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In order to achieve successful project completion, it is extremely important to establish or adapt to a procurement strategy that has the ability to priorities the objectives of the project, along with identification of risks and management processes. A project must be able to fulfill the requirements of the business; in accordance with the design, and be completed within the allocated time and budgets. Any variation in achieving these goals presents a potential risk. All these risks can risk the client’s purpose of business; therefore the procurement strategy must be able to manage these parameters in order to balance the risk against the fundamental objectives of the project (Crandall and AlBahar, 1990).
The selection of an appropriate project team can potentially lead to completion of the project at the desired time and cost, given that optimum procurement strategy has been opted while taking an expert advice of the consultants/advisors. Enhance project performances can be achieved via considering ‘value’ over the ‘costs’ (Morledge et al., 2006).
Under the design and build procurement strategy, higher risks associated with the design as well construction is assumed by contractor. However, as a trade-off, this eventually results in lack of control over the project by the client. The balance might be adjusted through contracts, however the greater risks assumed by the constructor will result in higher tender prices.
Since the States of Guernsey have obtained services of the consultants and the RPS Group (appointed as the lead design consultant for the project), spending additional amounts on the design related activities will only lead to additional cost without much of the benefit, as it can be assumed that the States along with consultants and advisors are able to provide support in the designing process of the project.
As successfully applied in the case of “Guernsey Runway Enhancement and Ancillary Works” project, the traditional ‘design bid and build’ strategy can balance the risk of the project for both parties. This strategy can also be applied for this new project of aircraft aprons and taxiways extension, however, it must be considered that the lack of communication between the design team and the contractor can lead to design and construction variance. Furthermore, this tradition methodology can lead to time and cost uncertainties, and subsequent disputes. This is because of the fact that this methodology adapts to a sequential approach of project activity completion, and also because the contractor is not appointed during the design-stage of the project, the contractor is unable to advise the client on project design/plan related activities.
For the complex projects such as the proposed project of extending the aircraft aprons and taxiways at Guernsey Airport, the design as well as management is deemed as significantly important, and thus the procurement methods that can ensure optimum collaboration as well integration in-between the team members and stakeholders of the project may be applied (Holt et al., 2000).
The States have a definitive requirement of finishing the project as quickly as possible. Therefore, an alternative procurement strategy of Management Contracting may be considered for this proposed project. This strategy is mostly suitable for timely tracking of project activities, resolving complexities while ensuring enhanced performance of the project. Lagan construction can be appointed as the management contractor for completion as well as management of construction related works on site, which can be accomplished at a very reasonable price.
Thorough implication of this strategy, an early appointment of the contractor can be assured, ensuring provision of expert services along with the client’s consultants during the design stage of the project. This will result in development of an enhanced design, construction programme, and costing of the project.
Figure 1: Procurement structure – Management contracting (source: Lecture notes, University of Reading, 2014)
As it can be seen from the figure above, information sharing platforms are extended as it is shared among all the design/advisor teams, employer and contractor. The process would further allow early of construction works on site, such as fencing etc, and consequently lead to early completion. The Guernsey constants and/or the PRS group will have the flexibility to change / revise the design during the course of the project, if incase they feel that certain revisions are required to further improve the project performance.
A formal submission of the management fee and appointments can be made with the States representatives, consultants and the design team. If the contract is awarded, Lagan construction will undertake construction through a cost plan contract, which is prepared in accordance with the project-drawings, sites & quantity surveys and other specifications. Since the costing is not 100% confirmed at the starting phase of the project, this proposal cannot lead to any potential disputes. The competitive tenders/bids of the construction works can be processed in the later phase of the project, which will be based on the lump-sum contracts in the form of BOQs. Lagan Construction will be responsible to let the work packages at the current competitive prices.
Since Lagan has won most of the projects on the airport through competitive tender in the recent history, and completed many projects successfully, the state of Guernsey can have a higher degree of trust and confidence on Lagan construction. The enhanced coordination between the State and Lagan Construction will further improve performance of the projects they take together.
Lagan Construction believes that the process of analysis of risk and its understanding must be initiated at all levels in any project or business. It helps in risk reduction, provides sophisticated arguments on contracts, enhances decision making ability and most importantly, it enhances the coordination between the project teams. Sensitivity reduction is achieved because members involved in project are well aware of all estimated risks. Estimation of probability is provided and members are facilitated in determining the achievable targets. Apart from improvements in team work, qualities such as honesty, understanding, and accountability can also be enhanced as a result of risk analysis.
Plans for risk reduction will be prepared by Lagan construction before initiating the construction phase of the project, and negotiation required in sub-contracts will eventually become more result oriented, as pre-analysis of the associated risks establishes expectations of the levels of risk both parties are expected to share.
Lagan Construction will identify and manage the risks and handle the controllable and uncontrollable items via producing estimates in the form of ‘ranges’, representing a realistic plan instead of a single point estimation. Risk and uncertainty concerned to plans are more precisely calculated by ranges; therefore all elements of a project are covered under range estimation, such as cost, time, resources, etc. Events including particular risks will be added to one category, which will make it much easier to analyze and develop strategy on how to address this specific risk types.
Range estimation is expected to provide numerous benefits, however a lot of experience and skills are required by the team in order to conduct this estimation. Lagan Construction has extensive experience in completing many projects, and thus has the ability and skills to successfully complete these estimations. In order to obtain best results, it will be ensured that the ranges are restricted as much as possible.
Tasks being estimated in ranges will produce the output in same manner i.e. in ranges. Duration of projects or a cost of a certain group of activities can be taken as an example, as these can be more easily represented in a particular range. By observing the output obtained in ranges, it is easier to understand and compare the risk involved in project. Adaptation of this methodology will provide budget related parameters such as duration, expenditure, resources used, breakdown costs, etc. in the form of minimum and maximum possible values, hence making it easier for the team analyze the effectiveness of the proposed budget, and recommend whether or not the budget of £30 million, and time of 18 months has been proposed accurately enough.
When estimates are calculated in ranges, project’s sensitivity becomes more definitive. Tornado charts will be used for sensitivity calculations during the entire project related task and risk events. Addition of uncertainty to estimates is a common practice. Uncertainty could be a fixed value but to gain more realistic estimate, adding uncertainty to project level is always recommended. Every task has different risks involved in it whereas some are quite simple and less time consuming, so instead of adding uncertainty factor for every task it is better to add it for a whole project.
Risk analysis provides an opportunity to the team for making assumptions by detail analysis of the factors involving risk, including controllable and uncontrollable items. When a team is not bounded to work with single-point estimation they produce more honest and reliable assumptions. Besides these advantages it is rare to observe a workshop for a team on risk analysis.
Lagan construction will arrange a workshop specific to this project, which will provide the team with more clear and sound approach towards the tasks involved in this proposed project. In result, the human resources will have tailored skills to successfully carry out the estimation under the scope of this project. Risk analysis workshop can prove to be very helpful in order to advise cost and scheduled disciplines. Risk reduction plans and risk response are expressed / developed through the adaptation of optimum risk analysis techniques.
Once the analysis and the observations gathering processes are completed, Lagan Construction will produce a list of primary risks. Suitable actions will then be recommended for the primary risks, before a list of secondary risks will be prepared. Secondary risks are those risks which take place due to the actions against primary risks. Consequences of response actions have to be dealt carefully after development of response actions. In order to overcome primary and secondary risks, precise strategies will be developed with the aim to minimize the risk response efforts.
The contract FIDIC “Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer” - the Red Book (1st edition 1999) is the most appropriate contract for this project, given that the State along with their consultants and designers prepare most of the design, administered the contract and wants to pay according to the bill of quantities (FIDIC, 2014). However, a separate form of contract may be required if the Sate chooses to revise the procurement strategy.
A significant development is observed in FIDIC Contracts as it has been recognized as an international standard for consulting industry in past fifty years. Their utilization is being observed in administration of almost every kind of project. The main factor on which this success depends is the way their management works, and the way in which risks are managed. For two different projects, FIDIC supports detailed analysis based on every single case, considering the fact that special conditions are required for a project on specific issues.
Guernsey extension of the aircraft aprons and taxiways project can benefit from this contract as instructions to any specific conditions of a project are supplied in this contract type. These instructions are conveyed with help of examples related to particular areas where special provisions are required. However it must be noted that negligence of these instructions can be the cause of uncertainty optimization and the desired implementation of project will be at huge risk.
On the basis of experience with various kinds of clients around the globe, it can be concluded that any disturbance in risk-sharing in FIDIC contracts can lead to potential failure of projects. It may result in increased time and cost, huge tender amounts and in extreme conditions contract termination is also expected.
Various parameters such as time, cost, quality, safety and sustainability can benefit from this contract as instructions on sub-clauses related to projects including particular conditions to be used are provided. For example, details related to responsibilities of engineer and authorities which includes predicting variations, issuance of certificates, inspection of tasks, monitoring contractor’s program and analysis and response of time and cost determination are clearly highlighted in the contract. This ensures that a dispute is not raised over such particular matters, and the project associated knows what is expected of them. This eventually leads to better performance of the project in various parameters as highlighted previously.
The contract also ensures that considerable freedom of making decisions is also provided to the primary project associated, such as head engineer or manager, in order to achieve successful management, which would eventually provide support in avoiding time and cost issues. The contract outlines various other aspects, such as;
- Responsibility for errors in the requirements provided by Employer.
- Responsibility of providing access to the site
- Responsibility for obtaining approvals and permissions
- Responsibility of capricious situations
- Labor conditions
- Delay of time caused by high authorities
- Responsibility of defects including latent defects
- Solutions to resolve disputes
To fight against corruption, conscientious integrity is supported by FIDIC forms of contract. Code of Conduct is the base to start from, and it is represented on behalf of all members and leaders involved. It makes the commitment more clear. With the aim to fulfill the agreement of achieving integrity values, specific instruction have been incorporated in this contract which outlines a systematic and consistent approach towards integrity
In order to ensure Quality Management, a policy statement has been developed by FIDIC to help all member association for achieving their commitment to quality. It is the responsibility of consulting engineers to estimate the correct amount of investment required to build a durable infrastructure. A new approach towards sustainable development is proposed by FIDIC and its partners. This approach is based upon developed cooperation, group work and integrated system.
Furthermore, implication this form of contract can make sure that principle of balanced risk sharing is followed in their contracts, which is accepted by employers and contractors (Osinski, 2002). General conditions are designed for the ease of users. Provisions which are not supported by the users can be removed. Therefore some conditions which are against a typical contract are observed as a part of general conditions. The main aim is to provide users and those who prepare tender documents with maximum serenity (Booen et al, 2001).
To minimize the incidence of disputes, narration is required after signing the contract. Narration will help the parties to understand the effect of particular clause and the person who will be explaining that clause. It will allow the contractor to evaluate risks properly, and enable them to decide whether to include it in price or not at tender stage (Osinski, 2002). Standard contract conditions prepared by FIDIC are mostly used in international infrastructure projects (Firman, 2006).
Therefore, it can be concluded that risk probability can be minimized, and time, cost, quality, safety and sustainability parameters can be effectively managed, and contractor’s confidence can be successfully achieved by implication of FIDIC from of contract. The incorporated Quality Guidelines promote maintenance of quality factor of an infrastructure project. Quality Based Selection is promoted, which can influence the stake holders to assess the impact on time, cost, sustainability, safety etc before planning to complete any activity.
Cost management plan must be developed in order to analyze the way in which cost will be estimated, reported and controlled. This planning depends upon cost engineer’s efforts. Any single happening on project, either small or large, can be the cause of fluctuation in cost. Scope of work, resources and productivity are the factors on which cost management relies upon. Therefore these activities are considered to be most significant in cost management plan. Achieving objectives of the project using the cost management plan is one of the responsibilities of cost engineer.
Lagan Construction understands that the cost organizational planning is of remarkable significance in project management. Strategic and tactical responsibilities of project participants are part of organizing plan, therefore cost estimating and controls staff will be incorporated in this project. Redefinition of general responsibilities and any details which are not a part of organizational plan will be included in cost management plan. Major responsibilities concerned with Lagan Construction and States of Guernsey will be outlined as below;
States of Guernsey Responsibilities:
- Total cost estimation of project
- Evaluating and setting cost objectives
- Early formation of conceptual estimates
- Cost estimation of material and activities concerned with owner
- Comparison of cost estimates to previous similar projects
- On basis of estimate provided by contractor, develop scope, planning, and estimating bases for it
- Reassessment of estimates provided by contractor
- Changes which are approved should be evident in current control estimate
Maintain a record of the real cost data for hel
- p in future estimation.
Lagan Construction Responsibilities:
- Scope estimation is to be included in the bid submission
- In order to handle accepted changes, current control estimate should be maintained
- Preparation of cost estimation plans from subordinates should be governed
- Actual cost should be composed near to estimated cost
- On the basis of agreement with owner, other scopes should also be estimated
- To prepare neutral cost report in given time
- Cost variation should be analyzed
- Productivity for both contractor and sub-contractor should be measured
- Estimation of cost as per contractor’s scope
- Disciplinary actions should be introduced and execute when needed
- Preparation of final close-out reports
- Supervision of sub-ordinates
The process of estimating the cost till completion of project and payment of final invoice will be drafted in the plan. Estimation is considered as one of the most helpful tool in projects as it saves the management from unexpected threats or risks involving cost, time, etc but strong management skills and experience is required to practice it. It is necessary for cost engineers to involve estimation in the cost management plan.
Examples of cost estimation tools and techniques that Lagan Construction will utilize are:
- Analyzing various trends
- Earned value statistics and cost performance index
- Regular and detailed update of schedules providing complete information about scope, resources, tasks and duration
- Analysis of pre-existing records of similar projects
- Extensions of costs for contracts and purchases
- Estimation using graphical techniques like tracking curves
- Third party independent estimation
To understand risk reduction strategies and ensure effective expenditure of cost, comprehensive cost analysis along with the adaptation of strategies will be ensured prior to start of the construction works at site. In order to examine the effect of response on project cost, cost for implementing response will be included in comparison. The effect on total project cost reflects whether this response is justified with time or not. Analysis of risk reduction plans will also be provided, with a full understanding of their effects, to ensure that cost planning and control can be usefully implemented to keep the final development cost within the cost target.
The process of examining such task, risks involved in it and the impact of those risks on the whole project will be completed and a response strategy will be developed. It helps the team to take decision on steps they will take in future against those risks in order to avoid any disturbance in their work plan. Effect of response action on cost is of great relevance.
It is also pivotal to note that as the project matures, there might be scenarios where urgent specific analysis and identification will also have to be completed for a specific project activity, so that a response action is initiated at the same time. It is very important to keep on updating project and risk management plans throughout the lifecycle of the project, so it is important to update the data in real time.
Furthermore, prior to the award of the contract, value engineering will take place, which will be based upon proposals suggested by Lagan Construction within the tender. As in the case with the previous work with States, Lagan construction will utilize their expertise to analyze the project activities where potential savings are possible, and will implement strategies to reduce the costs.
Sustainable construction practices must be considered while working on any project, as most construction projects can have considerable impact on the environment. Furthermore, the local society must also be able to benefit from the investments of their state, as it is their tax money that is being utilized for the local area development. Lagan Construction considers it as a social responsibility to promote such activities and contribute towards sustainable and social developments in the local area.
Considerations of sustainability in this project would include utilization of construction materials that score highly on sustainability. Recyclable and reusable materials will be used where possible, and the selection of materials will be based upon the sustainability considerations. For example, value engineering of apron pavement construction will be undertaken to reprocess any existing broken pavement and through adjustments to the phasing of reconstruction. Other considerations would include implementation of mitigation measures as well as development of waste disposal procedures. Since this site of construction is highly sensitive, safety analyses will be conducted and procedures will be developed to ensure safety at the site before the works are commenced.
For Lagan Construction, readiness for any safety situation at the top is a top priority, and this will be reflected in the tender submission through proper documentation. The local labour unions will be taken into confidence to ensure that safety is paramount in the employment of all the workers working at the project. The constraints on traffic disruption, safety and health, noise and hours of working will be the same as for the previous package, maintaining full airfield operations throughout the project will be ensured.
Similarly, local jobs will be created through utilization of local work force, both technical and labour where possible, for this project of widening of taxi loops and aircraft holding positions. Materials that are available locally will be procured on site from the local distributors, and expert services of security and transportations etc will utilized through the local service providers. Moreover, it will be ensured that all the construction related activities are completed in accordance with local legislative procedures.
Specific measures will be taken to ensure the quality of overall environment is not compromised while using any source of machinery, vehicles and materials processing on site. The human resources will be given proper guidelines and instructions with respect to ecological constraints and environmental sensitivity. A method statement will be introduced to ensure that the targeted measured are implemented during the construction process.
However it is difficult to include these considerations in the bid submissions as under most circumstances these are not considered during the bid evaluations for a project. The states of Guernsey have realized the need of an optimized bid evaluation model, where the bids are also examined on criterion other than cost. This model evaluates various bids from different suppliers while ensuring that neutral decisions are observed, continuous risks are minimized, and justified decisions are made while considering social and sustainability impacts. The importance of sustainability impact is optimized by observing continuous procurement priorities. Therefore, the States of Guernsey has confirmed that the bids will be evaluated on the basis of 80% allocated to the lowest price, 10% allocated to sustainability measures, 5% to the creation of local jobs for local people, and 5% to demonstrating corporate social responsibility.
The bid to be submitted by Lagan Construction will thus consider these parameters while preparing the bill of quantities. The considerations of sustainability factors will be included in the description columns where the ‘material types to be used’ are presented. The description would include the specifications with references to the sustainability of materials, such as for cases where “steel” is to be used; it will be referred as “100% recyclable steel”. Furthermore, it will include details related to why this material has been selected, which will be based on its sustainability scored. Similarly, while detailing the labour costs, it will be referred as “local labour cost” under the description column, signifying the fact that Lagan Construction intends to benefit the local community as much as possible. This can also be elaborated in the form of “local services” when the bills for local services is presented the BOQs.
In the letter that accompanies the BOQS prepared, the method / construction programme can also be included along with the introduction of the company. This methodology statement can highlight significant considerations which the company is accustomed to undertake while completing such projects. This may include statements related to methods of sustainable materials selections, mitigation measures, safety measures, social responsibilities and many other parameters. The priorities, aim and objectives at the organizational level can be outlined through such communication. Other methods could be to include the previous achievements of the Lagan Construction in these parameters along with formal bid submission.
These considerations can thus be realistically included in bid and may have significant impacts during the process of bid evaluations. The States of Guernsey through their expert evaluation model will consider these considerations and will appreciate the proposal of Lagan Construction in this respect.
Barber, P., Sheath, D., Tomkins, C., and Graves, A., (2000). The cost of quality failures in major civil engineering projects. Int. J. Quality Reliability Management., pp.479–492
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Firman, A., (2006). Project Management and International Construction Contract: An Investigation into Issues and Challenges in Indonesia. Communications of the Association for Information system
Guernsey Runway Enhancement and Ancillary Works, (2013). The background to the case study has been taken from a write up in the New Civil Engineer.
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Osinski, C., (2002). Delivering Infrastructure: International Best Practice-FIDIC Contracts: A Contractor View". Society of Construction Law. Available online at: www.scl.org.uk
Wong, C. H., Holt, G. D., and Cooper, P. A., (2000). Lowest price or value? Investigation of U.K. construction clients’ tender selection process.” Construction Management and Economics, 18 (7), 767-774.
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