Flashcards in Lecture 6,7,8: Procurement Deck (69):
What are 4 types of law?
- public law (criminal, revenue and taxation)
- private law (contract and law of tort)
- international law
- other national laws
What are the sources of law?
-Statue Law (building act, health and safety in employment act, resource management act, construction contracts act)
- common law
What is the aim of the building act?
To provide the regulation of building work, the licensing regime for building practitioners, and the setting of performance standards for buildings, to ensure that:
- safe for users
-contribute to well being of users
- can escape in event of fire
- promote sustainable development
What is the aim of the health and safety in employment act?
To promote the prevention of harm to all people at work, and others in, or in the vicinity of, places of work.
What is the aim of the chartered professional engineers of nz act?
The registration of engineers and establishment of the title of chartered professional engineer as a mark of quality.
What is the aim of the construction contracts act?
To reform the law relating to construction contracts and in particular
- to facilitate regular and timely payments
- to provide resolution of disputes
- to provide remedies for the recovery of payments
What is the aim of the resource management act?
To promote the sustainable management of natural and physical resources, while:
- sustaining the potential of natural and physical resources to meet the foreseeable needs of future generations
- safeguarding the life-supporting capacity of air, water, soil, and ecosystems
- avoiding, remedying, or mitigating any adverse effects of activites on the environment
What is a contract?
Promise(s) between capable parties that create an obligation which is enforceable by law.
What are elements of a contract?
- intention to be bound
- reality of consent
What is a covenant?
A type of contract in which the covenantor makes a promise to a covenantee to do or not do some action
What is a quote?
An offer to do the job for a certain price, quoting person is bound by the offer.
What are forms of acceptance?
- formal notification of acceptance
- acceptance by placing an order
- acceptance by "standard of industry"
- acceptance by reliance
- tacit acceptance (implied)
What is procurement?
The framework within which construction is brought about, acquired or obtained.
What is contract administration?
The handling of the business relations between the parties to the contract.
What makes good tenders?
- Responsive: all terms are met satisfactorily
- forms filled out correctly
- authorised signatories
- tender offer displayed as required
-submitted as directed on time at correct location
- Responsible: meets the requirements to submit offer
- registered with appropriate governmental agency
- tender offer contains required financial securities
- tenderer is not a felon
- lowest price
- best qualifies
- best proposal at stipulated price
- best value
What are different delivery methods?
- Design and Construction (design-build)
- Project Manager Agent
- Early Contractor Involvement
Who are the 3 primary players in a design bid build method?
- A/E (architect/engineer)
- GC (general contractor)
What are the advantages for the owner of a design-bid-build method?
- historically accepted
- price fixed before construction
- owner involvement is low
- contractor takes risk for construction
What are the advantages for the contractor of a design-bid-build?
- contractor sets price
- owner involvement is low
What are the disadvantages for the owner for a design-bid-build project?
- long delivery time
- no constructability advice during design
- can be adversarial
- leads to change orders (design and scope)
- low bid does not always equal lowest final cost
What are the disadvantages for the contractor for a design-bid-build project?
- low margins
- high risk for unforseen conditions
What are the characteristics of a project manager agent project?
- 3 linear phases (design-bid-build)
- 4 primary players (owner, PM, A/E, GC)
- 3 Contracts (Owner-PM, Owner-A/E, Owner-GC)
What are the advantages for the owner for a project manager agent project?
- increased representation
- independent evaluation
- increased constructability
- increased value engineering
What are the disadvantages for the owner for a project manager agent project?
- PM assumes no risk/ owner holds contracts
- PM-agency does not guarantee cost
- PM licensing is not available
- High owner/ PM involvement
What are the characteristics of a design-build project?
- 2 continuous phases (design and build)
- 2 primary players (owner and DB - design builder)
- 1 Contract (Owner-DB)
What are the advantages for the owner for a design-build project?
- sole source of responsibility
- reduction of project duration
- high constructability
- claims reduction
What are the advantages for the design-builder for a design-build project?
- recieve both design & construction fees
- non adversarial A/E- GC relationship
- react rapidly to scope changes
What are the disadvantages for the owner for a design-build project?
- fewer checks and balances
- reduced owner involvement
- difficulty of selection
What are the disadvantages for the DB for a design-build project?
- large staff
- additional risk
- scope changes are difficult to track
What are the benefits of alliance?
- major contractors and consultants become stakeholders in a project
- participants form a group to generate an environment of innovation and cooperating rather than confrontation
- participants form a committee to manage the project
- costing is generally open book
- cost reductions for principals
- risk sharing major depature from other models
What are characteristics of alliance?
- selection on qualification
- initial schedule and designs will be made to produce targets
- higher initial cost and overhead but usually better value outcomes
- "good to work in"
What are PPP (public-private partnership) project characteristics?
- Scale: large enough to be attractive (>$NZ50m)
-Duration: 25-35 years to amortize the capital costs
- Complexity: large complex projects that require close coordination between designer/builder/operator
- Service or output focus: clearly definable and measurable output specifications are needed that are suitable for meeting service delivery standards
-Private sector expertise required
- Non-core activity: delivers an asset not an activity
-Can be costed on a "whole life" basis
- High maintenance requirements - benefit to the owner to transfer maintenance cost risk
- Opportunity for innovation
- Value for money: balance upfront costs against long-term cost risk.
Explain the value for money diagram.
Alliance is able to deliver the best value for money at high scale projects.
DB is able to deliver the best value for money at medium scale projects
DBB is able to deliver the best value for money at low scale projects.
Why use Design-Build method for projects?
- Previous experiences with DBB overrun in cost, schedule, etc.
- Politics: work needs to get out there now
- Designer Experiences
What are the phases of procurement?
- Preparation: business process + tender prep
- SIA: selection on intent and ability (8 weeks)
- Tender: Tendering process (19 weeks)
- Delivery: Project execution (101 weeks)
What are agency costs?
- specimen design
- laborious tender
- consultant costs
- lower number of bids
What are agency benefits?
- control over design
- best value (and design)
- DB advantages (less claims, less costs, schedule, contractor leads designs)
What are contractors costs?
- Tender costs (1.5%)
- Less control
- best design no guarantee
What are contractors benefits?
- ability to add value
- paid for tender
- no non-conforming bids
What are the recent trends in procurement?
Trend towards procurement strategies to improve efficiency by using procurement strategies that are based on negotiation and framework agreements
What is Early Contractor Involvement (ECI)?
- Engaging the contractor during the early phases of a project to assist in the evolution of the design and to promote a better understanding by the parties of a project and its potential risk
- Hybrid of alliance (design phase) and design-build (construction)
- support alignment of goals and trust between parties
- contractor and owner develop design and detailed project plan cooperatively
- risk adjusted price, agreed upon when all the risks can be assessed
What are the benefits of ECI?
- Work collaboratively with agency
- Decisions made on "best of project" basis
- Innovative and value engineered options recognised and realised earlier in project
- Improved risk management
- Resulting in: (lower costs, greater cost certainty, shorter completion time)
What are the 3 separable portions (SP) of a ECI Contract?
1. Secondary investigation & preliminary design
2. Planning & specimen design
3. Detailed design & construction
-owner-contractor relationship is mutual cooperation
- design peer reviewer for contractors submission
-negotiated time rate agreed with contractor
-Owner-contractor relationship conforms to DB
- parallel estimator engaged for costing of works
What are points to minimise time issues with ECI?
- set out objectives at start of the project, clarify primary needs
- clear directions and targets set during preliminary design stage
- control alternative design investigation
- designer contracted using cost reimbursement structure
- time and training for signatories to familiarise with agreements
What are points to minimise cost issues with ECI?
- Contractor expressed concern about open-book costing
- Recognition of need for open and free flow of information and knowledge
- Important that parties understand their responsibilities, liabilities and benefits
- clear description of duties
What are points to maintain quality improvements with ECI?
- Clear objectives in relation to quality at start of a project, should not leave room for dispute
- Increased familiarity by all parties of required standards.
- Without the introduction of additional drivers, performance in environmental terms would improve.
- The existing legal framework of resource consents applies regardless of procurement
When to use ECI?
- If there is a risk of not obtaining competitive tenders using other procurement methods
- If possible to remove initial uncertainties (risk) so the parties can agree a realistic price
- To achieve better value for money by involving the contractor early in planning and design
What are the advantages of ECI?
- tendering process is less intensive and less costly
- earlier procurement of materials
- team approach, experience harnessed early
- shortened delivery time
- increased opportunity for innovation
- better integration of construction methods
- fewer variations during construction
What are the disadvantages of ECI?
- additional costs through 'optioneering' by contractor and designer ideas
- need for involvement of independent cost estimators
Describe each price based contract.
- Lump Sum: payment based on a single price for the total work
- Measure and value: payment based on quantity of completed work and tendered rates
- Cost plus or cost reimbursement: payment per hour plus agreed percentage
- Performance: payment based on performance achived
What is PBMC?
Performance Based Maintenance Contracting (PBMC) provides incentive and disincentive to achieve desired outcomes or results from the maintenance contractor.
Why do Performance Based Contracts (PBC)?
- From inputs and outputs to customer-oriented outcomes
- 'Do more with less'
- Minimise life cycle costs
- International lending institutions, encourage countries to adopt PBMC
- Increased levels of service
- reduce agency costs
- expenditure stability
- defensible way to secure maintenance dollars
- shifting risks to contracts
Why not do Performance Based Contracts?
- Change in culture
- Incomplete asset inventory data
- Privatisation fears
- Adjustments in procedures
- previous experience with PBMC
- challenges in estimating costs
- insufficient competition
- loss of control
- having to secure funds for large multiyear contracts
What is the value in PBMC?
- increased value if, the LOS improve or remain while the cost remains constant respectively declines
- use discounted money streams in cost benefit analysis
- LOS can have many facets, with a different weights
- use of soft data, like accidents or pollution costs
7 KPI examples from NZ used to measure contractors performance:
- response time
- completion/ non-completion
- customer satisfaction
- plan compliance
Basic steps for Performance Based Maintenance Contracts:
- select maintenance work
- make inventory asset list and asses condition
- determine LOS
- define qualifying criteria contractors
- set contract term
- define responsibilites and requirements
- RFP and award
What are the advantages of PBMC?
- reduction in costs
- improved level of service (LOS)
- risk tansfer to contractor
- integrated services
- enhanced asset management
- achieving economies of scale
- partnering potential
What are the disadvantages of PBMC?
- Costly tendering
- longer tendering period
- uncertainty with long term contracting relationships
- loss of agency flexibility
- reduction in competition
Explain the involvement of the owner, designer, and contractor in DBB.
Owner is not largeley involved in either design or construction.
Designer is responsible for design stage.
Contractor is responsible for construction stage.
Explain the involvement of the owner, and design-builder in DB.
Owner is involved in first half of design stage. The the design-builder takes over for the second half of the design phase and the construction phase.
Explain the involvement of the owner and the consortium in an alliance.
Owner and consortium are both involved through the design and construction stages of the project.
What is a consortium?
A consortium is an association of two or more individuals, companies, organizations or governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal.
Explain the involvement of the owner and contractor in ECI.
Owner is involved in the design stage but not the construction stage.
Contractor begins involvement soon into the design stage and continues through the construction stage.
What are the 2 stages in tender evaluation.
1. Evaluation of their non-price attributes
-Supply Quality Premium (SQP)
-Tangible Cost Adjustment (TCA)
2. Price Evaluation
What is Supply Quality Premium (SQP)?
Supply quality premium
-resources, track record, experience, methodology, relecant experience, mangement skills and technical skills
The lower the supply quality/ track record of the contractor, the price must be scaled up due to risk. The higher the supply quality premium the lower the evaluation price.
What is Tangible Cost Adjustment (TCA)?
Tangible Cost Adjustment
- what does the agency have to pay if they negotiate it towards the preferred standard
The higher the tangible cost adjustment the lower the evaluation price
Explain price evaluation in the tender evaluation process.
- The SQP and TCA are added and taken off the tender bid price. The lowest evaluation bid wins.
= (TCA+SQP) - evaluation bid