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Appropriate Contracting Strategy for FastTrack
Projects
MOHAMMAD MOAZZAMI1, REZA DEHGHAN2, and JANAKA Y. RUWANPURA3
1
Departmentof Civil Engineering, University of Calgary, Calgary, Canada
E-mail: mmoazzam@ucalgary.ca
2
Departmentof Civil Engineering, University of Calgary, Calgary, Canada
E-mail: rdehghan@ucalgary.ca
3
Departmentof Civil Engineering, University of Calgary, Calgary, Canada
E-mail: janaka@ucalgary.ca
Earlier project completion is the main purpose of fast-tracking strategy in construction projects.
Reducing project duration is achieved by starting the construction phase of the project before
completing the design package as well as overlapping activities in each phase. Starting an
activity without complete data and information in fast-track projects creates more risks and
uncertainties than normal situations. Contract is a mechanism to allocate these extra risks and
liabilities between contracting parties. Inappropriate risk assignments in contractual
relationships results in more risk premiums and contingencies which will end with greater
overall project cost. This study explains the critical shortfalls of applying traditional contractual
frameworks in fast-tracking and illustrates the main characteristics of a convertible contractual
framework as an appropriate strategy for fast-track projects. In this paper, execution and
conversion processes of convertible contracts are discussed and significant advantages of this
strategy are identified. Also, the contracting execution process of a project with a conventional
contract and a similar project with a convertible contract are compared through an industrial
case analysis.
Keywords: Project contract, fast-tracking, cost reimbursable, lump sum, convertible contract,
two-stage tendering.
1
Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
2
Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
ISEC-6, Zürich, June 21–26, 2011
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Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
This approach brings several benefits to final design, agreeing a program and cost plan
the project. Avoiding the difficult and long and tendering early and long lead subcontract
EPC tendering process results in significant packages (Davis & Dornan, 2008). The owner
timesaving in overall project duration. Also, and the contractor sign a separate pre-
starting the project under a cost reimbursable construction services agreement on a fixed fee
contract reduces the risk premiums and cost reimbursable basis.
contingency amounts and the owner achieves In second stage, the owner and the
a fixed price for the project when the contractor will seek to agree and enter into a
contractor is able to bid a more reasonable and lump sum or guaranteed maximum price
accurate price. In addition, involvement of the design-build contract. The conversion from a
contractor in the pre-execution phase provides pre-construction agreement to a lump sum
early communication between the owner and design-build contract will typically occur
the contractor to develop design package that when the contractor has successfully tendered
reflects contractor’s views regarding 70-80 percent by value of the subcontract
constructability, work sequencing, and packages for the project (Lawrence, 2009).
selecting subcontractors (Lawrence, 2009). The main advantage of this approach is that in
However, there might be some problems case the contractor attempts to price stage two
in this approach in relation to early above its original guaranteed maximum price,
involvement of the contractor in the pre- the owner has an exit rout and is able to return
execution phase of the project. In this to the market to tender for an alternative
situation, and in the absence of a direct contractor (Davis & Dornan, 2008).
competition, the contractor has high level of
power in negotiating the fixed price and 4 Industrial Case
delaying the conversion time (Lawrence,
Brkic (2007) compared the contracting
2009). According to Davis and Dornan
execution processes in two similar polymer
(2008), one strategy to mitigate this problem
projects in the Middle East area. The first
is to require the contractor to bid a guaranteed
project was performed on a lump sum basis
maximum price for performing the main EPC
and the second one executed under a
work and basic design review in pre-execution
convertible scheme. In both projects, licenses
phase. Once there is enough information to
were pre-selected by the owner and contractor
have an accurate estimate, the contracting
was obliged to carry out FEED and EPC
parties negotiate a fixed contract price which
phases of the project. Tables 1 and 2 show the
is below the guaranteed maximum price
results of the study in terms of activity
offered by the contractor. Otherwise, they will
durations in pre-bid, bidding/award, Feed, and
continue the project under the original
EPC phases of both projects.
guaranteed maximum price with an
The initial contract was signed after three
appropriate shared saving mechanism to
months in the second project, while it was
ensure that the contractor is incentivized to
signed after almost one year for the first
minimize the costs.
project. In the second project, the contract was
Another approach to perform the projects
started under a cost reimbursable scheme and
under a convertible contractual framework is
on an open book basis and converted to a
Two-Stage Tendering that is being used with
lump sum contract after ten months. Omitting
an increasing frequency in UK (Lawrence,
the EPC bidding/award process in the second
2009).
project resulted in significant timesaving and
In first stage, a contractor is selected
its overall project duration was seven months
based on experience, skills, and resources
shorter than the first project.
rather than price to perform services such as
collaborating with the design team to agree a
4
Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
ISEC-6, Zürich, June 21–26, 2011
5
Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
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