Construction Management Report: Mater Hospital Expansion Project

This report provides a comprehensive analysis of the construction management aspects of the Mater Hospital expansion project in New South Wales. The report begins with an introduction, setting the context of government procurement and tendering processes in NSW, and then delves into the cor...Read More

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Executive summary
The report is based on a case study whereby the New South Wales government will be
responsible for the expansion of a hospital namely, The Mater Hospital. The ministry of health
will appoint a representative who will be tasked of the procurement and tendering process given
a constrained budget. The report begins with an introduction which discusses of the historical
background and the role of government in procurement and tendering in New South Wales. This
is followed by the report which discusses the procurement selection and recommended
partnership study. This is then followed by the risk management and lastly the tendering strategy.
After the report is a detailed a conclusion on what was drawn based on the report. Lastly is the
list of references from where the information was sourced.

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Contents
Introduction.................................................................................................................................................4
Procurement selection and recommended partnership strategy................................................................5
Risk management........................................................................................................................................7
Tendering strategy....................................................................................................................................13
Conclusion.................................................................................................................................................16
References.................................................................................................................................................17

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Introduction
The Australian public sector work for state government is responsible for the procurement of the
services, goods and construction on behalf of the government agencies which in this case is the
health ministry. The Australian government has laws that regulate the procurement process in
order to prevent corruption, waste, embezzlement of funds and waste. The law that governs the
Australian government procurement is the Commonwealth Procurement Rules which is under
the Department of Finance. The NSW Government procurement office was formerly under the
Department of Commerce from 1st April 2003 and was responsible for procuring and tendering
and also enhances cost reduction in the processes. The department of commerce was restructured
in November of 2004 to include the position of the Government Chief Information Office, which
forms part of NSW Procurement. As at July 1st 2009, the Department of commerce was replaced
by the Department of services, technology and administration. However, the name was changed
in 4th of April 2011 to the department of Finance and Services which is currently responsible for
procurement. The roles of the government in procurement are as follows:
 Ensure that government agencies achieve value for money.
 Promotion of competition in procurement process so as to achieve greater efficiency.
 Ensure that the procurement upholds sustainable thus ensuring government money is
used in a manner that is ethical efficient and economical.
 Enhance accountability by reducing corruption and bringing about fairness in
procurement.
 Ensuring that the code of practice for procurement is followed.
However, the process of procurement in Australia has randomly transitioned from being manual
and is now fully digitalized, that is E-procurement and tendering. This will enable and enhance
accountability.

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Procurement selection and recommended partnership strategy
Procurement selection aims at choosing the right contractor that will provide the lowest cost for
quality services and thereby enhancing and providing value for money. (Kumar and Pani, 2014).
Partnership is where the government will consider choosing two or more separate contractors to
work collaboratively rather than competitively to works towards the expansion of the hospital.
This can be termed as “delegation of duties”. (Jing, 2015).There are several steps to be followed
in the procurement selection and they are as follows:
1. Need recognition
The first step is to conduct an internal need analysis so as establish what is to be targeted. Once
the target has been established, then it will be easy to choose the right pool of contractors. This
will be the foundation to build on in order to establish a clear forecast with regards to the budget.
In this case scenario, the budget is $350 but the monetary finances resources are constrained and
what can be utilized is $250. With regards to the constraint budget, a need analysis is necessary
as it will help to determine the best procurement strategy that will be met with the $250 but also
provide quality services and goods. Also, the government will look at each partnership of the
potential contractors to evaluate their viability. (Rendon and Rendon, 2015).
2. Conduct an assessment of the supplier’s market
This is the next step after conducting a need analysis. In this step, the government representative
will evaluate the sources of raw and manufactured materials both locally and internationally. It
involves evaluating the potential contractor’s performance with regards to supply of raw and
manufactured products. This will be an in deep analysis of the potential contractor’s historic
finances including future projections of the demand. This step also assesses the competition in a
bid to seek alternatives. Competition analysis will encompass a detailed comparison to
technological and sustainability issues. (Georghiou, et al, 2014).
3. Collecting supplier information

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For accountability it is very important to scrutinize a potential contractor thoroughly for the best
favorable outcome. Choosing the wrong contractor can lead to significantly huge financial
losses, substandard work and delay in the completion of the project. In this step it is quite crucial
to evaluate the reputation and performance of all the potential contractors. This will involve
drawing references from previous clients and a report on their credit and financial statements.
The government representative will seek to get direct feedback from previous customers to
establish their experiences. (Kumar, and Pani, 2014). Of beneficial can be the use of an agent
who is quite familiar to the stakeholders and the market. At this stage the essence of considering
more than one supplier comes into to play in that it will avoid potential supply disruptions and
also creating a competitive environment.
4. Developing sourcing/outsourcing strategy
This involves selecting a strategy to use when purchasing from supplier. There are various
strategies which include:
 Strategic partnership – this involves the government and the supplier entering into an
contractual agreement. (IšoraItė, 2014).
 Acquisition – this is making a purchase from a desired supplier.
 Direct purchase – this is where quotation is used to select suppliers whereby supplier are
invited to bid.(Ruparathna and Hewage, 2013).
However, the right strategy will be determined by the level of competition in the supplier market,
the outsourcing organization’s risk tolerance and the level of motivation in outsourcing.
5. Implementation of the sourcing strategy
The implementation will depend on the type of strategy chosen. If the approach used is
competitive, which also the most suitable, then preparation of quotation form (RFP) will be
necessary so that the competitors can bid. Competition will enable the government to choose the
supplier will the lowest price and will also encourage a price war among the suppliers. The FRP
should have the following details:
 Prices
 The financial terms

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 Specification of the products and services
 The criteria of evaluation
 Requirements of service and delivery
Enough time should be accorded to the suppliers for response once the FRP forms are sent to
them. In order to encourage better response, follow up messages to suppliers is necessary.
(Inderfurth, Kelle and Kleber, 2013).
6. Negotiation with suppliers and selection of the bid that wins
This involves evaluation of the responses of suppliers via the FRP forms sent to them. The
company with the most suitable prices (lowest prices) and at the same time offering the best
quality goods and services, will meet the expected or set criteria and will thus be selected. Once
the supplier has been chosen, what follows is that there will be contract negotiations to make the
agreement legally binding. (Baily, 2017).
7. Contractual supply chain improvements
When incorporating the new suppliers, it is quite crucial to transfer information and making links
to logistics and communication systems, give training and even specific physical assets, if
necessary. The process of implementation of the transfers takes time and a lot of expertise is
needed to set and start up. There should be an agreed time frame during the negotiation of
contract(s) for commencement of full operation of the projects and the expected time frame for
completion of the project and the time to be used during for expected deliveries.
Risk management
Risk can be defined as exposure to loss due to uncertainty of an event to occur. Thus risk
management can be described as identification, prioritization and assessment of risks in a bid to
reduce the chances and the impact of the unseen events leading to losses or maximize the
opportunity realization. (Wolke, 2017). The main aims of risk management are as follows:
 Determination of the response to be taken in case the uncertainty occurs.
 Identification of the uncertainties before they occur

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 Coming up with a strategy that will minimize the chances of the uncertainties from
occurring.
 Ensuring that resources are used effectively with little or no wastage thus making the
project financially viable.
In all public procurement projects, risk management is quite useful. However, there should be
proportionality in the resources spent on a risk and the amount of time to the uncertainty level
associated with the procurement project. In projects that are not very complex, whereby the
stakeholders involved are few, management of the risks will lead to implementation which is
very efficient and successful, lowering the costs and also reducing any delays. In projects that are
more complex, whereby the stakeholders are many, management of risks will be the key
determinant to success of the project in that it will ensure that there are no delays in delivery.
(Klakegg, Williams and Shiferaw, 2016).
The steps involved in risk management are as follows:
1. Risk identification
This involves recognition and description of uncertainties that may occur during a project that
affecting it negatively. (Kendrick, 2015). Sources of risked can be categorized into four
subdivisions as follows:
 Project risk – this includes technical, cost, schedule, quality personal provider failure and
resource risks.
 Program risk – this includes procurement, funding, organizational, safety, provider failure
and security risks.
 Corporate/strategic risk - this include acquisition, political, economic, financial and
environmental risks
 Operations risks – this includes technical operational support, provider failure cost,
quality, and environmental infrastructure and schedule risks.
After the risks have been identified, it is important that they are well documented in the risk
register.
2. Assessment of risks

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This is looking into the probability that a risk will occur and what will be its impact if it occurs.
The probability of a risk occurring is the assessed chance that a certain outcome will happen
which includes the frequency expected of the outcome arising. On the other hand, the impact is
the result of given outcome occurring which is evaluated in terms of scheduling, quality and cost.
Assessing the risk can be greatly aided by use of a risk probability framework. (Aven, 2016).
3. Control
This step involves addressing and controlling the risks that have already been identified and
assessed. There are four ways in which the risks can be addressed and controlled, namely;
 Tolerate – this suggests that risks will be tolerated if they are deemed to be low or very
low. It implies that cost of taking addressing or controlling a risk should be proportional
to the potential benefits gained. However, the risk should be monitored to ensure that the
level of risk does not increase due to situational changes.
 Treat – the main aim of treating a risk is to ensure that the risks are reduced to an
organization’s acceptable level. The action taken on a risk will depend on the type and
impact the risk has. A risk is treated if its probability of occurring and impact is deemed
medium.
 Transfer – this involves transferring a risk to a third party. It is quite crucial to evaluate
the party that is best placed to manage the risk. Risks are transferred when their impact is
very high and the probability of occurring is low. The risk maybe transferred internally or
externally. What should also be evaluated is the cost that will be incurred as a result of
transferring the cost.
 This strategy is applied if the risk level is deemed to be very high. This involves ending
the current action and starting over. Terminating the project is an option but should be the
last resort.
In order to avoid escalation of risks leading to huge losses and causing inconvenience, suppliers
should be honest in the contract negotiation stage by sharing information on potential problems
that may arise. (Hopkin, 2018).
4. Risk monitoring

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This involves observing and keeping a continuous record of the risks. Risks are usually recorded
in the risk register. A risk register contains the following information; risk owner, risk
identification number, a thorough description of the risk, the assessed impact and probability of a
risk and the date in which it the assessment was done, the action that will be taken to address the
risk and the date in which the risks will be reviewed next. It is very important to clearly define
the owner of a risk in the risk register and the owner of the risk should agree to this. By doing so,
it ensures that responsibilities and roles are clearly understood thus ensuring that there is
accountability. Also, it is important the owners of the risks have the authority, experience and
capability, to handle the risks that have been given to them. (Hawkins, et al, 2015).
Below are some of the risks to be expected in tabular form:
Strategic organizational procurement analysis and planning
Risk Impact Action to be taken
Failure to meet the
supply demands of an
organization.
 Failing to meet the
required results by an
organization.
 Procurement cost is
too high.
 Scrutinize the organization’s
procurement portfolio, capability and
function and then do an efficient
strategic procurement planning.
Planning of a procurement activity
Risk impact Action to be taken
Little time accorded to
supplier for response on
quotation.
 The supplier’s
response is quite
inadequate.
 It may lead to prices
which are inflated.
 Procurement officers should be
involved in the project planning
phase.
Requirement definition

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Risk Possible Consequences Action to be taken
Vague specification
in the quotation
 Responses from suppliers
are not enough
 Suppliers misunderstanding
of the needs to be met.
 Professionals should draft and write
the organizations procurement
manual.
Sourcing
Risk Impact Action to be taken
Market approach which is
wrong.
 Inappropriate
selection
 Inflated prices.
 Thorough analysis of the supply
market
Preparation of terms and conditions
Risk Impact Action to be taken
Unacceptable terms and conditions to
suppliers.
 Bids may be
few
 Use standard conditions of
contract.
Receipt and opening of offers
Risk Impact Action to be taken
Confidentiality
breaching
 Complaints and mistrust
by suppliers.
 Political intervention.
 Establish effective security measure to
curb leaking of information.

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Contract finalization and issuance
Risk Impact Action to be taken
Disagreement with
the suppliers
 Dragging of the delivery
process.
 May force starting of the
procurement process
 Having experts to negotiate the contracts
and ensuring parties involved are
satisfied. .
Contract management
Risk Impact Action to be taken
In case of foreign
suppliers there be a
problem due of foreign
exchange rates
 High cost may be
incurred depending on
the currency.
 Agree on the currency to use in price
quotation
Contractor not willing to
accept contract
 Delays in delivery.
 Restarting of the
procurement process
 Negotiate with the supplier to establish
their concerns and thus coming up with
an appropriate consensus which favors
both parties.
Either party failing to
meet the contract terms
and conditions.
 Contract disputes.
 Satisfaction of needs
is not met.
 Time wastage
 Legal action which
may be quite
expensive and time
wasting.
 Performance Record should be
reviewed
 Contract management should be
proper.
 Hold regular inspections and get
progress reports.
 Ensure that all staff and suppliers know
and understand their responsibilities.
 documents and records should be

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Risk Impact Action to be taken
maintained and should be quite
accurate
Tendering strategy
This is the protocol to follow before bidding for a tender is done. It should be noted that for a
project to be considered successful, it should have the lowest possible price with the highest
possible quality. However, on the side of the supplier, it is quite contrary as they will seek to the
highest possible price while applying the least possible effort. Due to the extreme difference in
the objectives of the supplier and project owner, it is therefore essential to draw up a tendering
strategy. (Brook, 2016). In order to reduce the cost associated with the supply chain, it is very
essential to come up with a procurement strategy that is clear and ensure that the tender
documents are in place. The cost can be reduced by over 20 percent. In fact, Cost Engineering
has customers showing even higher reductions in cost. One client saved 23 percent on projects
with a total value of tens of millions. The documents should be drafted in such a manner that the
policies included ensure that the tendering and procurement defined in a clear and simple
manner, thereby ensuring that the best procurement results are obtained for an organization.
Before tender, there are six steps to be followed in the tendering strategy and they are as follows:
1. planning stage
This is the initial stage in the tendering strategy. The first thing is to figure out what are the needs
to be fulfilled by suppliers and what is expected to be achieved at the end of the project. It should
be done carefully so as to avoid wastage thus cutting on costs. Once the need have established,
then a shopping is established for all that is required for the project to take off to the very end.
After writing a shopping list, it will be very easy to come up with the estimated budget size. The
responsibilities of each party in the project will be outlined at this stage and clearly stated. It is at
this stage the government representative gets an okay from the ministry involved. Once an
“okay” is given by the relevant authorities a project management plan is drawn up. Also, it is at
this stage where a time schedule of the project established and drawn. (ED Love, et al, 2014).

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2. Creation of a tender
It is at this stage where it is determined the procedure to be used in the tendering process which
will either be open, negotiated or restricted. The award criteria will also be stipulated in this
stage. Normally, the criteria will be to offer the contract to the bidder with a combination of the
lowest price and high quality goods and/or services. Also, aspects related to the tender such as
technical specification are also addressed in this stage. Other aspects to be addressed are social,
environmental and bidder related aspects. Also, the projected budget and the available funds
available will be looked into at this stage. In this case scenario, the projected budget is $350 but
the fund allocated is $250. Thus it will quite important to consider this as there are strained funds
and the project should be complete with the available funds. Also, other formal aspects such as
documentation and legality of the tender are also considered. Since the tenders are legally
binding, the tendering documents should in general:
 Use language that is unambiguous and clear.
 Give a clear indication of the client’s obligation, liabilities and rights of the parties
involved in the contract.
 It also defines the quantity, quality and nature of the supplies, work or services to be
offered as per the contract.
 How submission of offers will be evaluated should be documented in a manner that is
clear and free of any ambiguities.
3. Evaluation criteria
The evaluation criteria for picking the successful winner of the tender will be determined at this
stage. Evaluation criteria will include how weighting will be done to come up with the best
possible candidate. Also, the team that is going to do the evaluated will be determined and
chosen at this same stage. It is also at this stage where scheme or grid is created. (Puri, and
Tiwari, 2014).
4. Publication
Once all of the requirements in the previous stages have been met, then publication of the tender
is done both in national and international official journals via the use of a standards notice and an

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invitation to tender. Publication also allows for accountability. (Fazekas and Kocsis, 2017). All
the time limits and formal aspects should be respected and adhered to. At this stage, the tenders
are ready for bidding suppliers start to respond to the offers.
5. Evaluation
After the stipulated period for handing in offers expires, the opening procedure begins which
involves looking into the offers received from the interested suppliers. It is at this stage that the
team selected for evaluation comes together in a bid to select the winning bid. The first step the
team does is to eliminate all the offers that are formally incorrect. The bidders are then evaluated
with regards to their technical aspects and the prices they quote for supply of their goods and/or
services. Once the team weighs the bids by the suppliers, they decision on who will win the
tender putting into regards the best combination of the lowest price and quality services. (Hay,
2013).
6. Contracting
Once the provisions have been fulfilled, all the legal and formal aspects such as signing are
followed and adhered to strictly so as to make the contract binding to all of the parties concerned.
(Clack, Bakshi and Braine, 2016). The documents involved in contracting are as follows:
 List of returnable which indicates the documents to be returned such as the standard
proforma.
 Offer and acceptance forms – the forms should be fully filled and signed accordingly.
 Pricing instructions
 Bill of quantities and activity schedules
 Site information documentation usually for construction contracts.
 Scope of work to be carried out and it also stipulates the time period the contract will
take.

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Conclusion
It has been established that procurement and tendering is quite a tedious process that needs a lot
scrutiny for the success of a project. The contract should will be of much benefit to the owner of
the projects if they get the supplier who will offer their good and services at the lowest possible
price and also provide quality work too. To achieve this, it has been established the best way to
go is by competitive bidding. Different suppliers will try to outdo each other thus there swill a
price and quality “war” to the advantage of the owner of the contract. Also, it has also been
established that in any procurement process, there are uncertainties or risks are bound to occur. If
the risks occur, there could be a huge financial loss and also delays in the project leading to
inconveniences. Thus in order to reduce or mitigate these uncertainties, then risk management
should be carried out. There are several steps to be followed in risk management and from the
report it has been established that different ways to resolve or mitigate the risk with regards to
how the level of the risk from a range of very low, low, medium, high and very high. Finally, it
been established that a contract is a legally binding document. In order for the offer to be
accepted and a contract is drawn be drawn up, then all documents and protocols should be
followed to make the contract legally binding and avoiding any legal loopholes in the contract.

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