State Government of Victoria, Australia, Department of Health

Design Development

1.ProcurementOptions
Theprocurementstrategychosenforthecapitalprojectisdependentonthenatureoftheproject,sizeand complexity.Belowisadescriptionofthetypicalprocurementmethodsusedandallmethodsavailable.

ProcurementModels

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State Government of Victoria, Australia, Department of Health

Design Development

ProcurementModels

FixedLumpSumContract
Thisformofprocurementisthemostcommonforcapitalworksprojects. Lumpsumcontractsinvolvelettingoftendersbywayofseekingcompetitiveoffersbasedoncomplete documentationofallbuildings,servicesandfinishes.Callingforfixedlumpsumtendersforsuchworks,makes allowancesforclarifiedmonetarysumssuchasnominatedrates,provisionalsumsandcontingencysums. Note,thisformofcontractdoesnotmeanthatalumpsumisaguaranteedprice.Finalcostofworksis subjecttovariationsduetounforeseensite/buildingconditionsand/oromissions/errorsintenderdocuments andchangesapprovedbythePrincipal.Contingencysumsareincludedintheprojecttoaccountforthese matters. Standardformsofcontract(AS2124,1992)andspecialconditionsfortheVictorianpublicsectorareavailable andtobeusedinthisformofcontracting.

ConstructionManagement
Thisformofcontractisoftenusedincomplexprojectswherebuildingsarecontinuallyoccupied,instaged constructionworksorlongitudinalprojectswhereworksareintendedtocommencepriortocompleted documentationorforfasttrackcontracts. ConstructionManagement(CM)involvesengaginganagent,theConstructionManager,forthepurposeof lettingsubcontractpackages.TheCMroleisakintothatofaheadcontractorwhoispartofthePrincipals teamandpaiddirectlytomaintainthePrincipalsinterests. Callingforsubmissionsbyconstructionmanagementcontractorstoprovidetradeandsubcontractpackages isnormallybasedonfullopenbookmanagementofallbuilding,servicesandfinishesworksforafixedfee. ServicesmaybeprovideddirectlybytheConstructionManageronthebasisofadministeringconstructionof completeddocumentationofallworks,overviewingofprogressivelettingofworkstomultiplesubcontractors forandonbehalfoftheproprietortheCMmayalsoprovidedirectworkscontractsforareassuchassecurity, hoarding,lifting,cleaningandsitesheds. InmostconstructionmanagementprojectsthePrincipalisthesignatorytoalltradecontracts.

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State Government of Victoria, Australia, Department of Health

Design Development
DesignandConstruct(D&C)
ThePrincipal(Client)procuresboththedesignandconstructiongoodsandservicesfromasinglecontractor whenusingadesignandconstructcontract.Thisformofcontractismostsuitableforgreenfieldsite developmentswheretheperformancerequirementsarewelldefined.Thelettingofsuchcontractsisonthe basisofthePrincipalsperformancecriteriaseekinginnovation,buildersexpertiseintermsofmeetingdifficult timelinesorconstructiontechniques. AvariationtoDocument&Construct(D&C)projectscanbeutilised,forexample,aD&Ccontractwillallowfor sketchplansbeingprovided.Inbothinstancesthedevelopmentofadetailedbrief/performancespecificationis essential. AnotheralternativetoD&Cinvolvesextendingthecontractintotheoperatingphase.Inthiscircumstance,the contractormayundertakethemaintenanceandoperationofplantandequipmentintermsofthebuildingand services.ThisformofcontractistermedD&Candmaintain.

PublicPrivatePartnerships
ExamplesincludePartnershipVictoria(PV)suchasBuildOwnOperateTransfer(BOOT)andBuild,Own, Operate(BOO). PVarrangementsarerecentprocurementmethodsbeingusedforGovernmentprojects.ThePrincipal(Client) entersintoalongtermcontractwithacompanywhousestheirownfundstodevelopandconstructapublic facilityinreturnfortherighttooperateitandchargeafeeforitsuse.Attheendoftheagreedcontract periodthefacilitymayreverttothelandholder,whichisoftentheCrown. Thisformofprocurementisarelationshipbasedcontractanditplacesstrongemphasisonservicesdelivery outcomesandrequiredperformancestandards.Thekeyissuesinvolvedareprovisionofprivatesectorfinance, designandlongtermoperatingrequirements.Theundertakingsaregenerallyforlargescale,oneoffprojects thatarecarefullyassessedintermsofrisksandtheyareevaluatedagainstapublicsectorcomparator consideredoverthelifeofaproject.

2.DiscussionofProcurementOptions
Option1FixedLumpSum
Thisoptionistheindustrystandard.Itisthenormforafullydocumentedprojectusingspecialconditionsof contractdevelopedforVictorianGovernmentprojects. Continuedstabilityofthebuildingindustrywithrelativelylowimpactofriseandfallconsiderationsandstrong competitionexistinginthetendermarket,suggeststhatthismethodofprocurementoffersthePrincipal advantagesbywayof:
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Clearindicationofprojectcostatcommencementofworks CompetitivetenderssubmittedbyContractorsfamiliarwithtermsandconditionsusedbythe DepartmentofHealth CommitmentoftheContractortoprovideafacilitybaseduponrequiredspecifiedstandardsandfully developeddrawingsandspecifications.

Themajorrisksassociatedwiththisformofcontractare:
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Poortenderdocumentsleadtoclaimsforvariationsbycontractors Changeindesignarelikelytogiverisetoclaimsforcostandtimeextensions

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State Government of Victoria, Australia, Department of Health

Design Development
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DelaysduetoactionsofthePrincipalsuchasrelocatingdepartments/vacatingbuildingswillbepursued asvariations.

Option2ConstructionManagement
Thisoptionoffersflexibilitytotheprincipalindirectingworkpracticesandtheoptiontonominateoramend subcontractorsandtheirworksduringconstruction.CMofferstheopportunitytoobtainawiderrangeand morecompetitivegroupofsubcontractorsthanaContractorwouldnormallyprovide.Thisformof procurementinvolvestheContractorandPrincipal(HealthService/Agency)enteringintoanumberofsub contractagreements,usuallybasedontradepackages.Significantriskariseswhere:
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Thereisalackofaknownfixedpriceatcommencementofworks Thereisalackofacohesiveconstructionteam,whichaBuildingContractormaybeabletoprovide.

InsomeinstancesthePrincipalmayofferincentivestotheConstructionManagerforearlycompletionand/or finishingbelowthemaximumprice.

Option3DesignandConstruct(D&C)
WhilsttheD&Capproachmaypresentinitialcapitalcostefficiencies,substantialproblemsmayarisewith difficultiesinqualitycontrol. TheD&CoptionenablestheBuildertodeterminetheirownconstructionmethodsaswellastheirown specificationstomeetthePrincipal(Clients)brief.Whilstthismayappearattractiveonacapitalcostbasis, potentialpoorqualityofproductandresultantshorterlifeandmaintenanceproblemscouldreduceapparent benefits. Othermajorrisksinclude:
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Difficultyindefiningallperformancerequirements Controloverdesigns Inflexiblerelationships.

Option4PublicPrivatePartnerships
ProjectssuchasPVbeingimplementedunderBOOTandBOOrequireadditionalapproval,e.g.fromthe DepartmentofTreasury&Finance.BOOTandBOOprojectsmeanthattheGovernmentanditsAgencies becomepurchasersofservicesoveralengthyperiodfromtheprivatesectorandassuchbearsomelevelof financialandviabilityrisk.Thisalsohasasignificantimpactonrecurrentexpenditure. RefertotheDTFwebsiteforGatewayprovisionsthatapplytotheseprojects. IssuesforPVprojectsincludehighlegalcosts,extensiveplanninganddesignspecifications,complexrisk assessmentandapportionment,commitmentsofalongtermnaturemakingitdifficulttochangecontract parties,andestablishingbenchmarks(publicsectorcomparator)andbedifficultandcomplex.PVshouldonly beusedonaprojectspecificbasisfollowinganassessmentofstatefundedoptionsandathorough examinationofserviceandbusinessplanningrequirements.

Summary
ThepreparationofaRiskProfileshouldbeundertakenwithinputbytheconsultanttoevaluateandassessthe mostappropriateprocurementoption.Thepreferredprojectprocurementmethodfornormalprojectsisfixed lumpsumcontract.Theprocurementmethodforprojectssuchashospitalredevelopmentwheretheexisting facilityneedstobekeptoperationalisConstructionManagement.However,thisshouldbeinitiatedduringthe SchematicDesignprocessandreviewedwhenmorespecificdetailsregardingprogram/cashflowtarget, completiondates,buildingoccupationbyPrincipalandstagingofconstructionworksareresolved.

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State Government of Victoria, Australia, Department of Health

Design Development
3.AlternativeProcurementMethods
TheprocurementmethodidentifiedattheschematicdesignstageshallbeselectedbythePCGsubjecttothe approvaloftheDepartment.Itisexpectedto:
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ComplywithregulatoryprovisionsincludingtheministerialdirectionspursuanttotheProject DevelopmentandConstructionManagementAct,theCodeofPracticefortheBuildingandConstruction IndustryandguidessetoutbytheConstructionContractsAdvisoryPanel(CCAP),andinDHS procurementprocedures AddressGatewayandthePartnershipsVictoriarequirements,whichcanbelocatedat: http://www.dtf.vic.gov.au(externallink). Followanassessmentofoptionstakingintoconsiderationrisksandopportunities.Theassessmentis generallypreparedbyconsultantswithrecommendations.

PartoftheDesignDevelopmentactivityinvolvesselectionoftheprocurementmethodifthismatterhasnot alreadybeenconsideredandresolved,asthiswillinfluencetheactivitiestobeundertakenintheTenderand ContractDocumentationPhase. Arangeoffactorsrequireconsiderationwithregardtoalternativeprocurementoptionsincluding:

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Complexityandsizeofproject Undertakingofworksonexisting/functioningfacilityorgreenfieldsite Stageofcompletionofdesign,documentationandperformancerequirementswhenworksareexpected tocommence Environmentwithinwhichlocalcontractorsoperate Requirementsforearlyworks,decontaminationorotherpreparatoryworks Availabilityofappropriateconstruction,tradeandmanagerialexperiencewithintheregion SkillsavailablewithinAgencytomanagecontractsandsubcontractingarrangements Inflationarytrendsintheindustry(actualorprojected)andtheirbearingonpossiblealternative managementmethods Sizeandexperienceoflocalandregionalcontractorsandsubcontractors Implementationprogram ImplicationsoftheAustralianandUnitedStatesFairTradeAgreement(AUSFTA) RiskanalysissuchasimplicationstothePrincipal(HealthService/Agency),Contractorandothersite users Opportunitiesforoutsourcing,skillstransferorotherbenefits.

Ingeneralthefollowingfourmainmethodsofprocurementareavailablefordeliveryofcapitalprojects.Under anyprocurementmethodaContractmustbeexecuted,i.e.signed,insurancesandBankGuaranteesprovided andasuperintendentappointedtoadministerthecontractonbehalfofthePrincipal(i.e.Health Service/Agency)priortocommencinganyconstructionworks. ForamorecomprehensiveassessmentofprocurementstrategiesandrequirementsrefertotheDepartment ofTreasury&Finance(DTF)Gatewaywebsiteat:www.gatewayreview.dtf.vic.gov.au(externallink).

4.TheDesignDevelopmentReport
ReportFormatRequirements

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State Government of Victoria, Australia, Department of Health

Design Development
ThecompleteFeasibilityStudyReportformatrequirementsaredetailedintheConsultantsChecklist,whichis suppliedinawordformatandistobeincludedintheFeasibilityStudyReport.

QualityAssurance
ThereportistobereviewedandqualityassurancecheckedbytheProjectManagerpriortosubmission.The documentistobecompleted,certifiedandsignedbythePrincipalConsultantandendorsedandsignedbythe ConsultantProjectManager.

5.ApprovalProcess
TheProjectControlGroupshallendorsetheDesignDevelopmentreportincludingtheCostPlanC2forthe Departmentsapprovalpriortoproceedingwiththenextstageofcommencingtenderandcontract documentation.

Checklist
Thisisthechecklistthatrelatestothecontentofthisguideline.

Checklists
DesignDevelopment(pdf,172.6KB) TheDesignDevelopmentchecklististobecompletedandsignedwitheachprojectandsenttothe appropriateDHSProjectManager.

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