Professional approach to a development project. Useful hints

1. Professional approach to a development project.Useful hints • “Project” is an activity with a certain goal, time-frame and resources involvment • To start with a Project, set the goal (vision) • Devote enough time for alternative studies, for each alternative study its feasibility, make comparison • Sort decision making by prime and secondary decisions, reserve enough time to work out critical issues. See figure A • Detail the goal subject (what exactly have to be achieved and what are the required quality standards). See figure B • Avoid major changes during production phase (design & build process). See figure C Viktors Šveics, MERKS

2. Figure A.Pareto’s principle of cost distribution Viktors Šveics, MERKS Source: “Architect’s essential of cost management”, Michael D.Del’ Isola, New York, 2002

3. Figure B. Relationship between quality and cost Viktors Šveics, MERKS Source: “Architect’s essential of cost management”, Michael D.Del’ Isola, New York, 2002

4. Figure C. Relationship between scope for change and cost of change Viktors Šveics, MERKS Source: “Code of practice for project management for construction and development”. The Chartered Institute of Building, 1996, England

5. Figure D. Traditional procurement system Viktors Šveics, MERKS Source: “The construction process in the UK and Sweden”, Peter Neovius, 1997, Lund University

6. Traditional procurement system. See figure D • Advantages: • Contractors tender on the Technical Design and Bills of Quantities both approved by the Client, thus the Client has less risk that the end product will differ from the Client’s expectations • The only contact person for the Client is the architect and the Client’s involvment in construction process is minimised • Disadvantages: • With no overlapping of the design and construction phases, the process takes longer time • The use of Contractor’s feedback and experience is limited • The architect may, due to his or her powerful position, be tempted to give higher priority to the building’s artistic appearance than to the Client’s functional and economical requirements • The Client may face extra expenditures due to the mistakes or omissions in the Design Viktors Šveics, MERKS

7. Figure E. Design and build procurement system Viktors Šveics, MERKS Source: “The construction process in the UK and Sweden”, Peter Neovius, 1997, Lund University

8. Design and build procurement system. See figure E • Advantages: • The time from inception to commissioning is significantly shortened due to the integrated process • The integration allows for design and management input from the Contractor, which increases production efficiency • The Client’s total financial commitment is known at an early stage • Disadvantages: • It may be difficult and/ or expensive for the Client to introduce variations once production has commenced • If the brief is not specific enough, the Contractor might choose cheaper solutions that are not optimal to the Client • As the Contractor may appoint his architect, collisions may appear between the Client’s architect, who originated the design, and the Contractor’s architect, who develops the design into working drawings Viktors Šveics, MERKS

9. Design and build procurement system. See figure E • Novated design and build procurement system (often used in private sector project development in Latvia): The Client appoints an architect to produce a scheme design, upon which contractors tender. The architect is then incorporated in the organisation of the Contractor who is awarded the Contract, the idea being that the Client should be able to combine a good design with the time- and cost- related advantages of the design and build procurement system. Viktors Šveics, MERKS

10. Figure F. Payment systems Viktors Šveics, MERKS Source: “The construction process in the UK and Sweden”, Peter Neovius, 1997, Lund University

11. Payment systems. See figure F • LUMP SUM Under a lump sum contract, the Contractor agrees to carry out the construction of a project at a stated total sum, based on specifications and drawings supplied by the Client. Preferably drawings are preliminary approved by local authorities (sketch design stage) and specifications include Architectural Planning Task and Technical regulations, issued by local authorities. • Fluctuating lump sum contract allows the Contractor to adjust the final sum with respect to changes in labour, plant and material prices • Fixed price implies that no adjustments are permitted, unless resulting from statutory changes • MEASURMENT CONTRACT A measurment contract may be adopted when only parts of the work can be specified before procuring a contractor, or when immediate commencement is required. The final sum in this case has to be established after having measured the amount of work actually carried out, after which the Contractor receives payment based on earlier agreed unit rates. Viktors Šveics, MERKS

12. Payment systems. See figure F • COST PLUS Under a cost plus contract, the Contractor receives payment for the costs incurred during the progress of the project, as well as a fee, either fixed or as a percentage of the total sum. • Guaranteed maximum price is a contractual arrangement under which the Contractor is paid on a cost plus basis, but only up to an agreed maximum price. The system has been criticized for giving the Contractor nothing to win but a lot to lose, which might lead to contractual claims in the attempt to raise the maximum price level. • Target cost is a cost plus contract where both parties agree on an estimated final cost. The difference between the actual and the target costs are shared between the Client and the Contractor, thereby giving the Contractor an incentive to cut site expenses. • Cost plus fixed fee arrangement may encourage the Contractor to work efficiently, whereas • Cost plus percentage fee obviously gives the Contractor the best deal if materials and labour costs are maximised and it is therefore very unlikely to give the Client good value for money. Viktors Šveics, MERKS Source: “The construction process in the UK and Sweden”, Peter Neovius, 1997, Lund University