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THE CHARTERED INSTITUTE OF BUILDING
SUPPLEMENT Number THREE
CODE OF ESTIMATING PRACTICE
Supplement No. 3
Endorsed by the Estimating Practice Committee of the Chartered Institute of Building
Other titles in the series:
Code oj Estimating Practice. 5th edition. 1982
Supplement No 1. Refurbishment and Modernisation. 1987 Supplement No 2. Design and Build. 1988
British Library Cataloguing in Publication Data
Code of estimating practice
Supplement 3 : Management contracting
1. Buildings. construction. Estimating Standards I. Chartered Institute of Building
Published by The Charted Institute of Building October 1989
This Supplement was prepared by Mr G. Knight, who was supported by a Steering Group of representatives of the Institute's Estimating Practice Committee. The composition of the Steering Group is as follows:
Chairman: W.A. Rabbetts -Herbert H. Drew & Son D.J. Bateman +Lovell Construction
A. Frost -John Laing Construction
RJ .A. Joy - Wimpey Construction UK
G. Knight +Taylor Woodrow Construction
M. Pollard - Croudace
D. Potter - Lovell Construction
A.G. Murcutt -Shepherd Construction
I. W. Rollitt - Henry Boot
R.A. Swinscoe - Trollope & ColIs Construction (resigned February 1986)
Secretary: F.C. Lettin A.F. Daffey
(until April 1986) (from April 1986)
The support and encouragement of the immediate past Chairman of the Estimating Practice Committee-C.J.D. Richards, FCIOB, is gratefully acknowledged.
Chairman, Estimating Practice Committee The Chartered Institute of Building
Code of Estimating Practice
Supplement for management contracting
Acknowledgements iii 6.04 Conditions of contract/service required 14
Terminology Vll 6.05 Management decision 15
1.00 INTRODUCTION 7.00 MANAGEMENT OF THE TENDER 16
2.00 FUNDAMENTALS OF MANAGEMENT 7.01 Task allocation 16
7.02 Submission content 16
2.01 Definition 2
7.03 Tender preparation programme 17
2.02 Historical background 2
8.00 PROJECT STRATEGY AND APPROACH 19
2.03 Other management forms of contract 3
8.01 Key objectives 19
2.04 Contract conditions 3
8.02 Method selection 19
2.05 Tender procedure 5
8.03 Work package structure 19
2.06 Estimating role 5
8.04 Programme 20
3.00 MANAGEMENT CONTRACTING
OBJECTIVES 6 8.05 Common services 20
3.01 Contract route selection 6 8.06 Site layout 22
3.02 Project criteria 6 9.00 PROJECT TEAM 23
4.00 SELECTION OF THE MANAGEMENT 9.01 Selection and involvement 23
9.02 Availability 23
4.01 Overall selection procedure 9
9.03 Curricula vitae 23
4.02 Marketing objectives 10
10.00 COMPLETING THE COST ESTIMATE 25
4.03 Approved lists of contractors 10
10.01 Contractual and non-contractual rates and
4.04 Pre-selection 10 prices 25
5.00 TENDER DOCUMENTS AND 10.02 Fees 25
10.03 Project team costs 27
5.01 Approach 12
10.04 Common services 27
5.02 Technical and commercial information 12
10.05 Cost plan 27
5.03 Tender submission requirements 12
11.00 ADJUDICATION AND TENDER
5.04 Selection criteria 12 SUBMISSION 31
6.00 DECISION TO TENDER 14 11.01 Methods and strategy 31
6.01 Introduction 14 11.02 Commercial adjudication 31
6.02 Inspection of tender documents 14 11.03 Design manage tenders 31
6.03 Resources/work load 14 Continues
Previous page v
is blank 12.00 POST-TENDER PRESENTATION 13.00 ACTION AFTER SUBMISSION OF A
INTERVIEW 32 TENDER 34
12.01 Training 32 13.01 Selection and notification of results 34
12.02 Selection of key points 32 13.02 Action with a successful tender 34
12.03 Preparation 33 13.03 Action with an unsuccessful tender 34 vi
The following are the meanings of the principal specialist terms used:
The extent to which the design of a building facilitates ease of construction, subject to the area and requirements for the completed building.
The employer, person or company paying for the works.
Common services are those services provided by the management contractor to each works contractor on an identical basis. They include, for example, hoisting, welfare facilities and temporary roads.
CONSTRUCTION MANAGEMENT (CM)
A management form of contract synonymous with management contracting except that works contractors are appointed as direct contractors to the client, rather than as subcontractors to the contract manager. Used widely in the USA. (See also Section 2.03).
The client's advisers on design, cost and other matters. Such advisers might include project managers.
DESIGN AND MANAGE
An extension to management contracting in which a design responsibility is included as well as construction.
See also Section 2.01. The management contractor is appointed by the client to work alongside the design and cost consultants. He provides a construction management service on a similar professional basis.
An agreed sum for management services.
A statement of the construction methods and resources to be employed in executing construction work. The statement is normally closely linked to the tender programme.
A time related schedule of operations.
Since the criteria upon which a management contractor is selected may include factors other than comparison of the sum of money or time required to carry out the contract obligations, the terms Tender and Tendering are defined as:
The tender incorporates the sum of money, time and other conditions required to carry out the contract obligations, in conjunction with the arrangements agreed for the management of the project.
Tendering is the management and commercial function of determining the tender based upon the estimate and other details prepared by the contractor's estimator and other personnel.
The individual within the management contractor's organisation responsible for managing and co-ordinating the overall tendering process.
Works contractors are sub-contractors to the management contractor, selected by him in consultation with the client and design team.
A works contract is that which normally encompasses a single traditional construction trade, although it may on occasions be a combination of more than one trade.
This supplement is intended to complement the Code of Estimating Practice, the 5th edition of which was published in October 1983. The Code provides an authorative guide to good practice of estimating and tendering for building work from preselection to the acceptance of a successful tender. The basic principles of estimating and tendering described in the Code are appropriate for wide application. However, it is acknowledged that in specific circumstances the procedures may have to be modified. Such circumstances can occur as a result of a particular type of building work being undertaken or from a particular method of inviting tenders and the resulting methods of managing the project.
To meet these requirements a series of supplements to the Code are planned. It is intended by this means to cover:
• Design and build projects.
• Management contracting.
• Refurbishment and modernisation.
• Post-tender use of estimating information.
The emergence of management contracting over the last decade or so has necessitated the adoption of different roles and attitudes from those required for a traditional construction contract, in addition to the same construction, technical and commercial skills. Consequently, contracting on this specialised basis should only be undertaken by an organisation with appropriate understanding, attitude and experience.
The role of the estimator in management contracting is both reduced and different from that involved in a traditional main contract (see section 2.06). This supplement is related to the total tendering process for securing a management contract. For more detailed procedures relating to the normal cost estimating reference should be made to the Code of Estimating Practice.
This supplement is intended to provide guidance as to the specific issues and areas of increased importance which have to be considered in this type of work. It is assumed throughout that the basic principles established in the Code will be followed.
Fundamentals of management contracting
Management contracting is a professional management function providing leadership for the construction of a building. This generalized definition has been amplified in many different ways during the evolution period of management contracting, causing much confusion and ambiguity * . For order and consistency to prevail a more standard definition is required and this supplement follows the principles embodied in the JCT Management Contract (JCT-MC) published in 1987. In that contract a number of key criteria are required for a management contract:
all construction work (other than common services) is to be undertaken by a series of sub-contractors (works contractors);
the contractor is remunerated for his management services by a fee and the cost and risk of construction work is reimbursed to the contractor by the client;
- the contractor works in a co-operative relationship with the client and consultants and has an unequivocal duty to manage the construction in the best interests of the client; - the contractor is appointed, usually by the commencement of the detailed design stage, to contribute to buildability, overall project programming and cost planning.
Whilst contractual arrangements falling outside these criteria are sometimes referred to as management contracts they are not considered within this supplement except in the context of Section 2.03 (Other Management Forms of Contract).
The concept of a management contract should not be confused with cost reimbursement contracts, such as the JCT fixed fee, where some or all of the key criteria indicated above are not present.
The present concept of management contracting in the UK came into existence on three or four significant projects at the end of the 1960s although various forms of managementrelated contracts had been in use earlier.
No single reason appears to be responsible for this departure from the traditional forms of lump sum or cost reimbursable contracts. However, frequent delays in achieving completion dates, arising from late or changed design information and poor construction performance or management led to a desire to create a more harmonious environment for the entire construction team.
The initial management contracts worked well and were generally regarded as having met the client's and design consultant's objective better than the comparable traditional arrangements. Consequently, the mid- and late-1970's saw a progressive but restrained growth, as experience and understanding spread regarding this radically different concept and attitude to construction. Industry-wide turnover in management contracting increased from £25 million per annum in 1975 to about £100 million in 1980, to be followed by a period of ultra-rapid expansion to some £1,000 million per annum by 1985 and probably 3,000 million by 1989.
The impetus behind this rapid expansion was in many cases based upon a considered evaluation of project circumstances which render a management contract advantageous (See Section 3.02). It was implemented by clients, consultants and contractors who had, or had acquired, experience in this particular contract form and had a commitment to it.
* See definitions contained in:
Building for industry and commerce: clients guide (1980). CIOB. Thinking about building (1985). NEDO.
Management contracting Occasional Paper No. 30. (1983). CIOB. A clients guide to management contracts in building (1984). CIRIA.
Those engaged in management contracting were hindered by a lack of common concepts, procedures and even a standard form of contract. (Proposals for a standard contract were made in 1977, JCT commenced drafting in 1981 and published a first edition in 1987).
The more recent period of consolidation has undoubtedly seen management contracting take its rightful place amongst the industry's range of contractual options for certain projects, rather than a panacea for all ills, which have never been claimed for it, even by its most ardent advocates.
OTHER MANAGEMENT FORMS OF CONTRACT
There are two variations to the standard concept of management contracting which come within the scope of this publication.
(1) Construction management
Although the term Construction Management (CM) has been used in a variety of contexts, particularly in North America, it is generally accepted as being synonymous with management contracting, except that the works contractors are appointed as direct contractors to the client rather than as sub-contractors to the contract manager. Certain other differences of emphasis should also be associated with this form, such as
larger, and therefore a smaller number of works contracts; reduced standard and scope of common services;
clients requiring a detailed involvement of their own team in the construction management process
Subject to recognition of the above and the significantly different contractual situation, this supplement is equally applicable to CM.
(2) Design and management
Under a standard management contract, as defined in JCT-MC, the management contractor is not responsible for design, either directly or through control of the professional design team. The responsibilities are limited to the overall programme and information requirements, co-ordination and initiation of buildability proposals for the design team to consider and the normal temporary works elements.
A rational extension of management contracting is the provision of a design service as well as construction through a design and management contract. Design is undertaken for a pre-determined fee or one agreed on the basis of normal professional scales. In this case the management contractor would normally take overall responsibility for the design during or after the conceptual phase, with the detailed design being performed either directly or by utilizing external design teams.
This publication is generally applicable to the design and management form, but alternative references to the design phase and responsibilities are contained in Section 11.03.
A representation of alternative contractual arrangements is shown in Figure 1.
Although detailed consideration of contract conditions is outside the scope of this publication, it is necessary for the estimating team to have a thorough understanding of the contract. In this context a brief summary of the development of management contract forms and the principles upon which they are based is appropriate.
The early management contracts (around 1970) were generally considered as experimental and sometimes insufficient attention was paid to their drafting. Often they were based upon modifications of the JCT fixed fee form and regarded by some to contain references inappropriate to the attitudes and relationships which were being sought. Subsequent attention was given by the principal consultants and contractors engaged in management contracting to the development of purpose-drafted contracts, realistically setting out the
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desired responsibilities and relationships. Considerable confusion and misunderstanding arose from the views of divergent schools of thought as to whether the management contractor should or should not be responsible for the risk of sub-contractors' performance, default or bankruptcy.
Whilst it must be the prerogorative of the client to invite tenders on any basis, the use of conditions which make a management contractor's responsibilities indistinguishable from those of a sub-contractor, effectively converts the contract to one of construction rather than of management.
The basic principles of JCT-MC include the following:
- single overall contract with a pre-construction phase and separate management fee;
- employer's option to terminate the contract at any time (Clause 7.10);
- the management contractor is responsible only for the financial consequences of default
by a works contractor to the extent that sums are recovered from the works contractor (Clause 188.8.131.52);
option for site staff and common user services to be reimbursed but contract can be amended for these to be priced as lump sums (Second Schedule, Part 1(3».
No standard procedures exist governing contractor selection and tendering for management contracts. Therefore, unlike traditional tendering where procedures for client, consultant and contractor are generally well understood without the need for specific description, this Supplement describes the process in some detail on the basis of recommended practices and procedures.
The Code of Estimating Practice (COEP) envisages a major role for the estimator in the tendering process. In management contracting the cost estimating function is greatly reduced, but this publication covers the whole procurement/tendering process, with particular attention as to how the tasks to be performed can be allocated within a management contractor's organization. The term tender co-ordinator is used to identify the individual managing and co-ordinating the overall tendering process, and who may be the estimator, project manager, etc. (See Section 4.04).
Where the term estimator is used it refers to the person undertaking the traditional cost estimating function.
Management contracting objectives
CONTRACT ROUTE SELECTION
Whilst any construction project can be undertaken as a management contract, it is important that, in selecting the most appropriate contractual route for a project, the client/consultants clearly identify their objectives.
Apart from the necessity to recognize the differences in attitude and procedure inherent in a management contract, the different allocation of risk between this and other contract forms must be understood.
The appropriateness of a management contract for a particular project is not simply a function of individual criteria being met. Rather it is a balance between the advantages to be gained by reacting to and overcoming potential problems - so as to achieve project completion in a quicker and more economical manner - against the costs involved in an enhanced management and procedural system.
The criteria which need to be considered in deciding whether to adopt a management contract include:
Unless the project is of a specialist nature or other criteria are particularly dominant, a project with a turnover of under £2 million - £4 million per annum is unlikely to be appropriate for management contracting. The larger the project, the greater the opportunity for a management contract to be beneficial.
There is an ability to overlap the design and construction phases to a greater extent than is possible with other contractual arrangements, where the design and construction responsibilities are with different organizations. Whilst this facility can achieve faster overall project periods it is important that the design for each works contract is substantially complete before construction of that element commences. No procurement system can eliminate the premium/abortive costs of changing/non-existent design details when construction of that element is in progress.
The works contract/package facility of a management contract provides significant flexibility to overcome potential re-scheduling which may arise through:
- design changes, where technology or ultimate user requirements are evolving after commencement of the project;
multi-phase projects, where the timing and impact of subsequent phases in uncertain; uncertain restraints, which may affect project method or schedule such as:
adjacent property restrictions; access;
works within an operational site.
The flexibility to respond to the above factors is embodied in the contract by procedures which allow for:
- recovery of earlier delays;
- bringing foward original completion date (by acceleration clause);
- overcoming earlier delays;
- postponing/abandoning without real penalty.
Contractor! construction input
The management contract facilitates the specific input from the contractor in terms of 'design buildability' or the inter-relationship of the design to construction methods or programme.
The client, whilst requiring early completion, is able to maintain the maximum possible competition in regard to the price for the works.
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Selection of contractor
OVERALL SELECTION PROCEDURE
The client's aim is to select a management contractor who is most likely to provide the completed project in accordance with his objectives for the most economical, ultimate cost. Unlike many other forms of tender the fee and other financial offers represent only a very small proportion of the ultimate project cost. The selection criteria must, therefore, place proportionately greater weight on factors such as:
previous experience; previous performance;
specific project execution proposals:
organization; - methods;
project management team;
system and procedures to be utilized.
A management contractor's ability to meet these criteria is very largely dependent upon his track record and availability of resource at the time of the implementation of the project. Therefore, it is important that particular attention is paid by the client/consultants to ensure that all selection and pre-selection procedures are up-to-date and undertaken immediately in advance of project implementation.
In these circumstances it is not surprising that many management contracts are negotiated with organizations in whom the client has confidence and understanding. Many aspects of this supplement apply equally to a negotiated or contested tender, but the total procedure and particularly the selection process applies to the latter.
Figure 2 indicates two of the selection sequences frequently adopted:
initial list of interested contractors pre-selection (pre-qualification) enquiry; enquiry response;
presentation/interview - if required;
initial list of interested contractors; initial tender enquiry;
detailed tender enquiry;
Although other combinations of procedures might be used it is important that those adopted are applied only to qualified organizations that could realistically be selected to undertake the project. The time/effort/cost of client, consultants and contractors should be kept to a minimum, compatible with competitive and unfettered selection.
The two indicated selection sequences, whilst having many similarities, differ in that the second alternative involves a committed tender offer in two continuous stages, the second
being limited to two or at most three contractors, who would develop more detailed project approaches to method programme and a detailed project team within the previously quoted fees and key personnel nominations.
The identification of the reasons for using a management contract by the client/consultant and the contractor will have a significant impact on the tendering process. These reasons should be communicated to the tenderers in order that they can respond appropriately.
Clearly, the role of marketing has a greater significance for management contracting than for traditional contracts. A contractor's marketing objective will be to ensure that he is placed on tender lists for those projects which he wishes to undertake and is competent to tender. The subject of marketing is outside the scope of this Supplement, which commences when the client/consultant has invited a management contractor to pre-qualify or tender for a particular project.
APPROVED LISTS OF CONTRACTORS
It is important that clients who maintain approved lists identify contractors with an interest and capability in management contracting.
Since the management contractor is normally appointed early in the project implementation period, the lead-in time for the pre-selection process will often be short and immediately prior to tender.
Management contractors chosen to receive a pre-selection questionnaire will be obtained by the normal means (COEP Section 3.(0), but with particular relevance to:
representations made by interested contractors in view of the frequently large scale of projects;
in the case of public sector projects, the published advertisement procedure.
The timing and nature of the pre-selection will differ if the intent is:
to confirm that the management contractors the client/consultant has selected are interested and have the resources to tender;
to review the experience and capability in management contracting of a larger list of contractors to determine a shorter limited tender list.
Pre-selection information to be supplied to contractors
The content of pre-selection and tender documentation and information is reviewed in detail in Section 5.00. However limited that data it must contain:
details of client and all consultants involved in the project;
outline details of the project and scope for which the management contractor is to be responsible;
timing anticipated for:
pre-selection process; - tender;
- pre-construction phase;
- construction phase.
anticipated project value including, if available, a summary of the cost plan;
- contract conditions detailing any amendments to JCT-MC or, if other forms are used, sufficient information should be given so that the nature of the relationship and responsibilities required are clearly established. This is particularly important if a nonstandard or risk-taking form is required (see Section 6.01);
details required from the contractor for pre-selection with a clear indication if specific project team members are to be nominated at this stage.
Response by the contractor
The response to a pre-selection questionnaire is an integral part of the tendering process. Therefore, it is important that responsibility for the response is co-ordinated with and preferably undertaken by the same team who will deal with the tender under the control of a tender co-ordinator. Whether or not this responsibility is undertaken by the Estimating Department, they should be involved in the process regarding resources to respond to the estimating aspects of the tender.
The contractor's response should clearly and concisely cover all the information requested and strictly accord with any specific instructions regarding format and content. Any additional information given by the contractor should be relevant to the project.
Unless the pre-selection is really part of a true tender process (with formal tender dates, etc. and no opportunity for subsequent modification of tender submissions), fees should not be requested at this stage nor should they be indicated by contractors as a means of encouraging inclusion on the final tender list.
If a client has requested a specific commitment from the contractor to tender, if so invited, and/or the nomination of project personnel, any such undertaking should be carefully considered and given in good faith, providing the client:
is selecting from a limited tender list;
has requested such commitment immediately in advance of a tender where a quick decision process is expected
Analysis of the management contractor's response
A full evaluation and analysis should be undertaken of all positive responses by management contractors. On larger projects, and where the organizations are not familiar with each other, an interview may be necessary. In the interests of economy, organizations should be excluded from interview if their initial response is such that even a perfect interview would not result in their inclusion on the tender list.
The selected tender list should only include organizations to whom the client/consultants will be prepared to award a contract following a competent tender. Those selected must be notified as soon as possible in order that resources can be planned. Unsuccessful applicants should also be notified and, whenever possible, reasons given, since the awareness of specific superior credentials of another management contractor encourages improvements to be implemented to the benefit of the industry.
Tender documents and information
If a project is to take full advantage of mangement contracting the contractor must be appointed early, if not on or before inception of the design phase. This means that detailed design information will normally be embryonic or sketchy and will frequently be limited to an outline brief or concept details.
A standard definition of information to be issued by client/consultant is, therefore, inappropriate, as is the segregation regarding information into that required at the preselection or tender stage.
The overall objective must be to provide the fullest possible information so that the best and most relevant response may be made for meeting the client/project requirements. This should include consideration of the information described in the following sections.
TECHNICAL AND COMMERCIAL INFORMATION
Clear and precise information must be given as part of the tender enquiry document and instructions given regarding the availability of any additional information at the consultant's office or elsewhere. This should include:
definition of the project role required of the management contractor; project description, drawings and other technical data;
programme requirements and any external restraints or phasing requirements; - access restrictions, or any other known factors affecting the works;
- details of any existing cost plans and client budgetary restraints;
- contract conditions - with clear identification of changes to JCT-MC and of the options
TENDER SUBMISSION REQUIREMENTS
A clear statement should be included of the tender submission required from the management contractor. This would normally include the following:
confirmation of the acceptance of the proposed contract conditions or specific details
of any exceptions;
fees required for pre-construction and construction phases;
proposed project team organization and nominations and CVs for key positions; contractor's proposed project execution strategy and statement of approach to
programme, method, etc;
- firm or budget proposals required for the project team costs and of common services, etc. dependent upon the contract option selected.
Details should also be given of timing and procedure for post-tender interviews and contract award.
A clear indication of the selection criteria to be adopted in selecting the management contractor is to be encouraged. The weighting of different criteria, whilst not frequently published, also assists in ensuring that compliant and responsive submissions are received which truly meet the client/consultant objectives.
It is particularly important that mandatory, as opposed to desired or indicative, aspects of the tender enquiry requirements are identified in such areas as:
- programme and completion dates;
- scope of management contractor's services;
- extent of common services to be provided by the management contractor.
Clarity in these respects can avoid a contractor being unnecessarily rejected for non-compliance.
A typical tabulation of selection criteria will be:
- understanding of the project and client/consultant objective by the management
contractor and his team; - fee levels;
- programme proposals and contract strategy in terms of method statement, etc;
- experience of management contractor;
- experience of project team;
- attitude and enthusiasm/commitment of project team.
Decision to tender
As with conventional tendering the decision to tender can occur at one of two stages:
at the time of a pre-selection invitation;
- upon invitation to tender without a previous pre-selection procedure.
In either case the formal and detailed review process contained in the COEP should be followed, with particular reference to capacity to undertake the project in terms of capability , work load and resources.
If the pre-selection has been undertaken significantly in advance of the actual tender, the compatibility of the actual tender documents will need reviewing to confirm the validity of the original decision.
With a management contract there are three vital areas of review in respect of the management decision to tender:
- inspection of tender documents;
- resources/work load;
- conditions of contract/service required.
INSPECTION OF TENDER DOCUMENTS
On receipt of tender documents the normal Preliminary/Tender Enquiry Form (see pp 14-15 of COEP) should be completed, providing a summary of significant details for the management review.
In compiling the above form and inspecting the documents, the tender co-ordinator will pay particular attention to the following factors:
- actual documents and information to be submitted as part of the tender;
ability for the above information to be realistically prepared within the tender period; scope of service to be provided by the management contractor and his responsibilities as defined in the conditions of contract and elsewhere (see Section 6.04).
Whilst availability of the right resources is a criticial factor in the decision to tender for any type of contract, it is probably of even greater importance in a management contract, where the quality and acceptability of the project team will often be so overriding that a price/fee, however low, will not ensure selection.
Available resources for the tender, pre-construction and construction phases must, therefore, be the first consideration. Until these can be assured no commitment to tender should be given.
The tender co-ordinator should ensure that an immediate appraisal is made whenever possible, prior to issue of actual tender documents, of the resources required for the project and the time scale. From these details management can review the experience and suitability of key project personnel from those who may be, or will become, available.
CONDITIONS OF CONTRACT/SERVICE REQUIRED
So far, consideration has been given to what might be termed a mainsteam management contract, but not all tender enquiries conform to this standard. Therefore, it is essential that a careful evaluation is undertaken, immediately on receipt of tender documents, to determine what deviations are being requested from the approach which the tenderer regards as a normal management contract.
This review will highlight any potentially ambiguous areas and will enable the tenderer to decide if:
the contracting concept proposed departs from his own normal strategy such that he would not wish to tender, or if the tender should be submitted by another division or company within the Contractor's Group;
- he wishes to recognize these departures and take account of them within his tender;
he wishes to seek the client's/consultant's agreement to amend the non-standard elements, or to accept a tender on an alternative basis.
Whatever the outcome, it is important that these factors are recognized early and that expenditure on a potentially abortive tender is avoided.
The factors which deviate a significantly from a standard management contract are a matter of individual judgement and policy for each management contractor, but might cover elements such as:
responsibility for default or bankruptcy of works contractors;
responsibility for design where this has not been undertaken or managed by the management contractor;
requirements to undertake directly certain elements of the work;
commitment to fixed price common services and/or staff before the design or conditions affecting the works have been sufficiently developed.
It should be noted that a contract which requires the conversion of the works contractors prices to a composite lump sum for the project at the risk of the contractor is not a management contract. In consequence it is not considered within this supplement.
The management decision to tender or decline must be taken in the context of the project requirements, available resources and compliance with the management contractor's strategic objectives. The cost and effort involved in the tender must be weighed against the prospects of obtaining the project and its potential reward.
Management of the tender
Following the 'Decision to Tender', clear lines of authority and action must be established to co-ordinate and prepare all the tender components. The tender co-ordinator will be responsible for the overall day-to-day control of the tender.
A large team will inevitably be involved in the preparation of the tender and should include the key members of the project team expected to undertake the contract. Following the review of the tender documentation, a format for the submission content (Section 7.02) will be prepared and a tender preparation programme established (Section 7.03). In order to integrate and communicate these within the tender preparation team, it is desirable that a task allocation schedule be prepared and circulated within the team.
This schedule should identify all key tasks within the tender process, the name of the individual member within the management contractor's team who is responsible for ensuring that the task is completed and the date for completion.
The task allocation schedule can be a free-standing document or can conveniently be integrated with the tender preparation programme as shown in Section 7.03.
The task allocation schedule should be circulated to all involved in the tender and a tender 'familiarisation' meeting held as soon as possible, following an initial appreciation of the enquiry documentation. This meeting should be attended by representatives of all key contributors to the tender and the designated project team (see Section 10.00); the meeting will serve to provide a briefing and understanding of the project and tender requirements - confirmation of the task allocation schedule and commitment to the task by all concerned.
Careful study of the enquiry documentation will indicate the client's requirements for the actual submission document. Particular points to be determined are:
- is the client's document/form of tender to be returned, or is a photocopy or similar format acceptable?
- is the format and content stated in the enquiry mandatory or just indicative?
- can additional details be submitted at the management contractor's discretion?
A clear and certain interpretation of the rules for the tender is essential. Any ambiguity should be clarified with the client as early as possible in the tender period.
If the submission format is closely defined by the client this must be followed, but if the management contractor has freedom he should use his ingenuity to try to gain an advantage over his competitors. Features of the submission content or format should be:
- a compact document limited to just those sections which add to the overall impression
and demonstration that the tenderer is the right contractor for the project; - a clear and logical sequence;
- avoidance of repetition;
- the inclusion, in a well-identified manner, of all details requested by the client/consultant.
Elements that are frequently requested by the client/consultant or volunteered by the management contractor include:
- pre-construction fee;
- construction fee;
- common services proposals (budget or lump sum prices, if required);
- design and construction programme;
- construction method statement;
site layout, indicating:
- common service and welfare facilities;
- working areas;
work package strategy and programme; project organization and strategy;
- curricula vitae;
confirmation of contract conditions; relevant previous experience.
When the approach to the submission document has been established, the tender co-ordinator should circulate to those of the team involved, a format and responsibility schedule indicating dates for draft and final text/diagrams, etc.
It is important that the tender co-ordinator has directly available, or to other members of the tender team, all the support services that are required to compile a comprehensive submission in the time required. This not only involves high-quality technical and commercial input, but also efficient word processing, computer draughting and reproduction facilities.
Clients should make their selection on the best technical/commercial/managerial solution for their project, but the efficiency and quality of the image they obtain of the contractor will be influenced by the submission document.
TENDER PREPARATION PROGRAMME
All key activities involved in the preparation of the tender should be recorded on a programme to provide all members of the tender team with a clear, visual, presentation of the tasks and integrated time scale. To be effective, this should be issued as early as possible in the tender period and up-dated only in the event of major change, such as an extension to the tender date.
An example of a typical tender preparation programme is given in Figure 3.
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Project strategy and approach
In adopting management contracting clients/consultants are seeking a major contribution to the management of their project. Therefore, it is natural that their selection criteria will focus on a potential contractor's contribution and initiative in this area, in addition to fee levels and perception of the project team's ability and competence. The primary means of demonstrating management performance is through the ideas and strategy being presented in the project execution section of the submission document.
In developing their approach to the project the tender team must focus on key objectives that will enable the client's project criteria to be achieved. This might be achieved through such factors as:
ingenious access or craneage concepts; alternative materials or construction concepts.
These key objectives should be identified as early as possible and the construction method, programme and submission written around them in such a manner that clearly demonstrates the advantages to the client in the submission.
The depth and detail in which the project execution proposals can be planned is naturally dependent upon the extent of design detail available. There is a tendency for clients/consultants to request extensive programme and construction method statements based upon scanty conceptual design information. Selection procedures based upon irresponsible invention and speculation of details will not be in the client's nor the managment contractor's long-term interests. When based on relevent information, it is appropriate that the ingenuity and approach of the management contractor should be an integral part of the selection process.
The early selection of the optimum construction methods (but not too early) in the tender period is vital, since all other parts of the submission derive from this choice (eg., programme, common services, facilities and costs). Method selection is inevitably a complex inter-relationship between such factors as:
design details; access;
sequence of operations; work package structure; temporary works techniques; resource availability.
WORK PACKAGE STRUCTURE
Since the construction of all permanent works elements will be undertaken by a series of competitively selected sub-contractors (works package contractors), the approach to be adopted in structuring and sequencing those packages is a key factor. Providing that the design concept is sufficiently advanced, it is normal for the management contractor's proposals for the structure of work packages to be included in the tender submission together with a work package programme (see Section 8.04).
The structure proposed by the management contractor will follow his own particular working practices and preferences, but will normally follow traditional separate trade concepts. The precise structure and demarcation between packages will be a function of the project design and normally take account of criteria and objectives such as:
- avoidance of concurrent packages of the same trade;
- minimization of the use of sub-sub-contractors;
- clarity of interfaces between packages;
- minimization of dependence of one package on another.
After consideration of the proposed methods, work package structure, etc. to be adopted, the tender team can prepare the project programme. It will normally be a tender requirement that the management contractor's proposed programme is submitted with the tender. The extent of detail and method of presentation (bar chart, network etc.) will be a matter of preference and be an important factor in projecting the management contractor's expertise and understanding to the client/consultants.
Irrespective of the programme format adopted it will normally be desirable to highlight, within a single or by separate programmes, the significantly different activities involved in:
Although the management contractor will not undertake or control the design, his work is co-ordinated with that of the design team, and the scheduling of information flow takes on a far greater importance than in traditional contracting.
A further aspect where management contracting differs from the traditional approach is in the programming of the work package, where it is usual to prepare a detailed work package programme, which will often be requested as part of the tender submission. This will normally detail for each individual work package the dates/durations for the following activities:
- design/specification/information-required date;
- bills of quantity preparation period/enquiry document preparation;
issue tender enquiries; return of tender; tender evaluation;
appoint work package contractors; - start on site.
A typical example of a format for a work package programme is shown in Figure 4. Alternative presentation/working document formats include tabulations of dates.
Optimization of common service facilities is a key factor in management contracting efficiency. Moulding a management contractor's standard approach and philosophy to the specific circumstances of a particular project is vital. A frequent requirement in management contracting tenders is the need to outline proposals and strategy for the provision of such services.
These will sometimes be dictated or specified by the client/consultants and the management contractor will be requested to confirm his acceptance or to comment accordingly. Alternatively, he may be requested to schedule his own proposals in an unambiguous manner, detailing the specific service and extent of facility he anticipates providing for each item.
Selection of common services will normally be made on the basis of the following criteria: - creation of an environment which enables the work package contractors to operate efficiently and effectively;
provision, through a common service, of those facilities which will be utilized by more than one work package contractor and can be provided more economically by the management contractor;
recognition that a work package contractor will utilize resources more efficiently and therefore more economically if he has direct control and financial responsibility for that resource.
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Tender enquiries may also invite the management contractor to submit details of his proposed site establishment and temporary works facilities. Many of these will be inherent in the proposals for common services, but a site layout sketch or drawing will often convey an impression that a thousand words may confuse.
Detail that might be shown on such a drawing includes the location and, where appropriate, size of:
- temporary buildings;
- management contractor;
- work package contractors.
welfare and canteen facilities; - roads and hardstandings;
- access routes;
- off-loading areas;
tower cranes (including lifting zones); - hoists.
SELECTION AND INVOLVEMENT
Since the client/consultant decision process will give very high priority to the suitability of the project team in terms of experience, competence, compatibility, etc., the selection of the team and its presentation and involvement in the tender, is of vital importance.
Tender enquiries will normally specify that the management contractor submits details of his project organization, its relationship with Head Office and any off-site functions and nominations for key positions, with appropriate curricula vitae (CV).
The number of key personnel being nominated will be dependent upon the scale and scope of the project, but four or five line managers plus the off-site director would be normal.
It is vital that these key personnel are nominated as soon as possible in the tender period, if not before, in order that they should participate fully in the tender process and be responsible for developing, or at least approving, the project execution proposals. It is they who will need to sell the ideas and concepts behind the submission (see Section 12.(0) to the client/consultants and they must be convinced/committed.
The selection of the key personnel would normally be made by the responsible director or contract manager and be based upon factors other than just availability, such as:
- experience in relation to:
management contracting - type of project;
- construction methods/design.
familiarity and compatibility with other members of the team; compatibility with the client/consultant team;
home location, etc.
A typical project organization chart is shown in Figure 5.
A V AILABILITY
In view of the importance of presenting the right project team for the client's selection process, there is a temptation to put the best in the 'shop window' and then withdraw them when, or after, the customer puts his money on the counter. Such action is just as irresponsible as that of the client who asks for guaranteed project team nominations unreasonably far in advance of potential appointment.
For this reason it is important that the final nomination/selection procedures are conducted immediately prior to appointment. Where a client's decision is dependent upon a particular team (or key members) being available, confirmation of availability must be obtained immediately prior to appointment. Such confirmation should be maintained, subject to circumstances of force majeure.
Communication of the credentials of the key personnel is normally made by the submission of a CV which will detail qualifications, experience, etc. on projects and activities which have a direct relevance to the potential contract.
The presentation of such details in a faithful and enlightening manner should highlight the expertise of the candidate. A concise and factual statement without over-glamourization will usually be the most convincing, perhaps accompanied by a photograph.
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Completing the cost estimate
CONTRACTUAL AND NON-CONTRACTUAL RATES AND PRICES
The extent of the estimator's task is inevitably more limited in management contracting than in traditional tendering, since the bulk ofthe contract price is based on reimbursable elements which are tendered for after the award of the contract. This focuses more attention on those limited elements that are evaluated at the tender stage, and since management contracting margins are very small the cost elements must be accurately estimated.
The estimator must make a clear distinction between those items which are the subject or firm contractual offers and those for which non-contractual budget or approximate advice is required.
These must be clear to the estimator, the contractor's adjudication team and in the submission to the client. Any potential ambiguity must be resolved prior to tender. The commercial areas of the tender are normally:
fee, including risks - normally firm;
project team costs - JeT-Me is based on reimbursable rates but indicates that amendments could be injected to provide for lump sum; common services - JeT-Me is based on reimbursable costs but a similar amendment for lump sum could be injected;
- cost plan although not contractual the fee may be calculated on or fixed to it. The lump sum amendments for the project team and common services should only be used where the programme scope and detailed works design is sufficiently advanced to ensure that the services can be realistically and accurately priced and the probability of future variations/changes to these items are small. Lump sum items become a profit/loss centre for the management contractor and factors which can tend to initiate commercial dispute on such items inevitably detract from the objectives of management contracting.
Separate fees are normally required for the pre-construction phase and construction phase. The pre-construction fee may also be required to include the cost of pre-construction personnel (see Section 9.03).
The pre-construction fee will normally be a lump sum but the construction fee will normally be expressed as a percentage on the project cost at the time of tender and converted to a lump sum when the project cost plan is confirmed during the pre-construction period. Once this fixed fee will normally apply within a specified band of cost variation (±1O%).
In considering the fee there are four components which should be separately identified and reviewed, although some of these may be subject to standard company management policy;
(b) coporate overheads; (c) other specific items; (d) risks.
The level of profit will be an adjudication policy decision based on the market conditions, risk levels, available resources and such factors as the degree of effort/manpower required to undertake the contract. Profit is often erroneously considered as a percentage of turnover, whereas it should more realistically be considered in relation to the resources/personnel used to perform the contract. The level will be set in relation to the contractor's long-term business objectives.
(b) Corporate overheads
Corporate overheads are the costs of the management contractor which are not otherwise directly charged to the contract, and will normally include such items as:
- overall company management;
- business development;
- accounting and auditing;
- research and development;
- other head and regional office services;
- public liability insurance;
- professional indemnity insurance;
- financing costs*
- legal services.
Whilst many management contractors consider these costs as a percentage of turnover, they must be reviewed in relation to the size and duration of the contract and the specific costs of administration.
(c) Other specific items
The complete set of contract documents and the contract conditions should be carefully examined to ensure that all other cost elements are identified that have to be included in the fee (or are excluded from the reimbursable items). The cost of providing these services must be estimated and included in the fee. Items that sometimes come into this category are:
• items of head office or site-based project services, such as: inspection;
industrial relations personnel; cost plan preparation;
- post-completion project personnel.
• insurances - works;
- third party;
- public liability if not already included in corporate overheads;
- construction plant and equipment;
- parent company guarantees.
• insurance deductibles (excess)
Management contracting is frequently referred to as low-risk contracting, but it is not 'no risk'. If the JCT-MC contract is amended or certain so-called management contracts are adopted, the risks can be almost indistinguishable from traditional contracting without the consequent opportunity for a commercial gain. The documentation and conditions need thorough examination to determine the precise risks and responsibilities resting with the management contractor.
Even in the purest form of management contracting certain risks remain with the management contractor. These normally include:
consequences of certain management default by the management contractor; liquidated damages payable as a result of the management contractor's management failure;
* These costs should also be considered in relation to the actual costs imposed by the contract payment conditions, including delay periods and retentions.
- cost over-run on any fixed price elements (if lump sum, project team or common services) due to error or additional cost escalation;
- non-recovered fee on project cost variations within the fixed fee band.
In addition to these risks, other obligations of the management contractor may include:
default by works contractors; bankruptcy of works contractors;
liquidated damages not recovered from works contractors; costs arising from claims under warranties to third parties.
Standard procedures for evaluating these risks cannot be defined, since each management contractor must make his own assessment of probability, etc. Unless he qualifies out of them, appropriate allowance must be added to the fee.
PROJECT TEAM COSTS
The tender will normally call for hourly/daily or weekly rates for the provision of the project team personnel or for the provision of a lump sum price for such services.
It is important that these costs are considered in great detail, and a schedule of anticipated personnel durations, both pre-construction and construction, should be prepared based upon the project programme and organization (see Sections 9.00 and 8.04).
A typical format for calculating periodic rates is given in Figure 6, and that for overall cost calculation in Figure 7. The components within this will be available to the estimator from the company accounts and other records; computer-based formats would normally be used for compiling these estimates. Special care is needed in relation to allowances for holidays, sickness, training etc. and the use of overall or paid working periods.
Particular care must be taken to ensure that provision is made for any office costs or support services, whether in the contractor's head office, on site or in the consultant's or other temporary rented facilities. The contract documents and the contractor's obligations should be carefully examined.
The risks of cost over-run must be added here or in the fee if this responsibility rests with the management contractor.
Common services facilities are the project overhead elements, and Section 9.04 of the COEP details these items and the method and principles to be adopted in their estimation. In essence, the approach is similar on a management contract, although each contractor will have his own policy regarding the extent of such services. Adjustment must also be made for the fact that the management contractor will not directly undertake any permanent works and his own labour force and facilities will be reduced accordingly.
The cost estimate will be directly related to the description of common services being included in the tender and as specified in the tender enquiry documentation (see Section 8.05).
The preparation of or agreement ofthe project cost plan will nromally be a post-contract project function, but sometimes tenderers are asked to provide or to comment.
Unless the project definition is sufficient, this is not a realistic or meaningful exercise. Alternatively, the provision of a free cost planning service would need to be reflected in the overhead cost allowance made by the tenderer.
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Reliance by clients/consultants on non-contractual budgets as part of the competitive selection process is also of doubtful validity.
In the contract stage the management contractor will normally provide a cost planning service, and within many contractors' organizations this is a function of the estimating team.
The cost plan should be checked during the progress of the project and apart from any overall periodic updates, particular checks should be made during the works package enquiry preparation periods and prior to issue of such enquiries.
Adjudication and tender submission
METHODS AND STRATEGY
As with all forms of tender, the adjudication process is often where the difference between success and failure is determined. For management contracting a two-stage adjudication is recommended in view of the necessity to correlate an often extensive submission. A review of the project execution proposal and strategy should be held perhaps a week before final submission to ensure that all inter-related aspects of programme/method/resourcing/ concept, etc. are finalized and written up in a consistent and co-ordinated manner compatible with the final pricing of any common services and project team, etc.
The purpose of this adjudication should be to ensure that not only is the strategy consistent with company policy and all aspects soundly considered as giving the most cost-beneficial solution for the client, but that the presentation of such details does justice to the tender expenditure and presents the contractor's proposals in the best and most appealing manner. At this stage, any additional ideas or concepts should be injected and alternative design suggestions or alternative programme concepts developed. An advantage of this review taking place a little in advance of final submission is that any further investigation or corrective action can still be taken - circumstances may also have arisen which may have been overlooked at the outset of the tender period.
The final commercial adjudication will normally be undertaken a day or two in advance of the tender submission date and will provide a final opportunity to review and confirm all aspects.
The nett costs of all estimated elements will be confirmed and the decisions taken on the conversion of the estimate to a tender with full evaluation of the required fees in the context of the risks (see Section 10.02) and the current business situation of the management contractor.
DESIGN MANAGE TENDERS
Although the majority of management contracting procedures apply equally to the design manage option, there are a number of aspects where obvious differences have to be injected. These include:
- project organisation requires a design team manager reporting to the project manager, with appropriate discipline managers and architects/engineers below;
- the tender submission will normally require descriptions of the proposed design concept and organization;
a lump sum design fee would also normally be quoted;
the JCT-MC does not contain a design supplement, and there is no standard set of contract conditions for this form;
particular care is needed in evaluating responsibilities where a part-developed design and existing design team appointment is being novated to the design manage contractor; design risk needs careful definition and appraisal in relation to the standard of care being accepted and the extent to which this liability can, if at all, be passed to any design consultants.
Post-tender presentation interview
Preparation of major management contract tenders will often cost tens of thousands of pounds and the success of this investment will be determined only in part by fee or price levels. More important are the facts and impressions contained in the submission and the effectiveness of any interview or meeting presentation to the client/consultant team. A sound preparation for such an interview is, therefore, a vital part of the total tendering process.
Interviews and meetings between client/design team and the management contractor's potential project team may be required as part of the pre-qualification process, during the tender period or post-tender. The following applies equally to an interview at either stage.
Clients should only request interviews with those management contractors who are realistically under consideration for appointment. For example, if four tenders have been received it may be that one or two of those tenderers may be effectively excluded from further consideration by a combination of out-of-line commercial and technical proposals, such that no matter how well the project team performs at interview or the tender proposals are clarified or presented they would not be considered for appointment. Under these circumstances, such tenderers should not be interviewed at significant expense to both client and contractor.
Interviews may be formal meetings to a set agenda of questions, or the management contractor may be requested to present his proposals in 15 minutes or one hour. Alternatively, a more informal discussion may be requested. In all cases the client/consultants will be seeking to clarify any company policy or corporate matters from the management contractor's senior management representative and also to meet the proposed project team to understand its approach to the project and to assess its compatibility and suitability to provide the service for the project. This may well not be a natural environment for the project team members, who may be excellent at their site management function but not be trained actors or star public speakers. Therefore, it is important that they are trained in at least basic communication and presentation skills, such that they can be relaxed and do justice to their own technical and commercial abilities. Such skills are, in any case, equally important in a site management context in communicating effectively with sub-contractors, design team and client.
SELECTION OF KEY POINTS
An essential part of the approach to any interview/presentation will be to determine clearly the objectives and the points to be made. Even if the client has set a rigid agenda, the management contractor's team, through the project manager or leader of the interview team, must establish key matters that have to be conveyed during the interview - these may include:
important post-tender additional factors that were omitted from the original tender submission;
relevant aspects of experience of one or more of the project team; special construction methods or techniques;
important commercial or strategy items.
Busy lives and human nature will invariably mean that not all the client/consultant interview team will have carefully studied the tender submission, and a selection of what the management contractor considers his unique or most advantageous selling points must be introduced into the interview/presentation - he must take the initiative.
If a client/consultant has defined a presentation format this must be complied with, otherwise the management contractor must develop his own strategy or carefully prepare for all potential questions.
Any members of the project team attending an interview who are not familiar with the project and submission must be fully briefed and conversant with the other members of the team. Care must be given to the appropriate form of visual aids to suit the context of the project, client personalities and interview room and layout, etc. Slides, viewgraphs, additional hand-outs, etc. all have their place in creating the right environment and impression, but overkill can be just as damaging as a casual and unprepared approach indicating lack of management or interest.
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Action after submission of a tender
SELECTION AND NOTIFICATION OF RESULTS
Evaluation of tenders should follow the criteria and weighting (if any) indicated in the invitation to tender. Many aspects of the evaluation may be subjective rather than matters of accountancy fact, but the results and reasons should still be capable of communication to the unsuccessful tenderers in as detailed and frank a manner as possible in order to ensure that future tenders may be of even greater merit to clients.
ACTION WITH A SUCCESSFUL TENDER
The notification of a successful tender requires the implementation of all the normal procedures for:
- checking of subsequent contract documentation;
- distribution and storing of information;
A management contract requires particular attention to four key aspects:
• clear identification of contractual and non-contractual information in order to avoid subsequent misunderstanding by the client team or the contractor's own team in areas such as:
- project team and common services resource levels and costs;
- programme dates.
• frequent need to finalise contractual matters in relation to pre-construction activities and schedule of initial activities in the light of any changed circumstances since the initial tender invitation.
• action to ensure the contractor's commitment to the cost plan, if already existing, or to arrange preparation in conjunction with the quantity surveyor. Dependent upon the contractor's organizational structure, this cost planning function may be allied with the Estimating Department;
• ensuring that all commitments (contractual or otherwise) made during the tender and post-tender interview, etc. are fully communicated and understood by the entire project team. Early preparation of sub-contract documentation and issue of early package enquiries are vital and a summary of all such initial actions should be prepared.
ACTION WITH AN UNSUCCESSFUL TENDER
Apart from proper administration of records and storing of information this, unlike a traditional tender, is a time for important action. Full advantage should be taken of any client/consultant debriefing to ensure that the reasons why other management contractors were preferred are fully understood. The reasons will frequently not be commercial and are, therefore, more difficult to analyse fully.
This information must lead to an action plan to ensure that future tendering activities are more successful.
It is important that clients take their obligations seriously in relation to debriefing, since effective communication will result in more acceptable and improved tenders in the future.
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