Procurement and Construction Management and Oversight
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Procurement and Construction Management and Oversight What Board Members Need to Know Jerry Smiley, AICP 24 July 2013. Major Capital Projects Alternative Contracting Approaches. Pre-Planning and Acquisition. Finance. Design.

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Procurement and Construction Management and Oversight

What Board Members Need to Know

Jerry Smiley, AICP 24 July 2013


Major Capital Projects Alternative Contracting Approaches

Pre-Planning and Acquisition

Finance

Design

Construction

Operations

Maintenance

RTD Union Station

DART Orange Line


Major Capital ProjectsAlternative Contracting Approaches – Risk Allocation

Contractor’s Risk / Contractor’sControl

Owner’s Risk / Owner’s Control


Design-Bid-BuildProject Structure and Approach

Owner

General Contractor

Architect/

Engineer

Subcontractors and Suppliers

$

$

$

$

PD&E

PE

Final Design

Procurement

Construction

ESTIMATE

BUDGET

BUDGET

BID

Contractor Selected


Design-Bid-BuildOverview

Pros

  • Standard contracting approach

  • Transparent procurement process

  • Public acceptance

  • Fairest to bidders, level playing field

    Cons

  • Slowest method

  • Cost not established until bids received

  • Design change impacts

  • In some cases, fosters adversarial relationships and increases probability of disputes

    Owner retains greatest control,

    but assumes greatest risk


Design-BuildProject Structure and Approach

Owner

Design-Builder

Architect/Engineer

Subcontractors and Suppliers

$

$

$

PD&E

PE

Procurement

Final Design

BUDGET

ESTIMATE

BID

Construction

Contractor Selected


Design-BuildSummary

Pros

  • Project costs are determined earlier

  • Constructability and value engineering benefits accrue to Owner

  • Single point responsibility

  • Reduced claims exposure

  • Tends to be the fastest method

    Cons

  • More complex contracting approach

  • Competition may be limited

  • Requires earlier project definition

  • Reduces design input by Owner

  • Changes are more costly

    Substantial risk is shifted to the contractor,

    contractor assumes more control


Construction Manager/General ContractorProject Structure and Approach

Owner

General Contractor

Consultants

Subcontractors and Suppliers

$

$

$

PD&E

Procurement

Final Design

PE

BUDGET

BUDGET

GMP

Construction

Contractor Selected

8


CMGC Overview

Pros

  • CMGC participates in developing design, budget and schedule

  • Design assistance reduces E&O

  • Allows for fast-track (non-linear) construction

  • Reduces uncertainties (change orders)

  • Owner knows costs upfront

    Cons

  • No significant input by Owner in design

  • Complex process requiring qualified staff

  • CMGC’s role changes from CM to GC once construction starts

  • Owner does not transfer E&O risk

  • In some areas, relatively few true construction managers

    Owner retains significant control,

    owner retains significant risk

9


Public Private PartnershipsProject Structure and Approach

Owner

Concessionaire

O&M Contractors

Design-Builder

Architect/Engineer

Subcontractors and Suppliers

$

$

PD&E

Procurement

Design

Construction

and Testing

Revenue

Operations

BUDGET

BUDGET

Maintenance

Partner Selected

10


PPP Overview

Pros

  • Advance infrastructure projects years in advance

  • Value for money through optimal risk transfer and risk management

  • Accountability through performance incentives

  • Operational and project execution risk is transferred to the private sector

    Cons

  • Contracts are much more complicated

  • Difficult to anticipate all possible contingencies that could arise in long-term contract

  • Re-negotiation of contracts can be high

  • Performance enforcement

    Owner only controls what is negotiated,

    risk depends on skill of negotiators

11


What Questions Should You Be Asking?


Risk Allocation Principles

  • Risks are unavoidable

  • Risk should be allocated to maximize probability of success

  • Assessing who is best able to manage risk

    • Optimum risk shifting should be the goal – not maximum risk shifting

  • Shifting unreasonable risk to the contractor

    • Reduces competition

    • Increases contingencies

    • Increases project disputes


What Questions Should You Be Asking?

  • Why are we choosing the selected procurement model?

  • Would the project be able to move forward using another model?

  • Is this model in the agency’s best long-term financial interest?

  • Do we have the staff to properly execute this model?


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