Contracts & Procurement - Essay Example

Contracts & Procurement Table of Content Serial Number and Heading Page Number 0 Overview 02 2.0 Introduction 03 3.0 Planning 04 3.1 Partnership Contract 05 3.2 Estimation 07 3.3 Commercial Management 08 4.0 Execution 09 5.0 Conclusion 11 6.0 References 12 1.0 Overview Whitegates hotel and country club development is a proposal put forward by Heriot developments. This property is to come up on the existing 35 acre land on the periphery of the town. Bad governance by the Watt family (who owned this property), brought about their down fall. In order to sustain themselves, the family sold this property to a consortium of businessmen for an undisclosed payment. Heriot development, the consortium, now plans to develop this site to accommodate a hotel and country club. The existing Whitegates House is to be converted into a luxury hotel. This hotel will have the main reception, lounge bar, restaurant and function/conference facilities. Apart from this, there is a proposal to construct two extension buildings. One of these will be utilised to accommodate 100 bedrooms and associated facilities, while the second one will be used to house a country club consisting of a swimming pool, sports hall and gym with associated facilities such as reception, changing areas, bar and a bistro restaurant. A part of the remaining land will be used to build a golf course. The existing Whitegates Lodge will be converted to a clubhouse. The directors of Heriot developments are all experienced in the catering and leisure industry, which gives them a detailed understanding of the needs of the business once the development is complete. With their expertise and market experience, the directors are sure to attract more clientele, increasing revenue considerably. However, they are grounded by the fact that they do not have the necessary skills to successfully manage the design and construction of their proposed project. They have limited awareness of the various reviews of the problems of the construction industry, and the resulting recommendations to solve them. They seek the professional guidance of Richard Arton Associates, a famous project management consultancy in that locality. The consortium is aware that they must keep in mind the consequence of such a project within the local area and are keen to use the development stage to create a positive image within it. A prestigious, high quality development, the directors are prepared to meet the financial costs to see this project take-off. However, they don't the cost to escalate and lead to operational complications later on as has happened on many high profile projects, but would like the project to be completed early so that their venture can begin to generate income from the facility. 2.0 Introduction There are many factors that can help implement a project successfully. Of these, we can broadly base the most important categories under: 1. Project-related factors 2. Project procedures 3. Project management actions 4. Human-related factors 5. External environment Heriot developments are in the process of launching their prestigious hotel and club project. They have acquired a prime property which was earlier owned by the Watt family. The 35 acre property came along with two buildings that could be used to begin the consortium's business launch. This is a major boost to the consortium's plan to set up a hotel and club there. The fact that the Watt property provided ample space to innovate and was located on the peripheral of the town gave Heriot developers unrestricted access to movement of machinery and labour. There would be no sort of obstruction of city life, which could have been a thorn in their flesh. On the whole, the property that the partners bought from the Watt's is definitely worthwhile. The recommendations of the directors of Heriot, who are all by profession, experienced caterers and other wings of the hospitality industry, to start a hotel and club is most feasible. The directors are well qualified and know their strengths. With their years of experience behind them, they should be able to implement a scheme that will not only bail out the sinking estate, but invigorate their dream project. Project management foresee or predict the many pros and cons as possible to plan, organise and control activities so that the project is completed successfully with the minimum risk. This paper takes a look at some of these components in an effort to strike a right balance between planning and execution of the project. 3.0 Planning Planning is an important ingredient of a business strategy. Unless there is an effort to implement proper planning, the project execution may go haywire. An individual or a partnership that plans a project of significant size (Heriot consortium plans to launch a mega hospitality project on the Watt estate), will run into numerous bottlenecks that are far from comfort, both within and outside the project organisation, unless they are planned properly. Proper planning can influence the project scheduling and execution. A simple example to this effect is the avoidance of unnecessary overheads, synonymous of mounting expenses in infrastructural development. There is a lot that goes into getting a business relationship on the road. Right from identifying suitable business partners, business location, nature of business, and financial implications, planning is imperative to the success of any business. Imagine two friends who got together to set up a car wash workstation in the hope of doing well. Unmindful of the liabilities and risk involved, they spend all their hard earned money, along with borrowed money on developing the infrastructure. Once they begin to execute their project, the two start running into unforeseen problems. Labour and raw material prices begin to escalate, infrastructure development begins to drag, mounting pressure from financiers become immense, and the two friends find themselves in debts. The project gets truncated and the partners face bankruptcy. As they had no formal partnership deed or contract, the smarter of the two would walk away, leaving the other to face legal action. This is a far cry from what professional planners would do. Planning involves market study, financial implications, availability of raw materials, labour costs, and so on. If the two friends had planned their business development properly, they would not have come to face such debacle. 3.1 Partnership contract: The first and foremost initiative at the start of a business, in the case of a partnership, is the partnership contract. Most business partnerships are formed and regulated under the Partnership Act of 1890 (PA 1890), which defines partnership as 'a relation between persons carrying on a common business with a view of deriving profit'. For establishing a partnership, there must be a minimum of two individuals who pursue a business to generate profits mutually accepted by them. In a partnership, all activities will be carried out in partnership, and all partners are jointly liable for any profit or loss to the company. They are also liable for jointly and independently for torts committed by partners and employees of the firm (PA 2890), even if the partners don't have an active part in the management of the business (Stephen Judge, 1995)1. In accordance of the partnership, partnership property must be held and applied exclusively for the purpose of the business assigned by the partners. This will include, property originally brought in and property acquired on account of the firm or for the purposes and in the course of the partnership business. Unless the contrary intention appears, land held by the partnership is converted to personal property (Stephen Judge, 1995).2 Partners under the above binding will therefore and should be made accountable for all activities of the organisation. In order to make the project a success, each member of the consortium should be allotted different portfolios to prevent any unpleasantness that may arise out of focus. Thus, while recommending the implementation of a partnering approach for theprocurement and execution of a project, all relevant stakeholders should be involved to make the project a success. The various issues that require the involvement of stakeholders is shown herewith. 3.2 Estimation Estimation is very important to the success of a business. By estimation we mean, time frame and financial implication. It is quite clear that the better the project can be defined at the outset, the less chance there will be of making estimate errors and cost escalation. Free planning is the acceptance of each member of the consortium or partners to set and identify a scheduled time frame for the completion of a project development. In such a scenario, completion schedule is produced through estimates, with no external pressure, and allows the planners to follow a schedule well within their capability. As mentioned above, an accurate estimate of project costs is necessary for subsequent management decisions and control. This may not be possible with price escalations during the project development, however, with more continuity, a tab on the market trends can be pursued and price escalation reduced. The most obvious reason for cost estimations is to assist in pricing decisions, but then, there are far more important aspects to this: Timescale planning, pre-allocation of project resources, the establishment of budgets for funding, manpower and cost control are a few of the areas that demand the provision of sound estimates3. Though this again may seem incredulous to achieve, with a sustained effort, all stakeholders to the project can be given separate portfolios to focus on and deliver better understanding and report. No matter one tries, there will always be some flaw in their estimate. However, with sure planning, cost escalation can be minimised and brought under control. Estimating will and should remain an element of personal judgement (Dennis Lock, 2000)4. 3.3 Commercial Management Once the project has been identified (Heriot developments have proposed to run a hotel and club on the property bought from the Watts), the next important feature in management is the segregation of portfolios to its stakeholders. This is decided based on the nature and size of the organisation. The commercial departments can be the marketing, purchase, logistics, Human Resources, or legal. In the case of a large company; as is the case with Heriot, the departments need to be managed by individuals who are proficient with their allocated department. The major portfolios such as financial project appraisal, project funding, contracts, and credit control are concerned, must be left to the top management or directors5. 4.0 Execution In order to execute a project, there must be a contract, contracts such as, a contract between the client and builder, contract for supply of materials, labour contracts and so on. The contract is in effect a legal binding between two parties on the basis of a verbal or written agreement. This contract will guide and protect the two parties to the signatory in routine administration of the contract, and in necessary, as evidence in the event of a dispute. Whenever necessary, any subsequent amendments to the original contract will be recorded on suitable documents. The following indicate some conditions that are pre-requisites to legally bind a contract. The following notes are a summary and do not list the exceptions: Intention: Unless the parties intend on having the contract as a legal binding, it becomes more of a gentleman's agreement. In such a case, should a unforeseen problem arise, there may not be any concrete supportive document to substantiate any one party to the case. In most cases, job offer acceptance, vendor supplies and logistics, construction work, are all legally binding. Consideration: A contract usually results in each party promising the other a valuable benefit for obliging a contract. In projects, this usually means that one party promises to deliver certain goods, property or services by a specified date and the other promises to accept the goods, property or services and pay for them. Failure of one party to keep its promise can lead to action by the other for breach of contract6. Risks, such as supply uncertainties, labour problem, backlog in work completion schedules, and so on can affect the accuracy with which the project was defined, estimated and budgeted. In order to protect the client in such a situation, the contract between the customer and his/her contractors will ensure that any loss incurred due to this, is shared among the two parties. Performance Incentive: A customer would only be too happy to reward his/her contractors for their performance. A customer can reward the contractors through incentives for completion of the project on time, or for completion of the project within the allocated budget, provided, the work reflects a standard on workmanship and quality. Similarly, a penalty clause can also be included in the contract to curb failure in honouring a commitment and performance. Penalty can be through payment calculated according to the number of days, weeks or other stated periods by which the contractor is late in successfully completing the project.7 Purchase: The importance of purchasing and materials control is that goods purchased for the project consumes over half the total project cost. Therefore a lot of thought and permutations need to be considered while considering purchase. Space: Space is a defining platform to the growth of a business. In terms of revenue earning, space plays a vital part. In the case of Watt's estate, we see that the property sold to Heriot was 35 acres. The directors were forthright in identifying the maximum usage of the space available in the estate to increase future revenue and business. Once all the above factors are put in practice, Heriot developments will find that they have made remarkable progress on their way to a successful business. 5.0 Conclusion Contracts and procurement remains a formidable tool in the development and success of any business plan. Unless these two tools are employed professionally, customers can run into unforeseen trouble that can break the backbone to sustainability, let alone success. In the case of Heriot developments, the directors to the consortium are by profession, hoteliers. Their ambitious plan to convert Whitegates House and Lodge to a luxury hotel and club are well defined. They lack the administrative quality to deal in the restructuring of the property. By following the general rules of contracts and procurement processes, they stand to develop their business into a mega success. 6.0 References 1.0 Dennis Lock, Project Management, 7th Edition, Gower Publishing Ltd., 2000 2.0 Stephen Judge, Business Law, MACMILLAN Press Ltd., 1995 Read More