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7/27/2019 Tute -06.11.2011
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INNOVATIVE PROCUREMENT
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INNOVATIVE CONSTRUCTION PROCUREMENT
Gives the client more input into cost and quality
Client needs a management with strong
leadership and teamwork qualities in order to
produce what is expected. Such procurement was introduced to accommodate
forever increasing diversity, complexity and
standardisation of building techniques
Direct involvement of the manufacturer in terms of
design, costing and logistics
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INNOVATIVE CONSTRUCTION PROCUREMENT
(CONT.)
The management structure of this form of
procurement is organised hierarchically
according to the stages of product development.
Use of non-traditional delivery system cancreate greater risk of misunderstanding Scope
of work / compensation are changing
continuously Innovative project delivery systems can blur the
traditional roles and responsibilities of
participants
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EXPLANATION OF PROCESS
Owner established budget and building criteria
Owner selects the design team
During the design-development phase, owner
advertises for and selects a construction firm
based on predetermined criteria to join the
owner/design team.
Firm assists in completing the design andestablishing a guaranteed maximum price
(GMP)
All trade work is bid competitively by the CM/GC
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PROJECT CHARACTORISTICS
High risk projects
High level of technical complexity
Strict budget constraints
Complex phasing Significant scheduling constraints
Complex site constraints such as unusual
topography Value engineering that would result in
substantial cost savings
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TWO STEPS SOLICITATION PROCESS
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MANAGEMENT-ORIENTATED PROCUREMENT
SYSTEMS
Defined as a process whereby an
organisation, normally construction
based, is appointed to the professional
team during the initial stages of aproject to provide construction
management expertise under direction
of the contract administrator
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MANAGEMENT-ORIENTATED PROCUREMENT
SYSTEMS
KEY POINTS
The contractor is appointed on a professionalbasis as an equal member of the design teamproviding construction expertise
Reimbursement is based on a lump sum or percentage fee for management services plus theprime cost of construction
The actual cost is carried out by works or packagecontractors who are employed, co-coordinatedand administered by the management contractor
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COMPARISON OF PROCUREMENT SYSTEMS,
SOURCE OF RISKS AND CONFLICTS
Responsibility for decision
Constriction isstarted withoutknowing theconstruction costs
Preparation Design
Tender
Construction
Cost
Start
Modernmanagerial
typed system
Construction is
being started
knowing the
construction costs
Preparation Design
Tender
Construction
Cost
Start
Traditional
system
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Construction Management
CM
Management ContractingMCClient
Designer
Contractors
Client
Designer
Inspector
Supervisor Construction
Manager Management
Contractor
Inspector
Supervisor
Contractors
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MANAGEMENT CONTRACTS (CM, MC…)
Characteristics
Management team is involved at early stage
Design can be influenced (buildability)
Claims can be solved, delays reduced Save time – series of tenders, work packages
Flexibility in design to suit the client
to suit the budget
More risk in design – higher requirement in design
No assured final cost at the start of construction
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CONSTRUCTION MANAGEMENT
Many owners engage construction managers(CMs) to assist in developing bid documentsand overseeing project construction.
CM: Is a professional or a firm trained in the
management of construction processes.
Is generally interposed between the owner andsome or all of the other participants.
There are two general types of CM: Agency Construction Managers (ACM)
Construction managers-at-risk (CM-at-risk)
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AGENCY-CONSTRUCTION MANAGER
(AGENCY-CM)
ACM acts as an agent of the owner and extends
the owner’s internal capabilities in performing
traditional owner responsibilities.
The level of service by the ACM can range from on-call advice to full project management.
In some cases, the owner hires the ACM before
design begins and ACM may participate in the
selection of and contracting with the designer or
might even be the designer.
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AGENCY-CONSTRUCTION MANAGER (AGENCY-
CM)
Agency-CM (also known as Program Management for multiple contracts or programs) is a fee-based service inwhich the construction manager (CM) is exclusivelyresponsible to the agency and acts as the agency’srepresentative at every stage of the project.
The CM is selected based on qualifications andexperience, similar to the selection process for designservices.
CM responsibilities may include providing advice duringthe design phase, evaluating bids from prime contractors,overseeing construction, and managing project cost,schedule, and quality.
The CM may work with the designer or contractor toreduce the cost, but does not guarantee price or take onthe contractual responsibility for design and construction.
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AGENCY-CONSTRUCTION MANAGER (AGENCY-
CM) - CONT.
Objective• Supplement in-house staff with independent professionals
having expertise in project management, scheduling, andcost control
• Time savings by fast-tracking construction
Project Types/Selection Criteria
• Agency must supplement its internal resources andmanagement expertise given the project’s size or
complexity• Large, complex (multi-season) projects with multiple
phases or contracts
• Fast-tracked construction (using phased packages) ispossible
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PROS & CONS
Pros Cons
Earlier involvement of CM (constructor)bridges design and construction phases
High agency involvement (in comparison toother innovative delivery systems)
Furnishes construction expertise to designer CM not at risk for construction cost
Provides the opportunity for “fast-tracking” or
overlapping design and construction phases –
faster than traditional design-bid-build system
Unlike CM at-Risk, Agency-CM services are
not regulated by state licensing laws for
contractors or A/E firms
Augments the agency’s own resources to help
manage cost, time, and quality
Agency continues to hold construction
contracts and retains contractual liability
Procuring separate design and construction
contracts is less change for agency
Added project management cost for CM
services
Provides an independent point of view
regarding constructability, budget, valueengineering, and contractor selection (No
inherent bias towards design or construction)
Agency cedes much of the day-to-day control
over the project to the CM, adding a level of bureaucracy in the field
Potential to fast-track early components of
construction prior to completion of design
Reduces the agency’s general management
and oversight responsibilities
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CONSTRUCTION MANAGER AT RISK
(CM AT-RISK)
CM-at-risk arrangement increases significantlyowner’s delegation of control and risk.
CM-at-risk typically contracts with the owner in twostages.
First, CM-at-risk manages and undertakes servicesduring conceptual & preliminary design phases withthe design professional.
When design is complete, owner and CM-at-risk then
agree on a price and schedule for the completion of the construction work.
CM-at-risk is popular for owners of private projects.
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CONSTRUCTION MANAGER AT RISK (CM AT-
RISK)
With CM at Risk, the agency engages a constructionmanager (CM) to act as the agency’s consultant duringthe pre-construction phase and as the general contractor (GC) during construction.
During the design phase, the CM acts in an advisory role,providing constructability reviews, value engineeringsuggestions, construction estimates, and other construction-related recommendations.
At a mutually agreed upon point during the designprocess, the CM and the agency will negotiate aGuaranteed Maximum Price (GMP).
The GMP is typically based on a partially completeddesign and includes the CM’s estimated cost for theremaining design features, general conditions, a CM fee,and construction contingency.
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CONSTRUCTION MANAGER AT RISK (CM AT-
RISK)
The construction contingency can be split into CMand agency components.
The CM contingency will cover increased costs dueto unavoidable circumstances, for example material
escalation.
The agency contingency would cover cost increasesfrom agency-directed or agency-caused changes.
The construction contingency can be handled indifferent ways under the contract.
Unused CM contingency can be returned to theagency, shared by the agency and CM, or given tothe CM.
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CONSTRUCTION MANAGER AT RISK (CM AT-
RISK) Agencies are increasingly experimenting with sharing the
contingency pool with the CM to provide the CM with an incentiveto control cost growth associated with change orders to meet theGMP.
The agency may elect to remove pricing of some material or workitems as part of the GMP if pricing of these items results in anexcessively high CM contingency or GMP.
For example, if the price of steel were too volatile to achieve anacceptable GMP, the agency could establish a separate bid itemand pre-pay or pay for the steel directly under this item at actualcost.
After the GMP is established, the CM can begin construction,
allowing for the overlap of the design and construction phases toaccelerate the schedule.
Once construction starts, the CM assumes the role of a GC for the duration of the construction phase.
The CM holds the construction contracts and the risk for construction costs exceeding the GMP.
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CONSTRUCTION MANAGER AT RISK (CM AT-
RISK) Objective
• Time savings by fast-tracking design and construction in phasedpackages
• Transfer performance risk to CM
Performance Outcomes
CM at-Risk costs 1.5% less than DBB, completes 5% faster thanDBB, and performs equal to or better than DBB in most qualitymeasures. (Sanvido and Konchar 1999)
Project Types/Selection Criteria
• Large projects with multiple phases and contracts• Fast-tracking – Staged construction
• Limited internal agency management resources and expertise
• Limited time or funding constraints
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PROS & CONS
Pros Cons
Allows for innovation and constructabilityrecommendations in the design phase, yet the
agency still retains significant control over the
design
Once construction begins, the CM assumesthe role of a general contractor, leading to
possible tensions with the agency over project
quality, budget, and schedule
CM holds construction contracts, transferring
performance risk to GC
GMP approach may lead to a large
contingency to cover uncertainties and
incomplete design elements
GC puts more investment in cost engineering
and constructability review than with CM-
Agency
Incentive split of savings scheme may create
perception of inflated GMP
Fixes project cost and completion
responsibility earlier than Design-Bid-Build
CM input may not be included by designer
Use of a GMP with a fixed-fee and opportunityfor shared savings provides an incentive for
CM to control costs and work within funding
limits
Use of a GMP may lead to disputes over thecompleteness of the design and what
constitutes a change to the contract
Reduces agency’s general management and
oversight responsibilities
Agency retains design liability
Potential to fast-track early components of construction prior to complete design
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THE PORTLAND METHOD
Named after the City of Portland, Oregon where it wasused, is a hybrid CM at-Risk delivery method using acost-reimbursable, fixed fee approach to compensation.
The delivery is structured into three phases, procurement,pre-construction, and construction.
In the first phase, the agency procures the contractor using a best-value process.
The proposer is selected based on qualifications and afixed fee “bid” covering the contractor’s off -site and onsiteoverhead, including superintendents, management staff,
other general conditions costs, and profit, for the life of the project.
In the event that differing site conditions increase overallcontract time or extra work is ordered in writing by theagency, this fixed fee may be renegotiated accordingly.
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THE PORTLAND METHOD
During the pre-construction phase, the contractor provides designreviews and construction planning, with a focus onconstructability, value engineering cost and time reductions, and joint risk assessments.
These efforts culminate in the development of an estimatedreimbursable cost (ERC).
The intent is to establish reasonable construction costs for labor,equipment, and materials, which factor in the costs of unknownswithout establishing a separate contingency.
After comparing the ERC with the “Engineer’s Estimate,” thecontractor and agency negotiate a final ERC and combine thiswith the fixed fee to establish the contract amount.
Finally, the contractor will submit a cost control program andsubcontracting plan for construction.
In the final phase, the general contractor will construct the projectby self-performing work on a reimbursable basis and sub-contracting work using firm-fixed-price agreements.
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THE PORTLAND METHOD
The Portland Method differs from conventional CM at-Risk in that it uses an ERC instead of a GMP.
The ERC shifts less risk to the contractor to meet setfunding limits.
Also, the Portland Method places no limits on the
amount of work that the prime contractor may self-perform, a common restriction found in CM at-Riskcontracts.
Objective • Early contractor involvement (design and planning)
to reduce cost and schedule.
• Time savings by fast-tracking construction
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PROS & CONS
Pros Cons
Allows for innovation and constructabilityrecommendations in the design phase,
yet the agency still retains control over
the design
Once construction begins, the CMassumes the role of a general contractor,
setting up traditional contractual
relationships with agency and designer,
and potential for disputes over project
quality, budget, and schedule
Fixes project cost earlier than Design-
Bid-Build
Best suited to specialized work (e.g.
tunnelling) with significant risk of cost
and time growth
Potential to fast-track early components
of construction prior to complete design
Agency retains design liability and
greater risk of differing site conditions
In comparison to CM at-Risk with a
GMP, reimbursable cost basis shifts less
performance risk to the contractor
Provides no added incentive to motivate
contractors to control costs
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DESIGN SEQUENCING
With design-sequencing, the agency sequences design activities in amanner that will allow the start of each construction phase when thedesign for that particular phase is complete, instead of requiring thedesign for the entire project to be complete before allowing constructionto begin.
The agency delivers the remainder of the design by predetermineddates after construction has started.
To implement design-sequencing, the agency develops plans and anestimate to a level sufficient to define the project scope and to allow thecontractor to select anticipated subcontractors.
The bid documents must contain all anticipated items necessary for thecomplete design, regardless if final quantities have been determined.
Due to the potential for agency-caused delays in releasing subsequentdesign sequences, design-sequenced projects typically do notincorporate other time-saving contracting techniques, such as A+Bbidding or Incentive/Disincentive provisions.
Objective
• Accelerate project delivery by allowing the agency to award a projectbased on plans that are, on average, 30 percent complete
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PROS & CONS
Pros Cons
Faster project delivery The agency retains the risk for variationsin the bid quantities
Potential for construction inefficiency due
to conflicting or overlapping work
between the initial sequence and
subsequent sequences
Unanticipated site conditions or third
party conflicts during construction may
impact ability of a design-sequenced
project to generate time savings
ADVANTAGES & DIS ADVANTAGES
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ADVANTAGES & DIS-ADVANTAGESPros Cons
Contractor selected based on qualifications Requires knowledgeable and experienced owner
Contractor assists in design Higher initial cost
A GMP is established prior to bid
Early advice can be obtained from the
contractor/manager on design, buildability,
programming, materials availability and together with
general construction expertise.
Elevation of the contractor to the status of a client’s
adviser/consultant with the result that the
contractor’s contractual liabilities are limited, in the
same way as other members of the professional
team, to accepting responsibility of negligence in the
performance of his management role
Fewer change orders – fewer claims
Since the financial structure of this system is
fragmented, the monetary failure of any works
contractor will only have limited effect overall
process.
Although the contractor/manager is responsible for
supervising construction and ensuring that work isbuilt to the standards identified by the design team,
the fact that his obligations are limited to his
management capabilities means the client is liable
for the cost of remedying any defects.
Time savings (work can start prior to design
completion)
This system has a high degree of flexibility to allow
for delays, variations and rescheduling of work
packages.
The whole issue of maintaining quality control is
problematic when using this procurement system.The client may need to appoint additional site
supervision to avoid difficulties in determining the
responsibility for defects and to ensure that the
specified quality is achieved.
Less adversarial
Commencement of the project is accelerated, which
The client does not have a firm price tender available
before commencing work although both private andpublic accountability can be partially satisfied as the
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ONE STEP TOWARDS A SUCCESSFUL PROJECT
To choose appropriate procurement system and appoint
the manager as early possible for maximum benefit
Characteristics of the delivery system have to be
understood by the participants Contract has to contain reasonable allocation of
activities, responsibilities and risk
All the participants have to recognise responsibilities, act inpartnership
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COMPARISON
Design-Bid-Build Design Build CM/GC
Statutes Preferred Statutes allowed Statutes allowed
Lowest first cost First cost on budget Higher first cost
Final cost ? Final cost ? Final cost ?
A/E completes design Design firm and contractor selected as one based on
criteria
Select contractor basedon
criteria
Advertise Owner has little or no
input
into design
CM assists in design
Select low bid Owner has no risk? Prepare bid package
Owner risk Shared risk
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PROJECT DELIVERY SYSTEMS
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PROCUREMENT
Can help to reduce conflicts on construction projects
Proper choice and fully understandingof delivery system