Top 10 tips for construction procurement for development projects

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  1. Consider carefully wider project constraints   Effort put into careful planning of the project at the outset will pay dividends later. Issues to be considered include title issues, access and working constraints, need for long lead-in plant and materials orders, works specification and programme challenges and quality/budget objectives.
  2. Select an appropriate procurement strategy and project team   The procurement structure must fit the project objectives in the light of all the constraints. Whilst there is no perfect procurement structure for a project, there are definitely wrong ones! There are choices to be made between the broad options. Will it be ‘Design and Build’, ‘Traditional’, ‘Management Contracting’ or ‘Construction Management’? Each has different benefits but also particular pitfalls. Additionally, thoughtful selection of the core professional team and contractors is vital.
  3. Consider third party needs   Development projects are often complex in the number and range of individuals and organizations involved each with their own particular interests. Commercial funders, forward funding purchasers, landlords, tenants and purchasers may all be involved at some point in the process and their requirements must be anticipated by provision of collateral warranties or third party rights and other avenues of recourse.
  4. Sort out an insurance strategy at the outset   Certain project risks can be addressed by a well thought out insurance package. There are specialist insurance products for development projects including latent defects insurance. To optimize the benefits these should be explored and settled early in the process.
  5. Plan for phased completion and liquidated damages   Consider requirements for early or phased handover of parts of the project. Plan for appropriate sectional completion rather than more haphazard partial possessions. This will also allow formulation of liquidated damages for delay in completion of each section.
  6. Put in place binding services and works contracts that fit properly with other project contracts   The obligations/rights under the various project contracts are always interdependent and need to be considered, understood and dealt with appropriately in the services and works contracts. Letters of intent are common but risky – use only where absolutely necessary and then only instruct specified works up to a maximum sum.
  7. Address security for contractual liability   Security for damages for breach of contract by project team members (e.g., designers, contractors and others) must always be addressed as a hedge against insolvency. This may be addressed by certain insurance cover, project accounts, bonds, parent company guarantees and property/asset charges.
  8. Be clear on liability for defects after practical completion   It is rare for a development project to be handed over with zero defects. But try to avoid large snagging/outstanding works lists on practical completion of the works. Every effort should be made (from the design stage onwards) to minimize latent defects arising during or after the defects liability period. The end user and funders will be at pains to ensure it is clear who responds to any such issues, who enforces and how.
  9. Think about dispute resolution before disputes arise   Formal dispute resolution is expensive, distracting and time consuming – avoid it by early warning and resolution of issues before any problems become greater than they need be – a good project team ethos is important here. Where a dispute arises tiered steps can help with escalation from project specific personnel to very senior personnel in the respective organizations and if that doesn’t work, go for non-binding mediation. If all else fails, be prepared for (and provide for) formal dispute resolution, whether by way of adjudication, litigation or arbitration.
  10. Be prepared for occasional stormy weather   The inherent complexities of construction projects mean that however well-planned they may be, things will go wrong. Successful project teams with a good ethos and well drafted contracts react well and quickly to things that go wrong without indulging (too much) in the blame game.

 

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