Delay & EOT Structures... · (PAM 2006 removed Provisional PC Sum Works?) – BQ as Schedule of...
Transcript of Delay & EOT Structures... · (PAM 2006 removed Provisional PC Sum Works?) – BQ as Schedule of...
Initial Considerations
• Inception & Feasibility • Design (traditional) / Concept (package deal) • Authority Approvals • Determining Procurement & Pricing Structure • Determining Other Risk Allocations • Conditions & Contractual Documents • Tendering
Procurement & Pricing Linked
• Design Responsibility? Determinative of Best Pricing Structure
Norm • Turnkey/Package/Design & Build = Lump Sum
Pricing • Traditional Structure = Re-measured BQ
Pricing • Hybrids = Mixed Pricing Mechanism
Procurement & Pricing Linked
• Type of Work – Sub-Structure = Re-measured BQ – Super Structure = Lump Sum – Preliminaries = Lump Sum – Specialist Design & Construct NSCs = Lump Sum – Underground Complex & Innovative Work = Cost
Reimbursable with Target Cost Incentives and Dis-Incentives
Lowest Price or PQM ?
Developer’s Risk – Lowest Price • Claims Orientated Contractor? • Insolvent Contractor? • Under-Perform & Delays? • Poor Workmanship? • Under-Design? • Replacement Contractor Cost?
PQM
• Weightage to Quality • Project Specific Proposal – Technical & Time • Past & On-Going Projects
– On time or Delayed – EOT or LAD – Quality Performances (QLASSIC/CONQUAS etc.) – Safety Record (DOSH) – Green Building Certification History
Lump Sum Pricing
• Agreed Price/ Firm Price? • ↑↓ Quantities of Work = No Changes • ↑↓ Scope of Work = Variation • ↑ ↓Limit of Work = Variation • w/wo BQ + Drawing + Specification • BQ for Progress Payment Purposes? • BQ : Misrepresentation? Exclusion Provision? • Limit of Works = Drawing + Specification
Lump Sum Pricing
• One-Off Payment at End • Stage / Milestone Payment • Interim % Completed Payment • Contract Sum Analysis • Rationalization of Prices for Variations • Fluctuation Clauses
– Currency – Materials (Fixed Sums)
Why Lump Sum?
• Competitive Pricing • Owner’s Cost Certainty or is it? • Better Scope Definition • Allocation of Risk Clearer • Faster Tender Preparation Process? • Incentive for Efficiency with Prospect of Loss? • Focuses Team on Same Target
Effect of Lump Sum
• Tendering Process Longer • Attracts Higher Price : Contingency Pricing • Contractor’s Risk Higher • Drawings & Specifications Certainty? • Cannot Fast Track • Project Control must be Strong • All Information Available Provided? • Attracts Claims Orientated Contractor • Increased Risk of Disputes - Variations
LS: Pitfalls & Avoidance
• Design finalised and certain? – Budget explosion↑ Delay Tender? – Fast Track: Contingency Pricing in Rates – Provisional Sum Works/ Provisional PC Sum Works (PAM 2006 removed Provisional PC Sum Works?) – BQ as Schedule of Rates? 1st Stage Tendering
based on Competitive BQ? – Is the Schedule of Rates thorough?
LS: Pitfalls & Avoidance
• Avoid Contingency Pricing – Provide all Information in Possession but without
Assurance on Veracity or Accuracy – Site Visit – Sufficient Time to Study Conditions within Site and
Access to and within Site – Geo technical information but with Exclusion as to
Accuracy – Deemed Knowledge protects Legal Exposure but
Not Contingency Pricing
LS: Pitfalls & Avoidance
• Lump Sum for Geo-technical Works – Danger of Contingency Pricing if no Information or
Qualified Information – Allow Contractor to carry out own soil
Investigations : Not many do • Pre-qualified and selective tenderers allowed to assess
geo-technical conditions (possible 2 stage) • Allowance for the tenderers that carry out their own
geo-technical studies if they are later not appointed • Alternative: Tender First and then Right to Re-Price
Tender if Compulsory Investigation drastically different
LS: Pitfalls & Avoidance
• Front End Loading on Works – Contract Sum Analysis – Rationalisation of LS Possible
Re-measured Pricing
• Price = Fluctuations on Quantities x Rates • BQ = Approximate Quantities • BQ = Rates Determined by Contractor • BQ = Scope of Works but Quantities can
Fluctuate • Schedule of Price = Variations • Re-measured at the end : Physical or Take-offs
from as-builts
Re-measured Pricing
• Safest Win-Win Approach • Rates can Fluctuate? • Material Price Index Fluctuation (need rationalization) • Formula increase/decrease if Quantities
increase/decrease • Where Quantities Remain Uncertain
– soil / substructure piling
• Fast Track Project
BQ: Pitfalls & Avoidance
• Design finalised and certain? – Budget explosion↑ Delay Tender? – Fast Track: Contingency Pricing in Rates – Provisional Sum Works/ Provisional PC Sum Works (PAM 2006 removed Provisional PC Sum Works?) – Allow Rate Fluctuation based on % ↑↓
• Extrapolated/Pre-Weighted Rate? • Rationalised Make-up Rate with Only Factor ↑↓ • Labour Efficiency Factor Rate ↑↓ • Margin Spread % Factor ↑↓
BQ: Pitfalls & Avoidance
• Mitsui Construction Co v The AG of Hong Kong – ignore contingency pricing for provisional quantities
• BQ ↑↓ Preliminaries ↑↓? – Increased Quantities affects Quantity based
Preliminaries : Supervision/QAQC etc. – Critical path quantities – within same time
• Is the take-off for BQ accurate/precise? – Under-Quantified Items: Profit Loading – Chance of budget burst ↑ – Independent Checker Pre-Tender? Cost ↑
BQ: Pitfalls & Avoidance
• Are the profits front loaded? – Proper Rationalisation is Required – Rationalisation Provision in the Contract or BQ (PAM 2006 : Errors to be Rationalised) – Not Errors but Unreasonably Weighted Rates – To ensure Equal Profit Margin Spread – SO’s view of rationalisation deemed final unless
proven to be unfairly end loaded
BQ: Pitfalls and Avoidance
• Standards of Measurement clear? – Is the Preamble to BQ thorough & clear? – Is the Malaysian SMMs made applicable? – What about other SMMs that are wider? – SMMs do not cover every area of Work! – Is there industry practice? (PAM 2006: SMM sanctioned by ISM & currently in force?) – Have “extra overs” been allowed in the BQ?
BQ: Pitfalls & Avoidance
• BQ Description of Works v Drawings & Specifications – ↑ Descriptions = ↑ Ambiguity/ Discrepancy (Pam 2006 = quality of work set out in BQ?) (PAM 2006 = error in description to be corrected by SO = variation) – Priority Provision? No Contra Proferentum – Duty to Identify & Raise : Tender & Before
Commencement : Bound by Clarification – Duty to Rectify at Costs if not Sought Clarification
BQ: Pitfalls & Avoidance
• BQ: Not all items of Work Listed – Preliminaries Contingency Pricing for Works Not
Listed but Shown in Drawings – Deemed Priced into other Items Listed – Inclusive Price Principle
• Seems to have been abandoned by Malaysian standard Forms
• Temporary works priced under preliminaries and deemed part of obligation considered sufficient
BQ: Pitfalls & Avoidance
– Inclusive Price Principle • What about Works that are not Mentioned or Shown
but a reasonable experienced contractor would realise is Indispensably and Contingently Necessary: Deemed Priced in Rates and Items in BQ
• Indispensable = work that is necessary for Final Works to comply with Contractual Requirements
• Contingently = work that is necessary to complete the Final Works
• Needed to cover for any missing BQ Items of Work AE Farr Ltd v Ministry of Transport (excavation of temporary work space not covered under BQ: variation)
The questions to ask?
• Is cost control a major consideration? • Do you wish to control the contingencies? • Is a bid competition required? • Prefer max or min owner involvement? • Do you/consultants have skill and experience
–design, cost control, supervision, contract administration?
The questions to ask?
• Do you want single source responsibility? • Do you require the contractor to provide
project funding? • Are the project design, scope and
specifications clearly defined? • Are the quantities certain? • Is there minimal scope changes expected? • Is it Fast Track?
The questions to ask?
• Is the schedule tight? • Is the project environment volatile or stable? • Does the project involve primarily new
technology? • High Quality Control Standards Required? • Contractual Remedies Provided & Can be
Controlled?
Pricing Turnkey/Package/D&B
• How do you compare the best price where designs differ? – 2 Stage Tendering
• Cost & Time • Losing Tenderers Cost? • Design Optimisation?
– Design Checkers? Increases Cost & Defeats Purpose
– Avoid Competition in Under-Designing
O&G: FEED Contracting + LS
• Front End Engineering Design – 2 Stage Construction – 1st Stage: Feasibility, Concept, Development
Opportunities, Sanctioned Budget + Schedule & Design
– Specialist Contractor who Develops for Owner – Value Engineering at its Highest & Cost Efficient
Development Methodology Inclusive – Best Cost & Time from Contractor’s Perspective – 2nd Stage: FEED Contractor Project Manage -
Execution
FEED Needed
• Innovative Design & Construction • Patented Systems Required • New Technology
• But Cost is High but Returns Great • Production Sharing/Risk Sharing
Pricing Turnkey/Package/D&B
• Collaboration Design Consultant & Contractor – Design Transfer + 2 Stage Hybrid Tender
• Stage 1: Developer’s Design : Competitive BQ Pricing • Stage 2: Selected Tenderers Transferred Design Risk: BQ
Pricing covert to Lump Sum + Design Contingency Price
– Design Value Engineering + 2 Stage Hybrid Tender • Stage 1: Developer’s Design : Competitive BQ Pricing • Stage 2: Selected Tenderer’s Optimize Design : Lump
Sum Pricing
– Transfer Design Consultants to Contractor
Hybrid Tenders
• Competitive & Negotiations • Negotiations on:-
– rationalisations – schedule of rates – reduced pricing – value engineering – horse trading
Tender Process
• 1 Stage Tender Competitive Tender – Based on Limited Concept/Design – Benchmark Maximum Price
• Selected Tenderer: Pre-Construction Services Agreement : Design/Cost/Time Consultancy
• 2nd Stage Negotiated Tender • Convert Pre-Construction Agreement to Lump
Sum Contract
2 Stage Selective Tender (Hybrid Partnering)
• Pre-Qualified Tender • Hybrid Tender Process • Competitive Bid • Selected Tenderer Involvement
– Design Process Evaluation – Value Engineering – Programming Issues – Mitigation / Prevention Processes – Cost Control Processes
• Negotiates Price & Method of Works
2 Stage Selective Tender
Pro • Contractor’s Expertise • Proprietary System • Project Scheduling • Value Engineering • Time Saving • Contractor’s Efficiency Adopted
2 Stage Selective Tender
Pro • Contractor Part of Project Team • Better Communications • Better Information Flow • Contractor Better / Clearer Understanding of
Requirements • Fewer Claims / Disputes
2 Stage Selective Tender
Con • Requires Familiarity between Owner-
Contractor • Commitment to Win-Win • Tender Process Longer & Expensive • If 2nd Stage Deadlock – Restart Tender • Danger of Forerunner Dictating Contractor
2 Stage Selective Tender
Con • If fails – loss of goodwill / acrimony • Needs clear and defined relationship between
Contractor / Project Teams
2 Stage Selective Tender
Recommended:- • Magnitude of Work Unknown • The Need for Speed • Familiar Parties • Large Pool of Competent Contractors • Politically & Economically Conducive
Partnering
• A collaborative approach – integrated team • Contractual Commitments & Procedure:-
– Cost-Efficiency & Value Engineering = Target Cost – Guaranteed Maximum Price – Sharing cost savings from Target Cost – Pricing mechanism is premised on Target Cost
with Incentives/Dis-incentive + Open Book – Senior management & site management
Partnering Charter” & Incentive formula – Progress & Quality KPIs – Incentives within TC
Std Forms - Partnering
• PPC 2000 • NEC Partnering Option X12 (2001), Option X20
(KPIs) • NEC 1, 2 & 3 • Be. Collaborative Contract 2003 (www.beonline.co.uk) • GC / Works Amendments • Perform 21 Contract