The Owner Participants should ensure that they are aware of the various options available to alliance teams to select procurement and delivery processes for the project and the implications these decisions have for the TOC and more importantly the ongoing management of the project to completion.
There are numerous matters affected by options available to the construction market that require careful consideration by the Owner.
Procurement options, e.g., hire or buy The estimated cost to install bridge beams with a crane will be different between the two strategies of (a) hiring a crane on an as needs basis, where it arrives with an operator and is supported by the hire company that owns it, versus (b) buying the crane for the exclusive use of the alliance where the responsibilities of ownership are the Participant's responsibility (i.e. servicing, maintenance fuelling, mobilisation, etc). In the latter case, these issues have to be funded and costed in the TOC if the decision is made during the TOC development phase. The Proponent will have the necessary skills to assess whether buying the crane and incurring the costs of ownership and operation is better Value-for-Money than renting the unit where it is presumed these costs are amortised in the hire rate supplied by the company that owns it. This decision can be made upon assessment of many issues including; the market status for hired units at the project site, the required utilisation of cranes over the life of the project, the value afforded to security of ownership, and the total resultant cost of either option. |
Sometimes, an alliance makes a decision to buy because of the security afforded by owning the plant, or because a technical issue demands a certain item of plant is required that is not readily available for hire.
Generally, the more common items of plant are hired as this is most cost effective. Owners should be wary of recommendations by Proponents to buy plant that is readily available for hire on the market and local to the project. Usually this recommendation is supported by a high utilisation rate, e.g., many beams to erect over a long period of time.
On the other hand, there will be many valid cases where the Proponents will recommend purchase of plant or equipment during TOC development and therefore use quoted or estimated costs for all aspects of ownership in the TOC.
This should include a consideration of what happens to the unit upon completion of its work. If it is to be sold, then a pre-estimate of the salvage value needs to be included in the TOC as a negative cost. If this is agreed, then it is reasonable for the actual proceeds to be shared between the alliance Participants, including the Owner, and all parties share in the pain or gain of the sale price versus the estimated salvage value.
If no consideration is given for salvage then the risk of salvage is not shared and any proceeds belong to the Owner who paid for the item in the first place.
This example is one of many issues raised during TOC development that have a material effect on the TOC and the management of the alliance during delivery. Other issues include but are not limited to:
• self-perform work (direct controlled labour) vs subcontract (specialist companies);
• internal plant hire (owned by a Participant) vs external plant hire;
• hire plant vs buy plant then salvage (benefits vs costs of ownership);
• direct labour vs labour hire; and
• market competition vs sole sourcing supply.