Project Delivery System, Financial Contract Type, And Procurement Method

Design-Bid-Build

Design-Bid-Build – The procedure consists of three phases which are: designing phase, bidding phase and building phase. During the designing phase the owner hires an architect to design the planning of the project and produce the documents related to the project bidding. The architect is required to work with the owner till the completion to look after the execution of the project as per the requirements of the owner (Minchin Jr et al., 2013). After the initial design has been completed the architect will hire other engineers to work with him to produce the complete working of the project. At the end the bid document will be designed and the next phase will start. General contractors come to the bidding auction and try to take up the tender of the project.

The subcontractor and the contractors take up the tender for the project. The bid documents are shared with all the auction participants to know if they will be able to do any art of the project. The owner can reject all the bidders and put up a new date for the bidding to happen again, issue an working order for the architect to revise the working of the plan or they can select the lowest bidder to complete the project. After the selection of the contractor the bid document cannot be changed anymore (Nikou Goftar, El Asmar and Bingham, 2014). The different permits has to be taken up by the contractor to start working on the tender. The contractor documents the working timeline of the project to produce an effective document at the end of the project. The architect who was hired by the owner works as a representative of the owner and works with the contractor to certify if the project is going according to the planned proposal.

Design-Build – This procedure is to hire a general contractor and an architect who would do the designing and the implementation of the project from the start to end. There is not phase of bidding out the project to other contractors (Yu, Shen and Shi, 2016). This mainly emphasizes on the joint venture or the act of partnership between the architect and the construction firm based on a long term venture for one project completion.

CM @ Risk – In this method a constructor is provided a construction project during the production of the designing phase or when the designing is completed (Bilbo et al., 2015). The constructor is assigned using the lowest bidding, best value of the bidding or on the basis of qualification of the constructors applied for the bidding. The constructor company assigned the project has to complete the whole project from then on.

The project evaluation criteria’s which has been considered for the delivery system:

• Delivery Schedule – the project schedule starting from the scope of the project, designing of the steps for the execution of the project, construction of the required things for the project, and opening of the finished project for the public.
• Project Complexity and Innovation – the adaptation of the new and innovative design techniques and instruments to solve and eliminate the complex risk factors associated with the project.
• Level of Design – completion of the designing procedure to meet the appropriate project delivery date (Gransberg, 2016).
• Initial Risk Assessment – the preliminary evaluation of the risks that might happen in the course of development of the project. The primary objective of evaluating this step is to prepare the worker for all the probable risks that might happen during the execution of the project.
• Cost – the financial budget of the project has to be evaluated to get the idea of how much will be the total cost for the project completion (Gransberg, 2016).
• Staff Experience and Availability – availability of the workers should be enough so that the project does not fall behind the dead line. The employment of experienced staff is advised to execute the project smoothly.
• Level of Oversight and Control – the exercise of the ownership and the controlling system should be evaluated beforehand (Gransberg, 2016).
• Competition and Contractor Experience – the competitive edge of the project being done needs to be evaluated.

Goals/ Criteria	Criteria Weight	Project Delivery Systems	Project Delivery Systems	Project Delivery Systems
		Design-Bid-Build	Design-Build	CM @ Risk
		Score	Weighted Score	Score	Weighted Score	Score	Weighted Score
Delivery Schedule	20	6	120	9	180	6	120
Project Complexity and Innovation	25	8	200	4	100	4	100
Level of Design	30	6	180	6	180	6	180
Initial Risk Assessment	20	8	160	4	80	8	160
Cost	20	4	80	8	160	4	80
Staff Experience and Availability	30	4	120	4	120	9	270
Level of Oversight and Control	30	5	150	5	150	8	240
Competition and Contractor Experience	25	8	200	6	150	5	125
Total	200		1210		1120		1275

Evaluating the three processes the best method to be followed for the completion of the project is design build procedure. This is because the project is of a large tender. The construction working has been provided with a time period of 7 years. Design build procedure has the fastest construction time in comparison to the other two methods. The tender being large poses a large threat in terms of risk and delay in time. This can be eliminated by the use of design build method. It has also been known as to have a very cost effective plan. This would provide the tender to be completed before the estimated time and in a cost effective manner. From the evaluation matrix above it can be seen that the best method for the project is design build. The evaluation marking has been awarded based on the project property from the given case study.

Design-Build

Lump sum contract – This type of contract is a stipulated amount contract that is agreed between the owner and the contractor (Potts and Ankrah, 2014). The risks to be evaluated during the project planning are all left on the shoulders of the contractor. The amount of money to be paid is negotiated between them and the final settlement is paid in full to the contractor. The contractor has to provide the best project report for the contract. The contract is done by estimating the labor cost and by adding the specifics of the overhead cost and the profit margin (Burr, 2016).

Guaranteed Maximum Price Contract – This type of contracts are evaluated based on the compensation of the actual cost incurred by the contractor with the addition of a fixed price which has already been discussed to be paid to the contractor (Chan, Chan and Ma, 2014). The contractor is responsible for all type of over expenditure unless the price contract has been increased by the owner under a formal order.

Cost plus Fixed Fee Contract – The contractor under this contract is paid for the work he has provided to the project and a nominal amount of fee (Larson and Gray, 2013). This provides a margin for the contractor to earn a profit from the tender. The expenses incurred is calculated on the current market value. This contract is agreed only when both the parties agree that the contractor will be paid a certain amount of money apart from the expenses incurred in the project (Lippman, McCardle and Tang, 2013).

Goals/ Criteria	Criteria Weight	Financial Contract Type	Financial Contract Type	Financial Contract Type
		Lump sum contract	Guaranteed Maximum Price Contract	Cost plus Fixed Fee Contract
		Score	Weighted Score	Score	Weighted Score	Score	Weighted Score
Agreeable	25	8	200	6	150	6	150
Amount of money	35	6	210	9	315	7	245
Profit margin	20	7	140	2	40	8	160
Risk taken	10	2	20	8	80	6	60
Based on current market value	10	2	20	2	20	5	50
Total	100		590		605		665

The best recommended financial contract type for the given case study is to follow the lump sum contract. This has been recommended because the owner has to provide only a fixed amount of money to the contractor and leave the rest of the task on the shoulders of the contractor. This would also provide a good profit margin for the contractor to benefit from. The number has been provided based on the positivity of the working method of the case study. Higher the number mans that the criteria is being involved in the financial contract at that amount.

Competitive – The competitive procurement method helps in the fair and ethical method of bidding by the suppliers. This allows all the contractors interested in the tender to submit their bid for the tender. The owner also applies the same theory and applies the same type of process when selecting the bidder from the applied contractors (Naoum and Egbu, 2015). The purpose of this method is to provide an equal and fair practice which helps the owner to retain the support of the contractors. It has been found that following this method helps in the owner to choose the best contractor for his job. Once the decision is taken the agent and the other workers would know what to expect from the contractor when they are making the decision. The owner places an advertisement for the tender. The interested contractors fill out the form and submit their quotation to the owner fort the tender to be approved. The owner check the bids and select the best contractor for the job. If the owner is of price oriented then he would choose the contractor with the least bid. The process open up the tender to all the interested contractors to get the tender. There is a fair judgment from the side of the owner in selecting the contractor for the job. It has been found that many of the contractors do not prefer to use the traditional competitive bidding (Miller, 2014). They are happy with the contractors they have worked in the past with and give them the tender for the project.

CM @ Risk

Negotiated – In this method of procurement the owner chooses a contractor who would help him with the contract. The cost to be paid to the contractor is then discussed with the contractor. If the contractor agrees with the quotation then the tender is approved. Else the contractor can negotiate the cost of the project keeping in mind the risk factors and the profit margin for the contractor (Yaqub et al., 2014). Only after the successful negotiation is the tender provided to the contractor else a new contractor is called to work on the tender and the process repeats. This method is often not followed because the contractors might ask for a huge amount of money which might not be acceptable for the owner of the tender. Thus this method is avoided as much as possible (Chong, Staropoli and Yvrande-Billon, 2014).

Best Value – In this procurement method not only the factor of low bidding is taken into consideration but also the fact that the contractor has the required expertise in the field of work related to the tender. The quality of work the contractor delivers is also considered as the owner searches for the best quality work for his project (Ballesteros-Pérez et al., 2016). The selection is made prior to the planning of the project. Values of the contractor considered are time schedule taken, past working procedures, quality of the final product and the cost to be incurred on the contractor. The values are planned out in a table for multiple contractors and the best contractor is chosen. The system has been used by many project owners due to the fact that the system if followed can be of less risk taking, prepares the owner for the future consequences and has a less amount of decision making procedure for the project. If the owner has a certain amount of money already considered then they could look for contractors who has already done similar type of projects (Wang et al., 2013). This would eliminate the process of selecting a contractor based on lowest bid. This method has been followed by many government agencies to eliminate the process of bidding.

Goals/ Criteria	Criteria Weight	Procurement Method	Procurement Method	Procurement Method
		Competitive	Negotiated	Best Value
		Score	Weighted Score	Score	Weighted Score	Score	Weighted Score
Bidding	25	9	225	8	200	2	50
Decision of the owner is final	30	8	240	2	60	8	240
Negotiation	10	2	20	9	90	2	20
Risk taken	20	5	100	8	160	2	40
Total	85		585		510		350

The best recommended procurement method to be followed for the M4 widening is the best value method. This has been recommended because the facts of the quality of working of the contractor is also considered makes the final project delivered to be of high quality. Also the consideration of the price makes the project to become cost effective as well as of high quality. The marking has been awarded to the criteria based on the project case study. Higher the number means that the property is that much involved in the procurement method.

References:

Ballesteros-Pérez, P., Skitmore, M., Pellicer, E. and Zhang, X., 2016. Scoring rules and competitive behavior in best-value construction auctions. Journal of Construction Engineering and Management, 142(9), p.04016035.

Bilbo, D., Bigelow, B., Escamilla, E. and Lockwood, C., 2015. Comparison of construction manager at risk and integrated project delivery performance on healthcare projects: A comparative case study. International Journal of Construction Education and Research, 11(1), pp.40-53.

Burr, A. ed., 2016. Delay and disruption in construction contracts. CRC Press.

Chan, D.W., Chan, J.H. and Ma, T., 2014. Developing a fuzzy risk assessment model for guaranteed maximum price and target cost contracts in South Australia. Facilities, 32(11/12), pp.624-646.

Chong, E., Staropoli, C. and Yvrande-Billon, A., 2014. Auction versus negotiation in public procurement: Looking for empirical evidence.

Gransberg, D.D., 2016. Comparing Construction Manager–General Contractor and Federal Early Contractor Involvement Project Delivery Methods. Transportation Research Record: Journal of the Transportation Research Board, (2573), pp.18-25.

Larson, E.W. and Gray, C., 2013. Project Management: The Managerial Process with MS Project. McGraw-Hill.

Lippman, S.A., McCardle, K.F. and Tang, C.S., 2013. Using Nash bargaining to design project management contracts under cost uncertainty. International Journal of Production Economics, 145(1), pp.199-207.

Miller, D.P., 2014. Subcontracting and competitive bidding on incomplete procurement contracts. The RAND Journal of Economics, 45(4), pp.705-746.

Minchin Jr, R.E., Li, X., Issa, R.R. and Vargas, G.G., 2013. Comparison of cost and time performance of design-build and design-bid-build delivery systems in Florida. Journal of Construction Engineering and Management, 139(10), p.04013007.

Naoum, S. and Egbu, C., 2015. Critical review of procurement method research in construction journals. Procedia Economics and Finance, 21, pp.6-13.

Nikou Goftar, V., El Asmar, M. and Bingham, E., 2014. A meta-analysis of literature comparing project performance between design-build (DB) and design-bid-build (DBB) delivery systems. In Construction Research Congress 2014: Construction in a Global Network (pp. 1389-1398).

Potts, K. and Ankrah, N., 2014. Construction cost management: learning from case studies. Routledge.

Wang, W.C., Yu, W.D., Yang, I.T., Lin, C.C., Lee, M.T. and Cheng, Y.Y., 2013. Applying the AHP to support the best-value contractor selection–lessons learned from two case studies in Taiwan. Journal of Civil Engineering and Management, 19(1), pp.24-36.

Yaqub, E., Yahyapour, R., Wieder, P., Kotsokalis, C., Lu, K. and Jehangiri, A.I., 2014, June. Optimal negotiation of service level agreements for cloud-based services through autonomous agents. In Services Computing (SCC), 2014 IEEE International Conference on (pp. 59-66). IEEE.

Yu, T., Shen, G.Q. and Shi, Q., 2016. Comparing the Performance Quality of Design-Bid-Build and Design-Build Delivery Methods. Journal of Construction Engineering and Management, 143(4), p.04016111.