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Procurement And Contract Strategy For Medical Project

 

Question

Task: Write a report on procurement and contract strategy for a project which is aiming to provide medical facilities to address the new pandemic disease “COVID-19” in Australia.

Answer

1. Introduction
The present study is focused on critically exploring the concept of procurement and contract strategy in a detailed manner. The Project on which procurement and contract strategy is applied aims to implement new medical facilities to address the new pandemic in Australia. The pandemic disease namely COVID-19 can be addressed by providing the latest medical facilities to the affected patients. Thus, the NSW focuses on building new structures and provide equipped medical services. The government has declared a health package of $2.4 billion for protecting their community from this pandemic disease. The project has divided into four components and all together they will result in providing efficient services to the people of the Country.

2. Explanation of the concept on procurement and contract strategy
2.1 Case study introduction
The government is providing $2.4 billion package to protect the people and so the community. To control the spread of this virus, part of the fund is directed to NSW health sector. The NSW needs to construct a hospital for the "COVID 19" patients. Emergency needs for 1250 beds with laboratory facilities which must have to be up to date with the market standard are also required within the hospital. Qualified doctors and medical staff, 2500 ventilators are also a urgent requirement.

Besides this, a hotel for the medical staffs and quarantine center is another requirement for the patients.

It will be 5 stores building with 300 rooms in total facilitated with kitchen, dining, food court, gym, swimming pool for the residents also a road from the hospital reaching the city. The CQU Engineers consultancy firm in NSW has been selected for this project. The responsibility now goes to the firm to handle every factor related to this construction. It includes the design, recruiting contractors and subcontractors, managing the projects and other important decisions to take for avoiding the delay for the completion and success of the project.

Working as a project manager in the firm, I have been selected as the program manager of this project and the goal is to cover all the managing department and other various factors and procedures which are required to complete the job and to make the project successful.

2.2 The concept of the procurement and contract strategy
The first requirement of the project is to create a fully equipped hospital with 2000 beds, among which 1250 beds are an immediate requirement. The next 1000 beds will be constructed in the 2nd phase of the construction.

Full facilitated intensive care units and high-quality treatment standards are required. The laboratories within the hospital are must be up to date and the hospital will continue its operations after the end of this pandemic (hopefully as soon as possible).

2.3 The procurement and contract strategy and value for money in reflection to the case study
Selecting the contractors offering lowest price for this construction does not match the criteria of the project. The procurement and contract strategy needs to follow the PQM (Price-Quality Method) in this case. The type of contract should be mixture of "functional requirements" and "technical demands." Since the construction mainly focusing on hospital and the hotel for medical staffs, technical requirements are necessary. An expert technician should be recruited having adequate idea and experience to manage the technological aspects of the project. On the other hand, an experienced contractor is also needed to meet the requirements of the construction factors.

3. Select/recommend the best procurement route (method)
3.1 Procurement routes (minimum 3 routes) that could be used and how each route can work

  1. Route 1-"Design and build"-It can described as the route in which a main contractor is directly appointed by the client for designing and constructing the whole project. In this route, all the responsibilities of designing, planning and control of the project is on the contractor. Delivery of the project to the client in this route is a "single point of responsibility(Bla?ák 2016)." The contractor can use their own designer or may appoint from outside. This type of contracts is based on fixed price.
  2. Route 2-"Traditional procurement contract"-This route is also sometimes called as "Design-bid-build" type procurement route. In this route, the client directly appoints a consultant firm for the project design, after that the other requirements are prepared like drawings, schedule of the work or documentation processes(Coviello & Gagliarducci 2017). After completion of these procedures, contractors are invited to submit their competitive based tenders.

In this procurement and contract strategy, the contractor does not have any responsibilities for the design of the project except construction (Eriksson et al. 2018). It has been observed and also considered that; these types of contracts are less risky from the client end because the financial responsibility is on the contractor for completing the construction.

  1. Route3- EPC ("Engineering Procurement and Construction Contract")-This route is also known as "turnkey contracts" and have some similarities with the "design and build contract" type. In EPC method the contractor is mainly responsible for the designing methods with having more risks. The client fixes a price based on tender and the total control of the cost goes on the contractor. This is a "risk-free arrangement" from the client's end. Engineering and industrial projects generally uses this EPC method where performance is the main requirement for the client with relatively low cost.
  2. Route 4-"Fast-track construction"-In this procurement route, the overall duration of the project is lower than other types of procurement routes. Often overlapping the tasks and completion the project in a short time is the main technique of this rout(Liebman & Mahoney 2017)e. The contractor should be appointed in the very beginning to fix the issues about work package, estimation of cost and "lead-time" factors. This type of procurement and contract strategy needs experienced project teams because a single tiny mistake can spoil the project in this case.

3.2 various routes to suite the different projects considering the limitations and constrained the priority in terms.

  1. "Design and build"-It is best for the residential unit projects which takes sufficient time and should not match the criteria to construct a hospital which is needed urgently.
  2. "Traditional" -This is used for high quality standards and takes a long time to complete the construction. It is also not suitable for this emergency where 1250 beds are minimum requirement as urgent.
  3. EPC ("Engineering Procurement and Construction Contract")-lack of experts and professional could not handle the responsibilities required for the hospital EPC is a good solution for industries and engineering farms.
  4. Fast-track-the best choice for the hospital, beca(Coviello, Guglielmo & Spagnolo 2018)use of having experienced and expert team also having previous knowledge of constructing such type of projects in the previous days.

3.3 Based on this discussion selection of most suitable route
This project is really urgent and needs to be completed in a short time due to the fast spreading virus protection and prevention. Design and decoration is not so important in this matter. The main target of this project is to create a hospital with an emergency requirement of 1250 beds. So the "Fast-track procurement and contract strategy" will be the best method which will meet this criteria (de Araújo, Alencar & de Miranda Mota 2017). Also it should be considered that a highly experienced project team is required to speed up the project where design does not matter. The basic plan will work better in this case. Also a combination of "traditional" and "fast-track" procurement and contract strategy could be applied here which will maintain the overall betterment of the project.

3.4 Justification ((in line with the project nature and requirements)
Since the immediate requirement of the project is to create 1250 beds in the hospital with intensive care units and laboratories and also a 300 rooms hotel. Fast-track is the best choice when compared to other procurement routes (Ekeskär & Rudberg 2016).

3.5 Comparison with other routes

"Traditional Procurement Route"

"Fast-track Procurement Route"

"Design and Build Procurement route"

"Engineering Procurement and Construction Contract Procurement Route"

Time efficiency is (less then fast-track)

Best time efficiency

Time efficient (less than fast-track)

Not time efficient

Multiple point responsibilities (Loosemore 2016)

Single point responsibility

Single point responsibility

Multiple point responsibility

Cost-efficient if there is no changes in the post-project construction

Cost efficiency is maximum

Cost efficiency level is good, but less than fast-track

Cost efficiency is not so good, better for large engineering and industrial organizations

Experienced team work (depends upon the contractor)

Best experienced team is required without any consideration

Team is experienced, but less than fast-track

Lack of experts due to multiple point responsibility creates congestion

Fast decision-making capability (less than Fast-track)

Decision making is fastest when compared to other procurement routes

Decision-making is not so fast as compared to traditional route or fast-track route

Decision making is slower compared to the other routes discussed within the table.

 Table 1: Comparison of routes

3.6 Why other routes excluded?
In this project, experienced and expert tea is required to complete the project as soon as possible with maintaining the quality and overlapping the task which is not required urgently. The overlapped tasks could be completed later when needed. Fast-track procurement and contract strategy meet this criteria which is actually needed to complete this project faster which is not possible if other routes are chosen. Furthermore, traditional route may be combined with fast-track after the initial development of the hospital and hotel is completed so that it is ready to use in an ordered manner.

  • Justify and explain why this could be the best route in line of the 8points shown (explanation of each point by reflecting the project requirements in specific)

Time-The fast-track route is the most time efficient when compared to other routes. Overlapping the designing and "construction phases." Since the time priority is more than other priorities in this project. Fast-track is the best option to choose. The overlapped tasks could be completed later after the basic needs of the construction are developed. This is the main advantage of fast -track as the best time saving procurement and contract strategy (Pandey et al. 2017).

Cost-There are several risks in cost factor for any type of projects such as, cost overrun or productivity delay. One of the significant factors for this problem is deficient flow of cost. But in case of fast-track procurement and contract strategy, the design and the other recruitment issues are done earlier so the project can run on the best cost.

Quality (level of service)-fast-track also maintains the quality as the project construction is handled by the best experienced and expert professionals. The construction buildings are hospital and hotel and require a long lasting life time. The expert’s uses best possible raw materials possible to maintain and achieve the best possible quality for the construction (Lavikka et al. 2019).

Changing orders-fast-track runs on "single point responsibility." Multiple individuals are not allowed to take decisions or changing the system of the construction. So, "decision-making" is much faster when compared to other procurement routes like traditional procurement and contract strategy, EPC or other procurement routes.

Complexity-The level of complexity in this project is high because of the facilities like intensive care unit and up to date laboratories are included in the hospital building. The fast-track teams are experts and have adequate experience which lowers the risk of complexity to construct the hospital building and the other facilities required for the patients (Ling & Li 2019).

Risk-Fast-track uses the strategic method which leads to a shorter duration of the project. However, sometimes these strategies may create additional risks for the project, namely, rework, changes in order, modification of the project or other types of uncertainties. These types of risk are quite inevitable for fast tracking. Also it should be considered that, the frequency of fast-track is much higher than other procurement and contract strategy (Tunji-Olayeni, Emetere & Afolabi 2017). The contract is always dealt with these extra risks and the responsibilities associated with the risks.

Management capacity and experiences-This is quite impossible that without adequate experiences from the management's end, fast-tracking is not possible, faster decision making is required in this process to avoid unusual delays. These types of projects following procurement and contract strategy never end with the proper scheduled budget and the "bid-price" ends with a greater project cost in maximum cases. It is also necessary to create an alternative fund for the uncertain costs added to the project later.

Responsibility and other issues-the "single point responsibility" indicates the management for any types of unusual happenings inside the project, especially cost overrun. The contractor does not bear the responsibility in this issue. Since the management supposed to know about these issues, they must be prepared for any type of uncertainty if occurs.

4. The risks associated with this selected route for both the owner and the contractor

  • Risks from contractor view

Risks

Description

Fail in the implementation

As there is no specific design according to the route of the procurement and contract strategy. Thus, the contractor will face difficulty in implementing the process within the specified time. When a project is planned, it needs specific design and decoration along with the time and cost. However, in this case there is no time for proper planning regarding the project. The project needs to implement in a short time so that it can provide effective services to the community. Along with a short time, the product must be implemented perfectly to provide errorless services to the patients.

Deficiency of skilled labors

In recent years, there is a huge deficiency of skilled laborers has been observed and many projects are getting failed due to this risk. The risk has become a major issue while planning a short-term Project. The project initiating procurement and contract strategy usually gets delayed due to the lack of skilled labors in the market. The unskilled labors are not acquiring the perfect knowledge and thus they failed to implement the product within the specified time. Thus, in this case its time to think about the skilled labors so that the project can be implemented successfully.

Table 2: Risk from contractor view

  • risks from owners’ view

Risks

Description

Imbalance charge during placing tender

The contractor can charge extra costs for implementing the Project within the specified time. The passing of tender must be made in a short course of time so that the Project can be implemented within a short duration (Pykhtin, Simankina, Sharmanov, & Kopytova, 2017). Misbalancing in charge may cost extra charges for the tender. There will be low time for choosing the perfect contractor. Thus, there is a chance of choosing an unwise contractor due to the hustle-bustle situation (Ugwu, Osunsanmi, & Aigbavboa, 2019). The extra cost may not result in the proper implementation of the Product. As a result, the system will collapse fully in addressing the pandemic issue (Bekr, 2017). The issue must be addressed as early as possible.

Dissatisfaction from the contractor

The owner gets dissatisfied when they cannot get proper feedback from the contractor. The unwise contractor does not want to contact the owner as they know they are not doing the work properly (Mhetre, Konnur, & Landage, 2016). There are many issues in the work and that can lead to failure of the project. the project cannot be implemented properly due to the lack of communication between the contractor and the owner (Mhetre, Konnur, & Landage, 2016). Moreover, no proper cost has been served by the contractor regarding the Project.

Table 3: Risk from owner’s view

  • explain how to mitigate/reduce the risk

Due to the above risks mentioned in this procurement and contract strategy study, the project can get disturbed and it can get failed due to lack of design. Some mitigating strategies have been discussed to address the risk. They are tabled below: -

Mitigating factor

Description

Impact level

Use of monitoring tool

Implementing a monitoring tool in the Project helps to supervise the Project. as the project has to be installed in a short time (Bekr, 2017). Thus, it must be monitored regularly so that it can be completed within a specific time. The Project needs immediate delivery and thus, the four components have been working parallelly to provide great services (Borkovskaya, Bardenwerper, & Roe, 2018).

High

Scheduling the Project

The task of the Project must be scheduled properly so that it can get completed within a specified time (Mhetre, Konnur, & Landage, 2016). The small tasks of the Project must also be scheduled so that the project must get completed. It is the task of the Project manager to discuss the Project with the owner and plan accordingly.

Table 4: Mitigating factors to address the risks

6. Selection of the best contract type for this project
6.1 Contract types (concept)
Emerging Cost Contract can be used in the “Fast-track” procurement and contract strategy. The concept of the contract is depending on direct cost and it develops sub-contract with the workers. It provides an effective companion tool for completing the course of the Project within the specified time (Beaulieu, 2020). The contract will be used in such a way so that the effectiveness of the Project can be maintained within a specified time. Through this contract, the purpose of the Project can be achieved. The implementation of the emerging cost contract will give positive results on real grounds.

6.2 Recommendation of contract type based on the selected route
The contract has been made based on the direct cost of the Project followed by procurement and contract strategy. Thus, some recommendations have been suggested to improve the contract. They have been listed below: -

  1. The Contract must emphasize on the cost and the time of the Project.
  2. The Contract must give a proper description of the cost expensed in the Project

6.3 Feasibility of contract type from owner point of view
The contract is enough feasible as it deals with the direct cost and it will provide sufficient cost-effective solutions (Connell, 2019). The solutions can help in determining the project feasibility along with the contract feasibility. According to the owner, the Project is engaged in infeasible cost. Thus, the contract will help to provide complete solutions for all issues that will emerged in the Project (Eikeland & Nilsen, 2016). The contract is feasible in all respects to provide effective solutions in real grounds. From the view point of owner, the project can be implemented within short time through this contract.

  • Advantages/disadvantages

Advantages of "Emerging cost contract"

Disadvantages of “Emerging cost contract"

Direct cost is paid to the contractor

Risk of cost overrun due to the sudden changes to include inside the project, it increases the material cost, labor and equipment cost, overtime costs and other miscellaneous expenses.

No financial risk for the contractor

Financial risk goes to the owner or management as the contractor is not paid throughout the whole contract basis. List of subcontract works are included in this type of contracts which the owner have to manage. This is the key factor for which the contractor can work fluently without any financial responsibilities or chance to face any kind of money loss.

Provides "value engineering." If the cost reaches higher than the planned estimate, it could be terminated

"Value engineering" may cause to project delay. Suppose there is a individual piece of work included in the construction and the contractor is estimating the cost higher when compared to the market. In this case, there is a possibility from the owner's end to terminate the individual contract and recruiting other contractor to complete the specific piece of job.

"Cost contract" are applied over a definite time.

Contractor may have to consider due to long term project issue.

Scheduled rate for individual work items

No specific target cost for the overall project could be defined, because of the uncertain changes in the construction.

Table 6: Advantages and disadvantages of "emerging cost contract

6.5 How the contract type satisfies the project requirements
These types of contracts are generally "cost reimbursable." The contractor is directly paid which is identified with "estimate of project costs (Hess 2019)." The rate of individual items is carried out with the schedule costs which is associated with incentives and other penalties. The client must be prepared for accepting the financial risks which may occur and needs to be experienced to reduce, control and manage the risks.

7. Budget Breakdown: (Hotel/ Carriageway)
7.1 Rough budget (cost estimates) for (Hotel/ Carriageway)

Requirements

Budget List (In million $)

Raw materials

400

Equipment

200

Engineers

150

Technicians

100

Labor (skilled and non skilled)

50

Transport

100

Total

$1 billion (1000 milions)

Table 7: Budget for the hotel

7.2 Listing of main items required for the project

Main items

Description

Excavators

Used for excavation, lifting, demolition and cutting trees

Trenchers

Also known as "trenching machine" used for excavating trenches. Also used for pipeline, cable installation and drainage purposes

Loaders

Loaders are mainly used for loading the raw material or wastes on the dumpers or trucks.

Tower cranes

Used for lifting heavy materials to the specific height which is required for the construction process

Pavers

Used for compacting the pavement layer

Bulldozers

Mainly used for removal of top soil layers to particular depth.

Dump trucks

These are used in construction to carry large quantities of raw materials within the site (Pindoria, Pitroda & Patel 2017).

Wheel tractor scrapers

It is a "earth moving equipment" used for flatten the surface of the soil.

Graders

To level the surface of the soil, graders are used, also removes unnecessary layers of soil from the ground level.

Boring machine

Used to make bored holes for installation of casted piles.

Raw materials

Used for the overall construction process

Basic furniture items

Required for the hotel rooms which will be used for medical staffs accommodation and quarantine center.

Medical first aid kits

Required for the construction site workers.

Table 8: Listing the required itens for the hotel construction

7.3 Valid assumptions (in detail)

  1. Cost Overrun-It is a valid factor in this project, since the hotel is also an urgent subproject and having priority just after the hospital. As the fast-track procurement and contract strategy is used in the project, the chances of cost overrun exist.
  2. Resources-It includes raw materials, workers, technicians and other facilities to complete the job in time.
  3. Scope-It is about the delivery of the hotel(Noordzy et al. 2016)
  4. Finance-Sufficient flow of cash to complete the hotel
  5. Budget-The total estimated cost of the hotel
  6. Methodology-approaches to completion of the hotel
  7. Technology-required software as technological use to complete the hotel.
  8. Design and architecture-This will be used by the whole team

7.4 Direct/indirect cost
The expenses materials and labors which are used to constructing the hotel are fixed and constant till the completion of the hotel could be called as the direct costs related to this project. Whereas, the sudden changes in the hotel construction varies and the quantity of the supply also varies with it could be explained as the indirect cost which is required to complete the job faster.

8. Suitable negotiation strategies, particularly BATNA
8.1 Negotiation strategy for employing qualified staff and buy necessary supplies including ventilators

  1. Preparation-without going to a "negotiation blind", thinking about the strategy and creating the "task of list" is required(Sebenius 2017).
  2. Listening-without being emotional, active listening is the better factor for negotiation.
  3. Communication-Stronger the communication, better the negotiation. This is one of the most important skill for a negotiator(Marsden & Siedel 2017).
  4. Decision making-When there is a room from both sides, it is the perfect time for accept the deal.

8.2 Identify BATNA and making assumptions
BATNA ("Best Alternative To A Negotiated Agreement")-Before a negotiation occurs, BATNA should be always considered. Without sufficient knowledge of BATNA, it is not suitable to enter into a serious negotiation. The value of knowing "best alternative to negotiated agreement is:

  1. Providing an alternative way if there is any fall of negotiation.
  2. Providing the negotiating power
  3. Determination of the reservation(Pinkley et al. 2019) (accepting the least price).

9. Conclusion
This project is about the initiative of the Australian government to create a new hospital to protect the people and community from the recent pandemic COVID 19. Introduction of the case study has been briefed in the first chapter. Concept of procurement and contract strategy also cleared in the above analysis. The different types of procurement routes are compared and justified to select the best route to complete the project within a short period. As the fast-track procurement and contract strategy is better for implementation in this project it has been chosen. The advantages and disadvantages of fast-track also discussed to verify the suitability of the procurement and contract strategy for the approached hospital. Also, a hotel is required near the hospital with 300 rooms. It will be used for the medical staff’s accommodation and also as a fully setup quarantine center for the patients suffering from the virus attack or supposed to be attacked. The list of items which are mainly required to complete the hotel is also cleared in the scenario. The hospital needs 2500 ventilators for the COVID 19 patients, along with these, there is necessity of expert medical staffs and other medical supplies. Negotiation strategy is used to determine this factor which is briefed. Lastly, BATNA ("Best Alternative To A Negotiated Agreement") is also identified with assumption.

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