Construction Procurement Manual

Introductory Note

INTRODUCTORY NOTE Aim of the Construction Procurement Manual This Manual provides the Scottish Executive’s Departments, Associated Departments, Executive Agencies and most sponsored bodies with mandatory policy and procedures for construction works projects that will deliver value for money (VFM). It supersedes the (former) Building Division’s ‘Client Pack’, as well as Building Directorate Practice Notes 1 to 8 and Construction and Building Control Group Practice Notes 2A and 7A. The Construction Procurement Manual should be considered applicable to all bodies which are subject to the Scottish Public Finance Manual. This includes: • • • • • the Scottish Executive (including Executive Agencies); non-ministerial offices of the Scottish Administration (associated departments); the Forestry Commission (in respect of its activities in Scotland); the Scottish Parliament Corporate Body; and sponsored bodies.

As well as setting a policy and procedural framework for those parts of the Executive with ongoing capital programmes (for example in trunk roads, accommodation, prisons, courts and historic buildings), it will be particularly beneficial to the occasional or first time Client who has little or no knowledge of the construction industry in general, or procurement of buildings specifically. It will also be of value to those who have some background in construction procurement or who have previously acted in one of the ‘Client’ roles but who may be unaware of recent developments within the industry, current initiatives, new or amended legislation or procurement policy changes. Ideally, the Manual should be used in tandem with a programme of formal or informal training in one of the Client roles. Investment Decision Makers, Project Owners and, in particular, Project Sponsors need to become familiar with the contents of the Construction Procurement Manual before taking up their responsibilities. Those who sponsor Non-Departmental Public Bodies or other funded bodies also need to be familiar with its contents and with their own responsibilities as Clients. They should bring the Manual to the attention of these bodies and should ensure that the policy and procedures consistent with the Manual are followed. Arrangements governing the control of major investment projects should, where appropriate, be incorporated into a sponsored body’s financial memorandum/management statement. Sponsor Departments should review the working of these arrangements, from time to time, to satisfy themselves that the arrangements provide for adequate management of such projects. Why do we need a manual? Following the review of the construction industry in 1994 by Sir Michael Latham, the Efficiency Scrutiny of Government construction procurement in 1995 and Sir John Egan’s Construction Task Force report ‘Rethinking Construction’ in July 1998, there has been considerable emphasis on the role of the Client in achieving excellence in the procurement of products and services, ensuring that objectives are fully met and VFM secured. As a result, much guidance has been published by organisations within the construction industry itself and also by Government. The volume of guidance available can be confusing even to those who are regularly involved in construction, let alone those with little or no previous experience, called upon to act in a Client role for a major construction project. This Manual has therefore been compiled by the Construction Advice and Policy Division of the Scottish Procurement Directorate (SPD) to draw together key policy principles and procedures from many sources. It is intended to be of immediate relevance to those who are required to perform in one of the specific Client roles. This Manual describes the professional support and training that are available at various stages of a building project to help Clients to achieve their objectives. What’s in the Manual?

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Construction Procurement Manual

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Construction Procurement Manual

Introductory Note

Included is: • A section containing links to the Appraisal and Evaluation, Major Investment and other sections of the Scottish Public Finance Manual which outline the mandatory policy principles and procedures to be followed when undertaking investment appraisal and the subsequent financial management of major investment, including construction projects. A link is also provided to Finance Guidance Note 2004/03: Delivery of Acquisition-based Programmes and Projects; A section containing links to the Scottish Executive’s Procurement Policy Manual which sets out policy for all procurements; to the Scottish Executive’s Procurement Toolkit which explains the procurement process for the purchase of goods and services; and to Scottish Procurement Policy Notes and Local Authority Procurement Circulars. An Overview of Construction Works Procurement which sets out the main characteristics and elements of construction works procurement, and; The Scottish Executive’s Construction Works Procurement Guidance which provides mandatory best practice principles in a context appropriate to the Scottish Executive’s needs. It comprises eight sections: Section 1 explains the roles and responsibilities for the three key functions of Investment Decision Maker, Project Owner and Project Sponsor and describes the abilities and skills required; Section 2 sets out a framework containing the key activities essential for achieving value for money (VFM), including the carrying out of Gateway Reviews; Section 3 provides advice on procurement strategies and the appointment of consultants and contractors for works projects, including an emphasis on integrated teamworking and fee payment considerations; Section 4 provides advice on budget estimates, budgets and cost management, risk management and financial reviews; Section 5 provides advice on health and safety issues that need to be taken into consideration by clients when undertaking construction operations; Section 6 provides advice on design quality issues (including design competitions) that remain consistent with VFM principles and EU procurement rules; Section 7 provides advice related to the achievement of key sustainable development objectives through the procurement process; and Section 8 lists sources of other related guidance, including guidance on specific aspects of the procurement process issued by the Office of Government Commerce and which remain relevant for works procurement.

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Mission Critical and High Risk Projects Throughout various sections of the Manual, reference is made to mission critical and high risk projects, particularly in the context of actions which Accountable Officers, Project Owners or Project Sponsors need to take in regard to such projects – for example, in ensuring that questions relating to ‘common causes of failure’ are addressed, in carrying out independent Gateway Reviews prior to key decision points, and in presenting an evaluated assessment of the risks associated with different procurement routes to Ministers.

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Introductory Note

A mission critical project is one that (irrespective of size, value or complexity) delivers outputs that directly support the delivery of a major policy outcome (such as those prioritised in a Partnership Agreement) or that delivers an internal business change that supports the administration of the organisation (Scottish Executive, Agency or funded body). A high risk project typically displays some or all of the following characteristics: a novel or untested approach to delivery; lack of experience of similar project delivery; a complex matrix of project interdependencies; a significant impact on the public and other organisations; business criticality and/or political sensitivity; or a significant resource commitment.

What is SPD Construction Advice and Policy Division? The Division is staffed by construction industry professionals who have experience in both the public and private sectors. It is responsible for the formulation of construction procurement policy and provides advice on a wide range of construction-related issues, including the procurement of new buildings/extensions, the refurbishment of existing property, asset management planning and estate strategies. It also provides advice within the Executive on technical, cost and VFM matters and on construction-related legislation, notably Part 2 of the Housing Grants Construction and Regeneration Act. How can we help? The task of assimilating and putting into effect all of the policy and procedures can appear daunting, especially for anyone about to undertake a Client role for the first time. It may be reassuring to know that these Client functions will not be carried out in isolation. Formal training is available together with professional support. Advice can be commissioned initially, and throughout the duration of the project, as appropriate. Much of the published guidance is geared towards major projects – those with a total budget exceeding £2m (including professional fees and VAT). Whilst the general policy principles will remain the same for smaller projects, some of the procedures may be simplified. As a part of the Client education process, it is important to ensure that there is management and technical competence of a level commensurate with the size and complexity of the project. With regard to major contracts, this implies the need in most cases for a certain degree of formal training in order to acquire an appropriate level of knowledge in the relevant areas. Guidance on the abilities and competencies required by the Client is contained in the Manual. Information on Client oriented procurement training programmes within the Scottish Executive can be obtained from Corporate Learning Services. Depending on the nature of the project, professional advice and support can be provided at various stages, usually by a Client Adviser, a Project Manager and/or design, cost and other consultants. The selection process for the companies or persons who will perform these supporting and advisory functions will be important in achieving a successful outcome to the project. Advice should be sought initially from Construction Advice and Policy Division who, if necessary, can help Clients in procuring consultancy services at appropriate stages of the project. Mentoring programme. To assist those new to the Client role in the Scottish Executive, Construction Advice and Policy Division (CAPD) can provide details of those persons who are willing to share their experience and
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knowledge of carrying out one or more of the Client roles of Investment Decision Maker, Project Owner or Project Sponsor. Further information, including feedback from completed projects, is available from CAPD.

Availability and updating the Manual This Construction Procurement Manual is only available through the Scottish Executive web site and Construction Advice and Policy Division's Intranet site. The contents of the Manual are reviewed continuously and amended, when necessary, to take account of new legislation, rules, procedures and guidance. Those reading printed hard copy of the Manual should check the content against the web site to ensure that they are referring to the current version.

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Construction Procurement Manual

Scottish Public Finance Manual

THE SCOTTISH PUBLIC FINANCE MANUAL

MAJOR CAPITAL CONSTRUCTION WORKS - APPRAISAL, EVALUATION AND MAJOR INVESTMENT

Purpose The need to improve performance in investment appraisal, in the management of major investment and of the procurement process to become a best practice client has been identified in recent government efficiency reviews. The Appraisal and Evaluation, Major Investment and other sections of the Scottish Public Finance Manual (SPFM) set out the policy principles and procedures for Departments, Associated Departments, Agencies, other directly funded bodies, office holders and relevant sponsored bodies which should be followed in investment appraisal and in the management of major investment procurement.

Application of SPFM guidance Certain underlying principles apply across the board to all major investment projects. The SPFM sets out these key principles and identifies the functions of good management. Whilst compliance with these principles is mandatory, individual business areas may adapt procedures to suit their own local needs though, in doing so, they must ensure that roles and responsibilities are clear and relationships properly defined and established. Departments should ensure similar clarity in respect of capital projects managed by Executive Agencies or outside bodies, including relevant sponsored bodies.

Links to the SPFM The following links to specific sections of the Scottish Public Finance Manual are particularly relevant to major investment in construction projects. These sections should however be viewed in the context of the SPFM as a whole: 1. Accountability - guidance on accountability of directly funded and relevant sponsored bodies. 2. Appraisal and Evaluation - overview of the appraisal and evaluation process, providing a checklist and linking to the more detailed HM Treasury 'Green Book'. 3. Best Value - defines best value and details the duty which accountable officers have to secure it. 4. Delegated Authority - covers the type and control of delegated authorities to individual business areas and the role of accountable officers and departmental finance teams. 5. Major Investment - gives guidance on the procurement, management and monitoring of major investment projects and covers elements such as: roles of investment decision maker, project owner and project sponsor; joint funding; gateway reviews; and post occupancy and post project evaluation.

Annex 1 details the Client's Chain of Command, explains how the various responsibilities of the management roles should be made explicit and also how the three key management functions should be discharged. Annex 2 details Project Owner, Project Sponsor and Project Manager responsibilities, including those Project Sponsor responsibilities that may be shared between the sponsor Department and sponsored body. 6. Private Finance Initiative/Public Private Partnerships - this section provides an overview of the PFI/PPP process and makes cross-reference to the Financial Partnerships Unit (FPU).
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7. Procurement - this section gives a brief overview of procurement and includes a link to the Scottish Executive Procurement website and most recent EC threshold levels. 8. Risk Management - this section covers the general process of risk management but does not focus on construction or public sector - specific risks (legal, political etc.) 9. Roles and Involvement of Finance - this section gives guidance on the roles and functions of Scottish Executive Finance and the requirement to involve Finance teams. In addition, Scottish Executive Finance Guidance Note 2004/03: Delivery of Acquisition-based Programmes and Projects is also particularly relevant to construction projects. It describes the circumstances in which programmes and projects which have a significant procurement element should be regarded as mission critical or high risk, sets out the common causes of failure of such programmes/projects, and provides a checklist of related questions on which Accountable Officers need to seek assurances before proceeding further. Enquiries Any enquiries on the content and application of the SPFM should be addressed in the first instance to Finance: Accountability Policy and Guidance team in Finance and Central Services Department (FCSD). Individual Finance Teams should be approached with regard to finance issues in relation to specific projects. Enquiries to FCSD by sponsored bodies should be routed through their sponsor Departments.

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Construction Procurement Manual

Scottish Executive Procurement Guidance

SCOTTISH EXECUTIVE PROCUREMENT GUIDANCE The Procurement Policy Manual, Scottish Procurement Policy Notes (SPPNs), Local Authority Procurement Circulars and the Procurement Toolkit are produced by the Scottish Procurement Directorate and can be accessed on the Scottish Executive’s Procurement homepage on the Intranet and on the Scottish Executive’s website. The Policy Manual, SPPNs and Toolkit outline policy and procedures that are mandatory for Scottish Executive procurement staff, and they provide guidance on best practice for Agencies, Associated Departments and NDPBs.

What’s in the Procurement Policy Manual? The Procurement Policy Manual outlines mandatory policy that must be adhered to for all Scottish Executive procurement involving goods, services, consultancy, research and construction works. The policy applies to procurements funded from both programmes and running costs. It is intended to help everyone in the Scottish Executive who is involved in procurement, whether as budget holder/customer, purchaser, expenditure authoriser, contract manager or project client. The policy reflects the essential values of acting with integrity and honesty, pursuing value for money, and encouraging continuous improvement and innovation. In this context, it is worth pointing out that such key elements as use of competition and separation of duties help to protect the individuals involved in procurement in addition to delivering value for money (VFM) and openness. In particular, those procuring construction-related services should ensure that they observe the following Key Principles of Procurement Policy: • • • • to enter into contracts through a competitive process; to achieve value for money which is defined as the optimum combination of whole life cost and quality to meet the customer’s requirement; to fully comply with international obligations including the EU Procurement Directives; and to undertake the procurement process to the highest ethical standards, treating all potential suppliers fairly.

Line managers are responsible for ensuring that staff involved in the procurement process adhere to the policies outlined in the Manual.

What’s in Scottish Procurement Policy Notes and Local Authority Procurement Circulars? Scottish Procurement Policy Notes (SPPNs) and Local Authority Procurement Circulars (LAPCs) provide up-to-date advice and guidance on policy and procedural issues relating to works and nonworks procurement.

What’s in the Procurement Toolkit? The Procurement Toolkit explains the procurement process for the purchase of goods and services. Designed as an online source of information, it offers guidance on procedures and processes, together with templates, and recommends further guidance with appropriate links. The procurement of consultancy services also follows the process outlined in the Toolkit.

Enquiries Any enquiries about the above documents should be addressed, in the first instance, to the Scottish Procurement Directorate’s (SPD) Policy and Best Practice Branch. Enquiries to SPD by sponsored bodies should be routed through their sponsor Departments.

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Construction Procurement Manual

Works Procurement - Overview

CONSTRUCTION WORKS PROCUREMENT - AN OVERVIEW What is Construction Procurement? The term encompasses the purchase of construction-related services with the ultimate aim of: • • alteration, refurbishment, maintenance, extension or demolition of an existing building or structure; and/or the creation of a new building or structure, including all associated site works.

To obtain the best service and performance from the construction industry, the Client should be closely involved at each step in the process. Successful construction procurement should result in a project delivered on time, to cost and to the desired quality capable of performing the unique specific business function of that client. The procurement process involves a wide range of skills for which training and development may be required. What are the essential requirements? In the case of construction projects, the quality aspect of Value for Money (VFM) relates both to the functionality and build quality of the finished building/structure, and to the quality of service provided by the various consultants and contractors engaged by the Client. The former may include several factors such as design aesthetics; appropriateness and sensitivity to surroundings; ease of maintenance; adaptation to suit future client requirements; and impact on the wider environment. The latter should take account of the particular abilities, skills and strengths of potential service providers, including their aptitude for providing innovative solutions and for working effectively alongside the Client and other team members. (For further information on the VFM framework for construction projects, see Section 2 of the Construction Works Procurement Guidance; Section 3 of the Guidance provides further details on appointment processes). Contract award procedures must be seen to be conducted in a fair and even-handed manner and in accordance with legal requirements including European Community law. Appropriate professional/legal advice must always be obtained at the earliest opportunity; expert procurement advice in these matters should be obtained from the Scottish Procurement Directorate’s Policy and Best Practice Branch. (For further information, see the Procurement Toolkit, and Section 3 of the Construction Works Procurement Guidance). All procurement decisions should be based on securing value for money (VFM) and, in instances where the EU Procurement Directives apply, this means that contracts must be awarded on the basis of "most economically advantageous tender" (combining cost and quality) rather than on the basis of lowest cost. In construction procurement, the evaluation process may require the quality (technical merit) criteria to be considered separately from the price criteria. It must be stressed however that all tenderers who have attained the (pre-determined) quality threshold must have their bids opened for consideration. (For further information, see the Procurement Toolkit, and Section 3 of the Construction Works Procurement Guidance). In the case of contracts and appointments which fall below the relevant EU Procurement Directive monetary thresholds, the procedures are less demanding but the same principles apply – achieving VFM, using competition and being able to justify the contract award decisions. To justify contract award decisions, it is essential that clear and defensible assessment criteria are established in advance of the selection of tenderers and the evaluation of their bids. (For further information, see the Procurement Toolkit, and Section 3 of the Construction Works Procurement Guidance). Finally, it should be emphasised that it is Scottish Executive policy that all contracts should be made in writing unless there are exceptional circumstances. However, care should also be taken, when holding discussions with potential contractors and consultants, that no undertakings or commitments are unwittingly given which may later be construed as having established a binding contract. ‘Letters of intent’ should not be issued other than in the most exceptional circumstances, having taken legal advice and obtained approval from the Director of Procurement, Scottish
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Procurement Directorate. There may be situations where an ‘interim agreement’ can be justified but such a letter must have clearly defined contractual obligations and should also be the subject of advice from Solicitors and Scottish Procurement Directorate. (For further information, see the Procurement Toolkit). The general principle should be that whenever consultants or contractors are appointed – either singly or as part of a joint venture – fully executed contracts should be in place at the outset, along with any appropriate bonds or guarantees. (See Section 3 of the Construction Works Procurement Guidance). How does Construction Procurement differ from Goods and Services Procurement? Specification for the procurement of goods and services is developed from the business case which is presented to SPD in the form of a requisition/request for procurement action – for example, the control document formally starting the procurement process. Construction procurement differs in that there can be no direct acquisition of a building (unless it is a small prefabricated unit, for example a school classroom). New buildings are seldom standard items and the refurbishment of existing buildings can never be standard. The act of creating a new – or extending or refurbishing an existing – building cannot be directly compared to the procurement of goods which can be requisitioned, are often ‘off the shelf’ and where an immediate choice can generally be made in terms of cost and quality. The Client’s accommodation or property requirements need to be defined and then various options considered. The procurement of a building involves commissioning professional services and creating a product. The process is complex, involving the interaction of the Client, design team, contractor(s) (who provide the construction expertise, labour, materials and plant resources), suppliers and various statutory/public interest bodies. Building procurement is often the subject of joint funding, with the different parties having varying degrees of interest in the outcome of the building process. An agreement should be entered into with the various funders. (For further information on Jointly Funded Projects see the Major Investment section of the Scottish Public Finance Manual). Some Common Terminology in Construction Procurement Whole Life Cost — all of the ownership costs related to a building or facility throughout its lifetime, comprising: its acquisition (including design, other consultancy, construction and equipment fit-out), its operational and running costs (including energy use, maintenance and replacement of equipment or components), and its disposal costs. Investment Decision Maker — the most senior role in the Client’s chain of command, responsible for approving the project and thereafter maintaining the visible and sustained senior management commitment to its delivery. The role may be performed at Ministerial, Accountable Officer, board or senior official level. Project Owner — a senior individual in the business area that requires the project, the Project Owner is the customer for the project and is accountable to the Investment Decision Maker for delivering the project requirements in accordance with the budget and the approvals given. Project Sponsor — the officer appointed by the Project Owner who has day-to-day responsibility for the overall success of the project, including its delivery on time, within budget and to the required quality. Sponsoring departments (for projects carried out by public bodies) should identify and formally appoint an officer to be responsible for steering the project through the departmental finance and management systems. Non Departmental Project Sponsor — where a project is undertaken wholly by an outside body funded by the Scottish Executive, the officer appointed within that body with personal responsibility for successful delivery of the project. In some instances, responsibilities may be shared with a Departmental Project Sponsor, in which case the division of responsibilities must be set out in writing.

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Client Adviser — an independent adviser with a specialist knowledge of construction, engaged at an early stage in the project to understand the Client’s business needs and objectives, and to provide impartial guidance on the best way to proceed. This may be available in-house from an appropriately qualified person, but is more usually likely to need the involvement of a consultant adviser (who should not be engaged in any delivery role with the project). Project Manager — the Client’s professional agent in the detailed management of the project, who reports directly to the Project Sponsor and has defined delegated authority to take decisions on his behalf. This role is often carried out by a consultant (but can be accomplished by an in-house appointment with the necessary professional expertise) and provides the technical expertise to assess, procure, manage and monitor the resources needed to complete the project. Consultant — an individual or organisation commissioned to provide the Client with design, cost, management or other professional services. Contractor — the organisation which contracts with the Client to undertake the construction work associated with the project. Depending on the procurement route selected, this may also include design, management and operational responsibilities. Project Team — the consultants, contractors, specialists and others who come together to design, manage and construct a project. Planning Supervisor — an organisation or individual (usually a consultant) appointed by the client to implement the health and safety requirements of the Construction (Design and Management) Regulations 1994. Constructionline — the national (UK) computerised database of information on building contractors and consultants, approved as being financially sound and technically capable of undertaking various types of contracts up to specified values for public sector clients. The database was established by the (former) Department of the Environment, Transport and the Regions, and SPD’s Construction Advice and Policy Division is the contact point within the Scottish Executive and its Associated Departments, Agencies and Non Departmental Public Bodies. What are the Client Responsibilities? A successful project relies on mutual integrity, cooperation, communication, fairness, objectivity, courtesy and professionalism. The Client is the pivotal figure in the project and is in a position to lead by example through the right approach to the project and a commitment to teamworking and VFM, so must therefore: • • • allow sufficient time (before and during construction) to fully plan the project and get the construction sequence right; clearly and fully define his needs and expectations in the brief, since late changes of mind can prove expensive in terms of timescale, cost and quality; ensure that the appropriate team is appointed (either collectively or individually) to provide advice and to represent the Client’s interests — they must be suitably resourced, qualified, experienced and able to work together as a team; analyse the risks attached to the project, quantify them, manage them and make appropriate financial and time provision for them; define the parameters of time, cost and quality before the construction phase commences; take account of project cost over its whole life and not on the basis of initial (construction and professional fee) costs; ensure that the necessary financial and other resources are available when required; meet all statutory obligations, including health and safety and EU legislation requirements; regularly monitor the entire development process throughout all of its stages, including responding to the reports of gateway reviews carried out at key approval points in the process and carrying out post project evaluations of the process and end product on completion; and display the leadership and management skills of a best practice Client.

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What comprises the Construction Procurement Process? The Generic Procurement Process (see the Procurement Policy Manual) does not directly translate to construction procurement situations, but is broadly comparable. In construction procurement, once the decision to proceed with the project has been made, the Client will then embark on the procurement process. This can generally be described as follows. (a) Setting up the project This includes: • appraisal of all of the options available to the Client (including ‘do nothing’ or ‘do minimum’) and identification of those which will best serve the business aim (See the Appraisal and Evaluation, Major Investment and other sections of the Scottish Public Finance Manual and HM Treasury’s ‘The Green Book: Appraisal and Evaluation in Central Government’); nomination of members of the client body to fulfil the specific Client roles (See Section 1 of Construction Works Procurement Guidance); examination of the case for Public/Private Partnerships (PPP) including the Private Finance Initiative (PFI) option. An early contact should be made with the Scottish Executive Financial Partnerships Unit (See Section 3 of Construction Works Procurement Guidance); obtaining external professional advice and support if this is not available in-house. This may involve the participation of a client adviser who will give guidance on the preparation of the economic appraisal and options to meet the Client need including possibly a non-build option (See Section 1 of the Construction Works Procurement Guidance); confirmation of the business case by setting out those essential components which will subsequently form part of the strategic brief (for example, initial budget, outline programme, benefits and risks) and by establishing time, cost and quality benchmarks against which the project can be monitored as it proceeds (See Section 1 and Section 4 of the Construction Works Procurement Guidance); development of the Client’s brief into a full project brief including consultation with end users; identification of the most appropriate strategy to procure the building (See Section 3 of the Construction Works Procurement Guidance); appointment of the Project Manager, who will be responsible for taking the project forward to its conclusion. The role of the client adviser will diminish on this appointment (See Section 3 of the Construction Works Procurement Guidance); and review of the procurement route on appointment of the Project Manager. This may be required due to changes in the Client’s requirements or on the advice of the Project Manager (See Section 3 of the Construction Works Procurement Guidance).

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(b) Defining the project This includes: • formal agreement of the strategic brief prepared by the Project Manager, including functions to be provided, cost parameters, quality of design and phasing of programme if required; • establishment of project control and management procedures, including arrangements to meet the requirements of funders in the case of jointly-funded projects; • preparation of a project execution plan by the Project Manager, and agreement of key aspects of that plan and timetable; roles, responsibilities and delegated authority; and • ensuring that risk management and value management are employed and that robust cost control procedures are in place. (c) Assembling the team This includes: • drawing up a list of suitable consultants both in terms of technical and project specific expertise, using data from Constructionline and other sources as appropriate, such as framework agreements;

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selecting and appointing the project team through a combination of competitive tendering/interviewing or, in exceptional circumstances, negotiating (See Section 3 of the Construction Works Procurement Guidance); and drawing up contracts between the Client and design team defining the scope of service and obligations. Where possible, standard unamended contract forms, issued by recognised bodies, should be used. Bespoke or amended forms may be required in certain circumstances; however, it will be necessary to ensure that they are both legally and technically sound (See Section 3 of the Construction Works Procurement Guidance).

(d) Design The following refers to a traditional form of procurement (i.e. completion of design by consultants prior to tendering) and may need to be adapted for other forms of procurement. This includes: • clarification of issues within the design brief; • development of the concept design to detailed design by the design team in collaboration with the project sponsor and client body; • ensuring that the statutory consents and legal, financial, insurance, health and safety, and statutory authority matters have been resolved and site access is available prior to commencing construction; • choice of the most appropriate procurement route (See Section 3 of the Construction Works Procurement Guidance); • establishment of change control procedures to regulate project cost; • taking account of the Scottish Executive’s Policy on Architecture for Scotland, which aims to encourage good architecture in publicly and privately commissioned projects. (Further information can be obtained from the Architecture Policy Unit); • consideration of sustainability issues (the materials chosen for the scheme and the overall impact of the building); and • taking the health and safety implications of construction and operation into consideration; • consideration of life cycle or whole life costs. Further information is contained in Section 6 and Section 7 of the Construction Works Procurement Guidance. (e) EU Procurement Directives It is essential that these Directives are followed where they apply and to ensure that the tendering process is competitive in an EU context. Full information on EU Procurement Directives can be obtained: • • • in the Procurement Toolkit; in the International Obligations section of the Procurement Policy Manual; and from the Scottish Procurement Directorate

(f) Tendering This includes: • use of Constructionline (and other sources) to check the financial and technical suitability of contractors when drawing up the tender list; • ensuring that tendering procedures are clear, fair, capable of withstanding scrutiny by audit and are in line with Scottish Executive requirements (See Section 3 of the Construction Works Procurement Guidance); • compliance with appropriate industry guidance or codes of procedure for selective tendering; and • ensuring that all tenders are comparable on a like-for-like basis in terms of cost and contract period. (g) Construction
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This includes: • management of the project during the contract period to control costs and avoid disputes. This necessitates the clear defining of responsibilities and encouragement of a teamworking approach; • regular monitoring and reporting, to analyse all aspects of the project as construction progresses; and • taking corrective action (if required) following the gateway reviews, carried out at key stages of the project (whether in-house or by independent scrutiny). (h) Completion This includes: • oversight of testing and commissioning procedures; • coordination of the reporting and remedying of defects; • receipt of the health and safety file from the planning supervisor; and • the agreement of final accounts in line with contractual requirements. (j) Post project evaluation and post occupancy evaluation This includes: • completion of a formal post project evaluation in order to review the project performance, its delivery of objectives and VFM, and to identify lessons to be learned from the procurement process. These lessons should be used to influence the approach to the procurement of future schemes; and • completion of a post occupancy evaluation (possibly by an independent consultant) which focuses on whether the building is meeting user needs and identifies lessons to be learned. What are Approval Gateways? The need to carry out regular monitoring reviews at key stages in the procurement process is introduced in the Appraisal and Evaluation, Major Investment and other sections of the Scottish Public Finance Manual. In the case of construction procurement the same principles apply, including the need for independent scrutiny in the case of certain mission critical or high risk procurements (Gateway Reviews), but there are a number of procurement route options available. As a result, the Client or funding organisation may need to tailor the approval gateways to the procurement route chosen and to ensure that the project does not proceed further without specific management and funding disciplines being in place. (For further information on approval gateways and the VFM framework, see Section 2 of the Construction Works Procurement Guidance). Where does Estimating and Cost Control fit in? It is vital to the success of the construction process that proper estimating procedures and strict cost control are employed in order to maintain budgetary limits. The project sponsor and project manager must ensure that cost targets are being met at each of the approval gateways and that procedures are in place to warn if the budget is in danger of being exceeded. These financial reviews must ensure that the project remains affordable and that funds are available to cover planned expenditure up to the next approval gateway. Appropriate early action must be taken, if required, to keep the project within budget. (For further information on financial aspects, see Section 4 of the Construction Works Procurement Guidance). How vital is Risk Management? An important element in the cost control of a project is to ensure that potential risks are identified at an early stage and that a risk management strategy is put in place. This includes setting up a risk register, assessing the likelihood of occurrence, quantifying the impact and taking an appropriate response – such as risk avoidance, reduction, transfer, sharing or retention. Thereafter, the risk allowances built into the project budget must be monitored and controlled. Cost estimates should

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Works Procurement - Overview

therefore comprise a base estimate plus a risk allowance to cover the expected costs of risks identified by the project team, working in collaboration with the Client. In practice, not every risk in the register will materialise and therefore the total risk allowance should not simply comprise an aggregation of all possible risks. It requires professional judgements to be made about the probability of each risk occurring as well as an evaluation of its financial impact. (For further information on risk management and allowances, see Section 2 and Section 4 of the Construction Works Procurement Guidance). Which Statutory Obligations apply? There are numerous statutory obligations with which Clients may have to comply during the course of their projects, although the extent of these will depend on the scale of the project, its location and the legal status of the building i.e. the application of Crown Exemption (see next section on Crown Buildings). The following represents an indication of the broad range of statutory obligations which a Client may encounter: • • • • • • • planning permission, including obligations regarding scheduled monuments, listed buildings, conservation areas and tree preservation orders; building regulations; Road Orders and Compulsory Purchase Orders; the need to obtain fire certificates, to meet public health requirements and to maintain insurance cover for legal liabilities; the Disability Discrimination Act 1995; EU procurement rules, as incorporated in UK Regulations; health and safety requirements including the Construction (Design and Management) Regulations 1994, which place responsibilities on clients, designers and contractors throughout a project’s lifetime (see Section 5 of the Construction Works Procurement Guidance) and the provisions relating to adjudication and payments in construction operations as required by the Housing Grants, Construction and Regeneration Act 1996.

What about Crown Buildings and Building Regulations? On 1 May 2005 most of the Building (Scotland) Act 2003 came into force, but the section applying the Act to Crown buildings (section 53) will not come into force until 2008. However Government policy (the Building (Scotland) Regulations 2004) is, and will remain, that Crown buildings in Scotland should comply with building regulations. Compliance with the new building regulations requires the 64 mandatory expanded functional standards in schedule 5 of the regulations to be met. Technical Handbooks for Domestic and Nondomestic Buildings provide guidance on ways of meeting the standards. Note that the existing mandatory Technical Standards are revoked. The main changes to the regulations however relate to the procedures rather than the set technical requirements. For example, the application of standards to alterations and conversions is significantly different and the amount of work which can be carried out without a warrant, provided it is executed in a way that would comply, is significantly expanded. The new form of functional standard gives considerable flexibility, but cases will remain where there is a doubt about whether proposals do comply with the standards. For non Crown buildings, there is the option of the verifier and applicant asking the Scottish Building Standards Agency (SBSA) for a formal ‘view’ on whether a proposal complies. However, until section 53 of the Building (Scotland) Act 2003 is commenced, there will be no Crown verifiers, and no option to obtain formal relaxations, or views, from the Agency. SBSA therefore intends to operate an informal system which will be the equivalent of views. This will operate in a similar way to the previous waiver system, but to differentiate it from Crown waivers – and to remove confusion with formal views etc. which do not start until section 53 commences – the Agency will offer Crown opinions. Crown Immunity from the building regulations will continue until Section 53 of the Building (Scotland) Act 2003 is enacted. Once immunity is removed the SBSA will become the Crown Verifier. In the

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Construction Procurement Manual

Works Procurement - Overview

meantime, Crown building owners should continue to use Building Control Consultants to be assured of compliance with the standards in accordance with Government policy. Building Control Consultants will have to decide whether proposed building work to or for a Crown building meets the functional standards. In general, the work is expected to be in accordance with the guidance in the Technical Handbooks but where it is not, Building Control Consultants will no longer apply for a waiver; it will be a matter for their professional judgement. In cases where the consultant is in doubt, they will be able to refer cases to SBSA for an opinion. An opinion will state whether the proposal meets the appropriate standard(s) or whether the standard(s) should not apply. This will be a free service offered by the SBSA. As there is no procedure of applying for a warrant, it is difficult to be precise when the new regulations should apply to Crown building projects. SBSA has decided therefore the trigger for the new standards to apply is when a project is handed to the Building Control Consultant for checking after 1 May 2005. When there is doubt, the consultant should write to the SBSA to agree on the appropriate standards for compliance. The same trigger point will decide when an opinion can be sought from the agency as to the adequacy of certain work in connection with the appropriate standard. A template referral letter will be made available on the SBSA web site to help ensure that the SBSA receives the correct information and supporting documentation to consider the case. (For further information, see the Further Reading section of the Construction Works Procurement Guidance.) Crown Opinion casework will be handled by designated officers who will be the point of contact for Building Control Consultants. Key opinions that have important areas of commonality will be shared with all Building Control Consultants. Where can I get further help and advice? The construction process requires a wide range of skills and it is essential that Clients seek the advice and support of the appropriate professional expertise at an early stage. Help is available from the following sources: (a) Construction Procurement Policy, Procedures and Best Practice Construction Advice and Policy Division of SPD is the central contact point in the Scottish Executive for advice on policy, procedural and best practice matters relating to construction procurement. It provides support on a range of contractual, management, cost and VFM issues. It also provides support on technical matters and on construction-related legislation. It should, therefore, be the first point of contact for Clients considering such procurement, but ultimately executive responsibility for the realisation of projects lies with the Client’s team, notably the project sponsor. (b) Roads and Bridges Procurement Trunk Roads Design and Construction Division (TRDCD) is responsible for all matters concerning the procurement of works, services and supplies for the management and operation of trunk roads and motorways in Scotland (including maintenance and new works). Although the broad principles of works procurement apply equally to roads projects, this is an area generally undertaken by specialists. TRDCD have therefore produced a comprehensive set of procedural manuals and guidance notes concerning the particular aspects of their responsibilities. In addition, TRDCD has produced bespoke forms of contract for different types and size of project, as well as the Trunk Road Advice Manual which collectively provides relevant guidance on business, procurement, engineering, financial and statutory procedures. Advice on the design of highway bridges and structures should be sought from Trunk Roads Network Management Division.

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Construction Procurement Manual

Works Procurement - Overview

(c) Civil Engineering The Environment Group’s Air, Climate and Engineering Division should be consulted for general advice on civil engineering matters. (d) Property Management, Acquisition and Disposal Property Advice Division should be consulted on all property matters including management, acquisitions (leases or purchases), disposals, and appraisal and evaluation of existing property. (e) Design Quality The Architecture Policy Unit provides advice to Ministers on policy matters relating to architecture. The aim of the Unit is to contribute to a better physical environment through promoting and encouraging better architecture. The Unit's duties include the provision of advice on design quality issues in respect of capital building projects and programmes. The Unit also acts as the sponsor body for Architecture and Design Scotland which is a NDPB established to promote good architectural design.

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Construction Works Procurement Guidance

CONSTRUCTION WORKS PROCUREMENT GUIDANCE

Home Who should read this guidance? All those who carry out construction works projects and are subject to the Scottish Public Finance Manual, as well as those who sponsor Non-Departmental Public Bodies or other funded bodies, need to be familiar with its contents and with their own responsibilities as clients. This includes the Scottish Executive, its Executive Agencies and Associated Departments, the Scottish Parliament Corporate Body, and most sponsored bodies. They should bring the Construction Procurement Manual to the attention of these bodies and should ensure that the policy and procedures are followed. Arrangements governing the control of major investment projects should, where appropriate, be incorporated into a sponsored body’s financial memorandum / management statement. Sponsor Departments should review the working of these arrangements from time to time to satisfy themselves that the arrangements provide for adequate management of such projects. The guidance should be read by investment decision makers, project owners, project sponsors, client advisers and project managers, as well as procurement, finance and internal audit staff who have an interest in works projects. The guidance should be read in conjunction with the Scottish Public Finance Manual (with particular reference to the Appraisal and Evaluation, Major Investment and other sections), the Procurement Policy Manual and Procurement Toolkit, and the Overview of Construction Works Procurement; this additional policy and procedural guidance can be accessed from other parts of this Construction Procurement Manual. The guidance takes account of principles previously set out in construction procurement guidance issued by the Office of Government Commerce (formerly the Procurement Group of HM Treasury) and describes the principles in a context appropriate to the Scottish Executive’s needs. Within the Scottish Executive, its Executive Agencies and its Non-Departmental Public Bodies, advice on construction procurement can be obtained from the Scottish Procurement Directorate’s Construction Advice and Policy Division. The guidance is divided into the following sections within this site: Section 1: Roles and responsibilities Section 2: Value for money Section 3: Procurement strategies and the appointment of consultants and contractors Section 4: Financial aspects Section 5: Health and safety Section 6: Design quality in building procurement Section 7: Sustainability in building procurement Section 8: Further reading

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Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

SECTION 1 – ROLES AND RESPONSIBILITIES

KEY POINTS • Each project should have an investment decision maker, project owner and project sponsor. They should be clearly identified, have the necessary abilities, receive appropriate training, be given professional/technical support and be adequately resourced. Where appropriate, the roles of investment decision maker and project owner, or project owner and project sponsor, may be combined. Investment decision makers, project owners and project sponsors should have a clear understanding of risk management to allow them to make informed decisions. Project owners and project sponsors should be given written terms of appointment setting out their responsibilities, authority and the resources at their disposal for each project. An appropriately qualified client adviser should be involved as soon as possible after project inception to assist non-technical project sponsors. If a consultant is appointed to provide this role, it should not be combined with that of the project manager or any delivery role but should remain totally independent.

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Construction Works Procurement Guidance

Section 1: Roles and responsibilities All major works projects should have an investment decision maker, project owner and project sponsor. This section explains their roles and responsibilities, along with those of the project manager and client adviser, and sets out the abilities and training they require, and their relationship to one another (Figure 1, below). Some projects involve more than one source of funding, in which case each funder, preferably in consultation, must ensure that there are clear written arrangements for the management of the project including: • how the contribution of each funder is to be calculated; • the monitoring information to be given to funders; • what approvals are required from individual funders at particular stages; • change control procedures; • the arrangements for the apportionment of costs in the event of the project being curtailed, abandoned or increasing in cost; • the arrangements in the event of any of the funders failing to meet its obligations; • the ownership of the assets and arrangements for repayment of grant in the event of the asset not being used for the purpose intended or having been disposed of; and • a procedure for the resolution of disputes. In some client organisations and for some projects, the roles of investment decision maker and project owner, or project owner and project sponsor, may be combined. If this should happen: • the allocation of the three roles should be made clear; • the three roles must not be combined and allocated to one person; and • the person taking on a dual role must have at least the authority and status required of the higher function. Figure 1: Project team organisation

INVESTMENT DECISION MAKER

PROJECT BOARD PROJECT OWNER (may not be required: advisory only) CLIENT ADVISER (may be required by non technical sponsor: generally external consultant) PROJECT SPONSOR

USER PANEL (including functional and operational stakeholders)

PROJECT MANAGER (generally external consultant)

CONSULTANTS (designers, cost, etc)

CONTRACTOR

SUPPLIERS

Additional guidance is contained in the Appraisal and Evaluation, Major Investment and other sections of the Scottish Public Finance Manual. For specific advice on Private Finance Initiative/Public Private Partnership projects, contact the Scottish Executive’s Financial Partnerships Unit. _________________________________________________________________________________ Construction Procurement Manual October 2005

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Construction Works Procurement Guidance

Investment Decision Maker What do they do? This is the person/committee in the client organisation that decides whether or not the proposed investment in a project should be made, then maintains the visible and sustained senior management commitment to its delivery. The approval may be at ministerial, board or senior official level, depending on the size and complexity of the project. Any risks or proposed changes to the project which may vary the original approval should be referred to the investment decision maker, seeking guidance or re-approval as appropriate. Who takes on the role? It may be taken on by an individual or a committee. In practice, on a major project significantly affecting the client organisation’s budget, reputation or operation, the task could well fall to an Accountable Officer or Chief Executive. What’s the process? When the possible need for a project is raised, the investment decision maker should appoint a project owner. The generic project flowchart (below) introduces the concept of approval gateways. These are points along the project planning route, beyond which the project should not proceed without specific reviews having been completed. At each approval gateway, the investment decision maker should evaluate the business case and investment proposals and, if justified, give approval for the project to proceed. Further guidance on approval gateways and the (more formal and independent) Gateway Review process is contained in Section 2. Generic project flowchart

1 possible need for project raised

2 identify user needs

3 options to meet user needs – confirm project required

4 prepare business case

5 6 project Approval gateway 1 brief

13 invite expressions of interest

12 11 contract Approval gateway 3 15 preparation 10 whole life based design

9 8 procurement Approval gateway 2 16 award contract 17 works contract 18 deliver project 19 feedback strategy 7 feasibility study options

14 tender process Approval gateway 4

What happens if things change? If an alteration in the scope or direction of a project is suggested, the investment decision maker must consider the impact on the client organisation in terms of time, cost, performance and risk. Should a decision then be made to change the scope or direction of a project, the brief and the project sponsor’s terms of appointment must be amended to reflect the change. All changes must be transparent, properly reasoned and recorded. Changes during construction are likely to have a disproportionately large cost and time impact. They should therefore be avoided as far as possible and where this is not possible, all of the consequences must be evaluated prior to making the change.

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Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

Project Owner Who are they? This is the named individual who should be appointed by, and is accountable to, the investment decision maker for the project and its budget. The project owner should be a senior officer in the business unit that requires the project, with the status and authority to provide the necessary leadership. They must have clear accountability for delivering the project requirements in accordance with the approvals given.

What do they do? The project owner’s responsibilities are to: • oversee the preparation of the business case and budget for the project – ensuring the proposals are realistic, meet the business needs and objectives, and that private sector options have been properly considered – and submit them to the investment decision maker for approval. Account should be taken of any asset management plans and estate strategies which should be in place; establish an appropriate organisational structure and the necessary communication processes; ensure that users and other stakeholders are involved in, and committed to, the project; appoint a project sponsor and provide the terms of reference, adequate staff and financial resources, and any necessary support. This might include the appointment of a client adviser and ensuring that appropriate support is available; ensure that a brief is developed which clearly reflects the project objectives and is agreed by the users; establish a progress and reporting procedure, ensuring that any changes in circumstances, particularly the exposure to risk, affecting the project are evaluated and appropriate action taken. This includes reporting to Accountable Officers and the responsible Minister where there are serious concerns about the viability of a project; act as arbiter on any disputes which occur on the client’s side; approve any changes to the scope of the project, ensuring those which impact on time, costs or objectives are assessed and reported to the investment decision maker as appropriate; ensure that Gateway Reviews, in-project reviews and post project completion reports are carried out and shared with all stakeholders in the project. The outcome of Gateway Reviews of high risk or mission critical projects should be reported to Accountable Officers and, if the review identifies serious deficiencies, difficulties or budget concerns, to the responsible Minister by the Accountable Officer; and maintain an official record of how Gateway Review recommendations have been implemented (or setting out reasons for not implementing any recommendation).

• • •

• •

Who do they work with? They should be accessible to senior users and, in order to reinforce the commitment to the project, should also be visible to the senior management of the firms working on it. Such contact should provide an opportunity to promote the project and the benefits that it will bring, and should help to avoid any misunderstandings or potential disputes. These activities should not cut across the daily management responsibilities of the project sponsor, however. The project owner may be assisted by a project board to ensure that other stakeholders are committed to the project, though this board should not have any powers which cut across the project _________________________________________________________________________________ Construction Procurement Manual October 2005

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Construction Works Procurement Guidance

owner’s accountability and authority. Project boards should be advisory only, addressing strategic issues and major points of difficulty. If a major issue cannot be resolved with the project owner, board members should have recourse to the investment decision maker. The project owner must form part of a clear reporting line from senior management to the project sponsor. How does their work progress? Having identified the user needs, the project owner should draw up the terms of appointment for the project sponsor, setting out the following: • • • • the user needs to be addressed by the project; the resources available to the project sponsor both internally and externally; the authority transferred to the project sponsor; and the project sponsor’s responsibilities in relation to health and safety.

The project owner should ensure that the terms of appointment are amended promptly in line with any decisions taken by the investment decision maker. The business case and investment proposals, normally prepared by the project sponsor, are then the project owner’s responsibility to ensure that they are reviewed and that: • • • the recommended option meets the users’ needs whilst providing best VFM; all of the viable options have been properly evaluated; and risks associated with each option are clearly identified together with their impact on the project in terms of time, cost and performance.

The project owner should be committed to encouraging good team working practices within the client organisation and, wherever possible, within the other organisations involved with the project. In particular, the project owner should give clear, decisive support where the client organisation enters into partnering or teamworking arrangements with consultants and contractors during the life of the project. Such visible support could include attendance at the inaugural partnering workshop and commitment to any partnering agreement that may have been established. Along with senior personnel from the other parties involved, the project owner should attend project reviews at regular intervals, appropriate to the stage and nature of the project, to consider major issues, identify achievements and enable potential disputes to be resolved promptly. In addition, the project owner should lead the review of the findings from post project evaluations.

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Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

Project Sponsor Who are they? This named individual, responsible to the project owner, is also known as ‘the client’s representative’. Likely to be the person best placed to manage the client’s duties, the project sponsor is a single focal point for the daily management of the client organisation’s interest in a project. What do they do? The tasks of the project sponsor are to: • agree a statement of need and project objectives with the project owner. Co-ordinate and rationalise the requirements of all the end-users in developing the project definition, design brief, owner objectives and success criteria for the project; contact Property Advice Division to check if the requirement can be met from existing Government or Scottish Executive estates; put in place a clear written agreement for the management of a jointly funded project in consultation with legal, technical and finance advisers; ensure a proper appraisal of the project. This will involve the commissioning of option appraisals, analysis of outcomes, and choice of the best option to ensure best value for money is obtained. It will include deciding on a strategy to transfer to the private sector those risks that it is better able to manage; determine the procurement route. Ensure that the risks and benefits associated with different routes are fully identified, considered and evaluated and, in the case of mission critical or high risk projects, the evaluation and recommendations are presented to the responsible Minister for decision; secure the appropriate authority for expenditure. This will involve developing the project with all necessary financial and other justification to that stage where it can be confidently submitted for approval. In a timely manner co-ordinate the necessary documentation and present for approval. Secure framework agreements with other funders; undertake, with appropriate professional advice, the commissioning of those professional services required to implement the chosen procurement route. This may include obtaining tenders for professional design team services and the appointment of the selected consultants. In conjunction with the project manager ensure that these various groups are welded into a team motivated to meeting the success criteria of the project. Ensure that the roles, responsibilities and delegated financial (and other) authorities for each key member of the project team are clearly defined; in conjunction with the appointed project manager, ensure compliance with all relevant legislation and good practice, covering the procurement of supplies, services and construction works. Ensure compliance with EU Directives, Procurement Policy Manual, Procurement Toolkit, Health, Safety and other relevant legislation; with the assistance of the project manager prepare, and obtain approval from the project owner for a detailed, on-going project execution plan for the project; ensure the installation and operation of a communication, control and monitoring system to inform management decisions throughout the life of the project. Ensure stringent costs, content and change control procedures are utilised during project execution (particularly by the project manager). This includes maintaining records for audit purposes, quality control, etc. If it becomes apparent that the project budget will require to be increased then authority should be obtained in good time;

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Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

be aware of tools available to improve cost-effectiveness of projects, such as risk assessment, in-project reviews, value engineering and life cycle costing and sustainability issues, and ensure that these tools are applied by the project manager; monitor carefully through progress reports and review pro-actively project progress with the project manager, intervening as necessary through him whenever the project is perceived to deviate from the established plans (such as on cost, content, time and quality); make promptly, or obtain, those decisions necessary to ensure that the project success criteria are attained. In particular, exert stringent, formal control over all decisions involving material variations and changes in scope to the currently approved project. Where such decisions affect project costs, standards, programme or content, ensure adequate justification is provided, and approval obtained from the project owner, or investment decision maker, where the effect of such changes exceeds his or her delegated authority. In the event that changes are approved, then ensure project budgets and programmes are adjusted accordingly; where delegated power is given to the project manager and Design Team then the limits of such authority should be established and effective change control and monitoring procedures put in place to ensure adequate cost control is exercised; ensure that satisfactory arrangements are established for financing the project to ensure that money is always available to meet timeously the demands of the project. Ensure systems are in place to enable all monies to be paid on due dates according to the terms of contract and in compliance with the policy on prompt payment; ensure that any technical and financial audits of the project are implemented at the pre-planned strategic stages of project execution. Take any necessary corrective action resultant upon the findings of such audits; plan the organisation and resources needed to execute both the pre-start up testing and the commissioning of the completed project. This may include participation in the selection and training of permanent operating staff and, in close liaison with the project manager and end users, ensuring appropriate commissioning of facilities; with the project manager, review the handover documentation and operating instructions requirements of the client organisation and ensure these are prepared and delivered on schedule; ensure the production of all post completion reports analysing the procurement process and the end product, noting whether the project has met the brief and all users’ requirements. All lessons learnt should be shared among interested parties in order to inform future project planning; and in the light of experience with the project, draw the attention of senior management to any weaknesses in policies, procedures and methods in respect of capital projects. Define where they need modification to better permit utilisation of efficient project execution techniques, justify these modifications to senior management and, on approval, implement where appropriate.

Who does the project sponsor work with? The role, for some projects, may be undertaken wholly within an outside body. In other circumstances project sponsorship may have to be shared between the Department’s project sponsor and a sponsor appointed within the outside body. If the latter, sponsored bodies will appoint their own project sponsors (the non departmental project sponsor), normally within their own senior management, to undertake responsibility and be accountable for the client interests in the project (a function that the departmental project sponsor cannot perform) and to answer to the departmental project sponsor. In some instances, it may be appropriate for the sponsored body to carry out the full range of project sponsorship duties. _________________________________________________________________________________ Construction Procurement Manual October 2005

Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

In cases where the sponsorship role is shared, then the respective roles should be defined and agreed at the outset to avoid any possibility of ambiguity, and the Department’s project sponsor should ensure that an effective monitoring and reporting system is established. Where the project sponsor is not a technical expert, and such expertise is not available in-house, they should involve a client adviser as soon as possible. This person should have substantial technical expertise in the field of construction, and will act as a consultant providing advice on all construction matters, particularly those which must be carried out before the appointment of the project manager. The project sponsor has personal responsibility to the project owner for the entire project and should expect to stay until its completion. Maintaining continuity in this role is essential. How does their role change if there is a project manager? Where a project manager is appointed, the role of the project sponsor, the client adviser and the project manager are as described in Annex A Table 1. Where a project manager is not appointed, the project sponsor should retain the responsibilities that would otherwise be delegated to this post. Alternatively, the project sponsor may delegate some of these responsibilities to a lead consultant. The project sponsor should be a suitably qualified construction professional having the abilities and experience appropriate to the project if he/she is to act as the project manager. Where the project sponsor adopts this joint role, Annex A Table 2 describes the duties to be undertaken by all parties. What is the client’s responsibility to the project sponsor? The Construction (Design and Management) Regulations 1994 (CDM) require health and safety to be taken into account at every project stage, including planning, design, construction, maintenance and demolition. Duties are placed on clients, designers and contractors. Regardless of delegation, the client’s duties and responsibilities cannot be transferred. The client must appoint competent people to act as: • the planning supervisor, whose role is to advise the client on health and safety and ensure that: health and safety is taken into account in the design; relevant information is made available to consultants and contractors before they carry out their contracts; and a health and safety file is handed to the client on completion of the project (essentially as part of an operation and maintenance manual).

-

the principal contractor (normally the main contractor), who will plan and co-ordinate health and safety issues during the construction phase of the project, including developing the health and safety plan.

Section 5 sets out other client responsibilities in respect of health and safety matters, beyond the statutory obligations. The role of planning supervisor may be combined with that of the project manager or a member of the design team. Everyone who appoints others to design, manage or undertake construction work, must ensure that they are competent and have the resources to deal with health and safety in relation to the project.

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Construction Works Procurement Guidance

Project Manager Who are they? This is the named individual responsible for the day-to-day detailed management of the project, who provides the interface between the project sponsor and the supply side of the project team. Good project management is crucial to the success of a project.

Are they always required? For most projects an external or in-house project manager should be appointed. However, it needn’t be an automatic requirement and should take account of the individual and the circumstances. For example, with the appropriate support, the project could be managed by a suitably competent project sponsor providing they are construction professionals with abilities and experience appropriate to the project.

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Construction Works Procurement Guidance

The Client Adviser Who are they? An appropriately qualified client adviser should be involved as soon as possible after project inception to assist non-technical project sponsors. If a consultant is appointed to provide this role, it should not be combined with that of the project manager or any delivery role but should remain totally independent. What do they do? The need for such specialist technical advice is very much demand led. A client adviser may be required by a project sponsor due to a number of inter-related factors including the stage, size, complexity and duration of the project; the experience of the project sponsor; and the extent to which a project runs smoothly. The client adviser, then, should be used on a call-off basis, allowing a varying degree of input during the project lifecycle. When are they required? With regard to project stage, for example, it is likely that input from a client adviser will be required at Inception/Feasibility, prior to the appointment of a project manager. They should then be retained to give further advice, as needed, during the later stages of the project. There is probably least correlation between the project size and duration, and the need to appoint a client adviser. Of more relevance is the complexity of issues faced and the experience of the project sponsor. Can there be more than one client adviser on any project? Occasionally advice is sought from more than one individual during the course of the same project. For example, a complicated contractual claim may require an experienced Quantity Surveyor for legal or financial advice or, additionally, advice from a planning specialist who is expert at compiling and interpreting critical path programmes. Client adviser input is particularly valuable where an impartial assessment is required concerning the performance or professional liability of the project manager and design team members.

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Construction Works Procurement Guidance

Ability and Training What is required? An intelligent client with well defined objectives and needs and a clearly identified project sponsor is critical to success. The possession of relevant skills, particularly for project sponsors, is important and so it is essential that they receive proper training. The required management abilities are similar for investment decision maker, project owner and project sponsor. On the technical side, the topics on which the three levels are expected to have understanding or competence remain the same although project sponsors are required to be competent in a greater number of areas. How can we improve? The list of management skills at Annex B should be used to highlight areas where further management training is necessary. Advice within Scottish Executive on sources of training is available from Construction Advice and Policy Division and Corporate Learning Services. Annex C lists the technical skills, and the technical requirements, under subject headings. Departments should assess the individual skills and knowledge of project sponsors (both new and existing staff) in relation to the requirements described in both Annexes, and the other skills and expertise that will be provided by the client adviser. This will help identify any skill gaps in management ability and technical ability. Client organisations should ensure that: • • new or existing post holders possess the required skills; or they should undertake to be trained to acquire them as soon as possible after they take on their responsibilities; or a client adviser is appointed at the earliest opportunity.

Project sponsors, who acquire skills and experience on projects, are often lost to the discipline when the project is completed. Construction Advice and Policy Division has, therefore, established a register of persons who have had experience of performing one or more of the client roles and who would be willing to pass on their knowledge, and act as a ‘mentor’, by giving occasional advice to new ‘clients’.

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Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

ANNEX A – ROLES AND RESPONSIBILITIES

Table 1 – Duties of Project Sponsor, Client Adviser and Project Manager where a separate Project Manager is appointed Role Duties

Project Sponsor

Client Adviser Project Manager

GENERAL – All Stages of the Project - co-ordinate and direct user input - appraise options and submit for approval - co-ordinate value management strategy - control changes following approval - determine and manage risks to the project - manage project budget, including risk allowance - act as sole point of contact with the Project Manager - co-ordinate and foster teamwork - define and manage the Project Manager’s performance of delegated responsibility - establish formal reporting arrangements on project progress - define criteria for control and management of the project - assist the PM in the resolution of problems - receive and review detailed reports on the project from the Project Manager - ensure the PM receives client organisation decisions on time - establish with the PM a common approach to major issues which arise - establish a mechanism to ensure regular dialogue with the contractor to promote problem solving, teamworking and risk sharing - where appropriate, ensure gateway reviews are undertaken - provide advice to project sponsor on all construction and other specialist matters - obtain authorisation to proceed - establish project organisation - understand limits of authority - implement value management strategy - make best use of incentive mechanisms INCEPTION AND FEASIBLITY - identify problems to be addressed and agree needs - prepare business case and business plan - prepare economic appraisal - ensure preparation of project brief - define scope and boundaries of the project - appoint consultant(s) - determine procurement strategy, where necessary having presented the associated risks and recommendations to the responsible Minister for decision - oversee development of option studies - ensure production of the project execution plan (PEP), including risk management plan and monitor management of the project to the PEP

Project Sponsor

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Section 1 – Roles & Responsibilities

Construction Works Procurement Guidance

Client Adviser

Project Manager

- advise on the development of the economic appraisal - advise on the development of the project brief - assist in selection of project manager and design team - assist in appraisal of option studies - implement effective communication network - develop project brief - undertake option studies - develop PEP, including risk management plan and manage the project to the PEP IMPLEMENTATION AND HANDOVER Design - establish change control procedures - monitor risk evaluation and value engineering studies - approve changes in accordance with established control procedure - monitor progress of cost control and programme - agree contract strategy - assist in evaluation of risk and value engineering - advise on performance of consultants - advise on contract strategy options - advise on disputes that may arise or on lack of progress - planning: describe who does what, when, at what cost and to what specification - evaluate contract strategy options and recommend most suitable option - develop PEP comprising: - project management structure and communication routes - introduction summarising essential project information - record of project owner’s commitment and project team acceptance - a work breakdown structure providing a structured definition of tasks and task owners - a project programme (schedule of work) in the form of a consolidated bar chart usually based on a critical-path network - a statement of work in the form of a summary description of the documents (drawings, specifications etc.) which define the project’s key deliverables - implement a sound quality policy to give quality assurance based on a quality system, quality objectives, quality plans, and Health and Safety considerations - implement a change management system to ensure changes are only implemented after being authorised by the supporting documentation ie, records and data - take positive steps to identify, assess and ultimately manage all risk in the project, i.e.: - categorise according to the nature of the risk - assess the probability of occurrence and potential impact on the project - apply suitable risk response measures including contingency planning - share, transfer or fully accept the risks to the project - take account of risks in management planning - ensure financial control by undertaking financial evaluation including Net Present Value and Discounted Cash Flow analysis of whole life costings, and earned value performance measurement - manage the project ie - co-ordinate reports from task owners and analyse information - motivate task owners - negotiate any contractual issues with task owners and recommend appropriate course of action - determine performance criteria for post-project evaluation (PPE) - assist in contractor selection - advise on tender invitation procedures Contract Documentation and Tender Action - agree contractor selection in accordance with client organisation guidelines - agree tender invitation and selection procedures

Project Sponsor

Client Adviser

Project Manager

Project Sponsor

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Project Manager

Project Sponsor

Client Adviser Project Manager

- manage contractor selection process - implement production of contract documentation and invite tenders in accordance with agreed invitation procedures - review and issue pre-tender estimate - evaluate tenders received, produce: - tender evaluation report - tender estimate - recommendation regarding tender acceptance Construction - provide the focal point for all client contact with contractor and consultants and provide approvals and decisions as necessary - monitor progress of cost control and programme - approve changes in accordance with established control procedure - conduct in-project reviews - establish handover procedures to client maintenance organisation - advise on contractual and extra-contractual liabilities - instruct work to begin, continue or stop in conjunction with project sponsor - control the PEP - manage the project budget - manage delivery of - actual costs v planned costs - programme objectives - advise on consultant and contractor performance - report progress: the statement of work defines what reports are needed and at what frequency to meet the requirements of the sponsor and owner, contractual obligations, and the level of information that the PM decides is necessary to control work. The following aspects should be addressed: - performance status ie actual v forecast date - schedule status ie estimated completion time - cost status ie actual and committed expenditure to date and estimated final cost - risk exposure - exception thresholds - in the procurement of goods and services, ensure the following are carried out effectively: issue of purchase orders; checks on vendor qualification, monitoring and chasing late delivery; inspection of quality; and effective sub-contract administration - implement agreed hand-over procedure - negotiate with contractor contractual issues arising and recommend course of action

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Project Sponsor

Client Adviser Project Manager

OPERATION AND CLOSEDOWN Post Completion - monitor defects remediation procedures - agree contractual and financial closure - produce Post Project Evaluation: determine how far the project met the client’s interests and objectives and which lessons of good and bad practice need to be learned for the future - produce Post Occupancy Evaluation: determine how well the end product meets the requirements of the brief and of end users, and identify lessons of good and bad practice to be learned for the future. - assist in the preparation and evaluation of the Post Project Evaluation and Post Occupancy Evaluation. advise on contractor and consultant performance implement defect remediation procedures achieve contractual and financial closure provide any necessary input into preparation of PPE ensure completion and handover of Health and Safety files, operational manuals, warranties, as-built drawings, etc.

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Table 2 – Duties of Project Sponsor and Client Adviser where Project Sponsor assumes the role of Project Manager Role Duties

Project Sponsor

Client Adviser

GENERAL – All Stages of Project - co-ordinate and direct user input - establish project organisation - make best use of incentive mechanisms - establish options and submit for approval - implement value management strategy - control changes following approval - determine and manage risks to the project - manage project budget, including risk allowance - act as a sole point of contact with the design team - co-ordinate and foster teamwork - establish formal reporting arrangements on project progress - define criteria for control and management of the project - assist the design team in the resolution of problems - receive and review detailed reports on the project from the design team - ensure the receipt of client organisation decisions on time - establish with the design team a common approach to major issues which arise - establish a mechanism to ensure regular dialogue with the contractor to promote problem solving, teamworking and risk-sharing - where appropriate, ensure gateway reviews are undertaken - provide advice to project sponsor on all construction matters

Project Sponsor

Client Adviser

INCEPTION AND FEASIBLITY - identify problems to be addressed and agree needs - prepare business case and business plan - prepare economic appraisal - implement effective communication network - prepare project brief and develop with design team - define scope and boundaries of the project - appoint design team consultant(s) - determine procurement strategy, where necessary having presented the associated risks and recommendations to the responsible Minister for decision - undertake option studies - produce the project execution plan, including risk management plan and manage the project to the Project Execution Plan - assist in selection and appointment of design team - assist in appraisal of option studies

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Project Sponsor

Client Adviser

IMPLEMENTATION AND HANDOVER Design - planning: describe who does what, when, at what cost and at what specification - establish change control procedure - evaluate contract strategy options and decide most suitable option - develop PEP comprising: - project management structure and communication routes - introduction summarising essential project information - record of project owner’s commitment and project team acceptance - a work breakdown structure providing a structured definition of tasks and task owners - a project programme (schedule of work) in the form of a consolidated bar chart usually based on a critical-path network - a statement of work in the form of a summary description of the documents (drawings, specifications etc) which define the project’s key deliverables - implement a sound quality policy to give quality assurance based on a quality system, quality objectives, quality plans and Health and Safety considerations - implement a change management system to ensure changes are only implemented after being authorised by the supporting documentation ie records and data - take positive steps to identify, assess and ultimately manage all risk inherent in the project ie - categorise according to the nature of the risk - assess the probability of occurrence and potential impact on the project - apply suitable risk response measures including contingency planning - share, transfer or fully accept the risks to the project - take account of risks in management planning - ensure financial control by undertaking financial evaluation including Net Present Value and Discounted Cash Flow analysis and value engineering studies yielding earned value performance measurement - manage the project ie - co-ordinate reports from task owners and analyse information - motivate task owners - negotiate any contractual issues with task owners and recommend appropriate course of action. - determine performance criteria for post-project evaluation - assist in evaluation of risk and value engineering - advise on performance of consultants - advise on contract strategy

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Project Sponsor

Client Adviser Project Sponsor

Client Adviser

Contract Documentation and Tender Action - determine contractor selection in accordance with client organisation procedures - implement production of contract documentation and invite tenders - review and issue pre-tender estimate - evaluate tenders received, produce: - tender evaluation report - tender estimate - recommendation regarding tender acceptance - assist in contractor evaluation - advise on tender invitation procedures Construction - provide the focal point for all client contact with contractors and consultants and provide approvals and decisions as necessary - instruct work to begin, continue or stop - control the project plan - manage the project budget - manage delivery of - actual costs vs planned costs - programme objectives - conduct in-project reviews - report progress in accordance with client organisation procedures. The following aspects should be addressed: - performance status ie actual vs forecast date - schedule status ie estimated completion time - cost status ie actual and committed expenditure to date and estimated final cost - status of quality progress ie report specification changes - risk exposure - exception thresholds - in the procurement of goods and services, ensure the following are carried out effectively: issue of purchase orders; checks on vendor qualification, monitoring and chasing late delivery; inspection of quality; and effective sub-contract administration - implement agreed hand-over procedure - negotiate with contractor contractual issues arising and recommend course of action - advise on consultant and contractor performance - advise on contractual and extra-contractual liabilities OPERATION AND CLOSEDOWN Post Completion - implement defects remedy procedures - agree contractual and financial closure - produce Post Project Evaluation: determine how far the project met the client’s interests and objectives, and which lessons of good and bad practice need to be learned for the future - produce Post Occupancy Evaluation: determine how well the end product meets the requirements of the brief and of end users, and identify lessons of good and bad practice to be learned for the future - ensure completion and handover of Health and Safety files, operational manuals, warranties, as-built drawings, etc. - assist in the preparation of the Post Project Evaluation and Post Occupancy Evaluation - advise on contractor and consultant performance

Project Sponsor

Client Adviser

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ANNEX B – MANAGEMENT ABILITY

INTRODUCTION Managing and controlling construction projects require a high degree of management skills. Accordingly, project owners, project sponsors and project managers are required to possess the range of skills described below: MANAGEMENT ABILITY Project Owner Desirable Essential Project Sponsor Desirable Essential Project Manager Desirable Essential

Attribute Decisiveness Be challenging Communication (including giving feedback) Motivation Team building Facilitation Interviewing Negotiation skills Assertiveness Objective setting Decisiveness: • • • • • • • •

be prepared to make decisions and be accountable for them; accept responsibility for decision making; obtain required data and seek advice where necessary to inform decision making; have confidence to make decisions when time is short and information is limited; defend decisions taken but respond positively to reasoned argument; have confidence to take appropriate measures; act quickly; and make sound and reasoned decisions when guidelines and procedures are unclear, consulting Construction Advice and Policy Division where necessary.

Be challenging: • • • • be prepared to question project team’s proposals in order to bring about improvements; generate discussion of alternative designs and require investigation and presentation before deciding on the solution; be innovative and look for other ways of achieving results and encourage project team to do the same; demand that project team members consider their design proposals from different perspectives before making recommendations e.g. from customers’ (users’), project owner and senior management; be prepared to evaluate conflicting information and project demands, and make clear that others should do the same; and take the opportunity to keep up to date with technical information and project programming in order to challenge effectively.

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Communication: • • • • • • • • • establish clear lines of responsibility with project manager (including feedback); spell out to all parties the methods of communication required (e.g. when, and what information will flow between interested parties); show interest in the “why” and “how” to signal an “open door” relationship; agree clear measurable objectives and review procedures; agree contingency communication routes in the event of problems; when attending meetings be aware of body language and its effect on others; express yourself according to the needs of the listener; at initial meetings with different parties, explain what you expect from them and what they can expect from you; and establish regular “open forum” workshops with interested parties to review progress and brainstorm problems.

Motivation: • • • • • • • set a good example; set targets and strive to meet objectives; make a positive effort to achieve targets in difficult circumstances; be resilient and maintain a commitment even under pressure; face tasks with drive and determination; be conscientious and take action without being asked; and constantly seek to achieve a high output of quality work.

Team building: • • • • • • be visible and approachable; set an example by displaying a positive attitude; within agreed lines of responsibility, participate actively in setting and achieving project targets; help establish the project team’s identity by creating opportunities for a joint team presentation to customers and promote the use of publicity to raise the team’s profile; represent the team and, where appropriate, recommend the acceptance by customers of the team’s proposals and method of working; and participate in project team discussions with a view to encouraging a healthy exchange of ideas and information.

Facilitation: • • • • • • agree and promote a sense of common purpose and direction within the team; develop a team environment where members have the confidence to operate on their own initiative but within clearly defined boundaries; identify and publicise the means and frequency of communication channels – external and internal – to the project team; make all current information available to the team; arrange for timely responses/feedback from customer to project team; and resolve conflicts on the client side.

Interviewing: • • define project objectives and ensure that relevant information is distributed to interviewees well in advance of interview; establish personal and project related criteria, weighted where appropriate, against which interviewees will be measured in terms of performance and understanding of the project objectives; make selection criteria and other requirements clear in advance of interview; ensure all candidates are treated equally and that confidentiality is maintained; test interviewees’ suitability by asking “open” questions;

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speak clearly and concisely; listen closely and respond appropriately; and avoid jargon.

Negotiating Skills: • • • • • • • • • set realistic objectives including timescale for achievement; question, challenge and interpret information to clarify the main issues; convey oral (and where necessary written) information to others accurately; be confident; assimilate points quickly; summarise accurately the discussion points made by others; express yourself according to the needs of the listener; establish common ground which will give an auditable “quick win”; and be open, honest and fair in dealing with others.

Assertiveness: • • • • • • • set the agenda; deal sensitively but firmly with difficult issues; ask in-depth questions and seek responses before agreeing to action; focus the team’s view on what the client wants/needs to achieve; make decisions in the face of competing demands; take informed risks; and challenge any discrepancy or lack of clarity and ensure quick correction.

Objective setting: • • • • • • establish a clear understanding of the project requirements; identify the “what”, “why”, “how” and “when” questions; clarify the link between contributions from team members and the requirement of the final product; identify the areas of activity which will contribute to the achievement of the end product; set realistic timescales to which all team members can commit themselves; and build in monitoring and reviewing milestones.

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ANNEX C – TECHNICAL COMPETENCE

INTRODUCTION Construction projects are highly technical ventures, and those responsible for their delivery need to be aware of a wide range of technical subjects. Accordingly project owners, project sponsors and project managers are required to have an understanding of, or where appropriate, be competent in certain key technical subjects. This table indicates the level of awareness required for each of the client-based roles relative to specific subjects. ‘Understanding’ refers to the need to be able to understand the key issues of each subject heading and their implications for the client department, and to be able to ask informed questions on the subject. ‘Competence’ means having the ability to do what is required at each stage of the project, or being able to direct someone to carry out the detailed requirement. The remainder of this Annex is intended to provide a general indication of the sort of knowledge that may be acquired in respect of each of the subjects listed above.

SUBJECT Project Owner UnderComstanding petence Strategic Planning: The construction industry Value for money Value management Whole life costing Procurement strategies Risk management Business case and investment appraisal Project brief EU Directives CDM Regulations/Health & Safety requirements Management Planning/ Estate strategies

TECHNICAL COMPETENCE Project Sponsor UnderComStanding petence Project Manager UnderComstanding petence

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Procure professional services: Selection procedures Teamworking/ Partnering Contract strategies Tenderer & tender evaluation Forms of contract Ensure effective delivery of project: Project Execution Plan Specification Programming/project planning Design – understanding the design process Design – quality Energy management/ environmental issues Space management Claims Ensure effective feedback from project Project evaluation -pre-project -in-project -post-project -post-occupancy

The Construction Industry and processes • • • • • • • • • overall size of the industry, its make up, processes, number of firms, contribution to the economy; professional institutions, education and training; construction organisations, education and training; consultancies, their organisation, liabilities, various members – architects, engineers, quantity surveyors etc. and their roles; construction companies, their organisation, main contractors, subcontractors, suppliers etc. and their roles; how the disparate elements interface with each other and with the client; how different contract strategies influence roles and interfaces; appreciation of aesthetics, the planning process and architectural policy; and inherent dangers of the construction process and the client's contribution to improved health and safety performance.

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Value for Money • • • • • • understanding the context and interpretation of procurement policies, rules and regulations; value for money versus cost/price; life cycle costing techniques; optimising the supply chain; managing risk; and achieving VFM while ensuring health and safety of all concerned.

Value Management • • • • • overall understanding of Value Management concepts; defining and developing a VM plan; roles of all parties e.g. project manager/project team/contractors and suppliers; outline of VM reviews, how to set up and what to expect; and objective-setting techniques.

Whole Life Costing • • what is whole life costing? - the “iceberg” effect – capital expenditure and future commitments. what does it include? - acquisition; - design; - construction; - operation; - maintenance; and - disposal. when should whole life costing be introduced? - as early as possible; - once design and specification permits; and - client input crucial. investment appraisal techniques: - net present value/whole life costing calculation. spend profiles: - capital cost; - operating cost: - energy consumption; - maintenance; and - insurance, rates. maintenance: - types of maintenance; planned and reactive; and - maintenance planning and forecasting costs/charges.

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Procurement Strategies • nature of, and risks associated with, principal types of strategy: - PFI/PPP; - private developer scheme; - leased building; - new build; and - extension, refurbishment; professional advisers for cost, timescale, quality, and risk control; and who makes the decision and on what basis.

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Risk Management • • • • • • what is risk management? why employ risk management? when should risk management be undertaken? how is risk management carried out? who is responsible for the management of risk? risk management strategy: risks affecting cost, time, quality and health and safety; strategic risks; and political and business implications of risks; risk and selection of appropriate contract strategy; risk management process: identification; qualitative and quantitative assessment techniques; response and mitigation; outcome; and reporting and presentation; risk transfer; risk retention and management of risk allowance; definition and understanding of different types of risks, e.g. strategic and technical risks; risk management: a continuous process to achieve aims and objectives of time, quality and cost to minimise the client’s exposure; what constitutes a risk averse culture; the process: integration of risk management within financial approval, contract strategy; identification of risk from project inception: unique nature of construction projects; and produce a schedule of risks (risk register) from consensus of opinions gained from stakeholder participation; qualitative assessment: description and categorisation of risks; initial assessment of identified risks; formal registration (sample proforma); interdependencies; potential impact; probability; and focus on areas of greatest concern; ownership; quantitative assessment; calculate time, cost and quality effects to give risk allowances and compare with base estimates; and simple assessment/probabilistic analysis/Monte Carlo Simulation/sensitivity analysis; response and mitigation: avoidance; transfer or sharing; reduction; and elimination; outcome: residual risk; dissipated risk; resultant risk; and risk efficiency; reporting and presentation regime: continual monitoring, review and reassessment; reporting responsibilities; budgetary responsibilities; criteria – must be understandable, recognisable, concise, logical, consistent, updateable;

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markers – future commitments, potential liabilities, trends; and status – initial, considered, final.

Business Case and Investment Appraisal • • who is responsible for the business case and investment appraisal? the meaning and importance of investment appraisal: Scottish Executive's financial and procurement procedures and guidance; HM Treasury “Green Book”, Appraisal and Evaluation in Central Government; structure of an investment appraisal: objectives, options, costs (including life cycle costs) and benefits, net present cost calculations, risk (treatment of and quantifying), presentation of results, evaluation, and VFM and net present cost considerations; what is a business case? relationship between the business case and investment appraisal; business functional analysis; identification, evaluation and presentation of options; and time frame for decisions.

• • • • •

Project Brief • Writing a project brief is a formal method of defining the client/user’s requirements and objectives, in sufficient detail to enable the proposed facility to be designed and specified.

EU Procurement Directives • history of the EU procurement directives (Works, Supplies, Services, Utilities and Compliance), the related World Trade Organisation Government Procurement Agreement (GPA) rules and the implementing UK legislation (Regulations); organisation of GPA; how the directives relate to UK’s procurement policy, in particular the need to achieve VFM and to acquire goods and services by competition unless there are convincing reasons to the contrary; implementation of the Directives in the UK: the need for legislation, benefits of the approach adopted (e.g. clarity, a step by step format and supplier’s rights) – the UK regulations currently in force; main elements of the Regulations: coverage (definitions of a contract, a contracting authority and a provider), exclusions, thresholds, aggregation rules (including a single requirement, a work or works, regular and renewable contracts and discrete operational units) technical specifications including quality standards; description and selection procedures – open, restricted, negotiated, accelerated, advertising requirements – prior information notices, contract notices and contract award notices, selection of tenderers, criteria, debriefing of suppliers, statistics. application of the Regulations to: - Part A and B Services; - market testing and contracting out; - framework agreements (including definition of a framework agreement), provision for framework arrangements in the Utilities Regulations, use of framework arrangements under the Supply, Works and Services Regulations; - use of approved lists (approved lists are not provided for under the EU Directives); - “green” procurement (i.e. the ability to specify requirements in “green” terms but not to enquire into the “green” or environmental policies or credentials of providers); tender clarification and evaluation (including scope for post tender negotiation); bids from countries subject to other trade agreements (e.g. GPA, Europe Agreements, Eastern European Agreements); and - contracts also subject to the GPA.

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Construction (Design and Management) Regulations (CDM) and Health and Safety Requirements • background of key Health & Safety legislation;

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requirement to appoint competent persons to provide advice; and requirement for risk assessments; the CDM Regulations 1994 – an understanding of the requirements of the regulations: the role and responsibilities of the project sponsor as the client; the role and responsibilities of the designer(s), planning supervisor, principal contractor, and sub-contractors; item to be included in the health and safety plan; and knowledge and understanding of the Construction (Health, Safety & Welfare) Regulations 1996.

Teamworking and Partnering • • • • • • • types of teamworking and partnering – strategic alliancing/project specific; the implications of EU Directives on partnering; key requirements of successful partnering; selecting a partner(s); problem resolution procedures; performance measurement and continuous improvement; and attitude and behavioural changes.

Contract Strategies • principal types of contract strategy, including: traditional; construction management; management contracting; design and build; design, build, operate; develop and construct; prime contracting; turnkey; and cost plus; risks and responsibilities under each contract strategy; payment methods (lump sum, variation of price, stage, milestone etc); advantages and disadvantages: timing, programme and completion; cost control; quality requirements; variations; complexity of building; professional responsibilities; risk transfer; recovery of damages; and buildability; which contract strategy is appropriate for each project? and who decides which strategy to follow and on what basis?

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Tenderer/Tender Evaluation • • the policy of competitive tendering for government procurement; purpose of tendering: getting the best from the market; and encouraging the best in the market; selecting suitable tenderers: EU directives (thresholds etc); advertising for expressions of interest; tender selection criteria: technical and financial ability; and quality/price;

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inviting tenders: return and receipt of tenders; and security; evaluation of tenders: setting transparent criteria; seeking bid clarification; and tender board procedures and practices; post tender negotiation; and award of contract and tender debriefing.

Forms of Contract • • • • • • • • • types, and forms, of contract; use of standard forms of contract; where each form is, and is not, appropriate; the need for professional advice; effect of each form of contract on tender prices; case law and legal considerations; letters of intent; disputes and claims; and consultants’ appointments.

Project Execution Plan • • • the function of a Project Execution Plan; how the client brief defines the Project Execution Plan ; cost controls: control budget; and risk analysis; programme: fixed deadlines; and milestone activities; organisation and resources: responsibilities and roles of team members; and delegations; recommending the contract strategy; co-ordination procedures: quality control; and change procedures; service life strategy and occupation plan: commissioning; facilities management; and maintenance; feedback and post implementation review.

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Specification • • different types of specification: output based, performance or prescriptive; developing and structuring specifications: scope of user requirement; performance characteristics and quality; and technical characteristics, standards and evaluation criteria; value management; structure of specifications: whole life cost implications of specifications; and approval of specifications.

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Programme/Project Planning • programming and project planning techniques.

Design – Understanding the Design Process • • • • • • • • • impact of design decisions upon achieving VFM in all aspects of building provision; importance of developing a comprehensive brief and the required input from the client to facilitate the design process; key stages of the design process and the extent to which clients can influence the process to meet their objectives at each stage; evolving nature of the design process; how to assess and review design proposals and how to manage pre and post contract change; professional support required by the client relative to specific contract strategies; importance of allowing sufficient time at the design stage and early dialogue with consultants and contractors; opportunities for efficiency within the manufacture, supply, and construction process; effect of alternative contract strategies on liability and the means of providing protection such as professional indemnity insurance and latent defects insurance; and statutory requirements that building designs have to comply with such as planning and building control, fire, and CDM regulations.

See also Section 5 Health and Safety. Design - Quality • the key design objectives of the facility: this might involve the client forming a view on the relative importance of matters such as:- the relationships between key activities; the required circulation patterns; the need for flexibility; the priorities of users; the quality of public and private spaces; the need for design innovation; the civic function of the facility; the potential for good design to provide added value in terms of the effects of the finished project on staff, customers, other users and the public; the principles of whole life costing, VFM and costs in use; and the relationship between design and sustainability issues taking into account such matters as use of natural resources, transport issues, construction waste, emissions and how these contribute to the whole life environmental impact of a facility.

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See also Section 6 Design Quality in Building Procurement. Energy Management/Environmental Issues • • effective energy-efficient practice; building structure and insulation: construction materials; and glazing; ventilation and air conditioning: mechanical v natural ventilation; health hazards, for example legionella; and CFCs; heating, lighting; water management; building management systems; electrical services; environmental considerations: waste disposal; recycling and waste targets; transport; and

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landscaping and grounds maintenance; energy audit standards; and energy efficiency targets.

Space Management • • • • importance of effective space management and development of strategies; definition of the brief; programme; organisation and management: selection of participants; and criteria for success; establishing requirements: methodology; and planning concepts: and signal Value Management as an issue.

Claims • • • • • • • • • • • the legal basis of claims; the difference between contract and delict; claims for extensions of time; claims arising from changes in contract; the principles of liquidated damages; acceleration; financial claims: procedure for dealing with claims under the terms of the contract and the contractual roles of the project sponsor, project manager and the contractor; the Housing Grants, Construction and Regeneration Act 1996; the Scheme for Construction Contracts (Scotland) Regulations 1998; claims management and dispute resolution (formal and informal); negotiation; mediation/conciliation; adjudication; arbitration; litigation; and how to avoid disputes arising.

Project Evaluation • • • • • • • • • methods of assessing performance; the project cycle; on-going management and control; key milestone points for evaluations; pre-project evaluation; in-project evaluation; post-project and post-occupancy evaluations; independent reviews; evaluation of systems, procedures etc; and timing.

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SECTION 2 – VALUE FOR MONEY KEY POINTS • • Scottish Executive procurement policy is to achieve value for money (VFM). Opportunities should be taken to encourage innovation that should not be stifled through rigid adherence to mechanistic procedures, although accountability for public funds remains extremely important and should not be compromised. Key features of achieving VFM in construction procurement are: • • integrating value management and risk management techniques within normal project management; defining the project carefully to meet user needs, allowing sufficient time for the pre-planning processes; taking account of whole life costing and long term sustainability; adopting change control procedures; avoiding waste and conflict through teamworking and partnering arrangements, integrating the design and construction processes as much as possible; and not appointing consultants and contractors on the basis of lowest initial price alone.

A VFM process should be followed for each project which ensures a structured approach to planning and managing a project from inception to completion. All capital projects with a total budget exceeding £5 million (inclusive of professional fees and VAT) must be assessed in terms of their level of risk; if they are assessed as being high risk or mission critical, a formal Gateway Review (co-ordinated by the Executive’s Centre of Expertise) must be undertaken at each key decision stage. In addition, high risk or mission critical projects below £5 million in budget should also be considered for formal Gateway Review. PPP projects are generally subject to the Key Stage Review process rather than Gateway Review. All medium and low risk projects should be subject to Peer Group or Self Assessment Reviews, the latter in line with the described procedures to be carried out at key planning stages (‘approval gateways’) in the project.

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Section 2: Value for Money What is Value for Money (VFM)? The prime objective of the Scottish Executive’s procurement policy is to achieve VFM – the optimum combination of whole life cost and quality to meet the customer’s requirement. Quality may relate to a number of relevant factors including functionality, durability, aesthetic appropriateness to surroundings, long-term adaptability and maintenance, environmental implications and ability of consultants and contractors to innovate, improve buildability and work as a team. Why is it important and how is the process monitored? Every opportunity to achieve VFM should be evaluated properly and informed decisions taken. In this way, management can have confidence in answering any subsequent questions on the entire decision making process and provide full justification for the decisions taken. When internal or external audit carry out reviews of works projects, it can be expected that consideration will be given to how resources have been used, what influenced the decisions that were taken, whether the best advice available was obtained and implemented, whether risks were managed properly and whether informed judgements were made. Is lowest always best? VFM does not necessarily mean accepting the lowest bid as quality, as well as price, must be considered when appointing consultants and contractors. Innovation should not be stifled through rigid adherence to mechanistic procedures, although accountability for public funds remains extremely important and should not be compromised. The Scottish Executive and certain other public sector organisations must comply with the EU procurement rules (see “Introduction to the EC procurement rules” and the “Guide to the Appointment of Consultants and Contractors” published by the Office of Government Commerce.). They are entirely consistent with the policy objective of achieving VFM. How is VFM achieved? The greatest opportunity for achieving VFM occurs at project inception. Correct project definition is essential to meet the users’ needs while achieving VFM. Project definition and subsequent planning should not be constrained by preconceived ideas. To plan and manage a project from inception to completion, the VFM process described in Annex A incorporates a series of management tools that provide a model structured approach. This model ensures that projects provide VFM by: • defining the project carefully to meet the user needs and ensuring that sufficient time and resources are allowed to fully pre-plan the project execution; • fully assessing and managing the risks involved with different procurement routes and, where necessary, making recommendations to the responsible Minister; • integrating value and risk management techniques within normal project management; • adopting a change control procedure; • taking account of whole life costing and long term sustainability issues including the need to maintain, repair, replace and dispose responsibly of components; • avoiding waste and conflict through team working and partnering, seeking opportunities wherever possible to integrate design and construction; and • appointing consultants and contractors on the basis of VFM rather than lowest initial price. How rigidly does this model have to be followed? Adopting the model in a mechanistic manner is unlikely to produce the best results; neither will distorting it to fit existing construction procurement procedures. Sound judgement, constant questioning of what is being done whilst ensuring that nothing is left to chance are also essential requirements to achieving VFM. The details of the process may be modified to suit the needs of individual users and different procurement strategies. For example, the precise timing of appointments and approval gateways (or Gateway Reviews) may vary.

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Approval Gateways What are they? Gateways occur at key planning stages to ensure that risks are being managed and that the project remains affordable. Generally, they should be carried out by the project management team on all major projects. This staged approval process helps to ensure that VFM is achieved at each stage and that the project overall provides VFM. Each review should comprise: • a VFM review; • a financial review; and • a review of the project delivery management systems. Approval to proceed to the next stage is given by the investment decision maker when he/she has considered, and acted upon, the review report. What is a VFM review? This assures the investment decision-maker that the project provides VFM for the department’s business as a whole. In particular, it should ensure that: • the project objectives and project brief meet the users’ needs; • risks have been properly identified, evaluated, allocated and are being managed actively; • all options (whether for funding, design, procurement etc) have been evaluated properly and the recommended option justified; and • the design takes full account of maintenance, operating and disposal costs to produce a VFM whole life solution. What is a financial review? This should ensure that: • a risk management procedure, appropriate to the particular nature and circumstances of the project, is in place; • the base estimate for each element of the project is reasonable and up to date; • the risk allowance for each element of the project is reasonable and up to date (the risk allowance should be for identified risks only and not an assumed contingency provision); • the latest estimate for each element is made up of the base estimate and the risk allowance; • the project is affordable; • funds are available for the planned expenditure up to the next approval gateway; and • appropriate cost management and reporting procedures are in place and being followed. What is a review of the project delivery management systems? This aims to make sure that: • an appropriate management structure is in place and named individuals have been appointed as the project owner and project sponsor; • the investment decision maker, project owner and project sponsor have received the recommended training, are suitably competent for their roles on the particular project and are carrying out their duties effectively; and • appropriate quality, cost, time and change controls are in place.

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Gateway Reviews What are they? The Gateway Review process was introduced by the Office of Government Commerce (OGC) as a means of providing independent assurance, to a wide variety of procurement projects, at up to six key decision points in their lifetime. The Scottish Executive is now carrying out Gateway Reviews on a number of major projects and programmes, making use of the process and tools devised by OGC. However, PPP projects are generally subject to the Key Stage Review process rather than Gateway Review. Which projects are eligible? All capital projects with a total budget exceeding £5 million (inclusive of professional fees and VAT) must be assessed in terms of their level of risk. For those which are high risk or mission critical (irrespective of size, value, complexity), a formal Gateway Review must be undertaken at each key decision stage. Projects below £5 million in budget (and also non-capital projects), which are determined as high risk or mission critical, should also be considered for these Reviews. Tools have been developed for assessing the risk level of projects, and definitions of mission critical and high risk projects are set out in the Introductory Note to the Construction Procurement Manual and in the Major Investment section of the Scottish Public Finance Manual; for the purposes of Gateway Review, any project which meets the definition of mission critical is automatically considered as high risk. Who carries out the Reviews? Coordinated by the Executive’s Centre of Expertise for Programme, Policy and Project Delivery, formal Gateway Reviews are carried out by a small team of up to four independent members, drawn from a variety of disciplines and skills across the Executive. They interview key stakeholders and look at key documentation at each stage of the project before providing the senior owners of the project with a confidential report and recommendations to improve successful project delivery. When, during a project, are they carried out? Gateway Reviews are generally carried out at the following stages: • Gate 0 - strategic assessment of programme; • Gate 1 - business justification (after options appraisal); • Gate 2 - procurement strategy (prior to competitive procurement); • Gate 3 - investment decision (prior to contract award); • Gate 4 - readiness for service (asset ready for delivery): and • Gate 5 - benefits evaluation (after service delivery). Gates 1 to 5 apply to individual procurement projects What happens during a Review? At each Gate, the project is generally examined and reported on under some of the following headings: • the business case and stakeholders; • the wider context; • procurement approach; • assessment of the proposed solution; • review of the current phase; • risk management; • plans for ongoing improvements in VFM or performance; and • readiness to proceed to the next phase (or plans for future service provision). Where can I find out more? Further advice and guidance on the Gateway Review process, including the use of risk assessment tools, is available from the Centre of Expertise for Programme, Policy and Project Delivery which forms part of SPD Construction Advice and Policy Division. The CoE is also developing procedures for Peer Group and Self Assessment Reviews in the case of medium and low risk projects _________________________________________________________________________________ Construction Procurement Manual October 2005

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respectively. Self Assessment Reviews of construction projects should follow the procedures described for approval gateways. ANNEX A – VFM PROCESS A.1 INTRODUCTION

A.1.1 The VFM process, described in the ‘traditional’ model here (containing consecutive design and construction stages), contains a number of approval gateways at which reviews must be undertaken. The process can be modified to suit the needs of individual users, specific projects and procurement strategies, resulting in reviews being undertaken and/or appointments being made at slightly different times from those in the model. The acronyms are explained in the notes that follow the diagram. Sections A.2 to A.7 of this annex provide more detailed information about particular activities. A.1.2 During the works contract phase and prior to delivery of the project or assets, a further review may be needed to confirm “readiness for service” and the basis for evaluating the performance of any continuing service e.g. operational tasks. A.1.3 After delivery of the project, further reviews should be carried out at the appropriate times to assess if the project has delivered the planned benefits. These reviews should complement, and coincide with, post-project evaluation (PPE)(of the procurement process) and later post-occupancy evaluation (POE)(of the performance of the finished product). The PPE report should be carried out within six months of completion and the POE at least 12 months after occupation. A.1.4 If continuing services are being provided, periodic reviews should be undertaken during the operational phase to confirm the delivery of value for money and “in-service” benefits, or if the scope of the services is to be altered. A.1.5 In the case of those major projects which should be subject to formal Gateway Review (generally those categorised as high risk or mission critical), the review stages coincide with some of the “approval gateways” shown on the VFM process diagram overleaf but also may occur at other decision points, as follows: if the project is part of a larger programme, a Gate 0: Strategic Assessment of the programme may take place immediately after identification of user (or business) needs i.e. after Box 2; the Gate 1: Business Justification review coincides with “approval gateway” 1; the Gate 2: Procurement Strategy review coincides with “approval gateway” 2; the Gate 3: Investment Decision review coincides with “approval gateway” 4; the Gate 4: Readiness for Service review takes place after completion of the construction phase but prior to delivery i.e. after Box 17; the Gate 5: Benefits Evaluation review(s) take place after delivery of the project i.e. after Box 18. These should complement, and coincide with, initial feedback and postproject evaluation (PPE) of the process (within 6 months of completion) and later post-occupancy evaluation (POE) of the finished product (at least 12 months after occupation); in the case of Traditional Lump Sum Contracts (with consecutive design and construction stages, as illustrated overleaf), an intermediate “decision point” between Gates 2 and 3 may be appropriate to coincide with “approval gateway” 3, i.e. after design completion and contract preparation but prior to inviting expressions of interest from contractors; and _________________________________________________________________________________ Construction Procurement Manual October 2005

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in the case of procurement routes which integrate and overlap the design and construction phases, there is no equivalent of “approval gateway” 3 but there may be a need for intermediate “decision points” between Gates 3 and 4 e.g. after Outline Design and after Detailed Design.

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VFM PROCESS
Appoint PS Appoint PO Appoint CA VM VM RM Prepare estimates Set budget Project evaluation Appoint PM

1 possible need for project

2 identify user needs

3 options to meet user needs – confirm project required

4 prepare business case

5 6 project brief

Approval gateway 1 Appoint consultants

Quality / price mechanism Selection criteria

Consider partnering

Project evaluation

Revise estimate

Review by senior management

Appoint consultants (design, QS, M&E environmental)

Project evaluation

RM

(design, QS, M&E environmental etc) Estimate cost of each option

VM RM

RM

VE

13 invite expressions of interest

12

11 contract preparation

10 whole life based design

9

8 procurement strategy

Approval gateway 3

Approval gateway 2

7 feasibility study options

Award criteria

Whole life assessment

Partnership workshop

Review by senior management VE RM PPE

Agree final account

Post occupancy review

15 14 tender process
Approval gateway 4

16 award contract

17 works contract

18 deliver project

19 feedback

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NOTES FOR VFM PROCESS NO 1 ACTIVITY Possible need for project raised Appoint project owner Appoint project sponsor Appoint client adviser Identify user needs Options to meet user needs – confirm project required Prepare business case Set budget Project evaluation Approval gateway 1 Appoint project manager

KEY: IDM=Investment decision maker, PO=Project owner, PS=Project sponsor, CA=Client adviser, PM=Project manager, VM=Value management, RM=Risk management, VE=Value engineering, PPE=Post project evaluation, D&B=Design & build, RP=Review Panel. DESCRIPTION ACTION Possible need for project first brought to attention of the IDM A senior officer in the business unit that requires the project, appointed by and reporting to IDM Having background in the culture and business of the client department. Terms of appointment agreed (Section A.2). A construction professional, if required, to assist non-technical PS Carry out a VM study (Section A.3) to identify stakeholder needs, both short and long term. Set objectives and agree priority. Carry out a VM study (Section A.3) to identify and evaluate options to meet user needs. Such options may include Public Private Partnerships (Private Finance Initiatives) and other non-project options. RM to identify risks with each option (Section A.4). Confirm that a project is required. Set out user needs. Describe outline of project and alternative options to meet them (including the “do nothing” option). For each option set out base estimate, risks and total allowances for identified risks. Identify life cycle costs of each. Using base estimate and risk allowance for the project, with projected outturn cost. Ensure objectives reflect user needs, risks identified and reflected in estimate. Ensure project affordable. Investment appraisal followed by financial, technical and delivery systems. If appropriate, give approval for project to proceed. Assist PS. Prepare project execution plan (Section A.5), including establishment of control procedures (Section A.6) and reporting procedures (Section A.7). IDM PO PS PS/CA PS/CA

2 3

4

PS/CA

5

PS/CA PS/CA IDM/PO/PS/ CA/RP PS

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NOTES FOR VFM PROCESS NO 6 ACTIVITY Project brief Appoint design consultants Feasibility study options Procurement strategy Project evaluation Approval gateway 2 Appoint consultants Client detailed design

KEY: IDM=Investment decision maker, PO=Project owner, PS=Project sponsor, CA=Client adviser, PM=Project manager, VM=Value management, RM=Risk management, VE=Value engineering, PPE=Post project evaluation, D&B=Design & build, RP=Review Panel DESCRIPTION ACTION PS to develop project brief (Section A.5). PM to deliver consultants’ briefs where required. Consider PS/PM options and stages for appointing consultants and specialists. Consider partnering and use of incentives. For feasibility study. PS/PM Apply VM to identify and evaluate options that satisfy project brief and objectives. Identify risks for each option, cost of managing them through avoidance, design or transfer. Liaise with statutory authorities. Select best option. Revise risk allowance. Identify risks for each (D&B, client design, management contracting, construction management). Assess alternative risk transfer strategies. Assess suitability for partnering. Select best option. Review of RM, VM and VE approaches to assess contribution to meeting objectives. If necessary, request additional studies. Review project delivery management systems. Review financial, technical and delivery systems. If total estimate greater than budget, reconsider the decision to invest or revise scope of project and redesign. Set new budget. Opportunity for internal audit review. If appropriate, give approval for project to proceed. If D&B go to Activity 11. For detailed design (traditional client designed projects). Consider partnering and use of incentives. Using whole life concept. Carry out VE study to optimise design. Involve contractors (appointed as consultants) to assess buildability of options. Review by senior management of the parties to address major issues. Identify residual risks and continue to manage risks and risk allowance. Ensure users understand and accept design. For traditional client designed projects provide detailed design and specification. D&B generally requires output specifications. Revise estimate. Adopt standard form of contract to transfer risks to party best able to manage them. Review of RM. Confirm contract requirements reflect user needs. Compare revised estimate against budget. PS/PM

7

8

PS PS IDM/PO/PS/ CA/RP PS/PM PO/PS/PM

9

10

11

Contract preparation

PS/PM

Project evaluation

PS/PM

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NOTES FOR VFM PROCESS NO 12 ACTIVITY Approval gateway 3 Invite expressions of interest Tender process

13

14

15

Approval gateway 4 Award contract Partnering workshop Works contract Deliver project

16

17 18

19

Feedback

KEY: IDM=Investment decision maker, PO=Project owner, PS=Project sponsor, CA=Client adviser, PM=Project manager, VM=Value management, RM=Risk management, VE=Value engineering, PPE=Post project evaluation, D&B=Design & build, RP=Review Panel. DESCRIPTION ACTION Review financial, technical and delivery systems. Review acceptability of retained risks. If estimate IDM/PO/PS/ exceeds budget, revise design or revise scope of project. Assess affordability of project. Opportunity for CA/RP internal audit review. Revise budget. If appropriate, give approval for project to proceed. Consider partnering. Set selection and award quality criteria, quality/price ratio, minimum quality PS/PM thresholds, quality/price mechanisms. Consider use of incentives. Prepare long list, evaluate bidders on basis of quality, select short list and agree a tender list. Invitation to tender/negotiate, evaluate bids on basis of price and quality. Where whole life criteria are set, PS/PM assess price on the basis of whole life costs. Decide on suitability to partner. Decide on award. Tender report. Review financial, technical and delivery systems. Consider affordability including provision for spend on IDM/PO/PS/ specified risks. Commit funds for construction. Opportunity for internal audit review. If appropriate, give CA/RP approval for project to proceed. Award contract to tender offering best VFM. Agree partnering arrangements. PS Arrange and facilitate initial workshop. Agree common goals, detailed criteria for sharing of benefits, PO dispute resolution ladder, performance criteria, partnering champions and risk managers. Manage construction. Identify possible long-term savings by VE reviews and joint risk management PO/PS/PM approach. Review by senior management of the parties to address major issues. Review the acceptability of completed project. Carry out PPE – compare with original project objectives. PO Aim to agree final account within six months of completion. Set out lessons learnt. Seek supply side comments to improve procurement. Carry out a Post Occupancy Evaluation at least 12 months after occupation in order to assess suitability of PO/PS project in satisfying user needs. Assess whole life design. Provide feedback for future improvements.

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A.2

TERMS OF APPOINTMENT FOR PROJECT SPONSOR

A.2.1 This section sets out the type of information that may be included in the written terms of appointment for the project sponsor. The actual content is likely to be considerably more detailed and project specific. Responsibilities A.2.2 Section 1 Roles and Responsibilities identifies the project sponsor’s responsibilities.

Resources A.2.3 • • Personnel:

technical staff; and administrative staff Office space:

A.2.4 •

location (particularly when entering teamworking or partnering arrangements). Equipment:

A.2.5 • IT

Delegated Authority A.2.6 • • Financial and purchasing authority:

unlimited within the approved budget and programme for the project as initially approved (plus/minus any officially approved increment/decrements reflecting the cost/programme effects of changes); and limited to approval of the expenses within standard rates for Scottish Executive personnel. Personnel:

A.2.7 • •

limited to making recommendations covering project sponsor’s department personnel assigned/dismissed from the project; and unlimited in respect of the appointment/dismissal of all other contracted project personnel. Publicity:

A.2.8 •

limited to making recommendations in respect of the political aspects and/or publicity statements about the project. Delegation by project sponsor:

A.2.9 •

unlimited authority to delegate financial and other authority to members of the project team consistent with limiting it to that required to ensure smooth project implementation to programme.

A.2.10 Relationship with non-departmental project sponsor, where appropriate. A.3 VALUE MANAGEMENT

A.3.1 Value management is a strategic approach to achieving maximum value for money in a project consistent with the objectives of the organisation. It involves a structured team approach to problem solving that can be applied to the setting of objectives, concept, design and construction stages and the on-going management of buildings. The focus of Value management is on obtaining _________________________________________________________________________________ Construction Procurement Manual October 2005

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value for money (the optimum combination of whole life cost and quality to meet customer requirements). Whole life costing assesses the cost of an asset over its lifetime, taking into consideration initial capital costs, finance costs, operational costs, maintenance costs and replacement or disposal costs at the end of its life. All future costs and benefits are brought back to a present day value through discounting. Value management is a process that should be used to review on an ongoing basis all aspects of the project against customer needs. A.3.2 Value management is implemented at key stages in the project, through structured workshops, with clearly defined objectives, led by a facilitator. The workshops will involve the project participants working to find the best value for money solution to each situation under review; with the number of workshops held dependent on the scale and complexity of the project. Value is appraised by a careful analysis of function, with the objective of identifying alternatives and the most cost effective or the most valuable ways of achieving the key functions (the fundamental reason why the project element or component exists or is being designed). A.3.3 • • • • • • A.4 Value management can achieve:

a better understanding of client needs; definition of the objectives and specific needs of the client in simple clear terms; full consideration of project options, alternatives and innovative ideas; optimum value for money solutions; the prevention of unnecessary expenditure; and improved teamworking. RISK MANAGEMENT

A.4.1 The aim of risk management is to ensure that risks are identified at project inception, their potential impacts allowed for and, where possible, the risks or their impacts minimised. This includes selection of procurement route (see Section 3) and consideration and management of health and safety issues (see Section 5). A.4.2 • • • Risk management is a planned and systematic process consisting of:

identification: to determine what the risks are; assessment: to determine the likelihood of the risks occurring and their potential impacts; and monitoring and control: to identify options for dealing with risks or their impacts and monitor implementation of the preferred options.

Risk identification A.4.3 Successful risk management depends on accurate risk identification. Both management practice and engineering techniques should be applied to determine how things might go wrong. When identifying potential risks, it is important to distinguish between the origin of a risk and its impact. Risk assessment A.4.4 The purpose of risk assessment is to understand and quantify the likelihood of occurrence and the potential impacts on the project outturn. Various analytical techniques are available, but the key features are: • • qualitative assessment – to describe and understand each risk and gain an early indication of the more significant risks; and quantitative assessment – to quantify the probability of each risk occurring and its potential impact in terms of cost, time and performance.

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Qualitative assessment A.4.5 A descriptive written statement of relevant information about a potential risk should be prepared. Issues to be considered should include: • • • • • • the stages of the project when it could occur; the elements of the project that could be affected; the factors that could cause it to occur; any relationship or inter-dependency on other risks; the likelihood of it occurring; and how it could affect the project.

Quantitative assessment A.4.6 The likelihood of a risk occurring is given a numerical probability. This is measured on the following scale: • • • 0 = impossible for risk to occur; 0.5 = even chance of risk occurring; and 1 = risk will occur. Possible consequences of a risk arising are quantified in terms of:

A.4.7 • • •

cost: additional cost, above the base estimate for the project outturn; time: additional time, beyond the base estimate of the completion date for the project; and performance: the extent to which the project would fail to meet the user requirements for standards and performance.

Risk monitoring and control A.4.8 The aim of risk management is to minimise the opportunity for risks to occur and their impacts should they occur. There are various options available when evaluating the risk response strategy. Care should be taken when considering the management actions available to ensure that the potential impact of each risk is not outweighed by the direct costs to the client organisation from: • • • the cost of reducing the risk; the cost of transferring the risk (or the cost of insurance); and all management and administrative time, consultants’ fees and other charges associated with managing and dealing with the risk.

A.4.9 For each project, a risk management plan should be prepared and updated regularly to summarise the risk management process to date. Risk response A.4.10 A risk response should only be decided after its possible causes and effects have been considered and fully understood. It will take the form of one or more of the following management actions: • • • • avoidance; reduction (including elimination); transfer; or retention (including sharing).

As a general rule, risks should be allocated to those best placed to manage them.

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Risk avoidance A.4.11 Where risks have such serious consequences on the project outcome that make them totally unacceptable in the context of the client organisation’s internal rules or the project objectives, risk avoidance measures might include a review of the project objectives and a re-appraisal of the project, perhaps leading to the replacement of the project, or its cancellation. Risk reduction A.4.12 Typical action to reduce risk can take the form of: • • • • • • re-design: including that arising out of VM studies; more detailed design or further site investigation: to improve the information on which estimates and programmes are based; use of different materials or equipment; different methods of construction: to avoid inherently risky construction techniques; changing the project execution plan: to package the work content differently; or changing the contract strategy: to allocate risk between the project participants in a different way.

A.4.13 Risk reduction measures lead to a more certain project outturn. They usually result in a direct increase in the base estimate, and a correspondingly greater reduction in risk allowance. Risk transfer A.4.14 Where accepting a risk would not result in VFM, it could be transferred to another party, who would be responsible for the consequences should the risk occur. The object of transferring risk is to pass the responsibility to another party better able to control it. Risk transfer is usually from: • • • • • the client to a design consultant; the client to a contractor; the contractor to a sub-contractor; the client or other parties to an insurer in the form of insurance cover; or the contractor or the sub-contractor to a bank or a surety in the form of warranties, bonds and guarantees.

A.4.15 Whenever a risk is transferred to another party a premium is usually paid. This results in a direct increase in the base estimate and a reduction in risk allowance. To provide VFM, risk transfer should only be carried out where the overall cost of the risk to the client is reduced by more than the cost of the premium. A.4.16 Factors that should be considered include: • • • • • who is best able to control the events which may lead to the risk occurring? who can control the risk if it occurs? is it preferable for the client to be involved in the control of the risk? who should be responsible for a risk if it cannot be controlled? and if the risk is transferred to a project participant: is the total cost to the client likely to be reduced? will the recipient be able to bear the full consequences if the risk occurs? could it lead to different risks being transferred back to the client? and would the transfer be legally secure (will the transfer be accepted under common law)?

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Risk retention A.4.17 Risks that are not transferred or avoided are retained by the client organisation although they may have been reduced or shared. These risks must continue to be managed by the client to minimise their potential impact. Risk and procurement strategies A.4.18 Risk and procurement strategies are interrelated. The chosen strategy and the forms of contract influence the allocation of risk, the project management requirements, the design strategy, the employment of consultants and contractors, and the way in which the client’s project team and the various designers, consultants, contractors and suppliers work together. The risks and benefits associated with procurement strategies should be fully identified, considered and evaluated prior to selection and, in the case of mission critical or high risk projects, this information and the recommendation should be presented to the responsible Minister for decision. A.5 PROJECT EXECUTION PLAN

A.5.1 The project execution plan is the key management document governing the project strategy, organisation, control procedures, responsibilities and, where appropriate, the relationship between the project sponsor and the project manager. It is a formal statement of the user needs, project brief and of the strategy agreed with the project manager for their attainment. The scope of that statement will depend on the size and nature of the project. It is a live active management document, regularly updated, to be used by all parties both as a means of communication and as a control and performance measurement tool. A.5.2 Preparation of the project execution plan is a key responsibility of the project sponsor. Its content may be roughly divided into two areas: matters relating to organisation and responsibilities within the client body and those of the project execution team. Broadly, the project sponsor will develop those elements relating to the client body and establish and define the roles and responsibilities of the key personnel involved. Except where preliminary versions are issued before appointment, the project manager will have the primary role in developing those elements relating to the project team’s activities and the project execution strategy. A.5.3 The project sponsor must be satisfied that the project execution plan represents a viable and realistic plan for implementing the project and achieving its objectives. The sponsor must review it in detail with all parties to the project to ensure that they understand both the plan as a whole and their own responsibilities under it and that they have the capability and the resources to discharge their responsibilities. Project execution plan checklist A.5.4 A project execution plan checklist is below. Its scope will depend on the size and nature of the project. General description • • • brief description of the project; location; and progress to date.

Project objectives • user needs.

Project brief • purpose/function of the project;

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• • • • • • • •

schedule of accommodation; quality requirements/standards; operational requirements; equipment and special services; maintenance requirements; environmental needs, both internal and external; disposal criteria; and statutory requirements.

Constraints • external factors limiting or controlling the design, construction or execution of the project: planning conditions; other statutory requirements, including building regulations and those relating to the Disability Discrimination Act 1995 listed buildings/conservation areas; neighbouring buildings; site conditions; and availability of utilities; internal constraints, arising from decisions or policies of client organisations: confidentiality; procurement policies; safety standards; and undertakings made.

Cost controls • • • budgetary control; current estimates; and risk allowance.

Programme • • • • • • • overall timescale; fixed deadlines; pre-construction programme; construction programme; occupation programme; milestone activities; and risk allowance.

Change control • • proposed changes; and approved changes.

Prioritisation • • • cost vs. time; quality vs. cost; and time vs. quality.

Internal management • • • personnel; responsibilities; authority; and

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delegations.

Procurement • • procurement route; and form of contract.

Roles and responsibilities A detailed statement, related to the procurement route, of the roles and responsibilities of external parties, to be (or as) incorporated in their contracts, covering: • • • • • • project manager; designers; cost consultant; specialist consultants, including health and safety; contractor(s); and supplier(s).

Co-ordination • • • • • • • • delegations; communications; cost controls; quality controls; change control; health and safety procedures; commissioning procedures; and reports.

Occupation • • • • • • • A.6 facilities management; maintenance; commissioning; staff recruitment; staff training; programme; and costs. CONTROL PROCEDURES

Change Control A.6.1 Changes to design, especially after contract award, are one of the major causes of cost overruns and of not achieving VFM. Changes arise mainly as a result of unclear or ambiguous project definition, inadequate time spent in project planning, risk analysis and management or due to changing circumstances. The consequences of changes during the construction stage can be many times greater than the direct impacts of the changes. A.6.2 Change is handled most effectively through sound project planning and review. Where there is a possibility of change for whatever reason, it should be treated as a project risk and addressed in the risk management plan. A robust change control procedure incorporating VFM criteria should be adopted to evaluate and manage change when it occurs. Delegated powers and authority should be established. A.6.3 The need for changes should be minimised by:

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• • • • • • •

ensuring that the project brief is comprehensive and has the users’ agreement; taking account of proposed legislation; having early discussions with outside authorities to anticipate their requirements; undertaking site investigations and condition surveys; ensuring that designs are fully developed and co-ordinated before construction contracts are committed; good project management, including forward planning; and identifying and managing risks.

A.6.4 A change control procedure should consider all of the following factors for each proposed change before approval is given for the change: • • • • • • • • the reasons for the change; its source; the full cost, time and performance consequences of the change; the risks associated with the change and their impacts; properly evaluated alternatives to the proposed change; proposals for avoiding or mitigating time over-run; source of funding of any cost over-run; and Impact of planning constraints and building warrant approval.

A.6.5 Approval for the change should normally be given by the project sponsor when a detailed evaluation of the change shows that it provides VFM. Where additional funding is required, approval for the change should be obtained from the investment decision maker. Cost Control A.6.6 Cost control is dealt with in Section 4.

Time Control A.6.7 The programming of the activities necessary to complete a construction project is usually carried out using standard computer planning software. Such systems are no more than a tool and are effective only if they are both properly used and fully understood by the people whose activities they control. A.6.8 The project sponsor should insist that, however sophisticated and comprehensive the networks of activities and the inter-relationships between them, the final programmes on which decisions are to be made (and against which performance of the consultants and the contractor(s) are to be monitored) should be simple and straightforward; certainly no more complicated than can be readily understood by the sponsor. A.6.9 The project sponsor must be able to identify clearly those tasks which lie on the critical path. Time for the approval processes, including Gateway Reviews, must be included as specific activities in the time plan for the project. They invariably lie on the critical path. A.6.10 The process of time control is in many ways analogous to that of cost control. Thus a time control system can embrace: • • • time budget – the overall project duration as fixed either by specific constraints or by the contract strategy; the period which, once fixed, becomes a key parameter for management of the project; time plan – a division of total time into inter-linked time allowances for readily identifiable activities with definable start and finish points; the overall project programme; and time checking – monitoring closely actual time spent on each activity against the allowance in the time plan; reporting divergence as soon as identified.

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A.6.11 If the time taken for an activity exceeds its time allowance there are essentially only two forms of corrective action available; • • the re-sequencing of later activities; or shortening the time allowance for future activities by increasing the resources to be made available for them (this option will normally result in extra costs).

If neither is done, the overall time budget will be exceeded and the project will finish late. A.6.12 The project sponsor must recognise that time control is as important during the planning stages of the project as the construction stage. Designers should work to a series of deadlines at which different elements of the design must be agreed (i.e. frozen) if costs and the overall programme are to be kept under control. A.6.13 The project sponsor should ensure that the programme allows for the time impacts of identified risks occurring. A.6.14 The project sponsor must take account of the relationships between time, quality and cost: • • any extension of the overall timescale for a project always generates additional costs; who carries such additional costs depends on the detailed contractual arrangements between the parties; it is likely that some of them will be borne by the client; and making up lost time by re-sequencing later activities may compromise quality and could result in extra costs.

Quality control A.6.15 The final quality of the project is governed, progressively, by: • • • the project brief – a clear statement of the standards of quality required; the design – the adequacy of the components selected; the interface between related components and systems; the integration of mechanical and electrical systems into the overall design; the readiness of design before construction starts; specification – the conversion of the quality standard demanded by the project brief into precise requirements for both the supply and the installation of materials, components and systems; the setting out of the criteria against which the standard of the finished work will be judged, e.g. by reference to standards, codes of practice, or the like; testing requirements to verify compliance with the specification; quality control – setting up control mechanisms to apply to the execution of the work on site; the detailed on-going supervision by the contractor; the programmes for testing; the procedures for rectifying defective work; and inspection and testing – the independent inspection, testing and verification of the contractor’s work.

• •

A.6.16 Key aspects of quality control on site are: • • a clear specification of the testing and verification regime that is required, as a minimum, to provide assurance of compliance with the specification; and confidence in the quality control activities carried out by the contractor.

A.6.17 Independent inspection, testing and verification is a means of providing confidence in the contractor’s quality control system but should not be used to replace it. A.6.18 Quality assurance systems assist in maintaining quality standards. A detailed review of any quality system is necessary before it can be relied on to provide sufficient assurance about the quality of a specific activity.

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A.7

PROJECT REPORTS

A.7.1 These are regular reports issued to the project sponsor, prepared by the project manager on the basis of personal knowledge, data and reports received from the design team, the quantity surveyor and the contractor(s). A.7.2 Their purpose is to report formally to the project sponsor the current status of the project, key issues and/or problems requiring resolution and the steps being taken to resolve them. The project sponsor will normally forward copies or summaries of them to the project owner for information and will draw the project owner’s attention formally to any matters of serious concern to the client. A.7.3 • • • Project reports should have three sections:

a short (one page) executive summary confirming the general status of the project and listing the key issues and/or problems currently requiring resolution; the general text of the report, reporting fully but concisely on the project status, issues and problems using graphical presentations where appropriate; and appendices containing detailed information on which the report has been based. Reports serve three purposes:

A.7.4 • • •

the process of preparing a report forces the reporter to undertake a full review of the project status; the issue of a report provides information to the parties to whom it is issued; and it triggers action on reported problems.

Typical project report format A.7.5 A typical format is given below, with indicative, rather than exhaustive, headings.

Executive Summary Quality • • • • a statement of how the design and/or construction of the project relates to the requirements set out in the project execution plan; a listing of potential non-compliance and the steps being taken to correct it; where options exist for correcting non-compliance, description of and comparison between the options and recommendations for action; and supporting data to be in an appendix to the report.

Time • • • • • • a comparison of progress against programmes with graphical presentations; list of non-compliance with programmes, parties in delay, reasons for delay and steps being taken to mitigate it; details of agreed extensions of time and revised completion dates; where options exist for correcting non-compliance, description of and comparison between the options and recommendations for action; design development and completion and the extent frozen; and supporting programme data in an appendix to the report.

Cost • • a comparison between total predicted cost and cost budget with graphical presentations (costs should include fees, fit-out, VAT, etc, as well as construction costs); risk analysis;

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• • • • • •

a listing of divergence from budget, reasons for it and steps being taken to correct it; where options exist for correcting divergence, description of and comparison between options and recommended action; statement of risk allowance expenditure with graphical presentations; comparison between actual cash flow and predicted cash flow, identification of divergence and the reasons for it e.g. project in delay/in advance of programme, project costs over budget, errors in original prediction etc; statement of contract claims submitted and estimate of settlement cost; and supporting cost data should also be in an appendix to the report.

Changes • • • • • • • description of each change; risks associated with each change; reasons for change; time and cost consequences; source of funds for extra costs; method of accommodating extra time; unavoidable changes required: budget; and overall programme.

Project manager’s statement • subject overview by the project manager of the status of the project – may include such matters as: success/failure of corrective actions taken under previous report(s); health and safety - number of accidents/reportable injuries etc; review of performance of consultants and contractors; weaknesses in control procedures and recommendations for improvements; client-side failings e.g. late decisions, excessive changes, etc; and potential problems and means of avoidance.

Appendix The following may be included to supplement information in the report:• • • • • • • • • • • • • • • • risk register; risk management plan; test reports or summaries; commissioning report or summaries; design problems met and resolved; quality assurance audits carried out; programmes; progress reports; progress photographs; activity lists; comparative bar charts; overall project cost reports; cash flow analyses; risk allowance spend analysis; detailed lists of past and potential client changes; and calculations and assumptions made in support of time and cost predictions.

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SECTION 3 – PROCUREMENT STRATEGIES AND THE APPOINTMENT OF CONSULTANTS AND CONTRACTORS

KEY POINTS • Scottish Executive policy is that all procurement should be on the basis of value for money (VFM) and not lowest price alone. The selection of the most appropriate procurement strategy, and the appointment of consultants and contractors, should therefore be on that basis. The decision making process, leading to the selection of the preferred procurement option, should be recorded and should take account of the relative risks, benefits and management team’s level of resource and experience. In the case of mission-critical or high risk projects, the evaluation of procurement options and the recommendation should be presented to the responsible Minister for final decision. Ministers must be informed of the views of professional advisers where there are differences of opinion between them and the responsible managers/owners of the project. Whatever procurement route is chosen, sufficient time must be built into the overall programme to allow for all planning stages to be fully completed (before construction and during the progress of the project). Robust mechanisms specific to each project should be developed to evaluate the quality and price (whole life cost) components of each bid in a fair, transparent and accountable manner. Selection and Award procedures must comply with EU procurement rules where these are applicable. The client organisation must lead the project at all times, even after the appointment of a client adviser, project manager or other consultant. Teamworking arrangements should be adopted as far as possible on all contracts.

• • • •

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Section 3 – Procurement Strategies and the Appointment of Consultants and Contractors This section gives information on: • some of the procurement strategies available; • some of the important aspects of achieving VFM; • the consultancy roles and professional advice that may be required at the various project stages; • the value of teamworking; • partnering arrangements; • incentives; and • the appointment process. Further advice is contained in the “Guide to the Appointment of Consultants and Contractors” published by the Office of Government Commerce. In this section the following definitions are used. They are based on those used in the EU directives and may differ from some of those used in other published documents: • • • • • • • • appointment process – the overall process which starts at establishing the contract requirements and ends after awarding the contract; selection process – the selection of suitable organisations for a short list (sometimes referred to as qualification or pre-qualification); award process – the final part of the appointment process, covering tender invitation and evaluation, contract award and debriefing; tenderer – an organisation invited to tender; and bidder – an organisation responding to an invitation for expressions of interest; EU Procurement Directives are implemented in UK law in the form of Regulations (Statutory Instruments); quality – all factors that influence the selection and award processes excluding price and whole life cost; works project – a project involving construction activities that has a separate budget and a specific duration.

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Procurement Strategies The primary consideration in the choice of a procurement strategy is the need to obtain overall value for money in the whole life of the facility/service. A number of options are available, but the intention should be for all the parties that will be involved in the use, construction, operation and maintenance of a facility to be involved as early as possible in its development in order to establish an integrated team, to encourage innovation and to manage risk in the most effective manner. Consideration should be given to commissioning contractors during the early stages of a project to assess the buildability of options and to contribute to innovation. The range of procurement options described here covers all forms of construction activity including roads procurement, although some of these options are more prevalent in buildings-related projects. Public Private Partnerships (PPP) should be investigated at the earliest opportunity because they may offer a solution that meets user needs and may provide greater value for money than a conventional construction project. The Further Reading section includes a link to VFM assessment guidance, prepared by the Scottish Executive’s Financial Partnerships Unit (FPU). This practical application note enables procurers to fully consider procurement routes at programme level and, in the case of PPP, provides detailed guidance for the further assessment at project and procurement levels. It also includes guidance on characteristics of projects which are suitable for PPP because of the benefits it can deliver. However, if a construction project emerges as the optimum solution, a number of procurement options are available. In some cases traditional lump sum contracts, where the detailed design is largely completed before the main contractor, sub-contractors and specialist suppliers become involved, may be appropriate and may deliver value for money. However, alternative procurement strategies should also be considered. These include management contracting, construction management, design and construct, prime contracting, the use of framework agreements and other strategies. General principles are also outlined in this section and an example of a mechanism for evaluating alternative procurement routes in terms of meeting requirements and delivering value for money is shown at Annex D. The decisions leading to the selection of the preferred procurement option should be recorded. In the case of mission critical or high risk projects, this information should be presented to the responsible Minister for decision. What are mission critical projects? A mission critical project is one that (irrespective of size, value or complexity) delivers outputs that directly support the delivery of a major policy outcome (such as those prioritised in a Partnership Agreement) or that delivers an internal business change that supports the administration of the organisation (Scottish Executive, Agency or funded body); What are high risk projects? They typically display some or all of the following characteristics; • a novel or untested approach to delivery; • lack of experience of similar project delivery; • a complex matrix of project interdependencies; • a significant impact on the public and other organisations; • business criticality or political sensitivity; or • a significant resource commitment. How is the strategy choice made? Senior managers of projects, together with the responsible Minister, should come to a decision on the most appropriate procurement strategy to adopt for mission critical or high risk projects when they have considered the risks and benefits of the available options (outlined in this section) as well as the management team’s level of resource and experience. In addition, Ministers must be informed of the views of specialist professional advisers (whether in-house or consultants) where there are differences of opinion between them and the responsible managers/owners of the project.

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Wherever possible, specifications should be output based and should be left as open as possible whilst ensuring that they accurately describe the output required and the design quality parameters. Unnecessary detail will tend to inhibit innovation and may result in extra costs. Public Private Partnerships Why PPP? Public Private Partnerships (PPP), particularly Private Finance Initiative (PFI) projects, are created for the provision of services and not specifically for the exclusive provision of capital assets such as buildings. For this reason it is preferable to investigate PPPs as soon as possible after a user need has been identified rather than leaving it until a conventional construction project has been selected as the solution. It is possible that a PPP may result in a solution (provision of services to meet the user need) that does not require a construction project. It should also be borne in mind that the tendering process is expensive for potential service providers and takes the form of a negotiated procedure. What is the SE view? The Scottish Executive is committed to using PFI and other PPPs where they achieve value for money in the delivery of the required outcomes. In PPP the private sector assumes responsibility for delivery of elements of service. The public sector sets out those elements of service in an output specification and also specifies the level and quality of service required. This is normally done through a long-term contract and the standard of delivery is monitored by the public sector throughout the contract period, with financial penalties applied if the specified outputs and standards are not delivered. Value for money is achieved through private sector innovation, effective use of the competitive process, and appropriate allocation of risk to the party best able to manage it. Section 8 contains references to further guidance on PPP procurement, including a practical application note. More advice and information is available from the Financial Partnerships Unit. What are the risks and benefits of PPP? Risks include: • The process will be at risk without a long-term commitment from both the Client and “service providers”. • The process leading up to the completion of a new building can take a long time and needs an extensive and fully refined brief at the outset. • There is a significant cost to the industry in tendering which has to be recovered by each bidder. • Change is difficult to achieve and potentially expensive to incorporate once the contract is let. Benefits include: • The process is service rather than project focused and concentrates on the whole life of the service and associated assets. • There is a single point of responsibility for service delivery. • There is an opportunity to draw on a wider range of management and innovation skills. Construction projects whose capital value does not exceed £20 million are less likely to achieve value for money under the PFI route and should be assessed on a case by case basis.

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Traditional Lump Sum Contracts With this type of contract, the design team are employed directly by the client to fully develop the design prior to going out to tender. The contract is with a main contractor who has responsibility only for the construction works. If the design has been fully thought out, developed and frozen, then in theory this type of contract should provide a reasonable degree of cost certainty at tender stage. However, the need to work to tight timescales may mean that a fully developed design cannot be prepared in advance of tendering, in which case subsequent design changes will invariably lead to cost escalation. What are the risks here? • The overall programme may be longer due to the need to produce a fully detailed design before the project goes out to competitive tender and work starts on site. • The Client must have the resources and access to the expertise necessary to administer the contracts of consultants and the main contactor. • The consecutive timing of design and construction results in a lack of continuity between the designer and the builder (and hence less input on ‘buildability). • Claims for delay and disruption can arise if the design is not fully detailed prior to agreeing the contract sum or if the Client varies the design afterwards. And the benefits? • Price certainty and transfer of risk to the main contractor is achieved at contract award provided no subsequent changes are instructed to the design. • A high level of quality in design and construction is achievable as the scope of the work is prescribed on an input basis. • The Client retains direct contractual relationships with the design team, cost consultant and main contractor. • Changes to the works can be evaluated on the basis of known prices obtained in competition without necessarily excessive cost or time implications.

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Management Contracting This is a ‘fast track’ strategy which overlaps the design and construction stages and enables early work packages to be placed before the design is complete. A management contractor is appointed by the client to manage the overall contract in return for a management fee. The management contractor, if appointed early before the design is complete, can advise on buildability, programming, sequencing and the procurement of the various works packages. The contracts for the works packages are between the management contractor and the individual trade contractors. Costs are controlled by the development of a cost plan in which estimates of the costs of works packages are initially used for budgeting purposes prior to being replaced with actual costs obtained in competition. The final cost will only be known once the final works package has been awarded and management of the cost plan is, therefore, extremely important. What are the risks here? • The final price and timescale are not fixed at the commencement of the works and do not become so until the last work package has been let. • The Client must have the resources and access to the necessary expertise to deal with separate design consultants and the management contractor. • It is unsuitable for an inexperienced and/or hands off Client as there is a risk of increased costs and delays arising from ineffective administration. And the benefits? • Early completion is possible due to a shorter overall period with overlapping design and construction activities, even in complex buildings. • While the Client maintains direct control over the design team, the management and trade contractors can contribute to early design development and improve the management and buildability of the construction process • The management contractor assumes some risk for the performance of the trade contractors. • Changes can be accommodated in let and unlet packages provided there is little or no impact on the overall project (timetable and/or budget).

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Construction Management This is also a ‘fast track’ strategy where works packages are let before the design of later packages has been completed. A construction manager is appointed by the client to manage the overall contract in return for a management fee and, as with management contracting, the project can benefit from the early involvement of the contractor. The contracts for the works packages are placed directly between the client and the trade contractors, and the client can expect to have a high level of involvement during the design development and construction phases of the work. As with management contracting, the final cost will only be known once the final works package has been awarded. What are the risks with Construction Management (CM)? • The final design, price and timescale are not fixed at the commencement of the works and do not become so until the last work package has been let. • The Client bears most of the total risk including delays, disruption, design and its coordination with construction; there must be a robust process for instructing and approving changes. • The construction manager does not assume any risk other than negligence, is not responsible for achieving programme and cannot instruct third parties. • The design team must envisage both the totality and detail of the design at the outset, accommodating uncertainty, procuring long lead-time items early and avoiding retrospective change. • Clients need to be experienced, informed, decisive and have the resources to administer the contracts of the separate design team members and many trade contractors. • Construction management consultants must be sufficiently incentivised to avoid fee escalation; they should be experienced in CM and have good leadership skills. • The Client should place a greater premium on risk management in CM than under other approaches, and needs to ensure that roles and responsibilities are well defined at the outset. What are the benefits? • Construction management should reduce the overall project timescale by allowing procurement and construction to proceed before the design is completed. • The Client controls the design and changes can be accommodated in let and unlet packages provided there is little or no impact on the overall project (timetable and/or budget). • It can be applied to a complex building and has buildability potential. • The Client contracts directly with trade contractors, which could result in lower prices and allows poor performance to be dealt with directly. • The construction manager can build better team relationships with trade contractors and resolve disputes directly. Construction management was largely devised for use in the commercial development market and, while there are examples of public sector projects being successfully procured via this route, CM is generally unlikely to represent an appropriate option for public sector procurers other than in exceptional circumstances and where the client has the necessary resources and experience. The use of CM is not ruled out entirely but should only be adopted following referral of the choice of procurement route to the responsible Minister and consideration of the risks and benefits as well as the management team’s level of resource and experience.

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Design and Construct In a design and construct contract, a single supplier is responsible for both the design and construction of the facility. The supplier is likely to deliver the greatest performance benefits to the client through innovation and standardisation, where appropriate output specifications are used. Where an output specification is insufficiently well developed, there is a risk that the quality, design and performance of the completed facility may be compromised. Careful attention to the output specification is required to achieve the required outcome. There may be some circumstances where the design and construct procurement option should be extended to cover maintenance and also possibly operation of the facility for a substantial period. By including the maintenance and operation requirements within a design and construction contract, the supplier has increased opportunity for adopting innovative solutions that provide greater value for money when considering the whole life costs. What are the risks associated with this strategy? • The Client’s requirements must be properly specified prior to signing the contract as Client changes to the scope of the project, once let, can be expensive. • The Client has little control over design and quality standards once the contract is let, as the building is specified on a performance basis. • Design liability offered by design and build contractors is limited. • Design and build is unsuitable for complex, challenging projects. And the benefits? • Low tendering and preparation cost to the Client. • Single point responsibility for design and cost risks. • Potential for more economical construction due to early consideration of building methods (‘buildability’). • Could result in a shorter overall design and construction period. Variants of this strategy can be implemented which allow the Client to engage with the contractor beyond completion of the construction contract. For example ‘Design, Construct and Maintain’ and ‘Design, Construct, Maintain and Operate’ retain the contractor’s services after completion. Further refinements can include the incentivisation of the contractor by relating the post-completion element of the contract to the performance-in-use of the building which has been designed (for example, energy consumption).

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Prime Contracting This may be appropriate in certain circumstances, for example where there is a continuing programme of projects. It is unlikely to be appropriate for clients that infrequently procure buildings. Prime contracting requires there to be a single point of responsibility (the Prime Contractor) between the client and the supply chain. The prime contractor needs to be an organisation with the ability to bring together all of the parties (consultants, contractors and suppliers) necessary to meet the client’s requirements effectively. There is nothing to prevent a designer, facilities manager, financier or any other organisation from acting as the prime contractor. Clients should ask prime contractors to provide details of all the parties in the supply chain, once they express an interest in being selected to tender. It may not be possible to adequately assess the technical capacity of a prime contractor under the EU procurement rules unless a significant number of the other organisations that make up the supply chain are known and taken into account during the assessment. A key part of the prime contracting route is the development of a whole life cost model before construction commences. What are the risks associated with this strategy? • Additional layer of costs to client due to in-house resource commitment for the duration of the project. • Larger volume contracts could result in more serious consequences from a failure to deliver. • Continual improvement can be difficult to measure therefore difficult to prove. • Tenderers must have confidence in planning and funding of programme to commit resources to bidding and supply chain management. • It can result in poor price certainty and changes being expensive to implement. And the benefits? • Centralised contact for quality, performance and compliance issues, potentially reducing reporting and bureaucracy. • Risk to Client reduced by transfer of risks to the prime contractor. • Increased opportunities for economies of scale and incentivisation. • Can deliver cheaper buildings in both initial capital and long-term running costs. • Facilitates continuous performance improvements and collaborative working.

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Framework Agreements Framework agreements (including call-off contracts) with a single supplier or a limited number of suppliers can result in significant savings to both parties particularly where a number of projects are involved. The resource implications for the client of managing more than one agreement for each type of work should be borne in mind when deciding whether to award more than one framework agreement. Framework agreements may cover prime contracting and design and construct procurement routes. They are unlikely to be appropriate for clients that only occasionally procure buildings. They can be particularly appropriate for maintenance requirements. Each framework agreement must be advertised and competed for in accordance with the UK Public Procurement Regulations, implementing EU rules. The expectation is that savings will come from the following: • no requirement for rebidding of each individual project; • continuous improvement by transferring the learning from one project to another; • reduced confrontation; and • continuity of workflow. What are the risks of this strategy? • Client needs to be sufficiently experienced and resourced to manage concurrent contracts. • Framework Agreements by their nature restrict the overall choice of suppliers • Needs early and long term commitment and a continuing programme of work. • Contract periods extending after the framework expires can reduce the incentive to perform well, especially if the contractor’s services are not being renewed under the framework. Framework Agreements should only be used after discussions with Construction Advice and Policy Division. And the benefits? • Ability to call off urgent requirements quickly. • Ease of placing contracts and avoidance of repetition (resource savings for Client). • Further competition can still take place among the framework suppliers to meet the specific needs of the Client.

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Other Strategies Other procurement options are available under which a facility can be obtained, including using the services of a property developer or through ‘Joint Ventures’ or other collaborative arrangements. Developer-led schemes involve the client in preparing an output specification, then seeking a market solution either on a chosen site or in a general location where a choice of site forms part of the competing developers’ proposals. The appointed developer therefore carries the full risk during construction, after which the client either leases the facility (for example over 15, 20 or 25 years) or has an option to purchase. Client organisations with suitable qualified and experienced staff may be able to exploit their skills and assets by entering into a cooperative and collaborative partnership with other public or private sector bodies to form a Joint Venture company. Joint ventures can take many forms and often involve complex corporate structures, but can provide innovative solutions. Clear objectives, including certainty on the aims of the partnership and the associated implementation plan, are paramount for the partnership to be successful. All parties must enter into contracts following a competitive, and EU compliant, bidding process. Further advice on alternative solutions can be obtained from Property Advice Division.

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General Principles The procurement strategy is primarily concerned with how design aspects are related to construction such as, who bears the design risk and controls design detail? What degree of completeness of design is required prior to the commencement of construction? All procurement strategies represent a balance between cost, time and quality control. Risk and responsibility should go together, so that the party responsible for performing a task is accountable for it and can ensure its successful outcome. The more the client chooses to allocate risk to other parties, the less control the client has over the way in which those tasks are carried out. The greater the risk passed to the supply side, the greater the project costs are likely to be. For example, price certainty achieved under a ‘Guaranteed Maximum Price’ arrangement (which can overarch any procurement route) will oblige the contractor to charge a premium, in order to cover all eventualities, which may not achieve overall value for money. The selected procurement strategy must be consistent with the scale and technical complexity of the project and with the other associated risks. It must also take account of the client’s ability (and resources) to define the requirements and to achieve direction and control over the project. It should also recognise the client’s strengths and weaknesses, and balance the relative priority of the client’s objectives in terms of speed, cost and quality/performance. The client must have a clear understanding of where the ultimate authority and responsibility for controlling and managing the important risks lies. Which key factors should be considered when selecting a procurement strategy? • in-house resource availability and experience; • project size and complexity; • importance of timescales and possible phased completion requirements; • importance of quality and issues surrounding whole-life use of the facility; and • availability of funding (in addition to setting and agreeing the budget for the project). Whatever procurement route is chosen, sufficient time must be built into the overall programme to allow for all planning stages to be fully completed (both before construction starts and during the progress of the project). Good planning will include getting the construction sequence right, assessing and managing project risks, and using value management to assess the contribution of each part of the construction process. These steps will minimise the likelihood of delays, extra costs, and waste/inefficiency. All contracts should be made in writing and, whether relating to single appointments or joint ventures, should be in place at the outset along with any appropriate bonds and guarantees. Table A and Table B indicate in general terms both the appropriateness of each contract strategy and their comparative risk profiles. These tables should only be used for guidance purposes and are not intended to provide a definitive means of choosing a procurement route for each individual project; Annex D provides an illustrative example of a weighted scoring mechanism which can help clients to evaluate procurement route options. Clients can also seek professional advice from Construction Advice and Policy Division.

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Table A Project Criteria Parameter Objectives PPP Traditional Appropriateness of Contract Strategy Management Contracting Construction Management Design and Construct Prime Contracting Framework Agreements

Timing

Early Completion

Cost

Pre construction price certainty

Quality

Design prestige

Variations

Avoid prohibitive cost of change Technically advanced or highly complex building Single contractual link Need for design team to report to sponsor Desire to transfer complete risk Facility to recover costs direct from contractor Contractor input to economic construction appropriate inappropriate

Complexity Responsibility Professional Responsibility Risk Avoidance Damage Recovery Buildability

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Table B INDICATIVE RISK ALLOCATION Contract Strategy

Client

Contractor

Public Private Partnerships

Design and Construct

Prime Contracting

Traditional

Framework Agreements

Management Contracting

Construction Management

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Important Aspects of Achieving VFM Scottish Executive policy is that all procurement should be on the basis of value for money (VFM) and not lowest price alone. The selection of the most appropriate procurement strategy, and the appointment of consultants and contractors, should therefore be on that basis. The Appointment Process This has a number of stages, each of which will take time to complete adequately. Planning is essential to ensure that every stage has sufficient time for adequate completion. Attempts to rush may lead to inadequate preparation by the client or insufficient time for bidders to consider, research and refine their bid. This may result in a failure to achieve VFM. Appointments, whether singly or as part of a joint venture, should be made on the basis of fully executed contracts (in writing), which should be in place at the outset, along with any appropriate bonds and guarantees. What systems should be developed here? Robust mechanisms specific to each contract should be developed to evaluate the quality and price (whole life cost) components of each bid in a fair, transparent and accountable manner. Any mechanism of this type should help clients come to a reasoned judgement rather than provide a prescriptive mechanistic approach for its own sake. Time spent on the careful evaluation of organisations during the selection and award processes normally pays dividends during the contract. Evaluation may include interviews during either process. Care needs to be taken during interviews to safeguard the possibility of information being released that could give an unfair advantage to a particular organisation. Under the EU rules, each of the award criteria must relate directly to the economic advantage that the contracting authority expects to gain as a result of placing the specific contract. Value management workshop techniques, involving key stakeholders, provide a useful means of establishing the selection and award criteria and their respective weightings. This can also be used to evaluate how well each bid meets the criteria. Whole life costs need to be taken into consideration in the appointment process, particularly when comparing the tenders submitted by main contractors for works projects procured under design and build contracts. The Housing Grants, Construction and Regeneration Act 1996 provides a framework for fairer contracts and better working relationships within the construction industry. It specifies that construction contracts (including those with consultants) contain certain provisions relating to adjudication and payment. Where they do not, parties will be subject to fallback provisions contained in regulations laid down in “The Scheme for Construction Contracts (Scotland) Regulations 1998”. What part does design quality play in achieving VFM? Clients should be aware of the way in which the design process underpins all VFM decisions ranging from the efficiency of the functional relationships that determine the overall form of a facility, through to the level of performance of individual materials and components. Good design involves the creative resolution of the many, and often competing, objectives and constraints inherent in a design brief. The overall aesthetic of a facility derives from the way in which these objectives and constraints are resolved in built form. An important part of decisions in the design process is the consideration of capital cost versus life cycle costs. Clients need to be aware of the complexity of the design task and should ensure that the project sponsor has access to an adequate level of professional advice. The quality of the brief provided to designers is fundamental to achieving quality in a built facility. Clients should define key design objectives in terms of operational requirements, service provision and quality standards. It is also important that the dynamics of functions that the facility is to accommodate are considered early and _________________________________________________________________________________ Construction Procurement Manual October 2005

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that any consequent needs for flexibility are conveyed to the designer. Clients may find it useful to refer to relevant existing buildings that enable them to benchmark the level of design expectation. Clients should ensure that adequate time and resources are allowed for the design stage. Significant benefits can be accrued from early dialogue with the design team during the development of the brief when alternative solutions may be explored. The project sponsor must be aware that layout decisions made even in the very early stages of building design can impact significantly on the long-term operational costs of a facility. More comprehensive coverage of this issue is set out in Section 6.

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Consultancy Roles The appointment of suitable consultants is an essential part of achieving VFM in construction procurement. Consultants and client advisers provide the “foundation” on which a project is constructed. The cost of professional services can account for less than 2% of the whole life cost of a project. Yet the quality of these services has a direct impact on the remaining 98%. Even quite large variations in the cost of professional services can become insignificant in relation to the beneficial effect on the whole life cost. However, care must still be taken to ensure that VFM is achieved for each consultancy service. The performance of consultants will be reported on as part of the in-project, and post- project, review procedures, to which consultants will be required to contribute. Roles The Value for Money process described in Section 2 Annex A shows the stages at which professional advice may be required during the life of a works project. External advice may not be needed where the necessary expertise is already available in-house. The decision on whether to use existing inhouse resources, recruit new personnel or use external consultants should be taken on the basis of VFM. This section links to the respective consultancy services listed broadly in the order that they may first be required during a project, namely Client adviser, Value manager, Risk manager, Project manager, Design consultants, Specialist consultants, Cost consultants, Contract administrator, Construction manager and Partnering facilitator. Several of the consultancy roles may be vested in a single consultancy appointment. For example, value management, risk management and partnering facilitation services could usefully be provided by a single organisation under a call-off consultancy arrangement. A conscious decision will need to be made on the specific project as to whether single point responsibility or multiple appointments will provide best overall VFM. Client organisations should note that the optimum team involves the minimum number necessary to achieve the objectives. The more parties involved, the greater the administration, costs, time and opportunities for misunderstanding. Any contracts for appointments made in the early planning stages of a project, must allow for all procurement options to be considered and any option to be pursued, unencumbered by earlier appointments.

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Client adviser The client adviser can support the project sponsor in many ways, including providing assistance with the preparation of the business case and option appraisal, submissions for approval, appointments of other professionals for the project definition stage and the appointment of the project manager. Consultants performing the client adviser role should not also be engaged in any delivery role. Guidance on the role of the client adviser is contained in Section 1.

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Value manager They arrange value management and value engineering studies with key stakeholders at certain project stages. These studies use group decision-making workshops to: • identify needs and the hierarchy of objectives; • select preferred options; • ensure that the design provides VFM; and • learn from best practice and failures, for future projects. Further guidance on value management is contained in Section 2 Annex A.

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Risk manager Their role is to help identify risks and assess their potential impact on the project. Risks are controlled and minimised in accordance with documented risk management plans prepared and regularly updated by the risk manager. Risk allowances are set and regularly re-evaluated during project planning and construction stages. Further guidance on risk management is contained in Section 2 Annex A and in Section 4.

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Project manager The project manager acts as the interface between the project sponsor and the supply side of the project team. Details of some of the activities that the project manager will carry out are listed in Section 1 and Section 2. The appointment of a project manager with abilities and experience appropriate to the project is crucial to its success. They may be assisted by deputy or assistant project managers and their terms of reference must be clearly defined and adhered to. In some client organisations, the project sponsor acts as the project manager but this is only recommended where the project sponsor is a construction professional having the abilities and expertise appropriate for the specific project. The project sponsor’s relationship with the project manager will require careful development and nurturing within the following guidelines: • • the project sponsor representing the client will lead, not follow; no matter how much responsibility is delegated to the project manager, the project sponsor will retain ultimate authority and therefore must have adequate knowledge and information about the project to be able to exercise that authority properly; the project sponsor should make clear to the project manager the precise extent of any delegated authority together with those decisions reserved to the project sponsor; formal communication between the project sponsor and consultants and contractors should always be routed through the project manager; and the project sponsor should, however, establish and maintain regular informal contact with the project team.

• • •

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Design consultants Design consultants include architects, civil engineers, structural engineers, electrical engineers, mechanical engineers, public health engineers, landscape designers and interior designers. They may be involved in preparing outline designs for feasibility studies, conceptual designs for ‘design and build’ and/or detailed design.

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Specialist consultants These include a variety of experts such as specialist facility and equipment designers, acoustic and environmental consultants, design consultants advising on specialist aspects and health and safety consultants. Environmental consultants may advise on the environmental advantages and disadvantages of each of the scheme options, prepare environmental statements and identify measures that will mitigate against environmental damage. Main contractors, sub-contractors and suppliers may be required to attend value engineering studies and risk workshops to provide specialist advice in a consultancy capacity. Crown buildings must adhere to the same standards as other buildings. The Building (Scotland) Act 2003 came into force on 1 May 2005 but section 53, which applies the Act to Crown buildings, will not come into force until 2008. A more comprehensive description of the interim and future arrangements for Crown opinions and Crown verification is set out in the Construction Works Procurement Overview.

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Cost consultants Cost consultants (usually quantity surveyors) provide services in respect of estimate preparation, risk quantification, cost planning, cost monitoring and reporting, quantity measurement, interim valuation and settlement of final accounts. It is usual for a cost consultant to report directly to the project manager.

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Contract administrator The contract administrator looks after the main construction contract. The title of this role and the precise level of responsibility will depend on the form of contract adopted and the department. The contract administrator may also assist in the appointment of the main contractor. The role is often fulfilled by the lead consultant or by the project manager.

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Construction manager The construction manager is an individual or an organisation engaged by the client to secure and manage the services of trade contractors, each of whom has a direct contract with the client department. His/her contract has conventionally excluded undertaking any work on site but this may be permitted where the benefit in doing so can be readily identified. As far as possible, the construction manager should be independent of the suppliers for the project.

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Partnering facilitator Where partnering arrangements are deemed appropriate, a partnering facilitator can assist the parties entering into the partnering arrangement to identify common goals, agree performance measures and dispute resolution mechanisms. These are drawn up and embodied in a partnering charter. The facilitator ideally should be independent of the parties.

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Teamworking This is defined as working together as a team, for the mutual benefit of all, by achieving the common goals whilst minimising wasteful activities and duplication of effort. When problems or difficulties are encountered, all parties should work together as a team to overcome those problems rather than blaming each other. The concept is simply common sense. It is the starting point on which relationships with other parties should be based and applies just as much to the internal relationships between the members of the client’s in-house project team as to the working relationships between members of the client organisation and those of the supply side. It does not replace formal contracts of engagement, or proper and appropriate management structures and procedures but is a pragmatic manner of working together to find ways of delivering the project to the required quality within budget and within programme. It should promote greater openness and encourage earlier involvement by the supply side. The benefits include: • understanding each other’s objectives; • use of collective knowledge and experience to find solutions; • reduced numbers of personnel required to monitor progress and prepare or counteract claims; • reduction in correspondence and thereby unnecessary cost; • reduction in duplication of effort; • elimination of “man to man” marking (only one person should do each task and it should be on behalf of all parties); • improved working environment where the focus is on co-operation rather than conflict; • enhanced reputation of individuals, clients, and supply side organisations when associated with successful projects; and • reduction in litigation, arbitration and dispute resolution and thereby unnecessary cost. Teamworking tips A teamworking culture depends on the commitment and effort of each individual member of the team and can be encouraged or enhanced by holding project specific workshops with the team (including members from consultants, contractors and other suppliers) and arranging for the them to undergo teambuilding training. Where it is feasible, teamworking can also be encouraged by co-locating all the members of a project team, whether in-house or external. Where that is not practicable, members of a team should if possible be linked through the same IT network. Teamworking arrangements should be adopted as far as possible on all projects. The commitment of an organisation to work constructively as part of a team could be included amongst the stated evaluation criteria, where relevant under the EU procurement rules. Good clear records must be maintained to demonstrate how the parties have worked together to reach decisions, how best value has accrued to the department and that probity and propriety have been maintained. It is essential to be able to demonstrate proper accountability. Teamwork does not develop to its full potential until all of the parties, including individuals, have been open about their expectations and returns, the objectives of each are truly aligned and there is mutual benefit from the agreed outcome. The Construction Industry Board’s Model Project Pact is one of several practical tools for teambuilding and greater collaboration at project level. Where the EU procurement rules apply, users of such tools must ensure that the rules are complied with.

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Partnering Arrangements Partnering arrangements may be appropriate, in particular where a continuous programme of broadly similar contracts is envisaged, thus allowing long-term supply chain relationships to be built up. What is partnering? This extends the definition of teamworking by adding the need for a more formal structure to be agreed by the parties which: • identifies the common goals for success; • sets out a common resolution ladder for reaching decisions and solving problems; • identifies the targets that provide continuous measurable improvements in performance; and • sets out incentives where these are not included within the formal contract. These are normally set down in a partnering charter which is signed by all of the individuals who are a party to the partnering arrangement. Annex E lists a number of activities that are commonly included in partnering arrangements, some of which are appropriate to teamworking. Does this replace a formal contract? Although there might be a number of fairly standard separate contracts between each supplier and the client, a single partnering arrangement could be developed and agreed by all of the parties. A partnering arrangement developed in this manner is more likely to be appropriate to the specific circumstances and drawn up in a form that the parties to it are happy to sign up to. The alternative of adopting “off the peg” partnering arrangements, to fit over each of the more formal works contracts in a prescriptive manner is less likely to result in success. The resolution ladder should require problems to be resolved and decisions reached by individuals at the lowest possible level within the respective organisations. It should set a time period by which a decision must be reached at that level before the issue is moved up to individuals at the next level in the respective organisations and so on up to the most senior levels. What ensures the success of partnering arrangements? They need the full and visible support from very senior management of each organisation. Partnering is not just a bolt on extra that delivers results through one partnering workshop. It is a continuous process that needs sustained effort by all of the parties to deliver measurable benefits. Partnering arrangements are likely to fail if efforts to contribute to their success are not sustained. An important goal of partnering is finding ways of doing things differently by accessing the knowledge of all of the people and companies involved in the project to deliver improved performance. This requires flexibility, leadership and significant management skills. An independent facilitator can be appointed to help the parties to form, and then work together within, the partnering arrangement. The facilitator, who might be an individual or an organisation, and available on call at all times, may be reimbursed in part through a success fee. Which kinds of partnering arrangement exist? • strategic partnering (longer term partnering for agreements involving more than one project); which may include framework agreements (covers both binding contracts and non-binding agreements) and contracts specifically written to cover a number of projects. The greater benefits from strategic partnering arrangements arise because the lessons learnt from one project can be applied to further similar projects through a process of continuous improvement. Where appropriate, strategic partnering arrangements should be adopted in preference to project specific partnering arrangements. Continuity of work is an important aspect in keeping together teams successful at delivering projects with ever increasing value improvements. This is particularly relevant to strategic partnering. It takes considerable planning on the client side to smooth out the peaks and troughs in workload.

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project specific partnering. These arrangements can be entered into successfully at various stages of a project and even after the construction stage has been completed, but it should be emphasised that the benefits of partnering will be maximised from commencing the process at an early stage in the project.

The partnering arrangement and charter should not create a contract or a legal partnership and should contain an express provision making it clear that it is not intended to be legally enforceable. The charter normally includes a statement to the effect that the arrangement only remains operative so long as all parties to it wish it to remain in place. How do ensure strategic partnering arrangements are continuing to provide VFM? They should be checked from time to time to include, for example: • comparison of performance against other contracts (total value for money of outputs and not just initial tender price); • clear demonstration of a regular increase in value for money from the start of the contract; and • rebidding the contract after a given interval. A library of case studies showing how strategic partnering and project specific partnering arrangements have been used can be found on the Website of the Government Construction Clients’ Panel. What are the main benefits of strategic partnering arrangements? Irrespective of the type of partnering relationship that the client enters into with a primary supplier (such as the main contractor or main consultant), significant benefits in achieving overall value for money can be obtained where a primary supplier has entered into strategic partnering arrangements with secondary suppliers (such as sub-contractors or sub-consultants). Supply chain relationships of this type are essential to obtain the maximum benefits from partnering. When considering whether to enter into a partnering arrangement with a successful bidder, it might be appropriate to ask the organisation if there are any conditions that they would require before entering into a partnering arrangement. It might not be unreasonable for them to expect the client body’s most senior official to be personally committed to the success of the partnering arrangement. It is important that everybody is rewarded when significant successes are achieved. This does not necessarily involve financial rewards but should include the public acknowledgement of the contribution made by team members.

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Incentives The use of incentives should encourage the parties to work together to eliminate wasteful activities that do not add value for the client and to identify and implement improvements, alternative designs, working methods and other activities that result in added value. When are they appropriate? Incentives should not be given merely for meeting the contractual requirements nor should they be made for improvements in performance that are of no value to the client (e.g. for completing a building contract three months early when the client is still committed to paying rent, rates and other charges on the existing premises). When drafting contracts, consideration should be given to how incentive arrangements might be incorporated to deliver greater value for money. The Office of Government Commerce (OGC) maintains information on case studies that show how incentive arrangements have been used. Where possible, incentives should be arranged so that the party (e.g. sub-contractor or subconsultant) primarily responsible for significant improvements in performance is rewarded accordingly, rather than the main contractor or main consultant. Performance targets on which incentives are based must be measurable. Clients will need to weigh up the benefits of proposed improvements, exercising appropriate judgement before agreeing to them. Quality must not suffer as a result of accepting proposed improvements. Further guidance on abating the fees of consultants, paid on a percentage basis, is contained in Annex B.

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contract requirement

A1.4 A1.7

Annex A: Details of the Appointment process
contract value

The number against each activity refers to the Annex A text paragraph
no

A1.7 does aggregate value exceed the appropriate EU threshold initial stages

yes no open not recommended

(available in A1.9
exceptional circumstances)

requirement for competition

open restricted or negotiated

requirement for competition
no yes

yes

restricted (available in all cases)

negotiated (available in specific circumstances)

A2.3/A3.3 set selection criteria & award criteria A2.11 invite expressions of interest A2.15 long list

A2.3/A3.3 set selection criteria & award A2.11 invite tenders advertise in OJEU

A2.3/A3.3 set selection criteria & award A2.11 invite expressions of interest advertise in OJEU A2.14 long list

A2.3/A3.3 set selection criteria & award A2.11 invite expressions of interest advertise in OJEU A2.14 long list

selection process

A2.17 short list

reject tenders that do not meet minimum requirements for

A2.17 short list

A2.17 short list

A3.9 invite tenders

A3.9 invite tenders

invite organisations to negotiate – may involve formal tender stage

award proces

A3.14-16 evaluate tenders

A3.14-16 evaluate tenders A3.18 dialogue with tenderers (if necessary) A3.19

A3.14-16 evaluate tenders

negotiate

negotiate

award contract A3.19 A3.19 debrief tenderers place contract award notice in OJEU if

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ANNEX A – DETAILS OF THE APPOINTMENT PROCESS A.1. INITIAL STAGES

A.1.1 The flowchart illustrates the various processes and routes during the appointment of consultants and contractors. Where the EU procurement directives apply, consultancy contracts are covered by the Public Services Contracts Regulations (SI 1993/3228) and the appointment of contractors for works contracts by the Public Works Contracts Regulations (SI 1991/2680). A.1.2 For further advice on the Regulations and Directives, and on the thresholds that apply, contact SPD Policy Systems and Administration Division. Information is published in the Office of Government Commerce’s “Introduction to the EC procurement rules” and “Guide to the Appointment of Consultants and Contractors”. A.1.3 Specific health and safety criteria which should be taken into consideration by clients during the appointment process are set out in Section 5. Contract Requirements A.1.4 The contract requirements set out what the consultant or contractor is required to do under the contract. The brief or specification forms a key part of the requirements and should be output based. Where practicable, the requirements should include targets and milestones that are achievable and measurable. A.1.5 The use of standard forms of contract helps to reduce both tendering and contract administration costs. Bespoke or amended standard forms require clients and tenderers to seek additional and frequently costly legal advice and this increases the risk of disputes arising from unfamiliar terms. Therefore, to avoid unnecessary additional costs, such forms should only be used where they are considered essential rather than simply desirable and demonstrably provide greater VFM. Any amendments should only be made after receiving technical and legal advice. A.1.6 Ideally, suites of contracts and standard unamended contract forms from recognised bodies should be used where they are available. Where standard forms fail to meet the needs of client bodies, they should collectively seek to have the standard forms revised, in a manner which facilitates collaborative working with consultants and contractors. Contract value A.1.7 The estimated value of the appointment contract will dictate whether it will fall within the Regulations (remember to apply, where relevant, the aggregation rules which require the value of individual contracts to be aggregated in particular circumstances specified in the Regulations). A.1.8 Where an estimate falls below the relevant threshold, although the appointment process will not be covered by the Regulations, it must still comply with EU Treaty obligations (for example, it must be non-discriminatory and bidders must be treated equally). However, where the client body has chosen not to apply the Regulations and the actual cost exceeds the threshold, unless it is clear that the original estimate was sufficiently robust to withstand challenge, the process may have to be restarted and the Regulations applied. In the light of this, where the estimated contract value is close to the threshold, it is generally advisable to take a cautious approach and comply with the Regulations. Appointment procedure A.1.9 The types of procedure available under the EU rules for the appointment of consultants and contractors are:

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Open procedure: all interested organisations can submit tenders in response to the Official Journal to the European Union (OJEU) notice. Using the open procedure can lead to an excessive number of tenders and is therefore not recommended for the appointment of consultants or contractors for works projects. Restricted procedure: allows the number of organisations that may submit tenders to be restricted by using a selection process in advance of tender invitation. This or, where it may be used, the competitive negotiated procedure (see below) are the recommended routes in all but exceptional circumstances. Negotiated procedure: this takes two forms: • competitive – available in the limited circumstances provided for in the Regulations – enables the client to negotiate the terms of the contract with selected bidders and may include a formal tender stage prior to negotiation; and • without a call for competition – available only in the most exceptional circumstances provided for in the Regulations. A.2 THE SELECTION STAGE

General A.2.1 The selection stage (under restricted and competitive negotiated procedures) produces a short list of the most suitable organisations from all those that expressed an interest in carrying out the contract. The selection stage of the process must be objective, fair, accountable and transparent. The criteria for selection must be established before inviting expressions of interest or placing advertisements, including those in OJEU. If the criteria and any related weightings (eg scoring system) have been established before the OJEU notice is despatched to the Official Journal Office, they should be set out in the OJEU notice. If they have not been established before the notice is despatched they should be forwarded to all candidates at the earliest possible opportunity and prior to the sift being conducted. A.2.2 The selection process in this guidance will meet these requirements. following steps: • establish: selection criteria; weightings for selection criteria; thresholds for selection criteria, where appropriate; and a selection mechanism; invite expressions of interest/draw up long list; and draw up short list. It consists of the

• •

Selection criteria A.2.3 Selection criteria should be based on information concerning the attributes of an organisation that fall under the headings “personal position”, “economic and financial standing” and “technical capacity (and for consultants, “ability”)”. They should be aimed at selecting the most suitable organisations, capable of carrying out the required work whilst taking account of the need to achieve VFM. They must not discriminate against or in favour of service providers in other Member States. Where the Regulations apply, care must be taken to ensure that the selection criteria are consistent with what is permitted under the Regulations and that the criteria (and their relative importance, eg any weightings or scoring system to be applied) are made available to candidates prior to the sift being conducted. A.2.4 Examples of selection criteria are given below (however, considerable care and effort will be required to set appropriate selection criteria for individual projects, making sure that they genuinely reflect the candidates ability to perform the contract):

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Personal position • not suitable for selection on grounds of, for example: bankruptcy; failure to pay taxes; serious misrepresentation; grave misconduct in the course of business; or convicted of a criminal offence. Economic and financial standing • financial status; and • insurance provisions. Technical capacity (and for consultants, ability) • resources; • past performance for example on: partnering; risk management; health and safety management; rejected claims history; references from other clients; supply chain management such as partnering arrangements in force with subcontractors and suppliers; compliance with applicable Tax, Social Security, National Insurance and Health & Safety legislation; and skill/qualifications profile of workforce, including for example evidence of membership of industry-recognised skills registration or accreditation schemes (own and subcontractors’ operatives) and commitment to workforce development initiatives such as Investors in People, Respect for People, Considerate Constructors Scheme, etc., where this is relevant to ability to perform the contract in question. • quality management; and • technical suitability for contract. A.2.5 The selection criteria must be capable of being scored and audited. Client bodies will need to consider how each criterion can be scored and whether such scores are fair and accountable. Section 5 also sets out a number of health and safety matters which should be considered at the selection stage as part of the candidate’s appropriate skills, experience and resources. Weightings for selection criteria A.2.6 The relative importance of each criterion listed under the “technical capacity (and ability)” heading can be established by giving it a percentage weighting such that the sum of all the weightings equals 100%. An example is at Table 1. It is provided for illustration only and is likely to require modification for specific contracts. Quality threshold A.2.7 For each criterion, client bodies will need to determine their minimum requirements for acceptability. Failure to meet such standards should preclude an organisation being considered further. Minimum standards for participation should not be set any higher than is necessary, so as not to unfairly disadvantage small and medium sized enterprises (SMEs). There may also need to be an overall quality threshold (Table 1) for the criteria under the “technical capacity (and ability)” heading. A.2.8 Care needs to be taken when setting quality thresholds to ensure that they are set at levels representative of the minimum acceptable standards. If they are set unnecessarily high, there is a risk of excluding capable organisations that could offer better VFM and of unfairly disadvantaging SMEs.

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Selection mechanism A.2.9 Table 1 shows an example of a selection mechanism and demonstrates how the selection criteria and the weightings applied to them are used to evaluate each organisation and judge its suitability for carrying out the contract. The selection mechanism must be established before drawing up the long list or inviting expressions of interest, placing advertisements etc. A.2.10 The example in Table 1 is intended to illustrate the principles involved and is likely to require modification for specific contracts/commissions – more detailed examples of standard letters, questionnaires and evaluation/assessment forms for use when appointing consultants can be provided by Construction Advice and Policy Division. Items shown in italics will vary according to the project and client. It is prudent to draw up a mechanism for each contract and test it with dummy data to ensure it works as anticipated. Invite expressions of interest A.2.11 Where the contract value (making allowance for the aggregation rules) lies above the appropriate EU threshold (and for a consultancy commission also falls within Part A), it will normally be necessary to invite expressions of interest by placing a notice in OJEU. A.2.12 Invitations for expressions of interest or advertisements, including those in OJEU, should include the following information: • • • details of the information required from bidders to enable their evaluation (i.e. the selection criteria (when available) and the information required to demonstrate how each is met); whether variant bids will be accepted; and other information: intention to enter into teamworking or partnering arrangements; and details of incentives to be included in the contract.

A.2.13 For contracts that are not subject to the Regulations, invitations for expressions of interest should be advertised locally as required by the department’s procurement procedures. Care must still be taken not to discriminate against organisations on the grounds of nationality or the Member State in which they are based (for example, requiring that a bidder is based in, or within a certain distance of, a particular locality would be open to legal challenge as being in breach of EU law).

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TABLE 1 – ILLUSTRATIVE EXAMPLE OF SELECTION MECHANISM Project title: Assessors: Assessor A Assessor B Overall Quality Threshold: 50

Organisation:

PERSONAL POSITION Selection criteria Bankruptcy, convictions, misconduct, taxes, etc.

Quality Threshold (QT) Minimum standards of client

QT reached? Yes

ECONOMIC STANDING Selection criteria Profit & loss for last three years Public liability insurance Professional Indemnity Insurance appropriate)

(where

Quality (QT) ? £? £?

Threshold

QT reached? Yes Yes Yes

TECHNICAL CAPACITY (and for consultants, ABILITY) Selection criteria Criteria weighting (a %) Technical suitability for project 25 Past performance management on risk/value 10

Score awarded (b) 80 50

Weighted score (a x b) 20.0 5.0

Past performance teamworking/partnering Resources relevant to project Design experience relevant to project Quality assurance Total weighting

on

10

35

3.5

15 25 15 100

60 80 40 Total

9.0 20.0 6.0 63.5 Yes

Is total score greater than the Overall Quality Threshold? Comments: Signed by Assessors: Assessor A Assessor B

Date:

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Construction Works Procurement Guidance

Long list A.2.14 For contracts that are subject to the Regulations, those organisations that respond to the OJEU notice should be included in the long list. There is, however, nothing in the Regulations to prevent client bodies advertising elsewhere or prompting organisations to respond to the OJEU notice. These advertisements must not be published in advance of despatching the OJEU notice and must not contain any information additional to, or different from, that contained in the OJEU notice. Similarly, whatever form of notice generates the expression of interest, the rules for doing so must be the same (for example, a local advertisement would have to set the same deadline, and the same requirements on form and content, as are contained in the OJEU notice). A.2.15 For contracts not subject to the Regulations, the long list may be drawn up in a number of ways, examples include: • • • • use of appropriate registers of organisations (e.g. “Constructionline”); directly approaching organisations; placing advertisements in appropriate publications; and approaching appropriate professional bodies and trade associations (preferably used in conjunction with another option because some suitable organisations may not be members of such bodies or associations and to ensure that particular organisations are not favoured unjustifiably).

A.2.16 A lack of response to the invitation for expressions of interest might indicate shortcomings in the selection process. In these circumstances a review of the process would be prudent. Reduce long list to short list A.2.17 Over-long tender lists can result in unnecessary abortive costs for clients and tendering organisations and tenderers may put less effort into their tender submission if they are one of many. A short tender list ensures that tenders are only received from the most suitable organisations. However, the number of organisations invited to tender must be sufficient to ensure genuine competition. A.2.18 Only in very exceptional circumstances should the number be less than 3 (for example, where fewer than 3 meet reasonable qualification requirements) and there are unlikely to be any circumstances where it should be greater than 6 (4 for design and build projects). (NOTE: where the Regulations apply, the minimum number of participants must be 5 in a restricted procedure and, in a competitive negotiated procedure, must be sufficient to ensure genuine competition (3 is generally considered sufficient to meet this obligation). If, under a restricted procedure the number to be invited is to fall within a predetermined range, the maximum of the range must be no more than 20 and the minimum no less than 5. The requirements in the Regulations in respect of minimum numbers of bidders apply only where there are sufficient numbers of suitably qualified persons (for example, if only 4 bidders under a restricted procedure meet the minimum requirements for participation then only those 4 need be invited to bid). In these circumstances it may be prudent to review the minimum standards to ensure that they have not been set at an unreasonably high level). A.2.19 The selection mechanism will identify those organisations in the long list in order of how well each appears to meet the selection criteria. Selection will normally be based on information provided in response to a Pre-Qualification Questionnaire and if necessary a Pre-Qualification Interview, using pre-determined selection criteria and weightings. The short list will be limited in number to the best of these organisations from whom it is anticipated that tenders will be invited. A.2.20 A selection mechanism should be reviewed where it results in a short list, that does not include that part of an organisation that previously has carried out work for the client body on a similar type of project and performed well resulting in a successful project outcome. Following a review of a

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mechanism for a contract where the Regulations apply, the published selection criteria must be retained unless the client body is prepared to re-advertise in OJEU. A.2.21 Bidders unsuccessful at selection stage should be given a debriefing on request. A.3 THE AWARD STAGE A.3.1 The award stage is distinct and separate from the selection stage. The tenders must be evaluated on the basis of VFM (defined in the Regulations as “most economically advantageous to the contracting authority”) and not lowest cost alone. The award stage of the process must involve a fair, transparent and accountable method of evaluating tender submissions. It should also involve an appropriate (to the contract in question) balance of quality with price (whole life cost). A typical award process is described below: • confirm candidates; • establish: - award criteria; - weightings for award criteria; - quality/price ratio; - award mechanism; and - quality and price scoring. • prepare instructions to tenderers and invite tenders; • evaluate “quality” element of tenders; • evaluate “price” element of tenders; • balance quality and price; • notify award decision and debrief unsuccessful candidates. Confirm list of candidates A.3.2 Each organisation on the short list is advised in writing of the details of the contract and asked to confirm that they are willing to attend an interview and submit a tender. If any are unwilling or unable to tender, the next suitable organisation can be added to the short list. Interviews can not be held until after the date set for the submission of tenders. Award criteria A.3.3 The award stage focuses on the tenderers’ proposals for the specific contract whereas the selection stage looks back at tenderers’ status and previous performance. The award criteria must be appropriate, specific to the particular project and relevant to assessing whether tenders represent VFM. They must be established at the latest before tenders are invited as they must either be notified in the initial advertisement or subsequently in the instructions to tenderers (tender documents). Where possible they must be listed in descending order of importance. Where the Regulations apply, each criterion must be relevant to “economic advantage” to the contracting authority. Relative weightings and any methodology (eg quality price ratio or scoring system) as described below to be used as part of the evaluation must be made available either in the OJEU notice or with the tender documents. The list below provides some examples (it should be noted that where the award criteria refer to ability or experience, this means of the staff assigned to the project rather than to that of the tenderer as a whole): • teamworking arrangements: - partnering with client; and - partnering with sub-contractors and suppliers; • aesthetic and functional characteristics: - design; - operating costs; - ease of use;

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- adaptability for changes in use; - demonstration of innovation in proposals; and - maintainability; proposals for managing the contract: - procedures for planning, programming and management; - programme for completing contract, including milestones for achieving objectives; - risks identified and proposals for their management; - communication arrangements; and - quality plan; project team organisation: - qualifications and experience of team members, relevant to the project; - appropriately experienced senior managers/partners; - responsible senior managers; - qualifications; - length of service; and - directly relevant experience; - quality of other senior personnel: - suitably qualified; - position within the organisation; and - amount of time devoted to the project; - resources; technical merit: - appropriate to the client’s needs and constraints; - degree of flexibility in carrying out the contract; - method of carrying out contract; - approach to Construction Design and Management Regulations; - how health and safety issues will be identified, assessed and managed during the design and construction stages (see also Section 5); - quality of documentation; - method of presenting information; and - standards of materials, checks and independent inspections; services provided from external sources: - joint-venture arrangements proposed; - if so, are responsibilities of the joint venture parties clear; and - arrangements made for sub-contracting: - proposals for managing the delivery of any sub-contracted services successfully; - ability to verify sub-contractors’ compliance with applicable Tax, Social Security, National Insurance and Health and Safety legislation; and - ability to assess and verify levels of skills/qualifications and Health and Safety training amongst sub-contractors’ workforces and other workers/workforces in the supply chain.

Weightings for award criteria A.3.4 Candidates are assessed on how well they satisfy the award criteria (including any mandatory components). The relative importance of each award criterion should be established by giving it a weighting. The example in Table 2 is intended to illustrate the principles involved and is likely to require modification for specific contracts/commissions – more detailed examples of standard letters, questionnaires and evaluation/assessment forms for use when appointing consultants can be provided by Construction Advice and Policy Division. Items shown in italics will vary according to the project and client. It is prudent to draw up a mechanism for each contract and test it with dummy data to ensure it works as anticipated. Examples of other mechanisms can be found in the documents referred to in Section 8.

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Construction Works Procurement Guidance

TABLE 2 – ILLUSTRATIVE EXAMPLE OF AWARD MECHANISM Project title: Quality weighting: 60 Price weighting: 40 Assessors: Assessor 1 Assessor 2

QUALITY SCORES Firm A Quality criteria Proposals for, and understanding of, project. Experience and resources of proposed project team. Project management/ teamworking skills. Risk management skills and experience. Aesthetic character of proposals. Maintainability. Criteria weight % 30 20 Wtd. Score 18.00 11.00 Firm B Wtd. Score 19.50 13.00 Firm C Wtd. Score 22.50 14.00

Score 60 55

Score 65 65

Score 75 70

10 10 15 15

65 60 70 50

6.50 6.00 10.50 7.50

60 70 75 65

6.00 7.00 11.25 9.75

60 65 70 75

6.00 6.50 10.50 11.25

Totals

100

59.50

66.50

70.75

PRICE SCORES (see paragraph A3.12) Tender price Price score (mean £643,760)

£550,702 64.50

£740,217 35.00

£640,360 50.50

OVERALL SCORES Quality weighting x quality score Price weighting x price score

60% x 59.50 = 35.70 40% x 64.50 = 25.80 62 2

60% x 66.50 = 39.90 40% x 35.00 = 14.00 54 3

60% x 70.75 = 42.45 40% x 50.50 = 20.20 63 1

Overall score Order of tenders Comments:

Signed by Assessors: Assessor 1

Date: Assessor 2

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Construction Works Procurement Guidance

Quality/price ratio A.3.5 The quality/price ratio appropriate to the type and stage of the project should be established. Individual client bodies are responsible for ensuring the optimum combination of whole life cost and quality. Indicative ranges of quality/price ratios for various types of project are given below: Type of project Feasibility studies Innovative projects Complex projects Straight forward projects Repeat projects Award Mechanism A.3.6 The award mechanism provides a structured approach to evaluating bids. The example at Table 2 uses the award criteria, the weightings applied to them, the quality/price ratio and the price scoring mechanism to allow the quality and price elements of each bid to be evaluated. The award mechanism should be established before drawing up the long list, inviting expressions of interest or placing advertisements. Quality Scoring A.3.7 The quality scoring system aims to indicate how well each organisation’s quality bid meets each of the award criteria. The example at Table 2 is based on the following scoring system: Score 100 50 0 Price Scoring A.3.8 The price scoring and quality scoring systems should be compatible with each other. There are a number of options. The example of a price scoring system used in the illustrative example of award mechanism in Table 2 is: the mean price of the acceptable tenders received is given 50 points; 1 point is deducted from the score of each tenderer for each percentage point above the mean; and 1 point is added to the score of each tenderer for each percentage point below the mean. Invitation to tender A.3.9 The invitation to tender and tender documentation (including a Pre-Interview Questionnaire, where appropriate) should be sent simultaneously in writing to each tenderer. They should be accompanied by “Instructions to Tenderers”. These should give clear instructions on how the tender is to be completed and submitted. Care should be taken to ensure that they only contain instructions and do not include any contractual information that should be included in the contract documents. The following information should be included: date and time of submission; the award criteria; the essential requirements of a compliant tender (including the information necessary to evaluate the tender in line with the award criteria); details for the submission of variant bids, if applicable (including the essential minimum requirements); instructions to visit site, where appropriate; tender return labels; method of completing and submitting the tender; explanation of the two-envelope system (if appropriate). How well the organisation’s bid meets each criterion meets criterion exceptionally well (difficult to improve); meets criterion at an acceptable level; and does not address criterion at all. Indicative quality/price ratio for consultants for contractors 80/20 to 90/10 not applicable 70/30 to 85/15 20/80 to 40/60 60/40 to 80/20 15/85 to 35/65 30/70 to 60/40 10/90 to 25/75 10/90 to 30/70 5/95 to 10/90

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Construction Works Procurement Guidance

A.3.10 The golden rules of tender documentation are clarity, consistency and completeness. Tenderers will have limited time to carry out a lot of work and therefore the client should make the contract documents clear and easy to use. All documents should be typed with no manuscript amendments or inserts, all pages should be numbered and there should be a comprehensive index. Tenderers may want to split the documents into elements for response by different people. A.3.11 All tenderers should be given identical information. Any clarification given to a tenderer during the tender period should be sent to the others. Tendering system A.3.12 There are a number of tendering systems available. The two-envelope system allows the quality element of a bid to be evaluated without influence by the price. In a system of this type, tenderers are instructed to submit their tender in two envelopes. The first envelope contains the quality element of the tender, the second the price. The quality evaluation takes place prior to opening the price envelope. Care must be taken to ensure that all tenders from short-listed firms are evaluated on both price and quality. Unless a quality assessment demonstrates that a particular tender is completely unacceptable on quality grounds, the price envelope must be considered alongside quality against the pre-determined criteria. A.3.13 Whether the two envelope procedure is used should be determined on a case by case basis. There may be less need for two envelopes where there is little room for variation in the quality element of bids (eg. where the contract is based on priced Bills of Quantities and a detailed specification). But, in cases where there is scope for variation (eg. in Design and Build, partial Design and Build, or contracts based on performance specifications) a significant element of the bidders’ proposals will be subject to detailed evaluation, and where a two-envelope system is not used, it may be difficult to show that a quality evaluation has not been influenced by consideration of price. Tender evaluation – quality A.3.14 Each short-listed firm’s bid will normally be evaluated according to a quality scoring system It may include the completion of a questionnaire by each firm, and in many cases, a post-tender interview (caution should be exercised when conducting such interviews - see paragraph A.3.18 below). The questionnaire and any subsequent interview must be structured to permit evaluation against the pre-determined award criteria. The ‘quality’ scores should be established before price bids are considered (or opened, in the case of a two envelope system). Tender evaluation – price A.3.15 Each bid should be evaluated using a price scoring system. Lower than expected price tenders should be reviewed to ensure that they are deliverable and sustainable and do not reflect a failure to understand the contract requirements. Where the EU Regulations apply, abnormally low tenders should be dealt with as prescribed by the Regulations and tenders should only be rejected as abnormally low where the tenderer has been given an opportunity to explain why its bid was low. Tender evaluation – whole life cost A.3.16 To achieve VFM over the complete life of the project, the whole life costs need to be taken into account. Where contractors submit compliant tenders on the basis of a detailed specification and drawings (i.e. for identical facilities), the actual tender prices can be used in the tender evaluation because the other elements that make up the whole life costs should be the same for all tenders. However, where tenders are for different facilities or tenderers have submitted an alternative tender in addition to a compliant bid, the whole life cost of each proposal will need to be determined and used in the tender evaluation. Balancing quality, price and whole life cost A.3.17 The completed tender evaluation form (Table 2) provides a method for balancing quality and price to assist in selecting the successful tenderer. There may still need to be further analysis to:

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Construction Works Procurement Guidance

take account of whole life costs; take account of risk pricing (where the instructions to tenderers has required tenderers to provide prices for accepting specific risks); and provide further confirmation that the organisation which appears from the mechanism to offer best VFM, is likely to do so (i.e. an overview by an experienced person independent of the project team). Dialogue With Tenderers 3.18 Contracting authorities must exercise great care when entering into discussions with candidates or tenderers in procurements subject to the open or restricted procedures. In particular, any such discussions must not amount to negotiation which might distort competition. Dialogue with tenderers should generally be limited to requests for clarification (by the tenderer or by the authority). Even where dialogue does not in fact constitute negotiation, it can be perceived as such. Care should therefore be exercised as to the nature and extent of dialogue with tenderers. For example, conferences where candidates’ or tenderers’ questions are answered in open forum and confirmed by way of the same letter to each will usually be acceptable. However, bilateral meetings which discuss proposals/requirements in any detail should be avoided wherever the discussions might have the potential to distort competition. In any cases of doubt, appropriate specialist or legal advice should be sought. Also, any discussions with candidates or tenderers must always be handled by suitably skilled and experienced staff and should be appropriately documented on file. In particular, any discussions with candidates or tenderers must not result in fundamental changes to the authority’s requirements and must not result in variations to proposed contracts (particularly on prices) which could distort competition. Notification of award, debriefing and mandatory standstill period A.3.19 The tenderer offering the best overall VFM, taking account of the optimum combination of whole life costs and quality, is judged as the competition winner. The successful tenderer should be informed and the start date agreed with them. At the same time, unsuccessful tenderers should be notified in writing. A contract award notice, where appropriate, should be sent to OJEU within the time limit given in the Regulations. A.3.20 As a general rule, all tenderers and the bidders unsuccessful at selection stage should be given the option of a debriefing, but it is important to note that there are specific requirements for debriefing where contracts are covered by the EU Procurement Directives. A.3.21 For public sector and utilities contracts covered by the full regime of the EU Procurement Directives, a mandatory standstill period must elapse between the written communication of the award decision to all tenderers and contract commencement. Although the minimum mandatory standstill period is 10 calendar days, in many cases it will be necessary for the period to exceed this minimum duration to take account of requirements for contract award notification and debriefing, and to ensure that the period ends on a working day. A.3.22 Further guidance on the mandatory standstill period, contract award notification and debriefing during the mandatory standstill period can be found in Scottish Procurement Policy Note SPPN(06)2005. The Note, which also contains suggested wording for inclusion in letters to successful, and unsuccessful, tenderers, can be accessed by clicking here. Audit Trail A.3.23 Records should be kept of the selection and award process, for audit purposes or in the event of a challenge to any decision made. These records should be retained for at least five years or the duration of the contract if longer.

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Construction Works Procurement Guidance

Annex B: Aspects of Appointing Consultants B.1 The overall procurement and contracting strategies for the project will influence the extent of the professional services required (i.e. traditional client design, design and build, PPP, prime contracting, management contracting and their variants). Appointment strategy B.2 The following options will need to be evaluated before appointing the various consultants:

value management; risk management; partnering facilitator; facilities management: • appointment of an individual or an organisation for each of these services; or • appointment of an individual or an organisation responsible for all of these services; project management: • appointment of an individual or an organisation to provide a dedicated project management service and not provide any other consultancy services; • appointment of an individual or an organisation responsible for project management and cost management; or • appointment of a single organisation to be responsible for project management as well as all other consultancy services; design services: • appointment of individual design consultants; or • appointment of one organisation responsible for all design services; duration of appointment: • appointment of organisations for the complete duration of the project; • appointment of organisations for one stage of the project at a time (e.g. feasibility study); or • appointment under a call-off arrangement. B.3 The project sponsor must decide whether to appoint a single organisation responsible for all of the design (who may appoint others as sub-contractors). This may simplify the administration duties of the client and clarify areas of responsibility. Alternatively, different organisations can be appointed for each of the key disciplines. In this case the project sponsor must ensure that the project manager is capable of (and the contract provides for) managing and controlling them. If individual consultants are to be appointed for specific elements of the design, one organisation should be appointed as the lead consultant to co-ordinate the design and this responsibility should be clearly defined in the contract. B.4 Particularly on larger projects, consultants can be commissioned to undertake the feasibility design and planning work only, the following stages being subject to new competition. The consultant best able to do the preliminary planning work may not have the necessary resources for the later stages. However, for smaller projects, it may be possible to place a contract for all stages, though the facility to terminate the commission at key points, should be built into the contract conditions. B.5 The appointment strategy offering best VFM will depend on many factors and will need to be evaluated on a project by project basis. Key factors include the project’s characteristics, the extent and availability of in-house resources and the administration costs associated with each appointment. It is essential to take expert advice from the client adviser or project manager where such advice is not available in-house. Project brief B.6 The project brief is a comprehensive statement of the client organisation’s requirements for the project. Tender documents for professional services should include either a complete project brief

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Construction Works Procurement Guidance

or a draft version requiring the successful tenderer’s input to its completion. This should enable the construction professionals to understand the scope and extent of the project and the department’s quality requirements. Further information on project briefs is given in Annex C Section 1 and in the Construction Industry Board publication Briefing the Team. Consultant’s brief B.7 The consultant’s brief describes the services that the consultant is required to carry out precisely. These are dictated by the strategy adopted and whether the services are to be provided individually or in combination. The services provided by the project manager, various designers and the cost consultant are all different but they must be compatible, without overlaps or gaps. B.8 Construction professionals cannot tender their services unless they are given an adequate description of the scope of the services they are to provide. If the description of the scope of services is inadequate or unclear, problems will inevitably arise. Poorly described requirements will be open to interpretation, providing opportunities for misunderstanding and claims for additional work. Reporting requirements B.9 Client organisations must specify the form and frequency of reports on cost, progress or other activities and details of the data to be captured and retained. Delegated authority B.10 The project sponsor must ensure that any authority delegated to consultants is clearly set out in their respective contracts (terms of reference), particularly when appointing a project manager. Decisions reserved solely for the project sponsor must also be clearly defined. B.11 The project sponsor will need to consider carefully the precise level of authority the project manager should have to: • • • • • order variations and make changes; certify interim payments; grant extensions of time; settle claims; and agree final accounts;

without the prior approval of the project sponsor. It is recommended that, as a minimum, the authority delegated is limited by: • • • the value and type of variations and changes that may be made without prior approval (can be specified as a maximum total value for any one change and/or the aggregate value of changes over a specified time); prior approval of payment certificates; or prior approval of settlement of claims for extra payment or extensions of time.

Bid basis B.12 There are three principal ways of paying for professional services (sometimes used in combination). They are: • • • time charge; lump sum; and ad valorem (according, in proportion, to value).

B.13 The fee structure to be adopted for the contract will depend on the degree of certainty in the scope and content of the services required. When the scope and content of the services are uncertain, for example during the appraisal of options, then reimbursement on a time charge basis is

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Construction Works Procurement Guidance

appropriate. However, time charges provide no surety of the eventual fee cost. They tend to be an expensive way of paying for longer-term services and are more appropriate for shorter-term commissions or for additional services not allowed for in the original appointment. B.14 Lump sum charges should only be used where the scope of all the services is defined precisely and there is little risk of significant variations in the scope of the works. A combination of lump sum charges for the more certain elements of the work and time charges for those less certain, may offer best VFM. B.15 Ad valorem fee structures reimburse consultants in proportion (generally as a percentage) to the cost of the project. They appear to provide an incentive for consultants to design expensive projects rather than those offering best VFM. Further guidance on restricting fees is set out below at B.18. B.16 Call-off arrangements allow a consultant or contractor to be appointed where the precise extent of the work or its duration cannot be determined in advance. Call-off contracts can be based on time charges or on lump sums for specific elements of work. They are particularly useful for the appointment of: • • client adviser; and value management, risk management and partnering facilitator.

For example, organisations providing value management services may be able to provide a lump sum for running a value management study. B.17 The bid basis adopted should be that offering the best VFM for the particular project.

Restricted (capping) fees B.18 For the reasons stated above, ad valorem fee structures (particularly on a percentage basis) are often the most appropriate means of paying for the professional services of works consultants. However a reimbursement mechanism which pays a consultant proportionately more as the project cost increases may not necessarily appear to be in a client’s best interests. B.19 The reasons for an agreed project budget being exceeded may of course be as much due to the client’s change of mind as to any mismanagement on the part of consultants. Nevertheless clients should consider if it is appropriate to introduce some form of abatement or capping mechanism to the fee structure, in order to underline the necessity of striving to contain costs while maintaining quality. B.20 Restricting any increase in professional fees can be accomplished in a number of ways. For example a reduction mechanism might be built into the commission so as to lower, on an incremental basis, the fee paid on any increased costs. Similarly, where there is a reduction in project costs, the mechanism might give a slightly higher percentage fee, (effectively constituting an incentive mechanism where the client and the consultant share the benefits of savings and the liability of overspends). B.21 Great care should be taken when considering the introduction of fee capping as a means of achieving VFM. It is not appropriate for all types or values of project, and it should not penalise those who are not responsible for changes or who have carried out abortive work or had to provide additional services as a result of the changes caused by other parties. B.22 It will tend to be more appropriate in the case of large single projects or longer-term contractual relationships, particularly those which involve a degree of repetition (and an absence of complexity) in the design form. Clients should therefore consider, in the light of the circumstances of the particular project, whether or not it is appropriate to include a capping arrangement in the fee structure. Professional advice on this matter should be sought from the client adviser, the project manager or from Construction Advice and Policy Division.

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Uncovenanted Gain B.23 Amendment to some standard conditions of engagement may be necessary to prevent uncovenanted gain which can occur when fees are charged as a percentage of the construction cost. Some fees have traditionally been calculated on the final construction cost. In a project extending over several years, and especially during periods of high inflation, this results in the fee being calculated on the inflated final construction works cost. The majority of consultants’ work, however, is carried out during the earlier stages of a project. The effect is a double payment: payment for the consultant’s early work calculated initially on the estimated construction value at the time, and a topping up when, on completion, the total fee is recalculated on the final construction cost. This “supplement” is referred to as an uncovenanted gain. B.24 Uncovenanted gain can be curtailed by calculating the percentage fees in discrete instalments, each one based on contemporary costs. Prescribed stages are charged at the agreed percentage rate, but calculated on the current, not the final, approved construction cost. Expenses B.25 Whatever the form of the fee, some method of dealing with related expenses needs to be specified. Most commissions will involve consultants in some out-of-pocket expenses; printing and production of drawings and documents, disbursements made on the client’s behalf, and travel and subsistence expenses. Not all have to be reimbursed. It is open to the client to decide as part of the conditions of engagement that fee bids will be compounded to include some or all of these expenses. This is particularly attractive on short term appointments where the scope of the work, and therefore the related expenses, can be predicted accurately. Fixed price, lump sum consultancy agreements are often made on this basis. B.26 On larger commissions, extending over several years and involving expenses and outlays which cannot be reasonably estimated, it may be unrealistic and unfair, as well as commercially disadvantageous, to expect a consultant to carry the risk and cost of expenses. In such cases the conditions of engagement should define which expenses will be eligible for reimbursement. B.27 The Scottish Executive’s travel and subsistence rates normally provide a sound basis for payment and any subsequent official changes to the rates should be advised to consultants. Professional indemnity insurance B.28 Professional indemnity insurance provides cover for professionals against the financial aspects of legal liability to the client for professional negligence and is required for all professional appointments. However, it is costly and may need to be maintained by the consultant for many years after completion of the contract. The specified levels of cover should be appropriate to the particular project. The full cost of requiring an unusually high level of cover should be evaluated before such a requirement is made.

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Annex C: Aspects of Appointing Contractors C.1 Where the list of long term collaborative relationships between main contractors and their sub-contractors and suppliers is considered appropriate, a number of benefits can be obtained. These benefits include: • • • • • • better quality; greater input of ‘buildability’ expertise; less wastage; savings to each party through innovation; greater opportunity to improve sustainability via sourcing of resources; and better health and safety co-ordination.

C.2 Some of the above benefits should be passed on to clients if they appoint main contractors that have entered into this type of arrangement. To encourage contracting organisations along this route, client organisations should consider including collaborative arrangements between the main contractor and their sub contractors and suppliers as a key criterion in both the selection and award processes, where this is practicable. C.3 When evaluating contractor’s bids on the aspect of collaborative relationships, evidence should be required to demonstrate the improvements that each relationship has produced to date, and the anticipated improvements which will accrue during the specific project. C.4 The opportunity to benefit from collaborative relationships between main contractors and their supply chain will be greatest where the client is able to adopt output-based specifications or less traditional procurement strategies such as design and construct, and management contracts. C.5 Clients should obtain information from potential tenderers regarding the level of skills of their own workforce/operatives and the policy that they adopt on these matters when assembling supply chains. This information should form part of the assessment of a candidate’s technical suitability. An indication of the proportion of the workforce that is registered under industry-recognised skills registration schemes would be one means of assessing candidates’ suitability. C.6 It has long been the practice that tender documents have requested main contractors to name all of the domestic sub-contractors that they propose to use on that contract. Invariably, a long period of time could elapse between the tender preparation stage and the eventual appointment of a domestic sub-contractor. Clients and/or their project managers should obtain from the main contractor details of domestic sub contractors at the time of their appointment. This should be a continuous and cumulative process throughout the duration of the contract and be cascaded down the supply chain. A reference to this requirement should be included in the Preliminaries section of the main contract documentation in order to give the main contractor an opportunity to price this task. C.7 Clients’ attention is drawn to the contractors’ obligations in respect of the Tax, Social Security, National Insurance and Health and Safety legislation. Failure to comply with these statutory obligations may render contractors ineligible to be considered for public contracts.

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Annex D: Evaluation of Procurement Routes D.1 Table 1 provides an illustrative example of a mechanism to evaluate how well each procurement route is likely to deliver value for money in terms of whole life costs. Items in italics are shown solely to demonstrate the system. They will vary according to the project and client. It should be noted that this mechanism would be used after PPP/PFI had been considered and ruled out as a suitable procurement route.

Table 1 – Illustrative Example of Procurement Route Evaluation Mechanism

OPTION Design & Build CRITERION (Weighting)
Score

Develop & Construct Wtd.
Score Score

Management Contracting

Construction Management

Traditional

Wtd.
Score

Wtd.
Score Score Score

Wtd.
Score Score

Wtd.
Score

Cost Certainty 9 (25) Quality/Design Control 5 (20) Running Costs 8 (15) Flexibility 5 (15) Speed of Delivery 10 (10) Risk Avoidance 9 (10) Innovation 9 (5) TOTAL (WEIGHTED) SCORES Order of how well the option fits the 1 criteria Members of Evaluation panel Signatures :

2.25

8

2.00

2

0.50

2

0.50

7

1.75

1.00 1.20 0.75 1.00 0.90 0.45

5 7 5 7 8 9

1.00 1.05 0.75 0.70 0.80 0.45

8 7 7 8 5 8

1.60 1.05 1.05 0.80 0.50 0.40

8 7 8 8 4 8

1.60 1.05 1.20 0.80 0.40 0.40

8 7 7 5 6 7

1.60 1.05 1.05 0.50 0.60 0.35

7.55

-

6.75

-

5.90

-

5.95

-

6.90

3

5

4

2

Member 1 …………………………..

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D.2 The evaluation criteria used in the mechanism must be chosen so that they relate specifically to aspects that will determine value in whole life cost terms. The relative importance of each evaluation criterion is established by giving it a percentage weighting. D.3 The mechanism provides a means of helping construction procurement experts reach a decision about the procurement route likely to deliver greatest value for money but does not replace the need for an expert to make the decision on the basis of all information available. D.4 There is clearly scope to distort the outcome by manipulating the evaluation criteria, weightings and even the mechanism itself. Whatever mechanism is developed, it must help to identify

Client Pack

October 2005

Section 3 – Procurement Strategies

Construction Works Procurement Guidance

the procurement route likely to deliver greatest value for money. If a second construction procurement expert independently was to develop a second mechanism and evaluation criteria, the same conclusions about the procurement route likely to deliver greatest value for money should be drawn from it as the first mechanism. Sensitivity analysis may help to highlight the adequacies of a mechanism.

Client Pack

October 2005

Section 3 – Procurement Strategies

Construction Works Procurement Guidance

Annex E: List of Teamworking and Partnering Activities • • • • • • • • • • • • • • Partnering workshop (at start of project) Regular project workshops Partnering charter Identify and agree common goals Agree measurable continuous performance improvement targets Agree dispute resolution ladder Incentive mechanism Public acknowledgement of team achievements Open book accounting Common offices Common filing system/database Arrangement to encourage partnering all the way down the supply chain Use of a facilitator available at all times People appraisal – arrangements for ensuring that the right people are in place and that they have the necessary attributes or if they do not, that they are actively acquiring them.

Client Pack

October 2005

Section 4 – Financial Aspects

Construction Works Procurement Guidance

SECTION 4 – FINANCIAL ASPECTS

KEY POINTS • Investment decision makers must ensure that there is a clear understanding amongst project owners and project sponsors of budgetary limits or other variables in the projects for which they are responsible. They should, as standard practice, ensure that effective monitoring and reporting arrangements are in place, including when it is appropriate for matters to be reported to them personally, and to Ministers or a governing board. Particular care is required in cases which have a high public profile, or those with particularly high risk factors, to ensure effective monitoring and reporting. The outcome of Gateway Reviews of mission critical or high risk projects must be reported to the Accountable Officer who should in turn inform Ministers if serious deficiencies or difficulties have been identified. A primary measure of success in preparing budget estimates is predicting the project outturn capital cost and the whole life cost accurately at project inception. Without the ability to predict the outcome of a project with some degree of accuracy, it is not possible to determine which solution offers the best value for money. The initial budget estimate and all subsequent budget estimates should allow for all costs in connection with the project (eg VAT, in-house costs, consultancy costs, land costs, legal costs, design and construction costs, fit-out costs, concession payments, decommissioning costs and, depending on the procurement route, operation and maintenance costs). Budget estimates should, for each element, consist of a base estimate and a risk allowance. The risk allowance should be assessed for identified risks and not be just guessed at as a percentage of the total. The risk allowance may well exceed the base estimate during the early project stages. Expenditure of risk allowance should be for identified risks only. procedures should be invoked where unidentified risks occur. Project change control

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Section 4 – Financial Aspects

Construction Works Procurement Guidance

Section 4: Financial Aspects Investment decision makers must ensure that there is a clear understanding amongst project owners and project sponsors of budgetary limits or other variables in the projects for which they are responsible. They should, as standard practice, ensure that effective monitoring and reporting arrangements are in place, including when it is appropriate for matters to be reported to them personally, and to Ministers or a governing board. Particular care is required in cases which have a high public profile, or those with particularly high risk factors, to ensure effective monitoring and reporting. The outcome of Gateway Reviews of mission critical or high risk projects must be reported to the Accountable Officer who should in turn inform Ministers if serious deficiencies or difficulties have been identified. This section provides specific advice on budget estimates, risk management, budgets and cost management and financial reviews.

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Budget Estimates The total cost of a project is made up of many elements including: • in-house costs and expenses (including all central support services, administration, overheads etc); • consultancy fees and expenses (design, feasibility, client advice, legal, construction management, site supervision etc); • land costs; • wayleaves and compensation; • demolition and diversion of existing facilities; • new construction or refurbishment costs; • fit-out costs; • operating costs; • maintenance; • decommissioning; • disposal; • insurances; • VAT; and • all other costs relating to the project not listed above, including an adequate allowance for risk. At this early stage, the cost estimates for each element necessarily will be based on the limited outline information available, and so it may be necessary to make a number of assumptions. Any assumptions should be set down clearly so that they can be verified if necessary and referred to at a later stage. As the project progresses and becomes more clearly defined, the cost estimates need to be revisited and more finely tuned to reflect the better, more detailed information as it becomes available. During the early project stages, it will be necessary to prepare estimates for a number of options, some of which may include Public Private Partnerships (including Private Finance Initiative projects). Advice should be sought from the Scottish Executive’s Financial Partnerships Unit. Budget estimates should, for each element, consist of a base estimate and a risk allowance. • The base estimate is calculated using estimating techniques appropriate for the stage of the project. • The risk allowance is the sum which is included in the estimate to cover the expected costs of all risks identified by the project team, including the project sponsor, acting collaboratively and participating as stakeholders in the success of the project. The risk allowance should be assessed for identified risks and not be just guessed at as a percentage of the total. During the early stages, it may well exceed the base estimate. As the project progresses, and becomes more clearly defined as the design develops and further studies are carried out, the risk allowance can be expected to diminish as a result of good risk management. At the same time the base estimate will generally increase as those costs that will definitely be expended become clearer (see Figure 1).

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Figure 1: Change in base estimate, risk allowance and expenditure with time

120 100 Cost (%) 80
maximum likely risk allowance

60
average risk allowance

40
base estimate

20 0
definition of requirements develop options detail design commit to construct

expenditure

put to use

Planning, development and construction stages

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Risk Management What is it? All projects contain risks that may affect their costs and quality, and the time taken to complete them. Risk management is the identification and assessment of these risks followed by the production, and implementation, of an action plan to manage and control them during the life of the project. Whilst risk can be managed, minimised, shared or accepted, it cannot be ignored and the success or failure of a project depends on the approach taken towards risk. Traditionally, risk management has been applied instinctively, with risks remaining implicit and managed by judgement informed by experience. Systematic risk management, however, explicitly and formally identifies risks, and provides a management tool which supports decision making and informs instinctive judgement. Whilst it is unrealistic to expect that systematic risk management will remove all uncertainties, it can improve the likelihood of a successful project outcome and should be applied wherever possible, depending on the stage of the project and the nature of the risks identifiable at that stage. Systematic risk management techniques aim to impose control systems in order to deal with risks which have been identified as potential threats to the success of a project. Risk management is a specialist service and the extent to which it is applied will be determined by the particular nature and circumstances of individual projects. For very large, novel or complex projects it is important that appropriate risk management expertise is available within the project team. The existence of an effective risk management framework will be one of the issues that will be examined as part of the regular Gateway Reviews for these projects. What comprises a comprehensive risk management process? It will normally cover these stages: • Identification – what are the risks; • Assessment – probability of occurrence and potential impact on the project; • Response – action taken to manage the risks; and • Monitoring and feedback

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Identification The initial identification of as many risks as possible is essential in terms of understanding the project. All those involved must devote time to discussing the project in a structured manner, normally at workshops led by a risk management specialist, in order to encourage effective communication and the creative thinking necessary for identifying all foreseeable risks relating to the project. The outcome of these workshops will form the basis of a risk register. Risks may be categorised according to those which are ‘fixed’ or ‘variable’ in nature. • Fixed risks are those which will either be incurred as a whole, or not at all, for example, a new electricity sub-station might be required. Variable risks relate to circumstances which have a varying probability of occurrence with a variable outcome, for example the demand for car parking spaces may not be known.

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Construction Works Procurement Guidance

Assessment Each identified risk and its possible consequences should be assessed and expressed in terms of cost, time and performance. The estimating technique adopted should be appropriate for the standard of information available. The resultant sums will be the estimated cost to, or effect on, the project if each foreseeable risk was to occur to the fullest possible extent. This estimating stage should result in a statement of risks ranked in terms of their financial, or other, impact on the project, and this should be recorded in the risk register. The probability of each risk occurring must also be considered. Again, project team collaboration is recommended. ‘Probability’ relates to the degree of certainty with which it is agreed that a risk will occur. The combination of assessments of risk identification, occurrence and outcome will be set out in the risk register, which should clearly identify and quantify each threat which the stakeholders perceive exists to the successful delivery of the project. The assessment stage will result in each risk having a potential financial implication which reflects its likely cost and the probability of it occurring.

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Response The process of identifying, estimating and evaluating risks allows decisions to be made on how best to manage them. The aim should be to minimise or eliminate any threat posed to the successful delivery of the project. A by-product of these preliminary steps will be the identification of the ownership of any particular risk. A risk management plan should be prepared and updated regularly to record the management process for monitoring and controlling those risks identified. Care should be taken to ensure that the potential impact of each risk is not outweighed by related direct costs (cost of reducing the risk, cost of transfer or insurance and management/administrative/professional time involved). A risk response should be formulated once the cause and effect of identified risks have been fully understood. The response will take the form of one or more of the following management actions: • avoidance – where risks have such serious consequences for the project outcome that they are unacceptable. Avoidance measures might include possible review of project objectives, and re-appraisal of the project in total. reduction – possible actions could include: further investigation work, re-design, change of materials, components or systems, alternative construction methods and revising the contract strategy. transfer – passing the risk to another party better able to manage it, although a cost for this transfer is usually paid. To achieve VFM, transfer should only be exercised where the cost of the risk to the organisation is reduced by more than the cost of transfer. retention – items that are not transferred, avoided or eliminated, and thus have to be managed by the organisation to minimise their potential impact.

Risk and procurement strategies are interrelated with the chosen strategy and form of contract having a substantial bearing on the allocation of risk, the project management requirements, the design strategy, the employment of consultants and contractors, and the way in which the project team work together to achieve the client’s objectives. The risks and benefits associated with procurement strategies should be fully identified, considered and evaluated prior to selection and, in the case of mission critical or high risk projects, this information and the recommendation should be presented to the responsible Minister for decision.

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Monitoring and Feedback Risk management is a continuous process that systematically and continually seeks to minimise and eliminate potential threats to successful project delivery. It is important, therefore, that the project team, including the project sponsor, commits itself to regularly updating the risk register and risk management plan as the effects of responses begin to develop. For example, a risk that is dealt with by the incorporation of a design feature will ultimately transfer the quantum from the risk estimate to the base estimate: it cannot exist in both estimates simultaneously. Regular updating of the risk register and the risk allowance will be included as part of the formal Gateway Review process, and will provide a formal and explicit statement of quantified risks and responses. As the project progresses, effective risk management should ensure the number of risks in the register, and their cost consequences, should diminish.

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Section 4 – Financial Aspects

Construction Works Procurement Guidance

Budgets and Cost Management Investment decision-makers must ensure that there is a clear understanding amongst project owners and project sponsors of budgetary limits or other variables in the projects for which they are responsible. They should, as standard practice, ensure that effective monitoring and reporting arrangements are in place, including when it is appropriate for matters to be reported to them personally, and to Ministers, the Accountable Officer or a governing board. Particular care is required in cases which have a high public profile, or those with particularly high risk factors, to ensure effective monitoring and reporting. The outcome of Gateway Reviews of mission critical or high risk projects must be reported to the Accountable Officer who should in turn inform Ministers if serious deficiencies or difficulties have been identified. How should budgets be calculated? At all project stages, for each element of the project, budgets should be calculated on the sum of the base estimate and the risk allowance for that element of the project. The most important aspect of estimating is to predict at the earliest project stages both the outturn capital cost of the project and its whole life cost. It cannot be over emphasised that an estimate that fails to predict the outturn cost with some degree of certainty is of little value. It is much more important to produce an estimate that properly allows for the cost consequences of risks – and that ultimately predicts the outturn costs – rather than generate a very detailed costing of every single item but which fails to allow for risks and hence fails to predict the outturn cost. How do risk allowances fit into the picture? It should not be assumed that the full financial, or other, effect of every risk identified in the risk register will actually occur in practice. In deciding the value of the risk allowance component of any estimate, it is essential to take account of the probability of each risk occurring. The risk allowance should not, therefore, be simply an aggregation of the maximum possible costs of all the individual risks identified but should be based on a sound professional judgement and evaluation of the probability of occurrence and potential impact. This should form the basis of cost reporting. Expenditure of risk allowance should be for identified risks only. Project change control procedures should be invoked where unidentified risks occur (see Section 2 Annex A). How effective are cost control measures here? The establishment of effective procedures (including risk management) at an early stage in the development of a project will help ensure success. Established and effective cost control systems and procedures, understood and adopted by all members of the project team, entail less effort than “crisis management” and will release management effort to other areas of the project. Cost management should ensure that, throughout the project, full and proper accounts are maintained of all transactions – including commitments, payments and changes – to ensure that all transactions are fully in accord with the requirements of public accountability and probity. Where does cash flow fit in? Accurate cash flow forecasting is necessary to help manage expenditure within the budget and to help set future budgets. Experience has shown that projects tend to fall behind programme and hence that expenditure on a particular project is not as rapid as anticipated. What’s the process for monitoring and reporting on expenditure? To exercise cost control, project sponsors need to review and act on the best and most appropriate cost information. This means that they should receive regular, consistent and accurate cost reports that are both comprehensive in detail and presented in a manner that permits easy understanding of both status and trends. Reports need to be tailored to suit the individual needs of each project and should always be presented to give a comparison of the present position with the control estimate. _________________________________________________________________________________ Construction Procurement Manual October 2005

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Reports to project sponsors normally give only the status of the project overall. But sponsors will, on occasion, need to monitor costs against a specific cost centre in more detail. The typical contents of a cost report are given in Annex A.

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Financial Reviews The concept of approval gateways is described in Section 1. These gateways are points in the life of a project, beyond which it should not proceed unless specific management and financial reviews have been undertaken. Section 2 describes these processes briefly, including the need for a financial review. When should financial reviews happen? They should be carried out at each gateway to ensure that: • a risk management procedure is in place that is appropriate to the particular nature and circumstances of the project; the base estimate for each element of the project is reasonable and up to date; the risk allowance for each element of the project is reasonable and up to date (the risk allowance should be for identified risks only); the latest estimate for each element is made up of the base estimate and the risk allowance; the project is affordable; funds are available for the planned expenditure up to the next approval gateway; and appropriate cost management and reporting procedures are in place and being followed.

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Construction Works Procurement Guidance

Annex A: Contents of a Financial Report

A.1 The following aspects should be addressed in a financial report (rather than repeating detailed information available in earlier reports, later reports can summarise the key points and cross refer to the relevant earlier reports): • • • • • • • • • • • • A.2 A.3 development of budget; original authorised budget; new budget authorisations (giving justification for changes); current authorised budget; expenditure to date (each section on budgets and expenditure should address the original base estimates and risk allowances for each element); commitments; agreed variations (giving justification for variations); potential/expected claims or disputes awaiting resolution (if the project is going well, this area should be small); commitments required to complete; orders yet to be placed; variations pending; and future changes anticipated. Each of the cost elements referred to at the start of Budget Estimates should be covered. All prices need to be discounted to a common base.

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Section 5 – Health and Safety

Construction Works Procurement Guidance

SECTION 5 – HEALTH AND SAFETY

KEY POINTS

The attitude, decisions and actions of clients can directly influence the health, safety and welfare of those who work in the construction industry. A well trained and well looked after workforce as part of a safety conscious industry can contribute to the achievement of Value for Money (VFM), the cornerstone of Scottish Executive construction procurement policy (see Section 2). The key to achievement of VFM and successful health and safety performance is structured planning and management throughout a project’s life cycle from inception to decommissioning. Client staff in senior management positions should particularly note their responsibilities as they play a pivotal role in setting standards and creating and promoting a corporate commitment to exemplary health and safety performance. Clients can make the greatest impact through their actions: in the use, wherever appropriate, of output specifications which provide contractors with opportunities to innovate and to influence the construction process; in the adoption, wherever appropriate, of procurement routes that facilitate the early involvement in the design and decision-making processes of those who will construct, operate, maintain and use the facility; in the selection of suppliers (contractors and consultants) who have a demonstrable performance record in respect of health and safety matters; in the award of contracts to suppliers who have clear project specific proposals for managing and monitoring health and safety risks; and in monitoring the actual performance in health and safety matters of selected suppliers.

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Construction Works Procurement Guidance

Section 5: Health and Safety Who does this apply to? Health and safety matters are paramount when undertaking construction operations. The attitude, decisions and actions of clients can directly influence the health, safety and welfare of those who work in the construction industry. A well trained and well looked after workforce, as part of a safety conscious industry, can contribute to the achievement of Value for Money (VFM), the cornerstone of Scottish Executive construction procurement policy (see Section 2). So clients, as procurers, have client responsibilities here that are just as important as other statutory obligations imposed upon them, their consultants and contractors. This section should be read by all those acting in the various client roles, detailed in Section 1, and followed to ensure the prevention of accidents and ill health, and applies irrespective of the time employees, suppliers or others are on site. Which parts of the process are concerned? Construction procurement encompasses the purchase of construction related services with the ultimate aim of: • alteration, refurbishment, maintenance, extension or demolition of an existing building or structure; and/or the creation of a new building or structure, including all associated siteworks.

Where does the Scottish Executive (SE) stand on this? This guidance is consistent with Sir John Egan’s Report, Rethinking Construction and Sir Michael Latham’s Report, Constructing the Team. It takes into consideration the Government initiatives Revitalising Health and Safety and A Commitment to People – Our Biggest Asset as well as the Health and Safety Executive’s ‘Working Well Together’ campaign and Scotland Construction Safety Action Plan, the recommendations of which the SE will implement, where appropriate, through its construction procurement policy. The Executive supports and encourages those steps made by the construction industry to improve the qualifications, skills and training of the workforce and to reduce the rates of accidents and ill health. What is the policy on workforce employment status, skills and training? The exclusion of contractors from consideration for work on the grounds of their employment status (or the employment status of some or all of their employees, whether self-employed or directly employed), or through failure to have a pre-determined quota of staff qualified under a specific skills certification scheme, is not recommended for the following reasons: • it can potentially rule out legitimate tradespersons or sub contractors with comparable qualifications and/or experience from being shortlisted; and it is open to challenge under European procurement rules.

Clients should however assess these matters as part of the whole technical ability/capacity assessment within the selection process, requiring those firms which express an interest in being considered to provide information about the levels of skills, training and health and safety that they can bring to a project and their policy on employment of subcontractors/sub-subcontractors (information from contractors and sub-contractors which provides evidence of valid employers liability insurance will also be a good indicator of the extent to which they employ their own direct workforce). On provision of wholly satisfactory evidence of their suitability under these criteria, only then should firms be allowed to proceed to interview and tender stages.

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Client Responsibilities What should be done at a Strategic Level? All clients should strive to be best practice clients in construction procurement and, in terms of their health and safety responsibilities, should: • demonstrate a high level of commitment through clearly defined policies and visible senior management involvement in compliance with all relevant legislation and best practice; • provide a culture of cooperation, coordination, communication and competence both in their own internal organisation and with their supply teams; promote a culture within their own project organisation that encourages all parties to make suggestions for improving health and safety performance; and assess the safety performance of their most recent projects and use this information as a benchmark from which to monitor present and future performance.

What should happen at Project Level? Clients should: • carry out a thorough assessment of both consultants and contractors, during the selection process, to establish their competency, adequacy of resources, training policies and commitment to continuous improvement in health and safety; • in all cases, ensure that the design process takes full account of the health and safety aspects of the construction, maintenance, subsequent refurbishment or alteration and eventual decommissioning of the facility; wherever appropriate, follow procurement strategies which create integrated supply teams or encourage early involvement of participants in the planning, design and development of a project; allow a realistic project timescale in order to ensure that health and safety considerations are not compromised due to time constraints; set a realistic budget in order to ensure that health and safety considerations are not compromised due to financial constraints; make health and safety considerations a high level criterion in risk assessment and management (see further advice on Risk Management in Section 2 and Section 4); ensure that the optimum client resources are in place, including adequate support staff; ensure that an internal project specific control and communication structure is set up (see Section 1); and

• •

place health and safety high on the agenda of internal working groups and progress meetings for individual projects as a means of continually reassessing health and safety performance. Meanwhile there are issues for Health and Safety at Project Stages, together with those actions which clients should take in order to have a direct impact on health and safety performance. • Who should clients pay particular attention to? At the design and construction stage, clients should particularly consider the health and safety of the proposed activities of: • contractors (including sub-contractors); • suppliers; • consultants; and • all others who may visit the site(s) during the construction period, for example utilities workers, representatives of statutory authorities and clients’ own staff. _________________________________________________________________________________ Construction Procurement Manual October 2005

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At the post handover stage to end users, it would be wise to consider: • • • • end users including those employed by tenants in multiple occupancy situations; those who in future will alter, refurbish or repair the facility; those who will operate and maintain the facility; and those who will ultimately decommission and demolish the facility and clear the site.

What are the benefits to clients? By ensuring that health and safety are thoroughly addressed, the primary benefits to clients are: • visible success in meeting health and safety objectives; • a demonstrable commitment to the health, safety and welfare of all people involved in the construction and future operation of the facility; • avoidance of the consequential cost, time and adverse publicity implications of prosecution under Health and Safety legislation and/or common law claims for compensation; • satisfaction for the client body that no injuries have occurred; • the development of best practice health and safety management skills which can be used on future projects; • a boost in morale for all parties involved; and • greater likelihood of completing the project within time and cost constraints. Unrealistic time and budget constraints, poorly conducted research to establish the optimum procurement route, incompetent or ill conceived design, site mismanagement and shoddy construction work can all contribute to the likelihood of accidents or ill health occurring once construction has begun. How will these actions by clients help in the future? Properly specified works (whether output-based performance specification or a full design), together with careful selection of materials and an emphasis on buildability, should enable the intervals between future maintenance operations to be increased, while at the same time reducing the potential for accidents. Consequently a positive contribution can be made to achieving whole life VFM. The Scottish Executive advocates continuous improvement in health, safety and welfare in construction works procured through its clients. It is committed to demonstrating best practice through its own actions and those of its suppliers. Clients should also be aware of, and encouraged to sign up to, the Strategic Forum’s Respect for People Code (of good working health and safety practices) which was published to coincide with the Health and Safety Executive’s 2005 Construction Health and Safety Summit. The RfP Code sets out key actions for all participants in the construction process including clients and their advisers, and can be found on the HSE website at www.hse.gov.uk/construction/codeofpractice/

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Health and Safety at Project Stages Policy and Procedure The Construction (Design and Management) Regulations 1994 (CDM) and Approved Code of Practice place specific duties on clients from project inception stage (see Section 1 Annex C). Note: The Health and Safety Commission currently proposes a single set of Regulations, and supporting guidance, covering construction work. The proposed Regulations would consolidate and revise provisions in the CDM Regulations and the Construction (Health, Safety and Welfare) Regulations 1996, which implemented the Temporary or Mobile Construction Sites Directive (TMCS). The aim is to simplify and clarify what duty holders do, so that they can easily identify and understand their own role (and those of other members of the project team). For the latest information on the proposed amendments to the CDM Regulations, see the HSE web site. In addition to these legal duties, all clients should demonstrate exemplary awareness of and a high level of commitment to health and safety at all times. They should also have clear procedures in place to implement construction health and safety policy. The procedures should include: • • • how potential suppliers are informed of their compliance duties; how the client will source the required expertise to fulfil its health and safety obligations; and how selection and award criteria are formulated for evaluating the experience, competence, resources and commitment of potential consultants, contractors and suppliers to health and safety and training matters.

How should health and safety be monitored and encouraged? All clients who have an ongoing construction programme should set up procedures for the monitoring and review of the health and safety performance of their projects. One method is through implementation of the Key Performance Indicators (KPI) of the Clients Charter produced by the Confederation of Construction Clients. This involves the use of a ‘toolkit’ which will allow clients to gauge their own progress against a set of KPIs and also benchmark their performance against other clients with a similar procurement programme. As a part of promoting best practice throughout the industry, contractors should be encouraged to sign up to initiatives such as the Considerate Constructors good practice scheme at www.ccscheme.org.uk. This aims to raise standards and awareness in site management, safety and the environment beyond the duties imposed by statute. As a part of the wider health and safety agenda in the industry, clients should be aware of the health and safety targets set by the Confederation of Construction Clients at www.clientsuccess.org.uk. The Major Contractors Group has also set targets to ensure that all management and supervisory staff employed on their sites will have a demonstrable competence in both appropriate management or supervisory skills and health and safety matters and that all tradesmen and operatives will have a demonstrable skill level incorporating health and safety. What about user requirements? When identifying these early on in the procurement process, the health and safety focus should be on all parties that may be affected by the decision to construct (see Note above). User requirements should ideally be identified through a Value Management process involving all stakeholders. Further advice on Value Management and Risk Management can be found in Section 2 and Section 4. Health and Safety risks identified at this stage should be transferred to the project Health and Safety Plan. What about Output Specification? _________________________________________________________________________________ Construction Procurement Manual October 2005

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The effect on health and safety of how time, cost and quality criteria are prioritised must be considered. All procurement decisions should be made solely on an individual project basis. The use of output specifications should be considered wherever appropriate as they provide contractors with greater freedom to provide innovative solutions and to deliver VFM (output specifications are also discussed in Section 3). This may also give contractors greater scope to influence the way in which the construction process proceeds – for example, whether to pre-fabricate components or to select materials which are more safely handled, thus minimising injury risks. Use of output specifications does not however automatically guarantee a better health and safety performance, nor does it absolve clients of their responsibilities. Transferring too much responsibility for final choice of materials could, conversely, lead to cheaper (but not necessarily safer) solutions unless clients also demonstrate and communicate a clear commitment to VFM and improved health and safety performance throughout their selection procedures. Which stages are considered, in this context? Design, Procurement Strategy, Selection of consultants and contractors, Appointment of contractor/supplier, Construction stage, Post Project Evaluation and Post Occupancy Evaluation are discussed here, as well as Key Performance Indicators (KPIs),

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Design Design is an iterative process requiring a brief to be formulated by stakeholders, forming the basis of preliminary design. The design is developed and refined throughout the design stages to reach the final design solution. This stage offers a key opportunity to address health and safety issues in terms of all those who construct, use, maintain, operate and ultimately decommission and dispose of the facility. Hazards identified through a structured design process should be minimised or eliminated at an early stage. Hazard identification should entail the ongoing use of risk assessment at major design stages (see also Section 2 and Section 4). During the preliminary design stages it can help to have a perspective other than that of the designers alone. An external, objective view of the implications that design decisions might have for later health and safety issues might take two forms: • Consideration of on-site operations during the (eventual) construction stage may help to assess issues of buildability and to minimise the risk of accidents being caused directly or indirectly by the way in which construction operations on site have been dictated by the design. Advice on buildability implications may be available from outside sources, eg from someone with a contracting background. It may also be appropriate to take into account the experience of those who will ultimately be responsible for operating, managing and maintaining the facility. They may be well placed to advise on consequential health and safety risks for users and suppliers of services (Procurement Strategy).

The optimum design solution is best reached through use of value management techniques which allow stakeholders to refine their own requirements in the light of those of the other stakeholders. A legal requirement is imposed upon clients under the CDM Regulations to ensure that the Health and Safety Plan is created at the earliest stages of a project, kept up to date through the design stages and information transferred to the Health and Safety File for use during the construction period and then for the end user/s. Provision of this information may be made available on project extranets to persons at the more remote ends of the supply chain. Which sorts of hazards should be considered? Specific examples of those that may need to be identified within this Health and Safety plan include:

• • • • • •

falls from height; noise; hand/arm and whole body vibration; musculoskeletal disorders cement dermatitis; and asbestos.

Further information on specific construction hazards can be obtained from the Health and Safety Executive.

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Construction Works Procurement Guidance

Procurement Strategy Procurement strategies and the evaluation of the most appropriate procurement routes are discussed in detail in Section 3 and Annex D. Health and safety should be a fundamental part of the assessment of the most appropriate procurement route for a project. Where appropriate, supply side and end user involvement at as early a stage as possible in decision making may help to inform the design process, engender cooperation between all parties and ‘design out’ or otherwise remove potential risks in the design, construction, use and disposal of the facility. The use of integrated procurement routes, such as design and build and partnership arrangements, can greatly assist this aim. Staff who will be involved in the maintenance of the completed facility (e.g. building or facilities managers) may be in a position to advise on some aspects of design and choice of suitable materials from their own maintenance experience. They may also be able to advise on certain potential health and safety implications of certain aspects of construction, for example, access for cleaning or future replacement of large items of plant. Reduction in the frequency of cleaning or replacement will also reduce the likelihood of accidents occurring as well as contributing to whole life VFM.

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Section 5 – Health and Safety

Construction Works Procurement Guidance

Selection of consultants and contractors The following health and safety criteria should be taken into consideration by clients in the appointment process, and Section 3 Annex A of this Guidance should be consulted as should the Office of Government Commerce’s (OGC) Guide to the Appointment of Consultants and Contractors. Consultant – selection stage At selection stage, appropriate skills, experience and resources should be focused upon. Matters to be considered could include: • the candidate’s knowledge of the requirements imposed by the health and safety legal framework; • the candidate’s awareness of current health and safety issues impacting on the construction industry; • the candidate’s knowledge of the health and safety implications of alternative procurement options; • figures available for injuries and accidents that have occurred on previous projects designed for government or other clients; • if causes of accidents on previous projects have been investigated to ascertain whether design contributed and what lessons have been learned; • post-occupancy evaluations of previous projects to determine the impact of their design on the health and safety of users; and • feedback from previous projects on the degree of difficulty of maintenance and repair. Consultant – award stage Information requested at award stage should be project specific. The following could be taken into consideration: • • • how health and safety risk can be designed out; how health and safety issues and site performance will be addressed during construction (site meetings etc.); the consultant’s initial perception of the main health and safety risks on the project (e.g., contaminated land, existence of asbestos in building, non-standard construction methods to be employed etc.); consultant’s knowledge of industry health and safety registration schemes for operatives; and how the consultant would prioritise health and safety risks in formulating the Health and Safety Plan.

• •

From a health and safety viewpoint, there may be benefits in selecting integrated consultancy teams as opposed to individual appointments if these consultants have worked together, have an established approach to health and safety and have a successful system in place to monitor health and safety. Use of integrated teams should be considered alongside the other quality aspects of the overall appointment bid. Contractor – selection stage At this stage, appropriate skills, experience and resources should be focused upon. Matters to be considered could include: • documentary evidence of a signed and dated company health and safety policy; • their policy regarding the employment status, qualifications and training of their subcontractors and sub-subcontractors; • documentary evidence of their staff health and safety training programme; • if their reporting system for accidents and ill health is familiar and readily available; • documentary evidence regarding the skills certification of operatives; • details of their health and safety record on recent projects (e.g., fatalities, reportable incidents, reportable illness, historic prosecutions, pending prosecution proceedings, prohibition notices served etc) and measures taken to redress any weaknesses in their health and safety management structure/systems;

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• • • •

details of membership of safety ‘passport’ and other competence schemes sanctioned and recognised by the industry; their transport policy; their philosophy and documentary records on use of Personal Protective Equipment (PPE); and their attitude to the provision of welfare facilities for their own staff and sub contractors and others not in their employ.

Contractor – award stage Information requested at award stage should be project specific. The following could be taken into consideration: • the existence of job specific management arrangements for implementation of the safety policy; its robustness and completeness should be checked; • how they would intend to disseminate health and safety information to all those directly or indirectly in their employ who are carrying out any aspect of the site operations, eg bulletin boards, meetings; • how they would intend to identify potential hazards and the risks to employees (or others) and how they would put into place a risk management strategy to control and monitor those risks (it may also be appropriate to ask tenderers to submit an outline risk assessment with their tenders, providing evidence that major risks have been identified and allowed for); • how they propose to monitor and raise performance on site; • how they will ensure that there is liaison between the Planning Supervisor and members of their team; • their policy regarding the employment status of their subcontractors and sub-subcontractors and how this will be enforced on site; and • contractors with a design input should be asked about their perceptions of the health and safety issues regarding their design and how they would intend to address them. Integrated supply teams should be considered where appropriate. Clients should consult Constructionline or other available databases to ascertain if a contractor’s Health and Safety Policy Statement of Intent has been made available to view. Constructionline may be able to provide the following additional information, where it has been provided by a contractor: • organisational chart showing health and safety responsibilities within the company; • contents of health and safety arrangements/procedures; • details of health and safety training provided for operational employees; • copies of recent scheme – specific risk assessments; • examples of recently completed site safety inspection reports; and • a copy of the company’s accident/incident report form. Clients, where possible, should include a person with health and safety expertise in their team when shortlisting contractors (selection stage) and on the interview panel (award stage).

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Section 5 – Health and Safety

Construction Works Procurement Guidance

Appointment of contractor/supplier Clients should make available all relevant health and safety information regarding a site or existing structure for incorporation into the Health and Safety File (a legal requirement under CDM). Information may be available from previous projects. Existing Health and Safety Files should be made available to maintenance, demolition or site clearance contractors. These files may contain information on, for example, services, existence of asbestos or prestressed structural elements which may pose a hazard on future demolition. A comprehensive pre-tender Health and Safety Plan must be prepared prior to operations beginning on site. This is a legal requirement placed upon the client by the CDM Regulations and is normally a function of the Planning Supervisor. This is best achieved by ensuring that the Planning Supervisor is one of the earliest consultant appointments. This will inform the design process in terms of health and safety from the earliest stage.

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Section 5 – Health and Safety

Construction Works Procurement Guidance

Construction stage The health and safety performance of the contract should be monitored by clients on an ongoing basis so that corrective measures can be implemented if required.

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Section 5 – Health and Safety

Construction Works Procurement Guidance

Post Project Evaluation Formal post project evaluation carried out, following the completion of each project, should address consultant and contractor health and safety performance. This feedback should be used to address how clients can strengthen their procedures to ensure that health and safety performance is continuously improved. Client health and safety performance should also be analysed to further develop appointment procedures and systems for dissemination of information to consultants and contractors.

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Section 5 – Health and Safety

Construction Works Procurement Guidance

Post Occupancy Evaluation Post occupancy evaluation should be carried out in a building at least 12 months after its occupation. This feedback should provide valuable information on the health and safety aspects of the finished product and help clients to design out potential difficulties in future briefs. Further guidance is provided in Section 6.

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Section 5 – Health and Safety

Construction Works Procurement Guidance

Key Performance Indicators (KPIs) All Clients should be aware of the KPI safety measurement methodology published in the Construction Industry Key Performance Indicators Product Delivery and Company Performance Handbook 2000 published by the Department of Trade and Industry (DTI). The Confederation of Construction Clients (CCC) has produced a ‘Clients Charter’ which gives an opportunity for repeat clients (i.e. those clients with a continuous construction programme) to gauge their own performance and progress against a series of Key Performance Indicators (KPIs) and to benchmark their performance against other similar clients. Further information is available at the CCC website at www.clientsuccess.org.uk.

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Section 6 – Design Quality

Construction Works Procurement Guidance

SECTION 6 - DESIGN QUALITY IN BUILDING PROCUREMENT KEY POINTS • • Good design is not an alternative to value for money, but is integral to it. Good design is not merely a question of style or taste but arises from the careful synthesis of many interrelated factors including architectural vision, functionality and efficiency, structural integrity and build quality, accessibility, security, sustainability, lifetime costing and flexibility in use. Clients must be clear about the level of funds available for a project from the outset and ensure that their aspirations for quality are underpinned by realistic and affordable assumptions. Clients must carefully assess and define their priorities before appointing design consultants. The Client’s design advisers must be retained throughout the construction process in order to monitor the quality of design and finishes. Post project evaluations of building programmes are mandatory for major projects and any lessons learned should be shared with other Departments. Quality based designer selection is a structured procedure for selecting a design team. Design competitions are a means to primarily select specific design ideas or outline design ideas for a project, rather than the design team personnel. All public sector appointments, irrespective of the client’s preferred nature of competition or reference to any other guidance on design competitions, must be consistent with EU procurement rules in terms of process and outcome. Public sector clients must ensure that design team appointments follow the procedures described in Section 3 (Annex A) of the works procurement guidance part of the Construction Procurement Manual. Quality aspects cannot be considered in isolation but must be assessed as part of a VFM evaluation which also takes account of fee proposals. The role of an informed client is vital in ensuring the successful delivery of the project within the agreed timescale and budget and to the required standards and requirements of all users.

• •

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Section 6: Design Quality in Building Procurement Why good design? Good design is not an alternative to value for money (VFM), but is integral to its achievement. A good building project must also contribute to the environment in which it is located, deliver a wider range of social and economic benefits and be adaptable to accommodate the needs of future users. An enhanced built environment which incorporates principles of good design can improve the quality of life of those who use and work in public buildings. Throughout the life of a building, design excellence can improve the standard of public service delivery, make it more efficient and contribute to staff recruitment. Good design can ensure that capital costs are competitive and that savings can be achieved on running costs through reduced maintenance, energy and operating costs without compromising the attractiveness and quality of the building. So investing in good design can make the most beneficial and effective use of resources, can add value and represents a sound investment in the future. High quality building design is therefore one key mechanism in providing VFM in the provision of public services. What is the Executive’s view? The Scottish Executive (SE) recognises the importance of good building design in meeting a range of policy objectives and its Architecture Policy Unit (APU) has published a policy which promotes and encourages investment in well designed buildings in both the public and private sectors. APU can offer advice on design and also acts as the sponsor body for Architecture and Design Scotland, a Non Departmental Public Body established to promote good architectural design. What defines good design? The term covers the way in which buildings work as much as how they look. Good design is not merely a question of style or taste but arises from the careful synthesis of many interrelated factors including the design team and key design issues. How is good design achieved? From the outset, clients must be clear about the level of funds available for a project and ensure that their aspirations for quality are underpinned by realistic and affordable assumptions through establishing the right budget. These quality matters and functional requirements must then be set out in a thorough project brief. In order to monitor and control the procurement, design and construction processes, procedures and responsibilities should be clearly defined (and assigned). Ideally, designers should engage in challenging and constructive dialogue with the client, building users and those involved in supplying and manufacturing materials, goods and services. All concerned should work to a realistic and robust timetable, which gives the design team enough time to develop and achieve a good solution, while consideration should be given to the nomination of an organisational design champion. The role of an informed client is vital in ensuring the successful delivery of the project within the agreed timescale and budget and to the required standards and requirements of all users. How is good design evaluated? Design evaluation can be structured around a number of key design issues. To support the continual improvement of the construction and procurement process, post project evaluations (PPEs) of building programmes are mandatory for major projects and any lessons learned should be shared with other Departments. PPEs should be carried out before the break up of the design team to review the success of the project against its original objectives, its performance in terms of time, cost and quality outcomes and whether it has delivered value for money. The key advantage of post-occupancy evaluations (POEs) is the opportunity to achieve improvements in the ways future buildings will support operational objectives. Participants often identify areas where design improvements could be made and ways in which buildings and equipment could be used more cost effectively. These may only be minor, but they could produce significant benefits to future designs. The process of evaluation can provide important feedback on whether resources are being targeted at the most important areas. This can also enable poorly functioning or seldom used features to be eliminated from future designs and the repetition of mistakes to be avoided. The nature of PPE and POE reports should be set out and agreed at the start, and project sponsors should ensure that provision is made for the preparation of both when setting budgets and timetables.

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Section 6 – Design Quality

Construction Works Procurement Guidance

The Design Team How is the team selected? There are several methods of selecting the appropriate design team for a project, including quality based designer selection (QBS) which is a structured procedure for selecting a design team, and design competitions, which primarily select specific design ideas or outline designs for a project, rather than the design team personnel. How does QBS work? It looks for an appropriate balance of design skills, experience, innovation, and an ability to perform on schedule to the required standards and within budget. A client, or client committee, selects a team based upon a weighted scoring of a list of relevant factors, including technical capacity, resources, previous experience of similar projects, deliverability of the design and partnering arrangements, aimed at determining which design team is most able to handle the project successfully. Throughout a building project, designs will be developed through constant dialogue with the design team, so it’s essential that a key selection consideration is inter-personal skills; the client must feel that it has the ability to work with the designers. It is essential to know that a design team’s claimed expertise is currently available, too. The question of whether a design team has completed major quality projects within the past five years may give a more fair comparison between long established and new design teams. It is important to ensure that the principal designer responsible for successful past projects is present for the interview, and such individuals should be named in the contract if that design team is successful. And what about design competitions? A competition to select an outline design, rather than the design team members, requires the client to have a well developed brief for the project. Design competitions may be appropriate where there is either a unique problem that will benefit from a wide range of design approaches being explored (along with likely considerable public interest - which may be the case on a major new public building) or where the competition promoter wishes to encourage the development of new talent. What’s the procedure for appointing the team? All public sector appointments, irrespective of the client’s preferred nature of competition or reference to any other guidance on design competitions, must be consistent with EU procurement rules in terms of process and outcome. The appointment or competition must therefore: • strike the correct balance between quality and price to achieve whole-life VFM; • evaluate the quality and price aspects against clear, unambiguous and pre-determined criteria; • assess the technical and financial capacity of the design team (including joint ventures or partnership arrangements) to deliver the project on time and within budget, as well as to the required standards of quality; and • maintain a full and transparent record of all aspects of the competitive process from start to conclusion, including the evaluation of the pre-qualification questionnaires as well as the selection and award stages. Public sector clients must ensure that design team appointments follow the procedures described in Section 3 Annex A of the works procurement guidance part of the Construction Procurement Manual which sets out appropriate criteria to use at both the selection (short listing) and award (bidding) stages of the appointment process, as well as indicative quality: price evaluation ratios for different types of project. Which selection criteria are used? Selection criteria should include financial status, insurance provisions and technical capacity; the last of these enables consideration to be given to resources, technical suitability and past performance. This stage also aids production of an objective and transparent short list of the most suitable organisations, from all those that expressed interest in providing design services. Which criteria are used at the bidding stage?

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The award criteria enables a further qualitative assessment to be made of the specific proposals for the project – not just technical merit of the design proposals but also other aspects of successful delivery such as proposed team-working, management arrangements, and project team organisation. Where joint ventures are proposed – perhaps to combine the innovative skills of a new or small design practice with the experience and resources of a longer-established designer – the award criteria enables the client to assess the ability of both parties to fulfil their responsibilities and to evaluate the compatibility of working cultures and practices. Visits to the design offices of all candidates, including those forming joint ventures, should follow a consistent approach and involve the same personnel. How do these criteria relate to budget considerations? The qualitative criteria adopted at the selection and award stages should be appropriate for the individual project and weighted to suit the circumstances. It’s important that these aspects aren’t considered in isolation but should be assessed as part of a VFM evaluation which takes account of fee proposals. Section 3 Annex B describes other aspects of appointing consultants, including the various ways of paying for professional services. In circumstances where ad valorem (usually percentage) fee structures are appropriate, consideration must always be given to the application of an abatement or capping mechanism in order to contain fee costs at a fair and appropriate level. Criteria used during selection and award stages must be applied consistently by all of those involved in that stage of the procurement procedure. In other words, once selection and award criteria are established, individual members of a sift or tender evaluation panel must not apply different criteria. Furthermore, once selection criteria are established, they should be made available to candidates. Award criteria must be set out in either the OJEU contract notice or the contract documents.

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Section 6 – Design Quality

Construction Works Procurement Guidance

Key Design Issues Although what constitutes ‘good design’ can be subjective, many of the issues addressed here can be assessed objectively – whether the building will function efficiently and effectively; whether there is clear evidence of thoughtful, imaginative and even inspirational proposals that will not only work, but work better; and whether the materials, construction methods and the proposed layout will enhance long-term value for money. Matters such as public space should also be considered. Design evaluation can be structured around key themes such as: A clear architectural vision Q. Q. Q. Q. Q. Does the design reflect the aspirations for a building which has architectural and civic status without being institutional? Is there a clear and strong architectural concept underpinning the form and character of the building, and how spaces relate to each other? Is the scale and proportion appropriate? Does the design provide a variety of interesting and uplifting spaces? Will all users of the building be satisfied with the design?

A functional and efficient layout that works well Q. Will the proposed accommodation provide spaces that are well-proportioned, efficient, fit for purpose, meet the needs of users and requirements of the brief, and provide proper circulation and assess routes? Does the layout provide adequate access to work colleagues, support equipment and spaces? Do the layout and fittings provide adequate visual and acoustic privacy? Does the layout enhance the operational efficiency of the activities taking place in the building? Is this an intelligent, smart design that provides added business and social value and adds value to the vitality of the community? Does the layout and orientation of the building take full advantage of the opportunities offered by the site, such as efficient energy use?

Q. Q. Q. Q. Q.

Build quality and durability Q. Q. Q. Q. Q. Q. Q. Will the completed building be built to last and be easy to maintain? Is the design based on whole life cost principles? Have running and maintenance costs of the building been considered at the design stage? Has the choice of materials taken account of the location, exposure and surrounding context as well as security and safety considerations? Is the detailing of junctions and materials well considered, robust and attractive? How will the building appear in different conditions, for example, in sun and rain, at night, and in different seasons; and will it age gracefully? Have artists or craftspeople been engaged in the project as part of the design or construction team?

Structural integrity, environmental services and energy use Q. Q. Q. Q. Q. Have the structural and environmental strategies been taken forward in an integrated way from the outset of the project? Does the design take full advantage of natural light and ventilation as far as technically and economically possible? Does the design provide a comfortable environment for users throughout the year? Are the environmental controls easily understood? Does the design provide good acoustics throughout?

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Accessibility Q. Q. Q. Q. Q. Q. Are entrances well positioned, safe, welcoming, attractive and capable of providing adequate security? Is there a clear, unobstructed access route through the building? Do both the building design and furniture design take account of the needs of the disabled in a manner which is inclusive? Are accessible toilet facilities in the most practical positions? Are external areas fully accessible by all users? Are designated accessible parking spaces suitably located, and is there a clear route from public transport facilities?

Flexibility and adaptability Q. Q. Q. Q. Q. Can the design be easily adapted or extended to cater for expansion or contraction of facilities? Are the positions of doors, windows, stairs and services conducive to adaptability for future changes of use? Can the design easily accommodate multiple uses; for instance, can the layouts of rooms be easily reorganised? Can the design take account of technological change on working patterns such as hotdesking, dynamic sharing of space, and electronic conferencing? Has the design of shared spaces been adequately considered to prevent unwelcome compromises?

Sustainability and ecology Q. Q. Q. Q. Has the design been developed on environmentally friendly and ecologically sound principles and with genuine commitment to sustainability issues? Is the design a good sustainable use of the site? Does the design seek to conserve use of energy, water and other natural resources? Does the design use the natural characteristics of the site, including any changes in levels and orientation, to maximise potential passive (solar and wind) gains and minimise energy losses? Are materials used non-toxic and non-polluting and selected from certified sustainable sources? Are the materials robust and environmentally friendly, visually pleasing and suited to the prevailing climate? Does the design of the building and grounds promote biodiversity?

Q. Q. Q.

Sense of place, external landscaping and social integration Q. Q. Q. Q. Do the buildings and their external spaces provide an attractive setting which contributes positively to the local built or natural environment? Have the external spaces and landscape design been considered as an integral part of the project from the outset? Does the design provide for a variety of attractive external spaces, which relate well to each other and to the internal spaces and offer appropriate security? Do the scale and form of the buildings contribute positively to the neighbourhood and surrounding community?

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Section 6 – Design Quality

Construction Works Procurement Guidance

Public Space It is important that public space is not considered as an afterthought. New public buildings need to be responsive to their contexts, both in terms of their scale and form, and in the materials they use. It is not enough to simply respond to the appearance of surrounding buildings; it is important to also think in terms of the integrity of surrounding public spaces. In the creation of new public buildings, it is important that the design team is perceptive of the buildings’ relationships to the maintenance or improvement of existing public spaces or the potential for new public spaces. The creation of public buildings can also give something positive to the public realm rather than simply create residual areas around them, and clients may wish to consider whether the location of a building is sufficiently sensitive to merit the inclusion of an urban design specialist on the team. An approach is required which gives due consideration to the way in which the spaces created by buildings will be used, and to the needs of users in terms of accessibility, safety, lighting, shading, shelter, orientation, views, surfaces, seating, planting, and maintenance. A statement setting out the Executive's aspirations for design and the role of the planning system in delivering public spaces is described in the published document ‘Designing Places: A Policy Statement for Scotland’.

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Section 6 – Design Quality

Construction Works Procurement Guidance

The Right Budget The business case should include statements of expectation for design quality. Budgets based on the business case should be set realistically, informed by comparable costs through site visits and research as necessary. Discussions with professional advisers at the earliest stage can assist in determining and defining design priorities and setting project objectives.

Construction Procurement Manual

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Section 6 – Design Quality

Construction Works Procurement Guidance

Quality Matters How is quality evaluated? General guidance on achieving value for money (VFM) in works procurement, based on seeking to achieve an optimum combination of whole life cost and quality, is set out in Section 2. Evaluating and achieving consensus on quality can be facilitated through the use of formal techniques and there are a number of tools which can help. The Construction Industry Council (CIC), for example, has developed its Design Quality Indicator (DQI) to evaluate the design quality of buildings throughout the development and life cycle of a project. What is DQI? This non-technical questionnaire can be completed by all stakeholders involved in the creation and use of buildings, including public and private clients, developers, financiers, design firms, contractors, building managers and users. CIC’s web-based tool, DQI Online, automatically adjusts the questions displayed so they are relevant to the particular phase of the project that is being assessed. The four stages covered by the DQI are: • Briefing: It can be used through strategic briefing stages to set priorities and answer questions such as: ‘What do we want?’ ‘Where do we want to spend the money?’ Mid-design: It can be used throughout the design phase before it is too late to make changes. Ready for Occupation: It can be used to answer questions such as: ‘Has the brief/original intent been achieved?’ In-Use: It can be used on a completed building in order to receive feedback from the project team and the building users to help make improvements for the next project.

How does it work? DQIs help to ensure that such issues are given due consideration and weighted in their importance. Through the process, they help clients to articulate their needs and to develop a greater awareness of the many issues involved. Principal components of CIC DQIs include: Functionality Site and location Access Space Use Build quality Construction Engineering systems Robustness Performance Integration Impact Contribution to community Form and materials Internal environment Identity and character Innovation and inspiration

Which other quality indicators can be used? Quality Indicators in the Design of Schools (QIDS) has been produced by the Royal Incorporation of Architects in Scotland (RIAS) to assist in the process of setting out stakeholders’ objectives relating to design quality. Although specific to school buildings its principals can be applied to other construction projects. Its purpose is to stimulate debate among stakeholders and user groups in order to help to create a vision document for a project, which can be used to inform the project brief.

How can quality be maintained on site? There is a risk that, once a project moves on to site, the client may underestimate the effort which will continue to be required to maintain design quality. Any shortcuts taken at this stage can put the overall design quality of the project at risk. The Client’s design advisers must be retained throughout the construction process in order to monitor the quality of design and finishes. These advisers should also ensure that design aims are not sacrificed in the management of change during the running of the project. If design standards and quality thresholds are clearly defined, then the review process throughout the delivery stage should provide sufficient safeguards against quality dilution. A structured process of quality checks during construction is important to ensure that what

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Construction Works Procurement Guidance

has been agreed is actually being provided. All partners should be involved in these checks as the risks of unsupervised changes on site can affect a wide range of matters, such as the provision of resource areas necessary for facilities management and the quality of finishes, which in turn may affect both cleaning and maintenance.

Involvement of artists/craftsmen Why do it? There may be scope for the involvement of artists or craftsmen in a project. When successfully implemented, artworks can help to create more distinctive and attractive buildings and urban spaces and enhance the public’s experience of an architectural space. How does it work? If it is decided to use collaborators, it is best to consider their involvement from the start, when their designs can be most easily integrated into the overall design. Such early involvement can often contribute to creating a scheme with a distinctive character. Clients may also wish to seek specialist advice from public art agencies with regard to including artwork within a project. How does this lie with the budget? Clients may wish to consider allocating a specific budget for the inclusion of artwork as an integral element of a project. However, care should be taken to ensure that any resulting expenditure is proportionate to the benefits and is appropriate to the building’s status and function, in order to avoiding subsequent criticism of the project for inappropriate use of public funds.

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Section 6 – Design Quality

Construction Works Procurement Guidance

Project Brief A vital factor in achieving high quality design is that clients have a firm and well developed view of what they want, before appointing design consultants, and that this is clearly stated in project briefs. A well-developed brief, with common consensus on operational and quality priorities, is essential for the provision of better design. A rigorous approach to this stage of work will significantly improve the client's capacity to deliver a quality project. On the other hand, proceeding with sketchy and under-investigated assumptions can be detrimental to the outcome of the project. Statements that set out the client's aspirations on design in terms of matters such as character and durability should be incorporated into briefs. The project brief should also contain statements on the client’s desired approach to sustainability. Integral to the design and procurement process, a commitment to sustainable design can bring real benefits in terms of reduced running costs and quality of environment for users. Further guidance on achieving sustainability in construction procurement is set out in Section 7.

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Construction Works Procurement Guidance

The Design Champion Project sponsors may frequently take responsibility for only single projects, once in their career, and it is therefore desirable to also identify a senior individual, as an organisational Design Champion. Their role is not project specific but is to advocate design quality. This design champion’s remit may include: • ensuring that aspirations for design quality underpin all projects undertaken across an organisation; • ensuring that these aspirations are clearly stated in briefs; • assisting in questioning quality throughout the process; and • providing further support for resisting change which reduces quality and VFM.

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Construction Works Procurement Guidance

The Role of the Client At the beginning of the project, the client will need to establish the nature and scale of what is required. Clients should establish the views and aspirations of all stakeholders, and their aims will become the reference point throughout the design and construction stages and can be used to test the overall success of the project over the long term. As with any building project, the initial stages are vital, and a period when the most value can be added. Providing sufficient time and resources for strategic thinking will produce dividends in the long run. An informed client is critical to the success of a project. As part of their responsibilities, the client should: • • • • • • • • • choose the most appropriate, suitably qualified and experienced team (committed people who share the conviction that it is always possible to achieve better quality within the agreed budget and timetable); fully develop a client strategy which has identified the need for the building whilst setting and securing a budget for the project within an agreed and achievable timetable; be informed and demanding about operational requirements and quality objectives to get the best possible outcome from the procurement process; allocate sufficient time and resources to establish the client's design quality aspirations and set out clear benchmarks which the client must reinforce through all stages of the process; not allow design time to be squeezed in order to recover time lost in the programme for other reasons. Good design takes time; consider the skills and experience required of individual client team members, assess in-house skills and, where necessary, engage external consultants; show commitment to achieving a well-designed and constructed project by appointing a design champion and a design/client adviser; consult with all stakeholders to establish a clear, well-defined brief; and carry out PPEs and POEs and ensure that the reports from these properly feed back into future procurement processes.

Among other issues, the client must: • • • • • • set project budgets based on a realistic and full analysis of the maintenance and running costs and benefits of the building over its whole life; set and maintain clear benchmarks for expected design quality, based on best practice; communicate design needs throughout the design, procurement and construction stages; allow sufficient time for full consultation with all stakeholders and end users and for the development of fully considered proposals throughout the process; ensure that providers and their design teams understand and are fully committed to meeting high design aspirations; and ensure that all aspects of planning, design and construction are considered and that adequate fee budgets are provided.

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Section 7 – Sustainability

Construction Works Procurement Guidance

SECTION 7 - SUSTAINABILITY IN BUILDING PROCUREMENT KEY POINTS • The Scottish Executive has signed up to a new, shared UK framework for sustainable development. This commits to a shared goal for sustainable development, to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations. Government Departments, clients, design teams and end-users can play an important part in meeting sustainable development objectives. However, they must also be able to demonstrate that their programmes and projects deliver value for money and comply with EU procurement rules.

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Section 7 – Sustainability

Construction Works Procurement Guidance

Section 7: Sustainability in building procurement Sustainable development The Scottish Executive (SE) has, together with the UK Government, Welsh Assembly Government, and the Northern Ireland Administration, conducted a review of strategies for sustainable development, supported by a joint consultation exercise during 2004. Following this review, SE signed up to a new shared UK framework that commits to a shared goal for sustainable development, to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations. This goal will be pursued in an integrated way through: • • a sustainable, innovative and productive economy that delivers high levels of employment; a just society that promotes social inclusion, sustainable communities and personal wellbeing; protecting and enhancing the physical and natural environment, and using resources and energy as efficiently as possible; and promoting a clear understanding of, and commitment to, sustainable development so that all people can contribute to the overall goal through their individual decisions.

• •

How is the SE putting this into practice? The SE is developing a new sustainable development strategy for Scotland through a process of public engagement and close working with key stakeholders. Government Departments, clients, design teams and end-users can play an important part in meeting sustainable development objectives. However, they must also be able to demonstrate that their programmes and projects deliver value for money and comply with EU procurement rules. Certain Key Objectives are crucial to the delivery of a good and sustainable building. Further guidance on implications for the procurement of construction projects will be issued after the completion of the Scottish Executive strategy. Links to other information on aspects of sustainability are provided in Section 8.

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Section 7 – Sustainability

Construction Works Procurement Guidance

Key Objectives Key decision makers need to share a clear vision of sustainable development issues. These include: • • • conserving resources (e.g. energy, water, wood, paper) – particularly those which are scarce or non-renewable – while still providing a safe and comfortable working environment; reducing (and avoiding wherever possible) waste through re-use and recycling and by specifying refurbished and recycled products and materials where such alternatives are available; phasing out of ozone-depleting substances and minimising the release of greenhouse gases, volatile organic compounds, vehicle emissions and other substances damaging to health and the environment; encouraging manufacturers, suppliers and contractors, through specifications, to develop environmentally preferable goods and services at competitive prices; ensuring that any products derived from nature – such as timber, plants and leather goods – are from sustainable sources, and comply with EU and international trading rules such as CITES (the Convention in International Trade in Endangered Species); encouraging contractors to improve environmental performance; and meeting all relevant current and reasonably foreseeable statutory regulations and official codes of practice and specifying that contractors do the same when working on departmental premises.

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Construction Procurement Manual

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Section 8 – Further Reading

Construction Works Procurement Guidance

Section 8 – Further Reading This section identifies sources of additional information or guidance that readers may wish to consult. It is not intended to be an exhaustive list nor does the Scottish Executive take any responsibility for the content of the listed publications and websites. Financial Guidance • The Scottish Public Finance Manual http://www.scotland.gov.uk/Topics/Government/Finance

Procurement Guidance • Scottish Executive: Construction Procurement Manual http://www.scotland.gov.uk/Topics/Planning-Building/construction • Scottish Procurement Directorate http://www.scotland.gov.uk/Topics/Government/SPD • The Procurement Toolkit http://www.eprocurementscotland.com/toolkit/ • EU Directives and U.K. Regulations relating to Public Sector Procurement http://www.scotland.gov.uk/Topics/Government/SPD/17555/10607

PPP/PFI Guidance • Scottish Executive Financial Partnerships Unit http://www.scotland.gov.uk/PPP http://www.scotland.gov.uk/Topics/Government/Finance/18232/12321 • HM Treasury http://www.hm-treasury.gov.uk/documents/public_private_partnerships/ppp_index.cfm • Office of Government Commerce http://www.ogc.gov.uk/sdtoolkit/reference/ogc_library/pfi_ppp.html

Office of Government Commerce Guidance (including Achieving Excellence Guides) http://www.ogc.gov.uk/sdtoolkit/reference/ogc_library/index.html

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Section 8 – Further Reading

Construction Works Procurement Guidance

Health and Safety Executive • A comprehensive list of HSE publications can be accessed through its website at http://www.hse.gov.uk

The Construction (Health, Safety and Welfare) Regulations 1996 http://www.opsi.gov.uk/si/si1996/Uksi_19961592_en_1.htm

The Construction (Design and Management) Regulations 1994 as amended by Statutory Instruments (SIs) 1996/1592, 1998/494, 1999/3242 and 2000/2380 http://www.opsi.gov.uk/si/si1994/Uksi_19943140_en_1.htm

The Management of Health and Safety at Work Regulations 1999 http://www.opsi.gov.uk/si/si1999/19993242.htm

The Control of Substances Hazardous to Health Regulations 2002 http://www.opsi.gov.uk/si/si2002/20022677.htm

The Health and Safety (Consultation with Employees) Regulations 1996 http://www.opsi.gov.uk/si/si1996/Uksi_19961513_en_1.htm

Respect for People Code http://www.hse.gov.uk/construction/codeofpractice/

Constructionline http://www.constructionline.co.uk/

Construction Industry Research and Information Association Publications • Risk and Value Management A simple guide to controlling risk (SP154) Control of risk: a guide to the systematic management of risk from construction (SP125) Integrating value and risk in construction (C639) PPPCom - the integrated risk and value management toolkit for public private partnerships (C617CD) Risk from construction: preparation of a client’s guide (PR19) Value management in construction: a client’s guide (SP129) • Benchmarking and Process Management Benchmarking for construction - a strategic review (PR69)

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Section 8 – Further Reading

Construction Works Procurement Guidance

Innovation at the cutting edge: The experience of three major infrastructure projects (C548) The offsite project toolkit (C631) • Design and Quality Civil engineering design and construct - a guide to integrating design into the construction process (C534) Quality assurance in construction (SP063V) Securing the contractor’s contribution to buildability in design (PR27) The control of quality on construction sites (SP140) The management of technical excellence in design organisations (C531)

Other Guidance and Publications

Sustainability Issues http://www.scotland.gov.uk/Resource/Doc/921/0002364.pdf http://www.scotland.gov.uk/consultations/environment/rsccp-07.asp

Waste and Resources Action Programme (WRAP) http://www.wrap.org.uk

Constructing Excellence http://www.constructingexcellence.org.uk

Considerate Constructors Scheme http://ccscheme.org.uk

Clients’ Charter http://www.clientsuccess.org.uk

Design Issues and Statutory Processes • Scottish Executive Policy on Architecture for Scotland http://www.scotland.gov.uk/library3/construction/apoa-00.asp • Construction Industry Council (CIC), Design Quality Indicator http://www.dqi.org.uk/ • Scottish Executive: Planning

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Construction Procurement Manual

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Section 8 – Further Reading

Construction Works Procurement Guidance

http://www.scotland.gov.uk/Topics/Planning-Building/PlanningSystem • Designing Places: A Policy Statement for Scotland http://www.scotland.gov.uk/library3/planning/dpps-00.asp • Architecture and Design Scotland (A&DS) http://www.ads.org.uk • Commission for Architecture and the Built Environment (CABE)/Office of Government Commerce (OGC), 2002 Improving Standards of Design in the Procurement of Public Buildings http://www.cabe.org.uk • Scottish Building Standards Agency (SBSA) http://www.sbsa.gov.uk

Reports on the Construction Industry ‘Constructing the Team’ Sir Michael Latham (ISBN 0 11 752994X) ‘Rethinking Construction’ — The report of the Construction Task Force (chaired by Sir John Egan) to the Deputy Prime Minister.

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Construction Procurement Manual

October 2005