Case Study Flashcards
What alternative option did the project use for dealing with errors?
- Alternative 2 - the tenderer was given the opportunity of confirming their offer or amending to correct the error/s.
What is the risk involved in using alternative 1 for dealing with errors?
- The tenderer will either be invited to stand by the offer or withdraw.
- If they withdraw then the next lowest bid may be considered.
- If they stand by their tender then documents need to be amended to reconcile the error/s.
What was the risk for the stage 3 cost plan on GMV 401 & 403?
As the cost plan was divided into three elements for 401, 403 and public realm works there was a design development risk of approx. 5% included which equated to approx. 4.26% overall.
What was the value of risk in the stage 3 cost plan?
£3.09m.
How did you go about calculating the value of risk for the stage 3 cost plan?
- We held numerous risk workshops and a risk register was prepared where all the risks were scheduled and assigned it’s cost impact.
What was the value of some of the risks captured within the risk register for the Stage 3 cost plan?
- Fluctuations in price of materials over and beyond the inflationary allowance - £500k.
- Risk in the ground due to contamination in ground and based on similar scheme - £100k.
- UFH to affordable units - £100k.
- Comfort cooling to apartments due to incomplete energy model and the potential need for some units to have comfort cooling and for the client to comply with building regs. - £500k.
- Client changes to internal finishes spec. (kitchens and etc.) - £100k.
- Client changes to scheme - £200k
- Electrical vehicle charging - £100k.
- Building Safety Act measures causing delay to project and introducing sign-offs from BSR - £300k.
- Compliance with Part M accessibility - £200k.
- Compliance with fire strategy - £50k.
What was the percentage of costs on GMV 401 & 403 Stage 3 cost plan of the following:
- Substructure.
- External Walls.
- Windows/External Doors.
- Services.
- Risks.
- 401:
- Substructure - 10% - £3.5m.
- External walls - 9% - £3.06m.
- Windows/External doors - 4% - £1.5m.
- Services - 17% - £5.9m.
- Risks - 5% - £1.61m.
- 403:
- Substructure - 12% - £3.54m.
- External walls - 10% - £2.92m.
- Windows/External doors - 4% - £1.23m.
- Services - 17% - £4.88m.
- Risks - 5% - £1.37m.
What was the percentage of costs on GMV 401 & 403 PTE of the following:
- Substructure.
- External Walls.
- Windows/External Doors.
- Services.
- Risks.
- 401:
- Substructure - 6% - £2.14m.
- External walls - 13% - £4.94m.
- Windows/External doors - 5% - £1.8m.
- Services - 17% - £6.65m.
- Risks - 2% - £893k.
- 403:
- Substructure - 6% - £1.98m.
- External walls - 14% - £4.97m.
- Windows/External doors - 5% - £1.61m.
- Services - 17% - £5.17m.
- Risks - 2% - £823k.
Where did the tenders sit when compared to your PTE?
The tenders came below our PTE as follows:
- Bennetts - £71m.
- MAR - £69.7m.
Did you prepare a PTE for GMV 401 & 403? If so, what was the value of the PTE and how did this compare against the stage 3 cost plan?
Yes a PTE was prepared and the value of it was approx. £73.6m. This had gone up by approximately £1m.
Why had the costs gone up for the PTE from the Stage 3 Cost Plan?
There were numerous reasons why the costs had gone up for example:
- Design development.
- Areas amended.
- Frame costs had gone up due to changes in structural requirements resulting in more supports which subsequently had a cost impact of £650k.
- Extent of green roof had increased resulting in a cost impact of approx. £65k
- Due to areas being amended this had an impact on internal partitions which resulted in a cost impact of £100k.
- Impact on internal finishes as a result of areas amended resulting in a cost impact of £50k.
- On costs, Prelims, OH&P, Risk and Inflation.
Why did the tenders come under?
There were a number of reasons:
- Exclusions.
- Irregularities in pricing.
- Changes in the market.
What items had been excluded from their tender price?
Some of these exclusions included:
- MAR Additional costs:
- Bond - £274k from MAR.
- Acceptance of risk in ground - £53k.
- Post tender pricing adjustment/normalization - £306k.
- Revised price - £70.38m.
- BCL Additional costs:
- Waterproof concrete - £28k.
- Additional site setup - £53k.
- Increase in concrete - £400k.
- Increase in brick supply - £100k.
- Other PTQ process/normalization costs - £60k.
- Revised price - £71.61m.
On your first key issue, you mentioned you tendered via selected tender through single stage. Was any other tendering route considered, say, negotiated? If not, why?
- The reason why another tendering route was not considered was because GMVL had entered into an agreement for lease with the GLA for a drawdown of land on which they build residential units. One of the terms of this agreement for lease is that the construction works are competitively tendered. Therefore GMVL are obliged to tender the works.
In key issue 1, option 2, what were the other fluctuation options under the JCT D&B 2016 contract and why weren’t these considered?
- Option A - allows for adjustments to contract sum in respect of changes in tax, levies and contributions.
- Option B - allows for adjustments to contract sum in respect of changes to price of labour and materials that were current at the base date.
- The reason why option A was not considered because it does not reflect the situation on changes to material prices just the tax on the import of goods.
- The reason why option B was not considered is because that would be reliant on the contractor’s own specific market research or supply chain fluctuation which may not reflect what the wider market is experiencing.
- Therefore option C seemed to be the only viable option as it was based on predetermined indices that would take an average of material fluctuations across the entire market so a suitable percentage uplift or reduction could be applied.
If you was to introduce option C, how would you go about introducing this amendment into the contract?
Although the client’s SOA specifically omits the use of any of the fluctuation mechanisms in the contract. I would advise the client to seek advice from their legal advisors of reinstating this back into the contract.
Was it ethical for the Contractor to take all the risk on inflation?
Yes, it was ethical. Markets are constantly fluctuating and there is always an element of risk involved and it comes down to who is best suited to accept that risk. The client insisted on the contractor accepting the risk in order to obtain a cost certainty prior to awarding contract. With that said, the contractor should be able to able to manage and mitigate such risks associated with inflation in order to account for a potential change in prices over the construction programme whilst being fair and reasonable and showing to the client the basis of their calculation/s.
Since the Russia/Ukraine war, where has the UK been sourcing majority of its steel?
The UK has been sourcing from Germany.
What has happened to the price of steel since sourcing from Germany, and why?
(- The price of steel has gone up since sourcing from Germany.
- The reason for this is because approx. 40% of gas is supplied by Russia with no contingencies in place for sourcing it from elsewhere. This has an effect on EU steel production due to the rationalisation of gas and the inadequacy of gas supply to maintain current levels of steel output. Therefore, it would be inevitable that energy costs would rise which subsequently impacts on the cost for steel as manufacturers would not be able to absorb high fluctuations in costs. Furthermore, the steel sector in Germany is struggling due to high electricity prices as the sector is beginning to undergo a transition from blast furnaces to electric arc furnaces in order to decarbonise in the medium-term future.) - Delete
What has happened to the price of steel since 2022?
- According to G&T market update steel prices have come down and begin to stabilise to levels pre-2022 and Pre Russia/Ukraine war.
- The reason for this is due to softer demand and improved availability has resulted in cost of inflation to ease for steel.
- Price of steel currently in 2Q2024 is approx. £1,600/tonne where as in 2022 steel prices were in the region of approx. £1,800-£1,850/tonne.
- Provided there is no further volatility in the market, steel prices are likely to continue balancing in 2024.
You mention that under one option to tender with provisional sums in the contract and that costs could go up which the client would have to bear. However if the client is entered into a lump sum contract, why would they have to bear these costs?
A lump sum contract is when a price for all the works is agreed before the works are executed. However, it is not to say that it is fixed but there is more certainty over the final costs as there are mechanisms that allow the sum to change and in the case of provisional sums costs could go up or down thereby affecting the overall final cost of the works.
How did you analyse before presenting the options that you did?
As the client was intent on achieving cost certainty for the works I used this as a basis for presenting the options I did.
You mentioned under option 2 that any changes in price would be subject to prices at current and not the base date. How would this work with variations?
Any variations would be subject to the valuation rules which at first instance makes use of the CSA rates, followed by star rates and finally dayworks.
You mention in your presentation that the contractor’s would show the basis of their calculations and how they have arrived at their price. Could you explain a bit more about what you mean by this and why this would be important to the client?
What I mean by this is a full breakdown of their submission arriving at their tendered sum. In addition to this, where, the contractor would have priced for any risk, to show the basis of their calculation such as inflation uplift or a risk register to substantiate the sum. The reason why this is important to the client is because it gives greater clarity to the client as well as confidence in the openness of the contractor’s submission. Also, it would make evaluating the contractor’s submission more straight forward knowing there are no hidden charges as well as being able to compare against others to ensure a competitive tender has been achieved.
