Road construction project
Road construction project
Road construction Project
1. Project at Construction Company 3
2. Background of the case project 3
3. Best project delivery method for the project 4
4. Best financial contract type for the project 7
5. Best procurement method for the project 8
6. Develop Risk Management Plan including Risk Register, Risk Quadrant Analysis, and risk mitigation plan 8
1. Project at Construction Company
Road construction Project: Project selected for this report is road construction project. On a global scale, innovative delivery methods involving a wider range of service packages are more and more used in road construction projects. Additionally to construction as well as to technical design; financing, operations, and maintenance may be part of the contract for a period of time. This change is the result of customers seeking to focus more on the core business to ensure adequate infrastructure and the purpose of customers and contractors to increase their revenue. Simultaneously, several alternative project delivery techniques are increasing and making it difficult for customers to choose the appropriate method. Therefore, the decision to use an alternative project delivery method is usually subjective.
2. Background of the case project
Our private company funds, designs and builds road project and operates during the designated concession period. Company collects revenue (usually user fees) through operating projects to recover the investment and make a profit. Ownership of project is transfe
ed to the customer. The owner is the initiator of the project development. In most cases, the party is also a source of financing. The owners can be public or private. Finnra is a government agency that manages about 78,000 km of public road networks. As a result, Finnra manages approximately 25% of the Finnish infrastructure sector / 132 /, which makes it an important factor affecting the way infrastructure is purchased. Finnra is responsible for road policy and strategy, safety, traffic management, road planning and procurement of all relevant capital investment plans, regular maintenance, and routine maintenance. Services are obtained through prequalification or open competition, and independent state-owned enterprises that establish and maintain roads must also compete for work. Despite the lack of experienced designers and consultants, the market is highly competitive. This needs to be considered in the regular tendering of large projects. In addition, only a few large national contractors account for the majority of industry revenue, as 90% of market participants are small local companies.
3. Best project delivery method for the project
Traditional procurement of road projects for procurement by the Finnish Roads Authority and its regional offices. The project is a small project and the construction is subject to strict supervision and constraints. 4% of project use construction management, including fees and risks. Design - Construction has become the most common road project delivery method in 69% of the project. So far, the life cycle model has been used only for one pilot project, but their use is expected to increase in the future. A DBOM project has been approved and the DBFO project is in the tender phase. According to customers, traditional project delivery does not help achieve its goals. Knowledge was lost in the process as a small part of the project was signed separately. The constructability of the design may also be poor (Caven, 2013). Therefore, Finnra's goal is a
oader and longer-term contract that encourages innovation, emphasizes life cycle perspectives, and is more economical. The new procurement strategy is expected to save at least €50 million annually due to higher efficiency and higher cost performance. As project delivery changes and responsibilities move from the owner to the industry, the industry needs to be self-organized to better perform the research and development needed to manage the road lifecycle.
Design-Bid-Build: In the DBB, the owner signs a contract with the designer and the contractor. This needs the design to be completed prior to procurement. The contractor is usually selected based on a bid price moreover an agreement is signed with the owner to build the road based on the prefa
icated design. Regular maintenance is commissioned by the customer alone or internally. The designer is responsible for optimizing the design constructability. However, time and budget constraints and lack of construction experience limit the ability of designers to investigate and optimize construction methods and methods (Young and Conboy, 2013) . In general, a constructability review can only be ca
ied out after 85% or more of the design has been completed with minimal time and budget. Traditional methods (CM, DBB) tend to cu
innovation in the private sector, and the responsibility for implementing research lies primarily with the customer. However, some DBB projects are very successful and innovative. The constructability was improved by including some well-known contractors on the short list during the design phase and inviting them to participate in the constructability review (Davidson Frame, 2014). The contractor selects the prequalification based on the prequalification and allows the bid to be submitted after the participation in the constructability review and finalization of the design. Initially, the contractor was reluctant to provide constructive advice, but the partners encouraged them to conduct a detailed assessment of the plan, identify potential construction difficulties, and propose recommendations to change the design and construction process. Through alternative design options, pilot projects, value engineering, incentives/inhibition measures, guarantees, multi-parameter bidding or lane rental a
angements can also encourage innovation. Some states' DOTs (such as Arizona, California) use partners extensively to achieve significant annual savings/4/ (Johnsson, 2012). The collaboration has resulted in significant improvements in teamwork. Project partners have ownership of the project and the entire project is consistent. Partners are committed to solving problems quickly and at the lowest possible level.
Design-Build: Contractors and designers have been having problems in project cooperation between contractors and customers (Klakegg, 2013). The problem with the latter case is that the design company is facing a shift in the value chain because the contractor places himself between the customer and the designer. Therefore, the cultural impact of designers is very important and requires cultural change so that they can effectively collaborate with contractors while taking on new roles. DB saves time (Usmani, 2014). However, customers should ensure that the schedule contains enough design time because the schedule is usually too tight and there is not much time to carefully design the structure, which requires almost the same amount of time to build these structures. In addition to the delivery process, project timing, market conditions, and available contractor capabilities can also have an impact on timelines and costs. In general, the cost certainty of roadwork’s is relatively poor, as projects tend to change (expand) during long-term planning, resulting in an increase in project costs. However, DBs result in fewer change orders than DBBs, which increases cost certainty. In addition, DB projects are generally considered to be very economical for customers54, saving up to 24%/138/ compared to initial cost estimates. Often, quality requirements are not properly set in the final product and intermediate stages. [email protected]
: The CMAR is a delivery method that requires the Construction Manager (CM) to commit to the highest price (GMP) delivery project based on construction specifications. Mostly, CMAR also gives some practical builds of the project based on the availability of the bidder and the company's expertise (Tas, 2012). Additionally, to acting for the benefit of the owner, CMAR must also manage as well as control construction costs that do not exceed GMP, as any cost in the contract which exceeds GMP and is not a change order is CMAR's financial responsibility. Typically, CMAR will provide GMP to the owner prior to the bidding process. This GMP contains an emergency project for the processing of over-bid, reasonably infe
ed projects moreover other project-related projects that may occur throughout construction. By providing GMP to the proprietor prior to bidding, CMAR assumes a higher risk of bidding because he is contractually compliant with its GMP-defined plans and specifications and any additional quota delivery items (Klakegg, 2013).
4. Best financial contract type for the project
Lump sum contract: One-time contracts and experience with contractors have in many cases led to lower profit margins than DBB. Therefore, the joint venture provides a better position for designers. Appropriate risk transfer can be achieved through a one-time contract, and contractors are encouraged to manage their work as efficiently as possible. Customers can predict a fixed one-time contract and require the contractor to adjust cash flow based on job requirements. Cost certainty has also been significantly improved due to a fixed one-time contract. However, the contractor made some negative feedback and they believe that the cu
ent profit level will not last long.
Guaranteed Maximum Price Contract: In case the actual cost of a project is high than the maximum price, the contractor has to bear some additional costs. In case cost is below the maximum price, then the contract should stipulate that the savings are paid to the customer and the contractor is still sharing (Rodriguez, 2018). This can make a "pain
evenue" or target cost Concord where a contractor is motivated to save costs, but the customer has a cost capping security. Therefore, the contractor may increase the price. They effectively price the risks they bear. If the client’s priority is completely deterministic rather than the lowest possible cost, for example, if the customer has fixed funds that cannot be exceeded, then this may be acceptable to the customer.
Cost-Plus Fixed Fee Contract: Such agreements include direct expenditure, purchase or other expenses incu
ed through building business. The cost in the contract requires special information about the contractor's administrative expenses and specific pre-returning profits (a fixed percentage of material and labor costs). Spending needs to be detailed and direct or indirect costs should be divided (Lingard, 2010).
5. Best procurement method for the project
Finnra uses a progressive procurement strategy to solve cu
ent infrastructure problems: lack of innovation, lack of customer attention, poor image and low value-added customer service. Through its new strategy, Finnara's goal is to improve the processes and products of the market. To motivate market participants to seek change, Finnra allows service providers to share their benefits at the outset, believing that customers and society will benefit from the results in the long run. Higher productivity is seen as a prerequisite for price cuts and sufficient industry profits. Productivity can be increased through many alternative routes (Ljungblom and Lennerfors, 2018).
Competitive negotiation process: In these cases, the contracting authority invites candidates of their choice to submit proposals. From the technical compliance tender, it chooses to provide the best price/performance ratio (in the case of service tenders) and the cheapest (in the case of supply or work tenders). Best value purchasing is both a concept and a set of recommended practices. Procurement professionals must understand the BVP concept, fully understand the recommended methods and practices to achieve optimal value, and have the ability to effectively evaluate and apply the most appropriate method for each purchase.
6. Develop Risk Management Plan including Risk Register, Risk Quadrant Analysis, and risk mitigation plan
Our company prepared a fully priced risk register. Then share all the risks and minimize the risk. When contractors and designers participate as early as possible, maximize the risk management. Everyone manages risk well because they have to bear their part through painful sharing (ie by taking on partial cost ove
uns). The problem was handled quickly and effectively, and there was no blame for the two parties. This is why the price is very good. Although risk management has been good, the risk assessment system still has the potential for improvement. When the contractor takes most of the risk, the customer can emit a wide range of risk assessments (Lock, 2013).
However, sometimes seeking to increase price certainty by transfe
ing risk without fully recognizing the contractor's ability to acquire and manage these risks requires an appropriate risk mitigation plan. In addition, customers are concerned that the private sector is unable to properly price risk because companies often wo
y about pricing themselves in competition. In order to minimize these problems, a risk quadrant analysis was prepared today with the bidders of the risk workshop. In the workshop, potential risks are listed, priced, and the parties negotiate risk sharing based on their ability to handle these risks. The IAEA even tried to establish a common risk register.
The Agency’s new procurement strategy will result in fewer and longer-term suppliers in the market. Seek long-term partnerships to retain successful teams and allow for maximum use of the skills and inputs that have been developed (Mir and Pinnington, 2014). These integrated delivery teams will be responsible for providing the entire mini-engineering program for 10 years, not just individual projects. Using an integrated team will accelerate project delivery, encourage the development of small and large contractor communities, develop best practices, improve quality and ensure the best price and more efficient project delivery (Loosemore, 2016) .
The infrastructure sector of our company is undergoing major changes in the way roads are purchased and delivered. Customers are actively tracking the experience of foreign markets to ensure the best way to deliver projects. The client aims to reduce his project management and project cycle time and realize the value of money delivery through effective procurement. The scale of the project continues to expand and the contractor’s responsibilities are expanding. Therefore, adopting these new ways of operation requires cultural changes in the industry. Even if these changes are considered beneficial, there are some resistances. The DBB is still used for 24% of road projects (by value) and is considered a suitable project delivery method in highly restricted projects. The local authorities also use DBB as the main project delivery method. Construction management has been used in 4% of projects, but it is not considered a future project delivery method. However, pure architectural advice will be used more and more. In general, DBB and CM are not considered to encourage industrial development.
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Road construction project
Road construction Project