02, Essentials of Project Procurement.pdf

Essentials of Project Procurement Dr. Ahmed Hammad  Project Financing Models (PFM) Single Owner Multiple Owners: Joint-Ventures (JV) Consortium of Organizations Public Private Partnership (PPP) All of the above can be: Self-financed by involved...

Essentials of Project Procurement Dr. Ahmed Hammad  Project Financing Models (PFM) Single Owner Multiple Owners: Joint-Ventures (JV) Consortium of Organizations Public Private Partnership (PPP) All of the above can be: Self-financed by involved organizations: Return on Investment (ROI) has to be calculated Financed via borrowed money from banks or other financial institutions (Interest Rates) Financed via offering shares/stocks in the constructed facility or the owner’s organization 2  Public Private Partnership (PPP) Journal of Politics and Administration: Promises and Pitfalls of Public Private Partnerships (PPPs) Projects in Bangladesh https://theinvestorsbook.com/wp-content/uploads/2019/09/Disadvantages-of-Public-Private-Partnership.jpg 3  Project Delivery Methods (PDM) The product of any construction project is a Facility (Asset) Owners have to select amongst various Project Delivery Methods (PDM) to construct a facility As per TCRP, 2009, PDM is: “the process by which a construction project is comprehensively designed and constructed for an owner” PDM includes: Project scope definition; Organization and contractual relationships between owners, designers and constructors (key stakeholders) Sequencing of design and construction operations; Execution of design and construction; Projects closeout, commissioning and operations of a facility 4  Project Delivery Methods (PDM) As per CMAA, 2012, PDM is: “A comprehensive process including planning, design & construction required to execute and complete a facility” Major Project Delivery Methods: Design-Bid-Build (DBB) – “The traditional method” Single Prime Contractor Multiple Prime Contractors Design-Build (DB) – “Turnkey or Fast-tracking” Design-Build-Operate-Transfer (DBOT) Design-Build-Own-Operate-Transfer (DBOOT) Design-Build-Operate-Maintain (DBOM) Construction Management (CM) Construction Management At Risk (CMAR) Engineering, Procurement & Construction Management (EPCM) Integrated Project Delivery (IPD) Force Account (self executed by owner) Combination of any of the above 5  Design-Bid-Build (DBB) Owner hires A/E to: Complete the design Prepare Bid documents Owner and A/E work together to: Perform Bidding Process Select Construction Contractor(s) Formulate a Contract Monitor and Control Fisk and Reynolds, 2010 Project Execution Closeout Project 6  Design-Build (DB) Owner hires a constructor to build a facility Constructor hires or gets into a JV with an A/E to complete the design Construction usually starts before the design is fully completed Owner deals with single entity to deliver the Project EPC (Turnkey) is a form of DB used mainly in industrial http://www.flintco.com/uploads/cms_uploads/2013/12/design-build- construction 1386610516.jpg 7  Construction Management (CM) Owner hires AE & Professional Construction Management (CM) Firm to act as an agent for planning, design and construction CM hires single or multiple General Contractors (GC) In CMAR, CM guarantees predefined maximum project duration & cost In EPCM, CM also performs Engineering & Procurement https://www.fhwa.dot.gov/construction/images/cmgc.jpg DBIA, Choosing a Project Delivery Method 8  Integrated Project Delivery (IPD) Integrated Project Delivery (IPD) involves aligning objectives and integrating teams from all participating organizations to work together as one team IPD is a very recent practice and hasn’t been implemented enough in construction IPD works well with Building Information Modeling (BIM) concepts https://sites.google.com/site/dt775group4/_/rsrc/1384447839934/home/i ntegrated-project-delivery/Integrated-Project-Delivery.jpg https://scgwest.com/wp-content/uploads/2018/11/IPD-Most-Efficient- Method-for-Retail-Buildouts.jpg 9  Why Choose IPD? The need for: Value alignment and definition Collaboration due to the dependencies of different disciplines on each other Complexity of construction projects Cost and Time savings Early Construction Involvement (ECI) Works very well for Sustainable Construction Owner’s perspective: It optimizes the project constraints of cost, time, quality and risks In traditional project delivery methods, the optimization of project constraints comes at the sacrifice of others Designer and contractor’s perspective: It increases efficiency, reduces waste & minimize disputes  Why Choose IPD? Five big ideas: Developed in 2004, the five big ideas are concepts that support successful projects https://leanipd.com/integrated-project-delivery/ 11  Selection of Optimum PDM Project Duration Project Budget Owner’s Experience with Project Management Scope Definition and Clarity Project Complexity Risk and Uncertainty Specific Requirements for Innovation or Sustainability https://labs.sogeti.com/wp- content/uploads/2018/06/Optimiztn-framework- 960x671.png Political and Legal Aspects Market Conditions Soltanikarbaschi, N. & Hammad, A., 2020 12 13  Contractor Selection Procedures (CSP) Contractor Selection Procedures (CSP) also known as: Procurement Methods define how an owner makes a decision regarding who is going to perform: Architectural / Engineering (A/E) Services Construction Services Lowest Bid Selection (LBS): Single Criteria, selection is based on Price only Qualification Based Selection (QBS): Solely based on Technical Capabilities Best Value (BV): (Weighted Mix of Price & Qualification) Negotiated Contract Long Term Agreements Sole / Single Source 14  Qualifications-Based Selection In complex, sustainable or IPD construction projects, the lowest bid selection is not a suitable selection criterion for contractors because it discourages collaboration Contractors’ attitude toward services is influenced by the respect they receive, and the final product's quality is largely determined by the involved individuals’ ability to provide the required services (Christodoulou et al., 2004) https://www.acec.ca/advocacy/yes2qbs.html https://www.wyattmngt.com/wp-content/uploads/2020/11/PostCaulkTheRestNews.jpg 15  Qualifications-Based Selection QBS supporters argue that it is the most cost-effective approach to obtain high-quality professional services and assure the most successful projects (Christodoulou, 2003) QBS selection techniques involve: Interviews / References Traditional Decision Matrix Multiple-Criteria Decision Making (MCDM) techniques: Pairwise comparison using Analytical Hierarchy Process (AHP) Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) 16  Best Value Evaluation https://www.zemaitis-uk.com/wordpress/wp- content/uploads/2015/07/Tender-Evaluation-Criteria.jpg 17 PDM & Procurement Methods 18  What is a Contract A contract is a verbal or written agreement between two or more parties creating a legal (enforceable by court) obligation on all parties to perform specific acts Four Pillars of a Contract: Offer and Acceptance Consideration (something of value that the parties are contracting to exchange) Capacity: Physical & Mental Ability to contract Proper Delegation of Authority (DOA) Legal Purpose Some references add “Mutual intent/consent” as 5th pillar 19  Construction Contracts Construction Contracts are subject to the Legal System similar to any other contract Legal Systems include: Written Laws (Romano-Germanic) System The Judge decides based on current active laws Common Law (Anglo-American) System The Judge decides based on previous cases and juries’ decision Canada has Three Levels of Government: Federal (Canada Constitution, Criminal Law & Federal Acts) Provincial (Each Province has its own Laws & Regulations) Municipal (Each Municipality has its own Bylaws & Regulations) PMT has to know which Laws, Bylaws, Acts and Regulations impact the contract 20  Construction Contracts Construction contracts define the relationships between all parties involved in a project: Owner, A/E, General Contractors & Subcontractors Construction contracts also define the sharing of various types of Risks: Occupational Health & Safety (OHS) Liabilities Financial Schedule Hence, there are different types of construction contracts to allow for various levels of risk sharing 21  Contract Types Construction contracts fall under 3 major types: Lump Sum: Fixed price for a scope of work Requires complete project definition and stable project conditions Unit Price (Unit Rate): Fixed unit price for each work type Effective when there is uncertainty, particularly with quantities Cost Plus (Reimbursable or Time & Materials): The owner provides reimbursement to the contractor for actual costs plus fees. Effective when work scope or quantities are unclear Methods: Cost + % Cost + Fixed Fee Cost + Guaranteed Maximum Price (GMP) 22  Lump Sum Contracts Lump Sum are also called Stipulated or Firm Fixed Price (FFP) contracts The traditional contract type for DBB Requires a complete set of documents and drawings to fully define the project Scope of Work (SOW) https://manula.r.sizr.io/large/user/3875/img/00029.jpeg Contractor defines Contract Price via estimating: ???? Direct Costs (Labour, Materials & Equipment) Indirect Costs (Allowances, Contingencies, Escalation, Overhead and Profit) Owner enforces Project Completion Date on contractor Owner shifts financial and schedule risks to contractor Contractor forces owner to pay the cost of carried risks 23  Cost Plus Contracts Cost Plus are also called Time & Materials or Cost Reimbursable Contracts Used when project Scope of Work (SOW) is not completely defined Depends on paying contractor actual cost of performed scope + profit https://www.thebalancesmb.com/thmb/XyY55Ry- tbOhmsAbQaxfc3UcOEg=/950x0/common-types-of- construction-contracts-844483_v2- Different types of Cost-plus contracts: 5bc4b4f84cedfd00262c1bc2.png Cost + percentage Cost + fixed fee ???? Cost + fee with profit sharing clause Cost with Guaranteed Maximum Price (GMP) Owner takes financial risk of not knowing cost at completion Contractors may overcharge in this type of contracts 24  Unit Price Contracts Unit Price (Unit Rate) is the traditional contract type in several countries Project Scope of Work (SOW) is fully defined via Bill of Quantities (BOQ) Contract Cost = Actual Quantities * Contract Unit Prices https://i.ytimg.com/vi/CRG6GURMVgc/maxresdefault.jpg Owner takes the risk of final actual quantities Contractor takes the risk of pre-defined unit prices ???? Some contracts allow for change of unit prices in case of major deviation between estimated quantities and actual quantities Unbalanced Contractors may overprice some units and Bid underprice other units to improve cash-flow 25 PDM & Contract Types 26