2015-­‐02-­‐01

Project
Delivery
Alternatives

Project Delivery Alternatives 2

Concept

Design and
Decommissioning RFP Preparation
Or repurposing Project Delivery

Bidding and Award

Operations &
Maintenance

Permits

Commissioning

Construction

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Issues

u  Procurement Strategy

u  Design-Bid-Build
u  Fast Track (CM, Design-Build, P3)
u  Alliancing
u  Contract agreement – Payments
u  Fixed Price
u  Unit Price
u  Guaranteed Maximum Price
u  Cost Plus
u  Partnering
u  The good, the bad and the ugly practices

Design-Bid-Build

Owner
(building project)

Architect General Contractor

Engineering
Structural, Subcontractors
Mechanical, Electrical

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Design-Bid-Build

u  Payment typically by fixed price or unit cost (for unseen conditions)
u  Lowest bid award
u  Prime Consultant reviews & certifies
u  Typically adversarial relationships
u  Long timeline – sequential activities

Design Bid Build

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Divergent Project Objectives

Client Contractor
•  Lowest Cost •  Maximized Profit
•  Maximum Quality •  Acceptable Quality
•  Earliest Completion •  Most Cost Effective Schedule
•  Flexibility to Make Changes •  Capitalize on Changes
•  Fix Costs and Hand-off Risk •  Minimize Risk
•  Control the Work •  Control the Work

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Most Common Method

u  When:
u  No time constraints
u  Buildings
u  Client is willing to work with architect to meet design needs

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Pros and Cons

u  Pros:
u  Design is complete and therefore the contractors know exactly
what they’re bidding on (in a perfect world)
u  Owner knows what they’re getting and for how much money

u  Cons:
u  Contractor has no influence on the design
u  Must bid on design even if they have ideas for improving
design or reducing costs
u  Longest duration because activities are sequential
u  Very adversarial between designers and contractors

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Note!

u  In Design-Bid-Build, design can still occur during construction

u  For example, the owner of a student residence building may
change their mind and decide that a swimming pool is
needed on the top floor.
u  Even though construction has already started, the designers
would need to redesign the structure and mechanical
systems. This case would cause a delay to the construction.
u  Design changes during construction are typically expensive
in time and money.

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Fast Track

u  Reduce over all project timeline by overlapping design and construction
u  Incremental approach
u  Defined scope of work
u  Achieve by: Design
u  Construction Management Bid
u  Design-build Build
u  P3

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Construction Management

Owner

Construction
Manager

Engineers Architect Contractors

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Construction Management (CM)

u  CM represents the owner - paid ~2% of the construction

budget as they do not incur risk.
u  All aspects are planned and coordinated by Construction
Manager incl design and constr’n
u  Saves time but often results in rework therefore higher cost
(10% premium)
u  Best suited to large projects that generate income or benefit
from a shorter schedule e.g. casinos, airports. Casinos can
make $1M per day (good reason not to gamble).

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CM cont.

u  Construction management implies fast tracking or concurrent

engineering.
u  It is very important that the CM help design team focus their efforts.
CM directs the designers to focus on parts of design that affect
foundation so that they can award the first contract.
u  Contracts are tendered as the design proceeds. As soon as the
building footprint and depth are determined, the excavation
contract can be tendered and awarded.
u  All contracts are held by the owner instead of the GC.
u  At LBPIA, the GTAA and their CM tendered over 200 contracts. In
traditional design-bid-build, it would only be 2 contracts.

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Pros and Cons

u  Pros:
u  Project delivered more quickly as construction can begin
before design is complete.
u  The involvement of the CM in the design process helps to cut
costs and improve the constructability of the design.
u  Cons:
u  Tends to be a bit more expensive
u  Greater errors occur because construction is pushing design.
Therefore construction rework should be expected.
u  Owner holds potentially hundreds of contracts
u  Don’t know final cost until last contract is tendered

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Design-Build
Owner
(building
project)

Design-build
firm-
Often the GC

Engineers Architect Subcontractors

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Design-Build

u  Single contract for owner

u  Designers and contractor work together to improve efficiency
u  RFP process – very expensive to bid
u  Called EPC (engineer, procure, and construct) or Turnkey if in industrial sector
u  Best applied when the owner knows what they want
u  Specific function (e.g. pulp mill) facility that can be scoped and delivered efficiently

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Advantages

u  Single point responsibility - reduced owner administration

u  Contractor influences design
u  Can produce cost savings
u  Time reduction
u  Fewer disputes about who’s to blame
u  Presumably better product delivered faster
u  Firm project cost identified early in project
u  Select on best value, not just cost

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Disadvantages

u  Poor project definition will produce a project

that does not meet the owner’s
requirements
u  Less ability for owner to influence design
u  Changes during implementation are costly
u  When it goes bad, it really goes bad
u  Fast tracking means that it often costs a little
bit more
u  Competition is costly for the participants
(honorarium)

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Proposal Process

u  The process must not only be fair, it must appear to be fair !
u  Provide adequate time to prepare proposals
u  Provide adequate base information
u  Control evaluation process (security)
u  Eliminate conflicts of interest

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Honorarium

u  Indicates a commitment by the owner to the project, but

expensive!
u  Encourages proponent to invest in the opportunity
u  Reflects an acknowledgment that the proponents are
providing a service to the owner
u  Current practice amounts to $1,000/M of construction cost
(0.1%) - NOT MUCH based on the requirement to undertake
10% of the design or more.

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Evaluation of Proposals

u  Establish an Evaluation Committee and Process

u  Establish an evaluation criteria before proposal submission
u  Two envelope system
u  Mandatory requirements
u  Clarifications
u  Presentations and Interviews
u  Select based on best value

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Negotiations and Award

u  Identify a preferred proponent

u  Do not release other proponents until a contract is executed

u  Ensure all stakeholders have reviewed the proposal and negotiate
refinements

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Advantages

Public Private Partnership (P3)

Public
Owner

P3
consortium

Engineers Architect Contractor Financers

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Alliancing

•  A group of companies working together, aligned on minimizing costs,

increasing profitability, and sharing risks and rewards.
•  Alliancing is characterized by a non-traditional organizational structure,
and a risk/reward mechanism in which the success or failure of the
project is shared by all alliance members

Alliancing

Project

Prime
Owner Engineers Financers
Contractor

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Alliancing

u  For mega projects

u  Hibernia
u  Terra Nova

u  Owner partners with engineering, construction, and financing to make

project work
u  Everyone cooperates
u  Profit sharing

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Lessons Learned for Success

u  Encourage innovation - challenge all past practices

u  Collaborate between members - don’t just talk about it
u  Be prepared for reversals, disappointments
u  Create and maintain strong personal relationships
between members at all levels
u  There is no “fool-proof formula” - each alliance must
adjust to its circumstances

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Lessons Learned - Failures

u  Lack of full commitment

u  Lack of understanding
u  Inability to trust other fellow members
u  Unwillingness to take risks
u  Unwilling to challenge and be challenged
u  Insecurity
u  Insufficient people dedicated to the project

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Contract Payment Types

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Fixed Price or Lump Sum

u  Most common

u  Fixed price is bid for the project and awarded on that basis
u  Any errors or changes that result from the owner’s actions or omissions are
generally extras

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Unit Price

u  Used primarily in excavation where mass earthmoving takes

place.
u  The amount of rock versus earth, for example, is unknown
and the price for each material differs.
u  Disputes can occur in the interpretation of what is rock and
what is soil.
u  Also called piece work in buildings where independent
operators are paid by the amount of work they get done
each year.
u  In this case, it is often detrimental to the quality of the
project.

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Cost Plus

u  Actual cost of construction plus overheads plus a profit margin (generally
low).
u  Used in emergencies. They will call the company with which they have the
best relationship.
u  For example, when Suncor experienced a large fire in their coker, they were
losing $2M per day – they just wanted it fixed!
u  Services of CM paid this way too
u  The owner and contractor must agree in advance to the payment amounts
and schedule.

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Partnering

HOW TO GET ALONG

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What is Partnering?

u  Project commitment

u  Dispute avoidance
u  Trust between partners
u  Mind set
u  Voluntary (not part of the contract)

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Partnering Workshop(s)

u  Introduction of team

u  Team building activities - improve listening
u  Discuss expectations, objectives, potential problems
u  Get to know each other
u  Establish project evaluation system, measures

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Partnering Charter

u  Signed by all participants

u  Outlines project objectives
u  Commitment to work together for the benefit of the project
u  Dispute Escalation Ladder

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Does Partnering Work?

u  Yes, if:

u  No, if:

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