Week#7_Monigha Idubamo_ Selecting contract type for Fence project.

Introduction
The 2.4km Fence for our Staff Co-operative estate was stalled for three years based on the following:
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 control totally not in place.
6.Client had no bill of quantities and overall project budget.

Based on the findings above, the Management team set-up a Project Management Office (PMO) and have mandated the PMO to study and recommend a contract that will see the project delivered within six months, no-extra spend on budget and at the best quality. With detailed design, technical evaluation and commercial bid concluded, it was now left to select and recommend the best contract type for award.

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 looked at
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’.

In order for the fence to be delivered without any problems, these contract types under fixed Price/lumpsum Contracts were considered since the scope is well defined and all risk identified:
A.Fixed Price with Economic Adjustment Contract: This contract is a form of fixed price contract, that if there is price negative or positive variance within the duration of the contract it will be adjusted. This will be in line with price adjustment clause within contract. Items looked into include Labour wages, steel, Cement and sand.
B.Fixed Price Incentive Contract: This type of contract is has a clear distinction between the contract price and a bonus stipulated. The bonus is the added incentive the contractor gets if cost is saved, before agreed completion date and quality achieved.


Analysis of alternatives
A. Fixed Price with Economic Adjustment Contract
Merits:
•Cost and project viability are known before commencement.
•Contractor to submit for price fluctuation claims as agreed.
•Minimal owner supervision.
•Contractor will post his best in personnel and equipment to achieve value for money.
•Low financial risk to owner.
•Contractor selection is fairly easy.
Demerits:
•Contractor wants project to go past duration.
•Will encourage scope changes to allow for more time.
•Contractor are known not communicate flaws in scope on time to allow for more claims.
B. Fixed Price Incentive Contract
Merits
•Cost and project viability are known before commencement.
•Minimal owner supervision.
•Contractor will post his best in personnel and equipment to achieve value for money.
•Low financial risk to owner.
•Maximum financial motivation of contractor.
•Contractor selection is fairly easy.
•Timely delivery
Demerits
•Variations are difficult and expensive.
•The contractor will choose the easiest and cheapest means to execute.
•Contractor will include contingency allowance

Analysis of alternatives
All alternatives’ are lumpsum in nature and therefore have most merits similar. However their demerits remain the divider. Alternative A is not cost and time friendly and gives the contractor and open advantage. However, Alternative B has one major problem; easy way out to beat deadline and get paid with maybe no real value at the long run.

Conclusion
Fixed Lump Contract and its two forms were looked into based on the fact that, there will be little supervision from the PMO office. Reason being that all members are fully employed and are serving on part-time basis only.
Based on the analysis, Alternative B is the preferred option having known that the project has a very short duration of less than six months. Based on this price fluctuation is not the preferred may not go down well with management.

Recommendations;
A dedicated full-time PM should be appointed on contract basis for the execution.
Monitoring of quality is established by PMO to strengthen Alternative B.

References:
1. Skills and Knowledge of Cost Engineering, 5th Edition. (Chapter 25, Contracting for Capital Projects, James G. Zack, Jr.)
2. P.D. Giammalvo Day-5 AACE Certification Course. November 2010