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  1. 1. SECTION 1 STUDENT TO COMPLETE Student name Sameh Kandil Mohammed Ibrahim Student number 109122319 Unit title Procuring Construction Unit code (delete as appropriate) AR50360 Note: to look up your student number go to SAMIS on the web SECTION 2: TUTOR TO COMPLETE Overall Mark TUTOR COMMENTS AND ADVICE TO STUDENT In submitting this assignment, I confirm that I have read and understood the entry on Cheating & Plagiarism in the Department's current Programmes Handbook. In submitting this assignment, I certify that all this material is my own work, except where I have indicated otherwise with appropriate references. NOTE ABOUT YOUR ASSIGNMENT FEEDBACK: Your assignment mark is provisional, subject to approval by the Faculty Board of Studies following the Board of Examiners meeting, where your overall unit result will be confirmed. ASSIGNMENT COVER SHEET
  2. 2. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 2 of 8 Section 1- Project Description Project: District Cooling Plant for Rihan Heights Towers Location: United Arab Emirates Client: MUBADALA Capital Land Real Estate L.L.C (Government Entity) Design Consultant: WS Atkins Partners Overseas Main Contractor: Kharafi National Plant Consultant: DC PRO Engineering Civil Consultant: Crown Engineering Consultant Procurement Route: EPC Turnkey (Package Route) Type of Contract: Lump Sum Fixed Price My Organization: Client (Mubadala) An EPC/Turnkey contract was signed between Mubadala Capital Land and Kharafi National to construct a district cooling plant to provide water for cooling purposes to Rihan Heights Towers. The main contractor scope includes design, engineering, procurement, construction and commissioning. The project duration was 18 months plus 12 months for defect liability period. The procurement route, which was chosen for this project was EPC. The contract was a lump sum fixed price and its value estimated to be 280,000,000 UAE Dirhams. The type of procurement approach is EPC (Engineering, Procurement and Construction). EPC is form of design and build as per Masucci (2009:12). In EPC the contractor accepts the responsibility to design and construct the project using the client’s requirements, Davis et al (2008:11). The EPC contractual links were established as follows; § The client (Mubadala) signed a contract with the consultant (ATKINS) for providing a general engineering consultancy services. ATKINS’s scope of work was preparing the project brief, employer requirements, concept design, tender documents and tender evaluation report. § The tender was floated to procure EPC contractor and Kharafi National was awarded the EPC contract. § Kharafi signed general engineering consultancy contracts with two consultants to procure the design of the plant equipment and operation buildings. § Kharafi signed also subcontract agreements with several subcontractors to procure the civil and finishing works. Moreover, Kharafi issued LPOs for different suppliers to procure all the required equipment and materials.
  3. 3. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 3 of 8 Section 2- Critical Appraisal • Project Initiation Mubadala’s corporate strategy was concerned with balancing a portfolio of business and the number of markets segments within which the company operates, as was stated by Simister (2009:2-17). Part of these market segments is the real estate sector. Mubadala aimed to develop Zayed City in UAE by constructing Rihan Heights Towers (residential and commercial) and its district cooling plant, our case study. • Project Benefits for my Organization The client had involved in the project to make a commercial profit beside he was looking to the other criteria of project success as well. The client had targeted the criteria, which were mentioned by the research of Mastermann, Simister (2009:1-14). These criteria have greater than 75% in contributing to any project success, Simister (2009:1-14). Parts of these criteria are; single point of responsibility and certainty of final cost. The client had chosen EPC route to achieve the aforementioned criteria as was advised by Simister (2009:3d-7). The client can possess benefits from these criteria as follows; § A single point of responsibility - As was stated by Schramm et al (2010:34), the responsibility for work performance, communication and coordination is allocated only with the EPC contractor so the client has to have a contact with only one firm and thus can reduce the need for assigning resources and time to contracting with designers and contractors separately, RICS (2013:11). - The single point of responsibility makes an attractive option for the client because all risks associated with design; construction and supply chain are allocated with only the EPC contractor, Dawson (2011:2). § Certainty of final cost - Certainty of final cost helped Mubadala to get the finance from one of the local banks in UAE during the downturn resulted from the global financial crisis. During the downturn as was confirmed by Huse (2002:19-20), the lending institutions always looks for more certainty for the required finance. The cost certainty can be obtained by EPC route as follows; • Single point of responsibility and lump sum contract price can produce more certainty for the required finance as was confirmed by Huse (2002:19). • The contractor has limited ability to claim for additional money, Piper (2011:04). The additional money can result only in EPC route if the client caused delays to contractor or the client asks for variations to the work to be done. • Specifying the client requirements before construction commencement helps to produce more cost certainty, Davis et al (2008:13). Moreover, the client aimed to achieve additional criteria of project success such as getting innovative solutions and fast track procurement. Also the EPC route will achieve these criteria. The client can possess benefits from these criteria as follows; § Possessing Innovative Solutions - EPC route gives the client a chance for possessing innovative solutions, Walker and Rowlinson (2008:48). The control over design given to the contractor helps him to invent new, better, sustainable and innovative ideas for the cooling plant design using his experience and skills, Huse (2002:20). § Fast Track Procurement - The speed of procurement is a feature of EPC route, Huse (2002:20). EPC overlaps the two phases of design and construction. Consequently, EPC can lead to earlier completion of the plant, which will provide the required water for cooling purposes inside the towers. Therefore the client will get an opportunity to meet his commercial commitments, which was already done with the third party for selling and leasing Rihan Towers’ apartments.
  4. 4. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 4 of 8 Section 2- Critical Appraisal • Business Units As was mentioned by Simister (2009:2-3), the business units exist in each company in varying forms and each unit contributes in achieving the common objectives of the project. My project progressed through marketing department, tender department and project team as follows; § Marketing The marketing department has a role in marketing the project of Rihan Heights Towers and thus possessing the commercial contracts for selling and leasing the apartments. They didn’t directly market the district cooling plant, our case study. The cooling plant is part of the whole project of Rihan Heights Towers, as it will supply the required water to the towers for cooling purposes. The market strategy targeted where the future demand may lie as was mentioned by Simister (2009:2-20). A market research was performed which confirmed that the real estate market was the best choice especially in Zayed City where residential towers were required. The market department progressed its promoting for the project since initiation till completion of the construction by choosing a mix of marketing methods. These methods were direct media advertising, corporate branding and using public relations exercises, these methods were recommended by Simister (2009:2-21). § Tender The client procured ATKINS for providing a general engineering consultancy. ATKINS and limited client resources formed the tender department and they worked together to prepare the project brief, employer requirements, concept design and tender documents. Then they floated the tender, answering the EPC contractors’ questions and then all the contractors submitted their proposals to be evaluated in order to choose one of them to execute the project. § Project Team The client project team consists of project manager, construction manager and quantity surveyor who participated in the tender stage and then when the project started, they were supervising and monitoring the project. They were reviewing the contractor’s submissions and holding a weekly meeting to follow up the project progress.
  5. 5. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 5 of 8 Section 2- Critical Appraisal • Procurement Route Strategies Mubadala in the cooling plant project adopted EPC route but a traditional procurement route was adopted in Rihan Heights Towers project. There are some differences between the two routes; - § Traditional Route (Rihan Heights Towers) - Procuring project involves separated detailed design development, tender, award and construction delivery phase, as was stated by Walker and Rowlinson (2008:45). The client procured the consultant to prepare the detailed design and tender documents and then the tender can be floated. - The construction can’t start before completion of design and tendering. § EPC Route (Cooling Plant) - Procuring project involves overlap between design and construction as the contractor has the sole responsibility of both. - The construction can start before completion of design. There are some triggers to adopt different routes: § Traditional Route - Necessity of future changes: In traditional route, the potential changes are easy to be arranged, RICS (2013:8). During project time, many changes were requested by client in the interior design and fit out packages. - Time Availability: The client programme allowed sufficient time to procure the towers so the overlap between design and construction wasn’t required. - Necessity of Quality: The traditional route is design lead so the client has a direct influence on improving quality in the overall design as was confirmed by Davis et al (2008:10). The quality of towers apartments was significant factor as the client was keen to lead the real estate market by producing the final product to be of a suitable quality. § EPC Route - Minimal Future Changes: The client didn’t have such potential changes during construction. In EPC, the client provide in the ‘’employer requirement’’ the required cooling capacity and give the contractor the chance by EPC route to make the suitable design, which provides such cooling capacity. - Necessity of Fast Procurement: The client programme was so limited and the cooling plant was required at the earliest as the client had commercial commitments for selling and leasing the apartments so that reducing the project time by using EPC route was essential to fulfill such commitments. - Necessity of Cost Certainty: The lending institutions insisted on cost certainty especially after the global financial crisis. • Final Appraisal After showing how the project was initiated, what are the benefits that the client was looking for besides making a profit, the role of some business units and the different procurement routes were used in the towers and plant projects, it is the time to confirm that the EPC route was the best choice for the client to adopt for the plant due to; - § The need of cost certainty, innovation and fast track procurement. § The plant cost was £ 50 million so the design and build (EPC) is the best choice, CIOB (2010:16). § The single point of responsibility transferred all the risks to the contractor and reduced the client staff and its cost impact. However, delays in possessing the site affection plan by client to enable the EPC contractor starting construction works had an impact of delay in time and cost overrun.
  6. 6. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 6 of 8 Section 3- Alternative Procurement Route EPC route was the best route for the cooling plant project; however, I would choose the BOT, form of partnering, as an alternative procurement approach that can be adapted. BOT is defined by Smith and Morledge (2013:235), as a concession agreement between the client (government) and concession company (private sector), according to this agreement the concession company has the right for financing, constructing, maintaining and operating the facility over the agreed concession period before transferring the facility to the client at zero cost. Assaf (2005:4-5) defined the contractual links as follows; § The government (Mubadala) has to sign a concession agreement with the concessionaire. The agreement includes the concession period, construction period, toll/tariff structure and government guarantees. § The government (Mubadala) has to sign off take contract with the concessionaire for purchasing minimum quantity of the cooling capacity (TR-ton refrigerator) at a fixed price for a fixed time. This contract will generate the revenue for the concessionaire. § The concessionaire has to sign a loan agreement with the bank, which will finance the project. § The concessionaire may sign a shareholder agreement with equity investors who will finance the project from their own capital funds. § The concessionaire has to sign an EPC contract with the main contractor to design and build the plant. § The concessionaire has to sign a supply contract with the suppliers. The suppliers are often government agencies, which will supply the electricity and water for the cooling plant. § The concessionaire has to sign an operation contract with the operator who will operate the plant.
  7. 7. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 7 of 8 Section 3- Alternative Procurement Route • For Government (Client) Advantages of using BOT; § Provide a single point of responsibility for the client and investors as well. Both of them have to contact with only the concessionaire who owns responsibility for all projects aspects, Delmon (2009:23). § Reducing the financial pressure of client as the project will be financed by the public sector (concessionaire), Yang and Ma (2012:399). § Efficient risks allocation between client and concessionaire by assigning risks for each party, who is best able to manage, as was stated by Sapte (2006:26-27). However the client’s risks will be reduced because the availability of sufficient bonds and letter of credit to ensure the completion of the project are on hand, Harris and Abramson (2003:232). § The use of private sector capital and know-how will reduce the construction cost and schedule thus improving the operating efficiency, Askar and Gab-Allah (2002:174). Disadvantages of using BOT; § Long time will be required to finalize the concession agreement as stated by ESCAP (2011:8). Moreover finalizing the financial close between the concessionaire and bank may take several months, ESCAP (2011:70). § Potential high cost for government as confirmed by Sapte (2006:27), because the government may provide financial incentives to encourage investment in cooling plants within UAE. Also the government may be committed to supply financial support to mitigate some events may occur such as falling the use of plant below given level or the depreciation of domestic currency. • For Concessionaire Advantages of using BOT; § Certainty of cost given by using EPC route and fixed price-lump sum contract with the main contractor. Since any delay in the construction period will affect the concessionaire revenues, Assaf (2005:17), so this certainty will ensure that the project during construction will be on the initial budget, unless the concessionaire will cause delay to the EPC contractor. § In BOT, the concessionaire can generate its profit from the operation period plus a payment may be paid, as stated by ESCAP (2011:8), by client (government) for the concessionaire to make the project commercially viable and reduce the level of commercial risks taken by concessionaire. Disadvantages of using BOT; § According to Alfen and Wirtsch (2009:71), delays in approvals on project-related issues by government agencies will affect the project schedule and thus the expected revenues of concessionaire. § Increasing inflation rate could reduce the profit that the concessionaire has expected so it is necessary to have an accurate forecast for the inflation rate to avoid any future loss, Alfen and Wirtsch (2009:74). § Potential losses because of the actual using of plant cooling capacity (TR) during the operation period is lower that estimated, which means the expected concessionaire’s revenues will be reduced.
  8. 8. AR50360 Assignment Name: (Sameh Kandil Mohammed Ibrahim) Page 8 of 8 References 1- Alfen, Hans Wilhelm and Wirtsch, Dipl. ed. (2009). Public-Private Partnership in Infrastructure Development: Case Studies from Asia and Europe. Germany: Bauhaus-Universitat Weimar. ISBN 978-3-86068-382-8. 2- Askar, Mohammed M. and Gab-Allah, Ahmed A. (2002). Problems Facing Parties Involved in Build, Operate and Transfer Projects in Egypt. Journal of Management in Engineering. 18 (4). 173-178. ISSN 0742-597X. 3- Assaf, Sadi. (2005). (Viewed 12-07-2013). Build, Operate and Transfer (BOT); Project Development System in Saudi Arabia (online). Saudi Arabia: King Fahd University of Petroleum and Minerals. Available from: http://faculty.kfupm.edu.sa/CEM/assaf/Students_Reports/Build-Operate-and-Transfer-Project.pdf. 4- CIOB. (2010). (Viewed 08-07-2013). Procurement in Construction Industry. United Kingdom: The Charted Institute of Building. Available from: http://www.ciob.org/sites/default/files/Procurement%20in%20the%20Construction%20Industry.pdf 5- Dawson, Black. (2011). (Viewed 21-07-2013). Construction Alert. Australia: Black Dawson. Available from: www.ashurst.com/doc.aspx?id_Content=6950. 6- Delmon, Jeffrey. (2009). Private Sector Investment in Infrastructure. Netherlands: Kluwer Law International. ISBN 978-90-411-2714-3. Available from: http://books.google.com.eg/books?id=vHdhB6jyjBIC&pg=PA4&dq=BOT+advantages&hl=en&sa=X&ei=J5XmUeGOE4O6O923geAE&redir_esc=y#v= onepage&q=BOT%20advantages&f=false 7- Davis, P., Love, P. And Baccarini, David. (2008). Building Procurement Methods. Australia. Research Project No. 2006-034-C-02. Available from: http://eprints.qut.edu.au/26844/1/26844.pdf 8- ESCAP. 2011(viewed 12-07-2013). A Guidebook on Public-Private Partnership in Infrastructure (online). Bangkok: United Nations. Available from: http://www.unescap.org/ttdw/common/TPT/PPP/text/ppp_guidebook.pdf. 9- Huse, Joseph A., (2002). Understanding and Negotiating Turnkey and EPC Contracts. 2nd ed. London: Sweet & Maxwell Ltd. ISBN 0 421 674105. 10- Harris, Ronald S. and Abramson, Mark A. ed. (2003). The Procurement Revolution. USA: Rowman and Littlefield Publisher Inc. 11- Masucci, Maury. (2009). Owners’ Guide to Alternate Project Delivery Systems. USA: Hill International, Inc. 12- Piper, DLA. (2011). (Viewed 03-07-2013). EPC Contracts in Power Sector (online). Australia: DLA Piper. Available from: http://www.dlapiper.com/files/Publication/18413b26-49b8-490e-acc6-3ff54faa55d7/Presentation/PublicationAttachment/1205e08d-e585- 479d-ac17-42135efaf044/epc-contracts-in-the-power-sector.pdf. 13- RICS. (2013). Developing a Construction Procurement Strategy and Selecting an Appropriate Route. 1st ed. United Kingdom: RICS. ISBN 978 1 78321 021 3. 14- Smith, Adrain and Morledge, Roy. (2013). Building Procurement. 2nd ed. United Kingdom: Wiley-Blackwell. ISBN-10: 0470672439. 15- Schramm, Carolin, Meißner, Alexander and Weidinger, Gerhard. (2010). Contracting Strategies in the Oil and Gas Industry. Special Edition. Germany: ILF. 16- Sapte, Denton Wilde. (2006). Public-Private Partnerships: BOT Techniques and Project Finance. 2nd ed. United Kingdom: Euromoney Institutional Investor Plc. ISBN 1 84374 275 6. 17- Simister, S. J. (2009). Unit5 – AR50360: Procuring Construction. United Kingdom: Distance Learning Unit, University of Bath. 18- Walker, Derek H.T. and Rowlinson, Steve. ed. (2008). Procurement Systems; A cross-industry project management perspective. UK: Taylor & Francis Group. 19- Yang, Yuhang and Ma, Maode.ed. (2012). Green Communications and Networks. USA: Springer Science. ISBN 978 – 94-007-2169-2.