests, and other types of distractions. It has been found that complex projects can get more benefits from an early partnership as it helps in understanding risks and shared responsibilities that lead to a reduction in expenses liabilities, and legal compilations. Legal complications(Bamford Casey, 2014). A Project Alliance is a legal framework which involves owner-participant and other private parties such as service provider or nonowner participants (NOPs) who would be J delivering capital works projects. In alliances, all parties have equal level of say on the project and all the risks as well as responsibilities are equally shared among them. A culture driving innovation has to be develoepd that would be promoted in all participants. Communication between partners has to be open and transparent. Project alliances have some advantages such as more cost pertinacity, greeter opportunity for innovation, improved performance, and high quality of service(Teppo, 2007) Public Private Partnerships (PPP) In PPP, government acts as a server of infrastructure servicers and makes payment against the performance of the contractor. The PPP has a value for money for it involved clear definition of requirements, structured mechanism for payments. It also leaves the scope for innovation into h procurement method. Risk can be transferred as well as shared for individual components of the project between the private player and the government organization. While life cost is reduced as focus on the immediate construction costs is reduced. As they are an asset based mechanism, the life of the property is increased as maintenance is proper such that the value of the asset is maintained(UNESCAP, 2016). PPPs have certain advantages that include: More value of the contrition with more certainty of contract Functional requirements are finalized before the process of tendering and thus, there is a greater clarity Designs a proposed during the tendering process by potential contractors such that best design can be selected by the government organization The process integrated all different components of the project including construction, designing, maintenance and refurbishment and thus, overall costs are reduced The risk can be transferred in each project phases to the private sector organization making the public organization lose less money The methodology provides a scope for innovation(Uyarraa, Edler, Garcia-Estevez, Georghiou, Yeow, 2014) The risk with design and fitness to the purpose is borne by the contractor The concept of whole life of asset ensure that efficient designs are incorporated Operational and maintenance costs are agreed upon at the start. Deliveries and payments are made based on the agreed upon standards between two parties to contract(Grimsey Lewis, 2007) The method also has certain disadvantages such as: Functional specifications are difficult to determine from the start and the changes cannot be avoided Detailed discussions with stakeholders is required which can be time consuming Significant resources from all the contractors bidding in the process would be consumed The contractual complexities require highly specialised companies to handle contract management The contracting cost is high which restricts some of the suppliers and contractors from participating Financial risks are higher in these projects(NCPPP, 2017) Recommendations Based on the study conducted including the exploration of various procurement strategies, ECI procurement methodology can be recommended for the organization because of following reasons: As it is a mega project which involves a huge amount of complexities, ECI would prove to be an efficient method for handling procurement contracts Early involvement of the contract in the project would ensure that the requirements are well defined and thus, risks are minimized. With sharing of responsibilities and liabilities between the owner and the contractor, the transparency would be maintained and both parties would be equally keen on delivering results and thus, high productivity and support can be expected As the early involvement of contractor on the project ensures that requirements are clearly defined, there are fewer chances of changes and conduct that can cause additional costs. Thus, the method would remain cost effective Some other recommendations may also be made to ensure that the project is executed effectively using ECI such as: A professional indemnity insurance may be used to reduce liability in the cases of unforeseen circumstances Owner must ask contractor if a sub-contractor or consultant for designing Adequate time must be given for gathering and refining requirement and developing plans With high degree of dependence on contractor, performance measurements must be clearly defined Designers and project estimators must work in close collaboration to ensure that appropriate estimates are obtained on project Conclusions This report was prepared for understand the importance of using procurement management strategies on project success or failure. The report for, a construction case study of a bridge by Federation Square. The report explored multiple procurement strategies including traditional strategies design and built, appliances, ECI and PPP. It was found that ECI was the most appropriate choice of procurement contracts for the current federation Square project. The choice was made considering several factors and needs of the case. It was found that a project was mega and very complex and thus, the method we chosen so that it can provide maximum benefit to the project. It was found that ECI had the potential to reduce cost of construction and designing, bringing in more transparency, ensuring shared liabilities and responsibilities, and so on. References Andersen, P., Rask, M. (2003). Supply chain management: new organisational practices for changing procurement realities. Journal of Purchasing Supply Management , 83-96. Appel, F. (2010). NHS Supply Chain: Innovative procurement and logistics model drives substantial savings for UKs National Health Service. DHL. Bamford, P., Casey, E. (2014). Building and Construction Procurement Guide Principles and Options. Austroads. Bamford, P., Casey, E. (2014). Building and Construction Procurement Guide Principles and Options. Sydney NSW: Austroads. Davis, P., Love, P., Baccarini, D. (2008). Building Procurement Methods . Curtin University of Technology. Government of South Australia . (2015). Construction Procurement Policy- Project Implementation Process . Government of South Australia . Grimsey, D., Lewis, M. (2007). Public Private Partnerships and Public Procurement. Ernst Young. Jurimae, T. (2010). Risk management in the procurement of innovation. Brussels: European Commission. Mead, J., Gruneberg, S. (2013). Programme Procurement in Construction: Learning from London 2012. Wiley-BlackWell. NCPPP. (2017). Facilities and Infrastructure Facilities and Infrastructure. NCPPP. NHS London Procurement Partnership. (2014). Medical Surgical Supply Chain. NHS London Procurement Partnership. NHS. (2013). Meeting the Procurement Challenge. UK: NHS. NHS. (2013). NHS Standards of Procurement. Department of Health. Royal Academy of Engineering. (2014). Public projects and procurement in the UK: sharing experience and changing practice. Royal Academy of Engineering. Teppo, M. (2007). Alliance Contract Model - A Promising New Contracting Method. Finnra. UNESCAP. (2016). Procurement Under Public Private Partnership (PPP) . UNESCAP. Uyarraa, E., Edler, J., Garcia-Estevez, J., Georghiou, L., Yeow, J. (2014). Barriers to innovation through public procurement: A supplier perspective. Technovation , 34 (10), 631645.