Heriot-Watt University

MSc Construction Project Management

Construction of a new Auditorium Development

for
Heriot Watt University (HWU), Dubai Campus

Assignment for
D31PZ Contracts and Procurement

Student ID 071330800
Name: Mufeez Ahmad Lebbe
Semester - 1 (2012/2013)
1. Introduction

This report is prepared for the Principal of Heriot Watt University (HWU, the Client) who is
planning to build a new auditorium in Dubai Campus with 800 seats, high specification technology,
multimedia theatre with air conditioning and comfortable tiered seating that provides excellent
visibility. The client requires a full size interactive screen and computer driven presentation
facilities in this auditorium to be used for conferences, lectures and presentations.

The report will outline to the Client how a strategic approach to procurement can be developed,
alternative procurement routes and examination of advance procurement practise suitable for the
project. Based on the above, a suitable procurement route is recommended. In addition to that, the
report will evaluates factors that would influence the development of an appropriate procurement
strategy and how it could be implemented and provides some of the potential benefits of adopting
alternative procurement strategies.

Assumptions made to prepare this report are as follows:

The head of the Heriot Wall University (HWU) is considered to be an experienced and
knowledgeable client since the University employs highly experienced staffs. Since the University
will be not restricted to the budget available, project financing is not a constraint. It is therefore
assumed that quality and time is of higher importance.

2. Strategic Approach to Procurement Strategy

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Procurement is recognized as a key process in a companys business that contributes to its
objectives and aims. In order achieve the best value for money for the client, it is important to have
a procurement strategy for procurement of goods and services of the company. It defines the relation
and balance between risks, constraints, funding, quality, time and cost due to the procurement of a
project. It helps to formulate the best procurement route.

The Office of Government Commerce explains, The procurement strategy identifies the best way
of achieving the objectives of the project and value for money, taking account of the risks and
constraints, leading to decisions about the funding mechanism and asset ownership for the project.
The aim of a procurement strategy is to achieve the optimum balance of risk, control and funding
for a particular project. Thus, procurement strategy is essential in ensuring procurement success
and has a major impact on cost and time required for the project.

The following factors are considered when drafting a procurement strategy.

Project Objective:
This is the client brief of his objective of the project. The auditorium should accommodate 800
seats, high specification technology, multimedia theatre with air conditioning and comfortable tiered
seating that provides excellent visibility. The auditorium will feature a full size interactive screen
and computer driven presentation facilities, perfect for conferences, lectures and presentations.

Project Constraints:
The main constraints are project budget, available funding and the time frame to complete the
project. It is to be noted that the Client has not mentioned the duration to complete the project and
the budget available. This gives an idea that the Client is more considered about the quality of the
project.

Project Risks:
Higher specification is required by the client for this project. It means the quality is of higher
priority and therefore the material selection in this project must be appropriate.

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Project Feasibility:
Any variation in the design may not be considered after the construction commences because it may
change the completion date and the client is very much sure of his specification.

Project Complexity:
Since the auditorium is considered to be of high specification technology, the design may be
complex. It is has to be noted that the auditorium has to included multimedia theatre with air-
conditioning and comfortable tiered seating. This construction project should be a modern building
and should be technologically advanced and highly serviced.

The procurement strategy will be drafted keeping in mind it should respond to the following eight
issues.

1. Outside factors
2. Client Resources
3. Project Characteristics
4. Ability to change
5. Risk management
6. Cost issues
7. Time
8. Quality and performance

3. Procurement Routes
The procurement route delivers what is defined in the procurement strategy. Any procurement route
should ensure that design, construction, operation and maintenance are treated as a whole. Selecting
an appropriate procurement route will assist in achieving best value for money and reducing
procurement risk. It will make effective use of resources, and balance critical factors such as:

Value for money;

Cash flow rate;
Timeliness;
Quality of design; and
Quality of construction.

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From the above procurement strategy, the following procurement routes are explained with benefits
and risks associated with each of them.

3.1 Traditional:
This procurement route is the oldest but still in use in the construction industry. The client appoints
teams of architect and consultant to prepare a design. Once the design, specification and drawings
are completed, the client will call a selection of contractors for a tender and a competitive contractor
is selected by the client to do the construction of the works for a lump sum contracts. The contractor
is not responsible for the design of the works but only for the workmanship.

HWU (Client)

Consultant Main Contractor Architect

Named Subcontractors Subcontractor Suppliers

Fig. 1 Typical Project Structure under the Traditional Procurement Route

Risks:
Project duration is longer in this route since the design and construction are carried out
sequentially, meaning, only if the fully detailed design is complete, then the tender will be
invited and the contractor is selected and then only the construction will commence at site.
Client has to be experienced and knowledgeable since he has to manage and administer the
consultants and the contractor; otherwise there is high potential for adversarial relationships.
Since the design and construction phases are sequential and the contractor being not
involved the design process; there is a chance for buildability issues of the project during the
construction phase.

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 High potential for Contractors to claim for variation if the design is not detailed and not
complete thus making the cost and time over run.

Benefits:
Well-known procurement route to all clients
Reasonable price certainty at contract award
Higher degree of quality in design and construction can be met
The client keeps direct contractual relationship with the designer and the contractor

3.2 Design and Build:

Design and Build procurement routes is when one single experienced contractor is appointed by the
client who is responsible for design and construction. This procurement route allows time frame
required to complete the project to be compressed due to overlapping design and construction. The
client is informed of price certainty at the beginning of the project. However the client is not in a
position to monitor the quality required. Any changes required by the client during the course of
construction may be expensive to adopt and hence may affect the completion of the project and
cost-overrun.

HWU (Client)

Clients Consultant Design and Build Contractor Project Manager

D&B Contractors Consultant Subcontractor Suppliers

Fig. 2 Typical Project Structure under the Design and Build Procurement Route

Risks:
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 Changes by the client after the contract signature may be expensive.
Since the Contractor is responsible for design and construction , the Client has little control
on design of the project

Liability for design by the Contractor is limited

Benefits:
Tending cost will be less compared to other procurement routes
Client will need to have a single point for communication/contractual issues
Buildability advice by the contractor due to contractors early involvement in the design
May result schedule saving due to design and construction phase overlap

3.3 Management Contracting:

This will be favourable if the project is quite large in size and requirements are complex (Murdoch,
J. Hughes, W. 1999). This procurement route is good for clients who need an early completion of
the projects. Management contractor involves at the right time as a coordinator during design,
planning and estimation to complete the project. Packaging of works to subcontractors allows
overlapping between design and construction and they can start working as they enter into contract
with the main contractor. Therefore overall construction time will come down and the client will
benefit as they start generating revenue as early as possible. High quality of works can be expected
if the client appoints a skilled and experienced management contractor who will supervise and
coordinate the works contractors and hence potential variations also can be minimised.

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 HWU (Client)

Project Manager Management Contractor Clients Designer

Works Contractor Works Contractor Works Contractor Sub Consultants

Suppliers Suppliers

Fig. 3 Typical Project Structure under the Management Contracting Procurement Route

Risks:
Final contract amount and project duration cannot be forecast until the last package is
awarded to last works contractor.
The client should be able to manage the design consultant and the management contractor
Possibility of delays and increased cost due to ineffective administration by the client.

Benefits:
Early completion of projects even for complex projects due to design and construction
overlap

Since the client control the design team, the management contractor together with works
contractors can contribute to early design development contributing buildability of the
construction.

Management will take some risks of the works contractor employed under them.

Changes are possible in works packages provided it has less impact on time and cost of the
project

3.4 Construction Management

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This is fast track procurement strategy. Subcontracts can be let as soon as the design is completed.
The client appoints a construction manager for a fee to supervise the construction works like in the
management contracting procurement strategy. The clients enter into agreement directly with works
contractor. Therefore the client has high level of involvement during design and construction
phases. The final project cost will be known only after the last package has been let.

HWU (Client)

Construction Manager Clients Designer Clients Designer

Works Contractor Works Contractor Works Contractor Consultants

Subcontractors Suppliers

Fig. 4 Typical Project Structure under the Construction Management Procurement Route

Risks:
Final contract amount and project duration cannot be forecast until the last package is
awarded to last work contractor.
Since the client manages all the works contractors, the client is exposed to high risks of
delays, contractual issues and contract administration.
The construction manager is not responsible for achieving programme and cannot instruct
third parties.
Clients need to be experienced to administer the separate design team and many works
contractors
The Client will have to pay a high premium on risk management in construction
management than under other procurement approaches

Benefits:

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 Early completion of projects even for complex projects due to design and construction
overlap

Changes are possible in works packages provided it has less impact on time and cost of the
project
Good for complex projects as buildability is possible

The Clients direct involvement with works contractors could result in lower prices and
monitor the poor performance of works contractors.

The construction manager can resolve disputes directly with works contractors provided
they have a good relationship

Based on these procurement routes and the client objective, it is recommended to HWU to use
Design and Build procurement route as a suitable for this project. It is good for a fast track project
due to overlapping design and construction.

4. Advance Procurement Practices

In this section, the following advanced procurement routes (integrated procurement routes) are
discussed. It is ultimately the client responsibility to select the best suitable procurement route based
on procurement strategy and clients objectives.

4.1 Prime Contracting

A public sector client appoints a contractor as the sole point responsibility to the client and the
supply chains who will be responsible to manage and deliver the project on time and within budget
and with the required quality, He is also responsible operation and maintained of the building.
Before the construction commences, the whole life costing model for the project will be developed.
There are many benefits through prime contracting such as long-term value for money through
improved supply team, partnering and incentivised payment mechanisms. Prime Contacting route
gives the following benefits to the client

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 - Complexity: deliver technically advanced building
- Prime contractor adopts all risk
- The Client can recover damages from the Prime Contractor
- Buildability as the Prime Contractor involves at an early stage of the project

4.2 Partnering
Partnering is not a procurement route but a management approach which can be applied to any
procurement routes discussed above. It is a way of collaborative working and problems solving. It is
characterized by commitment, trust and mutual advantage between partners. All organizations in a
supply chain can implement partnering to improve their performance by effectively organizing all
the resources. Since HWU is recommended to use Management Contracting which involves
different specialists such consultant, project manager, works contractors, suppliers and
subcontractors, partnering will definitely will benefit all the parties involved. HWU is
recommenced to adopt partnering arrangements in order to benefit from reduced costs, less
construction time, reduced contract price, minimal conflicts and disputes and higher project
performance.
4.3. Two-Stage Tendering
Two-stage tendering is a process of engagement of a contractor by a client based on a preliminary
concept design at an early stage of a project. Then the contractor works with the client and his
consultant to contribute to design and project planning. In first stage, the client selects a contractor
by prequalification from many bidding contractors based on information made available to them by
the client. In second stage the client negotiate with the winning contractor (from stage one) the price
of the project after the design is complete and at least 70 to 80% of the works have been
subcontracted. There are many benefits as mentioned below that the clients can achieve by two-
stage tendering over the traditional tendering process.

- Works can commence earlier due to less time required for tendering process (for
second stage)
- Design and construction can overlap
- Quality can be controlled
- Cost certainty / guaranteed maximum price

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 - Early involvement of supply team
- Possibility of transferring risks to the contractor

Fig. 5 Two-Stage Tender Process

4.4 Novation
The transferring of contractual relationship between the client and his professional consultant to a
winning design and build contractor is called novation. This is normally applicable in design and
build procurement route. Novation helps to keep continuity of the design carried out by the
consultant when working for client at the beginning and later to the design and build contractor.
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This will greatly eliminate the design responsibility issues that may arise during the course of the
project. This will improve the design since the same designer is allowed to continue to develop the
concept design he prepared for the client.

5. Factors influencing Procurement Strategy and Implementation

The following factors will influence the development of a procurement strategy

The project objectives for example, to provide office space for x people to deliver a
specific service.
Constraints such as budget and funding, the timeframe in which the facility is to be
delivered, and exit strategy.
Cultural factors such as considerations about the workspace environment that will best
support the way people work.
Risks such as late completion of the facility; innovative use of materials
The clients capabilities to manage a project of this type.
The length of operational service required from the facility.

6. Conclusion

Procurement strategy will be a basis for selecting a right procurement route for the clients project.
All of the procurement routs discussed above have merits and demerits. The client is the ultimate
decision maker to finally select the best suitable procurement routes.

For the development of new auditorium for HWU, the following procurement routes with advanced
Procurement practices can be utilised

Design and Build route is recommended for this project. This will benefit the client in time and cost
but at the expense of quality. The Clint desires the building to be a high specification but this
building an just an auditorium only and does not require the highest quality. Even though, project
quality can be improved involving a contractor at an early stage by way of two-stage tendering. In
order to avoid and design responsibility/risk it is recommended also that consultant is novated to the
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contractor after the concept design and the design risk will be under contractor/consultant
responsibility. Since many specialists are involved in this projects such as design and build
contractor, design consultant, client, clients project manager and other subcontractors and suppliers
are recommended to work collaboratively under partnering in order to avoid or minimize any
adversarial relationship between supply teams, and disputes and improve administration and
communication.

7. References

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1. Cooeje, B. Williams, P (2004) Construction Planning, Programming & Control, Blackwell
Publishing.
2. Murdoch, J. & Highes, W. (1999), Construction Contract, 3 rd Edition, Spon Press, Tyler &
Francis Group
3. Office of Government (2007). Achieving Excellence in Construction Procurement Guide
006: Procurement and Contract Strategies. London: Office of Government Commerce.

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