While there has been much analysis and discussion recently regarding the National Children’s Hospital project and the governance approach taken to get the project to this stage - developing the optimal procurement strategy for a construction project is a key step to ensure the probability of a project’s overall success with a range of risks and benefits associated with any given approach. In the case of the Children’s Hospital the key project objective, to start early on site in advance of a fully detailed design being prepared, appears to have been a key decision criteria in the choice of the procurement approach taken.
As part of an overall project governance approach careful upfront consideration needs to be given to development of a procurement strategy to match a project’s overall objectives and a Developer’s risk profile. In the linked paper (Minimising Risk In Construction Procurement) the main approaches are described and the issues to consider in order to develop a procurement strategy discussed.
The procurement strategy looks to optimally transfer and minimise the risks that a Developer of a construction project will face during a project’s lifetime. This strategy comprises several elements including the overall management approach and procurement system. Inherent in each choice that a Developer makes for each of these elements is a trade-off between the competing objectives of schedule, cost and quality. In the case of the Children’s Hospital the benefits of an early start on site in an inflationary construction cost environment were to be balanced with the lack of cost certainty of the procurement approach taken.
Time spent up front, using the stepwise structured approach described in this paper, through considering the risks and constraints inherent in a project and their impact can help determine the optimal mix of delivery system and contract approach for a project. Deciding and delivering involves several steps:
1. Determine the Procurement Route
The procurement route (tactics) delivers the strategy. It includes the contract strategy that will best meet a Developer needs. Having an integrated procurement route ensures that design; construction, operation and maintenance are considered as a whole and that the delivery team work together as an integrated project team.
2. Contract Strategy
The contract strategy determines the level of integration of design, construction and ongoing maintenance for the project and should support the main project objectives in terms of risk allocation, delivery, incentivisation and so on.
3. Identifying the project constraints
As each development project has a set of associated risks and constraints these must be considered at its initiation in a structured manner. The initial stage of a construction procurement strategy evaluation involves detailed identification of the constraints which surround the project and looking to identify how such constraints impact on the risks associated with the procurement route chosen. The constraints can be broadly grouped as financial, physical, geographical, program, functional or design constraints.
4. Evaluate the risks of single v multi stage approach
The main objective of the process will be to establish the risks inherent in a specific procurement route for a project and to ultimately recommend a procurement route that will optimally allocate these risks between Contractor and a Developer. The initial step looks at a single v multi stage delivery system approach with the first stage identifying the critical issues for a Developer to choose the optimal delivery system. The system should be chosen that offers the desired risk level to a Developer. Having made that decision the approach then looks at each contract in detail and determines the optimal contract type to be used.
5. Determine what is important to the project and pick the right contract approach to deliver
The final step in making the strategy live is to finalise the procurement objectives and to compare the ability of each contract approach to meet the objectives (for each package assuming a multiple contract approach). The decision criteria used to make this choice are closely linked to project objectives, both tangible, such as time and cost and intangible such as buildability and relationship. They can be established through reviewing previous projects, thinking about past experiences and then selecting those criteria that are relevant to a project. The decision criteria are weighted in terms of relative importance using a suitable weighting approach.
In summary, project teams need to be aware of the advantages and disadvantages of each approach in order to best develop and deliver an optimal procurement strategy that balances risk, control and cost certainty in line with the overall project objectives. The delivery system and the contract approach chosen at the end of the process outlined becomes this procurement strategy – the approach which identifies the best way of achieving the objectives of the project and value for money, taking account of the project’s risks and constraints. The aim of the procurement strategy development process outlined in this paper is to achieve this.
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