Nepal administrative staff college Project Delivery Methods and Types of Contract Rajendra P. Adhikari, Ph. D. 21st May 2017

Presentation outline Meaning Historical development PD methods Selecting the right PD method Types of contract Discussions

Project delivery method A mechanism adopted by an Employer/Agency for development, design or construction/erection/installation or operation and maintenance of system or infrastructure by entering into contract. Contract is an agreement between two or more than two parties to do or not to do any business, which shall be legally enforceable.

Historical development (source: Rajendra P Historical development (source: Rajendra P. Adhikari (1998) Evolution of construction in Nepal, Journal of construction management, NICMAR, India) Master Builder Modern Era Code of Hamurabi, 1795 BC Nepal unification, 1769 Madhes Bandobasta* Pahad Bandobasta Rana Period (Sep 1846 – Feb 1951) Ministry of Transport Formed, after 1951 Chest Clinic at Mahaboudha, constructed by local contractor (after 1951) * 2nd Nepal telecommunication corporation at Sundhara (1959) Consulting services, 1960 FAR; PWD 2002 & PPA 2007/PPR 2007 * There were-Jana sewa bibhag; Sarbajanik Nirman Madhes Pahad Report Niksari Adda & Chhevadal Adda were at Kathmandu, Patan, Bhaktapur & Banaune Adda Siksha Phant and Banaune Adda Dosara

Project delivery method differs because of … Contract administration approach By owner By Engineer By professional construction manager Risk allocation – Owner Contractor Design responsibility – Separate designer & contractor Single point responsibility Contract price determination – Lumpsum Unit price Cost plus

Risk allocation … a) Construction and Engineering industry is a high risk industry b) Management of the risks has overriding importance, c) Every risk must be allocated to one or other party, d) A risk cannot “be left hanging in the air”, e) Practice over many years has shown that sensible and balanced risk allocation results in the lowest overall total cost for completed projects.

Project delivery methods Design-Bid-Build (Traditional) Design-Build EPC contract (Full turn key) Construction Management Construction Management at Risk Multiple Prime Contractors (Integrated Project Delivery) Public Private Partnership (PPP)

Design bid build (DBB) Traditional project delivery system Features: Traditional project delivery system Three linear phases- design, bid and build Three prime layers- owner, A/E (Consultant) and contractor Two separate contracts- owner to A/E (Consultant) and owner to contractor Owner warrants the sufficiency of the plans and specifications to the contractor: The contractor is responsible to build the project as designed The designer is responsible to design to the professional standard of care Owner is responsible for any “gaps” between the plans and specifications and the owner’s requirements for performance. Owner A/E (Consultant) Contractor Subcontractors Design Consultants

DBB Contractor’s involvement DESIGN CONSTRUCTION MAINTENANCE Contractor Involvement

DBB: applicability Advantages Limitations Widely applicable, well understood & well established The process may require a longer duration Owner has significant amount of control Initial low bid might not result in ultimate lowest cost or final best value Allows more firms to bid & lowest initial price Design risk is with the owner Easy to procure Potential adversarial relationship among the contracting parties No incentive to contractor for enhanced/better performance (Except if there is active bonus clause for early completion) Difficult “fast-tracking”; Constructability

Design build (DB) Features: Integrated process: Combines design and construction under a single contract Two prime players: owner & design-build firm One contract: owner to design builder with single point of responsibility Firms may be: Contractor led Designer led Joint venture Developer led Owner Design Build Firm Subcontractors A/E

DB DB firm’s involvement DESIGN CONSTRUCTION MAINTENANCE Design-build firm’s Involvement

DB: applicability Advantages Limitations Single contract for design and construction Limited involvement of the owner Accelerate delivery by fast-tracking design & construction Difficult selection (procurement, setting criteria) Potential for innovation and quality enhancement Quality control is the DB’s function Constructability & VE enhancement Reduces error and change orders

Engineering procurement construction (epc) The EPC is also called full turnkey method The EPC Contractor is made responsible for all the activities from design, procurement, construction, to commissioning and handover of the project to the End-User or Owner. The engineering and construction contractor will carry out the detailed engineering design of the project, procure all the equipment and materials necessary, and construct to deliver a functioning facility or asset to their clients. Companies that deliver EPC Projects are commonly referred to as EPC Contractors.

Equipment supply & process warranty Single warranty between owner and EPC contractor. Usually in the form of performance bond. EPC contractor manages warranties with subcontractors and suppliers Project budget, cost overruns Cost risk of the project is borne by the contractor Performance risk Responsible for all risks- schedule, cost, and quality Communication of construction issues and changes Problems are solved rapidly and results are available sooner as the interface between the E, P and C functions is connected. Cycle times are reduced. Benefits of innovations and efficiency Possibility for innovations and efficiency Accountable for labor relations EPC contractor is responsible throughout the project period Should hire, train & use the local personnel

Construction management (cm) Features: Owner engages a construction manager (CM) to act as a construction advisor during pre-construction phase and general contractor (GC) during construction Selection criteria include qualifications, experience, strategic approach and cost elements Owner CM/ General contractor Multiple Prime Contractors A/E

Construction management (cm) at risk Features: Owner selects the Architect based upon qualifications and fee Owner selects CM based upon qualifications and fee during design A/E & CM work together to deliver the project Competitive bid for subcontractors Fast-track possible Owner Construction Manager A/E Subcontractors

Integrated project delivery Features: Newer project delivery approach Owner selects CM and A/E based upon qualifications prior to design Three parties sign a joint agreement (~Partnering) Jointly establish project goals and objectives Considered as high efficiency delivery method Owner’s risk is limited by team approach Owners involvement as partner Procurement issues to be addressed Owner Construction Manager A/E

Public private partnership Long term contractual relationships between public and private sectors (contracts terms up to 30 years); A single private body is responsible for designing, construction, renovation, repair and maintenance of the assets; PPP approach can bring value for money in public services delivery; Project-related risks are shared among partners and allocated to the party best able to manage it; Risk and benefits are shared Difficult assets handover process

Which one is better … Control on design Time available for construction – “fast tracking” Risk allocation Owners experience Owners capability Owners institutional/legal backup

Types of contract (PPR 2064, # 22, Schedule 4) Unit rate contract Lump sum contract – underground pipelines, bridges Cost reimbursable contract- Cost, Overhead & Profit Time and material cost contract Labor at hourly/daily rate plus overhead and profit Material cost within the agreed amount

Types of contract Design and build contract Management contract Performance based repair & maintenance or management contract Piece work contract

Let’s discuss What are the general project delivery method that are common in Nepal ? What are the general contract types that are common in Nepal? How alternative project delivery methods and contract types can be used for the benefit of project in Nepal?

Let’s discuss … How Value engineering & Constructability can be applied in our project delivery process?

Thank You