Effective Construction Procurement Strategies For Mega Projects – A Case Study On Federation Square

Current Procurement Strategy

This report is related to the construction of Federation Square which has been facing issues in its completion due to administrative and construction chaos associated and compounded by the project’s inability to develop an adequate brief at the outset of the project. It is a prime mega project whose completion is in dark state and is required an instant suitable strategic construction procurement method to effectively complete it within the budget and stipulated time(Lam & Chan, 2017).

Managing projects effectively is a fundamental good governance issue. The strategic project provides appropriate balances and checks to assure that the contractor is providing the desired services at the desired standards. It ensures the efficient and economical use of public funds. That’s why it is necessary to implement a suitable contract procurement strategy during the construction of the business(Watermeyer, 2012).

The procurement system or delivery system is a managerial system that allocates particular authorities and responsibilities to the people and the organizations. It defines various elements of a construction project(ProcurePoint, 2017). There are various types of procurement methods such as: Early Contractor Involvement (ECI),design & construct, traditional, alliancing, and Public Private Partnerships (PPP), etc.(Richards, 2006).

The decision regarding selection of procurement method to be utilized in the project should be taken as soon as possible and it should also be supported by the user’s business case for the project. The risks related to each procurement approach and how these risks affect the user should also be taken into account. The development of the procurement construction strategy depends on the various factors such as external factors, project characteristics, client resources, cost issues, ability to make changes, timings etc.(Coastal Carolina University, 2012).

Currently, by reviewing the case study of the Federation Square Project, it can be stated that the current procurement approach used by the procurement manager is traditional procurement approach. Under the traditional procurement approach, consultants are employed for designing and cost control, design work is separate from the construction, and contractor is responsible for all types of works(Purchasing-procurement-center, 2017). Basically, there are three types of contracts under the traditional procurement method named Lump sum contracts, cost reimbursement contracts, and measurement contracts.

The current procurement strategy of the Federation Square Project is Lump Sum because in the year 1999 the project entered into a lump sum, fixed fee contract to construct Federation Square by the then Victorian Government Office of Major Projects acting on behalf of the State Government. Fixed amount under this contract is not subject to recalculation and employer does not have any opportunity to make variations(Engel, 2011).

The major drawback of utilizing traditional method is the documentation of the contract which can be a time consuming process. Also, incomplete documentation can lead to less time and cost certainty which can further lead to disagreements. Further, duration of the whole project may be longer as compared to the other procurement methods because this strategy is sequential in nature and without finishing the design phase, the construction cannot be commenced(Davis, et al., 2008). Further, the contractor cannot give any contribution in the designing or planning of the project as they were not present during this phase (Yip & Chin, 2011)

Factors that influences procurement strategy

In the current federation square project, the main issues are coming because traditional approach is related to the ongoing or ever-changing designing of the project and subsequent documentation. The ongoing development of the design has made it difficult for the tenderers to define the scope, time, and risk required for the construction of the project. Hence, it is necessary to change the current procurement construction strategy for the project(Kong & Gray, 2017).

The final selection of the procurement construction strategy takes account of the issues like(Crespin-Mazet & Dontenwill, 2012):

• The strategic objectives of the organization, policies etc.
• The project’s specific internal conditions such as project characteristics, organization capacity and characteristics, type of spend etc.
• Objectives of the project such as priorities, criteria, critical performance etc.
• External Factors: Under this factor, attention should be given to the possible impacts of commercial, economic, political, technological, legal, and social factors as these factors affect the business of the user and the project team during the project lifecycle. Here in Federation Square project, the major external factors that are influencing the project are the political measures that led to the construction of the $14 million deck substructure (Stage 2) before finalization of superstructure scope and detailed design work. The inherent complexity of the design from the outset has discouraged the government’s decision to fast track(Achilles , 2014).
• Client Resources: The knowledge of the owner, the experience of the institute and the environment in which the organization is operating, influence the selection of the procurement strategy. The involvement of the user/client in the project is necessary because the objectives of the user/client are affected by the traditions and nature of the organization. In the federation square project development, State Government and The Melbourne City Council are the clients and as the government is the sole owner of this project so the selection of the procurement construction strategy will have an influence of the government policies over it(Constructing Excellence, 2015).
• Characteristics of the Project: The size, location, complexity, and distinctiveness of the project should be taken into consideration as these characteristics influence the cost, time, and risk associated with the federation square project(Gush, 2013).
• Ability to make changes: It is imperative to include the need of the client and to note them down at the early stages of the project. Although this is not always feasible to note down the needs of the client at the very first stage because changes in the technology may result in the changes in the project. Changes in the variability of the scope result into the increased time and cost for the overall project. So it is important to consider the possibility of changes occurrence during the construction phase and design phase of the project. In the development of the Federation Square project, the major changes occur due to the intervention of the politics that aggravated the already sensitive project(Gush, 2013).
• Cost Issues: The assessment of the price certainty of the client is necessary to be considered because the completion of the design of the project influences the cost at the time of giving tenders for small tasks. The certainty of the price ensures the completion of the design before the commencement of the construction and avoids changes in the design. Under the Federation Square Project, the main issue is related to the completion of the design of the project. The design phase is still under considerations and no proper design has been approved by the State Government and the Melbourne City Council till yet. This is the main reason behind the increasing cost of the project(Gush, 2013).
• Timing: The time frame of most of the projects is pre-decided and it is compulsorily to be completed within a specific time frame. If the design is to be completed before starting the construction of the project in that case an important adequate design time is allowed for completing the design. In case of early completion of the project, the design and building phase can be overlapped and the construction can be commenced earlier on-site. In Case of Federation Square Project, as the project is delayed too much due to the revisions in the design, so now it is necessary to adopt the overlapping of the design and construction phase of the project and select the procurement construction strategy accordingly(Gush, 2013).

As per the review of the previous procurement construction strategy, it can be stated that no form of traditional procurement is suitable for this construction project because this construction project is a large complex construction project which is not possible to handle by applying the traditional approach. The project has already been delayed and it is facing the issue of design completion in the complex construction and working conditions(Victorian Government, 2012).

There are many approaches adopted by project procurement managers as per their suitability but as per the review of the current condition of the project, the best suitable construction procurement strategy is the management procurement strategy. The reason for selecting this strategy is due to its suitability to large, complex, and fast- moving projects and federation square project is a large and complex project where early completion is desirable. The most noticeable difference between the traditional building contracts and the management procurement contracts is the altered contracts between the main contractor and client. Under the traditional method, builder is called to file tender for the building work. Under this, the contractor assesses the building costs as per the requirements of the documents and specifications of the supplied tender and after all this, the builder submit a firm price for the construction costs, overheads costs, and a profit margin while, under the construction management, a choice is provided by the contract manager which consist of a predetermined fee on the basis of either fixed or percentage or combination of both(DVPM, 2017).

The management procurement strategy involves three variants: management contracting, design and manage, and construction management. These three forms have subtle differences. Construction management approach is most suitable to be used or federation square project(University of Illinois, 2017). It is a type of arrangement where the client appoints a construction manager on a fee basis and the construction manager has the sole responsibility for managing and aligning the design and construction phases of the project. This type of approach gives the greater measure of control to the client and the client can accept a significant amount of risk. The appointed management contractor is an agent(Department of Housing and Public Works, 2017).

Here in the development of the federation square project, the project is struggling from the issue of countless design revisions, political intervention, delays, and damages. The projects are facing all these issues due to the lack of the contract manager who can deal with all these issues and enables cooperation to advance the project’s constructability (MyManagementGuide, 2011).

Selection of the suitable procurement construction method for the construction of the Federation Square Project

                                   

                                                                    Figure 1: Construction Management Procurement

Under this construction management procurement method there are three trade contractors: consultant, architect and construction manager. Under the traditional approach, the construction manager is appointed after the completion of the design and specification phase while in construction management approach, the construction manager can be appointed during the design stage. The construction manager plays an important role in sharing information with the design team (Sokanu, 2017). The great knowledge of the construction manager regarding the build ability results in a more cost efficient design for the federation square project. Currently, the project is going through the critical stage due to its design issue and this is the reason behind the delaying of the overall project so the appointment of the construction manager will help to complete the design of the project as soon as possible and facilitates the construction of the building(Gransberg & Shane, 2010).

The role of the construction managers is diverse and can be executed under an assortment of contractual terms. The most customary form of the construction manager is that when he/she works as an agent of the client. Under this role, he professionally provides a total estimate of the project, undertakes administrative responsibilities during the construction, control cost and schedule services. All the contracts are executed between the contractor and the owner. This approach allows the manager to break down the construction work in a number of contracts. This strategy eliminates the need for the general contractors and the elimination of the general contractors reduces the overall overhead cost of the project(Charpentier, 2017).

There are some key points that need to be considered with management procurement(Whiting, 2017). These points are as follows:

• The management procurement method depends upon the high degree of trust and confidence. The contract price is not uniform and the decision for the contract has been taken on the basis of the estimate (Whiting, 2017).
• The management contractor who is the agent of the user/client put their interest first throughout the project construction lifecycle (Whiting, 2017).
• The management contractor should be adopted at the premature stage so that his/her knowledge and skills can be used by the design team during the pre-construction period(Whiting, 2017).
• Under the management procurement plan, the detailed design work can continue in parallel with the site operations. This reduces the total time needed before the project starts on the location (Whiting, 2017).
• The involvement of the management procurement plan will give the considerable flexibility to the client on the design matters. Under this method, design of the project can be adjusted as the construction proceeds and it doesn’t require adjustment with the cost control. This type of flexibility was not possible at the time when the project was running on the traditional method of procurement(Whiting, 2017).
• Under this method, the procurement manager can select specialist and order material by taking a long lead in times. This facilitates the delivery of the material in the stipulated time without any uncertainty and complexity that came during the traditional approach of procurement(Whiting, 2017).
• Under the management procurement plan, a complete tendering element is kept for all type of work contracts. This tendering element accounts for most of the prime cost. The tenders released for different work are basically on the lump sum basis(Whiting, 2017).
• Though the project proceeds as per the contract cost plan but an independent quantity surveyor is necessarily required for effective cost control(Whiting, 2017).

There are some features of construction management method that should be included at the time of adopting this strategy for the completion of the Federation Square Project such as project team relationship, fast track construction, an early appointment of the construction manager etc.(Harris & McCaffer, 2013).

Under the traditional procurement construction methods the construction manager is appointed after the completion of the design and specification phase but in case of construction management, the construction manager is appointed at the early stage of the project (Designing Buildings, 2017). In the case of construction of the Federation Square Project as the project has already been delayed due to the incomplete design phase that’s why it is necessary to involve the construction manager in the design phase so that he/she can participate in the design phase and share their experience regarding the construction. Appointment of the construction manager at the early stage will facilitate to identify the items with long lead times so that they can be started early to complete them by the final completion stage of the project. The careful pre-construction planning to build the methodology resulted in a quicker site start-up period(Designing Buildings, 2017).

The structure of the organization

Construction management method allows the concept of fast-tracking in a construction project. The fast tracking can be performed by overlapping the planning, design, tender, award, and construction (Gatto, 2015).  While comparing to the traditional procurement construction project, the construction management method is just opposite to it because under the traditional approach each activity is dependent on the previous activity and only after the completion of the previous activity a new activity can be started that’s why the federation square project was not completed yet as without the completion of the design the construction phase was not started and the overall project delayed. The ongoing development of the design makes it difficult to define the scope, risks, and time required for completing the constructability of the project. That’s why it is necessary to add the fast-tracking feature of the construction management where specialist contractors in their field are asked to file the tenders for the particular section of the work. This makes the construction commences at the earliest possible time(Gatto, 2015).

                         

                                                                             Figure 2: Construction Management Method

The construction management method of procurement construction management is characterized by the relationship between the construction manager and the project design team members and the user/ client of the building. Unlike traditional method, in construction management, the builder is appointed on the same rank just like design team members. The alterations by the builder in the design and the construction phase have caused construction management to meet with the complexity of the project(Young, 2009).

• This method reduces the confrontation between the construction supervising team and the designing team (Mendel, 2012).
• Design and construction can go in parallel and this helps in time- saving
• The use of management construction method results in a significant alterations under the contractual arrangements among the project team members (Mendel, 2012).
• Under this strategy, the client only deals with one firm and it enables the improved coordination and teamwork between the constructors and the designers (Mendel, 2012).
• This strategy has the potential for saving the time for the overall project as the design and construction strategies can go hand in hand (Mendel, 2012).
• Through this strategy, the constructability will be improved as the constructor can give their inputs into the design (Mendel, 2012).
• Under this methods responsibilities, roles and risks for all the parties are clear and they have flexibility for change in the designs of the Federation Square Project(Mendel, 2012)
• Under this procurement construction method, there is no need for nominated trade contractors and public accountability(Mendel, 2012)

Conclusion

Overall, to complete the Federation Square project it is recommended to change the procurement construction strategy from traditional to construction management. This strategy is best suitable to deliver the project as fast as possible without incurring extra charges, time, and risk. Construction management procurement strategy is best suitable to address the issues of the federation square project. The issues of design completion can be solved by the appointment of the construction manager. The issue of delay of the project can be solved by running the design and construction phases simultaneously and by issuing tenders for small tasks of the project.

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