Tute -06.11.2011

7/27/2019 Tute -06.11.2011

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INNOVATIVE PROCUREMENT

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INNOVATIVE CONSTRUCTION PROCUREMENT

Gives the client more input into cost and quality

Client needs a management with strong

leadership and teamwork qualities in order to

produce what is expected. Such procurement was introduced to accommodate

forever increasing diversity, complexity and

standardisation of building techniques

Direct involvement of the manufacturer in terms of

design, costing and logistics

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INNOVATIVE CONSTRUCTION PROCUREMENT

(CONT.)

The management structure of this form of

procurement is organised hierarchically

according to the stages of product development.

Use of non-traditional delivery system cancreate greater risk of misunderstanding Scope

of work / compensation are changing

continuously Innovative project delivery systems can blur the

traditional roles and responsibilities of

participants

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EXPLANATION OF PROCESS

Owner established budget and building criteria

Owner selects the design team

During the design-development phase, owner

advertises for and selects a construction firm

based on predetermined criteria to join the

owner/design team.

Firm assists in completing the design andestablishing a guaranteed maximum price

(GMP)

All trade work is bid competitively by the CM/GC

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PROJECT CHARACTORISTICS

High risk projects

High level of technical complexity

Strict budget constraints

Complex phasing Significant scheduling constraints

Complex site constraints such as unusual

topography Value engineering that would result in

substantial cost savings

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TO ACHIEVE...

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TWO STEPS SOLICITATION PROCESS

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MANAGEMENT-ORIENTATED PROCUREMENT

SYSTEMS

Defined as a process whereby an

organisation, normally construction

based, is appointed to the professional

team during the initial stages of aproject to provide construction

management expertise under direction

of the contract administrator

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MANAGEMENT-ORIENTATED PROCUREMENT

SYSTEMS

KEY POINTS

The contractor is appointed on a professionalbasis as an equal member of the design teamproviding construction expertise

Reimbursement is based on a lump sum or percentage fee for management services plus theprime cost of construction

The actual cost is carried out by works or packagecontractors who are employed, co-coordinatedand administered by the management contractor

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COMPARISON OF PROCUREMENT SYSTEMS,

SOURCE OF RISKS AND CONFLICTS

Responsibility for decision

Constriction isstarted withoutknowing theconstruction costs

Preparation Design

Tender

Construction

Cost

Start

Modernmanagerial

typed system

Construction is

being started

knowing the

construction costs

Preparation Design

Tender

Construction

Cost

Start

Traditional

system

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Construction Management

CM

Management ContractingMCClient

Designer

Contractors

Client

Designer

Inspector

Supervisor Construction

Manager Management

Contractor

Inspector

Supervisor

Contractors

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MANAGEMENT CONTRACTS (CM, MC…)

Characteristics

Management team is involved at early stage

Design can be influenced (buildability)

Claims can be solved, delays reduced Save time – series of tenders, work packages

Flexibility in design to suit the client

to suit the budget

More risk in design – higher requirement in design

No assured final cost at the start of construction

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CONSTRUCTION MANAGEMENT

Many owners engage construction managers(CMs) to assist in developing bid documentsand overseeing project construction.

CM: Is a professional or a firm trained in the

management of construction processes.

Is generally interposed between the owner andsome or all of the other participants.

There are two general types of CM: Agency Construction Managers (ACM)

Construction managers-at-risk (CM-at-risk)

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AGENCY-CONSTRUCTION MANAGER

(AGENCY-CM)

ACM acts as an agent of the owner and extends

the owner’s internal capabilities in performing

traditional owner responsibilities.

The level of service by the ACM can range from on-call advice to full project management.

In some cases, the owner hires the ACM before

design begins and ACM may participate in the

selection of and contracting with the designer or

might even be the designer.

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AGENCY-CONSTRUCTION MANAGER (AGENCY-

CM)

Agency-CM (also known as Program Management for multiple contracts or programs) is a fee-based service inwhich the construction manager (CM) is exclusivelyresponsible to the agency and acts as the agency’srepresentative at every stage of the project.

The CM is selected based on qualifications andexperience, similar to the selection process for designservices.

CM responsibilities may include providing advice duringthe design phase, evaluating bids from prime contractors,overseeing construction, and managing project cost,schedule, and quality.

The CM may work with the designer or contractor toreduce the cost, but does not guarantee price or take onthe contractual responsibility for design and construction.

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AGENCY-CONSTRUCTION MANAGER (AGENCY-

CM) - CONT.

Objective• Supplement in-house staff with independent professionals

having expertise in project management, scheduling, andcost control

• Time savings by fast-tracking construction

Project Types/Selection Criteria

• Agency must supplement its internal resources andmanagement expertise given the project’s size or

complexity• Large, complex (multi-season) projects with multiple

phases or contracts

• Fast-tracked construction (using phased packages) ispossible

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PROS & CONS

Pros Cons

Earlier involvement of CM (constructor)bridges design and construction phases

High agency involvement (in comparison toother innovative delivery systems)

Furnishes construction expertise to designer CM not at risk for construction cost

Provides the opportunity for “fast-tracking” or

overlapping design and construction phases –

faster than traditional design-bid-build system

Unlike CM at-Risk, Agency-CM services are

not regulated by state licensing laws for

contractors or A/E firms

Augments the agency’s own resources to help

manage cost, time, and quality

Agency continues to hold construction

contracts and retains contractual liability

Procuring separate design and construction

contracts is less change for agency

Added project management cost for CM

services

Provides an independent point of view

regarding constructability, budget, valueengineering, and contractor selection (No

inherent bias towards design or construction)

Agency cedes much of the day-to-day control

over the project to the CM, adding a level of bureaucracy in the field

Potential to fast-track early components of

construction prior to completion of design

Reduces the agency’s general management

and oversight responsibilities

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CONSTRUCTION MANAGER AT RISK

(CM AT-RISK)

CM-at-risk arrangement increases significantlyowner’s delegation of control and risk.

CM-at-risk typically contracts with the owner in twostages.

First, CM-at-risk manages and undertakes servicesduring conceptual & preliminary design phases withthe design professional.

When design is complete, owner and CM-at-risk then

agree on a price and schedule for the completion of the construction work.

CM-at-risk is popular for owners of private projects.

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CONSTRUCTION MANAGER AT RISK (CM AT-

RISK)

With CM at Risk, the agency engages a constructionmanager (CM) to act as the agency’s consultant duringthe pre-construction phase and as the general contractor (GC) during construction.

During the design phase, the CM acts in an advisory role,providing constructability reviews, value engineeringsuggestions, construction estimates, and other construction-related recommendations.

At a mutually agreed upon point during the designprocess, the CM and the agency will negotiate aGuaranteed Maximum Price (GMP).

The GMP is typically based on a partially completeddesign and includes the CM’s estimated cost for theremaining design features, general conditions, a CM fee,and construction contingency.

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RISK)

The construction contingency can be split into CMand agency components.

The CM contingency will cover increased costs dueto unavoidable circumstances, for example material

escalation.

The agency contingency would cover cost increasesfrom agency-directed or agency-caused changes.

The construction contingency can be handled indifferent ways under the contract.

Unused CM contingency can be returned to theagency, shared by the agency and CM, or given tothe CM.

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RISK) Agencies are increasingly experimenting with sharing the

contingency pool with the CM to provide the CM with an incentiveto control cost growth associated with change orders to meet theGMP.

The agency may elect to remove pricing of some material or workitems as part of the GMP if pricing of these items results in anexcessively high CM contingency or GMP.

For example, if the price of steel were too volatile to achieve anacceptable GMP, the agency could establish a separate bid itemand pre-pay or pay for the steel directly under this item at actualcost.

After the GMP is established, the CM can begin construction,

allowing for the overlap of the design and construction phases toaccelerate the schedule.

Once construction starts, the CM assumes the role of a GC for the duration of the construction phase.

The CM holds the construction contracts and the risk for construction costs exceeding the GMP.

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RISK) Objective

• Time savings by fast-tracking design and construction in phasedpackages

• Transfer performance risk to CM

Performance Outcomes

CM at-Risk costs 1.5% less than DBB, completes 5% faster thanDBB, and performs equal to or better than DBB in most qualitymeasures. (Sanvido and Konchar 1999)

Project Types/Selection Criteria

• Large projects with multiple phases and contracts• Fast-tracking – Staged construction

• Limited internal agency management resources and expertise

• Limited time or funding constraints

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PROS & CONS

Pros Cons

Allows for innovation and constructabilityrecommendations in the design phase, yet the

agency still retains significant control over the

design

Once construction begins, the CM assumesthe role of a general contractor, leading to

possible tensions with the agency over project

quality, budget, and schedule

CM holds construction contracts, transferring

performance risk to GC

GMP approach may lead to a large

contingency to cover uncertainties and

incomplete design elements

GC puts more investment in cost engineering

and constructability review than with CM-

Agency

Incentive split of savings scheme may create

perception of inflated GMP

Fixes project cost and completion

responsibility earlier than Design-Bid-Build

CM input may not be included by designer

Use of a GMP with a fixed-fee and opportunityfor shared savings provides an incentive for

CM to control costs and work within funding

limits

Use of a GMP may lead to disputes over thecompleteness of the design and what

constitutes a change to the contract

Reduces agency’s general management and

oversight responsibilities

Agency retains design liability

Potential to fast-track early components of construction prior to complete design

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THE PORTLAND METHOD

Named after the City of Portland, Oregon where it wasused, is a hybrid CM at-Risk delivery method using acost-reimbursable, fixed fee approach to compensation.

The delivery is structured into three phases, procurement,pre-construction, and construction.

In the first phase, the agency procures the contractor using a best-value process.

The proposer is selected based on qualifications and afixed fee “bid” covering the contractor’s off -site and onsiteoverhead, including superintendents, management staff,

other general conditions costs, and profit, for the life of the project.

In the event that differing site conditions increase overallcontract time or extra work is ordered in writing by theagency, this fixed fee may be renegotiated accordingly.

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THE PORTLAND METHOD

During the pre-construction phase, the contractor provides designreviews and construction planning, with a focus onconstructability, value engineering cost and time reductions, and joint risk assessments.

These efforts culminate in the development of an estimatedreimbursable cost (ERC).

The intent is to establish reasonable construction costs for labor,equipment, and materials, which factor in the costs of unknownswithout establishing a separate contingency.

After comparing the ERC with the “Engineer’s Estimate,” thecontractor and agency negotiate a final ERC and combine thiswith the fixed fee to establish the contract amount.

Finally, the contractor will submit a cost control program andsubcontracting plan for construction.

In the final phase, the general contractor will construct the projectby self-performing work on a reimbursable basis and sub-contracting work using firm-fixed-price agreements.

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THE PORTLAND METHOD

The Portland Method differs from conventional CM at-Risk in that it uses an ERC instead of a GMP.

The ERC shifts less risk to the contractor to meet setfunding limits.

Also, the Portland Method places no limits on the

amount of work that the prime contractor may self-perform, a common restriction found in CM at-Riskcontracts.

Objective • Early contractor involvement (design and planning)

to reduce cost and schedule.

• Time savings by fast-tracking construction

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PROS & CONS

Pros Cons

Allows for innovation and constructabilityrecommendations in the design phase,

yet the agency still retains control over

the design

Once construction begins, the CMassumes the role of a general contractor,

setting up traditional contractual

relationships with agency and designer,

and potential for disputes over project

quality, budget, and schedule

Fixes project cost earlier than Design-

Bid-Build

Best suited to specialized work (e.g.

tunnelling) with significant risk of cost

and time growth

Potential to fast-track early components

of construction prior to complete design

Agency retains design liability and

greater risk of differing site conditions

In comparison to CM at-Risk with a

GMP, reimbursable cost basis shifts less

performance risk to the contractor

Provides no added incentive to motivate

contractors to control costs

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DESIGN SEQUENCING

With design-sequencing, the agency sequences design activities in amanner that will allow the start of each construction phase when thedesign for that particular phase is complete, instead of requiring thedesign for the entire project to be complete before allowing constructionto begin.

The agency delivers the remainder of the design by predetermineddates after construction has started.

To implement design-sequencing, the agency develops plans and anestimate to a level sufficient to define the project scope and to allow thecontractor to select anticipated subcontractors.

The bid documents must contain all anticipated items necessary for thecomplete design, regardless if final quantities have been determined.

Due to the potential for agency-caused delays in releasing subsequentdesign sequences, design-sequenced projects typically do notincorporate other time-saving contracting techniques, such as A+Bbidding or Incentive/Disincentive provisions.

Objective

• Accelerate project delivery by allowing the agency to award a projectbased on plans that are, on average, 30 percent complete

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PROS & CONS

Pros Cons

Faster project delivery The agency retains the risk for variationsin the bid quantities

Potential for construction inefficiency due

to conflicting or overlapping work

between the initial sequence and

subsequent sequences

Unanticipated site conditions or third

party conflicts during construction may

impact ability of a design-sequenced

project to generate time savings

ADVANTAGES & DIS ADVANTAGES

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ADVANTAGES & DIS-ADVANTAGESPros Cons

Contractor selected based on qualifications Requires knowledgeable and experienced owner

Contractor assists in design Higher initial cost

A GMP is established prior to bid

Early advice can be obtained from the

contractor/manager on design, buildability,

programming, materials availability and together with

general construction expertise.

Elevation of the contractor to the status of a client’s

adviser/consultant with the result that the

contractor’s contractual liabilities are limited, in the

same way as other members of the professional

team, to accepting responsibility of negligence in the

performance of his management role

Fewer change orders – fewer claims

Since the financial structure of this system is

fragmented, the monetary failure of any works

contractor will only have limited effect overall

process.

Although the contractor/manager is responsible for

supervising construction and ensuring that work isbuilt to the standards identified by the design team,

the fact that his obligations are limited to his

management capabilities means the client is liable

for the cost of remedying any defects.

Time savings (work can start prior to design

completion)

This system has a high degree of flexibility to allow

for delays, variations and rescheduling of work

packages.

The whole issue of maintaining quality control is

problematic when using this procurement system.The client may need to appoint additional site

supervision to avoid difficulties in determining the

responsibility for defects and to ensure that the

specified quality is achieved.

Less adversarial

Commencement of the project is accelerated, which

The client does not have a firm price tender available

before commencing work although both private andpublic accountability can be partially satisfied as the

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ONE STEP TOWARDS A SUCCESSFUL PROJECT

To choose appropriate procurement system and appoint

the manager as early possible for maximum benefit

Characteristics of the delivery system have to be

understood by the participants Contract has to contain reasonable allocation of

activities, responsibilities and risk

All the participants have to recognise responsibilities, act inpartnership

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COMPARISON

Design-Bid-Build Design Build CM/GC

Statutes Preferred Statutes allowed Statutes allowed

Lowest first cost First cost on budget Higher first cost

Final cost ? Final cost ? Final cost ?

A/E completes design Design firm and contractor selected as one based on

criteria

Select contractor basedon

criteria

Advertise Owner has little or no

input

into design

CM assists in design

Select low bid Owner has no risk? Prepare bid package

Owner risk Shared risk

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PROJECT DELIVERY SYSTEMS

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PROCUREMENT

Can help to reduce conflicts on construction projects

Proper choice and fully understandingof delivery system

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Documents

Tute -06.11.2011