Essay About Feature Of The D&B Procurement Approach And Build Vs Concession Contract

Putrajaya International Convention Centre Case Study
2. 0 DESIGN & BUILD VS CONCESSION CONTRACT IN MALAYSIAN CONSTRUCTION INDUSTRY.DESIGN AND BUILD CONTRACTCONCESSION CONTRACTCASE STUDY  : “Putrajaya International Convention Centre (PICC)”[pic 1]The Putrajaya Convention Centre was completed in April 2003 at a cost of approximately RM600 million. The Putrajaya Convention Centre has a total area of 135,000 m2 inclusive of basement carparks and multi-level convention facilities at higher levels. The Plenary Hall is on the 1s Floor and surrounded by a ring of galleries, both VVIP and VIP lounges, a viewing deck and a conference hall. Perunding Mahir Bersatu Sdn. Bhd. Is the concept engineer for the Putrajaya Convention Centre and was subsequently assigned to be the Checking Engineer for Putrajaya Holdings Sdn. Bhd. Upon the completion of the tender exercise, IJM Corporation Sdn. Bhd. (IJM) was awarded the ‘Design and Build’ for Putrajaya Convention Centre. Sinclair Knight Merz Engineering Sdn. Bhd. (SKM) was then appointed by IJM as the contractor’s consulting engineer. Putrajaya Holding Sdn. Bhd., the Employer of this project was given a task to complete this project in time for the 11th Organisation of Islamic Conference (OIC) in October 2003. This commitment to host this conference resulted in a 22 months design and build contract.The brief from the Employer required not only a state-of-the art world class conference centre, but also an icon building, which can be a landmark for the country. Being sited on top of the highest hill is the Federal Administration Centre of Putrajaya, so nothing less than an icon building justifies its position. Working together with the architect Hijjas Kasturi, Perunding Mahir Bersatu Sdn. Bhd. produced the conceptual design and drawings with poundage for tender. Prior to the tender, the quantity surveyor worked out the preliminary estimated cost plan of the buildings for Putrajaya Holdings Sdn. Bhd. Seven (7) tenderers were pre – qualified and a competitive bid was held. Finally, IJM won and the tendered sum was close to the estimated budgetary cost submitted earlier by Putrajaya independent quantity surveyor.Putrajaya Convention Centre has achieved state-of-the-art world class standard and also it was completed with high quality within a record – breaking time of 22 months. The completion of the Putrajaya Convention Centre on time and on budget has in a way made known to the rest of the world the capabilities of the Malaysian construction industry as a whole. The design by the Architect was stunning and has off e red a lot of challenges to the structural engineer and the construction team, which were overcome professionally and skilfully.CASE STUDY :KEY FEATURES :Single point responsibilityCompressed delivery scheduleFair allocation of riskSuitable for complex projectsEnhanced communicationEffective client representationFacilitates use of latest innovative technologiesSingle point responsibility: Single point responsibility is being considered as the most distinguishing feature of the D&B procurement approach. The D&B procurement approach involves the client entering into a contract directly with the contractor without any mediating consultant, and the contractual position of the project lies solely between the client and the contractor (Seng & Yusuf 2006). The origin of the single point responsibility feature of the D&B procurement approach could be traced to the nature of some industries which are characterized by the manufacturer being responsible for providing one stop solution to its clients, ranging from facility design, and equipment selection to the adoption of the most suitable method in order to produce a required product (Beard et al., 2001). The single point responsibility nature of the D&B procurement approach makes the contractor completely liable for the performance of the completed project, even though any such problem or faults that emerge related to the completed project could be caused by the activities of the subcontractors that were involved in the construction process. This could be attributed to the fact that, in the D&B procurement approach, the contractor is known to be liable for all the contractual obligations and activities of subcontractors and suppliers that are involved in the D&B project. b) Complexity: The D&B is a procurement approach which is mostly adopted for use in large and complex projects. It is a procurement approach whose growing adoption by clients could be attributed to the lengthy and adversarial nature of the traditional procurement approach and also due to the growing complexity of today‟s construction projects (Abdul Rashid, 2002; Chan & Yu, 2005). Due to this fact, the system is mostly adopted for use in projects that are complex in nature, which necessitates the greater need for the effective planning of the D&B project from the onset in order to achieve a successful project execution. There is the need for the expert counsel of a consultant who can be in-house or could be outsourced, who is saddled with the responsibility from the project onset of carefully guiding the client towards effectively articulating his needs, to assist the client towards carefully evaluating the various proposals submitted by the bidding D&B contractors, and also to monitor the subsequent design development and the eventual construction of the project (Beard et al., 2001). (c) Risk allocation: Risk has been defined as the probability of occurrence of some uncertain, unpredictable and even undesirable events that could change the prospects for the profitability on a given investment (Hassim et al., 2008). D&B is a building procurement approach which is known to transfer to the contractor risks that are associated to the project more than any other procurement approach (Muhammed, 2005). The risk allocation nature of the D&B procurement approach could largely be attributed to its single point responsibility nature, where the D&B contractor is required to be in total responsibility of not only the design, but also the construction phases of the contract (Beard et al., 2001). (d) Compressed delivery schedule: The D&B procurement approach is characterized by having a schedule for delivering the construction project in a compressed manner, by which actual construction can be started even before theKEY FEATURES :A concession gives a private concessionaire responsibility not only for operation and maintenance of the assets but also for financing and managing all required investment.The concessionaire takes risk for the condition of the assets and for investment.A concession may be granted in relation to existing assets, an existing utility, or for extensive rehabilitation and extension of an existing asset (although often new build projects are called concessions).A concession is typically for a period of 25 to 30 years (i.e., long enough at least to fully amortize major initial investments).Asset ownership typically rests with the awarding authority and all rights in respect to those assets revert to the awarding authority at the end of the concession.General public is usually the customer and main source of revenue for the concessionaire.Often the concessionaire will be operating the existing assets from the outset of the concession – and so there will be immediate cashflow available to pay concessionaire, set aside for investment, service debt, etc.Unlike many management contracts, concessions are focused on outputs – i.e., the delivery of a service in accordance with performance standards. There is less focus on inputs – i.e., the concessionaire is left to determine how to achieve agreed performance standards, although there may be some requirements regarding frequency of asset renewal and consultation with the awarding authority or regulator on such key features as maintenance and renewal of assets, increase in capacity and asset replacement towards the end of the concession term.Some infrastructure services are deemed to be essential, and some are monopolies. Limits will probably be placed on the concessionaire – by law, through the contract or through regulation – on tariff levels. The concessionaire will need assurances that it will be able to finance its obligations and still maintain a profitable rate of return and so appropriate safeguards will need to be included in the project or in legislation.  It will also need to know that the tariffs will be affordable and so will need to do due diligence on customers.In many countries there are sectors where the total collection of tariffs does not cover the cost of operation of the assets let alone further investment. In these cases, a clear basis of alternative cost recovery will need be set out in the concession, whether from general subsidies, from taxation or from loans from government or other sources.The concept of a “concession” was first developed in France. As with affermages, the framework for the concession is set out in the law and the contract contains provisions specific to the project. Emphasis is placed in the law on the public nature of the arrangement (because the concessionaire has a direct relationship with the consumer) and safeguards are enshrined in the law to protect the consumer. Similar legal frameworks have been incorporated into civil law systems elsewhere.Under French law the concessionaire has the obligation to provide continuity of services (“la continuité du service public”), to treat all consumers equally (“l’égalité des usagers”) and to adapt the service according to changing needs (“l’adaptation du service”). In return, the concessionaire is protected against new concessions which would adversely affect the rights of the concessionaire. It is therefore important when considering concessions in civil law systems to understand what rights are already embodied in the law.Within the context of common law systems, the closest comparable legal structure is the BOT, which is typically for the purpose of constructing a facility or system.CONTRACTUAL STRUCTURE[pic 2]CONTRACTUAL STRUCTURE[pic 3]The concession contract is signed between the principal and the concessionaire. This contract runs from the initial design stage through the final transfer, and includes the allocation of risks. The main issues addressed within the concession contract are:• The length of the concession period; the starting date and the transfer date. • The structure of the project company (concessionaire). • The financial scheme. • The financial guarantees (principal and concessionaire). • The material guarantees (if the concessionaire is not able to deliver the facility, the principal has the right to “step in” and take over). • The financial ceiling of development costs. • The financial ceiling of usage costs. • The construction process. • The completion time of the construction.