Week#7.1_Monigha Idubamo_ Selecting contract type for Fence project.

Introduction
The Management committee set-up a Project Management Office (PMO) and mandated the PMO to study/recommend a contract that will see the project delivered within six months. There will be no extra spend on budget provided and work delivered in the best quality.
With the detailed design, technical evaluation and commercial bid concluded, it was now left to select and recommend the best contract type for award.
Root cause analysis
the 2.4km Fence for our Staff Co-operative estate was stalled for three years based on the findings below:
1. Original project was not properly conceptualized.
2. A design was never made by client; contractor equally had none too, just-everyday fencing routine.
3. An appropriate selection of contractor not done.
4. Contract was without a schedule.
5. No project management office in place and therefore project contro totally not in place.
6. Client had no bill of quantities and overall project budget.
Problem Statement
Selecting the right contract that will deliver the fence at the right price, schedule is on time, in line with specifications and legally fair to all parties (offer, acceptable, enforceable, client/contractor are competent and considerable to all parties) was now the task at hand.

Alternatives
The expectation from all is to have the best fit for purpose contract recommended. An effective contract is dependent largely on the work scope. Like Dr Paul Giammalvo stated ‘using a contracting method that is inappropriate to the scope definition is a recipe to disaster’.

Alternative A:
Management contracting: This involves organising the project team that runs the construction process. The PM contractor provides management expertise on behalf of the client and advices periodically on buildability for a fixed fee. The PM contractor does all the bid/award processes. All contracts are between the PM Contractor and Contractors.
Alternative B:
Direct labour: This involves the use of directly engaged workforce, plant/equipment and client supplied materials to execute the contract. All resources are pulled in by the client. A good example is residential development.
Alternative C:
Measurement or unit rate contract: This involves the measurement of work executed against agreed rates provided by the contractor on each item of work that makes up the entire workscope. This is done periodically either jointly by contractor/client or contractor/client separately, with the latter option being jointly accepted. This relates for effective cash flow and monitored progress. It comes mainly in either priced bill of quantities format or schedule of rates or a marriage of both – (for change order purposes mostly).

Alternative D:
Cost reimbursement contract: This involves the payment to the contractor by the client on actual costs of materials procured, labour involved, plant/equipment use at an agreed mark-up percentage for profit or fixed mark-up fee on the actual contract.

Analysis of alternatives

Alternative A:

• Merits
o Money is saved when a competent PM contractor is engaged through the use of best practises.
o The project monitoring is much better when the PM contractor does it. He is a third party.
o The client transfers the risks to the PM contractor.
o There is substantial reduction of time when, as the PM contractor commences work as soon as design has been progressed.

• Demerits
o Increased ambiguity - PM contractor can’t take decisions on certain matters that may evolve. The Client still has to step-in eventually leading to delays and increased costs.
o Increased overhead – This type of contract increases the client’s cost via repetitive functions with its PMO.
o Contractor perception – Contractors see the appointment of a third party as an indication of the client’s lack of interest and own PMO inexperience.
o High claims level – There is always the situation of high claims and frequent stoppage in this kind of package by the contractor. This arises especially when the PM contractor is inexperienced against an experienced contractor.
o Collusion – This is a major bane when an insincere contractor meets a corrupt PM contractor. The end product is a cheated client.
o Increased client risk – Since the client transfers risks to the PM contractor. There’ll be additional costs if mistakes arise by at execution phase e.g. claims from builder(s), defective works etc. All these will be borne by the client.

Alternative B:

• Merits

o Reduced project management costs.
o Client fully involved in project controls.
o Profit due contractor on labour, equipment and materials eliminated.
o Administrative costs for bidding process eliminated.
o Pre-execution phase drastically reduced in schedule.

• Demerits

o No urgency by workforce to complete on time.
o High cost on supervision.
o Increased wages for overtime; more personnel may be engaged for fewer activities.
o Determination of actual cost is difficult; since the same resources maybe used on other projects by the client
o Quality of execution not guaranteed; especially if inexperienced personnel are deployed.
o Wastage of materials. No matter the level of control this is a common scenario on site.
o Idol equipment on site.

Alternative C:

• Merits
o The provides the a basis for direct measurement of works on site by both client/contractor
o A schedule of rate is used in the costing of any works that where hitherto not pre-determined before execution phase.
o Effective documentation in settlement of claims, change orders etc.
o It is used to effectively monitor and control progress project on site.
o It helps the contractor priced based on client’s workscope and specification.
o This helps evaluate the extent of work done by the contractor for payment.
o A reliable system of cash flow management and budgeting.
o A universally accepted approach adopting any estimating workflow system e.g. CSI Masterformat, RICS SMM7, CESMM, Norsok, Omniclass etc.

• Demerits

o Requires detailing in design and not appropriate if project is earmarked for a short duration by client.
o All risk of uncertainty lies with the client if the measurement or design falls short.
o Requires final accounts to determine true cost of project. This is as a result of most times incomplete engineering.
o Additional personnel required for measurement, schedule and reporting purposes.
o Too many site and home office meetings held resulting in additional administrative costs
o The approvals procedure is always bureaucratic with so many signatories.

Alternative D:

• Merits

o Client controls entire work.
o Effective in quickened projects, especially when detailed work cannot be achievable within given time frame.
o Can proceed with execution when workscope is not detailed enough or design is still on-going.
o Allows for changes easily when project is on-going.

• Demerits

o Contractor increases direct costs of the project without consideration.
o All risk of uncertainty is transferred to the client.
o Contractor may redeploy may use largely subcontractors in the execution.
o Contractor will not be too enthusiastic because of cost economy.
o Final cost cannot be determined until after execution
o Difficulty in progress measurement
o Client to pay for all premiums borne by contractor in the project delivery.
o It is very expensive in nature and cost savings may not be truly achieved.

Conclusion
Based on the fact that there will be little supervision from the PMO office(part-time members only)/short duration for execution. After analysing the merits/demerits of each alternative above; Alternative C is recommended for this nature of work (Fence construction Length x Height of concrete block walling). This type of contract allows for measurement, easy accountability, fairness to all, value for money, effective project controls/reporting, use of best practises, provides a basis for budget and good reference for benchmarking purpose in future..

Recommendations;
• Engage the services of an experienced site civil engineer to supervise and carry out quality control of works.
• Engage the services of a quantity surveyor to measure and evaluate for payments on works executed on site.
• All payments are based on only works duly certified by quantity surveyor, site engineer, contractor and PMO for client disbursement.

References:
1. Skills and Knowledge of Cost Engineering, 5th Edition 2010. (Chapter 25, Contracting for Capital Projects, James G. Zack, Jr.)
2. P.D. Giammalvo Day-5 AACE Certification Course. November 2010
3. Willis’s Practise and Procedure for the Quantity Surveyor by Allan Ashworth and Keith Hogg, 12th edition 2007
4.Modern Construction Management by Frank Harris and Ronald McCaffer, 5th edition 2005