More Than a Roof Overhead Working Paper Nomams.rmit.edu.au/y6swzvdkv8v3z.pdf · 4.2 Clarity and tangibility ... of the spectrum, ... More Than a Roof Overhead Working Paper No.1

More Than a Roof Overhead Working Paper No.1

Innovation in the procurement of remote Indigenous housing

Prepared for the ARC Linkage project: More Than a Roof Overhead

RMIT University

Australian National University

Charles Darwin University

Northern Territory Department of Housing, Local Government and Regional Services

Western Australian Department of Housing

Indigenous Business Australia

Centre for Appropriate Technology

Bawinanga Aboriginal Corporation

Issue: 28 September 2012

Authors:

Dr Andrew Martel

Dr James Harley

Prof Ron Wakefield

Prof Ralph Horne

More Than a Roof Overhead Working Paper No.1 Innovation in the procurement of remote Indigenous housing

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CONTACT Centre for Design RMIT University GPO Box 2476 Melbourne VIC 3001 Tel: + 61 (03) 9925 3484 Fax: + 61 (03) 9639 3412

ACKNOWLEDGEMENTS

.


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Table of Contents

1 Introduction .................................................................................................................................... 6

1.1 Aims and Objectives ............................................................................................................... 7

1.2 Layout and Approach .............................................................................................................. 7

2 Selection criteria and overview of procurement options for housing provision .................... 9

2.1 Traditional Contracting (Conventional or General) ............................................................... 13

2.2 Management Contracting (Managing Contractor and Design and manage) ........................ 14

2.3 Construction Management .................................................................................................... 15

2.4 Integrated (Design and Construct, Package Deal Method, and Turnkey Approach) ............ 15

2.5 Collaborative (Partnering, Alliancing, Early Contractor Involvement) ................................... 17

3 Case studies of remote Indigenous housing procurement .................................................... 19

3.1 Case Study 1: Strategic Indigenous Housing and Infrastructure Program: Alliancing.......... 19

3.2 Case Study 2: Western Australian Department of Housing: Early Contractor Involvement . 22

3.3 Case Study 3: Indigenous Business Australia: Design and Construct ................................. 26

4 Findings ........................................................................................................................................ 28

4.1 Risk ....................................................................................................................................... 29

4.2 Clarity and tangibility ............................................................................................................. 29

4.3 Time ...................................................................................................................................... 29

4.4 Cost ....................................................................................................................................... 29

4.5 Non-housing outcomes ......................................................................................................... 30

4.6 Process ................................................................................................................................. 30

4.7 Design and built form ............................................................................................................ 31

5 Discussion ................................................................................................................................... 32

6 Conclusion ................................................................................................................................... 34

7 References ................................................................................................................................... 35


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Executive Summary

This working paper examined the current procurement options used for the delivery of housing projects in remote Indigenous communities in the Northern Territory and Western Australia. The paper examined three case studies (SIHIP-NT, NPA-WA, and IBA-HOIL Kickstart in NT), involving Alliancing, Early Contractor Involvement, and Design and Construct approaches in order to understand method selection and to systematically identify the factors that might determine ‘success’ in procurement selection in remote Indigenous housing. This allows an identification of particular characteristics of remote housing construction and Indigenous community engagement that favour certain procurement options. In future, individual building programs proposed for communities may then be assessed against the characteristics to guide procurement selection.

Using this review of procurement approaches as a starting point, and incorporating the ideas from the work of Crawford and Pollack in assessing relative hard/soft qualities of procurement dimensions, the paper proposes the following criteria as a guide to the selection of appropriate procurement methods in the indigenous housing context:

1 RISK: Apportionment of risk and responsibilities 2 CLARITY AND TANGIBILITY: Flexibility/ease of variation in dealing with uncertainty 3 TIME: Importance of timing and timelines 4 COST: Ensuring cost competitiveness and enabling cost certainty 5 NON-HOUSING OUTCOMES: Ability to incorporate ‘non-building or non-housing’

outcomes 6 PROCESS: Ensuring participation and managing expectations 7 DESIGN/BUILT FORM: Design and building integration, buildability, quality.

All three case studies were examples of public sector ownership, initiation and funding, with only IBA-HOIL looking to on-sell the housing constructed to a (severely limited) private sector owner-occupier market. Partnering was the preferred selection method for SIHIP-NT and NPA-WA, while IBA-HOIL pursued a restrictive ‘open competition’ method, by controlling the consultation and design stages of the process and reserving the right to not select the lowest tender bid.

One effect of cooperative risk-sharing approaches in the major housing projects studied is to reduce competition amongst building contractors, which might put upward pressure on costs. However, in addition to risk mitigation, the early contractor involvement assists in facilitating many of the ‘non-housing’ outcomes that are difficult to achieve in a standard tendering situation, where contactors are primarily attempting to minimise costs. In NPA-WA, some ‘non-housing’ outcomes were impacted by the use of prefabrication. Nevertheless, in the interests of time and delivery, the Western Australian case study decided to continue the relationship with the various ‘transportables’ companies as a contingency against the ECI process not being able to meet its targets.

The price basis for the various projects proved contentious in all case studies. Despite the emphasis on non-housing outcomes (with attendant cost implications), in both SIHIP-NT and NPA-WA the party ultimately responsible for the funding (the Commonwealth Government) placed strict caps on the cost of new and refurbished houses (averaged over a particular work package in a community). In IBA-HOIL, an initial budget was imposed on the project that dictated the amount and size of the dwellings produced (1 four-bedroom and 3 two-bedroom houses), however, unforeseen costs (associated, for example, with site clearing and decontamination) were carried by the government entity initiator in order that the final cost was kept in line with expectations of mortgage loan size for the potential owner-occupiers, that is, a degree of subsidization occurred.

This suggests that despite all three case study clients (the Northern Territory and Western Australian Governments and Indigenous Business Australia), employing procurement strategies that placed emphasis on leveraging construction projects to provide ‘non-housing’ outcomes, as well as dwellings, the effective definition of ‘success’ in the procurement methodologies in each of the case studies was biased towards housing rather than non-housing outcomes.

In all of the case studies, sub-contracting (of both housing and non-housing elements of the projects) was extensive, with a premium placed on sub-contracting work to Indigenous owned or operated


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companies where possible. Viewed in this way, SIHIP-NT and NPA-WA share many of the same characteristics and may be considered to be examples of the same approach to housing procurement, with slight differences due to the larger scale of the building program in SIHIP-NT compared to NPA-WA, and the fact that SIHIP-NT was initiated first, giving NPA-WA an opportunity to fine tune its processes to minimise some of the well-publicised difficulties encountered early by SIHIP-NT.

SIHIP-NT and NPA-WA contain several key characteristics (or desired outcomes) that suggest that using a soft methodological approach to procurement is appropriate. These include the central role of community consultation and input into housing outcomes before construction begins and a commitment to maximise Indigenous training and employment opportunities arising from the provision of housing stock. Even IBA-HOIL, the project with the most recognisably ‘hard’ procurement method and operation, endeavoured to build in community consultation and local employment as important aspects in determining project ‘success’.

Risk, together with its management and apportionment remains a key factor in choice of procurement approach. Risk management implies risk measurement, and as noted in the discussion of ‘hard’ and ‘soft’ construction projects, not all risks are able to be measured to the same degree (or even using the same metrics). The case studies provide an example of instances where Institutional (client) procurement strategies recognise and embrace ‘soft’ or non-housing outcomes as critical components to a project’s success. However, when procurement methodologies are in place on the ground, the inability of the clients to fully control the definition of success from outside influence (in this case the Commonwealth Government), resulted in success measures being realigned towards the ‘hard’ side of the spectrum, where measurement is more straight-forward and success may be more tangibly expressed, but where it may be achieved at the expense of some of the more difficult to quantify non-housing outcomes.

There remains a need for a means to ensure ongoing independent evaluation, knowledge and intellectual capital retention, and systematic learning both spatially across jurisdictions and projects, and temporally from project to project. If this can be attained and coupled with a longer term strategy for housing investment, then processes can improve and, in turn:

• clarity and tangibility will increase; • non-housing outcomes will be enhanced; • costs will fall in relative terms; and • design and built form will remain at a high quality and potentially further improve.


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Abstract

The More Than a Roof Overhead: Meeting the need for a sustainable housing system in remote Indigenous communities project is a multi-disciplinary research project intended to identify housing practices that are environmentally, socially, economically and culturally sustainable in remote Indigenous communities. Central to the successful achievement of desired housing and ‘non-housing’ outcomes from remote building programs is the implementation of procurement methodologies that enable management of the complex risk factors involved and that can accommodate the diverse requirements of government and community clients. These can include needs for consultation and local skills training (referred to in this paper as ‘non-housing’ outcomes) that are outside the usual scope of works in residential construction projects. This paper reviews and compares the procurement options available to government entities when contracting housing construction in remote Australia. It critically investigates the options pursued in three recent case studies involving the Northern Territories Department of Housing, Local Government and Regional Development (NT DHLGRS), the Western Australian Department of Housing (WA DoH) and Indigenous Business Australia (IBA).


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1 Introduction

A procurement system may include both a procurement strategy and a procurement methodology. A strategy implies a series of interconnected plans and policies which in combination provide a means within which to deliver a particular project. As such, strategy provides a theme and focus for the future direction of an organisation, in that it supports consistency at every level (Gray and Larson, 2000). The strategy forms a basis of a system which ensures that individual projects are carried out in a manner consistent with an organisation’s broader culture or priorities. In terms of procurement, this entails having an understanding of what is being delivered through the procurement solution, for what purposes and within what limitations or constraints. An appropriate procurement strategy would identify not just a method of delivery, but connections between the delivery and the organisation’s wider goals. Moreover:

A procurement system is the organisational structure adopted by the client for the implementation, and at times eventual operation, of a project. (Masterman, 2002)

A procurement methodology is concerned with the operational systems and processes by which a project is implemented. It includes factors such as time, cost, governance, implementation, risk and quality assurance measures. A particular procurement method should be consistent with an organisation’s strategic goals and the delivery of a specific strategy (Charvat, 2003).

In this paper we are concerned with procurement in regional and remote Indigenous communities. An ontological assumption of this research is that remoteness is critical to the determination of the strategy and method appropriate for delivery of housing in these locations. There are currently three primary remoteness classification systems in use in Australia: the RRMA, ARIA classification and ASGC Remoteness Areas measure. The RRMA classifies remoteness as a combination of a distance measure and population density, whereas the ARIA and AGSC systems classify remoteness by geographic measure only (the logistics of access).

The ARIA (Accessibility/Remoteness Index of Australia) upon which this paper draws is:

‘Developed as an unambiguously geographical approach to defining remoteness. That is socioeconomic, urban/rural and population size factors (were) not considered for incorporation into the measure’ (DHAC & GISCA 2001). ARIA provides a clear definition and methodology to describe and represent remoteness from goods and services for any part of Australia. It relies on road distance as a surrogate for remoteness and on the population size of a service centre as a surrogate for the availability of services (ABS 2001)’. A separate weighted distance measure was used to calculate ARIA index values for islands which are not accessible via land transport (AIHW, 2004).

In addition to remoteness, the specific local context of the housing procurement is also central to the paper. The nature of land tenure, governance structures, community-government and intra-community relationships that, for example, are particular to individual Indigenous communities will bear on the effectiveness of procurement strategies and methodologies.

Also taken to be critical in procurement selection is the profile of risk and its management. Risk identification and management is vital to ensure success of the project implementation process and business success. Any given procurement method carries a different level of risk for each of its main participants (Masterman, 2002; Saporita, 2006). Risk management is an organised means of identifying and measuring risk, and developing, selecting and managing options for handling those risks (Kerzner, 2000) or avoiding them entirely (Smith, 1996). The process of risk management consists of four stages:

1. Identification of the sources of potential risk 2. Assessment of their effects by means of risk analysis 3. Development of the method of responding to the identified risks 4. Providing for the residual risk (Perry, 1987).

Risk is project- and context-dependent, so it follows that it is important to analyse the discrete characteristics of the project prior to selecting the appropriate risk management strategy. The Project


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Management Institute through its PMBOK (PMI, 2004) notes six core areas in which risk should be addressed:

Figure 1-1: Core area risk (PMI, 2004)

Area Description

Risk Management planning Deciding how to approach, plan and execute the risk management activities for a project

Risk Identification Determining which risks might affect the project and documenting their characteristics

Qualitative risk analysis Prioritising risk for subsequent further analysis or action by assessing and combining their probability of occurrence and impact

Quantitative risk analysis Numerically analysing the effect on overall project objectives of identified risks

Risk response planning Developing options and actions to enhance opportunities and to reduce threats to project objectives

Risk monitoring and control Tracking identified risk, monitoring residual risks, identifying new risks, executing risk response plans and evaluating their effectiveness throughout the project life cycle

Ultimately, the type of project and its contractual arrangements will determine the risk management and organisational processes that are required to oversee the work, with each type of contracting or procurement strategy attracting different levels of risk at different times of the process or across different areas of the project.

1.1 Aims and Objectives

The aim of this working paper is to analyse the current procurement options that are being used for the delivery of large scale housing provision in remote Indigenous communities in the Northern Territory and Western Australia. The paper examines three case studies in order to understand method selection and to systematically identify the main factors that determine success in procurement selection in remote Indigenous housing. This will allow an identification of particular characteristics of remote housing construction and Indigenous community engagement that favour certain procurement options. Individual building programs proposed for communities may then be assessed against the characteristics to guide procurement selection.

1.2 Layout and Approach

In section 2, the factors that require consideration in selecting procurement options in any given case are discussed. Criteria are then selected to guide analysis of procurement in different project contexts. In subsections 2.1-2.5, a range of standard procurement options available for construction projects are analysed. The discussion of each option is broken down into their characteristics, advantages, disadvantages and risk factors. In this way, a quick distinction between different procurement methods is made.

In section 3, the three case studies selected for this paper are introduced. Each case study’s background is discussed, the procurement method chosen examined, and the outcome in terms of housing and non-housing results presented.


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In section 4, the case studies are analysed using the criteria developed in section 2, and conclusions are presented in section 5, offering a synthesis of the common features of the case studies in terms of coordinating construction work in remote Indigenous communities, institutional procurement strategies and the effectiveness of procurement methods deployed.


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2 Selection criteria and overview of procurement options for housing provision

In this section, discussion of appropriate criteria to analyse and select procurement approaches in any given case is presented, and selection of a criteria guide for remote Indigenous housing is undertaken. In sections 2.1-2.5, based on a literature review, common procurement options available for housing construction are presented, and a quick comparison of the advantages, disadvantages and risk profiles of the various choices is outlined.

Criteria for analysing and selecting procurement methodologies

The essential challenge in selecting an appropriate procurement approach is related to the works required to be undertaken and the degree to which the projects goals are clearly defined. Using these two parameters, Turner (1999) refers to four project types (Figure 2.1):

• Project Type 1: projects for which both the goals and the methods for achieving those goals are well defined. These are typified by engineering projects.

• Project Type 2: projects which have well defined goals, but the methods of achieving them are poorly defined. These are typified by product development projects, where the function of the product is known, but not how it is to be achieved.

• Project Type 3: projects for which the goals are poorly defined but the methods well defined. These are typified by information systems projects. In information system projects, Turner argues that one tends to use milestone planning, where the milestone represents the completion of life-cycle stages.

• Project Type 4: projects for which the goals and methods for achieving them are poorly defined. These are typified by research or organisational change projects. The planning of these sorts of projects may use soft systems methodologies, and the plan itself will again be milestone-based, but the milestone will represent gateway go/no decision points, through which the project must pass or be aborted.

Figure 2-1: Project types (Turner, 1999)

NO

Type 2 Projects

Type 4 Projects

greater chance of failure

works method well defined

YES

greater chance of success

Type 1 projects

Type 3 projects

YES NO

project goals well defined


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Effective assessment of different procurement methods requires a review of their differences based on the methods particular conceptual characteristics. Hughes (2006) proposed that contracting, funding, selection and payment methods can all be combined with different modes of ownership in different ways and that procurement types are not mutually exclusive categories for doing work, rather, aspects of procurement are variously represented in every procurement method, even though a procurement method is usually characterised by only one factor. The following six conceptual characteristics, or categories, are proposed for consideration (Figure 2.2):

Figure 2-2: Categories of procurement components (Hughes, 2006)

Category Examples

Ownership, initiation and funding owner-financed, public sector financed, developer financed, private finance initiative , public private partnership

selection method negotiation, partnering, frameworks, selective competition, open competition

price basis work and materials as defined by bills of quantity, whole building, a fully-maintained facility, performance

responsibility for design architect, engineer, contractor, in-house design teams

responsibility for management client, lead designer, principal contractor, joint venture

amount of sub-contracting 0 - 100%

The choice of procurement method affects the stage and time-frame at which the various parties are brought together and, specifically, the point at which a combined client-contractor assessment strategy (commonly called ‘early contractor involvement’ ECI), can be expected to influence the following stages of the project (see Figure 2.3). The risk management benefits of early collaboration between client and contractor are increased the greater the initial uncertainty surrounding the project is. This uncertainty might relate to baseline conditions of stock, the scope of the work proposed, or the building method to be used.

Figure 2-3: Comparison of ECI for Managing Contractor and Alliance approaches (Connell Wagner 2007b)

Managing Contractor Alliancing

1. Vision, objectives, needs 2. Project concept/scope 3. Outline design 4. Managing Contractor tender and

appointment ECI 5. Detailed design 6. Develop sub-contract packages 7. Sub-contract package tender 8. Formulate/agree lump sum price 9. Construction 10. Operation and maintenance

1. Initial vision, objectives, needs 2. Initial project concept/scope 3. Tender and appoint Alliance partner 4. Integrated team reviews:

a) Vision, objectives, needs b) Project scope ECI

5. Risk identification and management 6. Develop design/mitigate risks 7. Develop/agree target cost 8. Complete design and construction 9. Operation and maintenance

Crawford and Pollack (2004), propose a framework that can be used as a basis for understanding both hard and soft issues of projects. It entails the examination of seven project dimensions, listed


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below in Figure 2.4.

Figure 2-4: Hard and Soft project dimensions (Crawford and Pollack, 2004)

Dimensions Description

clarity of goals and objectives how clearly these have been expressed

the tangibility of goals/objectives

how well these can be defined, visualised or otherwise expressed

success measures the kinds of measures used to describe the project success

project permeability the extent to which the project is subject to external risk and uncertainty

number of solution options the approach to exploring and refining goals

degree of participation and practitioners role

the roles that team members adopt when managing a project

stakeholder expectation the view held of what is a valid expectation for the project that influential stakeholders believe to be reasonable

Crawford and Polack argue that this framework is useful in determining the type of methods best suited to appropriate governance, deliverables and resourcing in order to provide a balanced implementation. There is an expectation that different project management methodologies and strategies will be required depending on whether project dimensions are considered soft or hard. Soft issues include community perception, safety, environmental impacts, legal acceptability, political and social impacts, as well as, benefits to stakeholders, value management, and communications. Some of the key qualities of the dimensions described by Crawford and Pollack that can assist in determining whether a hard or soft approach is warranted are outlined below:

• Goal/objective clarity: Soft methods acknowledge any goal ambiguity, focusing on learning, exploration and problem definition. The emphasis becomes one of negotiation, debate and accommodation

• Goal/objective tangibility: The term ‘soft project’ is used to describe any complex task which aims to achieve an intangible result. A link between goal tangibility and clarity does not always exist. For instance, a learning program might proceed with clearly defined goals and methods, while producing nothing that can be physically measured. Similarly, construction projects can start with ambiguous specifications, requiring soft methods to increase goal clarity, before construction can commence.

• Success measures: Project specific critical success factors and key performance indicators can impact on project processes and outcomes, as performance is often guided by how success is measured, influencing project processes and outcomes. Quantitative measurement can not analyse all aspects of reality, as “quantity does not capture issues of meaning, attitude or morale” (Crawford and Pollack, 2004:648). Furthermore, in complex situations the measurement of a few isolated variables may not provide an adequate description of the outcomes being assessed. Quantitative evaluation inevitably involves subjective choice. The difference between quantitative and qualitative approaches to data collection is in their “relative degrees of calculated manipulation” (Crawford and Pollack, 2004:648).


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• Project permeability: In examining project permeability, it is necessary to differentiate between four concepts: scope; boundary size; boundary fixity; and boundary permeability. Boundary permeability relates to the number of project influences inside and outside project control. A project with many influences outside project control has a permeable boundary. Soft methods would be useful, focusing on learning and exploration, allowing deliverables to be tailored to the local environment and emergent knowledge concerning risks and benefits exploited. When permeability is high it will be beneficial to include a wide variety of stakeholders to gain insight from multiple perspectives.

• Number of solution options: Hard methods focus on efficient delivery, while soft methods focus on debate and exploration of alternative options. The hard paradigm defines solutions which are culturally desirable and technically feasible, while the soft paradigm focuses on cultural feasibility and technical desirability.

• Degree of participation and practitioner role: Hard methods tend to be non-participative. The soft paradigm involves a participative, collaborative, facilitative approach where many views are sought on many issues and people are encouraged to cross professional boundaries. A participative approach can be more time-consuming, but is suited to situation where it is necessary to negotiate between multiple perspectives or where participant ownership is necessary to the delivery of project objectives.

• Stakeholder expectations: A greater degree of interaction between stakeholders is required in soft projects, than in hard projects, which instead place emphasis on clear logical relationships between project elements.

With these in mind, an individual project can be analysed by analysing the context across the following, which represent a sliding scale from ‘Hard to Soft’ construction situations (Figure 2.5):

Figure 2-5: Hard and soft dimensions framework (Crawford and Pollack, 2004)

Goals/objectives 0 1. Goal Clarity 100 Goals /objectives clearly defined highly ambiguous Physical artefact 0 2. Goal Tangibility 100 Abstract concept Only quantitative 0 3. Success Measures 100 Only qualitative measures measures Not subject to 0 4. Project Permeability 100 Highly subject to external influences external influences Refinement of 0 5. Number of Solution Options 100 Exploration of many single solution alternative solutions Expert practitioner 0 6. Participation and Practitioner Role 100 Facilitative practitioner no stakeholder high stakeholder participation involvement Values technical 0 7. Stakeholder Expectations 100 Values relationships performance and culture and meaning, efficiency, manages manages by by monitoring and control negotiation


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Using this review of approaches as a starting point, and incorporating the ideas from Crawford and Pollack in assessing relative hard/soft qualities of procurement dimensions, we propose the following criteria as a guide to the selection of appropriate procurement methods in the indigenous housing context:

1. RISK: Apportionment of risk and responsibilities

2. CLARITY AND TANGIBILITY: Flexibility/ease of variation in dealing with uncertainty

3. TIME: Importance of timing and timelines

4. COST: Ensuring cost competitiveness and enabling cost certainty

5. NON-HOUSING OUTCOMES: Ability to incorporate ‘non-building or non-housing’ outcomes

6. PROCESS: Ensuring participation and managing expectations

7. DESIGN/BUILT FORM: Design and building integration, buildability, quality.

These criteria inform our assessment of both the generic types of procurement that follow in this section, and the case studies of indigenous housing procurement in Section 3.

2.1 Traditional Contracting (Conventional or General)

Traditional Contracting (Conventional or General Contracting), involves a clear separation of the design and construction processes. Consultants (including architects, engineers, quantity surveyors, and so on), typically complete a design which is subsequently tendered out to a building contractor. Commonly, payment is based on work completed. This method generally allows for a competitive tendering process and a high degree of cost certainty at the start of construction (Rowlinson and McDermott, 1999). However, due to the separation of the design and construct phases, project time is often longer (compared to other options), and integration between different (separate) actors must be carefully managed. The client carries the design and documentation risk (and hence responsibility for variations or changes requested after tender), while the contractor assumes the cost risk of the project, which includes the contractors profit margin (Connell Wagner, 2007a).

Characteristics • Separation of the design and construction processes • Lack of integration across the boundary • Uses a series of separate consultations to design the project • Independent contractor takes charge of the construction process • Selection process using tender may involve pre-selected entities

rather than complete open tender • Payment for general contracting is normally monthly based on work

completed Advantages • Competitive tendering is used

• Bills of quantity make for ease of valuations of variations • High quality and functional standards are possible • Cost certainty at the start of construction • Independent advice is given on most aspects of the process • A combination of the best design and construction skills is possible

Disadvantages • AA Decision processes are slow and convoluted • Total project time is the longest of all options • It has low levels of buildability • Many organisational interfaces must be managed

Risk • Flexibility in design changes • Client carries design and documentation risk – which may lead to

variations down the track


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• Time delay by clients or its consultants will result in delay cost claims

• Contractor assumes cost risk • Contractor’s profit at risk • Quality and schedule risk increased

2.2 Management Contracting (Managing Contractor and Design and manage)

In Management Contracting (Design and Manage), a management organisation works with the designers and consultants to produce a completed design, which is then tendered out in packages or stages to building contractors, while the management organisation continues to manage and coordinate the project. In this type of arrangement, the client is likely to have a greater involvement with the project than in other procurement options (Masterman, 2002). Project times are able to be shortened as the process employs a coordinated contracting arrangement, and value management is emphasised. Good value for money is possible as each of the work packages is competitively tendered, however, there is no set cost at the start of construction and more risk is taken on by the client (Connell Wagner, 2007a; Rowlinson and McDermott, 1999). Generally, the Managing Contractor faces little financial risk for the performances of others as the contracts are set on a cost-reimbursable basis (including a fee for managing the project). This can lead to complicated contractual arrangements and assignments of liability.

Characteristics • The management of the project is carried out by an organisation working with the designer and other consultants to produce the design and manage the physical operations which are carried out by works, or package, contractors

• The managing and operating systems are separate • The client is likely to have a greater involvement with the project

when employing any of the other methods described in the other categories

Advantages • AA It provides for a prompt start to construction work since it is a ‘one stop’ process from a contracting perspective

• Quick total project times are possible • Value management and buildability are emphasised • There are levels of competition for each work package, hence there

is competitive tendering

Disadvantages • There is no firm price at the start of construction • It can lead to complicated contractual relations and assignments of

liability • The extra layer of management leads to extra costs • The client must be deeply involved at most stages of the process • It is conducive to ‘buck-passing’ • Conflict between professional participants may occur as a result of

changing roles

Risk • Documentation errors rest with Managing Contractor • Typically the Managing Contractor will sub-let all of the construction

work • Managing Contractor faces little financial risk for the performance of

others, and as such, the contract is let on a cost-reimbursable basis (including a fee for managing the project, and reimbursement of fees incurred)

• More risk is taken by the client


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2.3 Construction Management

Construction Management is a third type of procurement, where project organisation oversight is via a management system provided by a construction manager or project manager. The design and construction phases of the project are undertaken by separate organisations with input from the client and project team into construction strategy and contractor selection. Designed to minimise conflict between design teams and those responsible for supervising construction (Swainton, 2008), contractual incentives can encourage quick delivery, and with large projects, costs can be controlled by competitive tendering of separate work packages. However, construction manager costs may be significant due to their extensive involvement and the complex services and reporting they are expected to provide. Consultant fees may also be higher due to the increased requirements for documentation and reporting. There is also a risk of cost changes due to the sequential issue of documents for each work package. The fixed lump sum cost of a project is not known until the final work package has been let, but the construction manager does not bear the risk of cost increases, which lie with the client (Connell Wagner, 2007a).

Characteristics • Project organisation is overarched by a management system, which is generally provided by a management contractor/construction manager/project manager

• Design and construction undertaken by separate technical / specialist organisations

Advantages • Impact of variations is limited • Allows input of the client and project team into construction strategy

and contractor selection • Contractual incentives can encourage speedy delivery of the project • Reduced confrontation between design teams and those

responsible for supervising construction • Overlap of design and construction • Increased competition for construction works on large projects due

to work packaging • More even development of documentation • Public accountability

Disadvantages • Construction Manager’s cost may be greater due to involvement in design phase, requirements to provide

• Consultant fees may be higher due to increase requirement of documentation

• Does not discourage scope changes as it is easy to incorporate with few penalties

Risk • Risks associated with gaps between work packages higher because of sequential issues of documents

• Increased risk of cost changes due to sequential issue of documents • CM entity not at risk to the owner for cost, schedule or other issues • Fixed lump sum cost of project may not be known until final work

package let

2.4 Integrated (Design and Construct, Package Deal Method, and Turnkey Approach)

A forth approach is known as Integrated Contracting (which includes; Design and Construct, Turnkey Approach, Novated Design and Construct, and Design, Build, Finance and Operate (DBFO). Integrated contracting includes procurement variants where there is a single point of contact for the client. This contractor oversees the design and construction phases of the project (and the operation in the case of DBFO’s). In the case of a Design and Construct contract, the contractor (which may be a consortium), is appointed via a tendering process for a fixed price plus provision for unknown works. Sub-contract works are then let using a closed book arrangement by the contractor (Masterman, 2002). This type of procurement method allows for shorter project times as design and construction


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are integrated, the designs have a high level of buildability, and client involvement can be minimal. Apart from variations, the contractor assumes the risk for the design and construction of the project, and as these can be difficult to anticipate, a risk premium can be built into the tender bid. If the risk is under-valuated, this can lead to lower quality work by the contractor (who is working on a fixed sum), and this in turn can lead to an adversarial relationship between the contractor and client regarding cost and quality (Connell Wagner, 2007a).

Characteristics • Single point responsibility offered to the client by the contractor • Opportunity for overlapping the design and construction phases

which stems from the unitary approach • Require that the company (which has been granted the concession,

which is likely to consist of a consortium of contractors and funders each with their own expertise), to design, build, operate and at some specific time transfer the facility back to the commissioning client body or retain in perpetuity

• Can also include service agreement contracts where a contractor provides pre-agreed services to the client - used primarily for facilities management type projects

• Payment for D&C often lump sum based on Response to Tender documents

• D&C contractor appointed following completion of design brief/performance specification tender documentation

• Tenders are on the basis of a fixed lump sum for the written scope of works and provisioning for unknown works

• Once contractor is appointed, sub contract works are let in a closed book arrangement by the contractor to sub contactors of his choice

• Provides a single interface for management

• Novated D&B may also present conflict of interest for designers as they move their contract from client to builder

Advantages • Fixed price bids are used • Design and construction are integrated • It has high levels of buildability • Total project times are short • Client involvement in the process can be minimised • Package deal systems or off-the-shelf solutions • There is competition on price and product • D&C: Fixed lump sum is subject to competitive tender process • D&C: Construction can commence and finish earlier than Traditional

• D&C: 30% preliminary design examples are usually included in the RFT

• D&C: Consultants fees lower due to reduction in documentation requirements

• D&C: Principal’s design requirements can be achieved through consultation novation

• Novated D&B: Much of the employer’s traditional design control is retained in the early stages

Disadvantages • There is a lack of independent advice • Valuation of variations is not based on fixed rates • It requires a detailed brief and client requirements from the outset • Client control of quality and functionality is minimised • Design and build firms often lack broad experience or expertise • There are lower levels of competition at tender than in the other

approaches • The tender process can be expensive to bidders • Comparison of bids can be complicated • It may not produce well-thought-out bids • D&C: Continuity of design is lost


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• D&C: Final design conditional on quality of original brief • D&C: Changes to the project after the tender phase are costly to

implement • D&C: Prior knowledge of onsite labour conditions useful • D&C: Final design and project outcome is dependent upon the

quality of a warranted design brief provided • D&C: Longer tender period than Lump Sum as concept design

phase is required • D&C: Documentation risk is passed to the D&C contractor • Novated D&B: has been criticised for restricting commercial

operation of builders (as the contract of for the design team is novated/transferred to the builders)

Risk • Risk is placed with contractor – assumes all cost and performance risk

• Difficult to specify all performance criteria (operating, cost, maintenance, design)

• Changes can be expensive • Owner must trust contractor for end result • No timely resource if contractor fails • Contractor performance guarantee is limited • D&C: May be premium for risks • D&C: Both design and construction risks can be assumed by the

contractor • D&C: More technical reliance on contractor • D&C: Quality may be lower than expected • D&C: Change orders may require more time to resolve • D&C: Design/contractor team experience required • D&C: Contractual environment could be adversarial • D&C: Client/owner responsible for any ‘gaps’ found to be in between

packages of work • Novated D&B: Passes ultimate responsibility for the design to the

contractor

2.5 Collaborative (Partnering, Alliancing, Early Contractor Involvement)

In Collaborative Contracting situations (including Partnering, Alliancing, Early Contractor Involvement), it is the client who establishes the framework for the overall administration of the project. The client and the contractor (which may be a consortium), then effectively act as one entity. This should ensure that the client and the contractor have aligned drivers and goals and share responsibility for achieving key performance indicators. There is scope for the project team to be rewarded for innovation, and projects will often include incentives for meeting targets (and penalties for missing targets) that are shared across all parties, known as ‘pain share-gain share’ (White, 2003; Wright, 2008). Risk is shared and is pro-actively identified and managed as early as possible (Eddie, 2007). This entails relatively high levels of trust between the client and contractors and can be effective for projects with high levels of uncertainty (QLD CPO, 2008).

Characteristics • Where the client lays down a framework for the overall administration of the project within which he/she has the discretion to use the most appropriate of all the procurement systems

Advantages • Contractor and client have aligned drivers and goals, where cost overruns impact the whole alliance

• ‘Best for project’ approach when setting objectives • All contractors share the responsibility for achieving the KRA • Contractors are involved early to incorporate their requirements into

the design and other associated work to reduce costs and achieve


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required quality • Possibility to reduce cost where scope is susceptible to lower cost

option/method • Client can be fully involved in design & implementation stage • Project team rewarded for innovation • Reduces tendering costs and resources of both contractors and their

designers • May include incentives or performance improvement regimes to

offset lack of repetitive tendering Disadvantages • Selecting and committing to contractors at an early stage of the

project • Managing changes • Changing the traditional industry culture, attitudes and work

practices • Ensuring the quality, total life cycle requirements are met • Pain/gain incentive framework could result in little returns if

unexpected problems arise • Bring full teams together to asses and mitigate risk • Fewer legal remedies where projects experience problems • Relatively high tendering costs for government • Increased risks of decision making deadlocks • Need for greater involvement of management resources in the

alliances • Includes chance of relationships to become too comfortable, with

client’s loss of market value as a result of the loss of repetitive tendering

Risk • Risk is shared between client and contractor • Risk is proactively identified and managed as early as possible in

the project cycle • Element of trust required • Contractor my push back on items that may have negative impact

on incentive amount • Requires changing contract documents and negotiating new price • Principal may be at risk for cost over runs and lack of precise

specifications • Contractors may be at risk of foregoing profit and corporate

overhead, as well as sharing management of contract with principal • Risks associated with misalignments and omissions are not

opportunistic claims for contractor • Suitable for projects that have high risk with high levels of

uncertainty


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3 Case studies of remote Indigenous housing procurement

Two case studies from the Northern Territory and one from Western Australia have been analysed, using the criteria set out in Section 2. The case studies vary in scale in terms of the number of dwellings being constructed or refurbished. They each utilise different procurement methodologies.

Case Study 1 examines the SIHIP program in the Northern Territory which employs an Alliance methodology, Case Study 2 in Western Australia uses an Early Contractor Involvement process, while Case Study 3 is a Northern Territory based Design and Construct project.

In the typology proposed by Turner (1999) presented earlier (p.8), Case Study 1 corresponds to a type 4 project, Case Study 2 to a type 3 and Case Study 3 to a type 1 project. These designations (which are essentially risk designations with 1 = low and 4 = high), are considerations in the selection of an appropriate procurement system in each case.

3.1 Case Study 1: Strategic Indigenous Housing and Infrastructure Program: Alliancing

The Commonwealth and Northern Territory Governments jointly established SIHIP in 2007 (it was announced in April 2008) to deliver a significant construction and upgrade program to housing stock throughout the remote communities in the Northern Territory. The Program listed 16 communities in which major works would be undertaken and 57 other communities that would receive refurbishment work. In total, SIHIP was committed to provide 750 new houses, 230 rebuilds and 2,500 refurbishments to houses in the NT by the end of 2013. The program utilised three alliance partners to deliver 13 packages of work, across the 73 identified communities within the Territory, with a total value of $672m. The Alliance methodology was selected by an in-house strategic working group in response to the Program Objectives and prevailing Government policy direction.

The housing program was one of three concurrent changes to the provision of housing in remote communities in the Northern Territory. The other two were land tenure reform and the shift of community housing management from local organisations to a public housing system, established under a Memorandum of Understanding (MOU) signed by the Australian and Territory Governments in 2007. In addition, there was a restructuring of the local council system that consolidated small and medium sized councils into 8 large, regional councils.

The Alliance partners were appointed during a period when the scope of works for each targeted community remained uncertain, although some absolute targets had been publicly reported. Hence, against a background of urgency, specific projects and the methods for achieving them were not always well defined. Nevertheless, seven Program Objectives were outlined;

Figure 3-1: SIHIP Program objectives (Connell Wagner 2007b)

SIHIP Objectives Description

Housing Outcomes Housing that meets resident's needs and effectively reduces overcrowding in selected communities.

Quality New and existing houses constructed and refurbished to an appropriate standard

Social and Economic Outcomes Employment supported by training of Indigenous people to achieve a sustainable workforce to each community for the ongoing construction, maintenance and management of housing.

Time Completion by June 2013


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Cost Whole of life cost of delivering and managing houses is reduced, through innovation and economies of scale

Management Best Practices Achieve a step change improvement in the delivery of major housing programs and use this as a basis for the delivery of a range of future housing programs and schemes

Relationships Achieve positive relationships with openness and transparency, and an understanding of local needs. Establish an environment that enables better outcomes for infrastructure employment, and workforce development.

In an attempt to meet these objectives the SIHIP working group recommended that:

1. An Alliancing Partnering contracting methodology be adopted for the Program 2. A Panel with a minimum of three ‘one-stop-shop’ Alliance Partners be created 3. Each Alliance Partner be awarded a single works package in the first year of the Program 4. Costs and performance be monitored regularly 5. Further community work packages be awarded in subsequent years based on performance 6. The Alliance Partner be retained in the community to perform refurbishment and transition to

maintenance work and to complete training objectives 7. New housing and associated infrastructure be undertaken in each community as quickly as

possible and 8. Individual programs be adjusted in accordance with the amount and type of work required in

each community (Connell Wagner 2007b).

In the initial SIHIP phase, the panel based approach was favoured over a single entity being responsible for all of the work as it was felt that this would allow risk to be spread. Also, different panel ‘teams’ could be more effectively tailored to individual communities and that key performance indicator (KPI) comparison across multiple teams would facilitate more reliable performance monitoring. The possibility of future work packages (on a semi-competitive basis) was also viewed as likely to increase the incentives to meet performance targets (Connell Wagner 2007b, FaHCSIA 2007a). The approach of SIHIP, therefore, was to establish a panel of three ‘one-stop-shop’ housing services providers capable of providing:

• New build housing • Housing refurbishments • Housing infrastructure works (civil works) • Housing maintenance and Facility Management services • Training and employment of community workforce

Figure 3-2: The three Alliance Partnering teams

New Future Alliance, a national consortium comprising:

Earth Connect, a South Queensland consortium comprising:

Territory Alliance, a local NT consortium comprising :

• Leighton Contractors • Broad Construction

Services • Opus Qantec McWilliam • Ngarda Civil and Mining

• Canstruct • WorleyParsons Services • Force 10 International • Greene & Associates • Ostwald Brothers

• Sitzler Pty Ltd • Laing O’Rourke

Construction Pty Ltd • McMahon Services • ESS Compass Group

Sitting above the Alliances a series of management teams and committees were established to direct and oversee the performance of the Alliance Partners. The structure of the SIHIP Program is described in the organisational chart below. The Joint Steering Committee (JSC, established by the MOU) was established comprising four senior Northen Territory Government (NTG) officials, two from the Commonwealth Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), and one from the Commonwealth Department of Education, Employment, and Workforce


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Relations (DEEWR), to oversee strategic direction and performance and authorise financial expenditure. In addition the Joint Management Team (JMT) was established comprising seven representatives from NTG and three from the Commonwealth Government, to report to the JSC on issues of cross-program operational delivery. The Program Management Office (PMO) was established to provide support and advice to the JSC and JMT by assessing program performance and risk management activities.

The Strategic Alliance Leadership Team (SALT) comprises senior NTG and Commonwealth Government representatives, external consultants, and a representative of each Alliance, and was set up to optimise the performance of the Alliance Partners by identifying opportunities for innovation. The main vehicle established for SIHIP project management is the Integrated Project Team (IPT), which assists the Alliances with planning, design and construction of the packages.

Figure 3-3: SIHIP (Stage 1) Organisational Chart (FaHCSIA, 2009a)

Work packages are initiated through Package Development Reports (PDR), which are prepared by the Alliance Partners for each work package. Once approved by the JSC, the PDR “locks the Alliance Partner into a scope of works that must be delivered within budget. Painshare/gainshare arrangements apply if there are costs over runs or under runs and key performance indicators and targets are set” (FaHCSIA 2009a, 19). The process for the development and approval of the PDRs involves the following five steps:

1. The JSC approves the release of a Package Scoping Report (PSR) to an Alliance Partner. The PSR identifies the communities to be included in the package, its value and a summary of the required works.

2. The IPT provides the Alliance Partner with relevant background material, including housing condition data, demographic information etc.

3. The Alliance Partner prepares a Package Return Brief (PRB), which outlines the proposed

Joint Steering Committee (JSC)

Joint Management Team (JMT)

Program Director SIHIP

Program Manager

Integrated Program Team (IPT)

Alliance Leadership Team (ALT)

Program Management Office

Procurement Advisor, Probity Advisor, Financial

Auditor

Independent Estimator

Strategic Alliance Leadership Team

(SALT)




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budget, schedule and methodology. 4. The Program Manager gives approval for the Alliance Partner to proceed with developing the

PDR based on the PRB. The PDR included supporting documentation (at 30% design stage) and details including budgets, opportunities and risk assessments, plus plans detailing arrangements for logistics, program, Employment and workforce development, safety, environment, heritage and quality issues.

5. The JSC considers the PDR and if satisfied approves it, at which stage Total Out-turn Cost (TOC) and Total Out-turn Scope (TOS) were negotiated and agreed upon (FaHCSIA 2009a, 19).

While the PDRs are being developed, it is common for Alliance Partners to identify early works that can be commenced before the formal approval of the full work-package by the JSC. This allows works to begin in communities at the earliest possible moment, and assists in community ‘buy-in’ to the construction works.

In 2009, a review of the SIHIP program led to concerns over the cost and effectiveness of the governance structure in place, and recommended a modified reporting and approval process (shown below in the revised SIHIP organisational chart). The major organisational changes were the introduction of greater Commonwealth Government oversight and participation and the move to have program management performed by government employees rather than external consultants.

Figure 3-3: SIHIP (Stage 2): Organisational structure (FaHCSIA 2009a)

The effect of the changes in organisational structure recommended in the post-2009 review altered the distribution of ‘hard’ and ‘soft’ objectives and goals associated with the SIHIP project, which will be expanded on in the findings section (section 4).

3.2 Case Study 2: Western Australian Department of Housing: Early Contractor Involvement

The WA Department of Housing (formally Department of Housing and Works), through its Aboriginal Housing division, employed a housing procurement process utilising a panel system with an Early Contractor Involvement (also called Early Builder Involvement, ECI/EBI) methodology coupled with a Traditional contracting method involving prefabricated transportable houses, in order to fulfil their obligations to the Commonwealth associated with the signing of the National Partnership Agreement on Remote Indigenous Housing (NPARIH) in 2009. As detailed below, this involved dividing work areas in WA into 5 regions and assigning each region with a preferred ‘panel’ builder. Four of the areas were within the Kimberley region: Fitzroy Crossing, Halls Creek, and two communities on the Dampier Peninsula (see Figure 3.4).

The majority of initial work to be undertaken by the panel builders was in the form of refurbishments

Joint Steering Committee (JSC) for NPA

AG/NTG Program Management


Probity Advisor

Financial Auditor

Independent Est.

Senior Alliance Leadership Team

(SALT)




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(around 150), with a further 75 new houses delivered using the separate procurement strategy (the Traditionally contracted factory-built transportables). However, it is envisaged that over the 10 year life of the NPARIH, the majority of building work, either new-builds or refurbishments, will be contracted via an in-situ ECI/EBI method with the panel contractors.

Under the National Partnership Agreement (NPARIH) funding, 4,200 new houses and 4,800 refurbishments are planned nationwide over 10 years with a total budget of $5.48 billion. WA has been allocated $496 million over the first 5 years (from 2009) for 295 new houses and 1,025 refurbishments of existing dwellings. This funding is separate from the social housing-based Nation Building National Partnership, worth $6.4 Billion over 3.5 years, (19,300 new dwellings and 45,000 refurbishments, of which WAG allocated $40 million for Repair and Maintenance (R+M) and $549 million for Stage 1 and 2 construction in total, not just remote Indigenous housing).

The NPA, via the Co-ordinator General for Remote Indigenous Services (CGRIS), lists 29 communities nationwide nominated for priority intervention. There are 4 communities in WA listed, Ardyaloon and Beagle Bay (both on the Dampier Peninsula, pop. less than 250 each), Fitzroy Crossing and Halls Creek (pop. 250-750). According to the CGRIS first six-monthly report (November 2009), the communities are to receive:

Figure 3-4: Four initial panel construction areas in the Kimberley region of WA

Ardyaloon 1 new house (using existing funding not NPA)

Beagle Bay 10 new houses and 5 refurbishments

Fitzroy Crossing 3 new houses, 19 refurbishments and 2 additional new ‘social’ houses

Halls Creek 19 new houses, 25 refurbishments and 7 new ‘social’ houses

The Western Australian Government and Commonwealth Government signed an agreement in December 2009 that stipulated the building of 75 new houses and the completion 150 refurbishments by June 2010, as part of the larger NPARIH funded program to build 126 new houses and complete 412 refurbishments in 14 communities in WA, SA, QLD and NSW by 30 June 2010. In WA, 60 of the 75 new houses were to be built in the Kimberly region (in Ardyaloon, Beagle Bay, Pandanus Park, Kalumburra, Kupingarri, Darlganga, Kurnanki, Parapukan, Mardiwah Loop, Nicholson Block, Warman and Wirrimanu), while most of the 150 refurbishments will also be in 13 Kimberley communities. Given the logistical difficulties of building in the Kimberley region, this very tight timeframe had consequences for both procurement method choice and building type (discussed below). The NPARIH stipulated that if any jurisdiction (State or Territory) failed to meet targets, then other States or Territories were able to mount arguments to request larger portions of the overall allocation in subsequent funding rounds at the expense of the ‘jurisdiction’ that failed to meet spending/construction targets.

WA Government cost projections for the housing work were $450,000 per new house and $160,000 per refurbishment. The figure for new house cost is similar to that seen in the SIHIP case study cost targets but the refurbishment budget per job is substantially higher than SIHIP’s allocation of $75,000 per refurbishment.

The Department of Housing’s current ECI procurement method via a panel that of 5 builders (selected from 23 applications), who each have their own designated work areas, represents a form of ‘relational contracting’. The Department breaks the works program down into a ‘small works program’ and a ‘large works program’ where;

• Small Works (less than $2 million) – Early Builder Involvement method • Large Works (over $2 million and up $5 million) – Alliance method (later also called EBI)

The switch to ECI/EBI arrangements from the previous practice of using more traditional procurement options was facilitated by the longer funding timeframe (5 years) available under the NPARIH. The Department had been concerned that previous one year funding cycles had led to the funding


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becoming ‘out-of-step’ with construction timelines (when using traditional tender based procurement). This had led to a lack of long term planning, and caused disruption in the communities with contractors coming and going based on funding availability not completed work schedules. There was also an appreciation on behalf of the Department that tender processes that favoured the lowest bidder did not always provide satisfactory outcomes in the inherently difficult and risky work of providing houses in remote Indigenous areas. ECI/EBI allowed greater flexibility in planning and experience to be built-up, both in construction terms and community engagement, as contractors could be inserted into communities for longer periods of time. The ECI/EBI approach also ensures that government Project Managers and the builder/contractor visit sites together to jointly scope work and consult stakeholders.

Figure 3-5: WA Panel contractors and their locations

Contractor Geographic location

Moulba Mia: Indigenous consortium in a joint venture with Leighton

Shire of Broome (Beagle bay)

Pindan Fitzroy Valley

Ri-Con Construction Halls Creek and Wyndam East Kimberley

Kimberley Green Fitzroy Valley and Halls Creek

Brolga Developments South of Broome – Bidyadanga

An Alliancing approach was investigated for the larger work programs, and while considered feasible by the Department of Housing as a possible procurement option, the Department decided to extend the ECI/EBI methodology across both the small and large work programs. As the ‘Request for Proposals’ for the small works program published by the Department notes;

The Early Builder Involvement model is a relationship-based contracting arrangement whereby the Department of Housing and Panel Builders will work together in a collaborative relationship to complete design, planning, scoping, risk management and estimating, and then move to an independent relationship under a lump sum contract, with provisional sums where necessary, for construction. (WA Department of Housing, 2009:3)

The initial step in the procurement process was the establishment of a ‘Board of Review’ to oversee both the small works and large works programs. The Board is comprised of representatives from the Department of Housing, the Housing Industry association and the Master Builders Association of Western Australia. The primary role of the Board is to ensure ‘ongoing transparency, accountability, fairness, equity and good ethical conduct’ (WA Department of Housing, 2009:12). However, due to the tight time constraints on the first construction period (December 2009 – June 2010), the role of the Board was initially performed in-house by the Department of Housing.

The second step was the formation of a Project Selection Panel to allocate work to the various Panel Builders. A Joint Management Team (JMT) was established with each panel builder to facilitate joint project management. A schematic of the relationships is shown below (Figure 3.6, WA Department of Housing, 2009:13). Projects are selected by the panel (after being recommended by the Department of Housing) and allocated to a Panel Builder and the relevant JMT. The panel is expected to provide the Board of Review with a quarterly report on work committed and performance achieved. Once a project has been assigned to a Panel Builder, the ECI/EBI stage of the process begins. The Departmental Project Manager associated with the particular package identifies parcels of work and defines the scope that the contracted services will cover. The JMT then visits the site and jointly develops the scope of works according to conditions found ‘on the ground’. Based on this, the Panel Builder prepares a draft ‘Parcel Delivery Plan’ (PDP) and submits a ‘Lump Sum Price’ estimate. This is reviewed and assessed for scope and cost. At this stage, either the PDP is approved or is sent back to be renegotiated with the Panel Builder. If agreed, the Panel Builder then prepares and submits a final PDP. This leads to a no/go decision with the Panel Builder and if ‘go’ then the Panel


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Builder enters into a formal contract with the Department to perform the works.

Figure 3-6: WA ECI/EBI Organisation chart (WA Department of Housing, 2009)

The Parcel Delivery Plan will consist of;

• The scope of works • The delivery schedule • The lump sum price (with a breakdown of costs and contingency) • The safety management plan • The stakeholder management plan • The risk management plan and • Agreed performance targets

One of the main perceived benefits of the ECI/EBI approach, apart from risk management, is the ability to dramatically shorten the time taken between project conception and work commencing on site, relative to other procurement methods. An internal assessment from the Department of Housing estimated that on a typical ECI/EBI project, the time between appointing a Panel Builder and having work commence could be as little as 10 weeks.

Figure 3-7: ECI Procurement process and timelines (WA)

Time Process

1 week Builder appointed, preparation for site visit

2 days Builder and PM visit site and assess scope of works, worker housing options etc

4 weeks Builder develops draft PDP then after approval, final PDP

3 weeks PM gets QS advice on Builder quote then prepares contract

1 week Contract awarded

1 week Builder relocates and begins work on site


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This timeframe compares favourably with the more traditional methods of procurement that might involve an ‘in-house’ design brief development followed by a public tender, and which could take up to 32 weeks from conception to work starting.

Figure 3-8: Traditional procurement process and timelines (WA)

2 days PM conducts site visit to determine scope of works

3 weeks PM develops design brief for prospective consultants

3 weeks Consultant appointed, preparation made for site visit

2 days Consultant site visit

4 weeks Consultant prepares draft documentation to inform final scope of works

2 weeks Consultant conducts second site visit to get community sign off, provides to PM

9 weeks Consultant completes detailed documentation

3 weeks PM organises tender estimate and produces tender document, contact conditions etc

3 weeks Tender period

3 weeks Tender assessment and due diligence, contract awarded

1 week Builder relocates and begins work on site

(WA Department of Housing, Procurement and Contracting Plan Note, 2009)

3.3 Case Study 3: Indigenous Business Australia: Design and Construct

The scale of the third case study is much smaller than that of the first two. Only four dwellings were constructed at a cost of around $1 million. The purpose behind the construction was also different. Unlike the above case studies which represent the primary house building programs for remote Indigenous communities in the Northern Territory and WA respectively, the IBA ‘Home Ownership on Indigenous Land’ (HOIL) building program on Nguiu was intended instead to stimulate demand for home ownership in that (and other) community. A Design & Construct methodology for delivering the new houses in Nguiu was chosen. The particular tender process entered into however was the result of significant pre-construction research and development that informed the design and construction specifications.

Indigenous Business Australia is a multi-faceted government organisation based in Canberra whose broad remit is to assist Indigenous business enterprises. One of the Commonwealth Government programs that they were charged with administering was the ‘Home Ownership on Indigenous Land’ (HOIL) program. This was essentially an extension of the ‘Home Ownership Program’ (HOP) that assisted Indigenous people (who were suitable qualified) with subsidized loans to purchase houses on freehold land. The HOIL program was designed to allow Indigenous people living on Aboriginal community land access to similar loans for the purchase of existing community- or public-housing dwellings, or the purchase of new houses on community land. Take-up of the program was initially slow, prompting IBA to undertake to build four new houses for sale (essentially display homes) on Wurrumiyanga (Nguiu), in order to raise the profile and local understanding of the HOIL program. Wurrumiyanga was chosen as it was the first community in the Northern Territory to sign a 99-year lease with the Commonwealth Government paving the way for private ownership (of housing) to proceed.

In all, one four-bedroom house and three two-bedroom houses were constructed and sold to local


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residents. The sale price of the four-bedroom house was around $350,000 while the two-bedroom houses sold for around $250,000 each. The sale price was based on cost minus depreciation (the Queensland model), but there is still a large amount of uncertainty as to how to price the value of a dwelling in such a restricted housing market in terms of potential other buyers, eligible purchasers with financial capacity and with leasing restrictions. For example, on Wurrumiyanga, part of the 99-years lease agreement states that 85% of the population must be Tiwi. Partly mitigating the less-than-free market situation are early indications that Indigenous people who take up home ownership options overwhelmingly do so to secure ‘intergenerational assets’, that is, with the intention of leaving the house to their children and grand-children not with the expectation of selling it to a stranger for financial gain (Memmott, 2009). This potentially allows governments to ‘value’ a house relative to a prospective owner’s ability to pay.

A Design and Construct methodology was employed by IBA for the procurement of the four HOIL houses, although there were several distinct elements to the procedure that differentiated it from a standard D&C approach. IBA remained the Project Manager on the project. While IBA used a public tender process requesting suitably experienced contractors to respond to set design and materials specifications, the tender specifications outlined materials and construction methods for a pre-prepared housing design solutions. The specifications aimed to deliver a product that was innovative, affordable and culturally sensitive and which included:

• designs developed by IBA’s Design and Development Team consisting of sleeping modules and open living deck areas

• house designs providing for 2-4 bedroom options, large secure open living spaces, separate wet areas and a kitchen facility located in the open living area

• that houses are to be constructed from low maintenance and durable materials and furnishings that are appropriate for the climatic conditions and high use (Burroughs, 2009)

• technical specifications that require full compliance with the Building Code of Australia (which is not always mandatory in remote communities)

The first dot point above marked a significant departure from the normal tendering process for domestic housing. Instead of being asked to tender on a complete dwelling, prospective building companies were asked to tender costs for a series of housing modules (15 modules of different sleeping or living area configurations and 4 modules of floor/deck/roof profiles were originally proposed). Each was to be costed separately. The rationale behind this approach came from a requirement for community engagement in the form and design of the dwellings. With individual modules to choose from, local community members (who would later own the house) could piece together a design of their choice to accommodate their particular family/residential circumstances. This was a hybrid method, as residents could not ‘design their house from the ground up’, but could ‘compose it from identically sized and costed alternative pieces’. In practice, this approach was scaled down to a couple of sleeping and living area variations, with a common floor/roof layout, in part due to unexpected costs incurred in getting the house lots prepared and ready for construction.

Another point of difference with the tendering process (from other building activity on Wurrumiyanga at the time), was the choice of primary material for the houses. The primary structure, walls and floor were constructed of plywood. Timber construction was also used in the kitchen and wet areas. This was chosen on the basis of cost (10 alternative walling systems were investigated for example, but were deemed too expensive), and the fact that the houses could be completely fabricated on site, a situation that maximised the potential local workforce participation. To allay fears of termite infestation or problems with children and ‘chemically treated timber’, a Wood Product Association specialist took part in the community consultation process. The construction project also included a Safety and Environmental management plan.


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4 Findings

The findings are organised according to the criteria set in section 2 and reported accordingly in the following subsections. Initially though, the framework proposed by Crawford and Pollack (2004) has been applied and presented in figure 4.1 in order to illustrate how dimensions of the project procurement are represented in relative hard/soft terms across the cases.

Figure 4-1: Analysis of hard and soft aspects across the Case Studies

Case Study 1 SIHIP Alliancing Stage 1 and Case Study 2 ECI show soft characteristics regarding goal clarity, goal tangibility and success measures. This reflects the prominence of difficult to measure non-housing options in creating uncertainty over the assessment of KPI’s relating to consultation, training and community engagement. The change from Case Study 1 SIHIP Alliancing Stage 1 to that of Stage 2 reflects the effort of the Commonwealth Government to redefine goal clarity and success measures towards a more quantitative assessment of dwellings produced or refurbished and dollars spent. While this allows for a clearer determination of success in terms of construction activity performed, as indicated above, quantitative measurements of some variables (such as numbers of dwellings built) cannot necessarily assess end-user satisfaction or even appropriateness, in Crawford and Pollack’s words, the “meaning, attitude or morale” of the residents to their new dwellings.

In both Case Study 1 and 2, project permeability remains high. The list of influences outside of the project’s control is substantial and includes; weather events, the satisfactory resolution of leasing agreements, workforce and material costs, and budget allocation through Commonwealth or Territory/State Government priorities.


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4.1 Risk

All three case studies, but particularly Case Study 1 and Case Study 2, represent procurement strategies that differ substantially from the most common forms of contracting involving a lowest bid tendering process. This is a reflection of an understanding that Indigenous housing contracting often involves a considerable amount of uncertainty and risk. Severe weather and skills shortages are part of this, as is the largely unknown existing conditions of dwellings to be refurbished, rebuilt or dismantled and replaced. In response, both the Northern Territory Government and Western Australian Government have chosen procurement methodologies that involve early, collaborative relationship between the contractor and the government client.

4.2 Clarity and tangibility

In Case Studies 1 and 2, the combination of uncertainty over the amount of work required refurbishing existing stock and the presence in the briefs of difficult-to-quantify non-housing outcomes tied to payment levels resulted in both projects having a high level of uncertainty relating to work methodology and the setting of goals (see Figure 1, above). Given that all the construction projects within this research project have either State/Territory or Commonwealth Governments as clients; uncertainty and how it may impact on the strategy for managing the projects is of high importance.

The ECI method used in Case Study 2 is particularly well suited to a situation in which uncertainty regarding the scope of works is the norm, as it allows both the client and builder to jointly assess existing conditions and reduces the need to build in risk contingencies on the part of the builder at the beginning of a project, or press for changes in scope after the signing of contracts.

4.3 Time

In Case Study 2, the ECI method enables the Department (through their Project Managers) to observe the contractor/builder’s interaction with the local stakeholders, an important consideration when working in Indigenous communities, with additional benefits in terms of speeding up timing from conception to work commencing. The longer time frame of the ‘relationship’ between the Department and Builder (5 years initially under the NPARIH), also potentially allows better construction management of the dry season/wet season impediment to building than under previous 1 year contracts where start and finish dates were set by the beginning and end of the financial year. However, the system does not facilitate extremely short time frame on-site construction. Short timeframes allocated to the Department to construct 75 houses and 150 refurbishments at the beginning of the NPARIH (six months, ending June 2010), meant that a decision was made for all of the new houses to be delivered as ‘transportables’, manufactured off-site in Darwin, Perth or Alice Springs.

4.4 Cost

Ensuring competitive cost outcomes and enabling cost certainty are laudable aims and are often central to procurement. Across the cases, there was a tacit understanding that the lowest cost outcome is not always the best outcome. In Case study 3, cost was a particular issue because an original intention was to recover construction costs from the sale of the completed properties. There was also a commitment across the case studies to build in durability as a way of managing repairs and maintenance costs. In Case studies 1 and 2 the background is the ongoing ownership and operation as public housing, whereas in Case study 3 the context is that IBA are attempting to demonstrate the benefits of the home ownership model and therefore repairs, maintenance and durability are important ‘after sales’ dimensions of the model. Also, although responsibility rests on the new home-owner, most residents of remote communities come from a background of community- or public-run houses in which these organisations are responsible for routine repair and maintenance, and so IBA in Wurrumiyanga committed to;

• providing a home-user’s manual to assist residents • checking (and advising) on the maintenance of the HOIL homes as part of managing

the HOIL loan (after 2 years)


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• providing a small, general toolkit for minor repairs at each dwelling (notwithstanding the broader question of how future tools, parts and DIY skills are to be brought together for future R+M)

• providing a 1 year defect liability.

4.5 Non-housing outcomes

All case studies included several non-housing outcomes, such as consultation processes and minimum requirements for local Indigenous training and occupation outcomes that were acknowledged would affect (upwards) the bottom line cost of the new and refurbished housing stock.

The recommendation of the advisory panel in Case Study 1 to proceed with an Alliance methodology over a ‘Managing Contractor’ one (the advisory panel’s next favoured option), was significantly influenced by ‘non-housing’ considerations. It was considered that the Alliance Partnering process would enable the participation of many smaller (so called third-tier) building companies that were operating in the Northern Territory to a greater degree that if a Managing Contractor was in control. Alliancing was also seen to be better able to accommodate the goal of facilitating a set level of Indigenous education and training associated with the construction and maintenance of housing in remote communities.

In Case Study 2, prefabrication impacts negatively on employment workforce targets, as this takes place outside of communities. The level of community acceptance of these homes is also currently unknown - either concerning design appropriateness or the association with transportables as ‘temporary’ houses.

In Case Study 3, a particular emphasis was placed upon building experience of the contractors in remote Indigenous communities. This experience was considered more important factor in tender allocation than bottom line costs. Follow up HOIL loans for new owner-occupier homes on Wurrumiyanga emphasized this with the failure of a ‘mainland’ building company engaged to construct several houses causing significant difficulties for some local residents. However, problems in engaging Indigenous owned and operated firms were also encountered, for example, it was noted that small Indigenous businesses struggled to receive the Federal Safety Commission (FSC) approval needed for jobs over $3 million, due to cost of compliance factors.

4.6 Process

The choice of Alliance methodology in Case Study 1 was based substantially on the fact that the Alliancing option enabled the builder to be actively involved in the process earlier than with a Managing Contractor situation. It was also expected to facilitate local employment through third-tier building companies (see above). The use of cooperative operation is a means to reduce risk due to uncertainty, although they may also redistribute risks such that unforeseen problems are ultimately directed back to government to resolve.

In Case study 3, the small scale of the building project allowed for a consultation process to take place (this was important in convincing community members to then actually purchase the houses produced, an unusual situation in remote communities and one requiring considerable commitment). The consultation process (below) had a direct bearing on the form of the tender process:

• Initially a list of questions (no plans or concept drawings) • Only after 3 days of questions were concepts developed • Models then developed and discussed with community • Practical demonstration of material properties was useful in convincing local

residents. For example, treated and untreated timber was left in a termite mound for 6 weeks and the results (termite refused to eat treated timber) used to back up 25 year guarantee. Safety glass for windows likened to glass of a car windshield to dispel breakage/injury claim.

• Despite this some problems still. Internal (enclosed) decking provided as a safety measure for children re dogs, rats etc. But when finished houses were delivered ‘Where is my outside deck?’


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• Similarly, floating timber floors needed last minute replacing (with linoleum) when ‘hosing out of internal floors’ practice was still in place (despite earlier comments that it would not happen).

4.7 Design and built form

Generally, the quality of construction is high across the case studies (see More Than a Roof Overhead Working Paper’s 2 and 4). The nature of the Alliance procurement method for Case Study 1 meant that comprehensive design and performance guidelines were issued and shared across Alliance teams, a fact that promoted design quality, good feedback mechanisms and a consistency of design philosophy across a large project.

In Case Study 2, the use of off-site construction enabled a high level of buildability, design and building integration, and quality control. Governance and oversight of quality is also high as factories can more easily be inspected for conforming to specifications.

In Case Study 3, the small scale of the project and the use of different housing modules allowed Living Practices (that emerged from the consultation process on Wurrumiyanga), to be incorporated into the final design of the dwellings. These design facets are also built into the other case study dwellings:

• Hosing out of internal floors • Visual privacy needs (particularly regarding hygiene practices) but also more

generally due to cultural relationships between dwelling occupants • Security required both from internal and external source of potential threat • Increased door widths and access design to enable utilisation by occupants and

visitors with low mobility or poor eyesight (wheelchairs – door widths, bathroom dimensions and hand-rails).


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5 Discussion

We have addressed the key aim of the paper by documenting a review of generic procurement methods, presenting criteria to guide the selection of appropriate procurement strategies in given settings, and analysing the current procurement options that are being used for the delivery of housing provision in remote Indigenous communities in the Northern Territory and Western Australia. The paper examines three case studies in order to understand method selection and to systematically identify the main factors that determine success in procurement selection in remote indigenous housing. All three case studies were examples of public sector ownership, initiation and funding, with only Case Study 3 looking to on-sell the housing constructed to a (severely limited) private sector owner-occupier market. Partnering was the preferred selection method for Case Studies 1 and 2, while Case Study 3 pursued a restrictive ‘open competition’ method, by controlling the consultation and design stages of the process and reserving the right to not select the lowest tender bid.

One effect of cooperative risk-sharing approaches in the major housing projects studied is to reduce competition amongst building contractors, which might put upward pressure on costs. However, in addition to risk mitigation, the early contractor involvement assists in facilitating many of the ‘non-housing’ outcomes that are difficult to achieve in a standard tendering situation, where contactors are primarily attempting to minimise costs. In Case Study 2, some ‘non-housing’ outcomes were impacted by the use of prefabrication. Nevertheless, in the interests of time and delivery, the Western Australian case study decided to continue the relationship with the various ‘transportables’ companies as a contingency against the ECI process not being able to meet its targets.

The price basis for the various projects proved contentious in all case studies. Despite the emphasis on non-housing outcomes (with attendant cost implications), in both Case Studies 1 and 2 the party ultimately responsible for the funding (the Commonwealth Government) placed strict caps on the cost of new and refurbished houses (averaged over a particular work package in a community). In Case Study 3, an initial budget was imposed on the project that dictated the amount and size of the dwellings produced (1 four-bedroom and 3 two-bedroom houses), however, unforeseen costs (associated, for example, with site clearing and decontamination) were carried by the government entity initiator in order that the final cost was kept in line with expectations of mortgage loan size for the potential owner-occupiers, that is, a degree of subsidization occurred.

This suggests that despite all three case study clients (the Northern Territory and Western Australian Governments and Indigenous Business Australia), employing procurement strategies that placed emphasis on leveraging construction projects to provide ‘non-housing’ outcomes, as well as dwellings, the effective definition of ‘success’ in the procurement methodologies in each of the case studies was biased towards housing rather than non-housing outcomes.

Responsibility for design rested with the Alliance Partners and ECI Partners for Case Studies 1 and 2, however in both cases comprehensive guidelines and minimum standards (particularly for heavy-use and wet areas of dwellings) were insisted on by the government client partners. Design control rested with the government entity initiator in Case Study 3. Responsibility for project management also rested with the Alliance and ECI Partners in Case Studies 1 and 2 but with substantial oversight provided by the government clients, particularly in the case of the first stage of Case Study 1. Project management remained with the government client in Case Study 3.

In all of the case studies, sub-contracting (of both housing and non-housing elements of the projects) was extensive, with a premium placed on sub-contracting work to Indigenous owned or operated companies where possible. Viewed in this way, Case Studies 1 and 2 share many of the same characteristics and may be considered to be examples of the same approach to housing procurement, with slight differences due to the larger scale of the building program in Case Study 1 compared to Case Study 2, and the fact that Case Study 1 was initiated first, giving Case Study 2 an opportunity to fine tune its processes to minimise some of the well-publicised difficulties encountered early by Case Study 1.

Case Studies 1 and 2 contain several key characteristics (or desired outcomes) that suggest that a soft methodological approach to procurement may be appropriate. These include the central role of community consultation and input into housing outcomes before construction begins and a


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commitment to maximise Indigenous training and employment opportunities arising from the provision of housing stock. Even Case Study 3, the project with the most recognisably ‘hard’ procurement method and operation, endeavoured to build in community consultation and local employment as important aspects in determining project ‘success’.

The experience across the case studies is one of dealing with uncertainty while aiming for a range of planned (housing and non-housing) outcomes, both set within a context of challenging timelines and construction logistics. As indicated through our analysis using the Crawford and Pollack (2004) framework, the development from SIHIP Stage 1 and SIHIP Stage 2 provides a clear hardening of the procurement based on improved experience, understanding and practice associated with learning from Stage 1. It is expected that the longer timeframes of partnerships available under the NPARIH for both Case Studies 1 and 2, will continue to facilitate an improvement in certainty and clarity for remote projects, with a resultant improvement in cost efficiencies and design quality.


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6 Conclusion

Risk, together with its management and apportionment remains a key factor in choice of procurement approach. Risk management implies risk measurement, and as noted in the discussion of ‘hard’ and ‘soft’ construction projects, not all risks are able to be measured to the same degree (or even using the same metrics). The case studies provide an example of instances where Institutional (client) procurement strategies recognise and embrace ‘soft’ or non-housing outcomes as critical components to a project’s success. However, when procurement methodologies are in place on the ground, the inability of the clients to fully control the definition of success from outside influence (in this case the Commonwealth Government), resulted in success measures being realigned towards the ‘hard’ side of the spectrum, where measurement is more straight-forward and success may be more tangibly expressed, but where it may be achieved at the expense of some of the more difficult to quantify non-housing outcomes.

There remains a need for a means to ensure ongoing independent evaluation, knowledge and intellectual capital retention, and systematic learning both spatially across jurisdictions and projects, and temporally from project to project. If this can be attained and coupled with a longer term strategy for housing investment, then processes can improve and, in turn:

• clarity and tangibility will increase; • non-housing outcomes will be enhanced; • costs will fall in relative terms; and • design and built form will remain at a high quality and potentially further improve.


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More Than a Roof Overhead Working Paper Nomams.rmit.edu.au/y6swzvdkv8v3z.pdf · 4.2 Clarity and tangibility ... of the spectrum, ... More Than a Roof Overhead Working Paper No.1