I have just written an article for Property Development
Forum titled:
“Three things to know
about building disputes and one tip that might just save you millions” which you can read by clicking
on the following link.
Steve Chandler
Showing posts with label delivery. Show all posts
Showing posts with label delivery. Show all posts
Monday, July 1, 2013
Sunday, April 7, 2013
PPP and Strategic Alliances
Continuing the series of blogs on various forms of building contracts, today's topic is "Public Private Partnerships" and "Strategic Alliance" contracts.
Public Private Partnerships, also known as PPP's occur where one party owns a parcel of land and desires to have a specific facility constructed for them. The other party develops and maintains the facility over an agreed period of time whilst the first party operates within the facility. The second party is paid an annual fee for the facility. At the end of the term of the contract the facility reverts to the ownership of the first party.
Government are users of this form of contract as they do not need to find the capital to undertake the development or maintenance of the facility, they only need to pay an annual fee and will obtain an asset at the end of the contract term. Of course the value of the development and the end value of the asset being handed back to the first party are calculated by the development party when tendering on the project and are included in the annual fee payments.
Strategic Alliances are also favoured by government when there are projects that need to be delivered in a timely manner.
These types of contracts are, as the name suggests, an alliance between a client and a contractor where both parties come together to deliver a project jointly. The client party has a project that they need delivered for a budget value. The contractor party joins forces with the client party to create a team that will design and deliver the project for the agreed budget.
The parties work together to achieve the outcome. The contractor party is paid all its costs plus a margin or fee. The intention of these forms of contract are to bring together the expertise of the client team, the design team and the contractor team to ensure a timely and cost effective project delivery.
Trust is critical to the success of these forms of contract. Without trust a strategic alliance cannot succeed.
Quite often there is a profit share and a loss sharing provision in these contracts. Where the budget is achieved and a saving made, the contractor may receive half of the saving. Where the budget is exceeded, the contractor may share half of the loss, but most likely only up to the value of their margin or fee. In effect, if there is a cost blowout the contractor may undertake the project for nothing.
This blog concludes the series on the various forms of construction contracts. In upcoming posts I will discuss various property development related issues.
For more information on PPP or Strategic Alliances please visit the LEFTA Website
Public Private Partnerships, also known as PPP's occur where one party owns a parcel of land and desires to have a specific facility constructed for them. The other party develops and maintains the facility over an agreed period of time whilst the first party operates within the facility. The second party is paid an annual fee for the facility. At the end of the term of the contract the facility reverts to the ownership of the first party.
Government are users of this form of contract as they do not need to find the capital to undertake the development or maintenance of the facility, they only need to pay an annual fee and will obtain an asset at the end of the contract term. Of course the value of the development and the end value of the asset being handed back to the first party are calculated by the development party when tendering on the project and are included in the annual fee payments.
Strategic Alliances are also favoured by government when there are projects that need to be delivered in a timely manner.
These types of contracts are, as the name suggests, an alliance between a client and a contractor where both parties come together to deliver a project jointly. The client party has a project that they need delivered for a budget value. The contractor party joins forces with the client party to create a team that will design and deliver the project for the agreed budget.
The parties work together to achieve the outcome. The contractor party is paid all its costs plus a margin or fee. The intention of these forms of contract are to bring together the expertise of the client team, the design team and the contractor team to ensure a timely and cost effective project delivery.
Trust is critical to the success of these forms of contract. Without trust a strategic alliance cannot succeed.
Quite often there is a profit share and a loss sharing provision in these contracts. Where the budget is achieved and a saving made, the contractor may receive half of the saving. Where the budget is exceeded, the contractor may share half of the loss, but most likely only up to the value of their margin or fee. In effect, if there is a cost blowout the contractor may undertake the project for nothing.
This blog concludes the series on the various forms of construction contracts. In upcoming posts I will discuss various property development related issues.
For more information on PPP or Strategic Alliances please visit the LEFTA Website
Saturday, September 15, 2012
Is A Design And Construct Building Contract Right For You?
My last post discussed the traditional form of building contract; the lump sum or fixed price contract (which is also called a "hard dollar" contract).
This post discusses the "Design and Construct" form of building contract ("D&C").
So what is a D&C? This form of building contract requires the builder/contractor to not only build the project, it also makes them responsible for the design of the building project.
This sounds quite simple but most people see risk in having their builder design their project. I agree to a certain extent however this is where commercial requirements and risk management must be applied.
First you must understand the benefits and risks associated with a D&C. The D&C contract is not for everyone but it is very useful in numerous circumstances.
Why would you consider using a D&C?
Time and cost are two major reasons why you should consider D&C. Let's discuss time first.
To undertake a traditional form of building contract tender, all your project documentation has to be complete (and error, omission and ambiguity free) and you must already have your authority approvals in place. To do all these things takes substantial time and the cost required to fully document a project is substantial.
For your project you must consider the value associated with time. If time is expensive (eg your holding costs are high) you may wish to consider a D&C for the time benefits.
If time is a risk to your project then a D&C may also be a worthwhile option for you to consider.
Cost is usually a substantial consideration for most people. When preparing documents for a project substantial cost can be incurred. Design costs vary between types of projects however these costs are always substantial.
The cost of time must also be considered when creating fully documented projects.
How does a D&C benefit time and cost?
To tender a D&C building contract you only need to have undertaken a preliminary design and created a design brief that nominates your design requirements.
You can make it the builder's obligation to obtain authority approvals too.
Essentially, instead of you having to create a fully documented design, you create preliminary design only and produce a design brief. You may also wish to nominate a similar building to what you wish to achieve as a "benchmark building" that the builder will need to use to benchmark their design from.
This takes you substantially less time and your design costs are minimal.
Once you have appointed a D&C contractor they become responsible for engaging the design consultants for the project. They design whilst they build, which saves time (and is known as "fast tracking") and they do not have to create as much documentation as you would have needed for a traditional contract as there is no requirement to prevent builder variations; if the builder's design has an error, ambiguity or omission then it is at the builder's own risk, not yours.
Last year I was involved in a $25 million building using a D&C which proves that this form of contract can be used for large projects. I have also been involved in smaller $4 million projects. The price versatility of the D&C is substantial.
But what about the risks?
In my view the single largest risk in D&C is getting your design brief wrong. If you do this you have created a substantial problem for yourself. It is essential that you get your design brief right.
The next largest risk is the selection of a suitably experienced D&C contractor to deliver your project.
If you select a builder that doesn't have experience in D&C delivery, who doesn't know how to manage design and design consultants, and how to build whilst designing, then this can end in real issues also. However if you find the right contractor you have the recipe for success.
If your project is complex and has a highly specialised end use then you may also feel that D&C is too high risk.
In circumstances such as this you may be correct however this does not mean that the traditional building contract is the appropriate contract for your project. There are many other forms of contract that you might like to use.
In upcoming blogs I will discuss the Construction Management form of building contract. This is another form of project delivery regularly utilised to deliver projects.
For more information and our contact details please visit the LEFTA Website.
This post discusses the "Design and Construct" form of building contract ("D&C").
So what is a D&C? This form of building contract requires the builder/contractor to not only build the project, it also makes them responsible for the design of the building project.
This sounds quite simple but most people see risk in having their builder design their project. I agree to a certain extent however this is where commercial requirements and risk management must be applied.
First you must understand the benefits and risks associated with a D&C. The D&C contract is not for everyone but it is very useful in numerous circumstances.
Why would you consider using a D&C?
Time and cost are two major reasons why you should consider D&C. Let's discuss time first.
To undertake a traditional form of building contract tender, all your project documentation has to be complete (and error, omission and ambiguity free) and you must already have your authority approvals in place. To do all these things takes substantial time and the cost required to fully document a project is substantial.
For your project you must consider the value associated with time. If time is expensive (eg your holding costs are high) you may wish to consider a D&C for the time benefits.
If time is a risk to your project then a D&C may also be a worthwhile option for you to consider.
Cost is usually a substantial consideration for most people. When preparing documents for a project substantial cost can be incurred. Design costs vary between types of projects however these costs are always substantial.
The cost of time must also be considered when creating fully documented projects.
How does a D&C benefit time and cost?
To tender a D&C building contract you only need to have undertaken a preliminary design and created a design brief that nominates your design requirements.
You can make it the builder's obligation to obtain authority approvals too.
Essentially, instead of you having to create a fully documented design, you create preliminary design only and produce a design brief. You may also wish to nominate a similar building to what you wish to achieve as a "benchmark building" that the builder will need to use to benchmark their design from.
This takes you substantially less time and your design costs are minimal.
Once you have appointed a D&C contractor they become responsible for engaging the design consultants for the project. They design whilst they build, which saves time (and is known as "fast tracking") and they do not have to create as much documentation as you would have needed for a traditional contract as there is no requirement to prevent builder variations; if the builder's design has an error, ambiguity or omission then it is at the builder's own risk, not yours.
Last year I was involved in a $25 million building using a D&C which proves that this form of contract can be used for large projects. I have also been involved in smaller $4 million projects. The price versatility of the D&C is substantial.
But what about the risks?
In my view the single largest risk in D&C is getting your design brief wrong. If you do this you have created a substantial problem for yourself. It is essential that you get your design brief right.
The next largest risk is the selection of a suitably experienced D&C contractor to deliver your project.
If you select a builder that doesn't have experience in D&C delivery, who doesn't know how to manage design and design consultants, and how to build whilst designing, then this can end in real issues also. However if you find the right contractor you have the recipe for success.
If your project is complex and has a highly specialised end use then you may also feel that D&C is too high risk.
In circumstances such as this you may be correct however this does not mean that the traditional building contract is the appropriate contract for your project. There are many other forms of contract that you might like to use.
In upcoming blogs I will discuss the Construction Management form of building contract. This is another form of project delivery regularly utilised to deliver projects.
For more information and our contact details please visit the LEFTA Website.
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