Topic 2 Project Delivery System

PROJECT DELIVERY SYSTEM
A project delivery system has been defined as:
The relationships, roles, and responsibilities of

project stakeholders and the sequence of tasks
required to build a facility.
Given the fact that project objectives vary on a

project-to-project basis, no one project delivery
system (PDS) is sufficient to address them.
CVG5186/EMP5119 Project Delivery System 1

Selecting a PDS means choosing the best delivery
system to execute a particular project, which is not
always an easy decision.
The success or failure of a project can depend on

the project delivery method, and whether the
method is suited to the project.
To determine whether a particular method of PDS is

suited to a project, many factors should be
considered, such as:

• Cost (budget),
• Time (schedule),
• Quality (level of expertise),
• Risk assessment (responsibility) and
• Safety.

There are three different approaches that affect the
project delivery system, these are:
– Project Management Approach (PM),
– Team Organization Approach, and
– Contractual Relationships Approach,

PROJECT MANAGEMENT APPROACH
This approach includes the followings:
a. Traditional: in it the design is done first then
construction starts;
It is used by 80 to 90% of the projects,
b. Phased Construction: the construction can start

before the design is finished;
This type is used when the project is divided into
phases,

This approach includes the followings: (Continue…)
c. Fast track: in it you do not wait for the phase to start,

yet the construction starts before the start of design
(it is expensive and the worse of them)

TEAM ORGANIZATION APPROACH
a. Traditional,
b. Professional Project Manager (PPM),
c. Work by Force Account (WFA)

CONTRACTUAL RELATIONSHIP APPROACH
a. Lump sum: it is good for the owner,
b. Unit price: it is good for the contractor because

he/she will be paid for the work done,
c. Cost plus: it is good for the contractor, after

construction he/she will take % of the profit

FACTORS AFFECTING PROJECT DELIVERY
SYSTEM
T
e
c) Fast Track c) WFA a
P m
M
O
A r
p b) Phased b) PPM g
p a
r n
o i
a z
c a) Traditional a
a) Traditional
h t
i
o
n
a) Lump Sum b) Unit Price c) Cost Plus
CONTRACTUAL RELATIONSHIPS
Traditional Project Management Method:
BIDDING &
AWARD PERIOD
A
c
t DESIGN CONSTRUCTION
i
v
i
t
i
e
s
Time

Traditional Project Management Method:
Characteristics:
a. Single prime contractor, and
b.Longer duration,
Disadvantage:
• It has lack of communication between the design

team and the contractor,
• No discussion or feedback about the project is

exchanged between them.
Phased Project PM Method:
Activities are Time
Overlapped Saving
Electrical
DESIGN
CONSTRUCTION
Separate Bid Packages
------------
------------
Masonry
Concrete
Site Work
Time

Phased Project PM Method:
Characteristics: (Expensive Compared to Traditional Method)
a. Having several bid packages,
b. Multi prime contractors,
c. Shorter durations, (intermediate)
d. Requires Project Manager, (PM) and
e. Bid packages can be separated,
Comments:
It has time saving, where the civil work can start
before the electrical design is finished.
(Used for target time & political activities election)

Fast Track (PM) Method: (Most expensive method; to use only when needed)
Activities are Time

Overlapped Saving
Electrical
DESIGN
------------ CONSTRUCTION
Work Packages
------------
Masonry
Machanical
Site Work
Time

Fast Track (PM) Method: (Most expensive method, to use only when needed)
Characteristics:
a. Overlap of design and construction for bid
packages,
b. Multi prime contractors,
c. Shorter duration, (the shortest)
d. Requires Project Manager (PM), and
e. Has increased change orders,

FAST TRACK PM METHOD
Fast Track Related Problems:
• Inadequate design
– Lack of sufficient details,
– Lack of coordination, and
– Frequent change orders,
• Inadequate scheduling
– Design / construction coordination,
– Conflict between packages, and
– Untimely award of packages,

PROJECT DELIVERY CONTRACTUAL RELATIONSHIP
1) Lump Sum (L.S.):
It is the agreement to construct the project for an

assigned amount without breaking down the
project into components.
It is very risky for the contractor, and
Drawings have to be completed by the owner

before assigning the Lump Sum.

2) Unit price (U.P.):
The project is broken down into components or

units where each is priced and added up to get
the total cost,
It is risky for the owner more then the contractor,
No need for the design to be completed.

3) Cost plus (C.P.):
It is rarely used only in important or for refinery

projects.
It allows construction without having the

drawings finished or completed.
The owner will agree on a % for the profit.

PUBLIC-PRIVATE PARTNERSHIPS (PPP)
An alternative project funding mechanism for public
works projects.
The most common Public-Private Partnership

structure involves the private sector financing and
constructing a fee-generating facility (such as a toll
road), and operating it for a set number of years in
exchange for a percentage of the revenues
generated.

At the end of the agreement, the possession and
operation of the facility is transferred back to the
public agency.
The approach of Public-Private Partnership allows

an agency to construct a project that may not have
the funding for it by allowing private sector to profit
from the revenues generated and creates valuable
infrastructure for use by the public.
Public-Private Partnerships can be structured in a

variety of ways, such as a design-build project or a
design-build-operate.
Public-Private Partnership is defined as:
A contractual agreements formed between a public

agency and private sector that allow for greater
private sector’s participation in the delivery of
infrastructure (Public) projects.
A long-term contract between a private party and a

governmental agency, for providing a public asset
or service, in which the private party carries
significant risk and management responsibility
where fee is linked to performance.
Why public sectors enter into PPP?
• To accelerate the construction of high priority

projects,
• To turn to the private sector to provide specialized

management capacity,
• To encourage private business development,

ownership, and operation, and
• To allow reducing the size of the public agency,

which will be replaced by the private sector
resources and personnel,
Part of the success of a Public-Private Partnership
project is the determination of the proper selection
of the PPP model on a case-by-case basis.

PUBLIC-PRIVATE PARTNERSHIP MODELS
1. Built-Own-Operate-Transfer (BOOT) Model:
– The private sector helps identify the source of
financing,
– It does all the designs,
– It builds the infrastructure, and
– It transfers ownership to the public agency.
2. Build-Own-Operate (BOO) Model:

The private sectors have control over profits and
losses generated by the asset, similar to a
privatization process.
3. Built-Operate-Lease-Transfer (BOLT) Model:
The government gives the freedom to a private
entity to build a facility and at the end of the
project, to transfer the ownership back to the
government.
4. Lease-Develop-Operate (LDO) Model:

– It involves a public owner leasing a facility to a
private company.
– The private company will be responsible for the
maintenance and operation of the facility as
specified in the agreement.
5. Rehabilitate-Operate-Transfer (ROT) Model:
In it, the government and local bodies allow the
private agency to rehabilitate the facility during
the concession period, and after that the project is
transferred back to local bodies.
6. Design-Build-Finance-Operate (DBFO) Model:

In it, the private agency undertakes the
responsibility for the operation of the project for
the period of concession.

BOOT’s HISTORY
It is a new approach to infrastructure development,
which enables private sector to invest in large scale
projects such as:
• Roads;
• Bridges;
• Tunnels; and
• Power plants.
BOOT’s HISTORY
Build: means that a private company (or consortium)
agrees with a government to invest in a public
infrastructure project.
The company then secures their own financing to
construct the project.
Own-Operate: means that the private developer will

own, maintain and manage the facility on agreed
concessionary period (e.g., 20-50 years) and gets
back their investment through charges or tolls (e.g.,
Road tolls or electricity sales).

BOOT’s HISTORY
Transfer: means that after concessionary period the
company transfers the ownership and operation of
the facility to the government.

BOOT, WHY?
The reasons of the increased use of BOOT system
are:
• Increased investments in infrastructure projects

around the world (> $300 Billion/year),
• Wider use of free-market economy and

privatization, and
• Reducing deficit in government budgets.

BOOT, HOW?
I. The risks of BOOT to investors can be due to:
• Infrastructure projects often suffer cost

overruns,
• Foreign currency exchange variations,
• Unreliable demand and income projections, and
• Political risks.

BOOT, HOW?
II. The government guarantees or incentives to
investors can include:
The government incentives are provided to protect
the investors from political and financial risks
during concession period in the form of:
1)Concession period; ranges from 10 to 55 years

(may include construction period),
2)Support loans; in the form of government

supported loan or free-interest loans,

BOOT, HOW?
3)Minimum Operating Income; (e.g., provide
additional finance if traffic volume drops),
4)Concession to operate existing facility,
5)Commercial freedom; to determine tariffs,
6)Foreign exchange guarantee; (e.g., pay the

difference if exchange rate drops more than
15%)

BOOT, HOW?
7)Interest rate guarantee; government pays the
difference if rate got higher then 20%, and
8)No second facility guarantee; (e.g., Euro-tunnel

was guaranteed no second link will take place
before 33 years)

BOOT, HOW?
III.The developer responsibilities are:
1)Assuming construction risks; (Lump Sum)
2)Agreement to toll limits; (Fixed in real terms and

adjusted for inflation)
3)Raising of finance; locally and internationally

using equity, loans, bonds and stocks.

BOOT SYSTEM ADVANTAGES/DISADVANTAGES
BOOT Advantages:
1) Reduce expenses and deficits in government

budgets,
2) Allow governments to focus on and reduce cuts to

other sectors of the economy (e.g., health and
education),
3) Private sector is more efficient than governments,

BOOT Advantages: (Continue….)
4) Promoting investments in infrastructure projects,

which lead to industrialization and economic
growth, and
5) Transferring technology from developed to

developing countries,

BOOT Disadvantages:
1) Tolls and tariffs are paid by the public,
2) Excluding low-income users (e.g., toll roads), and
3) Raises questions about national authority as

foreign companies control major infrastructure
facilities,
Even with its disadvantages, BOOT System is still

recommended in the developed countries.

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PROJECT DELIVERY SYSTEM

A project delivery system has been defined as:

The relationships, roles, and responsibilities of

Given the fact that project objectives vary on a

CVG5186/EMP5119 Project Delivery System 1

The success or failure of a project can depend on

To determine whether a particular method of PDS is

CVG5186/EMP5119 Project Delivery System 2

• Quality (level of expertise),

• Risk assessment (responsibility) and

CVG5186/EMP5119 Project Delivery System 3

– Project Management Approach (PM),

– Team Organization Approach, and

– Contractual Relationships Approach,

CVG5186/EMP5119 Project Delivery System 4

b. Phased Construction: the construction can start

CVG5186/EMP5119 Project Delivery System 5

c. Fast track: in it you do not wait for the phase to start,

CVG5186/EMP5119 Project Delivery System 6

b. Professional Project Manager (PPM),

c. Work by Force Account (WFA)

CVG5186/EMP5119 Project Delivery System 7

This approach includes the followings:

a. Lump sum: it is good for the owner,

b. Unit price: it is good for the contractor because

c. Cost plus: it is good for the contractor, after

CVG5186/EMP5119 Project Delivery System 8

CVG5186/EMP5119 Project Delivery System 10

• It has lack of communication between the design

• No discussion or feedback about the project is

CVG5186/EMP5119 Project Delivery System 12

CVG5186/EMP5119 Project Delivery System 13

Activities are Time

CVG5186/EMP5119 Project Delivery System 14

b. Multi prime contractors,

c. Shorter duration, (the shortest)

d. Requires Project Manager (PM), and

e. Has increased change orders,

CVG5186/EMP5119 Project Delivery System 16

It is the agreement to construct the project for an

It is very risky for the contractor, and

Drawings have to be completed by the owner

CVG5186/EMP5119 Project Delivery System 17

The project is broken down into components or

It is risky for the owner more then the contractor,

No need for the design to be completed.

CVG5186/EMP5119 Project Delivery System 18

It is rarely used only in important or for refinery

It allows construction without having the

The owner will agree on a % for the profit.

CVG5186/EMP5119 Project Delivery System 19

The most common Public-Private Partnership

CVG5186/EMP5119 Project Delivery System 20

The approach of Public-Private Partnership allows

Public-Private Partnerships can be structured in a

A contractual agreements formed between a public

A long-term contract between a private party and a

• To accelerate the construction of high priority

• To turn to the private sector to provide specialized

• To encourage private business development,

• To allow reducing the size of the public agency,

CVG5186/EMP5119 Project Delivery System 24

2. Build-Own-Operate (BOO) Model: