Management Contracting - Essay Example

?Management Contracting Management contracting has diversified the approach to contracting in a number of ways to provide flexible as well as fixed contracts. Employers may choose to use any types of contracts in order to deal with design, building, procurement and other aspects of construction. Typically it is up to the requirements of the individual build to define the most suitable form of contract. The current situation at hand requires that a flagship store be built for a high value client. This indicates that the build needs to provide the client with a fresh and innovative design. There might be chances that the unique design would require special expertise in modern construction techniques. Therefore, it could be surmised that the required building requires innovation in both the design and construction phases. The different options available to the client are presented below including the design and build approach as well as the NEC3 approach to discern a fitting solution for the issue. 1. Design Build Approach The design and build approach to construction is a project delivery mechanism that relies on a single entity to design and then deliver the project to the customer. This approach stands in contrast to the design-bid-build approach and serves to use a single point of responsibility contract. This type of contract is construed to minimise the risks to the project owner and to reduce the delivery time to the customer by overlapping the design and construction phases. The design and build approach provides single point responsibility which is optimal for contractual remedies. As the work from design to construction has been carried out by one contractor so it is easier to pin responsibility for faults at any stage of the project (Murdoch & Hughes, 2007). However, it has often been criticised that the design and build approach tends to limit the client’s involvement with the design phase. Consequently, the contractor takes design decisions that lie well beyond their actual expertise. The contractor’s focus is to save as much as possible by aligning the design phase with the construction phase’s stipulations such as cost, profits and time exigencies. It is alternatively argued that the designer as a separate entity is a better advocate of the project owner’s perspectives (Cushman & Loulakis, 2001). Furthermore, it is considered that using the design and build approach tends to produce projects that are poorly adapted to complex technical or aesthetic requirements (Quatman & Dhar, 2003). Additionally it is argued that the design and build approach fails to utilise competitive bidding so that prospective builders might bid on the very same design. The selection criteria for contractors is often subjective and becomes hard to justify in the later stage of the project (Broyles, 2011). In contrast research has shown that the design and build approach provides projects 33.5% faster than projects built using the separate design and build approaches. In addition the same research has highlighted that the design and build approach allows 12% faster construction along with a 6.1% lower unit cost (Construction Industry Institute, 1998). 2. NEC3 Approach The New Engineering Contract (NEC) is a formal system of contracting adopted by the Institution of Civil Engineers which provides guidelines for drafting various kinds of documents for construction projects. These documents relate in general to obtaining tenders as well as awarding and administering different kinds of contracts (Gerard, 2005). In legal terms these prescribe the duties and responsibilities of Employers and Contractors through the Works Information (Brook, 2004). In itself the Works Information comprises of the Contract Data part one which details the Data provided by the Employer as well as the Contract Data part two which details the Data provided by the Contractor. The flexibility provided by this contracting approach makes it a popular choice as it provides the Employer and the Contractor with a number of choices for contracting (Patterson, 2007). There have been three versions of the NEC framework with the latest being labelled as NEC3. Overall, the NEC is a set of standard contracts that promote first-class management as well as the development of a relationship between both involved parties with respect to the work involved. These contracts are applicable to a number of different commercial situations, for various work types based in any location. The biggest advantage of using the NEC3 is that the document is clear and simple and utilises a readily understood structure and language. Furthermore, the NEC3 is fully compliant with the Achieving Excellence in Construction (AEC) principles. The NEC3 framework provides six major options for contracting that vary risk allocation and reflect modern procurement practices. These options are (Gould, 2007): Option A (priced contract with activity schedule); Option B (priced contract with bill of quantities) provides that the contractor will be paid at tender prices leading to a lump sum contract approach; Option C (target contract with activity schedule); Option D (target contract with bill of quantities) provides that the financial risks are shared between the contractor and the employer in agreed proportions; Option E (cost reimbursable contract); Option F (management contract) is a cost reimbursable contract where the risk is largely assumed by the Employer. The Contractor is only paid for his properly incurred expense along with a predefined margin. In addition, the NEC3 framework provides for early warning along with legal flexibility to investigate and pin the blame depending on the choice of contract family in use (GMH Planning, 2012). The flexibility and adaptability offered by the NEC3 framework makes it an ideal choice for awarding and administering a contract. 3. Conclusion For the case of the customer being discussed it would be highly appropriate to suggest a NEC3 framework based contract. Provided that the client is not a regular Employer and has little experience in dealing with construction contracts it would be best to suggest Option D (target contract with bill of quantities). It could be argued that Option F was a better choice but given the Employer’s inexperience in dealing with these issues it would be best to limit financial and other risk based exposure. Moreover, the design contract should be well separated from the construction contract in order to ensure that the best possible Designers and Contractors bid for both aspects of the project. This in itself will ensure competition and better results. Furthermore, the use of the NEC3 framework on both the design and the build fronts will ensure that cooperation is promoted along with a sustainable working relationship. 4. Bibliography Brook, M., 2004. Estimating and Tendering for Construction Work. London: Butterworth-Heinemann. Broyles, L., 2011. Design/Build VS. Architecture Firms. [Online] Available at: HYPERLINK "http://www.constructiondigital.com/architectural_design/designbuild-vs-architecture-firms" http://www.constructiondigital.com/architectural_design/designbuild-vs-architecture-firms [Accessed 11 March 2012]. Construction Industry Institute, 1998. Project Delivery Systems: CM at Risk, Design-Build, Design-Bid-Build. Research Report. Construction Industry Institute. Cushman, R.F. & Loulakis, M.C., 2001. Design-Build Contracting Handbook. New York: Aspen Law & Business. Gerard, R., 2005. Relational contracts—NEC in perspective. Lean Construction Journal, 2, pp.80-86. GMH Planning, 2012. NEC3 Guidance Notes. [Online] Available at: HYPERLINK "http://gmhplanning.co.uk/nec3-guidance-notes/introduction/" http://gmhplanning.co.uk/nec3-guidance-notes/introduction/ [Accessed 12 March 2012]. Gould, N., 2007. NEC3: Early Warning and Compensation Events. Research Report. London: Fenwick Elliot Fenwick Elliot. Murdoch, J. & Hughes, W., 2007. Construction Contracts: Law and management. 4th ed. London: Taylor & Francis E-library. Patterson, R., 2007. NEC3: Introduction to NEC contracts. In NEC Annual Seminar. Wellington, 2007. Quatman, G.W. & Dhar, R., 2003. The architect's guide to design–build services. New York: John Wiley & Sons Inc. Read More