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TENDERS The Management of Design Once a firm decision has been made to proceed with the project, the detailed design can begin. This ends with detailed drawings, documents to enable tenders to be called and construction to proceed. Important in the design phase are: • the definition and co-ordination of various activities • the selecting of the design team • the setting of a time scale • the determination of the resources required • the setting of standards • the co-ordination and production of project documentation • the control of cost of the design process • will the project be carried out in stages? • the engagement and management of consultants it is desirable to focus the detailed design and avoid unnecessary change, this depends on the degree of complexity/maturity of technology in the project, new and complex technology is more prone to change in the development process. task definition and team building in-house team - define the tasks, place them in a sequence, and then identify the expertise needed. in a matrix type org., this will require the recruitment of the most suitable people from specific expert groups. in many cases consultants will be engaged to handle specific matters. r + d should be given a realistic allowance of time design and development could be in the range of 30% of the total cost in a complex project, down to 3 to 5% in a simple project with a lot of repetition. planning the time scale Consideration must be given to the available resource • do expert staff have to be recruited locally or overseas? • are special training programs needed? • do computer systems have to be established? Competent designers will be aware of regulations, but the PM has the overall responsibility to ensure that areas where conformity is required are identified, that proper procedures are put in place, and that the requirements of regulations are satisfied. Where there are no well defined standards, set them. Project manuals have to be written to ensure that a degree of co-ordination is there. total quality management Setting of standards is part of TQM. It must be established early on in the project control of cost This phase is a significant component of project cost and needs to be controlled. external consultants should be given well defined briefs and if possible engaged for a defined fee. Consulting engineers or architects belong to their professional society, and this forms a basis for the negotiation of fees. The work of internal groups should be monitored and their performance and cost measured. life cycle planning it is important in design to consider all the phases in the life of the project. • have the requirements of ease of construction been met? • have the requirements of maintenance and operation been met? • have the requirements of phasing out and obsolescence been met? a proper economic analysis will take into account: • initial capital cost • cost and benefits during operation • costs of termination • residual value of project with discounted cash flow technique to take proper account of the time effects a higher initial capital cost may result in a project commencing to earn at an earlier time, and lower operating and maintenance costs. the use of computer based systems systems can be used for producing working drawings (autoCad). is appropriate software available? • programming BASIC, FORTRAN, Pascal, C • mathematical and statistical packages • word processing and DTP • spreadsheets, databases • intelligent systems • networking, resources planning and cost control • routine design to codes of practice • system analysis packages (CASE) • accounting and cost control • graphics, static and dynamic • CAD, drafting and production selecting equipment - PCs? workstations? Apple Mac? Networks? remember staff training, esp. for resource scheduling software, and updating check running & maintenance costs, availability of maintenance paperless office? e-mail, a great bonus to a large project team with off-site members office management the design of the office is important - for efficient working layout to allow work flow staff should not disturb each other provide for telephone conversations and meetings furniture comfortable and functional filing and record systems - storage and display plans reference material - books, journals, trade data, other specifics Standards Association of Australia provides regular updating services much of this info is on CD ROM. Internet, other database services giving direct access to v.large databases PROJECT DOCUMENTATION 3 Main Functions 1 it is the principal means by which the designer communicates his/her concept to the client, the contractor, and other bodies (e.g. regulatory) 2 it defines the legal basis of the contract 3 it forms a record of events as the contract proceeds the project documentation contains: • the drawings and schedules • the specification • the general conditions of contract • invitation to tender • the form of tender • the formal agreement • the bill of quantities as the work proceeds • the priced bill of quantities with schedule rate • correspondence, minutes of meetings • records of observations, measurements, photographs • financial documents initial planning of documentation is important drawings should be logically arranged and indexed notes on drawings important, to supplement the info, there should be an issue date and an amendment block. [all things should be dated, versioned and initialled] following through of amendments is critical redundancy or repeated information - suggested to be a desirable feature of good comm (?) excessive redundancy in drawings can cause problems when amendments have to be done use standard drawings for components which occur frequently (e.g. interior design 'bush' 'tree' etc.) most large orgs. do this to save trivial drafting (and decreased potential for error) partnering - removing the adversarial approach to contracts once the contract is awarded. If a Bill of Quantities is used it may be prepared by a Quantity Surveyor, and care is needed to check that it is accurate. Specifications the writing of good specifications is an art. too often these are now "cut and paste" from word processing. before including everything that anyone has ever thought of, consider carefully the function of the specification and what you wish to achieve. it supplements the drawings and provides info which is better provided in the written form. the specification is one of the critical links in the QA and Qcontrol processes. badly written spec -> ill defined QS, risk of contractual disputes serves the following functions:- • it defines the scope of the work in general terms, together with any contract management requirements not included in the general conditions • it defines technical matters such as required quality and processes generally, specification clauses can be written in the following ways:- • specific: the quality required and the method of achievement are closely defined • open or functional: the quality and end result are defined and the contractor is left free to choose the method. the specific method may also require the use of a particular product from a particular manufacturer. avoid negative clauses - with the words 'should no' The Calling and Assessment of Tenders OPEN TENDERING tenders are publicly advertised and anyone may submit a tender. A fee is often charged for documents, and adverts say that the lowest tender, or any tender, will not necessarily be accepted. INVITATION TO REGISTER invited to register by submitting their names and evidence of their ability to carry out the work. the evidence will include technical, managerial and financial ability, consortia may also register list of registrants is examined, and a limited no of applicants are invited to submit tenders some orgs. do this annually, and keep a list of tender submissions. INVITATION TO TENDER a limited no of firms, or a single firm, is invited to tender. will require negotiating skills to be exercised by both parties the practice followed by any specific org. will depend on legislative controls exercised over the org., and the desire to fully explore the available field of tender submissions, and the desire to avoid nuisance tender submissions (from those incapable) it is important that those calling tenders are ethical in their behaviour. confidentiality must be preserved, and all tenders must be fairly processed. if there are rules for closing times and submission procedures these must be clearly adhered to. all tenders should be opened at the same time, preferably with a witness. the cost of preparing tenders can be substantial. tenderers do not wish to enter for jobs they have little hope of gaining. in the interest of all concerned, tendering practices should be well defined. IMPORTANT: what is the technical, financial, managerial capacity of the tenderer? do they have the staff, org and equipment? can they finance the work? what references do they have? what is their technical and financial track record? are there any unresolved issues? are their subcontractors and suppliers reputable? when evaluating the tenders, be careful to record the reason for not accepting the lowest tender. when all matters have been resolved a comprehensive report should be prepared for the client setting out any critical issues which have arisen and giving a firm recommendation for the award of the contract. if the tenders are unsatisfactory, or will not meet the client's budget, the client should be informed as soon as possible and a decision sought on the action the client requires. if tenders are unsatisfactory it may be necessary to re-tender or modify the project. if prices are too high the client may be able to seek additional funds, to delay the project or modify the project. the client may also be able to negotiate with the most favourble tenderers to achieve an acceptable outcome. bidding strategy the tenderer's tender will include a markup for profit. there are other advantages such as keeping a team together for a future project, achieving economies of scale and effective use of resources by having several projects in one area. effect of the uncertainty of cost estimation on the tendering process? average mark up Equity capital E shareholders expect a rate of return r overheads O servicing debt d annual turnover T cost of project will be T - O - d - (0.01r x E) the markup will be O + d + (0.01r x E) ___________________ x 100% T - (O + d + (0.01r x E) this markup is applied to the total project cost of all contracts. a further % markup for contigency may be added balance between debt and equity funding while return on equity capital must be provided in the longer term, short-term fluctuations can be ironed out by reducing dividends in any given year. debt capital must be serviced, it must also be repaid or renewed when its term expires, the effect of variability in estimates an estimate is made up by adding together a series of items, each of which has some level of uncertainty. If we assume that the possible values for each item can be represented by a normal distribution having mean m and standard deviation s, then we know from statistical theory that, provided the items are uncorrelated, the distribution of the sum of the items will have (m) and a variance (s2) or a standard deviation, ((s2))0.5. if we assume all item means are equal, and all standard deviations are equal, the mean of the sum is Nm and the standard deviation of the sum is (Ns2)0.5. This implies that if we estimate an item with the maximum error of 10%, the error of the sum will be in the order of 10/N0.5 %, over 100 items 1%. Thus, unless the estimator has a personal bias which will shift the mean up or down, the percentage error, due to random causes, in the sum of a large number of items will reduce as the number of items increases. unfortunately, errors in estimates are often in one direction. also - in most projects, around 20% of the items constribute 80% of the cost of an estimate. the effect of uncertainty in bidding can be demonstrated by using a simulation technique (Monte Carlo method). this technique assumes that the probability distribution function for a particular parameter is known. In our case it will be the actual cost of construction for a particular project in an uncertain environment, and relies on the assumption that the project could be repeated a larger number of times in the same environment to obtain the distribution. summarising the main points • the mark up needs to take into account expected profit on equity capital • the effect of servicing debt capital and general overhead must be considered • the effect of order of accuracy of estimates and number of competing bidders must be considered • it is essential to understand the forces operating in the market • the control of the work during construction is important, both to achieve targets and to offset unforeseen random errors • the short term borrowing of money to maintain cash flow during a project may be critical there is more to securing tenders than estimating an appropriate price and markups, also risk taking and negotiation. the reading of the market and the political interactions are also important, part. when terndering overseas in countries where the local customs may be different. NEGOTIATION important process in achieving a final result (and important in all phases of PM) Raiffa(1982) buyer and seller want to strike a bargain about buying a house. the buyer has 2 limits LB , the lowest bid, what she would like to pay UB, the upper bid, the price she can afford the seller has 2 limits US, the upper sales price, what the seller would like to get LS, the lower sales price, what is the lowest the seller can accept these values can be represented on a line zone of agreement !<--------------------->! o------------!------------------------!-------------X-----------!-----------------------!--------------------------> price LB LS UB US note: ig UB < LS no agreement is possible the zone of agreement represents the range of values in which a sale is possible. the buyer will wish to move as close as possible to LS, and the seller will wish to move as close as possible to UB. the process of negotiation determines an acceptable point X within the zone of agreement. the assessment of the points for the other party is a critical issue. the buyer needs to assess LS. the seller needs to assess UB. the two parties will move to settlement point X by a series of strategic moves.
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