LEONARDO DA VINCI ToI PROJECT TRAIN-TO-CAP Strengthening of European Union Funds Absorption Capacity for Infrastructure Construction Projects 2010-1-PL1-LEO05-11469 MANUAL PROCUREMENT STRATEGY IN CONSTRUCTION Authors (in alphabetical order): SALEEM AKRAM CRISTIANA CAVALLINI ALTAN DIZDAR ARNAB MUKHERJEE PAWEŁ KLUCZUK ZBIGNIEW KUJAWA LUIGI MASSARINI ANDRZEJ MICHAŁOWSKI ALEKSANDER NICAŁ PAWEŁ OLAF NOWAK PIOTR ROBERT NOWAK BARBARA PUŻAŃSKA MACIEJ SIEMIĄTKOWSKI KAROLINA ZARĘBA Warsaw, Ankara, Ascot, Mondavio 2012 "This project has been funded with support from the European Commission under the Lifelong Learning Programme. This publication reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein." 1
PREFACE This book and training course are the results of the project no. 2010-1-PL1-LEO05-11469 entitled Strengthening of European Union funds absorption capacity for infrastructure construction projects, implemented within the framework of Leonardo da Vinci Programme Transfer of Innovation. The Polish Association of Construction Industry Employers, Poland was the project promoter. The project partners were: The Chartered Institute of Building United Kingdom; ERBIL Project Consulting Engineering CO. Ltd Turkey; Training 2000 Italy; Civil Engineering Faculty Warsaw University of Technology Poland. The aims of the project were to: Minimise problems connected with disputes and claims in construction projects regarding infrastructure; Increase transparency of procedures in risk management and claims and disputes processes; Increase access to training through the MOODLE platform. The main result of the partnerships works within the TRAIN TO CAP project is a blended learning training set containing: training courses on MOODLE (Multi Object Oriented Dynamic Learning Environment) platform concerning risk and dispute management in infrastructure construction projects and three textbooks: PROCUREMENT STRATEGY IN CONSTRUCTION DELAYS AND DISRUPTIONS IN CONSTRUCTION PROJECTS MANUAL FOR TUTORS The project products are prepared for: qualified engineers, managing directors, project managers, construction managers, engineers (FIDIC), and other managing staff from construction companies, government agencies, local authorities who are able to manage international projects and act in any European country. TRAIN TO CAP as a blended learning course was created in order to increase the professional knowledge, skills and background of employees dealing with European construction projects. Understanding and gaining the specific skills minimises risks and disputes during conducting construction and infrastructure projects on European Union market. Gained knowledge and usage of specific terminology allows avoidance of unnecessary problems with management and communication during the lifetime of projects. These aspects are directed to strengthen effective European Union funds absorption in the field of infrastructure projects. The project products are available in four language versions: Polish, English, Turkish and Italian. TRAIN TO CAP course is to be used as a basis for organisation of trainings for the engineering staff at construction companies, local government organisations, and local authorities and for postgraduate students as well. More information about the project and the online course is on TRAIN TO CAP website: www.traintocap.eu. 2
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Contents: CHAPTER 1 INTRODUCTION PROCUREMENT STRATEGY IN CONSTRUCTION... 8 OBJECTIVES OF CHAPTER 1... 8 LEARNING OUTCOMES FOR CHAPTER 1... 8 1.1. Introduction... 8 1.2. Procurement practices in construction... 9 1.3. Business strategy and construction procurement... 9 1.4. Procurement/tendering in context of EU legislations... 10 1.5. Trends in construction procurement... 11 1.6. Literature and further reading for chapter 1... 12 1.7. Set of exercises for chapter 1... 13 CHAPTER 2 LIFE CYCLE OF CONSTRUCTION PROJECT... 14 OBJECTIVES OF CHAPTER 2... 14 LEARNING OUTCOMES FOR CHAPTER 2... 14 2.1. Introduction... 14 2.2. Strategic planning... 15 2.2.1. Introduction... 15 2.2.2. Basic elements of strategic planning... 16 2.2.3. What is a feasibility report... 20 2.2.4. Why prepare feasibility studies?... 20 2.2.5. Feasibility study elements... 21 2.3. The stages of the project... 22 2.3.1. The conceptual stage... 22 2.3.2. The development stage... 24 2.3.3. The implementation stage... 24 2.3.4. The operational stage... 25 2.3.5. The abandonment stage... 26 2.4. Risk management strategies... 26 2.5. Literature and further reading for chapter 2... 27 2.6. Set of exercises for chapter 2... 28 CHAPTER 3 BUILDING AND LEGAL ISSUES... 32 OBJECTIVES OF CHAPTER 3... 32 LEARNING OUTCOMES FOR CHAPTER 3... 32 3.1. Standard methods of procurement... 32 3.1.1. Traditional Method: (Construction)... 33 3.1.2. Design and Build methods... 34 3.1.3. Management contracting... 34 3.1.4. Project/construction management... 35 3.2. Issues with EU procurement... 36 3.3. Procurement under EU Directives... 37 3.4. Alternative methods of procurement PFI... 40 3.5. Literature and further reading for chapter 3... 43 3.6. Set of exercises for chapter 3... 44 4
CHAPTER 4 PUBLIC TENDERING... 46 OBJECTIVES OF CHAPTER 4... 46 LEARNING OUTCOMES FOR CHAPTER 4... 46 4.1. Introduction... 46 4.2. Phases of tendering... 47 4.3. Procuring the supply chain... 50 4.4. Tender procedures... 52 4.5. Tender appraisal: time, quality and price... 56 4.6. Awarding the contract... 57 4.7. Literature and further reading for chapter 4... 62 4.8. Set of exercises for chapter 4... 63 CHAPTER 5 CONTRACT ADMINISTRATION AND MANAGEMENT... 65 OBJECTIVES OF CHAPTER 5... 65 LEARNING OUTCOMES FOR CHAPTER 5... 65 5.1. Contract award... 65 5.1.1. The contract drawings... 65 5.1.2. The specifications... 66 5.1.3. The general condition of contract... 66 5.1.4. The special conditions of contract... 66 5.1.5. The bill of quantities (BOQ)... 66 5.2. Kick-off, inception report... 67 5.2.1. Agenda of the kick-off meeting engineer s contract commencement... 67 5.2.2. Inception report - table of contents... 68 5.3. Contract management... 69 5.3.1. Role of project management... 69 5.3.2. Skills of contract manager... 70 5.3.3. Contract manager abilities... 71 5.4. Administrative requirements... 71 5.5. Environment requirements... 71 5.5.1. Environmental assessment methodologies... 72 5.5.2. Waste management plan... 72 5.6. Finance project cost and value management... 73 5.6.1. Project cost management... 73 5.6.2. Value management... 74 5.6.3. Cash-flow diagrams... 74 5.7. Time, cost and quality... 75 5.7.1. Updating... 75 5.7.2. Project control... 76 5.7.3. Schedule/time/progress control... 76 5.7.4. Cost control... 77 5.7.5. Control of schedule, cost and technical performance Earned Value Method... 77 5.8. Health and safety... 78 5.8.1. Health and safety management system... 78 5.8.2. Safety policy and organisation... 79 5.9. Warranties, insurances... 79 5.9.1. Insurance... 79 5.9.2. Project insurance... 80 5.9.3. Marine-to-erection insurance... 80 5.9.4. Contractor s all-risk insurance (CAR insurance)... 80 5
5.9.5. Liquidity damages insurance... 82 5.9.6. Professional indemnity policy... 82 5.9.7. Warranty... 82 5.10. Certificates at completion... 83 5.11. Project close-out... 83 5.11.1. Construction close-out... 84 5.11.2. Financial close-out... 84 5.11.3. Contract close-out... 85 5.11.4. Project manager s close-out... 85 5.11.5. Lessons learned from the project... 85 5.12. Literature and further reading for chapter 5... 86 5.13. Set of exercises for chapter 5... 87 CHAPTER 6 CASE STUDIES... 89 OBJECTIVES OF CHAPTER 6... 89 LEARNING OUTCOMES FOR CHAPTER 6... 89 6.1. CASE STUDY 1 (Poland): Procurement problem in Polish legal regulations... 89 6.2. CASE STUDY 2 (Turkey): Assessment of public procurement... 90 6.3. CASE STUDY 3 (Italy): Previous juvenile prison of Pesaro... 94 6.4. CASE STUDY 4 (Turkey) Izmir Bay Crossing Project... 95 6.5. CASE STUDY 5 (Turkey): Railways - prıvatısatıon and investment ın Turkey... 96 6.6. CASE STUDY 6 (Turkey): Mersin Container Port project... 98 6.7. CASE STUDY 7 (Turkey): NABUCCO Gas Pipeline Project... 100 6.8. CASE STUDY 8 (Poland): Channel Tunnel Rail Link... 101 6.9. Literature and further reading for chapter 6... 104 CHAPTER 7 GLOSSARY... 105 6
CHAPTER 1 INTRODUCTION PROCUREMENT STRATEGY IN CONSTRUCTION OBJECTIVES OF CHAPTER 1 The primary objective of this chapter is to introduce the concept of construction procurement, its strategic context, its relevance in terms of EU Directives and some future trends. LEARNING OUTCOMES FOR CHAPTER 1 The primary learning outcome for this chapter is to gather understanding of the notion and the nature of construction procurement including contextual and strategic issues. 1.1. Introduction Construction procurement is the process of identification, selection and commissioning of the contributions required for the delivery of: Alteration, refurbishment, maintenance, extension or demolition of an existing building or structure, and/or The creation of a new building or facility, including all associated site works. To obtain the best service and performance from the construction industry, the client must be closely involved with each step of the procurement process. Successful construction procurement should result in a project delivered on time, to cost and to the desired quality capable of performing the specific function required by the client. New buildings or structures are seldom standard items and the refurbishment of existing structures can never be standard. The act of creating a new structure or extending or refurbishing an existing structure cannot be directly compared to the procurement of goods which can be requisitioned, are often off the shelf and where an immediate choice can be made in terms of cost and quality. The procurement of construction works involves the commissioning of professional services, either from within the procuring organisation or from external sources. The process is complex, involving the interaction of the client, design team and other consultants, contractors (who provide the construction expertise, labour, materials and plant resources), suppliers and various statutory/public interest bodies. Construction procurement is often the subject of joint funding, with the different stakeholders having varying degrees of interest and objectives in the outcome of the project. From recent literature on this subject 1, the following six elements can be identified as the best practice drivers in terms of construction procurement: Traditional processes of selection should be radically changed because they do not lead to best value; An integrated team, which includes the Client, should be formed before design and maintained throughout delivery; 1 See for example Constructing the Team, Sir Michael Latham, 1994; Rethinking Construction, Sir John Egan, 1998; Improvement of Capacity, Sir Christopher Kelly, 2004 & 2006; Public Sector Efficiency Review, Sir Peter Gershon, 2004; Securing the Future UK strategic policy document, 2005; Economics Review, Sir Michael Stern, 2006 7
Contracts should lead to mutual benefit for all parties and be based on a target and whole life cost approach; Suppliers should be selected by Best Value and not by lowest price; this can be achieved within EC and government procurement guidelines relating to value for money; Performance measurement should be used to underpin continuous improvement within a collaborative working process; Culture and processes should be changed so that collaborative rather than confrontational working is achieved. However, in the context of construction procurement, many contractual arrangements are often not aligned to achieve or facilitate these drivers. 1.2. Procurement practices in construction Procurement practices in construction, broadly speaking, are quite varied and complex in the sense that it is quite difficult to define the various arrangements available 2. The key drivers of any construction project will remain centred around either cost, or time or the quality. A good procurement strategy will understand the key drivers and achieve the optimum balance in context of the individual project and the requirement of the organisational strategy. To provide an example, a particular requirement for a project may be a specific design, which in turn assigns the quality through the specifications and if this parameter is relatively fixed, then the other two key drivers i.e. the cost and the time will have to be optimised through the procurement strategy. There may also be situations where the end user requirements and the costs are fairly set, and through the procurement process the design and the time elements will have to be optimised and achieved. Table 1.1. below 3 attempts to capture the characteristics of the different contractual arrangements common in construction. The various procurement options available reflect the fundamental differences in the allocation of risk and responsibility to match the characteristics of different projects, therefore the selection of the procurement strategy must be given strategic consideration. The specific contractual arrangement, when reviewed in context with the current EU legislative requirements (EU Procurement Directives are discussed in detail in Chapters 3 & 4), makes it imperative for any public sector organisation undertaking construction projects to consider carefully the organisational needs and strengths and the strategic fit of the intended procurement strategy it its organisational capabilities. 1.3. Business strategy and construction procurement In addition to the risk allocation, the client organisation s business strategy will also have an influence on selection of the procurement strategy. This is particularly important in terms of funding the construction project. For example, if a public sector body considers Public Private Partnership (PPP) or Private Finance Initiative (PFI) to be a viable option to commission the project, there are specific steps and considerations at the procurement stage which the commissioning body will have to follow. Table 1.1. Characteristics of the different contractual arrangements 2 Hibberd & Djebrani (1996) 3 Rowlinson & Newcombe (1984); NEDO (1985) Thinking about Building, Building Economic Development Committee, London; Also see Code of Practice for Project Management (4 th edition), CIOB, 2010 8
Type of arrangement Certainty Price Level (including professional fees) Parallel/overlap between design & construction Design Changes Buildability inherent in design through early contractor involvement Lead in time to start Construction process Traditional Good Low No Easy No Long Design & Build Good Medium Yes Difficult Yes Medium/Short Measurement Average to Poor Medium Yes Easy No Medium/Short Prime Cost Poor High Yes Easy No Fast Consulting Management Average to Function Poor Medium Yes Easy Yes Fast Framework Good High No Easy Yes Fast There are also fundamental differences in delivery structure and contractual arrangements, which involve a larger number of stakeholders, a substantially different risk matrix and more complex responsibility for the management of risk. It is important at the strategic level to consider and understand these risks, which are more extensive, more onerous and which extend for a much longer period 4. 1.4. Procurement/tendering in context of EU legislations EU procurement (tendering) rules were introduced by the European Community to open up competition between member states. This is because public sector spending represents a significant proportion of the construction spend across the EU member states. Any contracts with an estimated value of more than the amounts listed below as threshold values are subject to specific rules regarding specification and the tender process. These thresholds are subject to amendment by the European Union and are usually adjusted every two years, Considerations for contracts falling within thresholds are listed below. Values exclude VAT. Values are TOTAL values NOT annual values e.g. a three year contract valued at 60,000 per annum (total value 180,000) is covered. Values are to be aggregated e.g. if there is an on-going annual need for supplies. It is a breach of EU law to deliberately divide up contracts to avoid the rules. There are specific rules in relation to extensions of existing contracts. There are specific rules relating to contracts for both services and supplies. There are specific exceptions to these thresholds. They are similar to the local or regional government (e.g. councils) exceptions, but different procedures apply. 4 See recent CLOMEC 2 publications on PPP projects and also Code of Practice for Project Management (4th edition), CIOB (2010). 9
The EU Procurement Directives The Directives cover the following: Works - Building and engineering capital works over the threshold value; Supplies - Supply, lease, rental or hire purchase of goods over the threshold value; Services - Supply of services over the threshold value (Does not apply to employment contracts). The application of the Services Directive is split between Part A services (e.g. IT) which are subject to the full European regime and Part B services (e.g. catering) which have minimal legislative requirements. Part A Services (see below) are subject to the full requirements. This means for instance, that the services must be advertised in the Official Journal of the European Union (OJEU). Part B Services (summarised below) have minor requirements. The main requirements are in relation to technical specification and award notice. Table 1.2. Services Directive Part A Services (full regime) Accounting, auditing, book-keeping Market research and opinion polling Management consultancy Architectural, engineering, urban planning, landscaping and related technical services Advertising Building cleaning and property management Sewerage and refuse disposal IT Services Financial services Transport and courier services Maintenance and repair of vehicles and equipment Part B Services (partial regime) Catering Legal Security Educational Health and Social Recreational, cultural and sporting Other Services The above categories are in summary form only. There are extensive and detailed EU definitions for the types of services covered under each of these categories. The EU Procurement Directives and their implications for construction procurement are discussed in further detail in Chapters 3 and 4. 1.5. Trends in construction procurement Over the last two decades or so, procurement practices in construction have undergone a considerable transformation, partly due to a shift in the business environments in which the procurement systems operate. In the 1990s procurement experts and practitioners were involved mainly with debating the more strategic issues of the time such as privatization, market liberalisation, and the role of culture and trust in negotiations, as well as the more traditional themes of procurement systems, contractual arrangements and forms of contract 5. In the late 1990s some wider issues relating to procurement began to emerge, i.e. those procurement systems/strategies that looked at the whole life cycle of the project, rather than just cost and time criteria 6. Recent reports also acknowledge that the softer skills 5 McDermott (1999) 6 McDermott (2006) 10
of persuasion, collaboration and alignment are required by the industry in order to best incorporate value creation and best practice procurement 7. Procurement is no longer concentrating on operational activities, but on strategic objectives linked to the long-term survival and development of the organisations as a whole 8. Using procurement as a competitive tool brings many implications and complex interconnectivities 9 that have to be properly assessed and understood to obtain the optimum benefits from a procurement strategy. 1.6. Literature and further reading for chapter 1 1. Chartered Institute of Building (2010) Code of Practice for Project Management for Construction and Development (4 th edition), Wiley Blackwell. 2. Future Purchasing Alliance (2003) Connecting Purchasing and Supplier Strategies to Shareholder Value. FPA, UK. 3. Goodier, C.I., Soetanto, R., Fleming, A., Austin, S.A. and McDermott, P. (2006) The future of construction procurement in the UK: a shift to service provision. Proceedings of CIB W92 Symposium on Sustainability and Value through Construction Procurement, McDermott, P. and Khalfan, M.M.A. (eds.) University of Salford, 29 November - 1 December, pp. 182-193. ISBN 1-905732-11-2. 3. Hibberd P & Djebrani R (1996) Criteria of Choice for Procurement Methods (1996) available at www.rics.org/site/download_feed.aspx?fileid=2330...pdf accessed November 2011 4. Male, S. (2003) Future trends in construction procurement: procuring and managing demand and supply chains in construction. In Management of Procurement, Bower, D. (ed.), Thomas Telford Publishing, London. 5. McDermott, P.(1999) Strategic and emergent issues in construction procurement. In Procurement Systems: A Guide to Best Practice in Construction, E&FN Spon, London. 6. McDermott, P. (2006) Think Piece: Policy through Procurement? In The Future of Procurement and its Impact on Construction, a workshop of Joint Contracts Tribunal & the University of Salford, 19/07/06.Male (2003). 7. Miller G, Furneaux C, Davis P, Love P & O Donnell A (2009) Built Environment Procurement Practice: Impediments to Innovation and Opportunities for Changes, Curtin University of Technology, Report for Built Environment Industry Innovation Council, Australia. 8. NEDO (1985) Thinking about Building, Building Economic Development Committee, London. 9. Rowlinson, S.M., and Newcombe, R. (1984). Comparison of Procurement Forms for Industrial Buildings in the UK The 4th International Symposium on Organisation and Management of Construction, University of Ontario, Canada. 7 FPA (2003) 8 Male (2003) 9 Goodier et al (2006) 11
1.7. Set of exercises for chapter 1 Exercise 1.1: Define construction procurement what are the key objectives of construction procurement? Exercise 1.2: Briefly outline the advantages and disadvantages of various contractual arrangements in terms of cost, time and specification (design) flexibility. What procurement advice will you provide to a client who requires strict control of the end product, and needs a quick start while the design is being developed but must have cost certainty? Exercise 1.3: Name the three key drivers in a procurement strategy Exercise 1.4: Name the key areas covered by EU procurement directives Exercise 1.5: Employment contracts fall under EU Services Directive. True or false? 12
CHAPTER 2 LIFE CYCLE OF CONSTRUCTION PROJECT OBJECTIVES OF CHAPTER 2 This chapter presents different stages of project life cycle in construction industry. Different stages of the cycle are presented: conceptual stage, implementation stage, operational stage and abandonment stage. The chapter also presents information about the feasibility report (importance of preparation and contents) and elements of strategic planning (basic steps and risk management strategies). LEARNING OUTCOMES FOR CHAPTER 2 After reading this chapter you will be more familiar with project life cycle of the construction object. You will differentiate stages of the life cycle. You will know about feasibility study report and strategic planning, its importance, contents and stages for preparation. You will be familiar with an introduction to risk management strategies. 2.1. Introduction Management can be translated into a simple two-step sequence: Plan before doing, or even Plan Your Work, Work Your Plan!. This basic concept is the foundation of the project life cycle by which projects need to be managed. First plan, then produce. The goal of the construction company is simple - it is to build something with profit. What differentiates the construction industry from other industries is that its projects are large, built on-site, and generally unique. Every project can be broken down into a series of logical definable steps, which will become a roadmap for the project. The project team will start at the beginning of the list, and when they get to the end the project is over. Projects are characterised as having a simple starting and ending point with all the work in between. The uniqueness of each project characterises the high-risk nature of project management. Because they are generally one-time ventures, a bad roadmap can lead the team in the wrong direction, wasting money and time. The acquisition of a constructed facility usually represents a major capital investment, whether its owner happens to be an individual, a private corporation or a public agency. Since the commitment of resources for such an investment is motivated by market demands or perceived needs, the facility is expected to satisfy certain objectives within the constraints specified by the owner and relevant regulations. Construction projects are intricate and time-consuming undertakings. The total development of a project normally consists of several phases requiring a diverse range of specialised services. In progressing from initial planning to project completion, the typical job passes through successive and distinct stages that demand inputs from such disparate directions as financial organisations, governmental agencies, engineers, architects, lawyers, insurance and surety companies, contractors, and building tradesmen. From the perspective of an owner, the project life cycle for a constructed facility may be illustrated schematically in Figure 2.1. [2] Essentially, a project is conceived to meet market demands or needs in a timely fashion. Various possibilities will be considered in the conceptual planning stage, and the technological and economic feasibility of each alternative will be assessed and compared in order to select the best possible project. The financing schemes for the proposed alternatives will also be examined, and the project will be programmed with respect to the timing for its completion and for available cash flows. 13
Completion of Construction End of Project Life Cycle Market Demands or Perceived Needs Definition of Project Objectives and Scope Disposal of Facility Conceptual Planning and Feasibility Study Fulfillement of Useful Life ABANDOMENT STAGE CONCEPTUAL STAGE Conceptual Plan or Preliminary Design Operation and Maintenance Design and Engineering OPERATIONAL STAGE IMPLEMENTATION STAGE Acceptance of Facility Startup for Occupancy Procurement and Construction Construction Plans and Specifications Figure 2.1. Project life cycle of a constructed facility [2] After the scope of the project is clearly defined, detailed engineering design will provide the blueprint and set of technical requirement for construction, and the definitive cost estimate will serve as the baseline for cost control. In the procurement and construction stage, the delivery of materials and the erection of the project on site must be carefully planned and controlled. After the construction is completed, there is usually a brief period of start-up or shakedown of the constructed facility when it is first occupied. Finally, the management of the facility is turned over to the owner for full occupancy until the facility lives out its useful life and is designated for demolition or conversion. 2.2. Strategic Planning 2.2.1. Introduction The word Strategy has been borrowed from the military and adapted for business use. It is a management tool and as with any management tool, it is used for one purpose only: to help an organisation do a better job - to focus its energy, to ensure that members of the organisation are working toward the same goals, to assess and adjust the organisation's 14
direction in response to a changing environment. It is a process that engages an entire organisational community in integrating its best hindsight and foresight in aligned action. The objective of strategic planning is to build a posture that is so strong in selective ways that the organisation can achieve its goals despite unforeseeable conditions. There is a considerable amount of confusing terminology surrounding strategy. It is normally defined as the means to attainment of ends, not their specification. In other words, a strategy is a general method for achieving specific objectives. It describes the essential resources and their amounts which are to be committed to achieving those objectives. It describes how resources will be organised, and the policies that will apply for the management and use of those resources. But most of the time, the company owners, when asked about their business strategy, start talking about their revenue goals, expense budgets, cash flow needs for the next year and how they will meet overhead costs. In other words, there is a prevalent sense that the goal or purpose of their business is to make money this confuses the mission of their business with the reward for achieving it. Most planning is seen as a budgeting exercise rather than a process of engaging key staff in dialogue, analysis and prioritising to determine what is needed to sustain, strengthen or achieve a competitive advantage. But the real purpose of strategic planning is to find the best strategy for the company to increase its shareholder value and strengthen competitiveness. The emphasis is also on understanding how the environment is changing and will change, and in developing organisational decisions which are responsive to these changes. No matter what your current strategy, the challenge of going through the process on a regular basis is to find an even better one. Only when you cannot find a better strategy will you be sure the one you have is the one you should follow. The construction industry worldwide designs, produces and maintains the physical infrastructure for the functioning and welfare of society and the continuing growth and development of the economy. Its basic structure reflects the three main components of operation: the design of buildings and facilities; the manufacture and importation of the necessary materials and components; and the on-site construction process. The product of the construction process includes all buildings for uses such as housing, industry, commerce, health, education, leisure utilities, underground installations, transportation routes and facilities, drainage, water supply and waste disposal. Strategic thinking and planning is therefore central to the future wellbeing of all societies. 2.2.2. Basic elements of strategic planning The basic steps in a strategic planning process are: Getting ready / Preparing for the project To get ready for strategic planning, an organisation must first assess if it is prepared. The leadership and key stakeholders must understand that a shared understanding of its past and possible futures will catalyse more effective and aligned responses to these issues in the present. It is the day-to-day decisions and enactments that ultimately shape an organisation. The moves in this initial part of the process should include: Identifying specific issues or choices that the planning process should address. Clarify roles (who does what in the process) and the ground rules. Creating a planning committee to customise and guide the process. Develop an organisational profile and engaging top management in a clear sponsorship role. The product developed at the end of step one is a work plan. 15
Exploring and learning and finding common goals The process should now move up and back into history, engaging the intuition and feelings of participants by looking at the big picture. Throughout this stage the group should dialogue and document in an exploratory mode, gathering a common base of respect and understanding for the visioning journey ahead. A solid platform of information and agreements should be created which would serve as a springboard for visioning. When people know what some of the given boundaries are, they are freer to improvise and stretch. Clarifying the understandings at this stage sets up everyone for a launch into visioning. Common moves include: Completing a graphic history. Identifying core competencies and historic values. Creating a context map of the relevant environment. Analysing industry structure. Agreeing on trends, assumptions, and essentials. Analysing strengths, problems, opportunities, and threats of the current organisation. Interviewing customers, stakeholders and others for their perspectives. Assessing the Situation An organisation must take a clear-eyed look at its current situation. A part of strategic planning, thinking, and management is an awareness of resources and an eye to the future environment, so that an organisation can successfully respond to changes in the environment. Situation assessment, therefore, means obtaining current information about the organisation's strengths, weaknesses, and performance - information that will highlight the critical issues that the organisation faces and that its strategic plan must address. These should include a variety of primary concerns, such as funding issues, new programme opportunities, changing regulations or changing needs in the client population, and so on. The products of step three include: a data base of quality information that will be used to make decisions; and a list of critical issues which demand a response from the organisation. Articulating mission, vision and guiding principles A mission statement is like an introductory paragraph. It typically describes the reason for the firm s existence, a definition of product and services the organisation provides, technologies used to provide these products and services, types of markets and the expertise that sets the firm apart from others. The mission of Skanska, a Swedish company founded in1887 is To develop, build and maintain the physical environment for living, working and travelling. The vision should describe where the organisation is headed and what it intends to be. Its processes seek to create a compelling picture of desirable future states, which often represent quantum changes from the past. They develop stories about the nature and benefits of this future, and work backwards to understand the journey that could carry people to this vision. Vision should also be linked to customers needs and convey a general strategy for achieving the mission. Visions are most powerful if they represent real aspirations. They do not need to be worked out in every detail, but imagined powerfully and vividly. For example a company A has its vision stated as To be the world leader - the client s first choice - in construction -related services and project development. Company B, one of the world's largest, publicly owned engineering, procurement, construction, and maintenance services organisation states, To be the preeminent leader in the global building and services marketplace by delivering world class solutions. Guiding principles, guide the journey to that vision by defining attitudes and policies for all employees. For example the guiding principles of B are: Focus (on the needs of the customers); 16
Motivate (people essential for business success); Apply knowledge (to deliver customers solution); Manage risk (to the benefit of stakeholders); Deliver shareholder value (through sustained profitable growth, business discipline and cost diligence). The mission, vision and guiding principles serve as the foundation for strategic planning. They must be articulated by top management and also by people who lead. Developing strategies, goals and objectives Once an organisation's mission has been affirmed and its critical issues identified, it is time to figure out what to do about them: the broad approaches to be taken (strategies), and the general and specific results to be sought (the goals and objectives).strategies link the learning from the past with the vision by articulating a high level path forward. In a sense, they begin to bring the vision back down to the ground. The moves in this part of the process begin to integrate the work of the prior stages. Strategies should tell a powerful story of where to focus actions. Strategies, goals, and objectives will come from individual inspiration, group discussion, formal decision-making techniques, and so on - but the bottom line is that, in the end, the leadership agrees on how to address the critical issues. The product of this step is an outline of the organisation's strategic directions - the general strategies, long-range goals, and specific objectives of its response to critical issues. Strategy deployment The mission has been articulated, the critical issues identified, and the goals and strategies agreed upon. This step essentially involves putting all that down on paper and developing a detailed action plan. If there is one thing that undermines a process of this sort, it is lack of genuine involvement and modelling of its significance. The most direct route is to involve as many people as possible in refining the vision and strategies. Another key part of this step is formal communications that let everyone know what is happening, and building feedback mechanisms. The ultimate success of a strategic visioning process is the extent to which leadership and key stakeholders actually begin living the vision day-to-day. Finally strategic planning is the process of making sure you re doing the right things and doing them right. Evaluating and changing None of the tasks associated with strategic planning are a onetime venture. As events unfold, better way to do things becomes evident. Thus managers must constantly evaluate performance and monitor the situation. They should make necessary adjustments as required. Format for a strategic plan A strategic plan is simply a document that summarises why an organisation exists, what it is trying to accomplish and how it will go about doing so. Its "audience" is anyone who wants to know the organisation's most important ideas, issues, and priorities: board members, staff, volunteers, clients, funders, peers at other organisations, the press, and the public. Below is an example of a common format for strategic plans, which might help writers as they begin trying to organise their thoughts and their material. This is just an example, however, not the one and only way to go about this task. 17
Vision Mission Establish strategy Strategy Development Process Review strategic initiatives and critical success factors Value Engineering Planning Process Develop short and long term plans Deploy the plans Strategy Deployment Process Review measures Business Priority Process Figure 2.2. Strategic Planning Process an example [2] The sections commonly included in a strategic plan are: 1. Introduction by the president of the board. 2. Executive summary. 3. Mission and vision statements. 4. Organisation profile and history. 5. Critical issues and strategies. 6. Programme goals and objectives. 7. Management goals and objectives. Benefits of strategic planning are as follows: 1. Clearly defines the purpose of the organisation and establishes realistic goals and objectives consistent with that mission in a defined time frame within the organisation s capacity for implementation; 2. Communicates those goals and objectives to the organisation s constituents; 3. Develops a sense of ownership of the plan; 18
4. Ensures the most effective use is made of the organisation s resources by focusing the resources on the key priorities. 2.2.3. What is a feasibility report? A feasibility report is an analytical tool used during the project planning process which shows how a project would operate under a set of assumptions, the technology used, and the financial aspects. It also gives an outline description of the recommended solution, and explains the reasons for selection. It is conducted during the deliberation phase of project development before financing is secured. The study is the first time in a project development process that the pieces are assembled to see if they perform together to create a technical, environmental, social and economically feasible concept. The feasibility study evaluates the project s potential for success. If, after completing a feasibility study, the group decides not to proceed, there is no need to create a project plan. The perceived objectivity of the evaluation is an important factor in the credibility placed on the study by potential investors and financiers. 2.2.4. Why prepare feasibility studies? Developing any new business venture is difficult. Taking a project from the initial idea through the operational stage is a complex and time consuming effort. Before the potential members invest in a proposed business project, they must determine if it can be economically viable and then decide if investment advantages outweigh the risks involved. Often construction project operations involve risks with which the members are unfamiliar. The feasibility study allows groups to preview potential project outcomes and to decide if they should continue. It is an integral part in developing a construction project. The purpose of the feasibility study is to explore the project in enough detail for the interested parties and stake holders to make a commitment to proceed with the development of the project. Feasibility studies are useful and valid for many kinds of projects. An evaluation of a new business venture both for new groups and established businesses is the most common, but not the only usage. Studies can help groups to expand existing services, build or remodel facilities, change methods of operation, add new products, or even merge with another business. A feasibility study assists decision makers whenever they need to consider alternative development opportunities. Although the cost of conducting a study may seem high, they are relatively minor compared with the total project cost. The small initial expenditure on a feasibility study can help to protect larger capital investments. A feasibility study permits planners to outline their ideas on paper before implementing them. This can reveal errors in project design, before their implementation negatively affects the project. Applying the lessons gained from a feasibility report can significantly lower the project costs. The study also presents the risks and returns associated with the project so the prospective members can evaluate them. There is no correct rate of return a project needs to obtain before a group decides to proceed. The acceptable level of return and appropriate risk rate will vary for individual members depending on their personal situation. The study is not conducted as a forum merely to support a desire that the project will be successful. It is rather an objective evaluation of the project s chance for success. Studies with both positive and negative conclusions can assist a group s decisions. 19
2.2.5. Feasibility study elements The creation of a feasibility study, although part of the project cycle, contains a process in itself. It consists of the following steps. - The conceptual study is the first level study and the preliminary evaluation of the construction project. Often groups proceed directly to the feasibility study and overlook the importance in making the first decision with deliberation. Take the time to determine if a feasibility study is appropriate. Careful consideration of whether to conduct a feasibility study will save much time and money and increase the study value once completed. Moreover if this decision is conducted thoughtfully, the group will probably have established a procedure for decision-making. Then the decisions that the group needs to make later in the development process will probably come easier and the likelihood of them being correct will be greater. The principle parameters of the conceptual study are mostly assumed and/or factored. Accordingly the level of accuracy is low. Flow sheet development, cost estimation and construction scheduling are often based on limited data, test work and engineering design. The result of a conceptual study typically identifies: Technical parameters requiring additional examination. General features and parameters of the proposed project. Magnitude of capital and operating cost estimates. Level of effort for project development. A conceptual study is useful as a tool to determine if subsequent studies are warranted. However it is not valid for economic design making. - The pre - feasibility report - prior to initiating feasibility report, the group needs to sketch out possible design of the project. This can begin with the back of the envelope calculations and proceed through a formal pre feasibility study for complex projects. The purpose of this phase is to establish whether a project looks likely to happen and calculate the potential cost of carrying out the full feasibility study. It also serves the purpose of initiating wider public interest. Sufficient work has been completed to develop the construction project and processing parameters for equipment selection, consumables, flow sheet, production and development schedule. The degree of detail carried out in the pre-feasibility study will be dependent on the nature and type of the scheme. The economic analysis from a pre-feasibility study is of sufficient accuracy to assess various development options and the overall project viability. However these cost estimates and engineering parameters are typically not considered of sufficient accuracy for final decision making or bank financing. At the end of the pre-feasibility stage, the promoting organisation will have to make a decision on whether to proceed to the full feasibility study phase and will have the job of raising investment to carry this out. - The feasibility report - the feasibility report represents the last step for evaluating a construction process for go-no go decision and financing purposes. It presents a holistic view of the entire project. The principle parameters for a feasibility report are based on sound and complete engineering and design work. Although all studies must start with certain assumptions, they are closer to reality to give a value to the study. A feasibility study presents the environment where the project will occur and describe its scope. The description also includes the need for the project and how the 20
group can accomplish the goals. The scope also includes the key elements of all aspects of the project. Potential reaction by competitors should be included in the study. The study also includes the rationale for scenario selection. Both worst-case possibilities and optimistic scenarios are compared. Comparative results from scenarios are presented in tables. Possible economic outcomes should be a prominent part of a feasibility study. Operating costs and net revenues are factors that show if the project is economically viable. The study contains pro-forma balance sheets, operating statements, benefit-cost ratios, projected cash flows, and internal rates of return for the project. These are normally based on a three year projection. The study includes possible project risks for potential members and other investors, project technology, potential legal and governmental setbacks, management and labour resources and time-critical factors. Most importantly, the feasibility study enables members to make constructive, informed decisions on whether to proceed with, revise, or abandon the project. Simply put the feasibility study is a formal technical report that is used by the company to determine whether the proposed project is capable of being developed at a sufficient return to justify the capital and managerial resources that must be committed to the project. The level of accuracy for a feasibility report is higher than the pre-feasibility report. The objectives for the feasibility report are the same as those listed for the pre-feasibility report, but the level and detail and accuracy for each objective are stringent. Detail calculations have been worked out to develop the flow sheet development, equipment selection, consumables, power consumption, material consumption, drawing, construction schedule, and capital and operating cost estimates. 2.3. The stages of the project The information necessary to the project manager for making important decisions must involve an understanding of preceding phases of the project or what is expected in subsequent stages. The life cycle of the project consists of four stages (fig. 2.3.) (1) The conceptual stage; (2) The implementation stage; (3) The operational stage; and (4) The abandonment stage. 2.3.1. The conceptual stage Prior to implementation of any planning in the construction management process, there has to be an establishment or identification of a need. The basic process of decision making starts with the recognition that there is a need for a capital improvement or for a new development. Once the owner has identified a need for the new facility, the requirements are defined and a potential solution is developed. The budgetary constraints are also delineated and the project is conceived and defined during this period. Project definition involves establishing broad project characteristics such as location, performance criteria, size, configuration, layout, equipment, services, and other requirements put forth by the owner, which are needed to establish the general aspects of the project. During this stage the owner hires key consultants including the designer and construction manager. The definition of the work is basically the responsibility of the owner, although a design professional may be called in to provide technical assistance and advice. The most critical decision that is made during this project phase is whether to proceed with the project or not. 21
Conceptual Stage Development Stage Implementation Stage Operational Stage Abandonment Stage Project scope is the way in which one describes the boundaries of the project. It defines what a project will deliver and what it will not deliver. For larger projects, it can include the organisations affected, the transactions affected, the data types included etc. The scope of the project must be kept current and good communication maintained with all of the team who may be involved in the various studies and financial analyses. If you look at the reasons why projects fail, it is usually the result of two problems. Either the team did not spend enough time defining the project and/or there was a lack of scope management. After initial definition, a preliminary feasibility study will be made to determine whether the concept is technically possible. Examination of rough economic data is done to justify pursuing the project. Assuming that the project is feasible, a preliminary definition is made and very preliminary planning is done. A closer look is taken at costs and a viability study is prepared. The viability study determines the commercial feasibility of the project. Viability means that the project can be profitable or necessary to the company s operations and available at a reasonable cost. Profitability and pay-outs for the project are calculated. The financing source for the project is established as the capital may come from the owner, from outside financing, from the sale of bonds or elsewhere. Once the source of money has been resolved, formal submission of the proposal or request for funding is made and approval is given if the project is to proceed. Total Project Life Cycle 1 2 3 4 P l a n P r o d u c e Go/No-Go Decision Figure 2.3. The stages of development. [2] 22
In sum, for the conceptual planning stage of a project the owner needs to gather as much reliable information as possible about a project. This process will require hiring quite a number of design and technical consultants to help if those resources are not available within the company. Once the information is formulated the owner needs to make a decision as to whether or not to proceed with the project. This is called the go/no go decision. If the decision is go, the owner needs to select a site, establish programme, a conceptual estimate, and a master schedule. The designer and construction manager should also be hired at this stage. Conceptual planning stops short of detailed design although a considerable amount of preliminary architectural or engineering work may be required. 2.3.2. The development stage It is during this phase that detail planning starts followed by basic engineering, detailed engineering, procurement, construction and handover the facility to the owner. During the design development the project manager independently investigates costs and availability of systems proposed by the designer. He advises the designer or the engineer as to the availability and costs of possible alternative systems. During design development the project manager performs necessary periodic reviews of the proposed design in order to monitor pre-established budgets and cost limitations. Conceptual engineering of the project should be done concurrently with the preliminary planning. Decisions are made as to the source of the technology to be used. The project manager reviews preliminary specifications prepared by the architect-engineer, including quality control standards and criteria for site development, plumbing, electric, and site utilities. In accordance with the review of the total design, which may include design aspects such as the architectural, civil, mechanical, electrical, and structural plans, the construction manager considers both construction feasibility and possible economy that may be affected by different choices of proposed materials and construction methods. At the conclusion of the preliminary design stage, the project manager makes a very important estimate. This is the first point at which major structural, mechanical, and electrical systems have been defined. This information combined with the spatial solution of the schematic design, can be cost-estimated with a higher degree of accuracy. Prior to completion of the final design plans, the project manager together with the architectengineer will analyse the total design effort and establish the appropriate decision of work for the final contract documents and plans and specifications. 2.3.3. The implementation stage The next stage in the life cycle is construction planning. It is a fundamental and challenging activity in the management and execution of construction projects. It involves the choice of technology, the definition of work tasks, the estimation of the required resources and durations for individual tasks, and the identification of any interactions among the different work tasks. Construction planning consists of three steps: (1) Determination of the job steps or activities that must be performed to construct the project; (2) Ascertainment of the sequential relationships of these activities; and (3) The presentation of this planning information in the form of a network. However these three actions usually proceed more or less simultaneously rather than as discrete and successive steps. 23
A good construction plan is the basis for developing the budget and the schedule for work. Developing the construction plan is a critical task in the management of construction. In addition to these technical aspects of construction planning, it may also be necessary to make organisational decisions about the relationships between project participants and even which organisations to include in a project. Procurement is an important job that follows construction planning. It can make or break the profit situation on a specific contract and for the company as a whole. Procurement involves purchasing of equipment, materials, supplies, labour, and services required for construction and implementation of a project. The major individual components of materials management includes: requisitioning: including specifying, designing and material take-offs; inquiry; receipt of vendor offers; technical and commercial bid analyses; bid conditioning; issuing purchase orders; expediting vendor documents; expediting vendor orders; inspection during manufacture/fabrication; shop testing/acceptance; traffic or transport of the material from the plant/shop to the jobsite; receipt of the material at the jobsite; and, closeout of purchase orders. The scheduled smooth and uninterrupted flow of materials to the site represents a very important determinant of project success. Procurement methods and practices differ with individual firms and projects; nevertheless certain principles are common to each general approach to construction procurement. The procurement process is affected by a number of different factors and hence should not be performed in isolation. It should not be performed without considering the design and construction schedule of a project. It is essential that procurement be considered as a grand plan involving a number of stages. After the completion of the construction works, which includes acceptance of work, subcontractor evaluation, inspection and testing and mechanical acceptance, handover of the facility to the owner, takes place. Following the project closeout, direction of the plant startup activities comes under the owner s start-up manager at the time of mechanical acceptance. One individual, the start-up manager, is named to assume the responsibility for commissioning the plant and for starting it up. Frequently the plant may be turned over to the owner on a system-by-system basis or all at one time depending upon the size of the project. The owner s project manager makes sure that the plant has been completed and is ready for customer acceptance. Once the facility is accepted, it is under the care and custody of the owner. 2.3.4. The operational stage Even prior to the turnover, the owner has started marketing product and training operating personnel. There are three important aspects of plant start-up: (1) The start-up plan (2) Equipment (3) Staffing. Prior to revenue service, the owner should simulate service to test whether all system elements are functional and perform as designed. Start-up operations 24
should verify the competence of the personnel and ensure a smooth transition from construction, through testing, to revenue service. During this phase, a transition occurs from construction to operations, which directly affects the approach to safety, risk management, and insurance. The system safety programme plan addresses all aspects of operational safety and guides standard and emergency operating procedures. As the project is implemented a formal safety certification process is conducted to verify that all safety features are included and function as specified in the design. The installation is maintained to assure a continuous level of output. The operation of the facility is optimized and major or minor changes are made to increase production. 2.3.5. The abandonment stage This is the final stage in a product s life cycle. The market matures, competition increases, the technology changes and the market share may drop. The facility becomes uneconomical or obsolete after certain duration of time. The installation is then written off the books and the life cycle is complete. Thus a project can be viewed as a series of activities that need to be completed successfully in order to meet the project objectives. The stages of development in Figure 2.1 may not be strictly sequential. Some of the stages require iteration, and others may be carried out in parallel or with overlapping time frames, depending on the nature, size and urgency of the project. 2.4. Risk management strategies Project development, due to its complex nature, will often encounter many unanticipated problems, resulting in projects falling behind on deadlines, exceeding budgets and resulting in sub-standard products. Strategic plans, corporate objectives, annual budgets and day-to-day business operations all involve some degree of uncertainty or risk. It is the ability to recognise and manage these risks, which defines the success of a business organisation. Although these problems cannot be totally eliminated, they can however be controlled by applying risk management methods. This can help to deal with problems before they occur. Organisations that implement risk management procedures and techniques will have greater control over the overall management of the project. By analysing five of the most commonly used methods of risk management; conclusions will be drawn regarding the effectiveness of each method. Risk management strategies include the following: - Risk avoidance: avoiding the risk associated with a specific task, activity or project. Often, following the review of a contract, it is determined that a project is just too risky. The client may decide not to bid the work at all, or remove that element of the work from their bid, sometimes using an alternate method to delineate the exclusion. Risk avoidance is strictly a business decision, and sometimes a very good strategy if construction documents are unclear, ambiguous or incomplete. - Risk abatement: the process of combining loss prevention or loss control to minimise a risk. This risk management strategy serves to reduce the loss potential and decrease the frequency or severity of the loss. Risk abatement is preferably used in conjunction with other risk management strategies, since using this risk management method alone will not totally eliminate the risk. - Risk retention: a good strategy only when it is impossible to transfer the risk. Or, based on an evaluation of the economic loss exposure, it is determined that the diminutive value placed on the risk can be safely absorbed. Another consideration in retaining a risk is when the probability of loss is so high that to transfer the risk would cost almost as much as the cost of 25
the worst loss that could ever occur, i.e. if there is a high probability of loss, it may be necessary to retain the risk instead of transferring it. - Risk transfer: shifting the risk burden from one party to another. This can be done several ways, but is usually done through conventional insurance as a risk transfer mechanism, and through the use of contract indemnification provisions. - Risk allocation: sharing the risk burden with other parties. This is usually based on a business decision when a client realises that the cost of doing a project is too large and needs to spread the economic risk with another firm. Also, when a client lacks a specific competency that is a requirement of the contract, e.g., design capability for a design-build project. A typical example of using a risk allocation strategy is in the formation of a joint venture. 2.5. Literature and further reading for chapter 2 1. Technical Construction Language, manual for Introductory, Intermediate Course of Professional English Language for Construction Managers and Engineers, Oficyna Wydawnicza PW, Warsaw, 2004. (Leonardo da Vinci PL/01/B/P/LA/140310: Improvement of the Linguistic Skills of Polish and Portuguese Construction Managers and Engineers - Recognition of Needs and Preparation of Courses in "Construction English Language" supervised by DSc. PhD. Eng.. A. Minasowicz, ISBN 83-89780-06-2. 2. Principles of the Management in Construction (PM/CM/QM/REM), manual for Introductory, Intermediate Course of Professional English Language for Construction Managers and Engineers, Oficyna Wydawnicza PW, Warsaw, 2004, ISBN 83-89780-07-0. 3. Procurement and Tendering Procedures, manual for Advanced Course of Professional English Language for Construction Managers and Engineers, ISBN 83-89780-08-9, Oficyna Wydawnicza PW, Warsaw, 2004. 4. www.lifecyclebuilding.org 5. Lifecycle Construction Resource Guide, by The Pollution Prevention Program Office, U. S. Environmental Protection Agency, 2008. 6. The Lifecycle Construction Guide Design for Deconstruction: The Chartwell School Case Study, by Scott Shell, Octavio Gutierrez, Lynn Fisher, et al for U.S. Environmental Protection Agency, 2006. 26
2.6. Set of exercises for chapter 2 Exercise 2.1: Fill the empty spaces with proper text:?? - disposal of facility;?? - design and engineering;?? - start-up for occupancy 1 -?? 2 -?? 3 -?? Exercise 2.2: Name the benefits of strategic planning (descriptive question). Exercise 2.3: Which order of basic steps for strategic planning is correct? Choose the right one. a) Preparing for the Project Exploring and Learning and Finding Common Goals Assessing the Situation Articulating Mission, Vision and Guiding Principles Developing Strategies, Goals and Objectives Strategy Deployment Evaluating and Changing Format for a Strategic Plan 27
b) Preparing for the Project Exploring and Learning and Finding Common Goals Assessing the Situation Strategy Deployment Developing Strategies, Goals and Objectives Articulating Mission, Vision and Guiding Principles Evaluating and Changing Format for a Strategic Plan c) Preparing for the Project Assessing the Situation Exploring and Learning and Finding Common Goals Strategy Deployment Evaluating and Changing Articulating Mission, Vision and Guiding Principles Developing Strategies, Goals and Objectives Proper answer is b). Format for a Strategic Plan 28
Exercise 2.4: Fill the blanks in the diagram below so that it refers to Strategic Planning Process.?????? Establish strategy Strategy Development Process Review strategic initiatives and critical success factors Value engineering Planning Process Develop short and long term plans Deploy the plans Strategy Deployment Process??? Business Priority Process Exercise 2.5: Fill the blanks with the appropriate word. The level of accuracy for a report is higher than the pre-feasibility report. Exercise 2.6: Name the elements of a feasibility study (descriptive question). 29
Exercise 2.7: Choose the right answer. A stage in which the basic process of decision starts with the recognition of a need for a capital improvement or for a new development is called the. a) Operational stage b) Conceptual stage c) Abandonment stage d) Implementation stage Exercise 2.8: Write stages of the life cycle of the project in the proper order: Implementation stage conceptual stage Abandonment stage operational stage Exercise 2.9: What happens with a facility during the abandonment stage? (descriptive question) Exercise 2.10: Fill in the blanks using the words in the box below so that the sentences are correct. a) Risk : avoiding the risk associated with a specific task, activity or project. b) Risk : the process of combining loss prevention or loss control to minimise a risk. c) Risk : a good strategy only when it is impossible to transfer the risk. d) Risk : shifting the risk burden from one party to another. e) Risk : sharing the risk burden with other parties. Abatement Allocation Avoidance Retention Transfer 30
CHAPTER 3 BUILDING AND LEGAL ISSUES OBJECTIVES OF CHAPTER 3 This module aims to explain the methods of procurement for construction engineers, managers and administrative staff and define and show how to be prepared and what to do when entering into procurement in the construction sector. The participant will be aware of the types of procurement methods, EU procurement and alternative methods of procurement and will be more conscious while preparing for procurement and during the procurement phase. LEARNING OUTCOMES FOR CHAPTER 3 In this module, you will learn the traditional, design and build, management contracting, project/construction management methods of procurement and will be trained about the responsibilities and tasks of the client and the contractor in each of these methods, you will be aware of the issues with EU procurement, procurement under EU directives and about the alternative methods of procurement, what will give you a complete set of procurement methods. 3.1. Standard methods of procurement Procurement (tendering) is the acquisition of goods and/or services. It is preferable that the goods/services are always appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time and location. It should also be considered to be the process of identification, selection and commissioning of the contributions required for the construction phase of the project. Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. The various procurement options available reflect fundamental differences in the allocation of risk and responsibility to match the characteristics of different projects; therefore selection of the procurement option must be given strategic consideration. The project manager must advise on the relative benefits and disadvantages of each option, related to the particular circumstances of the project, for the benefit of the client. Direct procurement and indirect procurement (TENDERING) TYPES Direct procurement Raw material and production goods Indirect procurement Maintenance, repair, and operating supplies Capital goods and services F E A T U R E S Quantity Large Low Low Frequency High Relatively high Low Value Industry specific Low High Nature Operational Tactical Strategic Examples Crude oil in petroleum industry Lubricants, spare parts Machinery, computers Table 3.1 Examples for the Direct and Indirect Procurement for the supplies 31
Based on the consumption purposes of the acquired goods and services, procurement activities are often split into two distinct categories. The first category being direct, production-related procurement and the second being indirect, non-production-related procurement. Direct procurement occurs in manufacturing settings only and it encompasses all items that are part of finished products, such as raw material, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect procurement activities concern operating resources that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardised low value items like office supplies and machine lubricants to complex and costly products and services like heavy equipment and consulting services. The final choice of procurement method should be made on the basis of the characteristics of the project, the client and their requirements. The selection of method should be made when consideration is being given to the appointment of design and other specialist consultants because each option can have a different impact on the terms of appointment of the members of the project team. There are many different methods of construction procurement; and the most common types of procurement are as follows: 1. Traditional (Construction) 2. Design and Build 3. Management Contracting 4. Project/Construction Management Each method has its own variations. No method is best in all circumstances. They bring different degrees of certainty and risk to the project construction and development. 3.1.1. Traditional method: (construction) Construction is based on the design of the client and this is the most common method of construction procurement and is well established and recognised. In this arrangement, the architect or engineer acts as the project coordinator. His or her role is to design the works, prepare the specifications and produce construction drawings, administer the contract, tender the works, and manage the works from inception to completion. There are direct contractual links between the client & architect (designer) and the client & main contractor. Any subcontractor will have a direct contractual relationship with the main contractor. The contractor builds to a defined scope of work generally priced with the measurement units or for a fixed price lump sum. The client, however, remains responsible for the design and the performance of consultants under the building contract. The client appoints a design team, including a quantity surveyor responsible for financial and contractual advice. A building contractor is appointed, usually after a tender process, and usually based on one of the standard forms of contract, to carry out the construction. The tender process can be based on complete design information or partial design information plus provisional guidance if an early construction start is required. The traditional method is sometimes called Design-Bid -Build (or design/bid/build, and abbreviated D-B-B or D/B/B accordingly), also known as design-tender (or "design/tender"). The traditional method is a project delivery method in which the agency or owner contracts with separate entities for each the design and construction 32
of a project. Traditional method for project delivery differs in several substantial aspects from design-build. There are three main sequential phases to the traditional delivery method: The design phase (client); The bidding (or tender) phase: o Bill of quantities ( when client prepares BOQ); o Lump-sum (when the contractor prepares BOQ on the base of technical drawings delivered by the client); The construction phase (contractor). 3.1.2. Design and Build methods The owner produces a list of requirements for a project, giving an overall view of the project's goals. Several D&B contractors present different ideas about how to accomplish these goals. The owner selects the ideas he likes best and hires the appropriate contractor. Often, it is not just one contractor, but a consortium of several contractors working together. Once a contractor (or a consortium/consortia) has been hired, they begin building the first phase of the project. As they build phase 1, they design phase 2. This is in contrast to a traditional contract, where the project is completely designed by the owner, then bid on, then completed. Prime contracting is an extension of the design and build concept. The prime contractor will be expected to have a well-established relationship with a supply chain of reliable suppliers. The prime contractor co-ordinates and manages throughout the design and construction period to provide a facility, which is fit for the specified purpose, and meets its predicted through-life costs. The prime contractor is paid all actual costs plus profit incurred in respect of measured work and design fees; it is only at risk in respect of its staff and preliminaries. Public private partnerships (PPPs) projects are developed for the provision of services that are required as a result of client needs and requirements and not specifically for the exclusive provision of capital assets such as buildings. For this reason it is preferable to investigate PPPs as soon as possible after a user need has been identified rather than leaving it until a conventional construction project has been selected as the solution. It is possible that a PPP may result in a solution (provision of services to meet the user need or objectives) that does not require a construction project at all. One major benefit of this type of procurement is that the risks associated with providing the service are transferred to those best able to manage them. To achieve the project objective, the outputs that the service is intended to deliver (as a result of the facility/development) must be clearly defined at the initial stages by the client. Framework agreements with a single supplier or a limited number of suppliers can result in significant savings to both parties. These agreements may cover prime contracting and design and build procurement routes. However, they are unlikely to be appropriate for clients that only occasionally have projects. They can be particularly appropriate for facilities management and maintenance requirements. The expectation is that savings will come from: the absence of a requirement for re-procuring for each individual project, continuous improvement by transferring the learning from one project to another, reduced confrontation through extended co-working, and continuous workflow by keeping the same project team. 3.1.3. Management contracting The client appoints a design team with responsibilities related to design and management of the project and augmented by a management contractor whose expertise and advice is 33
available throughout the design development and procurement processes. Specialist works subcontractors, who are contracted to the management contractor on terms approved by the contract administrator who may be the architect, the quantity surveyor or the project manager, carry out the construction. The appointments of the management contractor and the trade subcontractors are usually made on standard contract forms. The management contractor is reimbursed all their own costs and paid a percentage on project costs in the form of a guaranteed profit or fee. 3.1.4. Project/Construction management In this arrangement the client plays an active role in the procurement system by entering into separate contracts with the designer (architect or engineer), the project manager, and individual trade contractors. The client takes on the contractual role, while the construction or project manager provides the active role of managing the separate trade contracts, and ensuring that they all work smoothly and effectively together. Management procurement systems are often used to speed up the procurement processes, allow the client greater flexibility in design variation throughout the contract, the ability to appoint individual work contractors, separate contractual responsibility on each individual throughout the contract, and to provide greater client control. Construction management requires that the specialist works contractors are contracted to the client directly, involving the construction manager as a member of the project team acting as an agent and not a principal, to concentrate on the organisation and management of the construction operations. The project team, including the construction manager, is responsible for all financial administration associated with the works. The construction manager is paid an agreed fee to cover the costs of its staff and overheads. This is generally considered to be the least adversarial form of contract and is often invoked when design needs to run in parallel with construction. In construction, the authority having jurisdiction is the governmental agency or sub-agency which regulates the construction process. Construction performed for supra-municipal authorities are usually regulated directly by the owning authority, which becomes the authority having jurisdiction. During the planning of a building, the zoning and planning boards of the authority having jurisdiction will review the overall compliance of the proposed building with the municipal general plan and zoning regulations. Once the proposed building has been approved, detailed civil, architectural, and structural plans must be submitted to the municipal building department (and sometimes the public works department) to determine compliance with the building code and sometimes for fit with existing infrastructure. Before the foundation can be dug, contractors are typically required to verify and have existing utility lines marked, either by the utilities themselves or through a company specialising in such services. This lessens the likelihood of damage to the existing electrical, water, sewage, phone, and cable facilities, which could cause outages and potentially hazardous situations. During the construction of a building, the municipal building inspector inspects the building periodically to ensure that the construction adheres to the approved plans and the local building code. Once construction is complete and a final inspection has been passed, an occupancy permit may be issued. 34
3.2. Issues with EU procurement 10 The EU's procurement regime sets out rules and regulations to achieve transparency and equal treatment for all tenderers to ensure that public contracts are awarded to the tender offering best value for money. Whilst arguably this has expanded in growth of the public procurement markets across EU, there is a widely held view that there is still a significant scope for improvement to increase the cross border trade, as the public procurement market still appears to be lagging behind the private procurement market in terms of cross border trade. The predominant issue, many believe, is the nature of the EU procurement directives. The directives themselves are not the problem as such, but "grey", behavioural and contextual issues such as complex procedures, unfair national preference, and wavering commitment to competition and market liberalisation are key factors holding back the creation of a competitive and dynamic EU public procurement market. Some key issues relating to current EU procurement directives include: Tender requirements tailored to suit a given, national, supplier; or pressure applied to suppliers to use locally-based sub-contractors; Overly legalistic approaches to public procurement; False competition where international bids are invited but there is little intention of awarding a contract to a non-national firm; Splitting contracts into small lots to avoid detailed procurement rules; 'Price-squeezing' to keep foreign competition out of a market, particularly where the state has a substantial stake; Preference to national suppliers even where foreign bidders are believed to offer better value for money; Instructing successful bidders on the location of manufacturing for a contract. However, there are a number of steps and actions that can be considered and formulated to overcome these issues. Some of these include: Action to identify and spread best practice among Member States, including the use of scorecards, where appropriate, to measure performance; Action by Member States to open up more markets to public procurement and remove barriers to effective competition, as well as to raise the skills of procurement practitioners and to eliminate bad practice; Good products and services with reliable delivery and customer support services; Clear commitment to public procurement markets and the resource investment required; Structural readiness for export; Relevant export support services have been investigated and used; Market research has been carried out; issues such as country-specific regulation, customer preferences, standards have been explored; Niche or best-in-class product or service is offered; Internationally recognised brand; 10 Assessing the impact on public sector procurement on competition, OFT, 2004 available at http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft742b.pdf accessed November 2011 Public Procurement Standard Note SN/EP/6029 updated 13 July 2011, House of Commons Library, available at www.parliament.uk/business/publications/research/.../sn06029.pdf accessed November 2011 35
Clear and robust country-entry strategy in place; A strategy of starting small has been considered, to avoid head-on competition with firms already well-established in the market; Familiarity with relevant EU public procurement rules; Familiarity with informal problem-solving mechanisms in case problems occur; Some form of local presence is in place (distribution agreement, joint-venture, local subsidiary, sub-contracting arrangements); Linguistic skills and cultural understanding of the target country; Sales representatives are natives of the country, or at least fluent in the language, and well integrated within the local culture and business environment; Good relationships and dialogue are in place with potential and actual clients; Competitive bid; Good fit with client requirements; and Pragmatic approach to difficulties and cultural differences, and adaptability to customer requirements. There is also a growing view that some public services are best suited to being delivered by organisations that are rooted and based within the communities served and so should be excluded from EU procurement rules. These mostly relate to SMEs and fundamental issues in this context include: Processes that are disproportionate to the value of the contract and are expensive and time-consuming for SMEs; Processes that require a significant investment of resource to complete with a low chance of return; Processes that are based on an inflexible and highly risk-averse approach to procurement; A lack of joined up working and differences in approaches, culture, objectives and priorities between the various officers involved in the whole commissioning process, from those who take part in the earlier stages of a commissioning process to the technical procurement officers; Competing and conflicting policy objectives. The EU procurement directives are currently undergoing further reviews and it is anticipated that the first proposals of the new legislation will be available in 2012. 3.3. Procurement under EU Directives The European Union (EU) procurement directives, and the regulations that implement them in the UK, set out the law on public procurement. Their purpose is to open up the public procurement market and to ensure the free movement of goods and services within the EU. The rules apply to purchases by public bodies and certain utilities which are above set monetary thresholds. They cover all EU Member States and, because of international agreements, their benefits extend to a number of other countries worldwide. Where the Regulations apply, contracts must be advertised in the Official Journal of the EU (OJEU) (unless it qualifies for a specific exclusion e.g. on grounds of national security) and there are other detailed rules that must be followed. The rules are enforced through Member States courts, and the European Court of Justice (ECJ). What are the key changes? The changes introduced through the current set of regulations (enacted on 31 January 2006) 36
include: Supply, services and works are consolidated into a single set of regulations; Framework agreements and e-auctions expressly included; A new competitive dialogue procedure introduced in addition to the open and restricted procedures; Dynamic purchasing systems introduced; Specific provisions made for central purchasing bodies; Mandatory exclusion of entities whose directors or other decision makers have been convicted of certain offences; A 10 calendar day standstill period at the award stage prior to contract signature has been provided for. What about mixed contracts? Where a contract covers both services and supplies, the classification should be determined by the respective values of the two elements; Where it covers works/supplies or works/services, it should be classified according to its predominant purpose; Where a contract provides for the supply of equipment and an operator it should be regarded as a services contract; Contracts for software are considered to be for supplies unless they have to be tailored to the purchaser s specification, in which case they are services. What is the advertisement requirement? Generally contracts covered by the regulations must be the subject of a call for competition by publishing a contract notice in the OJEU. In most cases the time allowed for responses or tenders must be no less than a set period, although some reduction is possible under certain circumstances (see SIMAP website for further details). There are some services (categorised as Part A and Part B services) where a reduced advertisement requirement applies details of this is available on SIMAP website 11. 11 http://simap.europa.eu/index_en.htm 37
Table below outlining the advertisement timescale requirements. Procedure Text Days Open Minimum time for receipt of tenders from date contract 52 notice sent Reduced when prior information notice (PIN) published (subject to restrictions) to, generally, And no less than 36 22 Restricted Restricted Accelerated Competitive Dialogue and Competitive Negotiated Competitive Negotiated Accelerated Minimum time for receipt of requests to participate from the date contract notice sent Minimum time for receipt of tenders from the date invitation sent Reduced when PIN published (subject to restrictions) to, generally, And no less than Minimum time for receipt of requests to participate from the date contract notice sent Minimum time for receipt of tenders from the date invitation sent Minimum time for receipt of requests to participate from the date contract notice sent Minimum time for receipt of requests to participate from the date contract notice sent 37 40 36 22 15 10 37 15 What are the procurement options? Open procedure all interested parties can respond Restricted procedure a selected number of respondents are invited to tender. Competitive dialogue procedure - following an OJEU contract notice and a selection process, the authority then enters into dialogue with potential bidders, to develop one or more suitable solutions for its requirements and on which chosen bidders will be invited to tender Negotiated procedure - a purchaser may select one or more potential bidders with whom to negotiate the terms of the contract. An advertisement in the OJEU is usually required but, in certain circumstances, described in the Regulations, the contract does not have to be advertised in the OJEU. An example is when, for technical or artistic reasons or because of the protection of exclusive rights, the contract can only be carried out by a particular bidder. How do the regulations impact on private sector projects? For public works concession contracts (i.e. contracts under which the contractor is given the right to exploit the works, e.g. tolled river crossings), the winning concessionaire is required to comply with certain OJEU advertising requirements for works contracts which it intends to award to third parties. For some subsidised works contracts (civil engineering activities, building work for hospitals, facilities intended for sports, recreation and leisure, school and university building or buildings for administrative purposes) the public authority awarding the grant is obliged to require the subsidised body to comply with the Regulations, as if it were a public authority, as a condition of grant. This provision has, for example, been invoked for many Lottery funded projects. There is a similar requirement for subsidised service contracts in connection with subsidised works. 38
This guidance is not intended as a substitute for project specific legal advice, which should always be sought by a public authority where required. The EU procurement regime is not static. It is subject to change, driven by evolving European and domestic case law, European Commission communications, new and revised Directives and amendments of the existing UK Regulations. Further information can be obtained from SIMAP website 12. 3.4. Alternative methods of procurement PFI There are fundamental differences in procuring, managing and the delivery of a PPP/PFI project to that of the more conventional projects. The key area is that they are set up on a completely different structure and contractual basis. This involves additional parties, a substantially different risk matrix and more complex responsibility for the management of risk. It is the understanding of these risks which are more extensive, more onerous and which extend for a much longer period. Firstly however, a brief history of the development of PPP/PFI in the UK Is set out to give an understanding of the basis of these changes Brief History In the early 1990s the UK government formulated and awarded specific Design, Build, Finance & Operate (DBFO) projects to modernise the UK s ageing road infrastructure; these in the main were the forerunners to fully privately financed projects (PFI). Also there were early Build, Own & Operate (BOO) projects and Build, Own, Operate & Transfer (BOOT) projects but the DBFO projects were more numerous. This approach allowed various road infrastructure projects to be built and operated by private companies but more importantly, financed by private capital with the borrowings remaining off balance sheet for the government. However, these private loans were normally 100% underwritten by the government and repaid over a concession period of (initially) 20-25 years through shadow tolls for traffic usage - In effect the Government was buying upgraded assets on HP. These projects tended to be multimillion projects such as major new motorways and strategic bridge links such as the second Severn crossing and the Dartford M25 toll bridge: The John Major government then launched the Private Finance Initiative (PFI) in the mid- 1990s. PFI contracts were of similar format but were used to include renewal and upgrade of other key Government funded facilities. There were two main forms of contract which passed down different levels of risk to the private sector, namely: Availability such as schools, prisons, hospitals; Full risk such as water projects, light rail & private roads. The availability model followed very much the same format as DBFO in that availability for use payments were made, much in line with shadow tolls, during the concession period Where the full risk was passed down, the lengthy concession period allowed revenue to be generated by the private companies directly from the service provided and was used to finance and service their equity and loans. These full risk projects were not underwritten by the government. 12 http://simap.europa.eu/index_en.htm 39
Structure of PFI/PPP/PFI company In order to allow investment in PFI/PPP projects and to allow the effective risk transfer to safeguard the private investors, a new format of legal company had to be established; Special Service Companies (SPC) or Special Service Vehicles (SPV) were established as the main contracting company. These SPC/SPVs became not only responsible for the construction of the specific project but had to operate the facility for up to 30 years before handing back to the government. A typical structure of a SPC/SPV is shown below: Client Advisors Special Purpose Company Banks / Lenders Construction Company Operation & Maintenance Company Subcontractors Subcontractors Suppliers Suppliers Within this structure, there needed to be formal contracts to ensure all parties understood their legal responsibilities and then were held to account to deliver to the specific requirements and performance criteria. As in the main the companies forming the SPC/SPV were the same as those involved in the Construction and O&M Companies, there needed to be formal arms-length stand-alone contracts between the different legal entities. Project management of PPP/PFI projects From the diagram above, it now becomes obviously very important to define which part of the project that a project manager is to be responsible for, namely: Project manager/director for the SPC/SPV Project manager for the construction company or consortium Project manager for the long term operating & maintenance company or joint venture This is essential as his role, responsibilities and authority levels will vary greatly. The other critical issue is that he needs to fully understand within which part of the organisation that certain risks should be retained and controlled and then ensure that the appropriate risks are transferred to the legal party contracted to manage them. 40
A diagram below demonstrates this: Transfer of Risk Client Retained Risk Advisors Special Purpose Company Banks / Lenders Construction Company Operation & Maintenance Company Subcontractors Suppliers Subcontractors Suppliers 0 years 3 5 years 25 30 years Risk responsibility duration Risk transfer At the start of PFI, full risks not fully identified and understood, thus in some cases the proper risk were not properly transferred from party to party, thus risks were not always allocated properly to the correct party. Risk transfer has been developed over the years and is now a mature market. The best performing PFI/PPP projects have generally been where the risks are properly identified and then allocated to the party best able to understand them and thus properly manage them. There are a range of PPP/PFI models that allocate responsibilities and risks between the public and private partners in different ways. The following terms are commonly used to describe typical partnership agreements: Buy-Build-Operate (BBO): Transfer of a public asset to a private or quasi-public entity usually under contract that the assets are to be upgraded and operated for a specified period of time. Public control is exercised through the contract at the time of transfer. Build-Own-Operate (BOO): The private sector finances, builds, owns and operates a facility or service in perpetuity. The public constraints are stated in the original agreement and through on-going regulatory authority. Build-Own-Operate-Transfer (BOOT): A private entity receives a franchise to finance, design, build and operate a facility (and to charge user fees) for a specified period, after which ownership is transferred back to the public sector. Build-Operate-Transfer (BOT): The private sector designs, finances and constructs a new facility under a long-term concession contract, and operates the facility during the term of the concession after which ownership is transferred back to the public sector if not already transferred upon completion of the facility. In fact, such a form covers BOOT and BLOT with the sole difference being the ownership of the facility. Build-Lease-Operate-Transfer (BLOT): A private entity receives a franchise to finance, design, build and operate a leased facility (and to charge user fees) for the lease period, against payment of a rent. 41
Design-Build-Finance-Operate (DBFO): The private sector designs, finances and constructs a new facility under a long-term lease, and operates the facility during the term of the lease. The private partner transfers the new facility to the public sector at the end of the lease term. Finance Only: A private entity, usually a financial services company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue. Operation & Maintenance Contract (O & M): A private operator, under contract, operates a publicly owned asset for a specified term. Ownership of the asset remains with the public entity. (Many do not consider O&Ms to be within the spectrum of PPP/PFIs and consider such contracts as service contracts.) Design-Build (DB): The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, turnkey basis, so the risk of cost overruns is transferred to the private sector. (Many do not consider DBs to be within the spectrum of PPP/PFIs and consider such contracts as public works contracts.) Operation License: A private operator receives a license or rights to operate a public service, usually for a specified term. This is often used in IT projects. The options available for delivery of public services range from direct provision by a ministry or government department to outright privatisation, where the government transfers all responsibilities, risks and rewards for service delivery to the private sector. Within this spectrum, public-private partnerships can be categorised based on the extent of public and private sector involvement and the degree of risk allocation. In UK public sector there is no legal requirement to adopt a uniform PPP/PFI project implementation procedure all the different sectors engaged in PPP/PFI form of procurement, for example, the defence sector, education sector, housing sector, the ICT sector and so on, have created their own terms of engagement in terms of PPP/PFI projects, with input and support from regulatory, legislative and executive authorities. Although the first standard PFI contract was published in 1999, the different sectors have developed their own forms of contractual arrangements to suit their particular requirements 13. In many sectors, there is non-statutory guidance which provides model documentation and advice in relation to the PPP/PFI processes. For further information regarding PPP/PFI projects please refer to the recent LdV publication: results of the LdV TEP-PPP project nr: 2009-1-PL1-LEO05-05040, titled: Trans-European Promotion of PPP Projects, ISBN 978-83-933884-4-8, Centrum PPP, Warsaw, 2012. 3.5. Literature and further reading for chapter 3 1. Introduction to the EU procurement rules: Office of Government Commerce Guidance March 2008. 2. Philip Webster. 1990. Tendering Procedure and Construction in Europe. J. Property Finance.Vol1. No3. 411-415. 3. Code of Practice for Project Management for Construction and Development. 2002. ISBN 1-4051-0309-4. 3rd ed. Blackwell Publishing Ltd., 240p. 4. Public Procurement Bulletin 2008, 2009, 2010. 5. Bedri K. O. Tas, Rasim Ozcan and Ilke Onur. 2008. Public Procurement Auctions and Competition in Turkey. Working Paper No: 08-14. TOBB University of Economics and Technology Department of Economics. 6. Public Procurement Authority (http://www.ihale.gov.tr) 7. Hasan Gül. 2010. Modernising public procurement and creating an independent public procurement regulatory authority. EBRD-Law in transition. 8. EBRD: Turkey (http://www.ebrd.com/pages/country/turkey.shtml) 13 There is however a requirement to comply with the guidance available in a HMT Treasury publication Standardisation of PFI Contracts (SoPC currently at version 4 published in 2007) for PFI contracts 42
3.6. Set of exercises for chapter 3 Exercise 3.1: Which one of the following is not a method of procurement? a) Project/construction management b) Contract and Build method c) Traditional d) Design and Build e) None Exercise 3.2: Which one of the following is wrong? a) In traditional type of procurement, construction is based on the design of the contractor. b) In project/construction management type of procurement, the client plays an active role in the procurement system. c) In management contracting type of procurement, the client appoints a design team with responsibilities related to design and management of the project. d) In design and build method type of procurement, the owner produces a list of requirements for a project, giving an overall view of the project's goals. Exercise 3.3: Fill in the blank with the appropriate word: method is sometimes called as Design-Bid-Build (or design/bid/build, and abbreviated D-B-B or D/B/B accordingly), also known as Design-tender (or "design/tender"). a)management b) Traditional c) Contractual d) Project e) Tender Exercise 3.4: Which one of the following is wrong about the categories of the procurement activities? a) Direct procurement category covers raw materials and production goods, b) The first category is called direct, production-related procurement and the second is indirect, non-production-related procurement, c) Indirect procurement covers raw materials and production goods, d) Maintenance, repair and operating supplies belong to indirect procurement, e) None Exercise 3.5: What is the main purpose of implementation EU procurement directives? Exercise 3.6: According to EU legislation, where must all tenders from the public sector which are valued above a certain financial threshold be published? 43
Exercise 3.7: What is a minimum time (in calendar days) for receipt of tenders from the date a contract notice is sent for Open Procedure according to the OJEU timescale requirements? a) 28 b) 36 c) 52 Exercise 3.8: PFI/PPP is not an alternative method of procurement. True or false? Exercise 3.9: List at least three PPP/PFI models describing partnership agreements. Exercise 3.10: Briefly describe Design-Build-Finance-Operate (DBFO) model. 44
CHAPTER 4 PUBLIC TENDERING OBJECTIVES OF CHAPTER 4 The aim of this module is to explain the tender procedures and the documents to be prepared during a tendering phase identifying the specification, selection and award stages. The participant will be equipped with the knowledge of tendering phases starting from the beginning up to the award stage. LEARNING OUTCOMES FOR CHAPTER 4 The participant will learn the phases of tender, procuring the supply chain, tender procedures, tender appraisal; time, quality and price and awarding the contract. This will include everything about a tender and will be useful for construction managers who are entering a tender. 4.1. Introduction Public procurement (tendering) is the process whereby public authorities - including all levels of government and public agencies - buy goods and services or commission work. Public procurement generally is an important sector of the economy. In Europe, public procurement accounts for 16.3% of the Community GDP. Government procurement (tendering), also called public tendering or public procurement, is the procurement of goods and services on behalf of a public authority, such as a government agency. With 10 to 15% of GDP in developed countries, and up to 20% in developing countries, government procurement accounts for a substantial part of the global economy. To prevent fraud, waste, corruption or local protectionism, the law of most countries regulates government procurement more or less closely. It usually requires the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold. Government procurement in the European Union has been regulated and harmonised by community law since the 1970s. European regulations also provide for electronic procurements. Especially with regard to infrastructure, public tenders have an important meaning for industry. Following the European Union laws, all EU accession countries needed to provide tender processes consistent with EU regulations. The advantage for foreign firms is the chance to win tenders in other countries since all firms must be treated alike and every firm capable of conducting the project has the right to participate in the tender process. The creation of a common market for public-sector procurement and construction contracts was as a result of the obligations Member States had undertaken in the treaties to remove restrictions on foreign goods, services and businesses. Community legislation was necessary to make sure that government contracts were open to all nationalities on equal terms and to make tendering procedures more transparent so that compliance with the principles laid down in the treaties could be monitored and enforced. Therefore, to back up the prohibition of import restrictions resulting from discriminatory public purchasing and to make it easier for foreign firms to compete for public-sector contracts, the Council issued directives to coordinate procurement procedures in all publicsector procurement subject to the treaties. 45
4.2. Phases of tendering Figure below and at the next page shows the general steps and actions taken during a typical tender process for services or consultancy under the restricted procedure: Contracting Authority Contractor Consultation and market search, preliminary works Project definition and design, including initial drafting of bid specification or terms of references. Decision to make restricted procedure, Determination of contract award criteria, weightings and quality-price ratio Assessment and selection Review of supplier database, registration and pre-qualification information Notification and pre-qualification Advertisement and contract notice, invitations to expressions of interest First stage of selection, reducing the list to a manageable total for second stage of selection Second stage of selection, a more detailed assessment, including interviews and visits Definition of shortlist Tendering Finalisation of work specification Issue of proposal invitations and accompanying documentation Decisions on evaluation approach Arrangements for dealing with clarification requests Format site visits or briefings, if appropriate Receipt of proposals Market analyses and business strategy Focus on target sectors Market intelligence for contract opportunities Client and project research Contacts with client managers Response to contract notice Preparation and submission of expression of interest Acknowledgement of invitation Decision to bid Confirmation of intention to submit a proposal Analysis of work specification Preparation of proposal Request for clarification Briefing or meeting with client, if appropriate Submission of proposal 46
Contracting Authority Contractor Evaluation Formal tender opening and checks for compliance Proposal evaluation, quality and price Arrangements for presentations by lead contenders Preparation of formal and key questions for Preparation of presentation presentations Assessment of presentations Delivery of presentations Further clarification of contract issues if appropriate through negotiation Selection of the most economically advantageous tender Further clarification of contract issues if appropriate through negotiation Contract Award Notification to successful bidder, including any conditions to be discussed at a further contract negotiation stage Notification to unsuccessful bidders, including placing a reserve or hold on the bidder ranked second in case contract negotiations with the first ranked bidder fall 10-days mandatory standstill period before entering into contract Ref: Bids, Tenders and Proposals: Winning Business Through Best Practice by Harold Lewis In terms of their detailed application, EU procurement procedures are more complex than can be indicated in this brief outline. There are circumstances and conditions that give rise to exceptions from general rules and aspects of the directives that are open to differing interpretations. It is essential for prospective bidders to make a thorough analysis of the information in the contract notice and the bid specification. As well as the main EC portal (http://europa.eu) and the TED site (http://ted.europa.eu), the SIMAP website (http://simap.europa.eu) offer a useful means of efficient management, performance and delivery is normally reflected in the bid specifications for high-value public sector contracts by a requirement to provide plans for progress measurement, performance monitoring, quality control and the management of risk and change. These activities may include the following: Checking that the various tender documents are produced at appropriate times, including those for enabling works (e.g. demolition, site clearance, access and hoarding) and ensuring that they contain any special terms required by the client. In conjunction with the relevant consultants, preparing lists of firms to be invited to tender for the main and subcontract elements of the work (prequalifying process); Obtaining confirmation that the listed firms will be prepared to submit tenders at the specified dates, taking up references and/or interviewing tenderers, together with the relevant consultants; 47
Ensuring that appropriate reference to the construction Design & Management regulations is made in tender documentation where the contractor is to be appointed as principal contractor, including the health and safety plan; All subcontract terms must be compatible with the main contract terms, paying particular attention to contractor-designed elements and confirming that appropriate warranties are secured. Receiving reports on tenders, together with method statements. Interviewing successful tenderers, if necessary, to clarify any special conditions and to meet significant leading personnel. Arranging for formal acceptance of tender as appropriate and issuing relevant letters of intent; Balancing quality and price is the base for selection; Distinguishing if tenders are outside budget; Ensuring that the client understands the nature and terms of the construction contract, particularly those in relation to possession and payment terms, and that possession of the site can be given to the contractor on the date set out in the tender; Arranging for formal signing and exchange of contracts. The Regulations are designed to ensure all suppliers or contractors established in countries covered by the rules are treated on equal terms, to avoid discrimination on the grounds of origin in a particular Member State. The criteria cover: Specification stage - how requirements must be specified, avoiding brand names and other references which would have the effect of favouring or eliminating particular providers, products or services and the requirement to accept equivalence. The Regulations now make it clear that authorities may use performance specifications rather than technical specifications. They also provide clarification on the scope to reflect environmental issues in specifications. Selection stage - the rejection or selection of candidates based on: o evidence that they are not unsuitable on grounds, e.g. of bankruptcy, criminal conviction or failure to pay taxes. Certain offences now require, in normal circumstances, a mandatory exclusion; o their economic and financial standing e.g. that they are judged to be financially sound on the basis of their annual accounts; and o their technical capacity and ability e.g. that they will be adequately equipped to do the job and that their track record is satisfactory. Award stage - the award of contract is either on the basis of lowest price or various criteria for determining which is the most economically advantageous tender to the purchaser. Government policy is to use the latter criterion, as this is consistent with the obligation to achieve value for money. Transparency is very important and in European government procurement. It is achieved through the publication, in the Official Journal, of three types of notices: Periodic indicative notices (PIN) indicate the annual estimated procurement volume for every contracting authority Invitations to tender are the formal invitations to suppliers to tender offers that start the process of awarding a contract. Contract award notices (CAN) notify the public about the award of a contract to a successful tenderer, including the price and the reason for the selection. Transparency increases price competition among suppliers, resulting in lower purchase prices, because publications make more suppliers aware of business opportunities, and they also know that their competitors will too have seen the publications. CANs also send important price signals to the market. But the increased competition may drive down prices down to a level where poor quality or predatory pricing become a concern. It also wastes effort on the 48
part of the many unsuccessful tenderers and of the authority which has to evaluate many tenders. 4.3. Procuring the supply chain The EU procurement directives set out the legal framework for public procurement and they apply when public authorities and utilities seek to acquire supplies, services, or works (e.g. civil engineering or building). They set out procedures which must be followed before awarding a contract. The main aim of the EU procurement rules is to open up the public procurement market and to ensure the free movement of supplies, services and works within the EU. In most cases they require competition. The EU rules intend to reinforce the value for money focus of the government s procurement policy. This requires that all public procurement should be based on value for money, defined as the optimum combination of cost and quality to meet the user s requirement, which should be achieved through competition, unless there are other reasons which are contrary. In practice European tenders are based on the lowest price with some technical assessments. Better relationships among different supply chain partners; trust and transparency during different construction activities; integrated supply chain; completion of projects on time, within the agreed cost, with promised quality products and services, can be supplied within the construction industry due to innovation within the project procurement processes and activities. There is also a better understanding that the promotion of innovative thinking, in procurement processes for supply chain integration, offers all the involved parties some main benefits in terms of more flexibility and adaptability, commercial growth, and improved quality of products, and delivered service. It is observed from real life that some of the critical factors motivated the people within the firms to move from traditional ways of procurement, and search, innovate, and implement the new procurement thoughts and models. These models offer transferable learning opportunities and motivation for staff of other construction firms seeking to have integration within their supply chains through innovative procurement routes. Now the regulations include a number of changes to procedures and requirements to procure the supply chain more efficiently: The previously separate supply, services and works public sector regulations are consolidated into a single set of regulations; The public sector regulations expressly provide for framework agreements and electronic auctions for the first time; A new competitive dialogue procedure in the public sector regulations is available for complex procurements where the authority does not consider that the open or restricted procedures will allow the award of a contract. This procedure will allow authorities to enter into a dialogue with potential bidders before seeking final tenders from them. This procedure is appropriate for many cases where hitherto the negotiated procedure had been used; Introduction of rules for dynamic purchasing systems, a wholly electronic system for commonly used purchases. The system is open to new potential bidders through its lifetime. Call offs are made by means of a simplified notice in the Official Journal of the European Union; 49
Contracts may be reserved to supported factories and businesses where more than 50% of the workers are disabled persons; Specific provisions are included for central purchasing bodies whereby contracting authorities can purchase from or through such bodies, which must be contracting authorities who have been set up to provide those supplies, services or works; Clarification on social and environmental issues; Mandatory exclusion of companies or other bodies whose directors or other decision makers have been convicted of the following offences participation in a criminal organisation, corruption, bribery and fraud, as defined in the Regulations; and A 10 calendar day standstill period at the award stage prior to contract signature to permit unsuccessful tenderers to seek further information about an award decision, and enable them to take action in the courts when they have sufficient grounds. It is important that contracting authorities consider the detailed requirements on the above issues in the regulations. Terms of reference and technical specifications are prepared for the tenders and the purpose of terms of reference (for service contracts) and technical specifications (for supply and works contracts) is to give instructions and guidance to contractors at the tendering stage about the tender they will need to submit and to serve as the contractor's mandate during project implementation. The terms of reference or technical specifications will be included in the tender dossier and will become an annex of the eventual contract awarded as a result of the tender. The thorough preparation of the terms of reference or technical specifications is extremely important for the ultimate success of the project. It is important to ensure that the project has been properly conceived, that the work is carried out on schedule and that resources will not be wasted. Therefore greater effort during project preparation will save time and money in the later stages of the project cycle. The terms of reference and the technical specifications must afford equal access for candidates and tenderers and should not have the effect of creating unjustified obstacles to competitive tendering. They should be clear and non-discriminatory and should be in proportion to the object and/or budget allocated for the project. They define the characteristics required by the contracting authority of the service, supply or work to be purchased. Those characteristics include: a) Quality levels; b) Environmental performance; c) Design for all requirements; d) The levels and procedures of conformity assessment, including environmental aspects; e) Fitness for use; f) Safety or dimensions, including, for supplies, the sales name and user instructions, and, for all contracts, terminology, symbols, testing and test methods, packaging, marking and labelling (including environmental labelling, e.g. on energy consumption), production procedures and methods. After the tender dossiers have been finalised the tender procedure should be launched as soon as possible. The terms of reference or technical specifications contained in a tender dossier - the basis for the project work-plan - must reflect the situation at the time of project start-up so as to avoid considerable effort being spent on re-design the project during the inception period. 50
The general structure of terms of reference for services has been drawn up in accordance with the principles of project cycle management. The aim is to ensure that all issues are covered systematically and that key factors related to clarity of objectives and sustainability are thoroughly examined. 4.4. Tender Procedures The rules for applying the standard tender procedures are summarised in the table below. They are explained for services (e.g. technical assistance, studies, provision of know-how and training), supplies (i.e. equipment and materials) and works (i.e. infrastructure and other engineering works). After the approval of an activity and given grant by the European Commission with the financing decision and agreement, the contracting authority can proceed with tendering and contracting following these standard procedures. The thresholds given in the table are based on the maximum budget for the contract. In each of the procedures, the contracting authority must respect all basic principles (including eligibility, exclusion and selection criteria). If the relevant conditions are met, other procedures can be applied regardless of the thresholds, for example, negotiated procedures on the basis of a single offer. SERVICES SUPPLIES WORKS 200,000 International restricted tender procedure 150,000 International open tender procedure 1. 5,000,000 international open tender procedure 2.International restricted tender procedure 1.< 200,000 but > 10,000 Framework contracts 2.Competitive negotiated procedure < 150,000 but 60,000 Local open tender procedure < 5,000,000 but 300,000 Local open tender procedure < 60,000 but > 10,000 Competitive negotiated procedure < 300,000 but> 10,000 Competitive negotiated procedure 10,000 Single tender 1. Open procedure, under which all those interested, may respond to the advertisement in the Official Journal of the European Union by tendering for the contract. That is; calls for tender are open where all interested economic operators may submit a tender. The announcement is given through the publication of a notice in the Official Journal (Sseries) of the European Union, the official journals of all the ACP States (EDF) on the Europe Aid website and in any other appropriate media. Any natural or legal person wishing to enter to the tender receives the tender dossier (which may have to be paid for), in accordance with the procedures lay down in the procurement notice. When the tenders received are examined, the contract is awarded by conducting the selection procedure (i.e. verification of the eligibility and of the financial, economic, technical and professional capacity of tenderers) 51
and the procurement procedure (i.e., comparison of tenders). No negotiation is allowed in this type of tender. 2. Restricted procedure, under which a selection is made of those who respond to the advertisement and only they are invited to submit a tender for the contract. This allows purchasers to avoid having to deal with a large number of tenderers. That is; calls for tender are restricted where all economic operators may ask to take part but only candidates satisfying the selection criteria may submit a tender. The contracting authority invites a limited number of candidates to tender. Before launching a tender procedure, it will draw up a shortlist of candidates selected as a result of their qualifications. The selection procedure, by which the long list (all candidates responding to the published notice) is cut down to a shortlist, involves examining responses to a procurement notice, in which the selection criteria and a general description of the tasks to be undertaken are set out. At the stage of the short-listing and before the shortlist is approved by the evaluation committee, the contracting authority shall also ensure that there is not a detection of the third party (i.e. the candidate including partners) concerned in the Early Warning System (EWS) (EWS is an operational tool for Commission services, providing them with information on identified risks related to beneficiaries of centrally managed contracts and grants. The system is based on a system of flags, identifying the level of risk concerned, from W1, the lowest level of flagging, to W5, the highest level). In the second stage of the procedure, the contracting authority invites the shortlisted candidates and sends them the tender dossier. In order to ensure fair competition, tenders must be submitted by the same service provider or consortium which has submitted the application form on the basis of which it was short-listed and to which the letter of the invitation to tender is addressed. Only under the following conditions can modifications be made: Where a combination has taken place between a shortlisted member of a consortium with another company and where the new company is found to meet the eligibility and exclusion criteria and does not give raise to any conflict of interest; Exchange of positions within the consortium; A partner leaves the consortium but this does not alter the shortlisting conditions and the rest of the consortium fulfils the selection criteria independently. The successful tenderer is chosen by the procurement procedure once the tenders have been analysed. No negotiation is allowed in this type of tender. 3. Competitive negotiated procedure, the contracting authority invites candidates of its choice to submit tenders. At the end of the procedure, it selects the technically compliant tender which offers the best value for money in case of service tenders and the cheapest offer in case of supplies or works tenders. The procedure for evaluating the submitted tenders (including the use of an evaluation committee) and awarding the contract is the same as under the restricted procedure. 4. Framework contract is an agreement between one or more contracting authorities and one or more economic operators the purpose of which is to establish the terms governing specific contracts which may be awarded during a given period, particularly as regards the duration, subject, price, implementation rules and the quantities envisaged. 52
The framework contracts done with several economic operators are called multiple framework contracts, which take the form of separate contracts but concluded in identical terms. The minimum as well as the maximum number of operators which the contracting authority intends to conclude contracts with must be indicated in the specification. The minimum number of economic operators may not be below three. The duration of these contracts may not exceed four years. Contracting authorities may not use the contracts in a way that the purpose or effect is to prevent, restrict or distort competition. Specific contracts based on framework contracts shall be awarded in accordance with the terms of the framework contract and shall respect the principles of transparency, proportionality, equal treatment, nondiscrimination and of sound competition. 5. Dynamic purchasing is an electronic process for making commonly used purchases which has limited duration and open throughout its validity to any economic operator who satisfies the selection criteria and has submitted an indicative tender that is found compliant. In dynamic purchasing, no specific threshold applies. For each contract, the contracting authority publishes a contract notice and invites all contractors. The contract is awarded to the technically compliant tender being most economically advantageous (i.e. the sole award criterion is the best value for money). The legal framework of this procedure is defined for future use, but the IT tools (confidentiality, security) to make it possible are not yet available in the Commission. 6. Competitive dialogue procedure, following an Official Journal of the European Union Contract Notice and a selection process, the authority then enters into dialogue with potential bidders, to develop one or more suitable solutions for its requirements and on which chosen bidders will be invited to tender; In the case of complex contracts, where the contracting authority thinks that direct use of the open or restricted procedures will not allow the contract to be awarded to the tender offering best value for money, then the contracting authority may make use of the competitive dialogue. A contract is considered to be particularly complex where the contracting authority is not objectively able to define the technical means capable of satisfying the needs or objectives or able to specify the legal or financial makeup of the project. No specific threshold applies in this type of contract. Contracting authorities shall publish a contract notice setting out their needs and requirements in a descriptive document. They will open a dialogue with the candidates satisfying the selection criteria announced in the procurement notice. During the dialogue, all aspects of the tender can be discussed; however, the dialogue is conducted individually with each candidate on the basis of their proposed solutions and ideas. The contracting authority has to ensure the equal treatment of tenderers as well as the confidentiality of tenders must be supplied. The minimum number of candidates invited to tender may not be less than three, provided that a sufficient number of candidates satisfy the selection criteria. Where the number of candidates meeting the selection criteria is less than three, the contracting authority may continue the procedure only with these. After the dialogue is completed, contracting authorities will ask them to submit their final tenders on the basis of the solutions presented and specified during the dialogue. These tenders will contain all the elements required and necessary for the performance of the 53
project. The tenderer offering best value for money may be asked to clarify aspects of the tender or confirm commitments contained in the tender provided. The contracting authorities may specify prices or payments to the participants in the dialogue. The contract shall be awarded to the technically compliant tender being most economically advantageous (i.e. the sole award criterion is the best value for money). 7. Negotiated procedure/single tender procedure, under which a purchaser may select one or more potential bidders with whom to negotiate the terms of the contract. An advertisement in the Official Journal of the European Union is usually required but, in some cases, described in the regulations, the contract does not have to be advertised in the Official Journal of the European Union. An example is when, for technical reasons or because of the protection of exclusive rights, the contract can only be carried out by a particular bidder. This contract can be awarded directly in the following occasions: when the contract does not exceed 10 000 EUR ("Single tender procedure"); In exceptional cases, where the factual or legal circumstances defined in the implementing rules of the financial regulation are met. No specific threshold applies in such cases ("Negotiated procedure"). The contracting authority must prepare a report explaining the manner in which the participant(s) in the negotiations were identified and the price was established, and the grounds for the award decision. The contracting authority must follow the negotiation steps of the negotiation report template and ensure that basic principles relating to procurement procedures such as checking compliance with eligibility rules (nationality rules), capacity to carry out the contract and exclusion criteria are applied. 8. Fair and transparent competition, the arrangements for competitive tendering and publicising contracts for works, supplies and services depend on the contract value. In the case of mixed contracts covering a combination of works, supplies or services, the contracting authority determines the procurement procedure to be used. This will depend on whether the type of the component is works, supplies or services, an assessment which must be made on the basis of the value and strategic importance of each component relative to the contract as a whole. Whatever the procedure used, the contracting authority must be sure that conditions must allow fair competition. Wherever there is an obvious and significant difference between the prices and the services offered by a tenderer, or a significant difference in the prices proposed by the various tenderers, the Contracting Authority must carry out checks and request additional necessary information. Special type of tender procedure: Public-Private Partnerships Public-private partnerships are not subject to special rules in EU procurement law, but must follow the rules and principles resulting from the European treaties. In 2000, the European Commission published an "interpretative communication on concessions under Community 54
law", and in 2004 it published a "Green Paper on public-private partnerships and Community law on public contracts and concessions", which takes the existing practices from the perspective of European law and is intended to launch a discussion on whether a specific legal framework should be drawn up at the European level. Competitive dialogue was created with the aim of making the award of public-private partnerships easier, since before its creation a contracting authority faced the choice of the restricted procedure, which is often too inflexible for such contracts, or the negotiated procedure, which is intended to be an exceptional procedure with specific legal justifications. 4.5. Tender appraisal: time, quality and price The contracting authorities will follow clear and non-discriminatory selection criteria in every procurement procedure regardless of the value of the contract and the type of procedure. The purpose of its use is to assess that the tenderer has sufficient financial, economic, technical and professional capacity to implement the tasks of the contract. The capacity of the entity must be verified and the legal base must be clear in this respect: For the economic and financial capacity, the period may be no more than the last three financial years; The period to demonstrate professional capacity shall be the last three years; For the technical capacity the number of years depends on the type of contract. For service and supply contracts it shall be what has been implemented in the past three years and for works contracts it shall be the last five years. The chosen selection criteria specified in the procurement notice shall be applied by the contracting authority without modification unless a corrigendum has been published. The tenderer will be requested to submit information in response to their economic, financial, professional and technical capacity according to the selection criteria specified in the tender documents. For service and supply procedures, only successful tenderers have to supply proof documents to support the information submitted in the tender submission form before the award of the contract. But for works procedures, the proofs have to be submitted in accordance with the tender dossier. As a proof of economic and financial capacity, following documents can be presented: Statements from banks or evidence of professional risk indemnity insurance; the presentation of balance sheets, overall turnover and turnover concerning the works, supplies or services covered by the contract during a period which may be no more than the last three financial years. As a proof of the technical and professional capacity, the following documents can be presented: Educational and professional qualifications of the contractor; A list of the principal services provided and supplies delivered in the past three years, with the sums, dates and recipients, public or private; A list of the works carried out in the last five years, with the sums, dates and place. The list of the most important works must be accompanied by certificates of satisfactory execution, issued by the contracting authority or entity who ordered or purchased the works, specifying whether they have been carried out in a professional manner and have been fully completed; A description of the technical equipment, tools for performing the works contract; 55
A description of the technical equipment and measures employed to ensure the quality of services, and a description of the firm's study and research facilities; Declaration of the technicians involved, whether or not belonging directly to the firm, especially those responsible for quality control; Samples, descriptions, photographs and certificates drawn up by official quality control institutes with a recognised competence; A statement of the average annual manpower and the number of managerial staff of the contractor in the last three years; Showing the proportion of the contract which the tenderer may intend to subcontract. The contracting authority may also require the tenderer to submit any information on the financial, economic, technical and professional capacities of the envisaged subcontractor, in particular when subcontracting represents a significant part of the contract. 4.6. Awarding the contract Contracts are awarded in one of two ways: With respect to the procurement procedure, satisfying the conditions laid down, with the lowest price; Under the best-value-for-money procedure; the most economically advantageous tender. The criteria should be precise, non-discriminatory and not prejudicial to fair competition. In the following cases, the contracting authority can cancel the tender: The tender procedure can be unsuccessful, no qualitatively or financially available tender has been received or there is no valid response at all; Economic or technical data of the project were changed; Because of exceptional circumstances; Tenders exceed the financial resources available; Irregularities in the procedure, The award is not in compliance with sound financial management, If a cancellation occurs, all tenderers are notified in writing of the reasons for the cancellation. A cancellation notice must be published in the event that a tender is cancelled. After the cancellation of a tender, the contracting authority can decide: To prepare a new tender; To have negotiations with one or more tenderers who participated in the tender procedure, provided that the original terms of the contract have not been altered. This option is not available if the reason for cancellation is because of irregularities in the tender procedure; Not to award the contract. The final decision is taken by the contracting authority which will not be responsible for any damages, loss of profits, in any way connected with the cancellation of a tender. The period for the tenderers is limited by the time specified in the letter of invitation to tender or in the tender dossier. This period must be sufficient to allow the contracting authority to examine tenders, approve the contract award proposal, notify the successful tenderer and conclude the contract. The period of validity of tenders is fixed at 90 days from the deadline 56
for the submission of tenders. On the basis of the approved evaluation report, the contracting authority informs the successful tenderer in writing that its tender has been accepted. In preparation of the contract for signature, the contracting authority must proceed as follows and the contract dossier must include: a) Explanatory note about the project; b) Copy of the financing agreement authorising the project; c) Copy of the call announcements (contract forecast, procurement notice and shortlist, shortlist report, tender opening report, evaluation report, the annual work programme, guidelines for applicants, proposal opening and administrative check report, the list of grants to be awarded and any other relevant information; d) Three originals of the proposed contract, annexes for the general conditions and forms and other relevant documents. Only the special conditions (and budget in the case of grants) should need to be completed by the contracting authority. Upon completion of the signatures of the contract by the contracting authority: Three signed originals of the contract will be sent to the successful tenderer, who must sign them within 30 days of receipt and Return two originals to the contracting authority together with the eventual financial guarantee(s) required in the contract. If the successful tenderer fails to do this within the specified deadline or indicates at any stage that it is not willing or able to sign the contract, the tenderer cannot be awarded. The contract preparation process must start for the next highest score in the tender. The contracting authority must inform candidates and tenderers of decisions taken concerning the award of the contract as soon as possible, including the grounds for any decision not to award a contract. After the signature of the contract, if the value of the contract is high and above international thresholds, the Contracting Authority must prepare contract award notice and send it to the European Commission, which publishes the results of the tender procedure in the Official Journal, where applicable, and on the Europe Aid website. In addition, the contracting authority must: inform the other tenderers with a standard letter in 15 days after the signature of the contract; Inform all statistical information concerning the procurement procedure including the contract value, the names of the other tenderers and the successful tenderer. Checking the submission requirements: The committee must decide whether or not tenders comply with the formal submission requirements at this stage (i.e. following the opening of the outer envelope and the opening of the technical offer). The chairperson must check that no member of the evaluation committee has a potential conflict of interest with any of the tenderers (on the basis of the shortlist, the tenders received, consortium members and any identified subcontractor). 57
Evaluation of offers: With the agreement of the other evaluation committee members, the chairperson may communicate in writing with tenderers whose submissions require clarification, offering them the possibility to respond within a reasonable time limit to be fixed by the committee. Administrative compliance: The committee checks the compliance of tenders with the instructions given in the tender dossier and in particular the administrative compliance grid. Any major formal errors or major restrictions affecting performance of the contract or distorting competition result in the rejection of the tender concerned. The tenderers must provide proof documents for the key experts proposed. This includes copies of the diplomas mentioned in the CV and employers' certificates or references proving the professional experience indicated in the CV. If missing proofs are requested it should only be for the relevant experience and diplomas which are among the requirements in the terms of reference. The administrative compliance grid included in the tender dossier must be used to record the administrative compliance of each of the tenders. Technical compliance: When evaluating technical offers, each member awards each offer a score out of a maximum 100 points in accordance with the technical evaluation grid (setting out the technical criteria, sub-criteria and weightings) laid down in the tender dossier. Where the content of a tender is incomplete or deviates substantially from one or more of the technical award criteria laid down in the tender dossier (e.g. the required profile of a certain expert), the tender should be automatically rejected, without being given a score, but this should be justified in the evaluation report. Each evaluator completes an evaluation grid to record for the technical offer in order to demonstrate a general appreciation of strengths and weaknesses of the individual technical offers. On completion of the technical evaluation, the points awarded by each member are compared at the committee's session. Once discussed, each evaluation committee member finalises his evaluation grid on each of the technical offers and signs it before handing it over to the secretary of the evaluation committee. The secretary must then compile a summary of the comments of the committee members as part of the evaluation report. The secretary calculates the aggregate final score, which is the arithmetical average of the individual final scores. The evaluation committee may, after writing up its provisional conclusions and before definitively concluding its evaluation of the technical offers, decide to interview the key experts proposed in technically compliant tenders (i.e. those which have achieved an average score of 80 points or more in the technical evaluation). It is recommended that tenderers which have scored close to the technical threshold also be invited for the interview. In the case of interviews, the experts are interviewed by the committee, at intervals close enough to permit comparison. Interviews must follow a standard format agreed beforehand by the committee with questions formulated and applied to all experts or teams called to interview. Tenderers must be given at least 10 days' advance notice of the date and time of the interview. 58
The procedure must be recorded in the evaluation report. The indicative timetable for these interviews must be given in the tender dossier. Once the committee has established each technical offer's average score (the mathematical average of the final scores awarded by each voting member), any tender falling short of the 80-point threshold is automatically rejected. If no tender achieves 80 points or more, the tender procedure will be cancelled. Out of the tenders reaching the 80-point threshold, the best technical offer is awarded 100 points. The others receive points calculated using the following formula: Technical score = (final score of the technical offer in question/final score of the best technical offer) x 100. Example for a Technical Evaluation: Maximum possible Tenderer 1 Tenderer 2 Tenderer 3 Evaluator A 100 55 88 84 Evaluator B 100 60 84 82 Evaluator C 100 59 82 90 Total 300 174 254 256 Average score (mathematical 174/3 = 58.00 254/3 = 84.67 256/3 = 85.33 average) Technical score (actual final score/highest final score) Eliminated* 84.67/85.33 x 100 = 99.22 59 100.00 * Only tenderers with average score of at least 80 points qualify for the financial evaluation Evaluation of financial offers: After the completion of the technical evaluation, the envelopes containing the financial offers for tenders who were not eliminated during the technical evaluation (i.e., those which have achieved an average score of 80 points or more) are opened and all originals of these financial offers are opened by the chairperson and the secretary of the evaluation committee. The evaluation committee must show that the financial offer satisfies all formal requirements. A financial offer not meeting these requirements may be rejected. Any rejection on these grounds will have to be fully justified in the evaluation report. The evaluation committee checks that the financial offers contain no obvious arithmetical errors. Any obvious arithmetical errors are corrected without penalty to the tenderer. The envelopes containing the financial offers of rejected tenderers following the technical evaluation must remain unopened. They must be archived by the contracting authority together with the other tender procedure documents. The total contract value comprises the fees (including employmentrelated overheads), the incidental expenditure and the provision for expenditure verification, which are specified in the tender dossier. This total contract value is compared with the maximum budget available for the contract. Tenders exceeding the maximum budget allocated for the contract are eliminated. The evaluation committee then proceeds with the financial comparison of the fees between the different financial offers. The tender with the lowest total fees receives 100 points. And the others are calculated by the following formula: Financial score = (lowest total fees / total fees of the tender being considered) x 100.
When evaluating financial offers, the Evaluation Committee compares only the total fees. Example of a financial evaluation *: Maximum Tenderer 1 Tenderer 2 Tenderer 3 Possible score Total fees Financial score (lowest total fees/actual total fees x 100) Eliminated following technical evaluation 951 322 1 060 452 100 951 322/1 060 452 x100 = 89.71 * Only tenderers with average scores of at least 80 points in the technical evaluation qualify for the financial evaluation. Conclusions of the evaluation committee: The best value for money is established by weighing technical quality against price on an 80/20 basis. This is done by multiplying: - the scores awarded to the technical offers by 0.80 - the scores awarded to the financial offers by 0.20. Example for a composite evaluation: Maximum possible Tenderer 1 Tenderer 2 Tenderer 3 Technical score Eliminated 99,22 x 0.80 = 100.00 x 0.80 =80.00 x 0.80 following 79.38 Financial score technical 100.00 x 0.20= 89.71 x 0.20=17.94 x 0.20 evaluation 20.00 Overall score 79.38 + 20.00= 80.00 + 17.94=97.94 99.38 Final ranking 1 2 As a result, weighted technical and financial scores are then added together and the contract is awarded to the tender achieving the highest overall score. It is essential to make the calculations strictly according to the above instructions. As a result of this tendering, the evaluation committee can take the following decisions: Award the contract to the tenderer which has submitted a tender: o which complies with the formal requirements and the eligibility rules; o whose total budget is within the maximum budget available for the project; o which meets the minimum technical requirements specified in the tender dossier; o which is the best value for money (satisfying all of the above conditions). Cancel the tender procedure in exceptional circumstances. 60
4.7. Literature and further reading for chapter 4 1. Market Entry Strategies in Eastern Europe in the Context of the Europe by Michael Klug, 2006 2. Bids, Tenders and Proposals : Winning Business Through Best Practice by Harold Lewis, 2009 3. http://ec.europa.eu/youreurope/business/profiting-from-eu-market/benefiting-from-publiccontracts/index_en.htm 4. Guide to the Community Rules on Public Procurement of Services other than in the Water, Energy, Transport and Telecommunications Sectors, Directive 92/50/EEC 5. Malik M.A. Khalfan, (Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment, University of Salford, Greater Manchester, UK), Peter McDermott, (Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment, University of Salford, Greater Manchester, UK) 6. Private finance, public roads: configuring the supply chain in PFI highway construction Mark Hall http://www.sciencedirect.com/science/article/pii/s0969701200000186 - CORR1, Robin Holt, Andrew Graves 7. http://ec.europa.eu/regional_policy/sources/docgener/evaluation/pdf/5_full_en.pdf 8. TENDER SPECIFICATIONS INVITATION TO TENDER NO CT.09.ICT.013.1.0 FOR THE SUPPLY OF PERIODICAL JOURNALS 9. http://blog.tendersdirect.co.uk/2010/05/27/answering-your-questions-on-frameworkagreements/ 10. Practical Guide to Contract procedures for EU external actions published on the EuropeAid web site in March 2011 11. http://ec.europa.eu/europeaid/work/procedures/implementation/practical_guide/documents/ 2010_prag_en.pdf 61
4.8. Set of exercises for chapter 4 Exercise 4.1: Fill in the blank with the appropriate word; Public procurement (tendering) is the process whereby public authorities - including all levels of government and public agencies - or commission work. a) sell services b) commission goods and services c) buy goods and services d) rent goods Exercise 4.2: Which one of the following is not a duty of the contracting authority? a) Initial drafting of bid specification or terms of references b) Assessment and selection c) Determination of contract award criteria d) Response to contract notice e) None Exercise 4.3: Which one of the following is not a stage of a tender process? a) Specification stage b) Selection stage c) Award stage d) Accomplishment stage e) None Exercise 4.4: Which of the following is not a procedure of a tender? a) Restricted b) Framework contract c) Dynamic purchasing d) Awarding process Exercise 4.5: As a proof of economic and financial capacity, which one is not presented in the tendering dossier? a) Statements from banks or evidence of professional risk indemnity insurance; b) The presentation of balance sheets, c) Overall turnover and turnover concerning the works, supplies or services covered by the contract during a period which may be no more than the last three financial years. d) Number of banks that the company is working with, e) None Exercise 4.6: Fill in the blanks with proper wording: Contracts are in one of the two following ways: With respect to the procurement procedure, satisfying the conditions laid down, with the price; 62
Under the best-value-for-money procedure; the most economically tender. a) cancelled, lowest, disadvantageous, b) awarded, highest, advantageous, c) awarded, lowest, advantageous, d) cancelled, equal, disadvantageous Exercise 4.7: The contracting Authority cannot cancel the tender in which of the following cases: a) The tender procedure is unsuccessful, no qualitatively or financially available tender has been received, or there is no valid response at all; b) Economic or technical data of the project were changed; c) Because of exceptional circumstances; d) Tenders coincide with the financial resources available; Exercise 4.8: In the preparation of the contract for signature, the contract dossier may not include: a) Copy of the call announcements b) Explanatory note about the project, c) First payment of the project d) Originals of the proposed contract, Exercise 4.9: Which one of the following is right? a) Technical score = (final score of the technical offer in question/final score of the best technical offer) x 100 b) Financial score = (final score of the financial offer in question/final score of the best technical offer) x 2 c) Financial score = (final score of the financial offer in question/final score of the first technical offer) x 200 d) Technical score = (final score of the technical offer in question/final score of the best technical offer) x 2 Exercise 4.10: As a result of tendering, the evaluation committee cannot take the following decision: a) Award the contract to the tenderer which has submitted a tender, which complies with the formal requirements and the eligibility rules. b) Cancel the tender procedure, when given the best value for money. c) Award the contract to the tenderer which has submitted a tender, whose total budget is within the maximum budget available for the project. d) Award the contract to the tenderer which has submitted a tender, which meets the minimum technical requirements specified in the tender dossier. 63
CHAPTER 5 CONTRACT ADMINISTRATION AND MANAGEMENT OBJECTIVES OF CHAPTER 5 This module is addressed to the construction engineers, project managers and supporting administrative staff engaged in construction projects. The subject being discussed in this module allows the participant to understand the fields of administration and management activities in construction project implementation, the scope within each of that field, and the requirements and principles of executing contract management and administration. LEARNING OUTCOMES FOR CHAPTER 5 This module will appeal to a wide range of professionals responsible for construction project implementation. After understanding the module details, the participants will gain specialised knowledge on requirements and principles of management and administration in construction contracts. 5.1. Contract award Various types of contracts have been evolved to suit the various subject matters of contracts complying with the legal requirements. Construction contracts also have many variants and these vary from country to country. When a contract is awarded, such a contract is described in a set of documents which are called contract documents. A construction contract comprises essentially the following documents: - The contract drawings; - The specifications; - The general conditions of contract; - The special conditions of contract; - The agreement; - The bill of quantities (BOQ) if applicable. The turnkey tender documents may have only the preliminary system drawings and may not have the bill of quantities. 5.1.1. The contract drawings The contract drawings are the means through which the physical, quantitative and visual descriptions of the project are conveyed to the contractor. The drawings are classified into: - Site drawings; - Architectural drawings; - Structural drawings; - HVAC heating, venting and air conditioning, and other services drawings - Electrical drawings; and - Special details: depending on the nature of work, there could be fire-fighting details, public-announcement system details, building automation details, etc. 64
5.1.2. The specifications Specifications, or technical provisions, are written instructions to carry out a work. It also contains information not possible to show on a piece of drawing. Drawings mentioned earlier together with specifications furnish the complete instructions to convert an architects and a designer s imagination into reality. The drawings and specifications are also useful for preparing the cost estimates of work items of a project. Specifications commonly deal with the following aspects: - The quality of materials; - The quality of workmanship; - The frequency of testing; - The approved manufacturers; - The relevant standards describing the material; - The inspection and installation method. 5.1.3. The general condition of contract The general conditions of contract are an essential part of the contract. The term 'general' implies that the document is a standard one used in all the contracts entered by a party (the owner). Different owners such as World Bank, EBRD or FIDIC have evolved standard forms of general conditions. The general conditions of contract set out the responsibility and obligation of parties to the contract. It spells out the scope and performance of the contract, valuation and payment terms, arbitration and laws, labour regulations, safety code, various forms used for the tender and required deeds under the general conditions of contract. It is advisable to use standard general conditions of contract since most of these conditions have been tested in court over a period of time. In Poland and Turkey there is a growing trend in the use of FIDIC contract conditions in large infrastructure projects, especially those funded by the European Union. The FIDIC conditions of contract are discussed elsewhere in the text. 5.1.4. The special conditions of contract Certain amendments/additions/deletions are made in general conditions of contract in order to make it suitable for a particular project. These amendments are contained in a separate document called special conditions of contract. Special conditions of contract may commonly address the following issues depending on the requirements of a project: Materials provided by the owner; Site visits; Mobilisation advance; Start date of construction; Requirement of various reports related to progress. 5.1.5. The bill of quantities (BOQ) The bill of quantities shows the net quantity to be executed in each item of work. Items are classified into groups of work like earthwork, concreting, structural steel, waterproofing, concreting, brickwork, stonework, piping, installations, whitewashing and painting, flooring and finishing, doors and windows, etc. 65
As soon as the contract is awarded, the contractor s management should start to create an appropriate management team to deal with all contractual obligations and duties specified in the contract documents described above. 5.2. Kick-off, inception report Kick-off meeting means the formal and official engineer s (project manager) contract commencement. After the kick-off, generally within 30 days, the engineer presents an inception report to the employer. To illustrate the scope, purpose and goals of the kick-off and inception report, examples of a kick-off meeting agenda and inception report tables of content are presented in point 5.2.1 and 5.2.2 below. 5.2.1. Agenda of the kick-off meeting engineer s contract commencement 1. Introduction of participants and presentation of the agenda. Assumptions and aims of the kick-off meeting. 2. Introduction of the consultant engineering company, experience as the engineer in the field of project. 3. Introduction of the engineer s team - position and role of each of the team member in the project. Introduction of the other participants of the kick-off meeting. 4. Presentation of the engineer s organisation scheme. 5. Presentation and discussion of the project organisation scheme. 6. Presentation of roles, tasks, and responsibilities of each party and individual involved in the project: - Employer engineer - Project implementation unit (PIU) engineer - Employer implementing agency - Contractors engineer. 7. Discussion of communication rules between the parties, flow of information and documents, reporting. Other facets connected with information and document flow: - Technical ways of sending documents and information (letters, e-mails, faxes, etc.), and their acknowledgement; - Format of documents (periodic reports, payment certificates, work completion certificates, faxes, letters and others) will be stated in the project operation manual inception report; - Document control system, document approval; - Archive system; - Software for making, sending and reading of documents; and - Language of technical and contract documents. 8. Presentation by the PIU current state of the project, relative to: - Design documents (works contract); - Formal and legal documents (permission for building etc.); - Tender documents for works contract. 9. Presentation by the PIU the progress in arrangement of the engineer s office, relative to: - Rooms; - Office equipment; - Telephone lines, telephone numbers and LAN computer network; 66
- Rules of charging for telephone calls. 10. Update of the time schedule for project implementation: - Signing of the engineer s contract (done); - The engineer s contract commencement and (done); - Inception report (rigid date); - Works contracts completion (rigid date); - Project completion final report (rigid date). 11. Presentation of the tasks and activities of the engineer s team scheduled for the near future: - Setting up the engineer s Office; - Review of the tender documents for works contract; - Inception report preparation; - Range of assistance during the tender procedure. 5.2.2. Inception report - table of contents 1. Objectives and scope of the project 1.1.Background 1.2.Objectives of the project 1.2.1. Financial conditions of the project 1.3.Project scope 1.3.1. Service contract for the engineer (consultant) 1.3.2. Works contracts 2. Review of existing design and formal and legal documents 2.1.Design documents 2.2.Legal and formal documents of the contract 2.2.1. Land legal state 2.2.2. Formal documents 2.3.Opinion of documentation accuracy 3. Project advancement state and opinion on key tasks related to the achievement of the project goals 3.1. Project current state works contract 3.2. Key tasks connected with the achievement of the project aims 4. Information on implementation of the project and administrative and organisational changes in the project structure 4.1. Project structure 4.2. Engineer s Team organisation 4.3. The engineer s work so far 4.4. Engineer s team tasks for next few weeks 5. List of institutions and persons involved in the project 6. Document control sheet 7. Attachments 7.1. Attachment No. 1 List of acronyms and abbreviations 7.2. Attachment No. 2 List of documents handed over to the engineer 7.3. Attachment No. 3 Minutes of the kick-off meeting 7.4. Forecast and schedules updating 67
5.3. Contract management 5.3.1. Role of project management Project management is the application of knowledge, skills, tools and techniques to a broad range of activities to meet the requirements of the particular project. Munns and Bjeirmi (1996) define project management as the process of controlling the achievement of the project objectives. Utilising the existing organisational structure and resources, it seeks to manage the project by applying a collection of Tools and techniques, without adversely disturbing the routine operations of the company. The function of project management includes defining the requirement of work, establishing the extent of work, monitoring the progress of the work and adjusting deviations from the plan. Project management aims to achieve the stated goals of the project leading to a completed facility, by virtue of planning, executing and controlling time, funds and human and technical resources. The planning essentially consists of setting objectives, identifying resources and forming strategy. Executing consists of allocation of resources, guiding execution, coordinating efforts and motivating the staff. Controlling consists of measuring achievement goals, reporting, and resolving problems. The planning, executing and controlling are performed on a continuous basis until the goals of the project are realised. Project management knowledge and practices are best described in terms of their component processes. These processes can be placed into five process groups (initiating, planning, executing, controlling and closing) and nine knowledge areas (project integration management, project scope management, project time management, project cost management, project quality management, project human resource management, project communications management, project risk management and project procurement management). There is probably no other discipline that is more difficult than construction project management. After all, the general goal of a construction project seems simple enough building a project on time, within budget, with the stated quality standards, and in a safe environment. The terms 'project manager' 'project coordinator', 'project administrator' and project controller' are used quite interchangeably, and all of them appear to have very similar kinds of role, but intensity of their job requirement and the expectations from them vary. For example, the responsibilities of a project manager and a project coordinator include coordinating and integrating of subsystem tasks; assisting in determining technical and manpower requirements, schedules and budgets; and measuring and analysing project performance regarding technical progress, schedules and budgets. However, a project manager is supposed to play a stronger role in project planning and controlling. A project manager is also responsible for negotiating, developing bid proposal, establishing project organisation and staffing, and providing overall leadership to the project team. An effective project manager should possess essentially three skills technical skills, human relationships skills and conceptual skills. While technical skills include the knowledge in a given field, such as engineering and finance, human relationships skills involve the ability to communicate efficiently and to maintain a harmonious working group. The ability to manage employees also falls in the category of human relationships skills. Finally, conceptual 68
skills include the ability to perceive the project as a system by keeping a global perspective and not thinking of only one aspect at once. It is advisable to appoint the project manager as early as possible, preferably in the feasibility stage itself so that they are aware of all the aspects of the project and can take control of the project. However, the early appointment may not be possible in all situations. The project manager should be responsible for coordinating all project activities, making project recommendations, fixing a design and preparing drawings and specifications for tender and construction, preparing all estimates, and administering all contracts and issuing certificates. In this we will focus on the part of activity of project management limited to construction management or to contract management. 5.3.2. Skills of contract manager Within the most important skills required by a contract manager in order to make the contract successful we can distinguish the following: Technical skills These include specialised knowledge in the use of tools and techniques, project knowledge, understanding methods, process and procedures, understanding the technology required, and skill in the use of computer. He should have necessary knowledge of tools and techniques used in engineering and construction processes. He should be able to understand the technology trends and their evolution. He should also have skills to synchronise different technologies. He should have expertise connected with product and process used in the project. Attitude This refers to an open, positive and 'can do' attitude, which encourages communication and motivation, and fosters cooperation. Common sense This refers to a strong ability to spot sensible, effective, straightforward, least risky and least complex solutions i.e., 90 per cent right on time is better than 100 per cent far too late! Open-mindedness This refers to an approach where one is always open to new ideas, practices and methods, and in particular, gives equal weight to the various professional disciplines involved in the project. Adaptability This refers to a propensity to be flexible where necessary and avoid rigid patterns of thinking or behaviour, and to adapt to the requirements of the project, the needs of the sponsors, its environment and people working on it. He should be able to adapt to change. He should be able to manage the changes and, in the process, recognise the opportunities. Inventiveness This refers to an ability to discover innovative strategies and solutions either from within oneself or through interaction with other members of the project team, and to identify ways of working with disparate resources to achieve the project objectives. 69
Prudent risk-taker This refers to a willingness and ability to identify and understand risks but not to take a risky approach in an unwise or reckless fashion. Fairness This refers to a fair and open attitude, which respects all human values. Commitment This refers to a very strong overriding commitment to the project s success, user satisfaction and team coordination. Conflict resolution The project manager should be able to resolve conflicts arising among his team members. 5.3.3. Contract manager abilities To summarise the required skills and traits of a contract manager to fulfil the contractual obligations and achieve the success, we can say that the right contract manager should: Have solid basic experience in the relevant field; Be multidiscipline-oriented; Be global-problem-oriented, i.e., he must consider the external, political, legal and environmental aspects; Have leadership skills; Be able to identify and solve the problem; Be able to balance technical, economics and human factors; Master the basics of planning, budgeting, coordinating and assessing financial reports; Have the knowledge and understanding of estimating systems, cost control, scheduling control, quality and safety; Be able to develop procedures and be able to implement them; Possess good analytical abilities; Be an effective problem solver and decision maker. 5.4. Administrative requirements Administrative requirements at the implementation stage of infrastructure construction projects differ from country to country and depend on country legislation, field of infrastructure and type of project, and financing model and source. The following groups of administrative requirements can be distinguished: Resulting from the law, e.g. construction log, invoicing; Resulting from the contract, e.g. communication, notification, reporting; Resulting from the financing agency requirements for such project, e.g. cash flow, justification of results obtained, final report, operation model. 5.5. Environment requirements Environmental requirements reflect the general European approach to protect the nature against the industrialisation and protect our Earth against the negative consequences of development of 70
civilization. This approach reflects the great stress given to environmental aspects of each prepared and implemented infrastructure construction project. Following the European directives and national laws, each infrastructure construction project should be prepared and implemented in respect of the environmental aspects, which are proceeded generally in the following steps: Elaboration of Environmental impact assessment report ; Obtaining the Environmental decision ; Obtaining the Construction permit, where environmental aspects to be met during construction are specified; Confirmation that environmental requirements have been fulfilled. To optimise the infrastructure construction project in all aspects, the optional solutions with their influence for the environment and consequences should be elaborated and analysed to choose the best one. The most frequent factors of the environment taken into consideration and being analysed are: Flora; Fauna; Noise; Air pollution; Soil pollution; Underground water regime and pollution. 5.5.1. Environmental assessment methodologies BREEAM and LEED are the two most widely recognised environmental assessment methods used globally in the construction industry. BREEAM (Building Research Establishment Environmental Assessment Method) was conceived by BRE and was first used in 1990. The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, developed by the U.S. Green Building Council (USGBC), provides a suite of standards for environmentally sustainable construction. Both set the standard for best practice in sustainable building design, construction and operation and have become the most comprehensive and widely recognised measures of a building's environmental performance. 5.5.2. Waste management plan Site Waste Management Plans Regulations 2008 came into force it the United Kingdom on 6 April 2008. All construction projects worth more than 300,000 must have a site waste management plan (SWMP). For projects estimated at between 300,000 and 500,000 (excluding VAT) the SWMP should contain details of the: Types of waste removed from the site; Identity of the person who removed the waste; Site that the waste is taken to. For projects estimated at over 500,000 (excluding VAT) the SWMP should contain details of the: 71
Types of waste removed from the site; Identity of the person who removed the waste and their waste carrier registration number; A description of the waste; Site that the waste was taken to; Environmental permit or exemption held by the site where the material is taken. A SWMP is a live document. It must be updated through the course of the project. 5.6. Finance project cost and value management 5.6.1. Project cost management Project cost management is all about controlling cost of the resources needed to complete project activities. Apart from these controllable costs, there are certain aspects over which we do not have any control. These are called uncontrollable costs and they are the subject matter of risk management. The subject of project cost management can be taken up in four broad steps, as below. Resources planning schedules The objective here is to prepare different resources schedule such as labour and staff schedule, material schedule, plant and equipment schedule, and subcontractors or specialists schedule. These schedules show the quantity requirement of each of these resources either on a weekly basis or on a monthly basis. The basis for preparing these schedules is the project time schedule. Cost planning Once the resource requirement is obtained, the estimate to complete each of these can be prepared on the unit cost of the resources and the total units of the resources required. This process is called cost planning and it is a must for project cost management. The essential components of a cost plan are the project schedule and estimates. The estimate of a project is progressively developed as the project gets underway. To start with, a rough estimate based on previous projects of similar size and nature is prepared at the conceptual stage. This is gradually refined and finally a detailed estimate is prepared when the scope gets clearer and a detailed design is ready. Cost planning aims at ascertaining cost before many of the decisions are made related to the design of a facility. It provides a statement of the main issues, identifies the various courses of action, determines the cost implications of each course, and provides a comprehensive economic picture of the project. At the detailed design stage, final decisions are made on all matters relating to design, specification, construction and others. Every part of the facility must be comprehensively designed and its cost checked. Where the estimated cost exceeds the cost target, either the element must be redesigned or other cost targets reduced to make more money available for the element in question through all this, the overall project cost limit must remain unaltered. Cost budgeting Cost budgeting is the process of allocating the overall cost estimate to individual work items of the project. Work items are groups of similar activities taken from bill of quantities. It is not 72
necessary to go into each item of bill of quantities since that would require too much of the planning engineer's efforts without commensurate results. Cost control The objective of cost control is to ensure that the final cost of the project does not exceed the budgeted or planned cost. Project cost control can be seen as a three-step process: 1. Observe the cost expended for an item, an activity, or a group of activities; 2. Compare it with available standards. The standard could be a predefined accepted cost estimate (ACE) or it could be the tender estimate; 3. Compute the variance between the observed and the standard, communicating any warning sign immediately to the concerned people so that timely corrective measures can be taken. The initial stages of the project such as conceptual and design stages offer the maximum possibility for influencing the final project cost. Thus, regular and close monitoring is needed during these stages of the project. 5.6.2. Value management Value management (VM), also known as value analysis (VA) or value engineering (VE) is a systematic approach for obtaining value for the money spent. VE is the most effective technique known to identify and eliminate unnecessary costs in product design, testing, manufacturing, construction, operations and maintenance. The core of value management lies in the analysis of function and is concerned with the elimination or modification of anything that adds cost to an item without adding to its function. In value engineering, 'function is that which makes the product work or sell, and accordingly, we have 'work' functions and 'sell functions. All functions can be divided into two levels of importance basic and secondary. The basic function is the primary function of a product or a service, while the secondary functions are not directly accomplishing the primary purpose but play a supporting role and provide additional benefits. Some other related terms used in value engineering are worth, cost and value. Worth refers to the least cost required to provide the functions that are required by the user of the finished project. Worth is established by comparison, such as comparing it with the cost of its functional equivalent. Cost is the total amount of money required to obtain and use the functions that have been specified. Value is the relationship of worth to cost as realized by the owner, based on his needs and resources in any given situation. The ratio of worth to cost is the principal measure of value. Value index = Worth/Cost Value engineering can be applied to any phase of a construction project, though the best results may be expected during the initial stage of a project. 5.6.3. Cash-flow diagrams Any organisation involved in a project receives and spends different amounts of money at different points in time, and a cash-flow diagram is a visual representation of this inflow and outflow of funds. 73
The project cash-flow is basically a graph of receipts and disbursements versus time. The project cash-flow can be prepared from different perspectives - of contractor, owner, etc. It is usual to represent time in terms of month for project cash-flow diagram. For executing a construction project, a contractor spends and receives the money at different points of time. The contracting company sometimes faces negative cash flow in the early stages of the project. This negative cash flow experienced in the early stages of projects represents locked-up capital that is either supplied from the contracting company's cash reserves or borrowed. If the company borrows the cash, it will have to pay interest charged to the project. If the company uses its own cash reserves, it is being deprived of the interest -earning capability of the cash and should, therefore, charge the project for this interest loss. A measure of the interest payable is obtained by calculating the area between the cash-out and the cash-in. The negative cash flow indicates that the contractor has to mobilise this much funding to execute the project. 5.7. Time, cost and quality 5.7.1. Updating Traditionally, the schedule, cost and quality have been used as the control parameters for construction projects. The purpose of a control system is to see that the progress, cost and quality obtained in any project is within the agreed time schedule, the agreed cost, and the agreed specification, respectively. There are many other parameters, such as disputes and accidents, which one would like to control. It is believed that controlling the aspects of time and cost would take care of other parameters. Monitoring and control system also helps in providing feedbacks to management on the different schedules prepared earlier, in order to ensure that the project is progressing as per schedule. In case of slips/deviation from schedules, the system helps in taking corrective and timely action. The basic objective of any monitoring system is to monitor projects by measuring physical progress, costs and profits against targets, and to help in taking corrective action. It also provides data for preparing reports for management Information system. Updating can be defined as planning and programming of the remaining portion of an activity job by introducing the latest information available. At the end of any day of work, the activities of the project must either be completed, in progress, or they may not have started yet. Further, the actual progress may not be according to the originally envisaged schedule. Also, some of the activities that must have been completed as on the day of updating may not have been completed; worse still, some may not have started. Some of the activities may have not have achieved the required percentage of progress that was planned on the day of updating. It is also possible that some new activities that were not in the original plan might have to be taken up. This may at times bring about a change in the network logic (sequencing of events). All these situations require updating of a project plan at an appropriate interval or frequency. The updating frequency (how often the updating should be undertaken) depends upon the nature and type of the project, and the contractual provisions. It could be weekly, monthly, or even quarterly. The updating frequency may be lower during the start of the project, while more frequent updating would be needed towards completion of the project. 74
Further, if there are any major changes in the objectives and scope of the project, or if the status of a stakeholder in the project has changed drastically, the project requires an immediate updating. 5.7.2. Project control If projects are left to run on their own, they may end up spending more money than initially planned and may also take longer to complete, and probably also be of quality lower than the agreed standard. Thus, every project requires some degree of control. The control is an integral part of the project management process, and it aims at regular monitoring of planned versus actual achievement. In case deviations are noticed, there has to be revision in the plan. The timeliness of application of control process is very important, and any control mechanism should attempt to discover the deviation at the earliest so that corrective measures can be applied. It is very rare for a construction project to proceed exactly as per the plan. Thus, there is justification for applying the control process on a continuous basis. A typical control process involves gathering facts and data, analysing them, predicting the likely outcome based on the current data and taking appropriate corrective action. Since a project control system provides a basis for management decision, it should be simple to work with and at the same time be able to draw immediate attention to significant deviations (difference between planned and achieved accomplishment). It should also indicate the area where corrective actions are needed to overcome the deviation. Also, the key control measures should be identified carefully so that the results of control are worth the time and effort spent. There are three important elements to be controlled in a project: Schedule/time/progress control; Cost control; Quality control. 5.7.3. Schedule/time/progress control The tools for progress control are bar charts or critical path networks. Whichever technique is used, the project manager should abide by the following steps: Establish 'targets' or 'milestones' times by which identifiable complete sections of work must be completed; As each target event occurs, compare actual against targeted performance; Assess the effect of performance to date on future progress; If necessary, re-plan so as to achieve original targets or to reach as close as possible in achieving them; Request appropriate action from those directly responsible for the various activities. Planning and control techniques achieve nothing unless they are translated into action, and it is the responsibility of the project manager to see that this happens. Depending on the duration and the type of the project as well as the contractual provisions, monitoring could be done on weekly, fortnightly, monthly, or bimonthly basis. The most common monitoring period is on a monthly basis. 75
5.7.4. Cost control There are different ways in which cost control can be exercised for a construction project. As mentioned earlier, the important points that must be emphasised while devising cost control for a construction project are the simplicity of the system and the response time. There is no point in having a cost control system that is complicated and involves a number of staff to man it, while the response time is very high. The project cost control also can be thought of as a three-step process: Observe the cost expended for an item, an activity, or a group of activities; Compare it with available standards. The standard could be a predefined accepted cost estimate or it could be the tender estimate; Compute the variance between the observed and the standard, signalling a warning sign immediately to the concerned people so that timely and possible corrective measure can be taken. This is where the simplicity of the system comes into the picture. The more complicated the system, the more people it requires to be involved and possibly the more the response time needed to pinpoint the variation between the observed and the standard. The response time becomes very important since there is no point in finding the variance at a time when the activity showing variance is already completed, although this data can be useful for other projects. The collection of cost for a project needs involvement of a number of people including planning engineer, billing engineer, plant and equipment engineer, timekeeper, storekeeper, accountant and head-office staff. The process of recording cost data against different cost codes and analysing them against these codes, description, quantities, rates, etc., and then comparing them with some standard such as accepted cost estimate, detecting variances, if any, and taking timely corrective measures may all look simple in the beginning. However, the process is not as easy in real-world projects. There are different control systems that can be adopted depending on the requirement. 5.7.5. Control of schedule, cost and technical performance Earned Value Method Earned value method can successfully integrate the schedule and cost control aspects. Earned value is a methodology for determining the cost, schedule and technical performance of the project by comparing it with the planned or budgeted performance. It is assumed that once the budget has been made, it is more or less fixed. The performance measurement parameter could be cost, schedule or any other technical parameter such as man-hour. The comparison is done in terms of a common monetary term (such as euro or dollar) or in terms of man-hour, equipment hour, 'quantity of material' etc. assigned to the work. Earned value is based on the idea that the value of the product of the project increases as tasks are completed. Therefore, the earned value is a measure of the real progress of the project. The earned value method involves the concepts of work package and earned value to analyse the performance of a project. It not only tells us about the progress to be achieved to be on 76
schedule, but also clarifies whether the resources being spent are commensurate with the budget. The earned value method is also used for forecasting the likely course of a project by extrapolating from the amount of work already put into a project. It is possible to forecast the project cost at completion and also the probable completion date. The forecasts made are also used to measure variances and define trends. The project manager can take appropriate actions should there be unwanted variances and unfavourable trends. The implementation of earned value method involves the following steps: Defining the scope of the works The scope of the works is frozen at an early stage in the project life cycle and changes, if any, in due course are suitably addressed. Setting up a work breakdown structure (WBS) The project is broken down in logical groupings and levels, and these are shown in a hierarchy. The lowest level is usually made up of work packages that are the smallest self-contained grouping of work tasks considered necessary for the level of control needed. Developing a project master schedule The project master schedule contains details of scheduled start and completion of the entire work package. Allocating costs to each work package The principal cost elements are labour, materials, and plant and equipment. The cost components are summed up for each work package. Establishing a practical way of measuring the actual work completed There are different ways in which the actual work can be measured. The selection of a particular method depends on the type of contract, the terms of payment, etc. However, 'simplicity' of the adopted system is the guiding philosophy most of the times. Setting the performance measurement baseline The baseline indicates the plan to spend in different time periods for all the work packages, over the planned duration of the project. The period could be weeks or months. 5.8. Health and safety 5.8.1. Health and safety management system Dan Petersen in his principles of safety management mentions that safety should be managed like any other company function. Thus, in order to manage the project schedule, a construction company plans the manpower and other resources; these plans are monitored and, depending on the deviation, control measures are applied. In a similar manner, the management should direct the safety effort by having a proper safety and health management system in place. The key functions of the safety management systems are: planning for safety, organising for safety, issuing directions for safety, and coordinating and controlling various safety issues. Planning for safety may include developing a safety and health policy, evaluating the policy from time to time, setting goals for safety and creating a budget for 77
safety-related expenditures. Organising for safety includes activities such as development of a safety organisation structure, defining the roles and responsibilities, delegating authorities, and education and training for safety. Developing a proper communication system, standard operating procedures and a safety manual are parts of the directing function. Constitution of a safety committee can be considered under the coordinating function, while under the controlling function we define the mechanism for accident reporting, investigation, record keeping, and so on. 5.8.2. Safety policy and organisation Dan Petersen s principle that 'safety should be managed like any other company function implies that safety is a line responsibility. For the line management to accept this responsibility, the top management should clearly explain and stress the same by issuing a document in the form of guidelines, i.e., a safety policy. In the other part of the same principle, it is said that 'management should direct achievable goals by planning, organising and controlling'. A safety policy is management s first step in implementing the above-said principle. A written safety policy removes any confusion regarding the objectives, directives and distribution of responsibilities in this regard. Construction companies formulate safety policy to show management s commitment to provide a safe and healthy work environment to all its employees. These are prominently displayed in different languages so that every worker is familiar with the existing policy. 5.9. Warranties, insurances 5.9.1. Insurance Insurance is a device by means of which the risks of two or more persons or firms are combined through actual or promised contributions to a fund out of which claimants are paid. Insurance is a contractual relationship that exists when one party, for a consideration, agrees to reimburse another for loss caused by designated contingencies. The first party is called the insurer or underwriter; the second, the insured or policyholder; the contract is the insurance policy; the legal consideration is the premium; the loss of life or property in question is the exposure, and the contingency is the happening of the insured event. It is important that construction organisations attach to insurance as a means to manage risk. In the construction industry, insurance is one of the most important ways to tackle risk. In fact, insurance is considered as a synonym for risk management in the industry. The majority of construction companies rely on insurance policies for different risk scenarios. They purchase a number of insurance policies depending on the project and contractual requirement. While selecting a given type of policy, a company considers the severity of potential risk, the probability of occurrence of the risk, and the available risk mitigation measures it has under its disposal. 78
5.9.2. Project insurance An element of risk is inherent in all types of engineering projects. It is ever-present in the world of commerce and industry, during construction or during operational stage. The insurance policies may be taken by the client as well as the contractor. A client organisation may go in for policies such as marine-to-erection (including third-party liability), delayed start-up (advance loss of profit), and so on. The contracting organisation may go in for policies such as: Construction plant and equipment insurance; Employer s liability/workmen s compensation; Motor vehicles policy; Car insurance and temporary properties of employers as well as of contractor. 5.9.3. Marine-to-erection insurance The policy covers the contract works and equipment while in transit and during construction/erection at site, during testing and commissioning, and also during the defects liability period. Besides, the policy also covers damage to the surrounding property and liability to third parties. For goods in transit, the policy covers all risks of physical loss or damage, including war and strike, riots and civil commotion. However, the policy does not cover loss or damage due to insufficient or inadequate packing, inherent defects; un-seaworthiness of vessels, financial default of vessel owners, radioactive contamination, and consequential losses caused by delay. During construction and erection, the policy covers all risks of physical loss or damage to the project works, including environment perils, location perils, handling perils and negligent acts. The policy during construction and erection excludes war risks, normal wear and tear, rust, erosion, cessation of work, wilful acts or wilful negligence, and consequential (financial) losses. During the defects liability period, the policy covers contractor s liability for the damage caused by contractor on site during regular maintenance, as well as the damage caused by faults in erection on site. The exclusions during defects liability period are in respect of gradual pollution, damage to project works, insured s own employees, the vehicles licensed for road use, and marine vessels or aircraft. 5.9.4. Contractor s all-risk insurance (CAR insurance) This engineering policy offers protection against loss or damage to the contract work. There is also a provision to extend cover against any third-party claims while executing the project. All civil engineering works, from a small residential building to a huge bridge, are susceptible to damage from a wide range of causes including fire, explosion, flood, storm, impact and internal defects. Exposure to such damage commences at the time of first delivery of the materials to the contract site and continues to exist till completion of the work. Even after completion of the work, there is exposure especially during the maintenance period, after the civil engineering work is handed over to the client. The contract usually describes the responsibilities of the contractor for loss or damage during 79
the period of the contract and the subsequent maintenance period. The CAR policy can provide the contractor with a comprehensive insurance coverage. This insurance cover is useful for: All civil engineering works including massive dams, bridges, tunnels and docks; Residential and office buildings; Water treatment plants, canals and roads; Airports, factories, etc. The policy covers loss or damage to the subject matter from any unforeseen or accidental cause that is not specifically excluded under the policy. Some of the more important causes of loss indemnified under a CAR policy are: Fire, lightning, explosion, impact, aircraft damage; Flood, inundation, storm, cyclone, hurricane, etc; Earthquake, subsidence, rockslide and landslide; Theft, burglary, riot and strike damage. Some general exclusions in this policy are nuclear perils, war group perils, and wilful act or gross negligence on the part of the insured. Specific exclusions of the policy include deductible excess, faulty design, inventory losses, defective material, bad workmanship, wear and tear, deterioration, normal atmospheric conditions, cost of rectification or errors unless resulting in physical damage, and loss or damage to vehicles used on the road or waterborne or airborne craft/vehicles. The period of insurance commences from the first unloading of the property at the contractor s site and expires on the date specified. The cover also ceases for that part of the insured contract work taken over by the principal prior to the expiry date. The sum insured will be the total of the estimates of possible outlay or outgo under the following heads: Contract price; Materials or items supplied by the principal; Any additional items not included in the contract price and materials supplied by the principal; Landed cost of imported items as at construction site; Construction plant and machinery (restricted to five per cent of the contract value); Clearance of debris; Insured's own surrounding property; Extra charges for overtime; Increased replacement value for contract price and materials supplied by the principal; Third-party liability. The policy is also applicable during the defect liability/maintenance period, usually 12 months after the completed work is handed over. However, the liability under this is restricted to loss or damage caused by the insured in the course of obligatory maintenance under the contract. The additional cover may be provided in the policy depending on the insured s requirement. 80
5.9.5. Liquidity damages insurance In general, under the provisions of construction agreements, the contractor is responsible to the client for delay and/or under-performance of the project caused by technological failure or fault on the part of the contractor (including his subcontractors and suppliers). In such circumstances, the contractor is obliged to pay liquidated damages to the client in amounts that should equate to the financial obligation of the client to the project lenders. Cover for such damages is available to the contractor by way of liquidated damages insurance, which is designed to protect the contractor for liability assumed under contract for the payment of liquidated damages to the client for late completion and/or performance shortfall, following errors or omissions on the part of the contractor, subcontractors and/or suppliers in connection with the work to be performed under the terms of the construction agreement. Such work could cover the engineering, design, procurement, construction and commissioning of the project. 5.9.6. Professional indemnity policy The need for this policy is felt by construction companies that offer design and consultancy services. Besides, some of the contract conditions these days stipulate insurance policy to cover legal liability arising out of design defects. The obligatory policy for engineers in construction in Poland offers an indemnity limit. 5.9.7. Warranty In construction there are two general types of warranties. One is provided by the manufacturer of a product (warranty on materials), the second one is a warranty for the labour (warranty on construction). What do these warranties mean? Essentially, they all mean the same thing: that your product or labour is at least acceptable. It may not be perfect, but it meets certain minimum expectations. Warranties reduce client risk as they tend to place more of the risk of poor construction on the contractor. With a warranty, a client can collect from a contractor for poor construction over the life of the warranty. The project construction contract shall include warranty for constructed works or sections of these works. The terms of the warranty shall be defined by the client and may include contractor input if desired. As a minimum, the contractual warranty specifications shall include: Definition of what product(s) are warranted; Length of the warranty period; Responsibilities of the owner; Responsibilities of the contractor; Responsibility for maintenance; Conflict resolution process; Contractor quality control plan; Measurement methods; Performance based requirements and associated threshold levels that require corrective action by the contractor; Requirements for remedial corrective action; Requirements for elective or preventative actions; 81
Basis of payment; Final warranty acceptance. The warranty duration is intended to be long enough to cover any performance issues due to poor quality construction but short enough so as not to create warranty bonding issues associated with contractor assumption of risk for unduly long periods of time. Ultimately, warranties must meet all applicable local regulations. 5.10. Certificates at completion There are several certificates to be issued at completion of works and the whole contract. Generally there are certificates related to the completion of works, financial statements, and the fulfilment of the whole contractual obligations by the contractor. Following procedures could be observed regarding the certificates issue: 1. Works: Taking-over certificate for any part of the permanent works. Taking-over certificate for the works (all works are completed for the purpose of taking-over by the client). 2. Finance: Statement at completion (after issue of taking-over certificate for the works). Final statement (after issue of performance certificate). 3. Whole contract: Performance certificate (after defect liability period, when all outstanding works and remedying defects are completed) stating the date on which the contractor completed his obligations under the contract. Only the performance certificate shall be deemed to constitute acceptance of the works. 5.11. Project close-out This is the last phase of a construction project and is as important as any other phase in the project. This is a process of completing and documenting all the construction tasks required to complete the project. A poor project close-out (or closure, as it is referred to sometimes) leaves the client unsatisfied and may prove to be a cause for not getting repeat business. Thus, project close-out should be meticulously planned. Considering importance of project close-out, some companies have developed certain templates/checklists to assist them in the process of project close-out. It is helpful for both contractors and owners to have short project close-out time. While an owner faces least interference in moving in and acquiring the constructed facilities, the contractor also can quickly move out to other project locations if the project close-out does not become lengthy. A poorly planned project close-out may take more than a year to complete. The outputs from the project close-out phase help to execute the next project with much more efficiency and control. Project close-out consists of a number of tasks. The project close-out phase can be divided into the following broad headings: 1. Construction close-out; 2. Financial close-out; 3. Contract close-out; 4. Project manager s close-out; 5. Lessons learned from the project. 82
5.11.1. Construction close-out This involves preparation of the project punch list, which is a list of deficiencies identified during the combined inspection of constructed facilities by the representatives of client, contractor and consultant. During the regular inspection also, deficiencies are reported to the contractor by the consultant and the client s representative. The punch list is prepared usually towards the end of the project when all major construction activities are completed. The punch list is formally handed over to the contractor, who takes steps to rectify the deficiencies thus pointed out. There may be a situation in which some of the deficiencies pointed out in the punch list may not be part of the contract, and the contractor in such cases usually asks the client for extra payment. Certificate of substantial completion For a contractor, obtaining the certificate of substantial completion is an important milestone event as it ends the contractor s liability for liquidated damages (LD). Substantial completion refers to a situation in which the project is sufficiently completed. In other words, even though some minor deficiencies may be present (all the deficiencies pointed out in the punch list may not have been attended to), the construction facility can now be used for its intended function. Usually, the unattended or yet-to-be-rectified deficiencies are attached with the certificate of substantial completion. Certificate of occupancy This is usually issued by the municipality under whose jurisdiction the project location falls. It indicates that the constructed facility complies with the entire codal requirement and is safe to be occupied. Fire, labour and environmental inspection by municipal authorities is required before the certificate of occupancy is issued. Demobilisation or release of resources This consists of demobilisation (release) of resources such as staff and workers, and is as important as their mobilisation. The closure of office, removal of unused materials lying in store, and disconnecting water, electricity and sewerage lines are all part of the demobilisation process. 5.11.2. Financial close-out Financial close-out consists of writing applications for final payment, release of various bank guaranties, and settlement of any change order issued by the client. Final payment The contractor has to apply for the release of final payment after he has attended to all the deficiencies pointed out in the punch list. The request for release of retention money is also made. Release of various bank guarantees During the course of execution of project, the contractor submits a number of bank guarantees to the owner. A written request is made to the client to release the bank guarantees. 83
5.11.3. Contract close-out Construction contract usually specifies the requirement of contract close-out and, thus, the contractor should prepare a list of requirements for contract close-out as per the contract between him and the client. Some commonly mentioned requirements are: Submission of as-built drawings During the project execution process, due to site constraint there might be some changes in the as-built facility from that as specified in the contract drawings. Thus, it is very important to prepare the as-built drawings by estimating the actual dimension and condition of the constructed facility. The as-built drawings of all the trades such as civil, electrical and mechanical disciplines should be compiled and submitted to the client. As-built drawings are a great help during the operation and maintenance (O&M) stage of a constructed facility, and in most modern construction projects, it is mandatory for the contractor to provide as-built drawings. Submission of operation and maintenance manual Modern projects involve a number of mechanical and electrical appliances for example, elevator, cooling tower, air-handling unit and diesel-generator set. The manufacturers of these appliances provide operation and maintenance manual associated with these appliances. The O&M manual outlines the operational and maintenance procedure and also specifies maintenance interval for the appliances. Thus, it is very important for the owner to possess these documents. Submission of warranties It is the duty of the contractor to collect all the warranties and guarantees from vendors, subcontractors and suppliers, and submit these to the owner. Submission of test reports During the execution of a project, a number of tests are conducted on materials, appliances and systems that are installed in the project. The test records need to be compiled and submitted to the owner for future reference. 5.11.4. Project manager s close-out This includes tasks such as preparation of an as-built estimate, analysis of actual cost versus estimated cost, analysis of items where cost overrun was high, and conduct of meetings with external agencies such as client and consultants for understanding their feedback on various project management aspects. Meetings with own staff and subcontractor should also be held to get their feedback on various issues. 5.11.5. Lessons learned from the project This involves collection and compilation of all records associated with the project, and preparing archives of important project records. It also involves documenting the important issues faced in the project and their resolution. This helps in planning for such type of issues in the early stages of other projects. The following questions should be addressed for betterment of future projects: Did the project meet its requirements and objectives? Was the client satisfied? Was the project schedule met? Was the project completed within the stipulated cost? 84
Was the level of achieved quality acceptable? Were the risks identified and appropriately mitigated? What better ways can be employed to improve project execution and its management? Compiling records of lessons learned may help in productivity improvement of the team for future projects. 5.12. Literature and further reading for chapter 5 1. Kaufman, J.J., Value Engineering for the Practitioner, 1990 2. Parker, D.E., Value Engineering Theory, 1985 3. Anderson, S.D., Project quality and project managers, 1992 4. Fryer, B., Management development in the construction industry, 1979 5. Goodwin, R.S.C., Skills required of effective project managers, 1993 6. Odusami, K.T, Perceptions of construction professionals concerning important skills of effective project leaders, 2002 7. Pettersen, N., Selecting project managers: An integrated list of predictions, 1991 8. PMBOK, A guide to the project management body of knowledge, 2001 9. Spitz, C.J., 1982, 'The project leader: A study of task requirements, management skills and personal style', Doctoral dissertation, Case Western Reserve University, USA. 10. Stuckenbruck, L.C., The ten attributes of the proficient project manager, 1976 11. http://www.breeam.org 12. http://www.leed.net/ 13. www.environment-agency.gov.uk 85
5.13. Set of Exercises for chapter 5 Exercise 5.1: Contract drawings form a part of: A. Special conditions of contract B. Technical specifications C. Contract Exercise 5.2: Inception report presents: A. Contractor to employer B. Engineer to employer C. Engineer to contractor Exercise 5.3: Project management aims to achieve the goals of the project by: A. Planning and controlling time and quality B. Planning and controlling time and funds C. Planning and controlling time, funds, human and technical resources Exercise 5.4: A project manager is established to: A. Advise the employer B. Advise the contractor C. Govern the project Exercise 5.5: Administrative requirements are described in the: A. BOQ B. SCC C. TSpecs Exercise 5.6: Value index is the ratio of: A. Profit to cost B. Worth to cost C. Profit to worth Exercise 5.7: Three important elements to be controlled in the project are: A. Progress in time, cost, and quality B. Capacity, quality and cost C. Progress in time, capacity, and cost Exercise 5.8: The health and safety management system is formulated by the: A. Contractor B. Engineer C. Employer 86
Exercise 5.9: Certificates and completion refer to: A. Taking over of the works. B. Taking over of the works and financial statement. C. Taking over of the works, financial statement and fulfilment of the contractual obligations. Exercise 5.10: Project close out consists of: A. Construction, financial, contract and project manager s close out and lessons learned from the project. B. Construction and contract close out. C. Financial and project manager s close out. 87
CHAPTER 6 CASE STUDIES OBJECTIVES OF CHAPTER 6 The primary objective of this chapter is to present a set of case studies related to the construction procurement, its strategic context, its relevance in terms of EU Directives and national legislation. LEARNING OUTCOMES FOR CHAPTER 6 The primary learning outcome for this chapter is to gather practical information about the nature of construction procurement including problems with management of construction projects. 6.1. CASE STUDY 1 (Poland): Procurement problem in Polish legal regulations The case described below is strictly connected with consequences of delays occurring in the process of execution of a construction project. The ordering party, that is the General Directorate for National Roads and Highways, regardless of choosing in an open tender a contractor for construction works in the project of Rebuilding of the national road no. 7 to meet parameters of an expressway at the Białobrzegi Jedlińsk section, in the same procedure awarded a contract for a service consisting of management and supervision of this project. The management and supervision contract was concluded with the contractor in May 2006 and provided for the execution term of the subject of the contract being 35 months from the commencement date of the contract execution. This term included: - 1 month before commencement of works; - 19 months of conducting works; - 12 months for reporting defects; - 3 months (maximum) for final settlement. On the basis of the concluded contract, costs of the project execution were co-financed from EU funds. At the time of commencement of construction works, already in the preliminary stage, there was a delay in handing over the construction site which resulted in prolonging the term of the contract execution and, in the investor s opinion 14, was due to reasons beyond control of the ordering party. The situation was caused by protests of property owners and a prolonged expropriation procedure which led to a delay in handing over plots of land where the works were to be completed. In the course of project execution the contractor was not able to make up for the delay which occurred for the above reasons. In this situation, in May 2008 the investor decided to initiate a single-source procurement procedure, pursuant to art. 67 section 1 point 1 letter a) and art. 67 section 1 point 5 letter b) of the Public Procurement Act, to prolong the validity period of the management and supervision contract by 117 with regard to the 35-month contract period. 14 Resolution with file signature KIO/KU 4/08 dated 9 September 2008 88
Pursuant to provisions of the Public Procurement Act, the investor notified the President of the Public Procurement Office about initiation of the above mentioned procedure, and in June 2008 the President ordered an ex-ante control of the procedure to verify legality of choosing a single-source procurement procedure. As a result of the completed control, the President of the Public Procurement Office, based on art. 161 section 1 of the Public Procurement Act, stated a violation of provisions referred to by the ordering party, and decided to invalidate the subject procedure. The ordering party reported reservations concerning the recommendations of the President of the Public Procurement Office, who did not consider the investor s reservations, and referred the case to the National Chamber of Appeal. The National Chamber of Appeal sustained the recommendations of the president of the Public Procurement Office, and found that the reservations of the ordering party should not be considered. According to the consistent case-law of the European Court of Justice, application of a non -competitive procedure, including a single-source procurement procedure, is admissible only under special circumstances, subject to precise interpretation, which are consecutively listed by the Polish legislator in art. 87 of the Public Procurement Act. The National Chamber of Appeal pointed out the requirement to meet all conditions resulting from art. 67 section 1, pertaining to both point 1 letter a), and point 5 letter b). This applies in particular to the assumption that: - The contractor is the only entity which can execute the order, - They have special knowledge regarding the subject project, - The situation cannot be foreseen, - The scope of tasks of the contractor is not expanded, - Awarding a single-source contract does not determine execution of the project. The above case proves the need of a particularly detailed description of the subject of the order and of including in the contract all possible conditions which could in the future affect the possibility to introduce necessary changes which have impact on timely execution of the project, according to provisions resulting from both EU regulations and provisions of national law. 6.2. CASE STUDY 2 (Turkey): Assessment of public procurement Legislative framework Public procurement in Turkey is currently governed by the Public Procurement Law, Law 4734) and the Public Procurement Contract Law (Law 4735), both of which were adopted in 2002. The current Public Procurement Law is generally well-structured, with a natural division between the various phases in the procurement process. The Public Procurement Law has been amended several times every year since 2004. While this may not be unusual, some of these amendments were introduced on an ad hoc basis by individual ministries and parliamentarians, rather than as part of an overall government strategy. These amendments have introduced exemptions that are not envisaged under the acquis communautaire. It has also been a common practice in Turkey that big ticket procurement for (politically) important international events (e.g. cultural or sporting events) is exempt from Public Procurement Law. In addition to the Public Procurement Law, several pieces of secondary and tertiary legislation have been issued by the Public Procurement Authority (most recently in March 2009, after the adoption of the amendments to the Public Procurement Law by Law 5812). These regulations 89
contain detailed instructions for the conduct of procedures, together with standard tender and contract documents (the use of standard tender and contract documents is mandatory). The Public Procurement Authority also issues circulars and interpretative decisions. However, the standard contracts provide for the possible application of a price advantage in favour of domestic candidates, while the standard administration specifications for goods procurement leave it to the contracting authority to decide whether or not to open up competition to foreign tenderers under the thresholds. Coverage of the legislation The public procurement regime covers budget institutions, entities of special provincial administrations and local municipalities, state economic enterprises, social security funds, public institutions assigned with public duties, etc., but does not use the same definitions as the EC Directives. In particular, the Public Procurement Law contains no definition equivalent to the EC definition of bodies governed by public law. The current Public Procurement Law does not explicitly deal with entities operating in the utilities sector, nor does it contain any reference to the award of works concessions. While utilities are not specifically mentioned, publicly-owned utilities operating in the water, energy, transport and telecommunications sectors are included as state or municipality economic enterprises. The result is that private sector utilities are not covered by the Public Procurement Law; this is precisely the situation that the EC sought to avoid in adopting its own original Utilities Directive. Since 2007 the Public Procurement Authority has been working on a draft law for utilities procurement, but the draft has not yet been adopted by the government. Also for the last two years a proposed law on concessions and PPPs has been developed by the State Planning Organisation (SPO) but is still not finished. The Public Procurement Law applies to contracts for goods, services and works, although the definitions are not identical with those of the EC Directives. It also provides a separate definition of consultancy services, which are subject to a special procedure contained in section 5 of the law. This special procedure does not appear to affect the overall application of the common procedures of the Public Procurement Law, but sets out a two-envelope system of tender submission that applies in this context only, allowing the technical evaluation to take place independently of the financial evaluation. The Public Procurement Law applies to procurement by contracting authorities for contracts well below the EC threshold levels, although there is no great distinction made between the procedures that apply for both high-value and low-value contracts. The only, but significant, differences are that the publication rules are less onerous and the time limits are shorter for low-value contracts, which simplify the procedure in practice. The Public Procurement Law prohibits the practice of splitting contracts to avoid the application of the Public Procurement Law. Compatibility with EU legislation Under the Public Procurement Law, the open procedure is the basic procedure; other procedures may only be applied when special conditions for their use have been fulfilled. In fact, the restricted procedure rarely occurs (0.61% of all procedures published in the Public Procurement Bulletin in 2008). The Public Procurement Law also contains a specific direct procurement procedure which can be used for: low-value procurement; situations that would come under the EC s negotiated procedure, i.e. when there is only one supplier (e.g. based on the existence of exclusive rights); the lease or purchase of immovable property; certain urgent 90
medical supplies; and the legal services of Turkish or foreign advocates for arbitration. The most recent amendment to the Public Procurement Law (Law 5812) added to the list some types of contracts that would not directly qualify for exceptional procedures under the EC rules (purchase of some medicines, vaccinations and medical materials, and procurement related to national and local elections). The conditions for the use of the negotiated procedure largely reflect those of the EC Directives. The Public Procurement Law s qualification criteria largely reflect those of the EC Directives, including the more recent mandatory exclusion provisions. The Public Procurement Law also specifically prohibits bribery and collusion. The Public Procurement Law sets out appropriately the content of tender documents and tender notices. However, the requirement that only those tenderers who have purchased the documents (at the cost of reproduction) can participate in the proceedings may unnecessarily restrict participation. The publication of procurement notices (contract notices and contract award notices) is mandatory above certain thresholds. Prior indicative notices (PINs) have been introduced by recent amendments. The Public Procurement Law permits domestic preferences; there is a price advantage of up to 15% for domestic contractors offering domestic products. In procedures for contracts below the thresholds, contracting authorities may restrict participation to Turkish companies. As the current Public Procurement Law was closely modelled on the former EU public procurement legislation, there are many significant similarities. However, concerns remain about the compatibility of the Public Procurement Law with the current EU legislation, notably: - The absence so far of the new procedures and techniques introduced in the most recent EC Directives (competitive dialogue, social and environmental considerations, functional technical specifications); - The manner in which the Public Procurement Law defines the scope of application; - The extensive exemptions; - The apparent need to justify the use of the restricted procedure; - The greater tolerance of direct procurement; - Technical specifications and standards; - The criteria for contract award; and - The existence of national preferences and restrictions on participation by foreign companies. Other concerns with the Public Procurement Law, but not specifically addressed by the Directives, include the automatic cancellation of tender proceedings in certain cases if fewer than three tenders have been received (even though competition is guaranteed by ensuring that a competitive process has been employed); and the mandatory requirement for tender and performance securities in all contracts regardless of value or risk. Legislation for concessions (PPPs) The structure of the legal framework governing concessions (PPPs) will need to be amended to ensure legal clarity and certainty for all operators (whether public or private). Sectorspecific laws governing the use of PPPs should be repealed, as well as laws allowing for the use of particular PPP models only (e.g. the build-operate-transfer (BOT) law and the build -operate (BO) law). These laws should be replaced by a single PPP law for all relevant economic sectors that deals with the pertinent issues, such as eligibility of projects, internal authorisation procedures, granting of state guarantees, and monitoring. It needs to be made clear that the award of PPP contracts must follow the procurement rules if the contract is to 91
qualify as a public contract or public works concession. The PPP law does not need to contain detailed procurement rules; instead it should refer to the Public Procurement Law. The scope of the Public Procurement Law, on the other hand, should be extended to cover public works concessions. The specific provisions of Directive 2004/18/EC on awarding these works concessions and obliging concessionaires to respect procurement rules under specific circumstances will also have to be adopted. The Public Procurement Law could also cover the award of service concessions (in the sense of EU procurement law), although this is not necessary from a legal point of view. If service concessions are left outside the Public Procurement Law s scope, then the fundamental principles of the EU Treaty must remain applicable in the award of these concessions. Procurement operations and practices Statistics The number of contracting entities covered by the Public Procurement Law is about 10,500 (not counting utilities entities). According to Public Procurement Authority statistics, in 2008 there were 116,612 public procurement procedures, and the total value of public contracts (not including direct procurement) exceeded 30 billion EUR. The Public Procurement Bulletin appears to be rather successful in disseminating information on public procurement opportunities, reflected by a fairly high participation rate. Thus, information on public tenders is widely available. The general interest in tendering among economic operators appears to be good in most areas. The figures for the rate of participation suggest that the number of tenders submitted in procurement procedures is generally satisfactory. In the construction sector, in particular, there appears to be significant competition. Foreign tenderers are also present, indicating a healthy market. They will often form joint ventures or consortia with Turkish tenderers, especially in the construction sector. Views on the amendments Contracting entities expressed appreciation of the amendments introduced by Law 5812 and indicated that they had been consulted on the changes. They were in favour of the ability to use negative references and of the changes to the complaints procedures. There was strong interest in the use of framework agreements. However, as the accompanying byelaws were only introduced in March 2009, contracting entities have not had much experience in using all of the new approaches. The increase in the number of exemptions was also welcomed; however, this could present a future problem when they are removed to align the Public Procurement Law with the EC Directives. Procurement practices At the central level and in the main municipalities around Ankara, it appears that procurement is well organised. Procurement is conducted by tender committees appointed in accordance with the Public Procurement Law, and no procurement is commenced until a budget is provided. The budgeting and internal financial controllers are involved from the outset and, where possible, technical specialists are used from the contracting entity to prepare the technical specifications. The higher-spending authorities also have specialised public procurement units comprised of members with the relevant technical expertise. These authorities are therefore able to create tender commissions for each procurement procedure. 92
As already mentioned, the procedures adopted tend to be the open procedure, with very few restricted procedures being employed. It will be interesting to see whether this will change under the new law. There appears, nevertheless, to be a residual reliance on direct contracting by citing lengthy Public Procurement Law time limits or an emergency. In most cases, the recourse to direct procurement is in reality a question of poor procurement planning and budgeting, rather than a question of genuine urgency. This suggests that broader competence training might be desirable. Statistics on the use of the direct procurement procedure are not available. Tender documents are largely based on the Public Procurement Authority s standard tender documents. The only clear problem seems to be the contracting authorities practice of requesting original copies of all documents related to the qualification criteria in the Public Procurement Law, regardless of need. This system inflexibility is also carried over to tender securities and performance bonds, which are required in almost all cases, again regardless of whether or not they are needed and irrespective of the contract value. 6.3. CASE STUDY 3 (Italy): Previous juvenile prison of Pesaro In the inner city of Pesaro there is a large area to be recovered that for many years has been a serious problem to be solved on the city plan. Originally in the area where a religious compound was built - it was composed of a church, by the annexed convent and by the adjacent gardens. After the unification of Italy in 1861 the monastery was closed and the compound was used as a military depot and then as a juvenile prison. In 2001 the area was purchased by the Province of Pesaro and Urbino with the objective of building public offices and enhancing as well as returning to public use the remaining compound. The chosen strategy was to enhance part of the area allowing the construction of buildings for private apartments in order to partially finance the construction of offices and public spaces. The municipality has therefore prepared a detailed plan through which the area was divided into three zones: the first corresponding to the old cloister of the convent where to realise the offices, the second corresponding to the gardens to create public green spaces for the inner city and the third part to build private apartments to be sold. Meanwhile, the Province drafted a restoration plan of the old cloister where the public offices for the works would be located. After approval of the detailed plan, the Province sold the area which was assigned for private construction in order to finance most of the restoration work. The other goal was to contract the work for the realisation of the offices using a type of contract that would limit to the maximum the problems during the realisation phase and would allow to realise a quality intervention. For this type of contract, Italian legislation allows two different types of work award : award according to the method of lowest price and the other according to the method of the most economically convenient. In this case, the strategy chosen was that of awarding the contract according to the method of the most economically convenient. The choice made finds its basis in the fact that the criteria of the cheapest and most advantageous offer allows the award of public contracts, not so much through a purely quantitative-economic evaluation,but with a complex integration between the economic data, the technical and qualitative and, therefore, it is particularly suited to select the private contractor for the assignment of the works whose architectural aspect is of major importance. 93
Such criterion is characterised by a greater flexibility, allowing the companies involved to better express their innovative capabilities, thereby increasing their competitiveness, even in terms of solutions offered to meet the needs pursued by the contracting authorities. The identification of the most economically advantageous tender is based on the integrated application of a plurality of evaluation criteria: this implies the need to solve the problems of comparability between the same criteria, because of their different nature, quantitative or qualitative and the different unit of measurement, making the operations relative to the concrete evaluation of tenders complex. The main evaluation criteria used for this tender were the following: Methodology for restoration interventions; Methodologies for structural consolidation of elements; Features of the electric and heating plants for energy saving and reduction of operating costs; Improved sound isolation; Building time; Price mark down. Further to the tender, the work was entrusted to a firm that offered a substantial price mark down on the initial proposal as well as a series of proposed improvements for the various criteria that resulted in a significant improvement in the intervention. The contractor was very motivated to implement a quality intervention and to demonstrate their skills and this has enabled the restoration works to be completed on time, within total expenditure budget and thus reaching a valuable restoration. The lesson learned from this intervention is that selecting a contractor through the economically advantageous offer method, although requiring a greater initial effort and more complex tendering procedures, is a winning strategy, especially for complex interventions of considerable economic importance. The approach allows for the selection of companies that are highly motivated to perform the job, which gains significant benefits for the contracting authority in terms of improvement of the project. 6.4. CASE STUDY 4 (Turkey) Izmir Bay Crossing Project A trial for a BOT (Build-Operate-Transfer) approach by GDH (General Directorate of Highways) was İzmir Bay Crossing project in 1994. But, it was cancelled because of the lack of preliminary design, wrong information, legislative problems and a wrong tendering process. After this failed tender, the second trial in the transportation sector was Gocek Tunnel project which was successfully completed. The qualification criteria for shortlisting were: The selected company should cover $30 m of the tender cost; The technical requirements specified in the tender document should be satisfied such as the bridge width or design speed; Proven experience in the design and construction of major infrastructure projects; particularly on long span bridges constructed in seismic zones similar to Izmit Bay; Proven technical experience and administrative capability in managing major transportation projects; Necessary financial strength and ability to secure a sound financial package; Experience and managerial capability in traffic management, operation and maintenance of tolled highways and bridges. 94
In April 1995, six companies satisfying these requirements were shortlisted. In February 1996, these companies were invited to submit bids. Only one bid was accepted so the tender failed. In December 1996, the tender was repeated and three companies sent bids. The winner has been invited to participate in further negotiations But the other company went to court and the project was cancelled Evaluations and comparison of two companies: Criteria 1 st Company 2 nd Company Technical capacity High Low Financial situation good Not good Toll rate: For automobile $11 $9 For truck $48.85 $45 Toll rate structure Not clear Clear Construction + operation 27 years 22 years period Guarantees asked Low liability to the government High liability to the government Expertise Satisfactory Not Satisfactory Reputation Good Good Soundness of the bid Realistic/consistent Unrealistic/inconsistent 6.5. CASE STUDY 5 (Turkey): Railways - Prıvatısatıon and Investment ın Turkey The ministry responsible for privatisation is OIB (Ozellestirme Idaresi Baskanligi) and its web-site is www.oib.gov.tr. It is widely known that private capital will have a place in Turkish railways in the future. Turkey is thought to adopt public-private partnership (PPP) opportunities on a Build Operate Transfer (BOT) basis. PPP is already being used in Turkey, but not yet in the rail sector. TCDD (Türkiye Cumhuriyeti Devlet Demiryolları) is the name for railways in Turkey, Further privatisation is underway in Turkey and may impact the railways in future. Further privatisation of ports currently owned and operated by TCDD is possible. The role for private capital is likely to be on BOT projects with 30-year concessions. These will probably include high-speed lines. Republic of Turkey Prime Ministry Investment Support and Promotion Agency of Turkey (ISPAT) http://www.invest.gov.tr, provides for inward investment into Turkey. It has a presence around the world, including offices in the UK. It also serves as a reference point for international investors and as a point of contact for all institutions engaged in promoting and attracting investments at national, regional and local levels. ISPAT operates like a private company. It works with its clients on a confidential basis and gives help to all Turkish governmental bodies. Its services, which are provided free-of-charge include: Market information and analyses; Industry overviews and comprehensive sector reports; Assessing conditions for investment; Site selection; Finding companies for potential partnerships and joint ventures; 95
Negotiating with relevant Government institutions; Facilitating legal procedures and legislation issues, such as: Establishing business operations, incentive applications, getting licenses, work/residence permits. Eurasia Rail Exhibition www.eurasiarail.com, the first ever exhibition focusing exclusively on rail was held in Ankara in March 2011. The next Eurasia Rail exhibition will be held on 8 12 March 2012, this time in Istanbul and Eurasia Rail is confident that it will be bigger and better than the launch event. Eurasia Rail reported that the 2011 show was a great success. It said: Approximately 117 companies participated, 60 per cent of which were international. Its aim is for 250 companies in 2012-78 are already confirmed; Turkey is thinking to have US$25 bn of investment in rail, so there is already significant interest in the show and the rail market; The freight sector will benefit from being able to run through the Marmaray tunnel at night. Consequently, the next event will include a focus on infrastructure and logistics in order to develop this sector and international traffic. The UK has stated publicly that Turkey is a market with significant potential for growth and is keen to develop mutual trading links. UKTI East Midlands has a strong team in Turkey to support UK business, and can assist in areas such as market research and identifying key stakeholders, including partners, agents or distributors. UKTI, Ankara market overview, March 2011 Turkey is the world s 15th, and Europe s sixth largest economy. It is forecast to be in world s top 10 by 2050; The FDI Global Rankings in 2008 (UNCTAD) placed Turkey 20th and the UK fourth in the world; The UK is Turkey s second largest export market in Europe, after Germany. Turkey is UK s eighth largest export market in Europe. Turkey s major import markets are Russia and Germany. The UK ranks 19 th. Why Turkey is a charming place for investment? : Turkey has the youngest and fastest growing population in Europe (with 450,000 graduates a year); The Istanbul economy alone is larger than 12 EU countries; Turkey will be second fastest-growing country in the world by 2018 (according to the OECD); The Turkish economy will be bigger than Canada, Spain and Italy by 2025; Turkey has the world s second largest construction and contracting sector; It is Europe s number one TV manufacturer; It is Europe s leading passenger coach manufacturer; Turkey is the world s third largest mega-yacht producer. 96
6.6. CASE STUDY 6 (Turkey): Mersin Container Port Project The project is about planning and development of the new Mersin Container Port as a new gateway to transports and will be located near to the existing Port of Mersin. The purpose is to fulfil the requirement for a port in the Eastern Mediterranean with a main port function and has been thought of as a gateway port serving to Ankara and eastern Turkey as well as the countries beyond to the east. The specific objective of the project is to strengthen the gateway for import-export traffic and a trans-shipment centre in the region. An investment value of 337m has been estimated for stage one from the EU public investment programme as part of the IPA funding. Upon loan approval the tender for development is expected to be issued to local and international consortiums on the basis of a BOT model with a 49-year lease period. Once completed, vessels up to 10,000 TEU will be able to berth. The port is planned to have a deep water access and is scheduled to be operational by 2014. The location of Mersin container port is shown in the map below : Source: Workshop presentation: Arda ALTINOK (GM, Altinok Consult). The idea of a new container port in Mersin dates back to 1990s. The Transportation Infrastructure Needs Assessment for Turkey (TINA) Study (2007) anticipated the development of the port of Mersin as one of the top priorities. In the TINA Study, overall throughput at the port was expected to increase from 17 million tons per annum (at the Port of Mersin) in 2004 to 60 million tons at the combined Port of Mersin/Mersin Container Port in 2020. 97
Mersin Port, Source: http://ahemlojistik.com/mersinlimani.asp A financial feasibility study has been prepared on the basis of the government undertaking the necessary preparatory work (temporary breakwater beyond the existing breakwater, quay wall, convert the existing breakwater for use as a new terminal quay) and the successful BOT tenderer taking responsibility for the port developments. The overall investments required together with expected rates of return were also assessed. The responsible authorities concluded the Mersin Container Port project is both strategically important and financially feasible. The Mersin Container Port project and related inland transport improvements are expected to create greatly improved trade opportunities between the central and eastern parts of Turkey and its overseas trading partners. Mersin Container Port will make use of the latest advanced and environmental friendly technology in port equipment and operation, including mainly auto-controlled systems, all powered by electricity instead of diesel. This will be a major contribution to conservation of the environment and green growth. Moreover, the latest technology implemented in the port will result in minimisation of the liquid, solid and other types of wastes generated by the operation of the port. There will also be a very advanced waste water treatment plant on site, in the port to further minimise the adverse effects of the operation of the port on the environment and contribute to green growth. This case study shows that feasibility analysis of the project was done in a an exemplary way and almost all questions were answered before the tendering phase of the project. This will lead to a successful tender and more bidders for the tender. 98
6.7. CASE STUDY 7 (Turkey): NABUCCO Gas Pipeline project The NABUCCO Gas Pipeline is a strategic project for gas supply from the Caspian and Caucasus and Middle East regions to South East and Central Europe. Nabucco is a Trans-European Network (TEN) project of European interest, as identified by the TEN-E Guidelines adopted by the European Parliament and the Council. The pipeline will be routed from Middle East and Caspian supply sources via Turkey/ Bulgaria / Romania / Hungary to Austria. The Nabucco transit countries (Austria, Hungary, Romania, Bulgaria and Turkey) signed an Intergovernmental Agreement (IGA) in Ankara on July 2009. The Intergovernmental Agreement was approved by Turkish Parliament on March 2010. The Project Support Agreement (PSA) is being negotiated between the Nabucco International Company and the respective Nabucco transit countries. The project was jointly proposed by the respective gas companies of the involved States and is currently being executed by Nabucco Gas Pipeline International GmbH (NIC) which is directly owned by the Nabucco Partners and is responsible for the marketing of the pipeline capacity. The Nabucco pipeline project aims to open the fourth supply corridor for natural gas into Europe, after the North Sea, North Africa and Russia, enabling new suppliers from the Caspian and the Middle East regions to access the European gas market. Project objectives include to: Diversify the gas supply sources on economic terms; Establish secure energy infrastructure for transporting the gas between producers and consumers of gas. The proposed route is shown in the graphic below. 99
The pipeline length is approximately 3 300 km, starting at the Georgian/Turkish and/or Iranian/Turkish border respectively, leading to Baumgarten in Austria. A reasonable amount of the gas volumes reaching Baumgarten have to be further transported through Austria to the Central and Western European Countries. According to market studies the pipeline has been designed to transport a maximum amount of 31 billion cubic metres per annum. Expected timings of the different phases to completion are: Project Activity First Construction Phase (ANKARA and BAUMGARTEN) Second Construction Phase [Turkish Border to Supplier(s) border] Following Construction Phase II (Additional Stations to upgrade capacity for 31 bcm/y) Planned Date 2011-2014 2014-2015 2017- The tender has an open season procedure that contains two steps. In the first step, the offer is addressed to the project shareholders and associated companies for an amount up to 15 bcm 50 per cent of Nabucco's maximum transport capacity. In the second step, Nabucco will offer the other 50 per cent to external companies ( third party access ), offering them the same conditions and transparency. In this procedure all market participants will have the possibility of securing long-term contracts. Estimated investment costs including financing costs for a complete new pipeline system amount to approximately 7.9 billion euro. The planned sources of funds are commercial banks, ECAs, EIB, and EBRD. The pipeline is scheduled to be in operation for at least 50 years. The major opportunity that the project offers relates to the size and attractiveness of expected increases in European demand for gas. While demand for oil in Europe (and other developed countries) is not expected to increase significantly in future, demand for gas is generally expected to continue to increase for many years to come. The Nabucco gas pipeline project seems well placed indeed to respond to this strategic opportunity to meet the increasing demand and to improve diversification in gas supplies. In this case study, it is clearly seen that in order to perform a tender for such a big construction, a special intercontinental attention is given for the details and properties of the construction. Feasibilities, financial searches, construction routes, details are specified before the start of the construction to be successful at the end. 6.8. CASE STUDY 8 (Poland): Channel Tunnel Rail Link This case study gives examples of best practice when engaging workers to improve health and safety in the workplace. This case study relates to initiatives undertaken during the construction of the Channel Tunnel Rail Link (CTRL). 100
Project fact file The Channel Tunnel Rail Link (CTRL) is Britain s first new major railway for over a century, running 109 km from the Channel Tunnel to St Pancras station in central London. It is also Britain s first high-speed railway, with trains operating at up to 300 km/h (186 mph). The first section of the route, from the Channel Tunnel to north Kent, opened on time in 2003. When the second section from north Kent to St Pancras opened in 2007, journey times from London to Paris were cut to 2 hours 15 minutes, and just 1 hour 51 minutes from London to Brussels. The project is enormous, the construction phase taking almost ten years to complete and creating thousands of jobs. Construction includes 60 rail and 62 road bridges, 26 route-km of tunnels, two new international stations at Ebbsfleet in Kent and Stratford in east London, and the extension and renovation of the Grade-1 listed St Pancras station. Such a large project presents all of the usual risks including working at height, vehicle movement, lifting operations and confined spaces as well as all the risks of operating on and around live railways. The challenge With such a huge project spread over a wide area, the challenge has been to engage all parties involved and to get them actively committed to the CTRL Target Zero philosophy. This philosophy is one where everyone is dedicated to the concept that all accidents are preventable and committed to achieving and sustaining a zero accident performance through continuous improvement. The project has recognised from the outset that the majority of safety issues it faces are a direct result of individual behaviour. It is people that have accidents and it is people that can prevent them. The aim has been to change negative behavioural attitudes, implement constructive communication channels and improve leadership and accountability from front line supervision. Health and safety management on the CTRL has been implemented through the highly visible Target Zero campaign, which encompasses key elements of leadership, top-level involvement, communication and people based safety. Leadership An emphasis has been placed on developing leadership skills amongst managers and supervisors in an effort to encourage them to challenge unsafe behaviours and to proactively encourage the workforce to become engaged in the health and safety programme. The CTRL holds regular safety workshops to develop these skills and give advice on how to achieve positive behavioural changes among team members. The course aims to get a commitment from all attendees to make a difference so they take this message back to site. This commitment starts by looking at themselves, being a positive role model and asking am I doing enough? 101
Through these workshops the project has achieved considerable success. Supervisors have been seen to become more visible in health and safety matters and their communication skills have improved, keeping Target Zero at the front of everyone s minds as a consequence. Top-level involvement The Target Zero campaign is supported at the very highest level by the CTRL s client organisation, as well as directors and managers from the principal contractors. They demonstrate their backing for the Target Zero campaign through attendance and participation at safety inductions, presentations, briefing sessions and by conducting regular site tours in which they liaise directly with the workforce, answering any questions they have. Communication Two initiatives demonstrate the emphasis placed on two-way communication with the workforce: 1. The STARRT Talk. Central to the Target Zero campaign is the daily Safety Task analysis Risk Reduction Talk (STARRT) a process implemented across the whole project. This is a daily pre-task briefing that enables work teams to discuss with their supervisors the key safety risks associated with the day s work and the necessary control measures required. STARRT allows team members to provide feedback, offer suggestions and report any concerns from the previous day s work. Some teams encourage team members to take turns presenting the briefing. 2. The Target Zero Truck In initiative was suggested by employees themselves. A Target Zero Truck regularly visits sites across the whole of CTRL to deliver key health and safety messages and project updates. Equipped with on-board TV and video, the truck has an external studio enabling it to be set up for presentations, briefings and seminars as well as being a tool for handing out worker achievement awards. Front line supervisors make the presentations ensuring that information given is relevant and pitched at the correct educational level. As well as STARRT, employees also have the opportunity to take part in the Job Hazard Analysis process, in which the work team identifies potential hazards and then develops solutions to eliminate or control them. Employee involvement is actively encouraged through holding regular safety committees consisting of members of the workforce. The CTRL has an open door policy for all health and safety matters and feedback is always provided to keep workers aware of any actions that have been taken. On a regular basis, health and safety managers from each contract meet to review any accidents, near-misses or incidents that may have occurred. All lessons learned are implemented throughout the whole of CTRL and safety messages are disseminated to all crafts via safety alerts and health and safety briefs. Safe working practices are rewarded by the presentation of prizes through incentive schemes. Reporting of near-misses is actively encouraged and all employees are informed at induction on how to report a near-miss. The near-miss reporting procedure has also been simplified. People based safety People based safety is a crafts driven programme with operatives observing other staff, focusing on their working behaviours, both safe and at risk. Often the crafts are in the best 102
position to recognise unsafe situations; the scheme uses their knowledge and experience to provide constructive feedback and coaching to correct at-risk behaviour. This is a no blame process and all observations are anonymous. At the end of the reporting period, data is collected and analysed to identify any trends. The scheme provides crafts with a direct opportunity to make positive improvements to their working environment and helps develop a safety culture based on people looking after each other. Benefits Improving worker engagement has brought many benefits to the project, including: An accident rate of less than half the construction industry norm; A positive change in safety culture; Individual contracts regularly achieving over one million man-hours without a reportable injury; Recognition by HSE and the construction industry in the UK and beyond of CTRL safety achievements. 6.9. Literature and further reading for chapter 6 1. Introduction to the EU procurement rules: Office of Government Commerce Guidance March 2008 2. Philip Webster. 1990. Tendering Procedure and Construction in Europe. J. Property Finance.Vol1. No3. 411-415 3. Code of Practice for Project Management for Construction and Development. 2002. ISBN 1-4051-0309-4. 3rd ed. Blackwell Publishing Ltd., 240p 4. Public Procurement Bulletin 2008, 2009, 2010 5. Bedri K. O. Tas, Rasim Ozcan and Ilke Onur. 2008. Public Procurement Auctions and Competition in Turkey. Working Paper No: 08-14. TOBB University of Economics and Technology Department of Economics 6. Public Procurement Authority (http://www.ihale.gov.tr) 7. Hasan Gül. 2010. Modernising public procurement and creating an independent public procurement regulatory authority. EBRD-Law in transition 8. European Bank for Reconstruction and Development: Countries: Turkey 9. (http://www.ebrd.com/pages/country/turkey.shtml) 10. Railway Sector Fact-Finding mission to Turkey May2011 Produced by: Bob Docherty, International Business Adviser, Railway Sector, UKTI, No 1 Victoria Street, London, SW1H 0ET 11. Policy, Management and Finance of Public Private Partnerships, Edited by: Akintola Akintoye, Matthias Beck 12. http://www.oecd.org/dataoecd/37/52/48641811.pdf, International Futures Programme, Transcontinental Infrastructure Needs to 2030/2050 Turkey/Bosphorus Gateway Case Study, Istanbul Workshop held 19-20 April 2010 Final Report 103
CHAPTER 7 15 16 GLOSSARY Term Absenteeism Activity Aftercare engineer Approximate quantities As-build Bills of Quantities Budget Buffer Business case Cash flow CDM Regulations Change order Definition A failure of labour resource to arrive at the designated work place. The making up of lost time at the employer s expense (see also Recovery). The aftercare engineer provides a support service to the client/user during the initial 6 12 months of occupancy and is, therefore, most likely a member of the commissioning team. The estimated quantity of work usually prepared from a scheme design and before detailed design is carried out, for the purpose of cost estimating. Work carried out. A document, usually prepared according to defined rules, which sets out the measured quantity of work and describes the quality standard of materials and workmanship for pricing Quantification of resources needed to achieve a task by a set time, within which the task owners are required to work. Note: a budget consists of a financial and/or quantitative statement, prepared and approved prior to a defined period, for the purpose of attaining a given objective for that period. see Contingency. Information necessary to enable approval, authorisation and policy-making bodies to assess a project proposal and reach a reasoned decision. The balance of money received against money spent according to a defined formula, sometimes referred to as accounting rules; the rate at which money is spent in the past (actual) and in the future (forecast and planned). The health and safety rules and regulations applicable in the UK. An alternative name for variation order, it indicates a change to the project brief. 15 Chartered Institute of Building (2010) Code of Practice for Project Management for Construction and Development (4th edition), Wiley- Blackwell 16 Chartered Institute of Building (2011) Guide to Good Practice in the Management of Time in Complex Projects(1 st edition), Wiley- Blackwell 104
Term Change control Change management Client Client advisor Commissioning team Completion date Consultants Contiguous duration Contingency Contingency plan Contractor Designed and Build Design audit Definition A process that ensures potential changes to the deliverables of a project or the sequence of work in a project, are recorded, evaluated, authorised and managed. The art and science of controlling the effect of a departure from the contract quality, quantity, methodology, cost and timing of the work Entity, individual or organisation commissioning and funding the project, directly or indirectly. An independent construction professional engaged by the client to give advice in the early stages of a project, as advocated by the Latham Report. Client commissioning: predominantly the client s personnel assisted by the contractor and consultants. Engineering services commissioning: specialist contractors and equipment manufacturers monitored by the main contractor and consultants concerned. The end-date for the works, the subject of the planning and scheduling process. Advisors to the client and members of the project team. Also includes design team. The gross period of time required to carry out an activity in an uninterrupted process. A provision of resource and/or time which may or may not be required. Mitigation plan alternative course(s) of action devised to cope with project risks. Generally applied to: (a) the main contractor responsible for the total construction and completion process; or (b) two or more contractors responsible under separate contractual provisions for major or high technology parts of a very complex facility. (see Subcontractor). A form of project procurement in which the contractor also carries the design responsibilities. Carried out by members of an independent design team providing confirmation or otherwise that the project design meets, in the best possible way, the client s brief and objectives. 105
Term Design freeze Design team Down time Driving relationship Duration End user Engineer, procure and construct Environmental conditions Facilities management Facility Feasibility stage Handbook Implied variation Key date Labour Definition Completion and client s final approval of the design and associated processes, i.e. no further changes are contemplated or accepted within the budget approved in the project brief. Architects, engineers and technology specialists responsible for the conceptual design aspects and their development into drawings, specifications and instructions required for construction of the facility and associated processes. The period (usually brief) when work is suspended. A relationship by which either the logical start or logical finish of an activity is dependent upon the start or finish of an activity. A period between the start and finish of an activity. Organisation or individual who occupies and operates the facility and may or may not be the client. Sometimes called turnkey ; a form of contract in which the contractor adopts the obligation of fitness for purpose in designing and providing the finished product ready for use. Usually weather conditions, but can be other conditions in which activities have to be carried out, e.g. mines and some large-scale, heavy-engineering projects (dams, nuclear power stations and the like). Planning, organisation and managing physical assets and their related support services in a cost-effective way to give the optimum return on investment in both financial and quality terms. All types of constructions, e.g. buildings, shopping malls, terminals, hospitals, hotels, sporting/leisure centres, industrial/processing/chemical plants and installations and other infrastructure projects. Initial project development and planning carried out by assessing the client s objectives and providing advice and expertise in order to help the client define more precisely what is needed and how it can be achieved. See Project handbook. An act or omission which is deemed to be a variation. A term usually used for the date upon which a work stage is to be completed. A human resource. 106
Term Life-cycle costing Lockout Logistics Master programme Mitigation Occupation Out-turn cost Overload Overtime Pacing Planning Planning gain Planning supervisor Prime cost sum Definition Establishes the present value of the total cost of an asset over its operating life, using discounted cash flow techniques, for the purpose of comparison with alternatives available. This enables investment options to be more effectively evaluated for decisionmaking. Exclusion of the workforce from the works by the employer. Management of the flow of resources from procurement to completion of the works. This is the name given under some forms of contract to the baseline schedule, against which progress is expected to be monitored. It bears no relationship to the concept of the dynamic working schedule, used as a time model for the purposes of time management. Action taken to alleviate predictable loss, expense or delay. Sometimes called migration or decanting. It is the actual process of physical movement (transfer) and placement of personnel (employees) into their new working environment of the facility. The ultimate cost of a project: the tender cost plus the cost of variations and compensation for loss and/or expense, including consultant s fees, planning fees and licenses etc. The status of a project in which, in order to meet a duration, resources are required in excess of that planned. Time required to be worked in excess of the regular or normal hours of work. Slowing down of work for the reduction of resources to keep pace with delayed work. The determination and communication of an intended course of action incorporating detailed method(s) showing time, place and resources required. A condition attached to a planning approval which brings benefits to the community at a developer s expense. A consultant or contractor appointed by a client under the CDM Regulations to carry out this role. A contingent sum of money included in the contract sum for work to be carried out by a specialist subcontractor of for materials yet to be specified. 107
Term Principal contractor Programme Programme management Procurement Project Project brief Project execution plan Project handbook Project insurance Project manager Definition The contractor appointed by a client under the CDM Regulations to carry out this role. The time-control document required by some form of contract, usually in printed form (see also Schedule). A programme of works comprises a number of projects that are related because they contribute to a common outcome. Programme management provides coordinated governance to the realisation of benefits that result from projects; it is concerned with initiating projects, managing the interdependencies between projects, managing risk, and resolving conflicting priorities and resources across the projects. The process (but not limited only to the tender procedures) of obtaining goods and services from preparation and processing of a requisition through to receipt and approval of the payment. Unique process, consisting of a set of co-ordinated and controlled activities with start and finish dates, undertaken to achieve an objective conforming to specific requirements, including constraints of time, cost and resources. Statement that describes the purpose, cost, time and performance requirements/constraints for a project. A plan for carrying out a project, to meet specific objectives, that is prepared by or for the project manager. In some instances this is also known as the project management plan. Guide to the project team members in the performance of their duties, identifying their responsibilities and detailing the various activities and procedures (often called the project bible). Also called project execution plan, project manual and project quality plan. Project insurance is the descriptive title for a suite of insurances that are specifically designed to meet the needs of individual projects as opposed to relying on the individual insurance arrangements of the project team. Individual or body with authority, accountability and responsibility for managing a project to achieve specific objectives. 108
Term Project schedule Project scope Project sponsor Project team Provisional sum Recovery Remaining time Resource Risk Risk analysis Risk factor Risk management Risk register Schedule Definition Time plan for a project or process. Note: on a construction project this is usually referred to as a project programme. The construction industry tends to refer to programmes rather than schedules. Indeed the term schedule tends to mean a schedule of items in tabular form, e.g. door schedule, ironmongery schedule, etc. All the work to be carried out to reach the project s objectives: there could well be several contracts involved in project delivery from project viability, feasibility, design and implementation/construction. The project sponsor represents the client (which is usually the government) acting as a single focal point of contact with the project manager for the day-to-day management of the interests of the client organisation. Client, project manager, design team, consultants, contractors and subcontractors. A contingent sum of money included in the contract sum for work of which the detail cannot be fully described at the time of tender. Making up of lost time at the contractor s expense (see also Acceleration). The duration planned to elapse before an activity is completed. Anything necessary for the achievement of work but typically materials, labour, plant, space, cost. Combination of the probability or frequency of occurrence of a defined threat or opportunity and the magnitude of the consequences of the occurrence. Systematic use of available information to determine how often specified events may occur and the magnitude of their likely consequences. Associated with the anticipation and reduction of the effects of risk and problems by a proactive approach to project development and planning. Systematic application of policies, procedures, methods and practices to the tasks of identifying, analysing, evaluating, treating and monitoring risk. Formal record of identified risks. The time-model for the work. 109
Term Statutory approvals Strategy stage Subcontractor Temporary works Tenant Tender Testing and commissioning Trade Unexpected contingencies User Utilities Variation Work pattern Zone of operation Definition Permissions which are required by law. During this stage a sound basis is created for the client on which decisions can be made allowing the project to proceed to completion. It provides a framework for the effective execution of the project. An individual or company to whom the contractor sublets the whole or any part of the works. This covers such elements as design, specialist trades and labour-only supply. Work which must be carried out in order to construct the permanent works, but which is not intended to remain. Facility user who is generally not the client or the developer. An offer to carry out work for compensation under a contract (also known as a bid). The process of validating and adjusting the permanent works, or any part of it, and rendering it fit for use. A particular specialised type of work. A time allowance which is unused (see also Contingency). The ultimate occupier of the facility. The public-company suppliers of water, gas, electricity, communications and other public available service. An instructed change as defined under the contract. The name given of work in the detail which renders it unique amongst other work descriptions of like type. A division of the work for the purpose of management and control. 110
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