PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER 1.

1 The Owner
The owner is the most important party in the project. The construction process begins when the owner of a piece of land decides to develop it. The owner need to consider the type of development allowed on a piece of land. It will depend on its zoning in terms of land use e.g. residential, commercial or industrial. The owner will carry out a feasibility study to determine the economic viability of the proposed development. The study will include the supply and demand in the market, the construction cost and the finance cost and the company strategic plan. The next decision is the procurement route. There are two main project procurement routes. Design -Tender Design - Build
1.2

Design-Tender

It is also called design-tender-build. It is frequently referred as the traditional method. There are three main sequential phases to the design-tender procurement method: The design phase The tender phase The construction phase

1.2.1 Design phase of design-tender

In this phase the owner employs a group of professionals. The architect will work with the owner to identify the owners needs, develop a written program documenting those needs and then produce a conceptual or schematic design. After the approval of the conceptual design by the owner, the architect will develop the detail design. The owner will bring in other professionals including mechanical and electrical engineers, fire engineers, structural engineers to complete the detail documents (drawings and specifications). Tender documents may include the quantities of materials in the completed construction called Bills of quantities prepared by the Quantity Surveyor (QS).

1.2.2 Tender phase of design-tender

Tenders can be open, in which any qualified bidder may participate, or selective in which a limited number of pre-selected contractors are invited to bid. The various general contractors bidding on the project obtain copies of the tender documents. From this information, the contractor compiles a complete "tender price" for submission by the closing date and time.

PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER

Once tenders are received, the project team reviews the bids, seeks any clarifications required of the bidders, ensures all documentation is in order and advises the owner as to the ranking of the tenders. If the tender price bids fall in a range acceptable to the owner, the project is usually awarded to the lowest bid by a qualified general contractor. However the owner is not obligated to accept the lowest tender. The owner may reject the lowest tender if the financial standing, past performance or quality of other work is not satisfactory. In the event that all of the bids are in excess of the goals of the owner, the owner may elect to reject all bids. The following options become available: a. Abandon the project b. The architect may revise the design to bring the cost down. The revised documents can then be re-tendered. c. The owner may negotiate with the lowest bidder to cut cost.

1.2.3 Construction phase of design-tender

After the project has been awarded, the construction documents may be updated to incorporate addenda or changes and they are issued for construction. The necessary approvals must be obtained by the main contractor for the construction process to begin. The main contractor provides site staff and workers to carry out the construction work. The main contractor also employs sub-contractors to supply and install various trades of works. The architect acts as the owner's agent to review the progress of the work and to issue site instructions, change orders or other documentation necessary to the construction process. The building and site will be handled over to the owner after completion of work.

1.2.4 Benefits of design-tender

a)

The design team is employed by the owner therefore looks out for the interests of the Owner. They will check the quality of work and identify defects or missing items. The design team prepares documents on which all contractors place bids. The design and quality can be maintained. The contractors have lower risk. They are not responsible for the design part. If there are omissions or the owner asks for any changes the contractor will be compensated. Incomplete, incorrect or missed items are usually discovered and addressed during the tendering process. It ensures fairness to the bidders and improves competition. It uses competition to improve the efficiency and quality for owners.

b)

c)

d)

e) f)

1.2.5 Disadvantages of design-tender

a) The consultant fees of the design team are usually calculated as percentages of the final contract sum. If the project team knows the budget of the owner, they do not have much

PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER

motivation to reduce the cost of the project below the budget.
b)

The contractor is paid to work according to the contract documents. The buying power, expertise and experience of the contractor are not exploited. If there are omissions or errors in the design, the contractor will be paid to make changes from the contingency sum in the contract. The owner pays for these changes made by the design team. Although the design team has completed the detail design, the contractor is required to produce the site working drawings for the design team to approve before working. There are duplications of work and the cost has been included in the contract sum. When there are delay or disputes the owner need to manage a number of parties, the project architect, the project structure engineer, the project M&E engineer, the project QS and the main contractor.

c)

d)

e)

1.3

Design - Build

In a design- build procurement method, the design and construction are carried out by a single party called the design-build contractor. It is used to minimize the project risk for an owner and to reduce the delivery schedule by overlapping the design phase and construction phase of a project. In Singapore, there is a growing number of projects delivered by designbuild method. There are three main sequential phases to the design-build procurement method: The planning phase The tender phase The construction phase

1.3.1 Planning phase of design - build

The owner defines his requirements. Usually a project team has to be engaged to work out the Employers Requirements (ER). How detail is the ER depends on how much design work the owner wants the contractor to carry out. The ER can be very simple and the contractor will carry out the design, specification, construction programmes and the cost analysis. The ER can be very complex and includes design drawings and architectural, structural and M&E specifications.

PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER 1.3.2 Tender phase of design - build
The tendering process now becomes an expensive exercise for the design-build contractors. They need to employ architect and engineers to prepare the design before they can estimate the cost of the work and only one contractor will get the job. Many contractors may not wish to tender and just quote a very expensive price. One solution is called two-stage tender. The owner shortlists a number of contractors and invites them to present their suitability for the project. Presentations may show examples of their project, their design partners, how they deliver the project. A contractor will be selected to go to the next stage. The response of the contractor to the ER is called Contractor Proposal (CP). ER and CP will form part of the agreement later. The contractor will develop the design to a stage that detail cost plan is sufficient accurate. The contractor can obtain verified materials and subcontracts cost. The costs of this stage are underwritten by the employer. The contractor submits the cost plan to the owner if agreed the cost plan will be added to the other contract documents.

1.3.3 Construction phase of Design - Build

The contractor prepares the designs and obtains all necessary approvals. The contractor provides site staff and workers to carry out the construction work. The contractor also employs sub-contractors to supply and install various trades of works. Although the designs will be carried out by the contractors design team (architect, structural engineer, M&E engineer), the owner needs to retain the team who worked with the owner in the planning stage to advise on the designs submitted to the owner. The owner also needs to appoint an agent to administer and inspect the work on site. The agent usually is the quantity surveyor.

1.3.4 Benefits of design - build

a)

The owner has just one party to deal with. This single point of contact allows a certain degree of flexibility for the owner. The contractor can refine the construction program to maximize the owner's value at the completion of the project. The design of a project is developed along with the construction methodologies and the budget simultaneously. It will be more cost effective than a project that is done on a pure design approach. The selection of contractor will not be based on construction cost alone. The design, the operation cost and the maintenance cost of the building will also be considered during the selection process.

b)

c)

d) Design-build project has a better cost control than design-tender project. Some statistics in US show that about 25-30% of design-build projects are over while 70% of designtender projects are over budget.
4

PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER

e)

The contractor is responsible to solve any problem related to design, schedule, construction and co-ordination.

1.3.5 Disadvantages of Design Build

a)

The tender process of design-build is not as competitive as design-tender. The owner has less control on a design-build project therefore the integrity, acumen, and competence of the contractor become part of the selection criteria. The contractor bears more responsibilities and risks therefore expects higher profit. Cost estimating for a contractor is difficult because design documents are often preliminary and may change over the course of the project. As a result, contingency sums are added to the cost plan to allow for unexpected situations. The contractor is given a great deal of control over the entire process, both of how the project is configured and how it is completed. The owner needs to employ a thirdparty observer such as an independent architect to check the quality of design, construction and materials.

b) c)

d)

1.4

Other Procurement Methods

In UK the government sometimes uses the Private Finance Initiative (PFI) method. The private company is formed to obtain the funds from private sector. The company designs, builds, operates and maintains a building according to the agreed requirements. The government department pays the service provided by the company when the building is ready. Another alternative is to form a company to fund, design, construct, maintain and operate a highway. The contractor will be allowed to collect a toll fee from the motorist for 10 years. The highway will be returned to the government after 10 years. It is also possible to use a contractor to build a water treatment plant and the government buys clean water from the contractor for a certain period according to an agreed price structure. =================================================================
OCBC in talks with United Engineers on redevelopment of former Specialists' Centre and Hotel Phoenix site 8 Mar 2010 OCBC Bank says it is in negotiations with construction firm United Engineers on the redevelopment of a hotel cum retail mall at the former Specialists Centre and Hotel Phoenix site. This site is a long term investment holding of OCBC Bank, and it says the proposed arrangements will enable the bank to rely on UELs financial resources and expertise to complete the proposed redevelopment and construction project. The terms of the arrangements are currently being discussed and negotiated. An announcement will be made in the event that a definitive agreement is entered into between OCBC Bank and UEL. (http://www.938live.sg/News/Business/EDC100308-0000226/OCBC)

PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1039386/1/.html

Hyflux awarded S$35.8m contract by PUB

By Mok Fei Fei, Channel NewsAsia | Posted: 23 February 2010 2231 hrs SINGAPORE : Mainboard-listed water treatment firm Hyflux on Tuesday said its subsidiary Hydrochem has been awarded a S$35.8 million contract by national water agency PUB. The contract is for the design, construction, testing and commissioning of a membrane bioreactor plant. The plant will have a capacity of 68,000 cubic metres per day. f) Located at the Jurong Water Reclamation Plant, it will also be Singapore's largest. Furthermore, it will be the largest membrane bioreactor plant to be built by Hyflux. Using biological processes and microfiltration membranes, used water from the industrialised Jurong catchment will be treated for use by industries located on Jurong Island. Construction of the plant is scheduled to commence next month and is expected to be completed within 18 months. In addition, Hyflux will, through its specialist subsidiary, provide maintenance services to the plant for a period of 12 months upon project completion. - CNA/ms

PROJECT MANAGEMENT TOPIC 1: DECISION OF THE OWNER

http://www.asian-power.com/news/2208

PROJECT | Samsung C&T inks deal on Singapore's first LNG terminal

Samsung C&T has sealed its bid to build Singapore's first liquefied natural gas terminal, Singapore's Energy Market Authority revealed. A Bloomberg report said the import terminal, costing a total S$1.5 billion ($1.1 billion), will have a capacity of 3.5 million metric tons a year. It is expected to begin operations by 2013, even as the government had earlier targeted a 2012 startup. Singapore currently buys its natural gas from neighboring Malaysia and Indonesia. With the LNG project, Singapore may be able to diversify its energy supply and eliminate the risk of a repeat of gas supply cuts from Indonesia, which caused blackouts in November 2003 and June 2004. The report added the import facility may cost S$1 billion to build, but Samsungs contract indicates a lower value, said state-owned Singapore LNG Corp.'s executive director Neil McGregor. He, however, declined to give the value. Korea Gas Technology Corp., a unit of Korea Gas Corp., is set to design the gas storage tanks for the project, according to Lee Sang Hyup, company general manager. Samsung C&T vice president Paul Shin meanwhile said the terminal will have two tanks with capacity of 180,000 cubic meters each, while a third may be added optionally. McGregor disclosed the terminal may use the first tank for domestic use and the second for reexporting LNG cargoes and trading the fuel. Loans and equity from the Singapore government, which took over the project last year because of reduced funding in light of the global financial crisis, will fund the project. Foster Wheeler Corp. was likewise awarded a contract for consultancy services for the LNG plant. Located on the south-western part of Jurong Island in Singapore, the terminal may have provisions for an expansion to 6 million tons a year, the report stated.