Develop and Construct Route - Essay Example

1 Introduction The report looks at the procurement of a school under the 'develop and construct' route through the PFI funding. The Private Fund Initiative began in the year 1992 in the UK. This was done in order to improve quality of project done. The PFI is responsible for close to seventy well known public structures in about fourteen countries. This same initiative has utilised about thirty billion dollars in constructions. The school will have a library, crche and sports facilities for the adjacent community. It will also contain an auditorium, craft, laboratories, classrooms and a canteen. The floor area is fourteen thousand square miles and the budget is 14.85 million pounds. It should be completed after a period of seventy two weeks. The report will also look at other alternative procurement routes and give their disadvantages. It will also examine the steps to be followed for effective project implementation (ETWB, 2004) There are a variety of procurement routes that the school could follow. The main differences between these procurement routes are; Who designs and constructs the building Source of remuneration for the work Management of the construction process From these differences, arises a number of procurement processes. The first alternative is 'competitive tendering/ develop and construct' under this scheme, the school can be designed by Southumberland County together with the community and then tendered to a principle contractor. The other route maybe 'design and build' which allows for design and construction by a principle contractor. There is also the 'construction management' procurement system which allows the client (in this case Southumberland County) to work hand in hand with a principle contractor who constructs the building while the client manages the construction process. 2.1 Suitability of Develop and Construct route under Private Finance Initiative 2.11 Price and Time Under the PFI procurement route, operations are done within a fixed price range. This amount is arrived at by considering inflation rate for the past twenty five and thirty years. If the contractor fails to meet his/her deadline then a penalty will have to be paid. This means that the PFI scheme is subject to inflation rate changes because costs of implementing the project will be subject to inflation changes yet the unitary payment will be changed at a different rate. An alternative like the design and build route arrives at its charges without consideration of inflation rates. 2.12 Unforeseen expenses If the project happens to the superseded its time limits, then extra costs will be incurred. These costs are met by the contractor and he will be the one on the loosing because it will minimize his profits. In contrast, however, another scheme like the design and build route leaves the maintenance of extra costs to the project initiator. This would not be economical for the County. 2.13 Defects on building In the PFI scheme, the risk of any defects found in the completed building will rest solely on the contractor. This implies that the contractor will do his best to ensure that he produces a quality product to avoid deductions that will have to be made on the unitary payment which the Southumberland County is going to pay. However, the design and build route has a time frame within which the employer can charge for defects. After that time frame, any defects will have to be settled by the employer. (Henderson Global Investors, 2003) 2.14 Value for money This scheme provides value for money because costs and risks are moved from the project initiator to the private contractor. Normally the unitary amount that is calculated prior to project work is slightly on the high side. Because there are a number of expenses that will be incurred along the way, this increase is fair. Develop and build under the PFI scheme allows the project initiator to get value for his money since he is free from any of the following risks: general maintenance, latent defects, construction overruns, management time and insurance. (Hall, 1998) 2.15 Funding for the project If there happens to be a shortage of funding under the PFI route, then there will be need for further borrowing. This is because the PFI system is almost ninety percent debt funding. This will increase interests charged on borrowing and may even force the contractor to contribute. All these costs will have to be met by the County through unitary payments. However if this is compared to the traditional design and build procurement route, a shortage in funding would require the project initiator to borrow money from the public sector through Council awards. 2.2 Steps to be taken to ensure school project is a success 2.21 Effective communication The project initiator who in this case is the County should ensure that it conveys complete and comprehensive information to contractors. This needs special emphasis at the procurement stage. Adequate information is crucial in eliminating guess work for contractors. Sometimes contractors are left to fill in gaps during certain stages of operation yet those decisions may not be inline with what the County wants. There should be coordination between employer's specifications and the contractor's proposals. (De Lemos, 2004) 2.22 Balancing resources The County should ensure that it balances time and money during project implementation. This boils down to the design phase of the project. If the design is well laid out and specifies everything to the letter, then contractors do not have to waste a lot of time figuring out details. They can focus on construction and the project will become a success. (Eaton, 2005) 2.23 Clearly defined roles Before the project commences, duties and responsibilities must be clearly laid out and agreed upon. This is a crucial aspect because it prevents duplication of work, conflict between contractor and employer and it also saves on time because contractors don't have to wait for instructions on the next step in the operation process. (Akintoye, 2001) 2.24 Hiring good contractors Another issue that could make the project a success is a thorough investigation of contractors available for the job. Southumberland County should first do a thorough analysis of available contractors and pick out the best company for the job. Problems normally arise when the contractor does not understand the design process fully or when they lack the technical know how to bring together all the elements of a complex project. It is therefore important for the project initiator to do his homework. (Hofstede, G. (1980) 3.0 Conclusion The 'develop and construct' route has a number of pros and cons. But for this particular case, it is suitable because it offers value for money, saves on time and transfers risks from the employer. Thus in comparison to the traditional design and build, this method of procurement is the most suitable for this project. In order to ensure success of the project under the PFI scheme, the following things should be considered; the performance system should have specifications of the output instead of focusing on the input. This will enable prompt delivery. Also, the system should be such that there are no loopholes in the instruction. The county should recognize future changes because it will not be involved in the operational process. Lastly, the county should specify the most important services necessary by the contractor thus cutting down on speculation. (Akbiyikli, 2004) References ETWB (2004): Major features, advantages and disadvantages of generic procurement categories; retrieved from http://www.devb-wb.gov.hk/UtilManager/tc/C-2004-01-32-2.pdf accessed on 5th December Akbiyikli, R. (2004): Private finance initiative (PFI): unity in diversity in public sector service provision; journal by University of Salford. Akintoye, A. (2001): The financial structure of PFI projects; a journal for Seventeenth Annual Conference, University of Salford. De Lemos, T. (2004): Risk management in the Lusoponte concession; Journal of Project Management. Eaton, D. (2005): PFI and the Delivery of Public Services; RICS Publications Eaton, D. (2005): A cross-cultural examination of PFI within the Republic of Ireland, Portugal, Turkey and the UK utilising the SLEEPT methodology; a journal by International Symposium on Procurement Systems. Hall, J. (1998): Private Opportunity, Public Benefit", Fiscal Studies Henderson Global Investors (2003): What is PFI and why is it An Attractive Investment A journal by Henderson Global Investors Hofstede, G. (1980): Cultures Consequences - International Differences in Work-related Values; Sage Publications Read More