Construction Contracts and Law: A Strategy for a Water Company - Assignment Example

?Construction Contracts and Law: A Strategy for a Water Company Introduction A contract strategy is a result of various factors including design integration, construction of a project. The project strategy used for a project should give support to the main objectives of the project in so far as risk allocation, incentivisation and delivery among other factors are concerned (OGC nd). There are a number of contract strategies that can be applied in various situation. The traditional contract strategy involves separate designing and construction of the project. This strategy should only be applied where other integrated procurement routes provide less value for money. In the traditional strategy, the design is conducted by a client that is different from the contractor in charge of constructing the project according to OGC (nd). Other variants of the management contracting strategy include design, manage and construct and construction management. The design and build strategy on the hand is where the consultant that designs a construction is also charged with the responsibility of actualizing it in reality. The other main strategy is the management strategy. This strategy involves contracting an organization to be in charge of ensuring that other contractors in a project deliver predefined goal effectively (OGC nd). The management contractor in most cases is separate from the consultant that completes the design of the construction. There are a number of factors that must be considered when selecting a contract strategy. The main factor involved in this respect include timing, variation, price certainty, competition, quality, complexity professional responsibility, risk avoidance, and professional responsibility. On the other hand, the main variables with respect to contract strategies are payment method, authority/leadership, contract documents, source of capital, contractor selection process, project phases overlap, and form of the organization as noted by OGC (nd). The evaluation of various strategies to use in accomplishing specific tasks is carried out by considering the advantages and disadvantages of the contract strategy methods and scoring and assigning weights accordingly. The evaluation of the Bestwater project as outlined in the following sections was done based on the template provided in appendix 2. 1. Bestwater Main Rehabilitation Contract Strategy Bestwater’s main rehabilitation project is aimed to replace small diameter water mains with MDPE pipes. The project however involves a lot of liaising with several authorities. The contract will involve a little of risk related to timely completion of the work as there is about five years to complete the tasks involved. The work involves general and specialized activities that may necessitate the contracting of different contractual partners to spread the risks involved as well as to achieve the best possible quality of service. Alternatives In order to accomplish this task, the company may opt to use the traditional and design and build contract strategies. The advantages associated with traditional contract strategy include the competitive tendering, cost certainty at the beginning of the construction process and the existence of clear lines of responsibility as noted by Engineering Construction EDC (1985). The strategy also makes it easy to change designs while making use of the best possible design and construction skills. This strategy can however make it difficult to complete the project in the shortest possible time since decision making is bound to be slow and convoluted. Furthermore, this strategic option requires good organizational interfaces which may not be very easy to achieve. On the other hand, design and build has high buildability levels making the project have short completion times. The company’s responsibility in the process is also reduced which makes the company bear less risks compared to the traditional strategy (Walker and Hampson 2002). The quality provided by this option may however not be as good as that offered by the traditional system. The disadvantages of engaging this option include high cost of making changes, low client control, and expensive tendering process. Recommendation Since the project involves working in an urban setting where there is a high population and therefore a higher risk of causing injuries to persons, it is advisable for the company to contract persons who can shelf risks such as those associated with negligence. The traditional strategy is applicable in this case since the project has already been designed and only needs maintenance. Taking this measure will help the company reduce its costs significantly as the company also has its own designers who can accomplish design tasks within the company’s capabilities. Furthermore, time is not a major constraint in completing the main rehabilitation project. 2. Sewers Contract Strategy The sewage works projects involve a number of different activities that demand special expertise; electrical, mechanical, structural, piping, and machinery. This means that the risks associated with completing such a project are high. Since several specialized groups are required to complete this project, the strategy used should be such as to allow in-depth planning and coordination of the entire process in line with the Utilities Regulations 2006 (OGC 2006). The integration level in this case is higher such as to disqualify the traditional method. The project strategies applicable in this case are design build and management. The advantages of management strategy include fast total project times, high flexibility, high value management and buildability, better organization as a result of the extra management layer according to Telford (2010). Most importantly, the strategy allows for increased specialization in contractor inputs. The disadvantage of this method is lack of firm price as the construction begins. Liability may also be unclear as the contractual relationship involved is quite complex (Telford 2010). Given the extra management layer, the costs involved are higher than the build design option with high chances of conflicts amongst participants and risks by the client. The higher the client involvement, the higher the risks associated to them. The advantages of design and build in completing construction projects include minimum client involvement and therefore less risk, availability of fixed price bids hence lower cost compared to management strategy, possibility of less conflicts as there is a single point of responsibility. Compared to management, D and B is time consuming with less client control, lower levels of tendering competition and need for detailed brief at outset. Recommendation Since this project involves several special activities that need proper coordination and planning, management is the best option, albeit at a higher cost. This strategy makes it possible to complete specialized activities with good coordination especially under good management. 3. Sewerage The sewerage project is small and requires local knowledge and smaller contractors. The project however demands good integration with the existing system and may be completed by Bestwater’s own staff. The project involves structural and hydraulic design expertise which the company’s staff can handle well. This project may be completed using the traditional system considering that the company’s staff are in a better position to understand their system and come up with quality designs. The other alternative is the build design option in which case the company’s staff may design and a contactor charged with the responsibility of constructing the system. In handling this project, the advantage of the traditional system will be ease of valuation of varieties using bill of quantities. The cost is almost certain at the beginning of the construction and is lower compared to other strategies. Since the design and construction involves one contractor, design and construction is done in good combination with flexibility in making changes (NEC3 2005). Decision making is however slow and project time is long. The D and B strategy has high buildability, short completing time, high competition on product and price, and higher client involvement (OGC nd). However, the tendering process is expensive with less competition and making changes can be difficult. Recommendation Since the company has hydraulic modelers and designers who are capable of coming up with good designs, the traditional strategy is best applicable. This is also considering that the local staff have better local knowledge of the area, the designs involve are within their scope and costs will be significantly reduced. 4. New Dam Constructions of dams involve the consideration of a variety of factors. Completing such a project needs the integration of civil engineering, hydraulics and mechanical engineering. Dam construction being a major project involves the drawing of plans, optimizing designs, getting necessary permissions and a lot of mechanical labor. In order to complete this project, the organization many opt for the D and B strategy considering that the work involved requires special expertise in various fields. The strategy is bound to offer better quality compared to traditional strategy but is more expensive ignoring time as a possible constraint (Howes 2005). Since the company must comply with the Reservoirs Act which necessitates the consultation of an All Reservoirs Panel’ engineer, the project is better completed using the management strategy (Legislation 1975). In this case, Bestwater has higher chances of getting quality work and faces less risk in so far as compliance with regulations and safety and health is concerned. Considering the regulation, the complexity of the project and the involvement of various specialties, the best option is the management strategy. 5. Telemetry and Control System Telemetry and control system is a special project that involves the installation of special equipment, only few contractors offering the service. Given the urgency of the installation, the strategy used should be one that makes it easy to make quick decisions and complete the work within the 3 –year deadline. The need for quality in the installation of such a font-loaded system is beyond question. In this respect the best skills should be involved in design and construction with the option of having the system maintained by the contractor. The traditional strategy offers the best service in this project. This is so considering the need for clear accountability, the possibility of having the highest work standards and the certainty of the costs involved before the construction begins (Walker and Hampson 2002). The traditional strategy makes it possible to complete work fast as decisions are made fast and possibility of conflicts that may delay the project are minimal under one authority. Conclusion The project that Bestwater is undertaking is one of great magnitude considering the costs involved and the number of parties concerned. Such a project requires proper coordination and interfacing if its success must be guaranteed. The project which is divided into 5 divisions may be coordinated entirely based on the management strategy. The management strategy is more expensive on the whole compared to the other alternatives but makes coordination easy and taking a significant amount of risk from Bestwater as noted by Walker and Hampson (2002). Furthermore special groups are subcontracted such that work that requires higher level of expertise is performed by the best parties. While the traditional method may seem to be more cost effective, it is not the best option when it comes to coordinating projects of this magnitude and involving several contracts and subcontracts. The project is best placed under the direction of one project manager who will coordinate all the relevant parties ensuring that all the objectives of the project are met. References Engineering Construction EDC (1985) Contract strategy: a report on client strategies when letting construction contracts. National Economic Development Office Howes R. (2005) Infrastructure for the built environment: global procurement strategies, Butterworth- Heinemann Legislation (1975) Reservoirs Act 1975. [Online] Available from http://www.legislation.gov.uk/ukpga/1975/23 [Accessed 18th March, 2011] NEC3 (2005) Procurement and contract strategies, Institution of Civil Engineers. Thomas Telford. Great Britain. Telford T. (2010) Nec3: Procurement and Contract Strategies. Inst of Civil Engineers Publishers OGC (nd) Procurement and contract strategies: Achieving Excellence in Construction Procurement Guide. [Online] Available from http://www.ogc.gov.uk/documents/CP0066AEGuide6.pdf [Accessed 18th March, 2011] OGC (2006) Regulatory Impact Assessment - Utilities Regulations 2006. [Online] Available from http://www.ogc.gov.uk/documents/Regulatory_Impact_Assessment_-_Utilities_Contracts_Regulations_2006.pdf [Accessed 18th March, 2011] Walker D. and Hampson K. (2002) Procurement strategies: a relationship-based approach. Wiley-Blackwell. Appendix 1 Bestwater five year Capital Programme 2015 to 2020 investment plan Project Amount In Millions of Euros Mains rehab 200 Sewerage 600 Sewage treatment 800 Dam 300 Telemetry and control 100 Total 2,000 Appendix 2: Evaluation Template Bestwater Project Traditional Contracting Design & Build Contracting Management Contracting Evaluation criteria (appropriate to the client and project) Criteria weight % Score Weighted score Score Weighted score Score Weighted score Opportunity for supplier to innovate to yield the most cost-effective combination of capital construction, maintenance and operation Least disruption in project flow due to perceptions and procedures to meet public accountability – minimization of disputes Certainty of whole-life costs Flexibility to changes Speed of project delivery to occupation/first use Control over detailed design and design quality (a detailed output specification is still required) Control over whole-life health and safety issues Reduction in disputes and in-house costs through single point responsibility Control of sustainability issues Requirement to optimise whole-life cost Total scores Contract strategy ranking by evaluation criteria Preferred order (score and rank combined) Courtesy of http://www.ogc.gov.uk/documents/CP0066AEGuide6.pdf Read More