Best Project Delivery Method, Financial Contract Type, Procurement Method, and Risk Management Plan for Construction Project

This report discusses the best project delivery method, financial contract type, procurement method, and risk management plan for a construction project. It provides insights into the background of the case project, the best project delivery method, the best financial contract type, the best procurement method, and the risk management plan. The report concludes with recommendations for Westpac Australia on the best services to consider for their construction project.

Project Management

Table of Contents
Background of Case Project............................................................................................................3
Best Project Delivery Method.........................................................................................................3
Best Financial Contract Type..........................................................................................................5
Best Procurement Method...............................................................................................................8
Risk Management Plan..................................................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................12

Background of Case Project
Westpac is a financial services providing bank situated in Australia, and is headquartered at
Westpac in Sydney. It is the oldest bank and one of four biggest banks of Australia as well as one
of the major banks in New Zealand. Westpac provides a varying range of banking as well as
monetary services in financial markets together with consumer, institutional and consumer
banking as well as in wealth management services. The business of the Westpac comprises of
five major customer-based divisions operating a unique portfolio of brands along with Bank of
Melbourne, Westpac, St. George, BankSA and RAMS, through which, these brands are
providing services to more than 13 million customers presently (Westpac Banking Corporation,
2019).
In order to construct its branch office, Westpac is planning to enter into a construction project
with reasonable costs, to build a branch office that could satisfy all the demands of customers. In
order to attain best construction project quotations, Westpac is exploring various types of project
delivery methods to take on the best suitable, analyzing various types of financial contracts to
select the best one and is going through various types of procurement methods to select the best
one for the construction project. In line with it, the company will also plan its risk management
strategy in order to avoid any kinds of risks arising during the construction of branch office. This
report will search for the best services that could be taken into consideration by the Westpac
Australia, for undertaking the construction project.
Best Project Delivery Method
The project delivery is considered as an all-inclusive process which includes planning, designing
and construction essential to implement a project. The selection of a project delivery method is

considered to be as one of the basic decisions to be taken while developing acquisition strategy.
The project concerns have major impact on the selected delivery method and such concerns
include realistic budget as well as schedule including realistic performance period, receptive and
quality design process and risk assessment along with sharing of risks to suitable parties and
identifying the level of proficiency within the organization. Most common project delivery
methods are; Construction Management at Risk (CMR), Design-Bid-Build (DBB) and Design-
Build (DB).
Construction Management at Risk (CMR) - It is also referred to as CM at-Risk. It involves
assurance by the CMR for construction performance to provide the project within sharp
timetable and expenses, which could either be fixed, lump sum or guaranteed maximum price
(GMP). It provides construction feedback during the design phase and acts as a general
contractor throughout the phase of construction (DBIA, 2018).
Design-Bid-Build (DBB) - It is an old project delivery method that usually includes three
consecutive project phases i.e. design phase that requires designer services considered as the
‘designer of record’ for the project; bid phase is the nomination of a contractor; and construction
phase includes the construction of the project by selected contractor (University of Missouri
System, 2019). These sequential steps lead to a fixed-price contract.
Design-Build (DB) - This project delivery method comprises design-builder only and a single
contract signed with the owner to provide engineering design services and construction.
Considering all three methods of project delivery, it has been realized that best suitable method
would be Design-Build (DB). It involves integration of processes and, overlapping of design and
construction fasten the tracking process. Because of two major players i.e. owner and design-
build entity and single contract, there is single point of responsibility (Porter, 2016). Considering

this method would be beneficial because of various reasons such as, cost effectiveness can be
attained as the contractor and designer work together all through the process. Furthermore, it
involves less changes, less claims and less legal actions. DB can deliver a project more quickly
as compared to other conventional DBB or CMR. The owner can specify performance
requirements instead of strict specifications and can develop ability to enhance project
coordination and to reduce project claims. For this method of project delivery, team
qualifications are essential for project success and more emphasis is given to the qualification
aspect in the selection process. The design-builder has the probability to reduce the design risk if,
it chooses effective design professionals and efficiently achieves their work i.e. design-builder do
not have to deal with faulty or excessively costly ideas developed by the designer. Such issues
can easily be resolved by the use of the DB method when team agrees on a solution that is
beneficial for all (Porter, 2016). This method allows the DB team to deal with the design details
and entire team should mentally be prepared to take any steps to deliver the project. In order to
undertake construction project in Westpac Australia, DB method is considered to be as best
suitable.
Best Financial Contract Type
The contract type is used to indicate the variances in structure of contract and it include
compensation provisions along with extent of risk to the government or to the contractor. The
federal government contracts are generally alienated into two major types, which are fixed-price
and cost-reimbursement. The types of contract vary in accordance with the amount and duration
of risk expected by the contractor for the expenses of performance as well as it depends on the

extent and nature of profit accessible to the contractor for attaining or beyond the identified goals
or objectives. Most common types of construction contracts are;
 Lump Sum or Fixed Price Contract- This contract comprises a total fixed price for all
the construction purposes. It also includes incentives or benefits for initial termination. It
also includes fines known as liquidated damages for late termination. Lump sum
contracts are selected in the situation of clear scope and plan has been revised and
decided (Rodriguez, 2018).
 Cost plus Contracts- such contract comprises compensation of actual costs,
procurements or other expenditure which is created directly through the construction
activity. The cost plus contracts also required to comprise detailed information regarding
certain pre-negotiated amount, which involves certain amount of material and labor costs
along with profits of contractor. The expenses must be comprehensive and also required
to be categorized as direct as well as indirect costs. There are numerous variants of Cost
Plus contracts, out of which, most common are Cost Plus Fixed Percentage, Cost Plus
Fixed Fee, Cost Plus with GMP Contract, Cost Plus with GMP and Bonus Contract as
well as Cost Plus Contracts (CDC, 2019). These types of contracts are utilized when the
scope has not been demarcated and it is the duty of the owner to set certain limits
regarding the billing to be made by the contractor. The cost-plus contracts are not so easy
to be tracked and requires higher supervision, however, it do not usually put contractor in
risk.
 Guaranteed maximum price (GMP) for construction contracts- GMP is a form of
contract with a contractor wherein, the sum of contract does not exceed to a stated
maximum limit. Generally, this type of contract is used in design and building contracts,

where, it is the responsibility of contractor to complete the designs of clients and to carry
out construction work, so they can easily control the costs (Designing Buildings , 2018).
When the actual cost of the work is more than the GMP, then the contractor must have to
bear additional cost and if the cost is less than GMP, then it should be mentioned in the
contract if the savings should be given to client, contractor or to be shared between the
two (Opfer, 2019).
Considering all these types of financial contracts, it has been realized that lump sum contract will
be the most suitable construction contract for the purpose of construction project for Westpac
Bank Australia. The reason behind selection of such a contract is that lump sum contracts
provide services for a definite price not dependent on any alterations based on the incurred costs
by the contractor. In addition, the lump sum contract imposes least administrative liability and is
easily manageable. So, this contract should be preferred since the contractor undertakes the risk
of increasing the costs of performance. Along with it, it is utilized for acquiring the supplies and
services with practically possible terms and conditions as well as reasonable prices can also be
established at the beginning of the construction project. Such a contract can also be used when
the risk needs to be shifted to the constructor and the owner prefers avoiding change in the
instructions for work that had not been mentioned initially. On the other hand, the contractor is
also required to include some proportion of the cost related to the risk while all these costs are
usually concealed in the fixed price of the contract. There is only a single drawback with lump
sum contract that, it is not so easy to acquire credit back for the incomplete work, so it will be
required to be taken into consideration while entering into this contract.

Best Procurement Method
The responsibility of the procurement department is to acquire goods and services for the
business and it involves purchasing goods at competitive prices, dealing with legal procedures
associated with contract, budgeting costs as well as studying financial trends in order to ensure
that the money of the company is being spent in a wise manner. The criteria for selection of best
procurement method entirely depends on the experience of the person responsible for selection,
experience of contractor as well as on project one is undertaking. The decision-making required
in the process of procurement methods for property development or construction is highly
complicated as it requires quality information to be provided within time. So, it requires actual
idea of the nature of project since beginning of the project which is unlikely to change (Jones,
2017). The choice of best procurement method is essential for the success of the project, so
making informed choice is the best way to make profit from the project. The procurement
methods from which, one cold be selected are;
 Competitive procurement - In this method, the competitive quotations is requested
from several organizations. Along with it, it also involves calling for competitive
proposals or bids by applying either of these formal procurement processes which
include Invitation to Bid (ITB) or Request for Proposal (RFP) (United Nations
Industrial Development Organization, 2019). ITB is utilized for the procurement of
goods, services and work standard and steady conditions defined clearly, and RFP is
used for procurement of deliverables that cannot be articulated in adequate details
enabling the use of ITB at the time of issuance of the solicitation documents for
professional services, intricate technical services and such others.

 Negotiated procurement - The negotiation is considered as essential regarding quality,
delivery date and prices in construction contract, in order to reach a satisfactory
settlement in the contract. In the process of purchasing, negotiation is considered as
trading deliberations leading to reduction in the prices by the vendors (Property Like a
Pro, 2018). In broader aspects, negotiation aims to obtain the maximum value of money
to be spent in the process of purchasing. It requires skillful and well-informed
management to be able to negotiate the deal in win-win situation (Chand, 2019).
 Best Value procurement- Also known as best value source selection, in this method,
the procurement managers are well aware with the ‘best value’ from the point of view of
professional services, however, this method is not used in public works procurement
(Watt, 2019). In this method of selection for contract, the contract is awarded to the
contractor with best combination of performance abilities and price. As value is
explicitly a subjective term, it can be measured through multiple criteria and judged by
evaluators. It is essential to determine non-pricing criteria and comparative importance
on the basis of bid i.e. type of project, scale and time required for completion of project
(Storteboom, 2017). Best Value Source Selection can be completed in a one-step or
two-step process for bid opening as well as evaluation and even includes pre-
qualifications of the contractor (Roy, 2015).
After considering all the aspects involved in procurement method, it has been realized that
the best suitable procurement method for the construction project planned to be initiated by
Westpac Australia would be Best Value method because of various advantages associated
with it. BVP is originated from the concept of most value for the best price that could be
reached by creating strong relationships throughout entire chain and emphasizing on

transparency and opportunity to all the parties to come forth. It will increase profit,
efficiency, minimize unserviceable efforts and decision-making and use expertise instead of
management control.
Risk Management Plan
There are lots of risks associated with construction project, so there is always a requirement of an
exhaustive risk management plan in construction operations. Along with a functional risk
management plan, the company needs to control if the potential risks associated with the
construction project is worth time and a certain amount of profits. Most crucial risk factors
encountered during construction projects include;
 Strong competition for work
 Probability to generate high return on investments
 Extreme pressure to save money as well as time
 Constantly reduced margins and profits
 Litigation cases and disputes
 Safety issues
Risk Register is a tool in project management for managing risks and is used to recognize
potential risks within the project. It will include all the data about every particular recognized
risk such as nature of risks, level of risks, and the mitigation measures to respond to it.

After the identification of risks and their impact and occurrence probability, risk assessment
stage is initiated, which will help in determining the significance of selected factors, the
probability of their happening and extent of impact on the project (Dziadosz & Rejment, 2015).
Through probability theory or cost-benefit analysis during risk control, effective risk assessment
is possible.
The purpose of the risk management is to quantify the unwanted, earlier selection of random
factors, recognizing impact timely and cost incurred on the project and creating of alternative
variants, actions to minimize the damages and such others. The final stage of this procedure
involves the development of response strategies including the method or procedures that could
undertake some suitable activities or lessen further impact of adverse events for effective
realization of the project by avoiding, mitigating or transferring the risks (Zavadskas, Turskis, &
Tamošaitienė, 2010). After effective risk management plan will be prepared, there will be issues
regarding risks and Westpac will be ready to start the project confidently with all prior
preparations.

Conclusion
To conclude the report, Westpac Australia can take the best options suggested for project
delivery method, financial contract and procurement method in order to manage the project of
construction of a branch office. Considering all the methods, the best suitable project delivery
method would be Design-Build method as it involves integration of processes and overlapping of
design and construction fasten the tracking process. In context of financial contracts, the most
suitable construction contract for the Westpac Bank Australia will be lump sum contract, as it
provides services for a definite price without relying on any alterations based on the incurred
costs by the contractor. Finally, the best suitable procurement method for the construction project
would be Best Value method because of its concept of most value for the best price. In this way,
Westpac will be able to accomplish the construction project successfully.
References
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