Unit 4: Non-traditional Procurement Routes D39PZ: Procurement and Contracts 1
Selecting the right procurement route Types of procurement routes • [Traditional] • Design and build • Management contracting • Construction management • The Private Finance Initiative • Partnering D39PZ: Procurement and Contracts 2
The “design and build” route Main features: • Tender documents usually comprise a brief developed to outline scheme stage, stating: Required building function Areas / spaces required Building services performance criteria Outline specification of key elements (e.g. finishes) • A single Contractor is appointed to complete the design and construct the project • The Contractor will employ its own design consultants D39PZ: Procurement and Contracts 3
The “design and build” route Main features: • Suitability Suited to all clients, including inexperienced Suited to clients requiring cost and time certainty Not suitable for complex or high quality buildings • Design and build reduces variations Design responsibility lies with the Contractor Reduced change brings cost and time savings (compared with traditional procurement) D39PZ: Procurement and Contracts 4
The “design and build” route D39PZ: Procurement and Contracts 5
The “design and build” route D39PZ: Procurement and Contracts 6
The “design and build” route Advantages: • Client interacts with a single point of responsibility • Inherent buildability • A firm price can be agreed prior to construction • Shorter overall duration (compared to traditional) • Contractor’s design liability can be extended to include fitness for purpose D39PZ: Procurement and Contracts 7
The “design and build” route Disadvantages: • Client needs to appoint Contractor before design is complete • No design overview unless Consultants are appointed by Client • Difficult for clients to prepare an adequate brief • Contractors’ bids are difficult to compare • Design liability limited by use of standard contracts • Client changes can be expensive D39PZ: Procurement and Contracts 8
The “design and build” route Risks: • Low cost risk as most design and build contracts let on lump sum basis • Low time risk as the Contractor will use set time goals and be held to them • High design / quality risk as Contractor develops the design. Develop and construct procurement route can be used to overcome this D39PZ: Procurement and Contracts 9
The “design and build” route D39PZ: Procurement and Contracts 10
The “design and build” route • The two-stage design and build variant: Competitive Design and Build o Client prepares “client’s requirements” documents o Several Contractors tender design proposals brought to (typically) scheme design stage o Winning contractor appointed on basis of design content (including predicted cost) o The appointed Contractor then completes and constructs the design o Novation of the initial design team is required D39PZ: Procurement and Contracts 11
The “design and build” route D39PZ: Procurement and Contracts 12
Types of procurement route [Traditional] Design and build Management contracting Construction management The Private Finance Initiative Partnering D39PZ: Procurement and Contracts 13
The “management contracting” route Main features: • Management Contractor advises Client on programming, divisioin of the project into work packages and buildability and obtain tenders • Work divided into series of packages • Each package is awarded on a lump sum, fixed price basis to separate Works Contractors • Construction of each package can start as soon as the Client approves its design • Design and construction overlap considerably • Relies on clear communication and co-operation, and mutual trust between Employer and Contractors D39PZ: Procurement and Contracts 14
The “management contracting” route D39PZ: Procurement and Contracts 15
The “management contracting” route D39PZ: Procurement and Contracts 16
The “management contracting” route Advantages: • Concurrent working is inherent • Potential to reduce project duration • Opportunities to improve buildability • Breaks down traditional adversarial barriers • Late changes easily accommodated • Work packages tendered competitively D39PZ: Procurement and Contracts 17
The “management contracting” route Disadvantages: • Needs a good quality brief • Poor price certainty • Requires a good quality project team • Difficult to resist Works Contractors’ claims D39PZ: Procurement and Contracts 18
The “management contracting” route Risks: • Medium cost risk as total cost is not known until last package let • Medium time risk as total duration is determined by package selection • Low quality/design risk due to close working of client, designers and Works Contractors • Client relies on estimated costs until the last package has been tendered and let A Guaranteed Maximum Price (GMP) may be negotiated with the Management Contractor to move cost risk from the client D39PZ: Procurement and Contracts 19
Types of procurement route [Traditional] Design and build Management contracting Construction management The Private Finance Initiative Partnering D39PZ: Procurement and Contracts 20
The “construction management” route Main features: • A Construction Manager advises the client • The Employer contracts directly with the numerous Works Contractors • Shorter communication lines give quicker responses D39PZ: Procurement and Contracts 21
The “construction management” route D39PZ: Procurement and Contracts 22
The “construction management” route D39PZ: Procurement and Contracts 23
The “construction management” route Advantages: • Potential to reduce project duration • Individual packages let competitively • Opportunities to improve buildability • Breaks down traditional adversarial barriers • Concurrent working is inherent • Clarity of roles, risks and relationships for all organisations • Late changes easily accommodated D39PZ: Procurement and Contracts 24
The “construction management” route Disadvantages: • No cost certainty at outset • Needs informed client, able to take an active role in the project Clients may not appreciate their risk exposure Risks adopted by clients in return for control • Needs a good quality brief • Requires a competent project team • Needs effective control of time and information D39PZ: Procurement and Contracts 25
The “construction management” route Risks: • Medium cost risk as total cost is not known until last package let • Medium time risk as no single organisation is solely response for timed completion • Low quality/design risk due to close working of client, designers and Works Contractors • Clients have historically had problems with Construction Management as they have not appreciated the risks associated with control D39PZ: Procurement and Contracts 26
The “management” routes (MC or CM) D39PZ: Procurement and Contracts 27
Typical risk distributions D39PZ: Procurement and Contracts 28
Types of procurement route [Traditional] Design and build Management contracting Construction management The Private Finance Initiative Partnering D39PZ: Procurement and Contracts 29
The Private Finance Initiative (PFI) Key features of PFI schemes: • A public sector client procures a service from the private sector • Several private sector organisations collaborate to provide the service • New buildings or infrastructure is usually required • The quality of service is specified; the quality of capital assets is not (other than functionality) • Capital assets are financed, designed, constructed, and operated by the private sector D39PZ: Procurement and Contracts 30
The Private Finance Initiative Key features of PFI schemes: • Capital assets may be retained by the private sector at the end of the agreement • PFI schemes run for long time periods • The private sector is exposed to many risks: Financing risks Demand risks (continuity and certainty) Technological risk and so on • PFI schemes convert public sector capital expenditure into revenue expenditure D39PZ: Procurement and Contracts 31
The Private Finance Initiative Advantages of PFI procurement: • Conversion of public sector expenditure from capital to revenue • Promotes the innovation and risk management competencies of the private sector • Ensures capital assets are maintained to a known level of performance throughout the agreement • Flexibility in public sector servicing of the debt to the private sector e.g. shadow tolls on road schemes D39PZ: Procurement and Contracts 32
Typical cost and time overruns on large public sector infrastructure projects using non-PFI procurement Initial cost Final cost Delay estimate Jubilee line £2.1bn £3.5bn 2 years extension Guy’s hospital £36m £160m 3 years D39PZ: Procurement and Contracts 33
Typical PFI scheme performance gains D39PZ: Procurement and Contracts 34
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