Based on a case analysis of Nickelodeon
This report lays out methods of procurement which play a major factor in the process of planning for the client. It lays out procurement methodology, its classification and integration in both traditional and non-traditional methods of procurement. The report further avail points laid out in the Government of New South Wales that would assist a client in the selection of a method that’s most appropriate. Different options for procurement methods such as SWOT analysis, IFB, RFI, Design and Construct, and (EPC) Engineering, procurement and construction are presented. These constructs are availed, evaluated and explained putting focus on how such procurement methods are advantageous, effective and would assist the client in meeting his Goals.
The main objective of a procurement plan is to single out the context of the program and to have the procedures and processes defined that shall be utilized to govern the procurement of all subcontracted services and equipment. Such procedures and processes are designed to safeguard the placing of subcontracts on terms that are most favorable that are consistent with the requirements of the project, insuring that the degree of commercial risk is conserved to a bare minimum. With an aptly long haul supply of equipment that’s conforming secured for the continuation of the contract. The procurement plan method sets out acquisition strategies that will guide and help the execution of the program throughout the entirety of the life cycle of the program.Stuart, C., 2009. Over time, the strategy evolves and should reflect continuously on the current status and the programs desired end point. The method of strategy should be flexible so as to harbor acquisition oversight selections of the program target. The procurement plan should address the capabilities that are required and their availability to be administered by other projects. The acquisition strategy of a procurement method constitutes the milestone acquisition and decision points plus phases planned for the program. Development, production, testing and life-cycle support should be covered by the strategy. Accomplishments should be prescribed for every phase and the critical events that affect program management should be identified.
Should a decision be made by the program manager to incorporate concurrency within the program, benefits and risks of the concurrency should be discussed by the acquisition strategy not to mention testing impacts and risk mitigation that may result, should be addressed.
Operational and technical requirements must be employed for the definition of supplies and their characteristics, scheduling of legal items, logistics and deliveries. Depending on the framework of markets and supplies, a variety of procurement strategies and methods could be implemented and defined. Made to be in coherence with marketing of procurement, the strategies and methods must be persistent with operational needs and engineering and must grant technical and economical advantages to the client selecting the method of procurement.
1.2 Scope of procurement
These methods of procurement appear as traditional and alternative to traditional methods, in which the client endeavors to take assurance of a single-point of responsibility for the construction and design of the project. The direct contact among the two parties that are contracting ensures that misunderstandings are minimized and the enabling of simplification of procedure necessary for procurement. Methods of procurement are to be related to an efficienteconomy that includes avoiding corruption plus ensuring conditions in the methods that are most effective when it comes to the legal and institutional environment. Article 1 of the public procurement Act 197 states" That the Act shall regulate the procedures and conditions for public procurement which precede the conclusion of contracts on the procurement of services and goods and the contracting of works within the objective of securing the effective utilization of a client’s budget and other funds and the encouragement of free markets for tendering"
Figure 1: The process of procurement
Source: Pinto, 1996
1.3 Determining choice of procurement
Many issues that could affect the choice of a procurement method have to be taken into consideration. To enable simplicity and manage and sustain the conceptual framework, consideration has to be taken among these six major conditions,-
- Capacities of an institution. The extent of financial resources, skills of public agency in the preparation of design, documents that bind, analysis of the project proposal and the extent of the rule of law.
- -Sector of Competitive suppliers. This involves the length of competition among project suppliers.
- The interest of international and national sponsors and contractors.
- The project and its timing (A case in point would be needs of emergency such as the replacement of infrastructure that’s crumbling)
- Project complexity, size and innovation.
- The balance of power and trust among the contracting parties.
Figure 2: Construction Manager
Source: Baily, 2008
1.4 Life Cycle Analysis.
LCA or Life cycle Assessment is the evaluation and completing of outputs and inputs and impacts to the environment that may be the potential of a given product throughout its entire life cycle. The life cycle involves production, raw materials and their mining, the usage of products that are disposable etc. The life analysis is conducted in four stages. To begin with, there is definition of the scope and goal, secondly analysis of the inventory which involves calculations of outputs and inputs, data collection, and defining the product systems, third assessment of impacts by way of optional phase normalization, weighting, grouping and fourthly, results and their interpretation. The process of life cycle analysis is useful and necessary for procurement method purposes and the development of products. Under the (ISO) the international Standard on Life cycle analysis, certain results of quality are guaranteed and of primary interest. LCA must be undertaken at the level of application instead of the material level but this will depend on the environmental impact after the end of the life or during (Bresnen and Edelman, 2003).
Figure 3: The framework Below for Life Cycle Assessment,
Source: Baily, 2008
1.5 Risk Analysis of procurement plan methods
Detection of risks that could potentially endanger supplier performance and the client’s business goals could arise in a number of situations. Such risks could happen in the acquisition of products in the phase of procurement marketing or at the scouting level for access to resources to ensure the client’s needs are meet. When it comes to planning for the management for risk, as a manager one should understand, Risk= an event or condition that’s uncertain were by should such occur, will have a negative or positive effect on the project objective. Each risk, possess potential consequences both unknown and known and are characterized by three factors known as risk event where the question of what could go wrong is put forward, risk severity that is how much capital is at stake in the engagement of a project by the client and risk probability as to the possibility of occurrence of the event. Turner, A. 1990In order to reduce the risk, management has to take when planning into consideration The timing, tracking, reporting formats, thresholds, budgeting, methodology, scoring and interpretation, methodology & the roles of the parties involved.
1.6Procurement Method Selection
The selection of a procurement methodology will depend on the projects requirement and the expectations of the client. Such methods have to be suitable for the objectives of the project and the undertaking of the client to enable one to apply the level of complexity and ensure flexibility in its nature. In designing, the construction skills involved are likely to enhance and improve constructability, (Gil, 2009).
1.6.1 Invitation for bids (IFB)
IFB utilizes a method known as competitive sealed bid. The use of this method can only be made where there is a clear definition for the based on each bid requirement. Negotiations are not automatically needed and the major determining factor for this selection is price. Considerations for Best value can also apply to the IFB method. It is worth noting that the procurement manual covers invitation for bids.
1.6.2 Request for Information (RFI) is yet another method for procurement primarily used as a tool for planning. Although this method is optional, it could be used to collect information to enable preparation for an accurate and complete document of solicitation. RFI are employed to ensure identification of the best practices, potential performance measures, industrial standards, and cost and price structures are used to generally establish how interested prospective respondents really are. A RFI is usually accompanied by a document of preliminary solicitation which accommodates an initial description of specifications and objectives of the program to be reviewed by potential clients.
1.6.3 Request for Proposal (RFP) Situations may arise were competitive sealed bidding loses its advantage or practicability. This occurs where factors beside from price are to be taken into consideration or when definition of the objective criteria cannot be obtained.
1.7 Design & Construct
Under the design and construct procurement method, what is first looked at is the functionality of the project, objective and quality of the project before basic design of the project can be finalized. This is done by contractor preparation of construction documents which are then developed and enacted as per the given procurement principles. Under this method, responsibility for all activities involved and their effective execution is held by the contractor. This in turn reduces the project owner's responsibility. Reduced levels of error in the contract are expected to occur were documentation and design is being handled by the contractor. The method requires that all sorts of responsibilities ranging from provision of all sorts of facilities during the period of construction to the supply of materials are to be dealt with by the contractor along with the opportunity for the client to attend other aspects.
As an advantage, when it comes to acquiring contracts for construction projects, alternative methods, are not the best method’s for each project in comparison to Design and construct. It takes an experience that is discerning for professional constructors to understand the correct type of strategy for construction delivery (Loveet al, 1998)
Because of the fundamental differences that exist, the analysis projected here explains the impact of new procurement system and its operational framework. Take for example the traditional design bid-build in which risks of the design and its adequacy are all on the owner. However, because of the non-traditional procurement method such as Design and construct, the selection of the contractor is based on experience, price, capabilities and qualifications. Performance of the design and construction is done by a single team all under a single contract reducing the owner’s risk of diffused responsibility which can arise out of the design and construction. Saving of time is also made possible because materials are ordered at the site of work before completion of the total design (Love et al, 1998).
More still, the relationship among the design and construction team, is a close one which results into fewer orders that are likely to be changed by the owner and this could arise out of revisions in the design that the client could on a particular occasion want.
This methodology of Design and construct enables the contribution to the project planning and design by contractor that’s been integrated. Traditional procurement has been criticized commonly for its lack of ability to integrate different construction and design functions and the impossibility by the contractor to get involved at a sufficient early time in the process of procurement to make any contribution that’s considered significant. Design and construct enables the multi-disciplinary integration and approach that’s necessary because the designer-contractor team is formed at an early stage bringing all the participants in the same box (Miller, 2002).
The usage of procurement systems that are integrated, enable the overlap of design and construction. This improves communications as a result were by such communications are established among the contractor and client. The overall project periods to be achieved are made shorter by these two characteristics not excluding the efficiency of the project management system itself.
1.7.1 Risk Management
Risk is the uncertainty of negative or damages that can cripple the organizations’ objectives and goals. Nickelodeon has identified the losses and damages which result from improper procurement policies and related constructions. As a result of these uncertainties, establishing an arm within Nickelodeon which deals with managing risks was done within the company’s existing policy framework. This group managing risks has actions that are integrated within every sector within Nickelodeon where it assesses and measures possible risk situations and elaborates the strategies necessary for managing them. Hence risk in the statement that “knowledge is divided in to uncertainty and perfect knowledge cuts both ends. First being uncertain about the various damages that can deter organizations objectives and goals and later collecting information about these uncertainties and enacting strategies which are incorporated to curb the uncertainties. Attaining relevant risk management capability for the company involved ensuring that proper planning and implementation strategies are fully focused on.
1.7.2 Risk register
The company’s risk register is established in order to enhance growth and improve service delivery. The indications generated within a given projection and scope is therefore classified according to the table indications below:
The overall role of stakeholders is to ensure that all the procurement projects and supplies are focused on as appropriate. The techniques applied which Nekoledeon utilizes need ideal consideration in terms of consistent mechanisms and well management approach. This will enhance the required procurement process and improve the overall organizational functioning.
1.8 Engineering, procurement and construction (EPC)
This method of procurement used commonly in the construction of energy projects and infrastructure that are project financed on a large-scale. A proper example would be a wind farm project. Under this method, the client contracts with an authority of government under a power purchase agreement(PPA) to have power supplied after which, they shall enter into an EPC contract under which various elements needed for construction will be governed.
The dominant advantage of an EPC method is that it administers a single point of contact and responsibility between the contractor and project developer/client. As opposed to construction management systems and methods of traditional delivery, EPC methods rely on a given single entity that joins the client with the owner to procure and build elements in the project that are factually important. Further, due to the project finance structure, the EPS methodology is often preferred by clients and their lenders. This is mostly defined in such a manner because limited and non-recourse structures would mean that lenders shall be searching for a fixed completion price and date, none or limited risks of technology, guarantees of performance, for both performance and delay liquidated damages. On equal framework, security provided by the contractor, large liability, and limitations on the contractors ability to ask/claim additional costs and extension of time in the EPC method would in one integrated contract deliver all these requirements which would be crucial in the insurance of finance ability and bankability of the project.
At the same time, what distinguishes an EPC method is the precondition to comply with performance specification and standards of performance. The client will have to look up to an EPC contactor to deliver a project that performs up to standards for requisite power production. Due to the performance criteria and performance specifications overlapping, a delicate balance shall have to be made between the two to enable and ensure an effective allocation of risk to the contractor.
Another provision in the EPC methodology that’s key is in relation to the testing and commissioning regimes. Under the testing regime in EPC Methods, as a must it should be set out so that the testing and commissioning requirements under EPC match the testing and commissioning requirements under the PPA.
In this report, the manner of selection of the best possible methodology for procurement has been laid out and explained which could assist the carrying out of say the Nickelodeon project in a manner that’s most efficient and effective and could also provide clarity for other projects and strategies.
In light of the above, evaluation of the methods of procurement on the basis of needs of the project and clients have been appreciated. Various analyses have been employed to evaluate the different options and requirements to be used in any given project.
The design and construct method that has been selected executes cost, time, risk, quality and the needs for the community and project due to the fact that the method of D&C have been taken into consideration as being suitable for temporary camp projects and simple designs.
Design and contract methods of procurement have become popular as an alternative to traditional procurement method’s in countries like the U.S.A that are developed all thanks to their significant advantages. Evaluation of this method has revealed the possibility of implementation of the constructability concept.
The selected procurement methodology of D&C can be changed to suit the requirements of the clients and projects simultaneously. Such method is quite beneficial to a client that is it will help in dealing with commercial and regulatory issues and completion of the project shall be within duration of the set time by having the stakeholders involved and ensuring that the project is as effective as possible in matters of cost.
As a result of its highly technical nature and significant risk transfer, when considering the EPC methodology, contractors should take into account risks and ensure that they fully understand them plus they should ensure that the legal representative or counsel has reviewed and gone through in detail the proposed contract.
The use of appropriate methods are not to be seen as a means of avoiding the weakness of the institution but should be viewed as an exceptional and temporal solution while continuing in the effort to strengthen the environment for competitive procurement.
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