Procurement Strategy Report for DeMere Group
Procurement in Construction and Property Gaurav Jhunjhunwala Student ID - @00373099 M Sc Project Management in Construction (2013 â€“ 2014)
INDEX 1.0 Executive Summary ..……………………………………………………………………………………… 01 2.0 Introduction ..………………………………………………………………………………………………… 02 2.1 Client Description ………………………………………………………………………………...…………...………..... 02 2.2 Project Scope …………………………………………………………………………..………………….…………….…… 03 2.3 Project Objectives ………….………………………………………………………………….……….………………….. 03 2.4 Project Success Criteria ….………………………………………………………………….……….………………….. 06
3.0 Appraisal of Procurement Systems ….…………………………….….…..…….………………. 07 3.1 Separated System ………………………………………………………………………………...…………...………..... 08 3.2 Integrated System ….………………………………………………………………..………………….…………….…… 10 3.3 Management-oriented System .…..…………………………………………………….……….………………….. 12
4.0 Selection of Procurement System ….……………..……………….….……….…………………. 15 4.1 Factors in Decision Process .………………….……...……………………….…………………………...……….... 15 4.2 Selection of Procurement System .……………………...……………………………………………...……….... 17 4.3 Partnering ……………………………….………………….……...……………………………………………...……….... 19 4.4 Proposed Contract ..………….…………………………………….………………………….……….……………….... 20 4.5 Organizations to be Commissioned ………………………...…………………………..……….……..…….….. 20
5.0 References……………………………………………………………………….….…………………………. 22
DeMere Group 2013 1.0 Executive Summary DeMere group is an international leisure organization specialising in village-type hotels. They have an experience of 25years and would like to expand their business operations in UK opening three new hotels and are looking to develop two more locations. The following report analysis DeMere Group’s objectives, needs and issues relating to the procurement of its projects. It analysis the various procurement systems used in the UK construction industry and puts forward a proposal for the company along with the risks involved in the procurement system. DeMere Group is looking for a sustainable design and would like to start their first hotel in February ’16 which has an estimated budget of 25m pounds. It would be a 5-star village-type hotel that would cater to up-market tourists. The proposed procurement system suggested is Design and Build – Novated system. It would take away all the risks involved in the project away from the client. The time and cost criteria will be taken care of. The conceptual designs as approved by the DeMere Group will be taken forward to technical details as the same design team would later work with the appointed organization/contractor. This in turn would help keep the design, quality and material of the construction monitored as it is suggested that the client partners with the design team. The design team would not only be designing all the hotels but would also act as representatives of the client. Having a same procurement strategy for all its projects is suggested as the client needs to start all the projects in a staggered form. The risks involved in the design and build system is least compared to other systems for the Group and it is the appointed organization that would need to take care of the environmental issues during construction. The sustainability in design would be taken care of by the design team who would know the DeMere Group’s requirements as it would be working with it on multiple projects. The suggested system would fulfil all the client’s objectives and would result in a successful project keeping certainty in time, cost as well as quality.
DeMere Group 2013 2.0 Introduction 2.1 Client Description DeMere Group was established 25 years ago and is a large international leisure organization. It has a specialization in development and operation of village style hotels and leisure clubs. It owns more than fifty hotels, each of 150+ bedrooms located in the Mediterranean, Asia-Pacific and the Caribbean. DeMere Group is a private experienced client that aims to maximise its share in the leisure industry by expanding its business in the UK. DeMere Group aims to expand its business by investing in 3 hotels in UK and considering proposals for two more hotels following the completion of the first three. It will obtain private finances via a merchant bank and the hotels will be operated under the Aurelia brand. DeMere Group believes that environmentally responsible developments will be more significant for increased revenues and their aspiration is to position themselves at the forefront of sustainable building design and construction for all their future developments. According to Masterman (2002) client could be categorized in broadly two types; one as a public organization and the other as a private organization. DeMere is a private group and is very experienced in the construction industry. It could be further classified as a secondary client who requires buildings to enable them to undertake their main business; the expenditure on construction represents a small proportion of their annual turnover (see figure 2.1.1).
Figure 2.1.1 â€“ Categories of Construction Industry Clients Source: Masterman, 2002
DeMere Group 2013 2.2 Project Scope DeMere Group wishes to expand their business operations and increase the number of hotels they own and operate. The market research indicates significant growth potential for new, all-inclusive village-type hotels in the UK. The Group plans to open three hotels in the immediate future and are considering proposals of to develop at two more locations. The Groups new 150 – 180 roomed hotel projects are to be 5-star rated with budgets of approximately £25m. Each of the hotels will cater to up-market tourists and will include luxury hotel rooms and private villas with plunge pools, restaurants, a village bar, conference facilities and a purpose-built spa. The new hotels will be positioned in currently remote and undeveloped locations and shall require significant infrastructure/enabling works. Since the locations are remote the projects will be affected by environmental and ecological issues. Sustainable building design will help DeMere group to embrace environmental issues and will be significant to generate increased revenue (Addis and Talbot, 2001).
2.3 Project Objective “The most important feature of any building project should be the client’s objectives in embarking on the construction of the project” (Walker, 2007). All construction projects begin with the client and he instigates the project. The client invests the money in the project and his objectives needs to be fulfilled and should be fully convinced that it is a worthwhile investment (CIOB, 2010). To see to it that the client’s objectives are fulfilled one needs to extract all the information from the client in order to select the procurement process. The Latham report (1994) suggests that every client’s projects needs to be value for money. It states that it should be fit for its purpose and one must ensure that it is delivered on time with satisfaction. A project that has high incurring cost may not be sustainable; it should be aesthetically pleasing but also be free from defects on completion. DeMere group has well defined objectives for its leisure hotels. One can define the objectives of a company as primary and secondary objectives. The primary objectives of any building can be classified according to Morledge et al., 2006 i.e. time, cost and quality (figure 2.3.1). Time, Cost and Quality are inter dependent but the clients objectives may not necessarily emphasise on all Figure 2.3.1 - Primary Objectives of the Client Source: Morledge et al., 2006 three objectives but one of them could be of utmost important. Together these three objectives form the main core of the project and without these objectives a project may not be constructed as desired.
DeMere Group 2013 Time – For DeMere Group time is a very important. They would like to open three village type hotels in UK but the first hotel must function from February ’16. All three projects will be constructed in staggered stage and not simultaneously. A delay in the first project may result in a delay in other projects too. Time schedule needs to be followed and it must be made sure that the projected is completed on time as time is the most important objective for the client. Cost – Cost is one of the main factors that affect many projects. It defines the project’s quality and also its durability. DeMere Group has an estimation of £25m for each of its projects. Due to the remote location of the projects there will be money invested in developing the infrastructure also. Cost also determines the life-cycle of the building. As the company desired a sustainable design one must ensure that the life-cycle cost of the building is low. Quality – DeMere Group is building a 150- 180 bedroom 5-star rated hotels to cater to up-market tourists. The quality of the building will be of great importance as it will be one of the first hotels of the group in the UK. Quality could be segregated into functional standards, technical standards and aesthetic standards as mentioned by Walker (2007). For a 5-star hotel the aesthetics and the functional standards may be much higher than technical standards. There are a few more objectives stated by the client which must be taken into consideration in order to suggest the procurement strategy for the company. These could be defined as secondary objectives which need to be fulfilled in order to satisfy the client. Sustainability – DeMere Group believes that environmentally responsible developments will be more significant for increased revenues and their aspiration is to position themselves at the forefront of sustainable building design and construction for all their future developments. As the plots are located in remote locations there are economic and environmental restrictions which need to be taken care of; reducing the environmental impact of the building to the site and the environ will prove to be beneficial as there would be no objections from the concerned authorities (Levy, 2007). Design – DeMere Group is interested in constructing all-inclusive village type hotels and will include 150-180 luxury hotel rooms along with private villas with plunge pools, restaurants, a village bar, conference facilities and a purpose-built spa. The client needs the hotels to personify the very best in modern design keeping sustainability in mind. DeMere group is also interested in exploring the possibility of prefabrication of bedrooms and/or bathrooms in substantial amounts. A project can only be successful when the objectives of the client are fulfilled. It should be made certain that all the aspects are taken into consideration during the design stage itself to avoid dispute and have a successful completion of project within the time frame. Table no. 1 shows a study conducted by Masterman (1994); it gives a statistical analysis of the client objectives with respect to the client type. As our client comes under the category of Private experienced secondary client the mean and the rank of each objective shall help in understanding the client’s needs objectives and his expectations of the project. There are additional objectives apart from those mentioned in the table but it does help in analyzing the company objectives on the basis of the type of client.
DeMere Group 2013 Table 1 – Mean Rating, by all categories of client, of objectives/needs
From the above table it could be seen that the most important objectives for the similar kind of client has been the selection of the lowest possible tender, the certainty of completion date, minimum design and construction period. The certainty of completion of date is the most important objective for the DeMere group as the annual income of the company will be generated only after the completion of construction of the project. Following a design policy of “less is more” may minimize the construction period and increase the certainty of completion of project within the mentioned time period i.e. February ‘16.
DeMere Group 2013 2.4 Project Success Criteria Project Success Criteria can be achieved by fulfilling the client’s objectives and adopting an appropriate procurement strategy. To achieve a positive outcome there are some major factors which need to be taken into consideration and they contribute to the overall success of the project. “Galbraith suggests that all clients will be influenced more by experience when choosing their procurement strategy than by project-specific factors” (Masterman, 2002 p.13). However DeMere Group is new in the UK industry and selecting the appropriate procurement strategy will be most critical for the success of the project. Apart from the procurement strategy there are a few more factors which would contribute to the success of a project as stated by Skitmore (1998). Delivering the project on time; within the estimated budget and achieving the desired aesthetics and quality would be one of the major aspects for the group; achieving these would lead to a successful project. The lack of co-ordination and effective communication sometimes results in failure of the project. As a result a committed team is required for the project. Active participation of all organizations responsible for the project would lead to successful completion of the project and would determine the project success criteria.
DeMere Group 2013 3.0 Appraisal of Procurement Systems Procurement process could be defined as “a strategy to satisfy client’s development and/or operational needs with respect to provision of constructed facilities for a discrete life cycle” (Masterman, 2002 p.26). UK strategies of procurement have not changed significantly over the last 25 years. Over the last few decades the procurement strategy has been changing and there is a shift from the traditional method to design and build. The number of projects carried out by traditional procurement is still the maximum but design and build procurement system has been on the rise (see Table 1, 2 and figure 3.0.1). TABLE No. 1 – Pattern of Use of Procurement System
TABLE No. 2 – Trends in the method of Procurement
It is clearly indicated by the statistics provided by the RICS that projects in the UK are procured by mainly three methods. It is appropriate to judge the procurement systems for the DeMere group on the basis of these three systems as they are widely used in the UK. An analysis of each system would help in narrowing to the final decision of the procurement system that should be considered by the DeMere Group for their village-type hotels.
Figure 3.0.1 – Changes in Level of Use of Procurement System Source: Masterman, 2002
DeMere Group 2013 The three types of procurement methods which could be considered for the DeMere Group are â€“ Seperated Procurement System; Integrated Procurement System and Management Oriented Procurement System. These systems are segregated as shown in figure 3.0.2. It is necesarry to analize each system as to how it would be affecting the company before making the final proposal of procurement for the DeMere Group.
Figure 3.0.2 â€“ Procurement Systems Source: Masterman, 2002
3.1 Separated System This category contains the Conventional or the Traditional system. As the name suggests it has been one of the earliest procurement systems and many projects are still procured by same means. In this system the design team and the construction team are separate. It is also known as the design-bid-build process as described by the stages. The design team prepares the concept and detailed drawings of the proposal. A bill of quantities is then prepared for the contractors to tender and most commonly the cheapest bid wins the contract and builds the structure as proposed. In this kind of strategy the design should be completed before the competitive bidding as no alterations can be made. As the complete drawings are ready before the construction phase prefabrication can be an option. In such a system the cost is relatively certain in advance. Figure 3.1.1 shows the sequence in which the work is carried out and the two separate stages i.e. the design and construction stage. Tendering happens in between the two stages on the basis of the Bill of Quantities. Through this process one knows the initial estimate of the project. It is a very competitive method as all contractors are bidding on the same basis. This is helpful if the project is cost certain.
DeMere Group 2013
Figure 3.1.1 â€“ Stages of Traditional Procurement Systems
In the traditional procurement system DeMere Group would be involved with multiple organizations as the Design Team and the construction team will be segregated as shown in figure 3.1.2. In this figure the company has a contract with the design team as well as with the contractor. The main contractor is responsible for the construction and also for the sub contractors he appoints. As the design stage is completed before the construction the company will have an advantage to maximise the speed of construction carried Information Contract out. This procurement system is Figure 3.1.1 â€“ Traditional Procurement System best suited for innovative/prestige design where the main emphasis is the design and cost certainty (Dickinson, 2009). This system will help DeMere Group in improving the design quality and functionality as the client is free to make decisions on the design. Alterations can be made in the initial design process i.e. before the tendering stage. This is a cost certain system as the estimation is based on detailed drawings. However it would not be advised for time certain projects as there are chances of delay in the tendering stages. The design process does not involve the contractor in the design process so there may be conflicts between the contractor and the design team during the construction phase which may lead to delay in the project. If the Group decides to make changes once the construction has started it may land in legal issues and may end up paying more.
DeMere Group 2013 3.2 Integrated System The integrated system contain the design and build system along with its variants. In Design and Build procurement system it is one single organization is responsible for the design as well as the construction of the project. Design and Build (novated); develop and construct; the package deal and turnkey are the main variants of this system. “Design and build is the oldest proven procurement system still in the use in the UK” (Masterman, 2002 p.67). In this system after the initial brief is prepared the contractors bid for the project along with its design. The client then shortlists the contractor with the help of his consultants if any and then a contract is signed with the organization which makes them responsible for the design as well as the construction of the project. In this system it will be difficult for the DeMere group to make changes as the client is required to commit at the conceptual stage i.e. even before the detailed design is completed. Information Contract If DeMere group plans to Figure 3.2.1 – Design and Build Procurement System change the project scope then it may be expensive for the company. However before the project is started the client can be assured of cost certainty and because there is an overlapping of activities early completion of project may be possible as it reduces the total time of the project. Figure 3.2.2 shows the process that the Design and Build procurement system goes through. The Conceptual stage could be the most important stage as on the basis of that the contract is awarded to the winning organization/contractor.
Figure 3.2.2 – Stages of Design and Build
DeMere Group 2013 Novated Design and Build – In this system the client has a set of designers who prepare a conceptual plan for the client and then the process of tendering takes place. The awarded contractor or organization then needs to work with the design team that made the conceptual plans into detailed drawings for him to execute the construction. In this system the design team remains the same i.e. the design team selected by the client is the same team that would be working with the contractor. Develop and Construct – In this system the client appoints the design team to prepare a concept and then the tender is released. The organizations bid on the conceptual drawings and later develop the concept to detailed design with their own design team once the project is awarded to them.
Figure 3.2.3 – Design and Build – Develop and Construct
Package Deal – It is a system in which the client procures the whole project to the organization. In this system the contractor/organization is responsible to produce a scheme for the client along with the brief. It is a total package from the client to the contractor. In such a system the proposed scheme never satisfies a client as the needs are always different.
DeMere Group 2013
Figure 3.2.4 – Design and Build – Package Deal
Figure 3.2.5 – Design and Build – Turnkey
Turnkey – This system could be described as a key inserted in a lock to open it. In this system one organization is responsible for the design as well as the construction. The organization may be responsible to procure the land as well. In this system the organization may need to put their money for the project. In this system everything is ready to function just the lock needs to open. In the Design and Build system the main benefit is that there is certainty in cost certainty. The design and build system being integrated enables design and construction to overlap and work can be carried out simultaneously. The client dealing with just one organization easily communicates his decisions and hence there is reduction in time and the project may finish before the expected time.
3.3 Management-oriented System Management In the last few decades the UK industry has seen a substantial growth in management-oriented procurement system. This system has gained as a demand for increase in projects to be completed within a stipulated amount of time and also because of the contractors gaining experience and effective management techniques. In this method the construction can begin even before the design has been finalised or detailed. The tenders are released in packages based on detailed drawings and specifications without any mentioned quantities. In this system the cost is uncertain but the project quality and time is certain.
Figure 3.3.1 – Stages/Time Line of procedures for Management-oriented System
DeMere Group 2013 Management-oriented system has three variants – Management contracting; construction management and design and manage. Management Contracting – In this system the management contractor is appointed on the professional basis. He manages the construction phase of the project. He has contractual agreements with the client as well as the works contractors. He is reimbursed on a lump sum or percentage basis as decided in the contract. The duties of a management contractor are to set out the entire construction phase of the project; organising, supervising and managing the construction phase.
Figure 3.3.1 – Management Contracting
The DeMere group will save a lot of time by this system as the overall project is done in overlapping stage of design and construction. Changes in design can also be accommodated and the tender packages will not be affected as they are in stages. This form of system insures time certainty but there is no certainty in cost. The appointment of management contractor will be critical as the whole construction phase would be organized by him/her. It would be his commitment that would be important for the success criteria of the project. Construction Management – In this method the client appoints a specialist who would manage the construction phase of the project. The client has a contract with all the contractors as well as the manager. The contract manager is paid a percentage or lump sum amount for his services. The construction is carried out by the works contactors and the organizing part is handled by the construction manager who is the representative of the client. The difference in this system and management system is that in construction management the works contractor has a direct contract with the client where as in management contracting the works contractor will have a contractor with the management contractor. Hence a management contractor is more responsible towards his work as he has a contract with the client as well as his works contractor but a construction manager is responsible towards his duties and holds no responsibility for the works contractors. This type of system may not be appropriate for the DeMere group as the selection of team as well as the contract manager would be the most important aspect of the project. The failure of appointing a capable construction manager may lead to a disaster as the time certainty which the project has would go for a toss.
DeMere Group 2013
Figure 3.3.2 – Management-oriented System – Construction Management
Design and Manage – In this system a single organization is appointed to both design as well as manage the construction of the project. It is lead by either a consultant or a contractor. In this system also the works are carried out by works contractors who are employed by the main contractor and if it is a consultant then the works contractors would be appointed by the client. In this system the organization is directly responsible to the client. “Systems contained within the management-oriented category are likely to be most appropriate on large, complex, fast-moving projects where the client has sufficient internal resources to enable him/her to become involved in the management of the project” (Masterman, 2002 p.129).
Figure 3.3.3 – Management-oriented System – Design and Build
DeMere Group 2013 4.0 Selection of Procurement System Selection of procurement can be done in two stages – firstly is selecting both the contractors and consultants of the project and secondly to examine the various stages of short listing, selection and appointment of the various organizations. The main issue of dealing with a procurement system is finding a company with the skills that would be able to do the job rather than winning it. Such skills are developed only on the basis of ability and experience and hence pre-selection plays an important part and helps in finding the right companies.
4.1 Factors in Decision Process There are various factors which need to be considered (seen in figure 4.1.1) before proposing an appropriate procurement path for a project. Their importance differs on the type of client and also the project type depending on the relevant market conditions (University of Salford, 2013a).
Figure 4.1.1 – Factors in Decision Process
Project Size – Small projects do not require elaborate forms of procurement. They generally rely on traditional and established forms. However in large projects one needs to think of the various processes involved and hence it is appropriate to find a suitable procurement system for the client. DeMere group is planning to construct three hotels and also discussing to develop two more hotels making it a total of 5 projects in the UK. The procurement strategy proposed for the first will lay the stone for the rest and it would be essential to consider all aspects before proposing a procurement system. Cost – It is the most important factor for any construction project. However DeMere group is not that cost focussed as it is a secondary client and the construction is just an initial investment for the client. The estimated cost for each of DeMere project is 25m pounds. Design and Build projects do have a few cost savings in terms of professional fees. Time – Time is the most important criteria for all the employers. Majority of the employers want the project to be completed on time. DeMere Group wishes to open their first hotel in February, 2016 and hence it is necessary and the most important factor which needs to be considered while selecting a procurement system. The hotels build will need to be constructed early as the revenue generated by the hotels will govern the company’s turnover. Research shows that work should not
DeMere Group 2013 start on site till the design has been fully completed as it reduces the amount of variations on site and eliminates large amount of construction uncertainty. This approach allows the contractor to plan and manage the project better however the clients do wish to see work beginning on site as soon as possible. Accountability – It does not refer to things being done the right way but having to explain why a particular choice was made with respect to others (University of Salford, 2013). Employers need assurance that the best possible procurement method is selected in order to fulfil their objectives. For DeMere Group the selection of procurement system along with the contracts and the organizations to be dealt with is more important as it would set a platform for their very first project in UK. Design – It could be argued that best designs are not the most economical designs however a design and build contractor is more likely to attain a solution as it takes into consideration the factor of build-ability, he would produce a design which is more sound in terms of construction. DeMere group wishes to have a sustainable design as it forecasts that it would significantly increase its revenues hence requires a village themed hotel which has low maintenance and is functional for an operation of a 5-star hotel. Quality Assurance – Quality of building depends on the range of inputs in terms of specifications provided by the client. Good design, working details and adequate supervision results in an overall good quality of the building. The skill of the craftsmen working on the project is also important and hence the cheapest bid may not assure the best of quality. The hotels proposed by DeMere Group are for up-market tourists and is to be 5-star rated. Having a good quality is essential in terms of building design and quality assurance. Organization – It is important to know the various organizations being involved in the various procurement methods. In design and build the design team is completely removed and it is only one single organization the client needs to communicate to. It reduces the blame game and the internal disputes which arise when different organizations work on the same project. In traditional system the lines are drawn between the designer and the contractor however in practice they do indulge in large amount of disputes. More the number of organizations involved more the number of disputes and more number of contracts. Complexity – Projects being complex in design require precise details and having a traditional procurement system suits innovative design as the construction techniques and standard of work is well described in the contractual frameworks. However the designs of the hotel need to be more sustainable as complexity may not sustainable. Risk – Risk is involved in all design projects; some from contractors end and some from the employers. The employer’s intention is to transfer as much as risk possible to the contractor. Risks could be anything ranging from unsatisfactory design to the quality of construction. Risks can be reduced but it is difficult to eliminate it. Build and Design procurement system transfers all the risks to the contractor and the client feels safe but in this case the project objective needs to be well defined.
DeMere Group 2013 Market – The selection of procurement method is influenced by the country’s economy and industry workloads. The main factors responsible that influence the market conditions are the availability of work; availability of contractors and the economy that affects the procurement advice. Since DeMere group is new in the UK market it is necessary to make the right decisions as it would affect the company’s strategy for growth within the UK.
4.2 Selection of Procurement System A project process has three distinct process– design, construction and use. To make a project successful the procurement system selected plays a vital part. It is necessary to analyze the client’s objectives and needs in order to select a procurement method. The client finances the project and it is he who provides his perspective on the basis of which procurement method is selected (Rowlinson and McDermott, 1999). It is necessary to analyze the risks taken by the client while proposing a particular procurement system. The form of contract and the teams being involved in the project are also some factors which the client needs to know. Using a matrix proposed by Bennett and Grice can help in selection of the procurement system on the basis of client’s priority (see figure 4.2.1).
Figure 4.2.1 – Procurement path decision chart proposed by Bennett and Grice
DeMere Group 2013 In figure 4.2.1 it can be seen that the most essential factors are graded higher than compared to the ones which are least essential. On completely filling the table the results show that the design and build system is the most suitable as per the clients requirement. Figure 4.2.2 shows the proposed Design and Build system novated for the DeMere group. In this case the client along with the design team make a conceptual design and prepare a brief and then it is left out to tender. The appointed organization/contractor then works with the same design team that was earlier working with the client. In this system the concept gets carried forward and the same design gets developed into detail design. Since the design team knows the requirements of the clients they do become a representative of the client and know what the client expects. Time, Cost and Quality - In this system the design and construction overlaps as a result it saves time. DeMere Group wishes to open its first hotel in Feb. 2016. Design and Build gives 100% time certainty and also certainty in terms of cost (if the client does not change the brief given) as the estimated budget by the DeMere group is 25m Pounds. The quality and materials may suffer but having a novated system does keep a check on quality and approval of materials needs to be taken from the design team which were appointed by the client. The selection and appointment of the contractor is the most important aspect of this system and it needs to be done with great precaution.
Figure 4.2.2 â€“ Design and Build Procurement System - Novated
DeMere Group 2013 The client wished to explore an option of prefabrication. It would be difficult to prefabricate the entire hotel as in the design and build system the work and design are simultaneously carried out. However doors, windows, fixtures and also the private villas could be prefabricated. As the design of the villas could be same in all its hotels prefabrication could be taken into consideration by the design team as well as the contractors. The client’s main objective is to have a sustainable design to increase the annual turnover. While preparing the brief special mention needs to be made in terms of sustainability. Consultants may be hired to suggest techniques. Sustainable design is important and the design team does need to take it into consideration during the conceptual stages of the design proposal. Risk Transfer – In the design and build system the client completely transfers all the risks to the contractor. He is responsible for the overall project and is single handily responsible for all the work that needs to be carried out on site as well as in terms of design. In this system the client carries the minimum risk compared to all the other possible systems as seen in figure 4.2.3.
Figure 4.2.3 – Indicative Risk Allocation
Having a design and build procurement system may not be much of a risk for the client as most of the projects in the UK by value are being done by the same method as mentioned in Langdon, 2010 report. Only the initial brief needs to be taken care of where the client’s objectives and needs are to be stated clearly.
4.3 Partnering DeMere group is planning to make three village type hotels in the UK and is looking to develop two more locations in the future. Since the proposed procurement system is Design and Build – novated the client can consider an option of partnering with the design team. It would prove to be beneficial for the client as the same team will be designing all its hotels and would be working with different construction agencies. They could also be functioning as the representatives of the client as the design team would know what the client exactly wants after working with them in the previous projects. Partnering with the design team would help the projects run efficiently and also maintain the quality and aesthetics across all of DeMere Group hotels. The hotels would cater to up-market tourists and compromising in terms of aesthetics may not be wished for. The same team designing the different hotels would lead to finishing the designs quickly as the clients requirement remains the same.
DeMere Group 2013 The client may also take into consideration of partnering with the contracting agency on a project basis in which the client and contractor relation is set up only for one project. The techniques and skills developed in that project may be implemented by the design team in the next project. Partnering with the contactor on all projects may be risky as the major challenge in partnering is trust between two parties (Hellard, 1995). If the client and contractor have a conflict then all the projects may come to a stand-still. Having different contractors for different projects may be a safe bet as the responsibility is divided. The main advantage of partnering is that the quality of the project is improved with the reduction in project cost. However conflicts between parties may affect all the projects as DeMere group plans to start the three hotels in staggered stages and not simultaneously. Hence having a long term partnering relationship with the design team and project basis partnering with the contracting agency may prove beneficial for the client as all its projects would be clear of client objectives and the design team itself would be the acting representative of the client.
4.4 Form of Contract Contract in the Design and Build – novated system is mainly between the contractor and the client. The designers and/or consultants hired for the project are not a part of the building contract however they are suppose to be paid their professional fees (University of Salford, 2013a Learning Package 5). The selection of design and build contractor should be based upon the brief of the client’s requirement. The brief should be carefully worked out by independent professional advisors as the contractors do bid on the basis of the brief provided. All contract documents for any construction project should have information on the work to be performed by the organization. It draws information on what are the tasks to be carried out by the appointed contractor. To avoid future quarrels it is better to have written conditions within the contract to avoid legal interventions. The contract must also mention the cost of work and the programme. It also mentions the time taken for the project i.e. the overall handover period for a project. Selection of the right contract also affects the strategy of the project. The selected contract should keep the client as well as the contractor happy. The proposed form of contract to be used by the client with the design and build contractor/organization should be the JCT Design and Build Contract 2011. “Care however should be taken to ensure that the client’s professional advisors have suitable powers to monitor the work and to ensure performance of the contract” (the Aqua Group, 1990). The JCT form of contract is the most commonly used contract in the UK as indicated in the research by Langdon, 2010. Most of the contractors will be aware of it and hence there would be less chances of argument as the contractors would know their scope of work.
4.5 Organizations to be commissioned For DeMere Group, the proposed procurement system is design and build novated in which the design team which is initially appointed by the client collaborates and works with the contractor after its selection and appointment. Hence the company will have to commission the design team till the selection of the contractor. The design team would consider of a design organization, an
DeMere Group 2013 engineering company as well as a quantity surveyor team. The client may hire consultants for the project and a legal team to avoid future conflicts. The organizations that need to be appointed are – Design Organization (eg. Architect) – The designer and master planner of the project. The architect is responsible for translating the vision of the client through various tools and techniques and takes the project to its final completion stage. They may hire consultants in fields of landscape and sustainability to overcome client expectations. Engineering Agency – Any construction project involves a number of engineering agencies. It requires a structural engineer for the structural understanding of the build as well as mechanical and electrical engineer to make the building functional. Without appointing an engineering agency it would be difficult to get the building in place. Quantity Surveyor – It is necessary to have QS on site to calculate the requirement of materials and resources to be used in the entire project. It is the QS who determine the initial cost of the project and alterations are made depending on the expenditure suggested by the QS. Design and Build Contractor/Organization – The proposed procurement system requires the client to appoint a contractor/organization who would be responsible for the entire project. It is only this organization that the client would have a contract with. In the novated system the organization/design and build contractor has a contractor with the design team. He is responsible for the design as well as the construction of the project. The organization may hire various organizations in order to support the construction on site but only the appointed design and build contractor would be answerable to the client. Consultants – A client may hire a project manager or consultant who represent them till the appointment of the design and build contractor. It may be necessary to hire one for DeMere Group as the proposed procurement system is design and build in which the client’s brief is off utter most importance. Legal Advisory Team – Since the DeMere Group is new in UK it would need a legal team to advice the client on the contracts as well as any conflicts. Having appointed a legal team would help the organization deal in legal matters if there are any conflicts.
DeMere Group 2013 5.0 References -
Addis, B., Talbot, R. (2001) Sustainable Construction Procurement: A Guide to Delivering Environmentally responsible projects CIRIA, Westminster, London (UK) - CIOB (2010) A report exploring Procurement in the Construction Industry The Chartered Institute of Building (CIOB) Berkshire (UK) -
Dickinson, M., Oyegoke, A. (2009) ‘Construction Project Procurement Routes: An in-depth critique’ International Journal of Managing Projects in Business Volume 2 Issue 3 - Hellard, B. (1995) Project Partnering: Principle and Practice Gray Publishing, Tunbridge Wells, Kent - HM Government (2013) Construction_2025 Industrial Strategy: Government and Industry in Partnership HM Government (UK) - Langdon, D. (2010) Contracts in Use: A Survey of Building Contracts in Use during 2010 Royal Institute of Chartered Surveyors (RICS) (UK) -
Latham, M. (1994) Constructing the Team: Joint Review of Procurement and Contractual Agreements in the United Kingdom Construction Industry HMSO, London (UK) - Levy, S. (2007) Project Management in Construction (5th Edition) McGraw-Hill International, London (UK) - Masterman, J. (2002) Introduction to Building Procurement (2nd Edition) Prepress Projects Ltd., Perth, Scotland - Morledge, R., Smith, A., Kashiwagi, D. (2006) Building Procurement Blackwell Scientific Publications Ltd., Oxford (UK) -
Rowlinson, S. and McDermott, P. (1999) Procurement Systems: A Guide to Best Practice in Construction E & FN Spon, London (UK) -
Skitmore, M., Marsden, E. (1998) ‘Which Procurement System? Towards a Universal Procurement Selection Technique’ Construction Management and Economics Volume 6 Issue 1 - The Aqua Group (1990) Tenders and Contracts for Building (2nd Edition) Blackwell Scientific Publications Ltd., Oxford (UK)
DeMere Group 2013 - University of Salford (2013a) Learning Package 1A Procurement Practices, Blackboard - University of Salford (2013) Learning Package 5 Forms of Contract, Blackboard - Walker, A. (2007) Project Management in Construction (5th Edition) Blackwell Scientific Publications Ltd., Oxford (UK)
Assignment done as a part the course of MSc in Project Management in Construction from the University of Salford.
Published on Oct 22, 2014
Assignment done as a part the course of MSc in Project Management in Construction from the University of Salford.