Procurement Method: Yoy Assessment Answer

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Task:

As discussed in Group Assignment 1, your company has built a reputation for being one of the most dynamic and successful construction and fitout companies of its size in Australia. Your construction company has continued to grow and build its reputation as a quality builder with a strong organisational culture of ‘Quality, Consistency, and Value’ benefiting from its proudly multi-cultural, diverse and harmonious working environment.

Recently, your company experienced a significant falling out with a JV-partner over an unsuccessful project and is seeking to manage any reputational damage that may have occurred in the market place and in the eyes of your regular Clients.  In order to prevent this situation from arising again, your Managing Director has begun to be more selective in the projects that your company tenders for and has not entered into any further JV contracts with similar companies.  Your company has also sought to consolidate its strengths by focusing on familiar projects with realistic time lines and realistic profit margins.

Following this statement from your Managing Director, within a few months your company is successful in procuring two new commercial development projects.  The first project, A2A Tower, was procured through project partnering and is a design and construct project.  The project is of significant value ($70 million) and will be owner-occupied by your Client, a large property developer.

The second project, YOY Tower, is also of significant value ($90 million) and is procured through a conventional lump-sum competitive tender but with a commitment from the Client to also be a partnering project.  This building is part of your second Client’s future property portfolio but only for as long as an anchor tenant may be found and the building sold to fund future projects.  These two Clients are aware of each others projects and are satisfied that your company can resource both projects in parallel.

Both projects start at the same time and are well resourced.  But both projects do not end in the same way.

Partnering – a brief definition

The partnering process has a common focus on the creation, within all companies involved on a construction project, of a spirit of teamwork and trust.  The key elements of a partnering project can be summarised as:

• Communication;
• Commitment;
• Trust;
• Teamwork;
• Respect; and
• Responsibility

A partnering agreement is in essence a moral agreement superimposed on a contractual agreement.  The contract documentation generally makes no mention of partnering.  The partnering charter is merely an expression of the intention of the parties to co-operate for mutual benefit.  Partnering does not change the responsibility of any party to the head contract.  Contractual obligations are deemed to be independent of the partnering process, however, there is still a risk of confusion of contractual and statutory obligations in relation to partnered projects.

Project 1

After A2A Tower was procured via a design and construct contract, the organisations and individuals associated with the partnering arrangement were responsible for all aspects of the design, procurement, construction, operation and maintenance of the new tower.  Safety and environmental management was a major focus throughout the project.  The standard form contract AS4902 was used, with no modifications to reflect the partnering arrangement.

Partnering was implemented during the bid process for the project and from the outset, the project management company hired by the Client and responsible for the scheduling, understood each of the respective roles and responsibilities of each other and those of the other consultants.  Everyone understood the commercial necessity to optimise the design, construction, and operation was of paramount importance.

In response to the Client’s need to procure an operationally efficient, fit-for-purpose commercial office tower, delivered on time and within an established budget, your company provided a competitive price and programme for delivering the tower which totally satisfied the Client’s requirements and which reflected a profit margin commercially acceptable to your Client’s shareholders.  The desire to adopt Partnering was referenced in a Heads of Agreement signed by all parties including your company’s Managing Director.

Early commitment to a good faith clause with recognition that it was a basis on which all partnering principles are built, enabled the parties to successfully work together to develop an innovative and highly competitive tender proposal which was successful in winning the project against strong competition.

Initial workshops were held once the contracts were awarded to establish familiarity with the partnering concept.  All of the company’s key staff were in attendance.  The parties then identified each other’s values, needs and objectives and proceeded to develop the ‘Partnering Charter’, which was unanimously accepted and endorsed.  An ‘issue escalation process’ and a ‘joint evaluation rating form’ were also developed at the initial workshop.

The mission statement for the project was:

‘The mission of the Partnering team is to design and construct the A2A Tower as a high quality, premium office tower.  The facility will exhibit excellence in design and quality of construction which will serve as a model for best practice for future builds.  All parties commit to working together in a spirit of good faith, cooperation, open communication and timely responsiveness that respects the role of each partner and enhances the reputation of all partners.’

During the construction period, issues of disputation or conflict rarely occurred, and when they did the highest point of conflict escalation of any issue was that of Project Manager and Construction Manager, with no dispute requiring senior or executive-level management intervention.  The project team had a philosophy of maintaining certainty of outcomes throughout the project and nurtured this via open and honest communication at all times.

The open lines of communication were a big cultural change for many working in the project with the subcontractors able to talk to each other and to the Client’s representatives at any time without their express permission.  The main subcontractors worked with the design team to find solutions to problems as they arose, and to ensure the bottom line was unchanged.

Partnering success on A2A Tower was achieved due to increased pride and commitment to a quality end product, and direct ownership of decisions taken.  All of the project objectives on this project were met and within the agreed time frame.

The A2A Tower was, by all accounts, a very successful partnering venture.  The project was completed six weeks ahead of programme, on budget, with no head contract variations or contractual disputes.

Project 2

The second project, YOY Tower, was of a very similar scale, complexity and of a similar location within the same city.  The project delivery system was traditional, with fixed price competitive tendering, with the contract being awarded to construct the new tower as well as to refurbish a heritage listed building directly in front of the new tower location that was to be made part of the new tower development.  The standard form contract AS2124 was used, with no modifications to reflect the partnering arrangement.

The initial partnering workshop was held in a similar manner to the other project with the inclusion of some subcontractors and consultants.  Due to the project being a traditional delivery system, the workshop was held after construction commenced.

The mission statement for the project was:

‘We as a team will develop the YOY Tower to provide an outstanding facility for the city of Melbourne. In undertaking this task the team commits to applying Industry Best Practice, in an environment of mutual trust and respect, recognising the objectives of all project stakeholders.’

An issue escalation process, and a joint evaluation form were also developed at the initial workshop. The remaining consultants and subcontractors, once procured, were introduced to the partnering arrangement via your Client and your company’s head Construction manager, and were invited to sign the charter.   They eventually signed the charter at a small meeting well into the project commencement.

After 5 months into construction, there were signs that the partnering process was losing its direction as is evidenced by the following statement on the Project Manager’s monthly report to the Client:

“There is a general perception that not all stakeholders are applying the principals of partnering to the project.”

The corrective action as decided by the Project Managers was sent out and stated:

“All parties are to improve the turnaround of variations and claims. The apparent “game playing” is to cease and all parties are to get on with resolving the outstanding variations.”

Within 3 months, a comment in the corresponding monthly report was:

“The Contractor and subcontractors again raised problems of design co-ordination with particular emphasis on services co-ordination. This was seen as an on-going concern and was beginning to cause concern on-site.”

The corrective action for this issue was to hold numerous meetings between your company, the Project Manager and the Client to discuss design co-ordination issues on the project over the course of the project.  Despite informal and formal recommended corrective action on a regular basis to seek to bring the spirit of Partnering back on track, there was little available process for implementing this corrective action.  The project continued to be plagued with in-fighting between companies and open and abusive conflict between your company’s representatives and the various subcontractors.

The project was eventually completed but at significant cost and time overruns.  Over 200 variations and 50 subcontractor’s claims were issued over the course of the project at great cost to the Client.  Your company, despite trying to recover financially in the project, but due to minimal margins associated with traditional tendering, was unsuccessful in breaking even due to the large liquidated damages that your company was required to pay to the client due to these missed deadlines.  The project was deemed a disaster from the earlier stages and many relationships with valued subcontractors were harmed.

Questions

The type of procurement method that clients seek to develop are typically mechanisms for the client to manage risk away from their company and to put the risk onto other party’s responsibility.  Not all risk can be ‘managed away’ though and those companies with the largest financial risk should expect the largest financial gain in the event of successful project completion.  How projects are procured can significantly influence a projects potential success.

1. Compare the two projects, A2A Tower and YOY Tower, and determine what you consider to be the key points as to why the projects ended in the outcomes as stated. Assess the relationships that were formed (in both projects) and discuss what you consider to be key management successes and/or failures in the managing of these relationships from each perspective of the parties involved.  Consider analysing the soft and hard skills that key stakeholders displayed or indicated.  What leadership traits were evident or may have been lacking that would have influenced the project’s outcomes.
2. Familiarise yourself with the AS4902 and AS2124 contracts (available via the RMIT library link to Standards Australia). Discuss how these general contracts may have influenced the outcomes on Project 1 and Project 2.  Provide logical and valid references from the case study to back up your arguement.  What key features of the AS2124 general contract document surprise you?  What aspects of the contract do you consider to be challenging to comprehend?
3. Discuss and compare the Fixed lump sum contract and the Design and Construct contract. Research your answer to provide greater insight as to when these contracts are most appropriate, when they are not likely to be appropriate, and how and why certain parties in these types of contracts may benefit by using these procurement methods.  Research two project examples of each contract that have been awarded within the last 5 years within Australia.  Discuss why you think these projects were awarded using this procurement method.
4. Compare the two projects, A2A Tower and YOY Tower, and consider the type of contracts used, the role of Partnering in the project outcome, and alternative contracts that may have been equally appropriate, or more appropriate, for the details provided in the case study for both projects. Make comment on the role of Partnering and discuss whether you consider it to be of merit to construction projects in Australia today.