The procurement techniques are much useful in the construction projects from different perspectives. The different approaches have been used since the past and they are able to offer different advantages and disadvantages when used in these projects. For the construction projects, the cost is one of the crucial element which need much and careful analysis. Additionally, the client needs must be well considered and the only best procurement approach will ensure that the needs are met. The different approaches have different perspectives on handling the client and therefore proper analysis must be done to ensure the needs are met. All these key factors must be met in the selection of the proper procurement approach for a construction project. This paper will analyze the different procurement approaches available in terms of their pros and cons and their level of performance in the Federation square project if chosen.
The project, federation square, covers an estimated area of 7.9 acres which is noted to be able to accommodate a public space construction with different developments of different kinds. There are three different public places accommodated within namely, St. Paul’s court, The Square and The Atrium. The construction of the concrete deck for this project is above the available railroad lines, which is located on the crossing points of Flinders street and Swanston street on Kilda road on the city CBD (Victorian State Government, 2006).
This project is located on the north of princes bridge and is also bounded by a major street and a river; the flinders street and Yarra river. This helps to create a natural area for cultural and civic celebrations for the residents of Melbourne. In a year, it is estimated that more than six million people from Melbourne people are able to visit the Federation Square. Moreover, this is a project which is being carried by the collaboration between the Victorian government, having the support of the Commonwealth government and Melbourne City Council.
According to plan, the project has delayed with more than 26 months and the completion cost is estimated to be $345 million, which is $217 million than the initial estimation of $128 million. The difference in the figures is estimated to originate from the administrative and construction chaos and failure to have a proper and accurate project brief during the outset of the project.
The Federation Square is a perfect mega project which is able to offer an example of the way mega projects are able to get skewed. In March 1996, the competition for the design began with an initial budget of $128 million, which was estimated according to the available funding from the State Government and the Melbourne City Council. In addition, additional funds were secured from the federal Fund on the condition that the completion of works will happen in time of the Centenary of Federation which was due on May, 2001. From the initial analysis of $128 million, the winning design was officially estimated to be $267 million in September 1998 and therefore offering the initial estimation as unrealistic parameter.
In order to be able to complete the project by the Centenary of Federation, the decisions for the fast-track were taken and they result to the construction of $14 million deck for the substructure which was happening on phase 2 before the finalization of the superstructure scope and even the detailed design works. Nevertheless, regardless of the complex construction measure on the deck, Leighton Contractors were able to deliver the deck within time and on budget (Victorian State Government, 2006). Due to the complexity, several revisions on the designs and political interventions were experienced which led to the heightened on the sensitive project.
Moreover, with the element on the trace, the appointment of Multiplex was found to have happened without the consideration of competitive tendering process. Moreover, in July 1999, which was just 11 months after the commencement of works on site, Multiplex placed forward a claim of $19.1 million to the government for the delays and damages which were caused by the absence of formal contractual agreement. Moreover, in November 1997, a pre-qualification process was conducted in order to decide the best contractors who would develop the square. In the process in the end of 1999, Multiplex Constructions was able to secure a lump sum, fixed fee contract in order to construct federation Square with the then Victorian Government Office of Major Projects, which was acting on behalf of the State Government. Multiplex therefore became the managing contractor and was given the responsibility to assume the risks of omission, discrepancies and ambiguity in the design and documentation of the works.
Nonetheless, in 2001, an alteration was made on the Managing Contractor’s agreements on the ‘Construction Management’ arrangement. In the changes, it was considered that on the complexity of the contract including the ever changing and incomplete design and subsequent documents, the reluctance of the Office of Major Projects to compromise architecture and risk the allocation for design to Multiplex. In addition, other alteration were due to the recent disputes over fee arrangement for the additional cost incurred due to the increase of the project scope and delays in construction project and the ongoing development of design through the tender period offering a challenge to tenderers difficult time to define scope, risk and time required. In this project, it is clear that the lump sum fixed fee contract approach of procurement was chosen to be used.
The procurement approaches are key elements which are able to specify different aspects of a project such as the responsible parties for the different responsibilities, the timeline of work execution and the cost of the different elements and whole project. Some of the key procurement approaches, which are used in the construction industry, include the traditional or design bid and build, design and construct procurement, management procurement and collaborative procurement (Smith and Love, 2001). Risk associated with the different approaches must be considered before any consideration for the approval for its implementation in a particular project. The different procurement approaches are able to be affected by the risks which are affected in the implementation of the project. The following area is able to offer the level the employer and the contractor is able to bear in terms of the risk accrued in each of the procurement approaches.
In this approach, the employer is able to assume only the risks which are not associated with the construction activities. In addition, a consultant is also involved and is appointed to carry out the design and cost control of the projects. The contractor therefore is able to bear much risk which extends to the workmanship and materials including all the activities which the subcontractors are able to carry out and the suppliers (Centre for Excellence and Innovation in Infrastructure Delivery, 2010). In the choice of the contractor, a competitive tendering process is usually applied with complete details and information being provided. Moreover, the traditional method cannot also apply the two stage tendering of the negotiation tendering, which is sometimes referred to as accelerated traditional method. In this strategy, the design and construction are able to run parallel in order to limit the extend. This strategy is able to allow the early start of the works on the site is in cooperates less cost. Under the traditional approach, there are other key sub approaches, which include, lump sum contracts in which the contract sum is determined before the beginning of the construction and the amount is agreed upon (Austroads, 2007). Another strategy in the traditional approach is the measurement contract where the contract sum is accurately known on completion and after re-measurements. The other sub category is the cost reimbursement where the contract sum is achieved through the basis of actual cost of labor, plants and material and then the fees to cover the overheads and profits are added.
Lump sum
In this strategy, the contractor is able to define the amount of work and return for an agreed sum of amount. Moreover, the quoted sum can at times be subjected to some fluctuations such as the fluctuations of the labor, plants and materials, which are then, covered using a formula or checking the invoices. The cost evaluation on this strategy is usually done through the quantities priced on the drawings and the firm bill of quantities. Nevertheless, contracts, which do not have the drawings, the lump sum, are identified through the basis of another drawing and another document.
They are also referred to as re-measurement contracts. In this contract, the work, which the contractor is able to carry, cannot for some reasons be accurately measured through tendering. The design is usually used to accurately amount to the amount and quality of what is required and given to the tenderer (Holt, Proverbs and Love, 2000). Also, this method of measurement of cost is also based on drawings and schedule of rates or the prices which the employer has prepared. This procurement approach is usually appropriate when the time for implementation limited. The employer has to accept the risk involved when the works are starting without accurate idea on the total cost.
This approach is also known as cost plus contracts. The contactor is able to carry out an intermediate amount of work on the basis that he will be paid the prime amount or simply the actual cost of the labor, plants used and materials. Moreover, the management fee is also agreed upon to cover management, overheads and the profits of the contractor (Mortledge, Smith & Kashiwagi, 2006).
Advantages of traditional procurement
Some of the key advantages of this approach include;
Dis advantages
The use of this method in this project was able to lead to key delays in the project implementation. Disputes were raised by the Multiplex construction, which took much time which could have been used for carrying out project activities. This method therefore proved to be ineffective in this project due to the numerous variations.
In this method, the contractor is able to assume responsibilities of all design and activities. In addition, at sometimes, the contractor is able to accept part of the design responsibility. This approach is certain in terms of the contract sum and provides the client with competitive price (Hayford, 2006). There are different design and construct types such as:
There are number of variations which do happen in this approach and they include
Advantages
Disadvantages
Reflection to this project
The implementation of this strategy will prove to be ineffective since it requires functional building for its success which is not in the case for the Federation Square. The federation square is a complex structure and this approach is suitable to simple projects. Moreover, considering the magnitude of the project, it cannot be carried by sole firm which is usually a trend for this approach.
There are different options which this type of approach is able to take which include management contracting, construction management and design and manage (Hayford, 2006). The following is the follow of relationship which this method id able to apply.
Under management contracting, the client is able to appoint an independent professional team, which is done during the pre-construction stages. This team is able to execute the works using the direct work contracts (Austroads, 2007). This type of approach is able to offer the early start of works on the site.
Under the construction management, the management contractor is selected through a careful selection process and paid the management fee. The works contracts are direct between the client and works contractor although the management contractor is able to administer them.
Under the design and manage, the contractor is able to receive fee and assume the responsibility for the works contractors and for the design team. Contractors and consultants do take different responsibilities in this approach.
Advantages
Disadvantages
Some of the key elements, which have been implemented from this approach, include the construction management and management contracting. These methods have been able to fail on the implementation on this project. The presence of highest freedom and trust on the parties is what can make this method achieve the required success which is not available on the federation square. The method will be unable to achieve the required success on this project.
This is where many parties are able to come together in the delivering the project. The key element is that the contractor and the client are able to share the available risks in the project. Moreover, in terms of the goals and ideas, the client and contractor are able to share common goals (New South Wales Government, 2005).
Disadvantages
This is a procurement method where the government and the private sector are able to come together and fund the projects in order to achieve the proper execution (Walker, Sidwell & Hampson, 1999). The private sector can take over the different aspects such as the design procurement, construction and maintenance for a specified period of time before handing it over to the government. The risk of the borrowed money by the government is reduced since the private companies are able to finance the projects (Infrastructure Australia, 2012).
Advantages
Disadvantages
Considering the high cost and delays on the project, this method is effective to be able to solve some of these key problems. The project cost was able to move more than two times above the initial cost. The private sector would have controlled the execution of the project within timeline and cost.
Conclusion
Through the analysis of the procurement strategies, the public private partnership is a key strategy which would have helped to solve the different challenges which were experienced in the federation square project. The timeline for the execution is one of the key element which the strategy would have helped to solve. The method is able to reduce the key risks and enhance the cost effectiveness of the method. The complexity of this project means that it was associated with high risks which needed to be solved. In addition, delays were caused by the wrong choice of the procurement approach which was able to allow the interference from other parties.
References
Victorian State Government (2006). Project Alliance Practitioners Guide. Department of Treasury and Finance (https://www.dtf.vic.gov.au/projectalliancing)
Walker, D., Sidwell, A. & Hampson, K. (1999), Project Procurement and Alliances – A Continuum of Competition to Cooperation, RMIT, Melbourne
New South Wales Government (2005). Procurement Methodology Guidelines for Construction. Version 1, February, NSW Government, Sydney, Australia.
Mortledge, R., Smith, A., Kashiwagi, D.T. (2006). Building Procurement. Blackwell, Oxford, UK.
Holt, G.D., Proverbs, D., and Love, P.E.D. (2000). Survey findings on UK construction procurement: Is it achieving lowest cost, or value? Asia Pacific Building and Construction Management Journal, 5, pp.13-20.
Smith, J., and Love, P.E.D. (2001). Adapting to client needs in construction – a dialogue. Facilities, 19(1/2), pp.71-78.
Austroads (2007). Guide to project delivery: part 2: project delivery planning and control, by R Brown and P Robinson, AGPD02/07, Austroads, Sydney, NSW.
Centre for Excellence and Innovation in Infrastructure Delivery (2010). Infrastructure procurement options guide, Centre for Excellence and Innovation in Infrastructure Delivery, Western Australia, Perth, WA.
Hayford, O. (2006). ‘Successfully allocating risk and negotiating a PPP contract’, Paper presented at Annual national private public partnerships summit, 6th, 2006, Australia, Clayton Utz, Sydney, NSW, 18 pp.
Infrastructure Australia. (2012). Efficiencies in major project procurement: volume 1: Benchmarks for efficient procurement of major infrastructure, Department of Infrastructure and Transport, Canberra, ACT, viewed 20 July 2012, https://www.infrastructureaustralia.gov.au/publications/
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