SASKA CONSTRUCTION

Projects Analysis Report

For Nissan Company
2/5/2014

ANALYSTS 1. EVARIST RUHAZWE 2.

MEMO
TO: NISSAN COMPANY FROM: EVARIST RUHAZWE & .. ,ANALYSTS DATE: Feb 6, 2014 SUBJECT: CONSTRUCTION PROJECT ANALYSIS REPORT

INTRODUCTION
The program involves two projects with differences in (among many other differences) size, complexity, technology involvement and urgency. With that a technical guide to project delivery system, financial contract type and procurement methods is essential to meet the companys goals on the projects specified. The projects have to be analyzed separately and for each method a decision has to be obtained.

Project Characteristics
The following are the consideration of the project characteristics (for each project type) which are expected to affect the choices in the project. A. The Production facility This project includes the following characteristics a) Time constraint/Urgency The project involves the time constraints which will influence on the choice of the Project delivery method. b) Money constraint Following the nature of the project, there is no limitation of funding to the project. Hence, Funding resources has little or no influence to the delivery of the project. c) Technology involvement. The Project involves high and modern Technology. Improper selection of delivery process might cause the presence of changes in design and construction during execution of the project which may lead to late delivery and Compromise of quality d) Complexity The project involves many sub-systems and processes which might be dependent or independent. Lack of proper project management from the design process might lead to the later completion and excessive increase in costs. e) Quality control During the execution of the project several tests are expected to be done to ensure quality B. The Office building This project includes the following characteristics a) Time constraint/Urgency The project involves the time constraints which will influence on the choice of the Project delivery method. b) Money constraint Following the nature of the project, there is no limitation of funding to the project. Hence, Funding resources has little or no influence to the delivery of the project. c) Technology involvement. 1

The Project involves high and modern Technology. Improper selection of delivery process might cause the presence of changes in design and construction during execution of the project which may lead to late delivery and Compromise of quality d) Complexity The project involves many sub-systems and processes which might be dependent or independent. Lack of proper project management from the design process might lead to the later completion and excessive increase in costs. e) Quality control During the execution of the project several tests are expected to be done to ensure quality

The Owner characteristics

The owner seems to be unfamiliar with such kinds of projects, and therefore needs to involve some expertise for such project. The president of the company needs to have control even to smallest matters of the company and hence there is a need to have a systematic way of avoiding disputes.

Market characteristics
There is an existence of experienced contractors but they are unfamiliar with the location at which the project will be located. Only one of them has worked at the area around Nashville.

EXECUTIVE SUMMARY
Our team has then used an evaluation matrix as a tool to professionally arrive at a best approach of the project execution. Each project was analyzed differently and the decision for each part was arrived at. For the Production facility, a design build approach, appeared to be the best delivery method, Cost-Plus as the best financial contract term and Negotiated Type as the best procurement approach. The involvement of design build approach will help the owner who doesnt have the in-house expertise to involve a team which For the Office building, a Pure Construction Manager approach was chosen as the best delivery method, Stipulated Lump Sum as the best financial contract type and the Competitive bid as the best procurement approach. The involvement of the construction Manager in this will help the owner to give an account to the funding agency and help to solve any arising conflict.

Contents
MEMO ............................................................................................................................................ 1 INTRODUCTION ...................................................................................................................... 1 Project Characteristics ................................................................................................................ 1 The Owner characteristics........................................................................................................... 2 Market characteristics ................................................................................................................. 2 EXECUTIVE SUMMARY ........................................................................................................ 2 1 PRODUCTION FACILITY CONSTRUCTION .................................................................... 5 1.1 PROJECT DELIVERY SYSTEMS ................................................................................. 5 Time constraint/Urgency .......................................................................................... 5 Financial Constraint .................................................................................................. 6 High and New technology involvement ................................................................... 6 Complexity of the project ......................................................................................... 6 Summary ................................................................................................................... 7 Time constraint/Urgency .......................................................................................... 7 Financial Constraint .................................................................................................. 7 High and New technology involvement ................................................................... 8 Complexity of the project ......................................................................................... 8 Summary results of the Analysis .............................................................................. 9 Time constraint/Urgency .......................................................................................... 9 Financial Constraint .................................................................................................. 9 High and New technology involvement ................................................................. 10 Complexity of the project ....................................................................................... 10 Summary and recommendation .............................................................................. 10 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.2 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.3 1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 2 2.1

FINANCIAL CONTRACT TYPE ................................................................................... 7

PROCUREMENT METHODS ........................................................................................ 9

OFFICE BUILDING ............................................................................................................ 11 PROJECT DELIVERY SYSTEMS ............................................................................... 11 Technically-Phased Construction ........................................................................... 12 Financial Constraint ................................................................................................ 12 Disputes possibility ................................................................................................. 12 Public Interest-Government funded ........................................................................ 12 Local minority workers involvement ...................................................................... 13 Summary ................................................................................................................. 13 3 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6

2.2

FINANCIAL CONTRACT TYPE ................................................................................. 14 Technically-Phased Construction ........................................................................... 14 Money/Financial Constraint.................................................................................... 14 Disputes Possibility................................................................................................. 14 Public Interest-Government funded ........................................................................ 15 Local minority workers ........................................................................................... 15 Summary of Analysis .............................................................................................. 15 Technically-Phased Construction ........................................................................... 16 Financial Constraint ................................................................................................ 16 Disputes Possibility................................................................................................. 16 Public Interest-Government funded ........................................................................ 16 Local minority workers ........................................................................................... 17 Summary ................................................................................................................. 17

2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.6 2.3 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6

PROCUREMENT METHODS ...................................................................................... 16

1 PRODUCTION FACILITY CONSTRUCTION

Our team has then used an evaluation matrix as a tool to professionally arrive at a best approach of the project execution. The above characteristics are then used as criteria for use during selection of the best approach. Different steps were used in this method Determination of the weighting factors for each criteria Using a range of 1 to 100(percentage), the different criteria were assigned different weights depending on the importance of each criteria over the other. Below is a table showing the different weights used for each criteria. Criteria Weight Details The project needs to be delivered within six months despite its Time 35 complexity and involvement in high technology. In that case it Constraint/urgency is urgent and given weight of There is no funding limitation, hence the weight for finances Money Constraint 10 limitation is low The involvement of high and new technology makes it deserve High& New 30 a weight of 25%. This is because the company gives the new Technology technology a priority so as toits competitors involvement The project involves a lot of different sections and units to be Complexity of 25 built as a whole. 20% weight is therefore given to reflect this project complexity of project Determination of the scores of each criteria per each delivery method, financial contract type or procurement method Using a score range of 1 through 10, each criteria was assigned a score for each procurement alternative. The analysis was done separately for delivery system, financial contract type and procurement method as shown in the next section.

1.1 PROJECT DELIVERY SYSTEMS

Considering the present project delivery systems which are Design-Bid-Build (DBB), DesignBuild(DB), CM at risk(CM@R) and Pure CM(PCM), the scores were given per each criteria depending on the strength and weakness of each system. The description of each criterion per delivery method given is as follows 1.1.1 Time constraint/Urgency As far as time serving is concerned, DB and CM@R shows greater time serving than DBB approach. The following accounts for that Method Score Details DBB 2 Is a slow process so, wont be a good choice for this type of project. Given a score of 2 DB 8 It is good for the urgent process as both design and build can go simultaneously. A little bit faster than CMAR CM CM@Risk 7 Faster than DBB due to presence of management team and involvement of the contractor from the beginning 5

1.1.2 Financial Constraint As far as cost serving is concerned, DBB shows greater success than the rest of the methods. This is because it allows competition between different companies in which the lowest bid is selected. Following is a summary of the Methods and scores assigned. DBB 8 The process is good is cost saving as the lowest bid wins the contract: score DB 4 Lack of competition among different contractors and high contractor risk can cause high initial costs CM CM@Risk 6 More costs is associated here due to reduced competition on contractor pricing. However, good management by CM can save a great deal of costs. 1.1.3 High and New technology involvement This is best done using the method of DB because a contractor input is done from the beginning. DBB 4 Not good for high and new tech project, there can be unforeseen circumstances which doesnt DB 9 The Contractor involvement from beginning, consideration of contractor quality and capability makes it a good fit for this project type. CM CM@Risk 6 This is good method for project of this type. CM involvement in the whole process helps in ensuring a successful execution of a project. 1.1.4 Complexity of the project CM at risk and PCM are good at projects of this type. There is high need of planning, organizing and co-ordinating different entities to ensure good end-result DBB 4 Difficult for complex project since it needs a clearly defined project from the beginning, proper planning and organizing and requires involved parties to work together from the beginning. DB 6 It is better than DBB, since it involves the capable contractors. CM CM@Risk 7 Multiple phases and large technical complexity is possible due to high level of management

1.1.5 Summary In Summary, the scores are as shown in the table below
PROJECT NO. 1

Goals/Criteria

Criteria Weight

Project Deliverly Systems Design-Bid-Build Scor e Weighted Score=Criteri a Weight x Score Design Build Scor e Weighted Score=Criteri a Weight x Score CM at Risk Scor e Weighted Score=Criteri a Weight x Score

Time Constraint Money Constraint High& New Technology involvement Complexity of project Total

35 10 30 25 100

2 8 4 4

70 80 120 100 370

8 2 8 7

280 20 240 175

715

7 6 6 6

245 60 180 150

635

According to this Design Build seems to be the best way

1.2 FINANCIAL CONTRACT TYPE

Financial contract types existing are Stipulated Lump Sum (Stipulated LS), Unit Price, CostPlus, and Guaranteed Maximum Price (GMP). Each of the criteria was then analyzed against the said Financial contract types existing, to achieve 1.2.1 Time constraint/Urgency As far as time serving is concerned, Cost plus shows its best application since no need to determine the total cost of the project Method Score Details Stipulated 3 This is a very slow process since fixed overall price has to be LS determined. Contractors are allowed to come with a fixed Unit 4 Also a slow process since the cost of each item needs to be Price determined Cost-Plus 9 The method doesnt need determination of overall cost. Only the project scope needs to be defined GMP 7 The method is also faster as no actual price is needed for this. 1.2.2 Financial Constraint Stipulated Lump sum shows great deal in saving the cost. It tends to reduce the cost growth since a fixed amount is defined Method Score Details 7

Stipulated 7 LS Unit 6 Price Cost-Plus 2 GMP 4

Presence of fixed amount tends to reduce the cost growth. However, variation occurring can affect the overall price Its good in cost saving since it allows prior knowledge of the costs Unlimited growth in cost since it gives no limit for cost implication It prevents cost growth by setting a maximum value, hence better than Cost-Plus. However high initial cost can be set due to high risk to a contractor or CM

1.2.3 High and New technology involvement Such projects involve a lot of inputs and are subjected to introduction of new ideas through the execution of project. Cost plus and GMP are good to be applied here. Method Score Details Stipulated 5 Requires everything to be defined prior construction hence not the LS best alternative Unit 6 Not suitable because it is difficult to know all the costs units and Price resources to be involved. It can be applied though under situation where the resources to be involved are known Cost-Plus 8 Good for this kind of project, its hard to get all costs to be associated at the beginning GMP 8 Good for this project since actual costs cannot be found 1.2.4 Complexity of the project Cost plus and GMP are good at projects of this type. It is very difficult to get the actual cost of construction from the beginning of the project Method Score Details Stipulated 3 Very hard to find the total price under lump sum project type. LS Unit 5 Involvement of many units Price Cost-Plus 7 Its good for this kind of projects as costs need not be determined at the beginning. GMP 9 GMP can be applied in complex projects especially when a

1.2.5 Summary results of the Analysis

PROJECT NO. 1 Goals/Criteria Criteria Weight

Stipulated LS
Score Weighted Score=Criteria Weight x Score

Project Deliverly Systems Unit Price Cost Plus

Score Weighted Score=Criteria Weight x Score Score Weighted Score=Criteria Weight x Score

GMP
Score Weighted Score=Criteria Weight x Score

Time Constraint Money Constraint High& New Technology involvement Complexity of project Total

35 10 30

3 7 5 3

105 70 150

4 6 6 5

140 60 180

9 2 8 8

315 20 240

7 4 8 9

245 40 240

25 100

75 400

125 505

200 775

225 750

As far as the financial contract is concerned, Cost-Plus Method is a best choice

1.3 PROCUREMENT METHODS

Procurement can be done through, Competitive bidding, Negotiation, or best value. The use of each method depends upon the characteristics involved in a particular project. Again a detailed analysis to determine the appropriate method is done below. 1.3.1 Time constraint/Urgency As far as time serving is concerned, negotiated bid Method Score Details Competitive 5 Takes time till the execution of the project. Evaluation of bid contractors has to be done. Negotiated 9 Negotiated contracts are faster since they dont involve the traditional bidding process. Best value 4 It also takes time in the execution of it since, evaluation of contractors has to be done 1.3.2 Financial Constraint Competitive bid is always good for obtaining the least cost among alternatives. Method Score Details Competitive 8 The method is good to get the lowest bid bid Negotiated 5 The costs can go high in negotiated bids since the contractor takes bigger risk Best value 6 The costs can be higher than Competitive bid since the quality of the contractor is involved 9

1.3.3 High and New technology involvement Involvement of new technology serves the best on negotiated type of contract. Method Score Details Competitive 3 This type doesnt allow innovations since the contractors dont bid participate from the beginning Negotiated 8 Best for this type of project as it brings both parties together from the beginning. It also can involve incentives and bonuses depending on the quality of the product. Best value 6 Best value also works well since it involves the quality of the contractor into consideration. 1.3.4 Complexity of the project Negotiated bid is also good for the complex projects. Both parties work together from the planning stage to organize the whole project. Method Score Details Competitive 4 For complex projects this approach may not be good. bid Negotiated 9 Works good for this type of project. Contractors and subcontractors all working for the project from the beginning. Best value 6 It is also good for the complex project. 1.3.5 Summary and recommendation PROJECT NO. 1 Project Delivery Systems Negotiated Best value Weighted Score=Criter ia Weight x Score
140 60 180 150

Goals/Criteria

Criteri a Weigh Competitive t Scor e

Weighted Score=Criter Scor ia Weight x e Score

Weighted Score=Criter Scor ia Weight x e Score 4 6 6 6

35 175 315 5 9 Time Constraint 10 80 50 8 5 Money Constraint High& New 30 90 240 3 8 Technology involvement Complexity of 25 100 225 4 9 project 100 445 830 Total As far as the Procurement type is concerned, Negotiated is a best choice

530

10

2 OFFICE BUILDING
Using the characteristics described in section 2 above, criteria were selected and several steps used to arrive at the desired decision. The following are the steps followed to arrive at the desired decision. Determination of the weighting factors for each criteria Using a range of 1 to 100(percentage), the different criteria were assigned different weights depending on the importance of each criteria over the other. Below is a table showing the different weights used for each criterion.

Criteria TechnicallyPhased Construction Money constraint Disputes Possibility Public InterestGovernment funded Local minority workers

Weight Details The construction has to have good organization as the space availability is time dependent.
15 30

10

30

15

The project has limited funding so more weight is given to this criteria Involvement of government representative with bad reputation places a company in a position of high risk of involvement in disputes. The project has a public interest as the government has got a hand in it. Therefore documenting and proper execution of project is required There should be an involvement of local minority workers in the project. Hence this criterion can influence the choice of appropriate method.

Determination of the scores of each criteria per each delivery method, financial contract type or procurement method Using a score range of 1 through 10, each criteria was assigned a score for each procurement alternative. The analysis was done separately for delivery system, financial contract type and procurement method as shown in the next section.

2.1 PROJECT DELIVERY SYSTEMS

Considering the present project delivery systems which are Design-Bid-Build (DBB), DesignBuild(DB), CM at risk(CM@R) and Pure CM(PCM), the scores were given per each criteria depending on the strength and weakness of each system. The description of each criterion per delivery method given is as follows

11

2.1.1 Technically-Phased Construction As far as phased construction is concerned, CM@R shows greater possibility of dealing with such projects. Method Score Details DBB 2 Having a phased construction needs to consider a lot of factors DB 8 It is not a good approach since there is a limitation of space and PCM 7 CM@Risk 6 It is very good 2.1.2 Financial Constraint As far as cost serving is concerned, DBB shows greater success than the rest of the methods. This is because it allows competition between different companies in which the lowest bid is selected. Following is a summary of the Methods and scores assigned. DBB 8 The process is good is cost saving as the lowest bid wins the contract: score DB 4 Lack of competition among different contractors and high contractor risk can cause high initial costs PCM 7 It is good since the CM is responsible to see the projects, deadline and budgets are met. CM@Risk 6 More costs is associated here due to reduced competition on contractor pricing. However, good management by CM can save a great deal of costs. 2.1.3 Disputes possibility This is best done using the method of PCM a CM working hand in hand with the owner creates good environment. DBB 4 Not good for handling the disputes since the involved entities dont work as a team from the beginning. DB 6 It is good for handling disputes and but still it needs careful application PCM 9 It is good as a CM works hand in hand with the Owner to make sure nothing goes wrong CM@Risk 7 The project needs to involve the 2.1.4 Public Interest-Government funded For the government funded project where accountability is important either PCM or the DBB is good alternative DBB 8 It is good for this type of project since there is linear execution of the project and the level of accountability is high DB 4 It is not a good option for this kind of the project since there is lower level of accountability of Contractor and risk involvement is high PCM 8 It is a good option since the CM will work hand in hand with the owner to ensure that there is enough transparency and accountability 12

CM@ Risk

It is also good for the public funded project

2.1.5 Local minority workers involvement Involvement of the local minority workers, is best suited by PCM and DBB methods. DBB 7 It is highly feasible with this type since contractor risk is low DB 4 Hard to apply here since the contractors tend to minimize risk by employing the experienced personnel PCM 6 It is good since the CM will make certain control to ensure proper utilization of resources CM@ 8 It is good since CM will be in-charge for the project. Risk 2.1.6 Summary In Summary, the scores are as shown in the table below

PROJECT NO. 1
Goals/Criteria Criteri a Weigh t Project Deliverly Systems Design-Bid-Build Score Weighted Score=Crit eria Weight x Score Design Build Score Weighted Score=Crit eria Weight x Score Score PCM Weighted Score=Crit eria Weight x Score CM at Risk Score Weighted Score=Crit eria Weight x Score

TechnicallyPhased Construction Money constraint Disputes Possibility Public InterestGovernment funded Local minority workers Total

15

30

120

105

90

30 10 30

8 4 8

240 40 240

4 6 4

120 60 120

7 9 8

210 90 240

6 7 6

180 70 180

15

105

60

90

120 640

100 655 480 735 According to this PCM seems to be the best way for the execution of this project

13

2.2 FINANCIAL CONTRACT TYPE

Financial contract types existing are Stipulated Lump Sum (Stipulated LS), Unit Price, CostPlus, and Guaranteed Maximum Price (GMP). Each of the criteria was then analyzed against the said Financial contract types existing, to achieve 2.2.1 Technically-Phased Construction For phased constructions unit price can be the best alternative. This is because it allows obtaining of the total costs Method Score Details Stipulated 5 It is a not a good approach since the whole project costs need to be LS determined Unit 8 Very good for the phased construction, cost at any phase can be Price obtained after getting amount of resources used Cost-Plus 6 Good for this kind of projects. Costs can be determined after the project phase is completed. GMP 4 Is not good for this kind of projects, some costs growth cannot be traced. 2.2.2 Money/Financial Constraint Stipulated Lump sum shows great deal in saving the cost. It tends to reduce the cost growth since a fixed amount is defined from the beginning Method Score Details Stipulated 7 Presence of fixed amount tends to reduce the cost growth. LS However, variation occurring can affect the overall price Unit 6 Its good in cost saving since it allows prior knowledge of the costs Price Cost-Plus 2 Unlimited growth in cost since it gives no limit for cost implication GMP 4 It prevents cost growth by setting a maximum value, hence better than Cost-Plus. However high initial cost can be set due to high risk to a contractor or CM 2.2.3 Disputes Possibility Disputes can arise due to variations leading schedule and cost change. Hence Stipulated LS seems to be the best. Method Score Details Stipulated 8 Requires everything to be defined prior construction hence seems LS the best alternative. Unit 8 It is good for dispute avoidance since the unit cost is defined from Price the beginning. Cost-Plus 4 Not good for this kind since unexpected high costs might be intolerable. GMP 6 Not good since it requires still a friendly working environment. However it is better compared to cost-plus approach 14

2.2.4 Public Interest-Government funded Stipulated Lump sum and Unit price serves the best option for this kind. When the anticipated cost is known, it is easy to appeal to the Public/Government Method Score Stipulated LS 8 Unit Price 7 Cost-Plus 4 GMP 6 2.2.5 Local minority workers Involvement of local minority workers is best suited to go with lump sum or Unit price kind of project. Everything is defined the expected costs of local workers involvement is included during the overall cost estimation. Method Score Stipulated LS 8 Unit Price 7 Cost-Plus 5 GMP 5 2.2.6 Summary of Analysis
PROJECT NO. 1 Goals/Criteria Criteria Weight Project Deliverly Systems Stipulated LS Scor e Weighted Score=Criteria Weight x Score Unit Price Scor e Weighted Score=Criter ia Weight x Score Cost Plus Score Weighted Score=Criteria Weight x Score GMP Score Weighted Score=Criteria Weight x Score

TechnicallyPhased Construction Money constraint Disputes Possibility Public InterestGovernment funded Local minority workers Total

15 30 10 30 15

5 7 8 8 8

75 210 80 240 120

8 6 8 7 7

120 180 80 210 105

6 2 4 4 5

90 60 40 120 75

4 4 6 6 5

60 120 60 180 75 495

100 725 695 385 As far as the financial contract is concerned, Stipulated Lump Sum is a best choice

15

2.3 PROCUREMENT METHODS

Procurement can be done through, Competitive bidding, Negotiation, or best value. The use of each method depends upon the characteristics involved in a particular project. Again a detailed analysis to determine the appropriate method is done below. 2.3.1 Technically-Phased Construction For this type of construction, Negotiated Type seems to be the good approach. This helps because, the overall construction process can be discussed by the involved parties at the beginning and decide on how to sequentially execute the project. This is followed by the Best value while the least is competitive bid Method Score Competitive bid 5 Negotiated 8 Best value 6 2.3.2 Financial Constraint Competitive bid is always good for obtaining the least cost among alternatives. This is followed by best value while the least to be negotiated type Method Score Competitive bid 8 Negotiated 4 Best value 6 2.3.3 Disputes Possibility Having a competitive bid seems to be the best alternative since each process is defined, large body of case law. The following can be Best value while negotiated comes the last Method Score Competitive bid 8 Negotiated 5 Best value 7 2.3.4 Public Interest-Government funded Competitive type also is good for the government funded project as it is act of fairness and openness whereby each contractor is brought under the same evaluation criteria to whether or not he can qualify. It is followed by Best value while the last can be negotiated type. Method Score Details Competitive bid 9 For complex projects this approach may not be good. Negotiated 5 Works good for this type of project. Contractors and subcontractors all working for the project from the beginning. Best value 8 It is also good for the complex project.

16

2.3.5 Local minority workers Involvement of local minority workers is best suited to go with Negotiated or Competitive kind of project. Everything is defined the expected costs of local workers involvement is included during the overall cost estimation. Method Score Competitive bid 7 Negotiated 6 Best value 5

2.3.6 Summary

PROJECT NO. 2 Criteria Weight Project Delivery Systems Negotiated Best value Scor e Weighted Score=Criteri a Weight x Score Scor e Weighted Score=Criteri a Weight x Score

Goals/Criteria

Competitive Scor e Weighted Score=Criteri a Weight x Score

TechnicallyPhased Construction Money constraint Disputes Possibility Public InterestGovernment funded Local minority workers Total

15 30 10

5 8 8

75 240 80

8 4 5

120 120 50

6 6 7

90 180 70

30 15 100

9 7

270 105 770

5 6

150 90 530

8 5

240 75 655

17