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Chapter 2
Chapter 2 discussed the basic considerations leading to the Feasibility Studies Report.
Chapter 3
If the Feasibility Studies Report indicated that the project would be viable and worthwhile, then Chapter 3 dealt with the development of a suitable project strategy and the matters that an employer should consider before taking the project further.
Chapter 4
Chapter 4 discussed some aspects of managing the procurement process.
Chapter 5
Chapter 5 described the various types of contracts that are available and indicated which would be most satisfactory for the project in question.
Throughout all the above stages it is necessary for the employer to maintain strict control of the studies and
development work being carried out so that the costs are limited, so that the decisions taken are based on sound logic, and so that a reasonable time programme is followed. To this end the employer should ensure that he provides suitable leadership and continuity throughout these stages.
Contents
6.1 Employer’s management structure of procurement
6.1 Employer’s management structure of procurement 6.1.1 General
6.1.2 Use of consultants for studies 6.1.3 Design and project strategy decision 6.1.4 Tender stage
6.1.5 Continuity of consultant 6.1.6 Preparation of the manual
6.2 Project Strategy Manual 6.2.1 General 6.2.2 Finance 6.2.3 Budgeting
6.2.4 Payment to contractors 6.2.5 Other contents
Depending on the extent of the employer’s organisation, and if the project is not too complex, the employer may be able to develop the project in-house, i.e., with his own resources. However, during the initial studies period it is usual for an employer to engage a consultant, i.e., a suitable consulting engineering firm, to carry out these studies. The consultant will organise the various studies that are necessary and provide (or arrange for the provision of) the specialists in the required disciplines, e.g., geologists, cartographers, hydrologists, etc.
The consultant will need to have someone in the employer’s organisation as contact person with whom to liaise on many aspects of the work. For example, the employer may be required to provide existing maps and weather records, or to arrange for permits for the consultant’s staff to enter the land areas where the facility may be constructed. Thus it is essential for the employer to name one suitable person to this liaison
post. It is also essential that this liaison officer has the authority on behalf of the employer to provide the consultant with the necessary assistance, and to make decisions regarding the progress of the studies, without delaying the consultant’s work.
It can be frustrating for the consultant and adversely affect his work if the liaison officer is not capable, or not suitably empowered by the employer, or is frequently changed.
The studies’ phases of the project will probably be complete with the presentation of the Feasibility Studies Report including a proposal for a conceptual or preliminary design of the proposed facility. This stage will be followed by the stage for development of the design and, in due course, choice of the project strategy. Again the work during this design stage may usually be carried out by the consultant.
However, the specialists during this stage, e.g., doing the design work or considering the contractual aspects, may have different disciplines from those engaged in the earlier studies,
6.1.2 Use of consultants for studies
6.1.1 General
6 The Project Strategy
The conceptual or preliminary design phase leads into the development of the project strategy. No doubt the consultant will make recommendations as to the project strategy that will be most suitable for the project. However, the project strategy will depend also on the intentions and future plans of the employer.
Therefore the project strategy that will determine the further development and implementation of the project must be carefully considered and discussed in depth between the employer and his consultant. The consultant can explain and guide, but senior policy-makers of the employer should also be actively involved in the choice. The importance of a correct decision on the project strategy cannot be over-emphasised. The success or failure of the project will rest upon the
strategy chosen, and having started with one particular strategy, it is very difficult and very expensive to change to another strategy later on. For example, if it is first decided that the employer shall do the design, it is very difficult at a later stage to change to contractor-design;
or if it is decided to divide the project into several different contracts, it is difficult at a later stage to change the contract packaging; or if the employer has decided on a turnkey contract and then later decides to introduce extensive variations to the works, this is likely to cause serious problems and certainly considerable extra costs.
The decision on the project strategy to be followed will probably include the decision on which contract type(s) shall be utilised. Having reached this stage, it will be time to commence preparation of the tender dossier – the document that will be distributed by the employer to prospective tenderers. If the employer is to provide the design, then the tender dossier will contain the full design documentation, including technical specifications and drawings, to enable the contractor to construct the works. If the contractor is to design the works, then the tender dossier will only contain conceptual or preliminary design documentation and outline or performance-type specifications. Typically,
the consultant will prepare the tender dossier and its enclosed documentation on behalf of the employer.
Towards the latter stages of preparation of the tender dossier, the employer or his consultant will prepare the documentation for the prequalification of tenderers, and set in motion the prequalification procedures. In due course the tender dossier will be distributed to those tenderers who have been accepted as being prequalified. For control of these tendering procedures it is recommended that the employer appoints a ‘tendering co-ordinator’ as described in Section 4.3 above.
There are many advantages in having the same consultant who carries out the preliminary studies to continue with the design, and also with the subsequent stages, i.e., preparation of the tender dossier and tendering procedures, followed by supervision of the construction or installation work. In other words, to employ the same consultant throughout all stages of the development of the project. However, the consultant
must continue to show that he is suited to the various tasks, and he must maintain the confidence and trust of the employer. Some employers and funding agencies demand a change of the consultant before a new stage of the project on the grounds that the consultant might cover up in a subsequent stage a mistake made in an earlier stage. This unfortunately means that the advantages of retaining the same consultant, e.g., the
6.1.3 Design and project strategy decision
6.1.4. Tender stage
6.1.5 Continuity of consultant
although a large consulting firm should also have available these specialists. In any case, during this stage close contact with the employer by the design consultant will still be necessary. Matters may arise on a daily basis where input from the employer will be necessary, and therefore it is essential that the employer appoints a
suitable liaison person who is easily contactable by the consultant, and who has the employer’s authority to answer questions and make decisions.
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6.2 Project Strategy Manual
The Project Strategy Manual may be prepared to follow the headings given in Chapter 3 – Developing a Project Strategy. It should extract from the development process the matters that will be of importance during the implementation stage of the project. The principles and decisions set out in the manual should then be followed by all the employer’s staff.
It is most important to follow without deviation the adopted decisions throughout the whole implementation stage. Much confusion can be caused if changes are made to the adopted philosophy during implementation, with consequent time and cost effects. To change the type of contract, for example, during implementation is almost impossible. To change the time programme, or to change the scope of work, or make other radical changes of another type during the
implementation stage will, as a minimum, cause a variation to the contractor’s work, and may, as a maximum, lead to serious difficulties, complications and argument, with possible termination of the contract as a final result.
The Project Strategy Manual should therefore be prepared with care, and should be made available to all the employer’s management and project staff, and it should be obligatory that all follow the directions and procedures set out in the manual. It may also be useful for the manual to be made available to the project financiers, government policy-makers, and others concerned.
The manual should commence with an outline description of the project as a whole, and of the various contracts involved in the project, if there are to be several contracts. If it is a large and/or complicated project, the description of the whole project might be followed by a more detailed description of the particular contract or discipline in question, for use by those involved with only specific parts.
6.2.1 General
The provision of sufficient funds to finance the implementation of the facility, and thereafter its operation and maintenance, is a primary duty of the employer. The manual should state where finance for the project, and for each contract, is being obtained. It should include any regulations, restrictions or obligations imposed by those providing the finance, which must be complied with by the employer’s staff.
There should be a cash-flow diagram indicating the expected
cash-flow requirements throughout the implementation period, together with any maximum or minimum limitations to
applications for periodic funds.
Procedures for applications for funds by the employer, together with information about time notices required, possible securities required by the financiers, standard form for the employer’s application, required signatories, their powers of
6.2.2 Finance
This Chapter 6 follows on the previous chapters by discussing the requirements necessary for the employer to ensure that the strategy he has decided upon is followed and will lead to successful procurement of suitable contractors and ensure the successful implementation of the project. This chapter also points to the necessity to categorically record the project strategy that has been decided upon. This is best done in the form of a Project Strategy Manual which will be distributed to the employer’s management staff and project
team. The procedures set out in the manual are expected to be strictly followed by all the employer’s staff.
The manual will also serve to record the bases for the decisions made in the development of the project strategy.
This will be invaluable at later stages of the project when questions may be raised about decisions taken earlier, and when possible re-evaluation of aspects of the project are undertaken.
consultant’s familiarity with the project, and often with its background, and the built-up co-operation and trust with the employer’s organisation, will be lost. It will take time for the
new consultant to assimilate the project history and to develop a close working relationship with the employer.
6.1.6 Preparation of the manual
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The Project Strategy Manual should state which department or person within the employer’s organisation is responsible for preparing the project budget, both the overall budget and also the detailed budgets for each contract within the project, as well as the costs for the employer’s staff and other expenses, as indicated in Section 3.4 above. The budgets should be monitored and updated at regular intervals. They should include procedures for early warning in case any particular budget provision is likely to be exceeded, so that the employer can be made aware of the situation and steps taken in time to control the expenditure.
As stated in Section 3.4 above, it is prudent for an employer to include adequate contingency
allowances in his budgets. Firm restrictions should be placed on the use of such contingencies, but most projects need variations of one type or another, as it is impossible to foresee all eventualities that may occur on an engineering project. This is even often true in the case of so-called fixed-price turnkey contracts. Such
variations or unforeseen eventualities usually result in the
genuine requirement for extra payment from the employer. It is not therefore prudent for an employer to refuse to include a contingency allowance in a contract, because as soon as a genuine requirement for extra payment to the contractor arises the employer does not have funds available, and the process of organising further funds can take a long time.
6.2.3 Budgeting
attorney, and the documentation to be attached to periodic applications and to final applications, should be included. The manual should also contain precise information concerning who in the employer’s organisation may sign applications for funds, any limitations to such authority, as well as complete addresses and other practical information regarding submission of applications for funds.
The manual should contain full information of all bank or other guarantees or securities required from contractors and others during the project implementation
period and any guarantee periods. Those within the employer’s organisation responsible for handling, preserving and safeguarding all such securities should be stated.
Employers should not forget to include in their budget requirements sufficient funds for financing the Dispute Adjudication Board.
The manual should include details of the full procedure for obtaining periodic and final payment applications from the contractor(s). Such details should cover the times when applications for interim payments may be submitted, or, if applicable, the milestones that need to be reached before an application can be made.
It should be stated precisely which documents should accompany a payment application from a contractor, and who should sign such documents or how they should be verified.
How the works completed by the contractor should be measured or certified for payment will normally be set out in the relevant clauses of the contract.
However, for the sake of clarity, and for the information of staff (for example, in the finance department, who might not be familiar with the details of the contract), the requirements for acceptance or otherwise of the contractors’ invoices or statements should also be set out in the manual. The procedure to be followed in case there is disagreement between the contractor and the
6.2.4 Payment to contractors
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measurement engineer or other person certifying the payment due should also be set out in the manual for the avoidance of confusion resulting in possible late payment to the contractor.
The employer’s staff should be made aware in the manual of the serious consequences of payments being made late to contractors, not only the payment of interest or financing charges, but the eventual claim for damages or even termination. A contractor is dependent on receiving his due payments in time, which can be called his ‘lifeblood’. Late payment will not only undermine the relationship between the parties, but may also cause cash-flow problems for the contractor that may have serious adverse effects on his business.
All too often staff in employers’ organisations have not understood the seriousness to the contractor when payments are made late. Sometimes late payment is not at all the fault of an employer, but is due to ‘red tape’ along the payment line, even in the financier’s organisation. Therefore it is essential for the employer to consider when preparing the tender dossier and before signing any contract that he and his staff can abide by the times for payment specified in the contract. If the employer believes that he may have difficulty in making payment to the contractor within the time specified in the contract, then it is far better for him to increase the specified time period to one with which he can comply.
A Project Strategy Manual typically also includes, together with any other specific project matters, such matters as:
- land/property acquisition - technical and design standards - environmental policy
- planning/programming
- risk identification, assessment and management - cost control
- health and safety policy - training
- contract details - public relations policy
- purchasing/expediting/inspection
- quality control/assurance standards and procedure.