Project Constraints:
The main constraint to be taken into consideration when selecting the procurement route is the time frame to complete the project. The project has to be completed in 74 weeks after site occupation. The budget for completing the project is £14.85 million and the funding is done by the Southumberland County Council.
Risk:
The council is very strict about the project completion date and there fore it cannot be changed. The quality of the building has to be given priority and there fore the material selection has to be appropriate. An inexperienced public sector client is involved in the project. There for the risk of handling the project is very high. This is another important point to be considered when selecting the procurement route.
Project Flexibility:
Variations in the design will not be entertained once the construction is started because the completion date can change.
Project Complexity:
Since the school is considered as a land mark building the design has to be complex and at the same time the interior design should be comparatively simple as the building is mainly used for education purpose. There fore it is recommended to have a complexity in the external looks of the building. This construction has to be modern building and should be technologically advanced and highly serviced.
Division of Responsibility in the Project:
Management and accountability is very important. The client does not have much resource to manage separate designer and contractor since they are inexperienced. There fore it is better to go for a single point of responsibility for as many services as possible.
In summary the procurement strategy review confirmed the priorities as;
Programme : Very important aspect.
Quality of design : Very essential
Time Frame : Very important, since it’s a school building.
Complexity : Some innovative design has to be incorporated, since it’s a land mark building.
Responsibility : Single point of responsibility.
Procurement Route:
From the Procurement strategy review the following procurement routes are established,
Traditional Procurement Route:
In traditional procurement route the client appoints a team of consultants (comprising of an Architect, Engineer, Surveyor etc) to prepare the specifications and drawings and tender documents to select the contractor. A quantity surveyor measures the drawings to make the bill of quantities. The client will then select the contractor who does the construction.
The time frame and design is important in this project. An architect and a good design are required. Since the client is inexperienced the division of responsibility between the architect, design team and the contractor is difficult to meet. There is also a chance of poor buildability since the contractor is not involved in the project. The certainty of final price with the traditional is very minimal.
Construction Management and Management Contracting:
The client appoints a management contractor early in the design stage to advice on the design programming and buildability. The management contractor does the programmes and obtains tenders for the work. In construction management a construction manager is appointed to advise the client. He will be coordinating the design and the programmes and make sure that the tender packages are properly considered.
In both the cases the inexperience of the client affects the project, since he cannot take an active role in the construction. Since a construction manager or a managing contractor is appointed, there is a chance of over running of the project budget. The time factor is also a major factor since a single organisation is not responsible for the project. Risk of late completion is also very high.
Design and Build/Develop and Construct:
Design and build is a procurement route in which only one organisation (i.e. the contractor) is responsible for both the design and construction of the building. In this procurement route the tender documents are made first. These documents describe the client requirements. The rest of the design part is done only after the contractor is appointed. There fore a single point of responsibility is made which is important since the client is inexperienced. The budget will be available for the client since the contractor is responsible for both the design and construction and the project duration will be in the given limit. There fore it is clear that there is a low time and cost risk in selecting the design and build procurement route.
There are some disadvantages or drawbacks in choosing the design and build procurement route for the given project. Since the management is inexperienced, it is difficult for them to prepare the clients requirements and it is also difficult to carry out all the responsibilities in the contract and the design part. There is also a risk in the design or quality of the building since the design and build contractor may lack the skills needed to perform such a task.
To overcome the risk that can occur in the design part due to the inexperience of the client it is advisable to go for develop and construct procurement route which is a variant of design and build. In this route the client appoints a consultant to design the building to a partial stage, i.e. to scope design and then obtain tenders to find the contractor to develop and construct the building. This gives the flexibility needed in the design. The client then novates the design team to the contractor (i.e. client asks the contractor to take over the design from the design team with responsibility for all the previous designs). There fore the contractor has little input and control in the design. So the risk in the design stage and there after during the construction is considered to be minimal.
Conclusion:
From all the above studies it is evaluated that the suitable procurement route to construct a new school building by the Southumberland County Council is the Design and Build/Develop and Construct procurement route.
TASK 2
Suitability of Design and Build Procurement Route to Construction of the Building under PFI:
The objective of this report is to comment on the suitability of the procurement route (i.e. Design and Build) identified in the 1st report to the construction of the building under the PFI scheme. This report also recommends steps that have to be taken by the Southumberland County Council to make sure that the project is a success when PFI is implemented. The Southumberland County Council wants the project to be done under the PFI scheme. Since the council has never procured a building before and they are inexperienced an understanding of the PFI procurement route is very important
The Private Finance Initiative (PFI) is developed is developed by the government in which the private sector and the public sector join to design, build, finance and operate a new building or facility to the public. It is done to attain great economic efficiency and low cost by giving the contract to the private sector. The government or the client uses the new technology, management skills and operating skills provided by the private sector without putting capital investment into the project. There fore it is easy for the public sector to achieve a good balance between capital expenditure and revenue expenditure, since the capital expenditure is spend by the private sector and revenue expenditure is spend by the public sector. PFI process is seen to be more expensive but the risk burden which lies in the project is substantially from the public sector to the private sector. The client will not be responsible for time and cost over runs and systems that are failed or insufficient to work and there fore the government is happy to give a higher price.
In PFI a single contractor is approved between the public sector and the private sector company. The private sector company then forms a body called Special Purpose Vehicle (SPV) to handle each project and to provide services to the public sector client. The SPV hires a construction company to design and construct the facility. A facilities management organisation will also be appointed to do the maintenance and
service of the facility after the construction is finished. The government gives a unitary fee to the private sector company throughout the whole service period (i.e. 25 to 35 years). There will be deduction in the unitary fees if the quality of maintenance and service is not provided. So this payment method is used by the government to make sure that the facility is maintained and serviced properly.
When taking the Design and Build procurement route along with the PFI the following factors are negotiated which helps in better buildability and better design of the structure.
- In PFI procurement route the price inflation does not affect the council. There fore the council does not have to take any extra burden on the cost inflation of the materials or man power which was there in the design and build procurement route. The council is getting service for a long term at a guaranteed price.
- The quality of the structure has to be taken care of by the contractor in PFI. There fore the risk in quality and buildability is totally transferred to the PFI contractors. But in design and build the risk for quality lies entirely with the council.
- By taking PFI the client does not have to bare the expense for the charges in the design of the building where as in design and build the expense is bared by the council.
- The risk for finishing the project on time is on the SPV because the council does not have to pay the unitary fee for maintenance until the project is finished. There fore the loss is bared by the PFI contractor. In case of design and build procurement route the money has to be given to the contractor stage by stage as the project progresses.
- There is a chance of poor buildability when taking PFI procurement route since the council is not experienced and therefore not taking part in the design process. The buildability can be increased by having the design and build consultant.
BY comparing the PFI route with the Design and Build procurement method it is advisable to the council to take the PFI method and it is clear that if proper steps are taken the project will be a success.
Recommended Steps for the Success of the PFI project:
By taking the Camberwick Community College Project as a PFI project some steps has to be taken by the council to make sure that the project is a success. In the past, PFI projects had turned out to be profitable and there are cases where PFI projects was a big loss due to high bidding cost, refinancing, high design cost, time etc. There was a wide spread expectation from the public sector that the PFI method is a very good procurement route. But necessary steps have to taken by the Southumberland County Council to ensure that this relatively new method of procurement route will be a success.
- Time is a main constraint in the Camberwick Community College project. The PFI projects tend to take a long time in the initial bid stage. This effects the final completion of the project. There fore proper steps has to be taken before the tenders are called and the financial closure of the bid should be done in fast pace.
- The council should have an efficient administrative system with a realistic view of the project so that the project goes through a competitive and transparent tendering process. The allocation of risk in management has to be done and the council should pay a market price for the risks they want to transfer to the contractor.
- The cost should be calculated adequately. The factors such as capital investment, maintenance, service etc should be available to do a proper costing. All the inherent risk factors should also be considered when calculating the bid cost. This helps in approving the tender without much delay.
- Value of money is an important aspect which has to be taken into consideration when selecting the PFI procurement option. This can be done by achieving an “optimum combination of whole life cost and quality to meet the user’s
- requirements” (Morledge, P: 221). The council should evaluate that the project is a success and the level of service is provided by the contractor after the completion.
- The council has to appoint an independent Project Manager to control the project and also to look into the design part. This helps in achieving a good buildability.
- A good partnership among the council and the SPV is influenced in the successful outcome of the project. There should be a very good understanding and a common vision on how they can work together.
- The council has to make sure that the contractors are having staffs with right skills to ensure good contract management. The council should also ensure that adequate training is given to the staffs if the project is to be carried out a new way.
By taking all the above recommended points into consideration the Southumberland County Council can ensure that their school project is a success when implemented as a PFI project.
References:
- J Franks (1984), Building Procurement Systems (Chartered Institute of Building).
- Alan Turner (1998), Building Procurement (Macmillan).
- Morledge R., et. al (2006). Building Procurement
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