Understand the theory and principles of innovative project procurement strategies and impact on the construction supply chain.Examine contemporary international practice in relation to procurement strategies including relational contracting, strategic project alliance and public-private partnerships within complex multinational project team environments.Apply a strategic procurement strategic analysis and develop a framework for a complex large case study project.
The procurement approaches, which are available, are able to offer different cost implications to the projects and this means that a proper analysis of which approach to be implemented must be done. Different procurement options are usually key in the success of projects while other contribute to their failure. In terms of time of implementation, these approaches are able to offer different time repercussions to the implementation of the projects. This means that a key approach must be selected, which will enhance the economic factors of the projects and making sure that the project is completed on time. Moreover, the different approaches are able to place different responsibilities on different personnel. This is a key factor which has to be considered during the project implementation. It has to be maintained that each party is not overwhelmed by responsibilities while others have less to ensure timely and proper completion of the project. This paper will provide analysis of the different procurement approaches and their performance on the case study of federation square project. It will therefore be able to conclude which one is the best to have been used.
The federation square project is a key public space construction which is covering an area of 7.9 acres. In addition, the project is fixed to provide three note-worthy public areas which include St Paul’s court, The square and the Atrium. Moreover, the construction of this project is based on a concrete deck, which is above the railroad on the cross points of Flinders street and Swanston Street on Kilda road.
Federation square project overview and characteristics
As noted, the project is located on the north of princes bridge and it is bounded by Flinders street and Yarra river and it helps to provide the Melbourne area resident with the cultural and civic celebration. The city is estimated to have more than 6 million residents who are likely to benefit from the project in every year who are able to visit the Federation square. Moreover, this project was carried in collaboration of Victorian government which had the support of the Commonwealth government and Melbourne City Council.
Moreover, the project was estimated to cost $128 million but it ended up costing \n approximate of $345 million and was 26 months delayed for its completion. The initial cost of the project was due to this reason seen and considered to be unrealistic. The initial cost was decided on the basis of the available funding of the project. This is one of the key mega project which is able to offer the example of the way the procurement approaches are critical in the implementation of different strategies. During the tendering process, the initial budget was used but up to the award, the amount was escalated. In the end, Lab architecture and Bates Smart were able to collaborate together and were awarded the right to design the project, a decision which was able to lead to numerous problems and successes of the project. This collaborative effect was able to show the flaws and merits of the project leading to partly its successes and partly the failures.
The fast tracking mechanism for the project was used by the government and was the driving force for the project. This strategy was enhanced by the different design team in order to produce a better documentation. The complexity of the project was able to offer a challenge and should have been discouraged by the government from the beginning since it was delaying for the project implementation. In addition, on the process due to the fast tracking, Multiplex was appointed without any competitive tendering process. Eleven months later after the commencement on the works on site, Multiplex was able to place forward a claim of $19.1 million to the government in order to cover the delays and damages which were caused by absence of the lack of proper contractual agreement between the parties. These are some of the key problems which are experienced when the wrong choice of procurement method is chosen.
Moreover, in 2002, the contractual agreement was altered which led to a ‘construction Management’ arrangement. This was done in consideration of the different elements which composed of; ever changing and incomplete design and followed documentation, reluctance of the Office of Major Projects to compromise the architecture in order to be able to risk the allocation for design to Multiplex. Another key reason is the more disputes which were coming over arrangement fee for the additional costs and the developments of the designs, which were continuing through the tender period.
The choice of the procurement methods is assumed to be the key reasons which are connected with the challenges in the project. The approaches used can be able to dictate the success of the project according to the implantation strategies. Some of the key strategies are able to mitigate the challenges which were able to happen to the federation square project. The following area will be able to consider the elements of different procurement approaches and the way they were implemented in the project and the way they could have been able to perform better or worse if implemented. The cost and timeline of implementation are some of the key areas where the project was able to fail a lot.
Analysis of procurement methods
Different procurement approaches are able to offer different elements in terms of advantages to the construction industry. The approaches are able to specify the implementation strategies for the projects, their timeline for completion. Their cost factors and also the responsibilities of the different personnel available. The different procurement approaches which are used in the construction projects include the traditional or design bid and build, design and construct procurement, management procurement and collaborative procurement among other projects. The procurement approaches in the construction industry has to consider the risk element of the projects.
In this case, the approach has to be able to specify the key personnel who will be able to bear the risks. Moreover, the procurement approaches are able to enhance the effectiveness in the cost implementation, the quality of work execution and effectiveness in the time of completion. In addition, different risks associated with the various approaches and the risk must be considered before any consideration for the approval for its implementation in a particular project. The best strategy will be able to reduce the risk which is associated with the project. Different approaches can be used in the procurement of the project which include, traditional method, design and construct procurement, management procurement, collaborative procurement and also the public private partnership procurement strategies.
In this approach, the employer is able to assume only the risks which are not associated with the construction activities. This means that the contractor is able to bear the full risks which are connected 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. In the choice of the contractor, a competitive tendering process is usually applied with complete details and information being provided. In additions, negotiations are usually applied before the appointments on the basis of the available information. 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. 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.
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.
Traditional procurement approach
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). 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.
Traditional procurement strategy
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. 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;
Competitiveness which h is achieved due to the competitive selection
The design consultant and client are able to have direct influence on the construction therefore facilitating high level of functionality and quality improvement
The methods leads to certainty in price at the contract awarding
Changes on the contract are easily made to arrange and manage
The method is tried and tested method in procurement industry
To enhance full contract document takes time. When produced without completion, disputes usually arise during the implementation leading to changes which might be costly
Projects usually take longer time on implementation due to variations
Lack of input into design or planning of the project by the contractor
Reflection on this project
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. Moreover, this method was able to cause delays due to the involved in the process (Hayford, 2006). These were able to show that the processing of the information was able to cause much delay in the construction stage. In addition, the delays on the construction were evident and able to show that this method was not ideal for the first tracking project like this one. In addition, this project was able to offer the project difficulty during the construction stage due to the lack of consultation with the contractor (Hayford, 2006). Due to the complexity of the project, contractor’s input would have been key in the success of the implementation of the project.
Design and construct procurement
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
Direct – this is applied where there is no competitive tenders used.
Competitive – the tenders are obtained from different documents that are preferred from different contractors in order to offer the designs and prices
Develop and construct – the consultant offers the partial design and then a competitive tenders are obtained from the selected list of the contractors
Package deal – this is usually employed where the competing contractors are required to use part of their own proprietary building system.
Novation – this is where the contractor is able to take over from the contractor for the design and then goes ahead to construction works.
There is usually improvement on the construction stage due to the input placed by contractor
The method is able to allow the overlap of the design and construction which may reduce the time of implementation
There is a guaranteed maximum price with a saving option which is innovative and may lead to reduction of time and cost
The client is able to deal with only one client therefore reducing the need t commit resources and time contracting designers and contractors differently
Cost of the project is received from commencing pf works since clients requirements are specified
Client may find it difficult when preparing an adequate and sufficient brief
The design liability is limited to the standard contracts which are available
The project brief is prone to changes which may be expensive
There is difficult when comparing different designs, their content and prices
The client requires commitment in order to accept design at an early stage
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. The increase of the changes within this procurement approach is one of the key reason why it could have had difficulty in this project (Holt, Proverbs and Love, 2000). As part of the fast tracking projects, the changes on the designs should be minimal to allow fast construction. This would be impossible since this approach would allow changes which hinder the construction. Moreover, this approach requires comparison of different designs which is likely to take more time which could have been used for implementation. This should have led to delays and therefore unable to meet the designed schedule, therefore making it improper choice of method to be used.
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 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.
Improved coordination since the client deals with single firm
Is able to save time due to the possibility of overlapping design and construction
On design and mane, the contractor is able to assume risk and responsibility for integrating design and construction
Works package are sometimes competitive at prices leading to value for money
Improvement on the construction stage since the contractor has some input
Roles, risk and responsibilities for all parties are well specified
There is possibility for the flexibility in design changes
The certainty of the price is only known after completion of works
A client who is conversant with the construction is required.
Requires full commitment of resources and client brief to ensure completion of works
The completion time and information is required before commencing
The client is able to lose the control of design which is influenced by contractors
Reflection to the project
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. In addition, it is not easy to get a client who is conversant with the construction process (Holt, Proverbs and Love, 2000). This means that for this project, the contractor and consultant will take time to explain to the client more on the construction projects, which will lead to wastage of more time. This will lead to the project delay and therefore inhibiting the completion on time. In addition, as an expensive project, it is not easy to get all the resource for the projects before the beginning. This is another key reason which could have made it hard for the project to start its implementation.
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).
The strategy high transparency in the procurement sector
There is high utilization on the resources being used.
There is consultation of the different parties improving the decision making
Innovation in the project execution is given a priority
Early involvement on design activities is given the priority for the client to forecast the needs
Improvement of the risk management with the uncertain requirements and environments
There is high involvement, cooperation and trust is needed for adopting this method
The opportunistic behavior of risk is very high
Decision making process has a greater risk
there is an imposed threshold limit on the project schedule
Reflection on the project
On this method, the collaboration and trust issues may arise which will be able to inhibit its application on this project. This project requires parties to trust each other fully in order for them to understand the complexity and the way to implement it. The different contractors on the project would have the challenge on trusting one another and therefore able to offer the challenge when this method is chosen to be used (Austroads, 2007). Moreover, the risky in the decisions making would have to affect this project. The complexity of the federation square is able to require key and proper decisions to be made before the implementation. The risk which is associated with the decisions is high and the needs the planners to have clear and full details.
Public Private Partnerships
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).
the value of money is achieved in the execution of the project since the project is completed on time and on cost
there are improved use of cost estimation and predictions for the project
the cost is delivered on time and cost efficiencies are achieved
management risks and risk transfers is easy and happens at low cost
there is transparency in the procurement and execution of the projects
the project is able to increase of the transaction costs and capital cost
existence of the culture gap may lead to lack of confidence between parties
the project may delay when specifications of the project are not clear
high cooperation from parties may exist due to the high administrative insecurities
Reflection on the project
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 (Mortledge, Smith and Kashiwagi, 2006). The cost of the project is high and this requires an independent party to chip in. the private sector will be the perfect party since it will be able to experience low influence from factors such as the political forces which are available on this project.
Moreover, this is a risky project and this method is able to enhance the risk transfer and therefore ensuring that some parties are not burden by the risks (Victorian State Government, 2006). Timely completion of the project and being on budget are other key issues which would be able to favor the use of this method on the federation square project. As a fast tracking project, there was need to have the approach, which will be able to observe the implementation timeline and the budget, and the PPP is the key approach which would have done that. This approach is able to offer the value for the federation project in terms of time of implementation and cost. Since the project has high cost and delays, 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.
In the implementation strategy, the PPP approach will be able to enhance the funding of the federation square where the private sector will take the bigger role in ensuring that the project received the perfect share of the funding. In addition, this approach will be able to ensure that the private sector manages the different sections of operations on the construction sections.
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.
Victorian State Government (2006). Project Alliance Practitioners Guide. Department of Treasury and Finance (http://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, http://www.infrastructureaustralia.gov.au/publications/
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