Project Execution: Apple Healthcare Facility Case Study

This case study analyzes the Apple Healthcare Project, focusing on the project's background, delivery methods, financial contracts, and procurement strategies. The project involves Apple's diversification into the healthcare industry through the construction of a healthcare facility. The case study explores three project delivery methods: Design-Bid-Build, Design-Build, and Construction Manager at Risk, ultimately recommending the Construction Manager at Risk approach due to Apple's fixed budget and desire to concentrate on core activities. It then examines financial contract types, with the Guaranteed Maximum Price (GMP) contract being the most suitable. The study also investigates procurement methods, favoring the 'best value' approach. Finally, it outlines a risk management plan, identifying potential risks (economic, social, etc.) and proposing mitigation strategies to ensure the project's success. The assignment is designed to practice contract management concepts for students.

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Apple Healthcare Project
Institutional Affiliation
Author’s Name
Professor’s Name
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Background of the Case project
The project into consideration Apple healthcare within the aim of building a health care
facility. Due to increasing competition facing the Tech giant, the company has decided to have a
different line of diversification far from its core activities (Apple Inc. 2019). The company is
getting into the health industry slowly by the production of medical devices, the release of Apple
Health records, and Apple watch with single-lead ECG. These are indicators that the tech giant
has already entered the healthcare industry. The firm main project speculated is to have a
healthcare facility with the center with patient health records as the pillar for a positioning
strategy. Further, the firm believes that there is so much in the health care industry, and it is a
worthy investment.
Project delivery method
The project of constructing a facility requires the owner or the agency acting behalf of the
owner to organize and finance the design, construction, and maintenance services for the
structure by getting into legal agreements with one or more parties. Careful selection of the best
method help in saving time and avoiding challenges down the road with the project (Tsegaye,
2018, p. 12). The contract states the method of delivery to produce and deliver on the owner's
specifications. There are three approaches that Apple company can use in achieving its dream in
delivery of a health care facility, which includes Design-Bid-Build (DBB), Design-Build (DB),
and Construction Manager at Risk (CM@R).
In the Design-Bid-Build, the owner or the Agency gets into a contract with the
architectural firm and the contractor separately (Charoenphol et al., 2016, p.182). In the contracts

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prepared, the contractor and the architect are now legally bound to one another. Therefore, it
gives the owner control of the whole project. This approach is not the best for Apple, mainly
through the diversification in unrelated business. Also, Apple is not an expert in the health care
industry and will require that they mitigate the risk of the firm carrying all the risk by
themselves. Further, this type of approach raises considerations of the owner taking risks if the
contractors make an error. Also, construction is not known until the award is provided, and it
requires the firm to have all inputs in design, planning, and value engineering. Based on the
owner taking roles in controlling the project, the delivery design is not fit for the company.
The Design-Build and Construction manager at risk is a better option for Apple to
consider, since the transfer the control to contractors (Charoenphol et al., 2016, p.182). That
means that the firm will still have time to concentrate on their core values. But indeed, the firm
needs to settle with one approach that should be stated in the contract. The design-build contract,
the owner, can enter a legal agreement with the contractor or the architect who takes the roles of
the client until the construction is done. The importance is that approach is that a single party
does all the management process, design, and development, the building can start before
designing is complete, there is an emphasis on cost control and transfer of risk from the owner
(Tsegaye, 2018, p. 12). Due to the contractor assuming all the roles of the project, the tendering
process may not be fair and based on competitive bidding.
The best choice for apple to use is the construction manager at risk. Holding to the
assumption that Apple Company has a fixed budget for the project, the price set is what the
company will offer, and a high preference for price certainty will guide the action of the project.
Also, assuming that Apple Company wants to proceed with its core activities without

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interruptions of the ongoing project. In all the project, the client focus on getting services and
achieving their goals at lower costs and attaining high-quality standards at a specified time
frame. In any project, the key factors that any business considers include time, schedule, and
scope. The change of any element can lead to changes in the rest.
The advantage that Apple will gain from the constructor manager at-risk approach is that
there is high price certainty through good estimation during the early age (Charoenphol et al.,
2016, p.187). The constructor is based on qualification and then on price. When the company
issues a tender, they provide all the specifications, design, and all the deliverables. Then the
contractors engage in competitive bidding. The one with the lower price is contracted to offer the
services and deliver on the project. Besides, the construction manager acts as a consultant to the
firm and work to manage the construction costs. The manager provides the guaranteed maximum
price, and in case the costs exceed what is quoted, they cater to such liability.
Financial contract type
By identifying the best time of the project delivery approach, compensation needs to be
done for the services rendered. In this case, the Apple company project to build a health facility
suits the construct manager at-risk approach to delegate the role of monitoring and controlling. It
requires that there is a financial contract type that supplements the selected method in ensuring
delivery of services is competent and meet the owners' specification. A business contract type
gives a legal binding for both the owner and the constructor that authorizes how much amount of
compensation will be distributed (Tran et al., 2018, p.50). Due to the advantages of different
types of contract types, some are highly preferred by professionals. Apple needs the best

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compensation method they can fully comply with since failure to honor the agreement can lead
to legal action taken against them.
Between the three types of financial contracts, Guaranteed Maximum Price matches the
Constructor manager at-risk project delivery method. Therefore, Apple requires these methods
since they need to hold costs low without compromising quality. The Guaranteed Maximum
Price contract, the constructor, is compensated for the actual expenses incurred and a fixed fee
subject to the ceiling price (Tran et al., 2018, p. 56). This requires that there is a proper
estimation of both direct and indirect costs before giving the owner a budget. The contractor can
put the ceiling price for each of the costs to ensure that there are no costs overruns since they will
be the ones to bear the liabilities. Apple requires to have a fixed budget from the investment so
that it can help determine the net present value for the project. So, using the GMP will help
project the estimated cash flows from running a healthcare facility to determine the expected
income (Tran et al., 2018, p.45). Further, this is unrelated diversification, which requires
cautiousness while holding costs as low as possible. If the contractor is paid for the actual
expenses incurred plus a fee subject to the ceiling price, the owner can get the remaining cash if
the costs turn to be lower than estimated. If costs exceed the budget, they transferred to the
contractor unless there is a formal change between the two parties.
Also, the Lump-sum seems to be a better deal for Apple Company since it requires
developing a fixed price. Further, all the risks are assigned to the contractor, and the owner bears
no risk until the completion of the project (Chen, 2016, p. 12). As a result of the project manager
assuming all the danger, they ask for higher mark up as a way to shield against unforeseen risks
during the project phases. Proper job execution lies in the contractor who provides the means and

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methods of accomplishing it. The labor costs, material costs, and amount to cover overhead and
profit margin are added. This may result in a higher price than actually paying the costs incurred.
To ensure that profit is high, the contractor ensures that estimated costs are higher, and in case
the actual damages are lower, and they retain the cash. For that reason, Apple would not opt for
the lump sum financial contract method, since it may turn out to be more expensive and hinder
the goal of lowering cost.
Lastly, the cost-plus contract is hard to be adopted in this kind of scenario. The method
better used when the scope is not clear (Ding, 2019, p. 9). But in this case, it is assumed that
Apple has a well-defined range for the project for price estimation purposes. There are no price
controls in such kind of payment plan since the price can increase or decrease (Ding, 2019, p. 9).
In the event, there is an increase in cost value, the firm will end up using more funds that were
not planned. Any investment project requires all deliverables outlined before the
commencement to ensure accurate compensation determination. Therefore, lack of price control
and lack of clear scope makes it less a choice for Apple Inc.
Best procurement method
The procurement process involves placing tender and waiting for suppliers to place bids
so that a firm can acquire services from an external source (Naoum and Egbu, 2016). In the
project, Apple, the procurement process starts with the procurement department to identify
whether they need to buy, make, or lease the building to set up the facility. All these options are
determined by the costs incurred and the benefits expected from either decision. Acquiring
services from external parties requires that the award of tenders is done since it affects the

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construction process. There are several ways that procurement can be done, including
competitive bidding, the best value, and negotiated contracting.
The importance of apple using a competitive bid to award tenders requires issuing a
public request so that companies can give their proposals (Semaan and Salem, 2017, p. 44). It is
a way to create a transparent environment that open and fair. It is good since it offers a variety of
options and provides the firm with the lowest bidder who helps deliver the project at a lower
cost. On the other hand, the negotiated contracting is just a direct agreement with the contractor
without going through competitive bidding (Laryea, 2017, p. 803). In this case, it helps save time
since, in some cases, it may take time to place a public bid then waiting for contractors to make
bids then awarding the tender.
In some cases, the competitive process can last for days, weeks, or months which delay
the implementation of the project. The negotiated contracting is better when the project needs to
deliver fast and has a strict deadline meet. Apple is known for quality service and product
delivery and would require that construction project reflects their position in the eyes of their
customers, even in healthcare services. For that reason, the best value is highly suitable and more
appropriate in this case. The firm requires to look for other factors like quality and expertise
other than price (Laryea, 2017, p. 803). In this case, there will be a variety of bidders who will
be pre-qualified with the submission of the best value evaluation questionnaire. The bidder with
the highest points of best value evaluation is awarded the tender and allowed to do the
construction.
Risk Management Plan

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The contractor is required to prepare for risks and estimates the impact on the project.
Then they will be required to develop mitigation and responses to the identified risks. In the
project risk management process requires five phases that include determining the risk,
analyzing, evaluating and rank, treat or mitigation plan, and monitoring and review (Aghapour et
al., 2017p.80). The risk of hospital construction can emerge from the social, economy, climate,
transport, wastage, cultural heritage, and health and safety of community and workers.
Risk Register
Risk Consequences Treatment of risk
Economy
 Increase in the price
of costs beyond the
budget
 Impact on the labor
market
It is likely that the estimated
price may be affected by
inflation resulting to higher
cost to be incurred.
As a result of economy
affecting the labor market,
there may be inadequate
skills and labor to deliver the
project.
The use of a strategic
financial contract type and
project delivery approach to
share to transfer risks to
contractor.
Plan a suitable source of labor
and skills to provide the
project deliverables.
Climate The impact of extreme
weather condition can lead to
Securing the site, transfer
equipment and personnel to a

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 Extreme weather
conditions like
hurricane and floods.
injury and deaths, destruction
of buildings and cause delays
to the project.
safe refuge and ensuring the
building can withstand
extreme weather changes.
Social
 Environmental
degradation.
Environmental degradation
during construction as a result
of poor disposals.
Adhere to environmental
protocols and establishing
waste management and
disposal plan.
Transport
 There can be spills,
accidents and
degradation of
transport
infrastructure.
Environmental degradation,
hitting other road users and
damaging transport
infrastructure.
Control spills, hauls routes
and remedial repair of
damage caused.
Waste
 Excessive use of
services and materials
during construction.
 Poor waste
management plan.
The impact is the depletion of
natural resources.
Wrong disposal thereby
affecting the ecological
values.
Encourage recycling and
reuse of material that can be
recycled.
Developing a waste disposal
strategy.

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Cultural Heritage
 Local impact on
cultural environmental
values.
Different community groups
have preference of the
cultural activities that may be
interfered with construction.
Align the standards with
community standards.
Health & Safety
 Construction health &
safety.
 Public health and
safety
 Construction traffic
The construction can be
exposed to health and safety
concerns.
The construction and the
materials used may have
health and safety impact to
the public.
There may be increased
noises on people residing
near the construction site
The contractor to develop
health and safety measures.
Fencing of the site and
preventing unauthorized
persons.
Select to construct where less
people will be disturbed by
the noises.
Risk Quadrant Analysis
Value/Risk High Low
High  Construction health &
safety.
 Public health and
 Increase in the price
of costs beyond the
budget

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safety.
 Construction traffic.
 Environmental
degradation.
 Extreme weather
conditions like
hurricane and floods.
 Impact on the labor
market
low  Excessive use of
services and materials
during construction.
 Poor waste
management plan
 There can be spills,
accidents and
degradation of
transport
infrastructure.
 Local impact on
cultural environmental
values
Mitigation Plan
After the treatment of various risks through routine planning, the residual risk needs to be
mitigated to reduce extreme adverse effects on the project. The mitigation plan will include risk

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avoidance, acceptance, transference, and limitation (Aghapour, 2017, p.112). For climate risks,
they have a high impact when they happen; therefore, risk avoidance can be the way to mitigate,
and that is constructing during the favorable climate period. Some risks like noise, transport risks
can be treated, and the residual risks can be accepted since they have little value change in the
project. Apple has used the strategy of transferring the project management to a contract
manager who assumes some risks such as economy-related risks and health and safety risk.
Through expertise and transfer of control to the best value of the contractor, Apple Company can
transfer most of the risks. Lastly, limitation on the effect is done on those risks that have a high
ranking ad high value on the project and cannot be mitigated or treated.
References