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Construction Planning & Management Construction Project Procurement process and Construction Project Delivery Methods Dr. Attaullah Shah. Definition It is the process required to supply equipment , material , service and other resources needed to carry out a project that satisfy customer.
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Construction Project Procurement process and
Construction Project Delivery Methods
Dr. Attaullah Shah
Procurement means the activities related to purchase, subcontracted items
Plan Purchases and Acquisitions. Determining what to purchase or acquire and determining when and how.
Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding
Assume you can lease an item you need for a project for $150/day. To purchase the item, the investment cost is $1,000, and the daily cost would be another $50/day.
How long will it take for the lease cost to be the same as the purchase cost?
If you need the item for 12 days, should you lease it or purchase it?Make-or Buy Example
$150d = $1,000 + $50d
$100d = $1,000
d = 10 days
In a risk-free, predictable world, -- this is simple task
But, world is full of
When compared with other industry professionals, Designers and constructors have less opportunity to transfer lessons learned from project to project.
All of these factors combine to create uniqueness, which carries with it heightened risk.
A building not delivered on time usually costs more than planned, and late delivery can have cascading effects throughout an owner`s organization.
Example: need a facility for chip manufacturer.Introduction-3
Late delivery of facility,
Miss the market,
A competitor enter to market.
How avoid these pitfalls? Set up a team of people;
whose skill match the type of project
Who have a proven record of delivering such projects.
Before team set up, owner decide how members will interact, with owner organization, and each other.
This approach is called project delivery method.Introduction-4
Lessons from History;Owner choose a delivery method after studying history. Why projects failed?
Separated functions .. Communication of designer and constructor. In a design change contractor may wait,.
Scope creep .. Scope may be product quantity and character of work, If scope of work increases, the cost also increase. Factors of scope growth. Complexity, politic, critical user left out, miscommunication between users.
Project acceleration .. Buyer prefer quick delivery
Poor working relationships .. Less time, personal wok style, contract formsManaging project risks-1
Two primary professionals` (designer and constructor) communication is key to project success.
Projects tend to be;
Actions of one can have a major impact on the concerns of the other.
Example: A design change after construction has started can adversely affect construction sequencing. So increasing cost due to lost efficiency.Separated Functions
the quantity of the work, and
the character of work.
Example: 1000 square meter rock excavation defines excavating subcontractor.
Scope of work is primary determinant of costs on a project. If scope increases costs also increase.
Factors on scope increase:
Involving complex and highly political organisations,
Leaving out of a critical user
Unique character of construction.. there is not enough time to work out all the relationships necessary to perform difficult interconnected work.
Personal work styles
Contract forms can work against teamwork
Communication among project participants formally
We can mitigate these pitfalls through organization of team, contract choice, partnering sessions, and delivery methods.Poor working relationships
Selecting a delivery method and a contract type involves sequential decision making.
Project specific risks
Owner organization riskAssessing Project risks
Financial .. Project may cost more
Time .. Project may not complete within planned time
Design .. Project may not perform the function
Quality .. Project may have poor quality materials or workmanshipGeneral risks (1)
A project team will address these risks during project development. Risks are approached differently in preconstruction and construction phase.
Preconstruction: it is known as design phase (working out functional, aesthetic, material requirements of the job)
In this phase project team balance DESIGN/COST equation.
Risks occurs when realistic assessments of costs are not part of design process.
Construction: emphasis shifts from DESIGN/COST tradeoffs to executing a project within the constraints defined by contract documents, schedule, and budget.
Risks involve time and external unknowns. Some are community disapproval, labor actions, weather, site, etc.General risks (2)
In addition to general industry risks, there are specific risks that all owners and designers must take into account during their work.
Site risks .. Neighbours, regulatory environment, geological characteristics, underground conditions, economic region.
Project itself .. Uniqueness, complexity, new technology.Project-specific risks
In addition to technical concerns, there are organizational and financial risks.
Knowledge of building process,
Tightening the scheduleOwner organization
Once general and specific project risks assessed, owner must build a good project team to minimize the risks.
The term delivery method refers to the owner`s approach to organizing the project team.
Design/Bid/Build (D/B/B) TraditionalMethod
Construction management method
Combination of these strategies may be employed as well.Delivery methods
Design/Bid/Build (D/B/B) is often considered the traditional project delivery method.
When this delivery method is selected?
three-party arrangement: owner, designer, and contractor.Traditional method
The owner signs one contract with the designer for design services and signs an other contract with the contractor for construction services. Both the designer and contractor work for the owner.
The contractor does not work for the designer; however the owner usually designates the designer as their representative during construction.
The designer is usually paid based on a prearranged fee or on a percentage of the construction contract.Traditional method
The contractor is paid based on a lump-sum amount.
Designer is paid based on pre-arranged fee, or
on a percentage of construction contract.
In D/B/B -- the responsibility, risk, and involvement of all parties are well defined.
The owner has relatively high level of involvement and control during design, but low involvement during construction.
Biggest disadvantage--: the extended time that may be required for completion the design and bidding the project before starting actual construction. Changes after award can be costly to owner.Traditional method
D/B project delivery method is often chosen to compress the time to complete the project. The completion time usually is reduced because construction can start before all the design is completed.
The owner has considerable control and level of involvement throughout the project. This provides flexibility to the owner for revision of the design during construction.
when the schedule is preliminary,
the cost is secondary, and
the scope is not well defined.
Two-party arrangement: owner and D/B company.Design/build method
A contract is signed between the owner and D/B firm to perform both design and construction services. All design, including construction drawings, are done y the D/B contractor. All construction is done by the D/B contractor, although the D/B contractor may hire one or many subcontractor.Design/build method
This arrangement can reduce the conflicts between the designer and contractor that often occur in the D/B/B delivery method.
How D/B firm is selected?
Owner solicits proposals from a pre-qualified, safety record, schedule, cost performance on past jobs, and other factors from each prospective D/B firm. Thus, selection is based on qualification rather than price.Design/build method
The cost of the D/B services is usually based on some type of cost-reimbursable arrangement,
either cost plus a fixed amount
or cost plus a percentage.
By price: For project that have a reasonably defined scope, the D/B firm is sometimes selected based on price.
For incentives--: The contract may be based on a guarantied maximum amount.
Handling inspection is an issue that must be addressed early in the project, because the designer is also the builder.Design/build method
If qualified individuals are available in the owner’s organization, the owner may perform inspection. In some situations, an independent third party is used for inspection services.Design/build method
There are many variations of the construction management method of project delivery.
1. Agency CM (pure CM): CM is a firm outside the owner’s organization that acts as the agent for the owner. The agency CM firm performs no design or construction but assists the owner in selecting one or more design firms and one or more construction contractors to built the project. The agency CM firm assumes no risks because are contracts are signed between the owner and the designers and/or contractors. Generally agency CM work for a fee.Construction management method
Corporate CM: is similar to agency CM, except the CM services are provided by the personnel inside the owner's organization.
Design and construction is performed by third party organisations. CM manages and coordinates the overall effort.Construction management method
3 CM @ Risk: The CM will actually perform some of the project work, thereby exposing themselves to risks associated with quality, cost, and schedule.
Regardless of the variation of CM methods that is used for project delivery, CM is a single-source management of the project that allows the owner to control his or her level of involvement. To be successful the CM must be involved at the beginning of the project.
The CM must carefully monitor multiple construction contracts to ensure there are no gaps or overlaps in work.
Tracking the cost of multiple construction contracts also requires careful attention.Construction management method
Bridging is a hybrid method of project delivery for building type projects. The contracts document are prepared by the owner’s designer. These documents define;
Performance specifications are used to specify the construction technology.
The details of construction are developed by the construction contractor.
Final design, consisting of the construction drawings, is done by an engineering/construction constructor.
Constructor performs final design and provides construction services using subcontractors.BRIDGING PROJECT DELIVERY METHOD
Fast-track is the term commonly used for project that must be completed in the earliest possible time.
Construction work overlaps design. As soon as a portion of the design is completed, then construction work is started.
Fast-track project can be performed under the D/B and CM methods of project delivery. Fast-truck applies to project that are schedule driven -- if the owner requests.
For example: the owner may want to complete a process plant at the earliest possible date
Why? --- in order to produce and market a product before a competitor. Or a business may want to complete a building by a specific date
Why? -- to accommodate a special event.Fast-Track Projects
Turn-key is the term commonly used for projects that are designed, built, and put into operation before the project is turned over to the owner.
The company providing the turn-key services may
Turn key project typically are manufacturing or process plant type facilities in remote locations.Turn-key Projects
The following issues can have a significant impact on the success of any project and should be considered in selecting the project delivery method.
1. Number of contracts
one contract--------------many contracts
2. Selection criteria
3. Relationship of owner to contractor
4. Terms of payment
Lump-sum----------------cost-plusKEY DECISIONS FOR PROJECT DELIVERY
One contract ||| Many Contracts
The number of contracts can vary from one to many, depending on the chosen method of project delivery. For D/B/B projects, the owner awards contracts to two parties:
For D/B projects, owner awards a contract to one party: D/B firm, who may in turn subcontractor to many contractors.KEY DECISIONS FOR PROJECT DELIVERY
Price ||| Qualification
Contractor may be selected on the basis of price or qualification.
Qualification are used for unusual products, proprietary work, or services that require special expertise, knowledge, and judgement.KEY DECISIONS FOR PROJECT DELIVERY
Agent ||| Vendor
A contractor may be viewed as an agent or vendor.
can vary from fixed price to cost reimbursable.
Lump-Sum ||| Cost-Plus
Fixed price...is used when detail of work are well understood.
Cost reimbursable... is used when the scope of work is unknown or not clearly defined.
There are ranges of terms of payment from fixed to cost reimb.
The above payment terms can be combined into one contract, for example, fixed-price, lump-sum with a unit price for ordinary soil excavation and cost-plus fee for rock excavation.
The amount of payment should be commensurate with the amount of risk assumed by each party.KEY DECISIONS FOR PROJECT DELIVERY
Also called Lump sum contracts. In this type of contract, the contractor agrees to perform the work described in the contract documents for a fixed sum of money.
It is used with traditional method
Advantage:Owner knows cost before construction.
Risk: for owner, contract is only as good as accuracy of contract documents.
If scope changes, or error exist in documentation, contract need renegotiated. Process need time.Single fixed pricecontract
Lump-sum--: intent is to fix project cost by providing complete set of plans and specifications.
However, contractor is entitled to extra compensation for any change -- major source of cost overrun.
Error free complete design is necessary
adequate review of contract documentSingle fixed pricecontract
In this type of contract, owner and the contractor agrees to perform the prescribed work at a fixed cost per unit of work accomplished.
Owner provides estimated quantities,
Asks contractors to bid using unit prices,
Calculates final price. Contractor overhead, profit and other project expenses must be included within the unit prices.
Owner may not quantify the work necessary.
Provides competitive bid situation.
Eliminates the risk of renegotiation.
Work can begin before design completed.
Know knows cost before construction.
Risks: mistaken quantities.
Requires owner on site during quantity measurement.
Not knowing actual price until work nears completion.Unit price contracts
In cost plus fixed fee,owner agrees to pay the cost of construction plus a fixed fee, which is dependent upon the actual cost of construction.
Cost plus fixed fee with guaranteed maximum cost –the owner to pay the contractor for all costs plus a fixed fee with a guaranteed from the contractor that total cost including the contractor’s fee will not exceed a certain amount.
This contract requires a reputable contractor or construction manager whom owner can trust implicitly.
Risk: project starts with considerable unknowns.
Can be used with CM or D/B delivery methods.Cost Reimbursablecontracts
This method gives flexibility to owner organization, but owner must have extensive experience with handling projects.
When we can use? When desirable to start construction before design is complete.
Change in owner requirement, scope of project increases or degreases.
Unforeseen conditions, when contract was agreed to, the work must be performed differently.
Omissions in documents or design features that can not be built as specified, the design must be adjusted.
Contract changes are reality. Generally, fixed prices contracts require the greatest number of changes, cost reimbursable is the least.Contract changes
Because no two projects are exactly alike, owner choose a delivery method and contract type. Once the project is matched with a delivery method, the owner can choose a contract type and a delivery method.
The goal is to minimize risk while minimizing the costs to organization.
Owner must weigh the risks against the price and come up with a type that best protects his organization.Conclusion