Some years ago, I was involved in two neighbouring projects for KiwiRail – DART 1 and DART 2 – on completely separate procurement models. DART 1 was a lump sum as the design was able to be fully detailed, while DART 2 was constructed through an unpredictable terrain, and therefore leant itself to a more flexible ECI/target outturn model. Both projects were hugely successful, and this was due to spending time at the outset to select the right contractual models. 

More recently in Christchurch I have authored and tendered a number of other contract variants, including Early Contractor Involvement, Design and Build contracts and painshare / gainshare contracts.  

I have witnessed a number of projects where cost certainty is cited as the single most important parameter, normally for CAPEX budget and forecasting purposes – and sure, cost certainty can be quickly and easily attained by costing in significant contingencies to cover unknown elements, but this approach does not necessarily give least cost or best value assurance. Any subsequent cost under-runs are hailed as cost savings, but unless the cost certainty is linked to a best value solution, this is not at all accurate. 

I believe best value/least cost can only be achieved by identifying, developing, and tailoring the most appropriate procurement strategies, design briefs, specifications, risk management strategies and indeed forms of contract for the project. This includes considering and balancing the whole life costs of the project over the long term, including initial capital expenditure, operational and maintenance costs, all within the given time constraints. 

To achieve this, due respect needs to be given to understanding the projects drivers and having a thorough understanding of the current local and global constraints, including local resource availability, as well as the project’s risk profile. 

The first stage in this process is the development of a detailed scoping document for all project elements that captures all success criteria, constraints and project objectives. It is essential that we emphasise the importance of this to our clients and avoid the all too common scenario of squeezing a few odd hours into busy diaries to address this hugely important first project deliverable. 

I often smile when asking what a project’s drivers are, to be told “on time, on budget, to the right quality!” These are givens for any project, but interrogation of the REAL drivers and constraints will tease out what really defines the project’s success. 

Understanding time drivers and agreeing a master time schedule for overall project delivery also has a direct bearing on procurement strategy selection and therefore project cost modelling. It also allows for early identification of potential risk areas which may need to be accelerated, or else procured through fast-track mechanisms. 

Compiling a strategic risk register of each project element and a risk management plan is instrumental in analysing where the project risks lie, who is best placed to own them, and how contingencies should be constructed to mitigate. Only then can a procurement strategy be developed. This usually involves a workshop – or series of workshops – to consider: 

• The complexity of the element
• The risk profile 
• Best value versus cost certainty
• Requirements for and availability of local and international expertise
• Time constraints and lead-ins
• Industry best practice
• Contract form
• Management and control requirements 

The outcome of this process will be a clear procurement recommendation for each project element. It will also allow accurate planning of cashflow/drawdown requirements for the design phases. 

A further consideration within the procurement selection is the form of contract to be employed. (The perils of writing one’s own special conditions and amended clauses warrants a separate discussion, which I will resist entering into here!)  

Again, there are many contract options to choose from, including the New Zealand favourites NZS3910 and NZS:3916, international standards such as FIDIC and the new kid on the block – NEC. NZS:3910 and its derivatives can be adapted to cover most procurement forms, while FIDIC is suited to heavier engineering and infrastructure applications. NEC contracts are designed to promote collaborative working, and to stimulate good management of the relationship between the two contracting parties. NEC contracts use language and a structure which are straightforward and easily understood. Importantly, they incorporate early warning and resolution processes to arrest issues before they escalate, and clearly define the obligations and responsibilities of all parties. 

Nevertheless, the key to their success, as in all collaborative arrangements, is the effective establishment of project team relationships. 

One of the commonest pitfalls for a client and project team is to rush the front-end project initiation and analysis phase, which can lead to the establishment of procurement mechanisms that do not deliver best value, or are otherwise not appropriate for the project. Once established and adopted, it is not easy to alter these mechanisms, and for long-term projects and programs, this has significant effects on the project’s outcomes. 

Undertaking a detailed project initiation phase is a complex, onerous undertaking for a client, and should not be taken lightly. Done right however, it is undoubtedly the best and surest way to determine the right procurement strategy, the most appropriate contract form and to achieve best value for your project.