Case Study

Question 1

What alternative option did the project use for dealing with errors?

Answer 1

• Alternative 2 - the tenderer was given the opportunity of confirming their offer or amending to correct the error/s.

Question 2

What is the risk involved in using alternative 1 for dealing with errors?

Answer 2

• The tenderer will either be invited to stand by the offer or withdraw.
• If they withdraw then the next lowest bid may be considered.
• If they stand by their tender then documents need to be amended to reconcile the error/s.

Question 3

What was the risk for the stage 3 cost plan on GMV 401 & 403?

Answer 3

As the cost plan was divided into three elements for 401, 403 and public realm works there was a design development risk of approx. 5% included which equated to approx. 4.26% overall.

Question 4

What was the value of risk in the stage 3 cost plan?

Answer 4

£3.09m.

Question 5

How did you go about calculating the value of risk for the stage 3 cost plan?

Answer 5

• We held numerous risk workshops and a risk register was prepared where all the risks were scheduled and assigned it’s cost impact.

Question 6

What was the value of some of the risks captured within the risk register for the Stage 3 cost plan?

Answer 6

• Fluctuations in price of materials over and beyond the inflationary allowance - £500k.
• Risk in the ground due to contamination in ground and based on similar scheme - £100k.
• UFH to affordable units - £100k.
• Comfort cooling to apartments due to incomplete energy model and the potential need for some units to have comfort cooling and for the client to comply with building regs. - £500k.
• Client changes to internal finishes spec. (kitchens and etc.) - £100k.
• Client changes to scheme - £200k
• Electrical vehicle charging - £100k.
• Building Safety Act measures causing delay to project and introducing sign-offs from BSR - £300k.
• Compliance with Part M accessibility - £200k.
• Compliance with fire strategy - £50k.

Question 7

What was the percentage of costs on GMV 401 & 403 Stage 3 cost plan of the following:
- Substructure.
- External Walls.
- Windows/External Doors.
- Services.
- Risks.

Answer 7

• 401:
  
  • Substructure - 10% - £3.5m.
  • External walls - 9% - £3.06m.
  • Windows/External doors - 4% - £1.5m.
  • Services - 17% - £5.9m.
  • Risks - 5% - £1.61m.
• 403:
  
  • Substructure - 12% - £3.54m.
  • External walls - 10% - £2.92m.
  • Windows/External doors - 4% - £1.23m.
  • Services - 17% - £4.88m.
  • Risks - 5% - £1.37m.

Question 8

What was the percentage of costs on GMV 401 & 403 PTE of the following:
- Substructure.
- External Walls.
- Windows/External Doors.
- Services.
- Risks.

Answer 8

• 401:
  
  • Substructure - 6% - £2.14m.
  • External walls - 13% - £4.94m.
  • Windows/External doors - 5% - £1.8m.
  • Services - 17% - £6.65m.
  • Risks - 2% - £893k.
• 403:
  
  • Substructure - 6% - £1.98m.
  • External walls - 14% - £4.97m.
  • Windows/External doors - 5% - £1.61m.
  • Services - 17% - £5.17m.
  • Risks - 2% - £823k.

Question 9

Where did the tenders sit when compared to your PTE?

Answer 9

The tenders came below our PTE as follows:
- Bennetts - £71m.
- MAR - £69.7m.

Question 10

Did you prepare a PTE for GMV 401 & 403? If so, what was the value of the PTE and how did this compare against the stage 3 cost plan?

Answer 10

Yes a PTE was prepared and the value of it was approx. £73.6m. This had gone up by approximately £1m.

Question 11

Why had the costs gone up for the PTE from the Stage 3 Cost Plan?

Answer 11

There were numerous reasons why the costs had gone up for example:
- Design development.
- Areas amended.
- Frame costs had gone up due to changes in structural requirements resulting in more supports which subsequently had a cost impact of £650k.
- Extent of green roof had increased resulting in a cost impact of approx. £65k
- Due to areas being amended this had an impact on internal partitions which resulted in a cost impact of £100k.
- Impact on internal finishes as a result of areas amended resulting in a cost impact of £50k.
- On costs, Prelims, OH&P, Risk and Inflation.

Question 12

Why did the tenders come under?

Answer 12

There were a number of reasons:
- Exclusions.
- Irregularities in pricing.
- Changes in the market.

Question 13

What items had been excluded from their tender price?

Answer 13

Some of these exclusions included:
- MAR Additional costs:
- Bond - £274k from MAR.
- Acceptance of risk in ground - £53k.
- Post tender pricing adjustment/normalization - £306k.
- Revised price - £70.38m.
- BCL Additional costs:
- Waterproof concrete - £28k.
- Additional site setup - £53k.
- Increase in concrete - £400k.
- Increase in brick supply - £100k.
- Other PTQ process/normalization costs - £60k.
- Revised price - £71.61m.

Question 14

On your first key issue, you mentioned you tendered via selected tender through single stage. Was any other tendering route considered, say, negotiated? If not, why?

Answer 14

• The reason why another tendering route was not considered was because GMVL had entered into an agreement for lease with the GLA for a drawdown of land on which they build residential units. One of the terms of this agreement for lease is that the construction works are competitively tendered. Therefore GMVL are obliged to tender the works.

Question 15

In key issue 1, option 2, what were the other fluctuation options under the JCT D&B 2016 contract and why weren’t these considered?

Answer 15

• Option A - allows for adjustments to contract sum in respect of changes in tax, levies and contributions.
• Option B - allows for adjustments to contract sum in respect of changes to price of labour and materials that were current at the base date.
• The reason why option A was not considered because it does not reflect the situation on changes to material prices just the tax on the import of goods.
• The reason why option B was not considered is because that would be reliant on the contractor’s own specific market research or supply chain fluctuation which may not reflect what the wider market is experiencing.
• Therefore option C seemed to be the only viable option as it was based on predetermined indices that would take an average of material fluctuations across the entire market so a suitable percentage uplift or reduction could be applied.

Question 16

If you was to introduce option C, how would you go about introducing this amendment into the contract?

Answer 16

Although the client’s SOA specifically omits the use of any of the fluctuation mechanisms in the contract. I would advise the client to seek advice from their legal advisors of reinstating this back into the contract.

Question 17

Was it ethical for the Contractor to take all the risk on inflation?

Answer 17

Yes, it was ethical. Markets are constantly fluctuating and there is always an element of risk involved and it comes down to who is best suited to accept that risk. The client insisted on the contractor accepting the risk in order to obtain a cost certainty prior to awarding contract. With that said, the contractor should be able to able to manage and mitigate such risks associated with inflation in order to account for a potential change in prices over the construction programme whilst being fair and reasonable and showing to the client the basis of their calculation/s.

Question 18

Since the Russia/Ukraine war, where has the UK been sourcing majority of its steel?

Answer 18

The UK has been sourcing from Germany.

Question 19

What has happened to the price of steel since sourcing from Germany, and why?

Answer 19

(- The price of steel has gone up since sourcing from Germany.
- The reason for this is because approx. 40% of gas is supplied by Russia with no contingencies in place for sourcing it from elsewhere. This has an effect on EU steel production due to the rationalisation of gas and the inadequacy of gas supply to maintain current levels of steel output. Therefore, it would be inevitable that energy costs would rise which subsequently impacts on the cost for steel as manufacturers would not be able to absorb high fluctuations in costs. Furthermore, the steel sector in Germany is struggling due to high electricity prices as the sector is beginning to undergo a transition from blast furnaces to electric arc furnaces in order to decarbonise in the medium-term future.) - Delete

Question 20

What has happened to the price of steel since 2022?

Answer 20

• According to G&T market update steel prices have come down and begin to stabilise to levels pre-2022 and Pre Russia/Ukraine war.
• The reason for this is due to softer demand and improved availability has resulted in cost of inflation to ease for steel.
• Price of steel currently in 2Q2024 is approx. £1,600/tonne where as in 2022 steel prices were in the region of approx. £1,800-£1,850/tonne.
• Provided there is no further volatility in the market, steel prices are likely to continue balancing in 2024.

Question 21

You mention that under one option to tender with provisional sums in the contract and that costs could go up which the client would have to bear. However if the client is entered into a lump sum contract, why would they have to bear these costs?

Answer 21

A lump sum contract is when a price for all the works is agreed before the works are executed. However, it is not to say that it is fixed but there is more certainty over the final costs as there are mechanisms that allow the sum to change and in the case of provisional sums costs could go up or down thereby affecting the overall final cost of the works.

Question 22

How did you analyse before presenting the options that you did?

Answer 22

As the client was intent on achieving cost certainty for the works I used this as a basis for presenting the options I did.

Question 23

You mentioned under option 2 that any changes in price would be subject to prices at current and not the base date. How would this work with variations?

Answer 23

Any variations would be subject to the valuation rules which at first instance makes use of the CSA rates, followed by star rates and finally dayworks.

Question 24

You mention in your presentation that the contractor’s would show the basis of their calculations and how they have arrived at their price. Could you explain a bit more about what you mean by this and why this would be important to the client?

Answer 24

What I mean by this is a full breakdown of their submission arriving at their tendered sum. In addition to this, where, the contractor would have priced for any risk, to show the basis of their calculation such as inflation uplift or a risk register to substantiate the sum. The reason why this is important to the client is because it gives greater clarity to the client as well as confidence in the openness of the contractor’s submission. Also, it would make evaluating the contractor’s submission more straight forward knowing there are no hidden charges as well as being able to compare against others to ensure a competitive tender has been achieved.

Question 25

On key issue 2, why was it not addressed during the PQQ that one of the three contractors was not able to tender?

Answer 25

• During the PQQ the contractor did confirm of their interest to tender. They even confirmed they had the resource available to deliver the project based on the timescales noted.
• However, at the time the tender was issued, the contractor sadly withdrew due to other commitments.
• From a due diligence perspective, the question was asked however sometimes in the industry, situations occur when least expected.

Question 26

On key issue 2, how could you go about ensuring the quality of the works of the different tier contractors?

Answer 26

• In addition to reviewing their submission and looking at past project examples, I would’ve asked if they had any live projects currently being undertaken and if it would be possible for the client and the wider project team to witness the quality of their work.

Question 27

You mention tier 1 contractors are more likely to adopt a two-stage D&B route, rather than a single stage, why is that?

Answer 27

• In a two-stage process, the first stage the contractor is only bidding based on the strength of their submission which usually involves a price for assisting the client design the building under a PCSA and a schedule of rates that will be used to form a fixed price for the complete works during stage two.
• This is less labour intensive for the contractor not to mention cheaper because if they are unsuccessful, they are notified of it early on rather than further down the line if tendering under a single stage which is more labour intensive and expensive.

Question 28

Why does it cost a lot for a contractor to prepare a single stage tender?

Answer 28

They are essentially preparing a full price for the works which entails a lot more commitment in terms of resource and time to prepare a bid.

Question 29

Why would a Tier 3 Contractor bid likely be lower than a Tier 2?

Answer 29

There could be a number of reasons why a tier 3 contractor might bid lower, such as:
- Lower overhead costs and operating expenses compared to tier 2 therefore offering a more competitive price due to less administrative staff, lower facility costs.
- To gain market interest and establish a presence by competing amongst larger contractors.
- Depending on the client, they may value a cost saving as oppose to reputation, experience and/or quality.

Question 30

Were the works phased and if so, what were the phases?

Answer 30

Yes, the works were carried out in sections with Plot 401 to be delivered by April 2026 including external works and the substation to 403. As for the remainder works including plot 403, that is due to be completed by June 2026.

Question 31

Why were the works phased or carried out in sections?

Answer 31

• Whilst it was not possible to wait until the completion of the whole works to put them on sale therefore the works were divided into sections to prioritise the private units.
• Delivering all apartments at once requires significant resource which may strain the project budget as well as the availability of resources. Therefore, having phased completion can begin to draw in revenue from completed sections to finance the remainder of the works.
• As well as straining the project budget, logistics can also be an issue which could become complicated as well as posing a health and safety risk due to too much going on simultaneously.
• Lastly, if there are delays in delivering all apartments at once can lead to client dissatisfaction and potential contractual disputes.

Question 32

Who was the client looking to sell the apartments to namely the AR apartments?

Answer 32

Block 401 were all private tenure apartments and so were to be sold to prospective buyers as for 403 which was a mixture of SO and AR, these were to be sold to OHG.

Question 33

What were the indices on BCIS during and after covid 19?

Answer 33

At the outset of covid 19 the indices remained stagnant and dropped towards the end of 2020 and early 2021. By mid-2021 the indices began to increase. In summary, the indices were as follows:
- 1Q2020 - 335
- 2Q2020 - 335
- 3Q2020 - 330
- 4Q2020 - 328
- 1Q2021 - 328
- 2Q2021 - 331

Question 34

Why was the the client insistent on achieving cost certainty on GMV 401 & 403?

Answer 34

There were two main reasons:
- To guide there sales strategy so the client can get a better understanding of the return on their investment.
- As the client was a JV, there are two boards to satisfy as they’re both having a share which involves lengthy periods of sign-off to get board approval.

Question 35

What other forms of contract would have be suitable for the works and why wasn’t that considered?

Answer 35

• Another alternative to the D&B contract would be to use the JCT Prime Cost Contract whereby the contractor would be remunerated only for the works carried out.
• The reason why this was not used was due to lack of cost certainty and as the client is a developer they need cost certainty early on in order to guide their sales strategy where as in a prime cost contract, the value of the entire works will not be achieved until the final package of works is complete.