Report on Procurement Process for Holiday Development

1.0 Introduction

This report has been prepared to discuss the procurement options available to All Star Property Development for the proposed holiday development in Tring.

2.0 Project Details

2.1 Generally

The project comprises the provision of a holiday development comprising inexpensive holiday lets, club house and shop. Work to include modular unit accommodation, with all fixed fittings, furniture and equipment included within the contract including kitchen units and appliances.

All loose furnishings and furniture will be down to the client following completion and handover over the project.

2.2 Budget

The construction budget is currently approximately £2million.

2.3 Programme

The project programme anticipates completion May 2011 with a construction period of approximately 11 months.

The works are therefore expected to commence June 2010.

An excelerated programme would be considered for an early opening for Easter 2011.

Design

The design is at a RIBA stage C.

The extent of the design development is subject to discussion and the procurement route decided upon but, is currently envisaged that it will be beyond RIBA work stage D in order to achieve the programme stated above.

Procurement Methods

Due to the budget, it is felt that the procurement routes suitable for this project are:

Traditional

Design and Build

3.1 Traditional

The design and construction are generally deemed to be separate activities. Full documentation is necessary for tendering purposes, including that from specialist subcontractors where appropriate and adequate time is needed for the preparation of this.

The method of reimbursement is commonly expected to be a lump sum basis. The procurement method can however be used in a wide range of situations including a measurement or cost plus contract.

In theory, therefore should reasonable cost certainty on construction costs in a lump sum contract, however, cost increases can result due to a client changes, inadequate design and poor contractor performance.

Advantages

i) Tenders are on a like for like basis;

ii) Scheme fully pre-designed and specified;

iii) Early commitment to price;

iv) Provides contractually agreed prices for valuation of variations, cost control and analysis;

v) Standards are easier to control;

vi) Direct employer relationship with designers.

Disadvantages

i) Longer procurement time;

ii) Split responsibility between construction and design;

iii) Limited risk transfer.

3.2 Design and Build

A method where the contractor is responsible for undertaking both the detailed design and construction of the work in return for a lump sum price. There are variations on this option depending on the degree to which initial design is included in the client’s requirements.

The extent of control over the design is restricted once the contract is let since the contractor assumes responsibility once appointed. Some of the risk associated with this can be mitigated by a lesser extent by the novation of the original design team. The design and construction can generally proceed in parallel resulting in the overall programme time being shortened.

Client changes in design specification can be made during construction although are more difficult to accurately agree on costs.

Advantages:

i) Transfer of risk to contractor (but not usually all risks);

ii) Design is in competition (unless “two-stage” see later);

iii) Maximum overlap of design and construction;

iv) Construction expertise available for design;

v) Early commitment to maximum price;

vi) Less construction information required from client.

Disadvantages:

i) Tendering expensive to contractors;

ii) Design not fully developed at tender stage, uncertain of final exact details until construction completed;

iii) Best designer is not necessarily best builder and vice-versa (unless client team is novated);

iv) Design liability can be limited;

v) Standards can be difficult to control;

vi) Variations can have greater consequence on cost;

vii) Normally only the minimum is provided to satisfy the Employers requirements;

viii) Premium for assumption of risk payable.

3.3 Variants on Procurement Process

There are refinements or variations on the procurement options described previously:

1. Single stage selective tendering
2. Two stage selective tendering
3. Negotiated tendering

3.3.1 Single stage selective tender

This form of tendering occurs when the client wishes to obtain the most competitive price for the project. This method will only be successful where the design is substantially complete for the type of contract being proposed, ie. design and build or traditional as any incomplete elements of the design will lead to post contract variations and additional costs.

In using this method, the client seeks tenders usually from three to six pre-selected competent contractors issuing detailed tender information, whether it be performance specifications for a design and built route or full detailed bill of quantities for a traditional route. Tenders are returned and assessed under competition, with a contractor being selected on the basis of who best meets the evaluation criteria.

Advantages:

i) Most competitive price achieved;

ii) The client retains greater control of design and;

iii) Increased cost certainty at signing of contract.

Disadvantages:

i) The contractor is not able to share its construction expertise at the design stage;

ii) Increased programme requirements to produce the full design in advance of tender and;

iii) Possible cost increases and variations are likely where the design is incomplete or erros have been made in design.

3.3.2 Two stage selective tendering

Two stage tendering is best suited where the client requires a competitive price but in particular requires early contractor involvement. The client will issue tenders with limited preliminary information (usually preliminaries, provisional sums, early work packages) and a schedule of rates for the areas where the design is incomplete. Tenders are returned and assessed under competition, with the contractor being selected on the basis of who best meets the evaluation criteria. As the works progress, the schedule of rates is sued to complete the pricing of the design.

Advantages:

i) Allows early start;

ii) Allows the contractor to have input into design and construction techniques;

iii) Greater programme certainty as risks and identified early and;

iv) Can build trust between client and contractor.

Disadvantages:

i) Possible increase in construction costs due to lack of competition on tendering;

ii) A risk to programme if negotiations fail to meet targets;

iii) Less cost certainty if early site start is preferred.

4.0 Evaluation of Procurement Methods

The chosen procurement method is determined by the Client’s approach to:

1. Cost
2. Programme
3. Design and build quality

4.1 Cost

Cost is a decisive factor with the client seeking cost certainty at an early stage.

However, a “fixed” price not the only factor as value for money, scope for variations and accountability are feature in selection.

4.2 Programme

As stated in section 2.0, the completion is required for May 2011 with a start on site date of June 2010.

Assuming RIBA work stage typical lead-in periods for tender document preparation, tender, contractor selection and mobilisation for the various procurement options are given below:

1. Traditional 6 months

2. Design and Build

a) single stage 5 months

b) two stage 3 months

4.2 Design and Build quality

Whilst the quality of the design and the building works is view as important, achieving value for money will remain fundamental.

An evaluation matrix based on interpretation of All Star Developments expectations is attached at appendix 1

Cost

Time

Quality

5.0 Recommendation

Based on the evaluation matrix the following ranking is achieved:

1. Design and Build

2. Traditional

As cost certainty is paramount a single stage process is recommended.