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?


• 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


• 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


• 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 ↑↓


• 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 ↑


• 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 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: 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


– 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?


• 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?


• 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


Pro • Contractor Part of Project Team • Better Communications • Better Information Flow • Contractor Better / Clearer Understanding of

Requirements • Fewer Claims / Disputes


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


Con • If fails – loss of goodwill / acrimony • Needs clear and defined relationship between

Contractor / Project Teams


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

The End

Thank You

Q & A