SBM1204 Contract Evaluation In Walker Construction UK Ltd Assessment 3 Answer

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Question :

Unit Code and Title: SBM1204 – Project Deliver Systems 

Assessment 3: Critical review and evaluation of a selected topic

Group/individual:Individual
Word count / Time provided:2000 words
Weighting:30%
Unit Learning Outcomes:ULO-1, ULO-2, ULO-3, and ULO-4

Assessment Details:

Design of Project Delivery System influences the success or failure of the implementation phase of projects and programs. It is not just about selecting a contact model; it provides a framework for procurement of goods and services needed to implement the project.

This assessment task is based on the review and evaluation of selected project delivery (contract) method. Students will be required to select one of the following five main contract types identified by Kerzner and complete a critical review and evaluation of that contract type in an industry of their choice.

The five main types listed on pg 975-1014 of the textbook1 are:

  1. Fixed-price
  2. Cost-plus-fixed fee or Cost-plus-percentage fee
  3. Guaranteed-Maximum-shared-savings
  4. Fixed-price-incentive-fee
  5. Cost-plus-incentive-fee

This assessment task includes three components:

  1. A detailed literature review on the selected contract type, including the typical delivery models and contexts in the field or industry of interest.
  2. A detailed evaluation of the suitability of the methodology for successful project delivery in the chosen field or industry of interest.
  3. A consideration of the relevance of the contract type together with conclusions and recommendations for future use of the method.
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Answer :

Assessment-3

INTRODUCTION

A project is a combination of multiple task or activity that is required to be completed to reaching a particular goal of an organization. It can also be determined as a set of inputs and outputs needed to attain an individual or business objective within a limited timeframe. However, a project can range from single to hard as well as could be managed by one individual or group of people involved in the same kind of activity (Kim and Shon, 2011). Similarly, the project delivery system is considered as the process by which the project is been designed as well as constructed for the company, but these days PDS includes various key aspects such as planning, design, construction, management, and controlling of the project. Therefore, this project report provides specific information regarding the evaluation of the contract types used within the “Walker Construction UK Ltd”. Apart from this, the associated delivery model taken into account in this particular sector is also being the highlight of this report. 

Literature review

According to Yao and et. Al., 2010), project management is a vital activity that consists of initiating, planning, executing, and closing the activity of a team or group to attain a particular objective. The primary challenges of project administration are to attain all the project goals within the available constraints. A fixed-price contract is an essential contract involved in project management, wherein the payment does rely on the resources of the time spent to attain the targets. It consists of setting fixed prices for products or services results from the contract. This type of contract could also be related to the monetary incentive that is provided to the sellers that have exceeded the project goals. However, this project goal consists of scheduled date of delivery, technical performance, and anything that could be easily measured by the managers involved in a project. It simply means that the seller has agreed to complete the activity for a fixed value of amount. Such type of contracts is generally used by the legal contractors to manage the cost as well as put the risk on the seller sideways (Manuel, 2014). Hence, those sellers who intend to pursue the fixed-price contract have a lawful compulsion to accomplish the contract; otherwise, they have to incur financial debt if they could not deliver on the prescribed time limit. In contact with these arrangements, the buyer could have a specific type of product or service that they could deliver so that the buyer could set a certain fixed price to the associated deliverables. The benefits of using such type of contract are that it provides the client to rectify the mistakes at the time of the initial phase of the project. However, the seller is also liable to biller maximum than the estimated budget values so that they could easily be able to generate a sufficient amount as income from this contract. Thus, the fixed-price contract would also come with various limitations that consist of the changes that can influence the flow as well as the order of the project. That sometimes leads to dissatisfaction with the consumers those are vital parts of this contract type. 

In the viewpoint of Decarolis, (2014), this model is based on the fixed-price contract under which the manager used to determine the predefined sum those are agreed by both the parties accordingly. This particular model is very much cost-effective for the customers since they do not require to pay anything out of their terms of the contract value. It has been determined that this model tends to provide maximum guarantee a fixed budget for a particular budget in regards to the time or expenditure that is going to be incurred during the period. The engagement model aimed at certain factors such as the needs & wants, and interests of the customers along with ensuring the completer level of control and flexibility to the project. This model is having a various set of collaboration that becomes imperative to select the reliable engagement model as it is linked to the goal that is being related to the outcomes by using a relevant pricing model. However, this procedure is quite risky for any project development team (Badenfelt, 2011). It is so because, if any changes in the scope of ongoing products are made, then the Walker Construction UK Ltd has to compensate for the additional value by curtailing their profit margin. However, these types of situations tend to impact the business relationship effectively. After then, it will surely turn out to be a risk management company, where people aim would be to reduce the impact instead of carrying out the desired goal of the project. Thus, one thing is quite simple and clear that making any changes in the contract could lead to an impact on the entire project. Therefore, this model is more reliable for a short-term project where the needs and specifications are less inflexible and conventional. 

Wang and et. Al., (2011), states that the cost of development entirely relies on the total number of resources and time involved in the development of a project within Walker Construction UK Ltd. It is quite essential to determine the client pays for the total time incurred for the overall management of the projects other than the scope. A fixed price model is an effective model that provides a maximum guarantee for a set budget to a given project. These types of models are generally best reliable for the project within a strictly clear scope as well as needs that do not get changes with the progress. The agent action could be hart to determine and it may pursue their interest. The moral hazard option occurs with the utilization of a fixed price contract which has a decent payment option per day for one unit of work. It is analyzed as a minimum powered contract in accordance to provide weak incentives to the involved workers. 

Mandell and Brunes, (2014), argue that a fixed price contract could be given a reliable amount of incentive for the agents that do not carry out optimally since its compensation could be similar with the profit incurred by the company. Thus, the fixed-price contract is associated with a trade-off along with the contracting costs as well as the incentive issues. It has been determined that in the case an agent lacks the incentive to perform with full potential, it can be more vital to replace a fixed-price contract with the incentive-based contract. Most of the researcher said that the fixed cost contract could not enhance the companies’ adaptability those are looking for future success. For instance, the evolvement of the upcoming production, as well as technology, could be determined in a contract during the initial phase and therefore the industry instability is not taken into account efficiently into the concern of fixed-price contracts. Because of this disturbance, the transactions become negative. 

Evaluation of the suitability of the methodology for a successful project 

For any business project, it is of utmost importance to select a reliable method for their team so that future objectives can easily be accomplished. However, the project managers could easily support their organization to improve its project efficiency by reducing the amount of risk involves in a given project. Thus, the project managers need to understand the methodologies that can help them to deal with the positive implication within the Walker Construction UK Ltd. However, it has been examined that project managers need to measure success precisely because it would inform the organization to spend their time and efforts positively so that future goals easily are attained (Hafızoğlu, Gel, and Keskinocak, 2016). A fixed-price contract is a method where a firm can establish a set or price for each customer regardless of the time and resources used within a project. Moreover, this contrasts with a vibrant pricing method under which the contract allows the providers to make certain adjustments to the price that are based on the actual time and material value. The fixed price model tends to work in small business projects those are having a very limited amount of resources and a clear goal. For example, the time and material pricing method consist of paying for complete work. With the use of this method, the client plays a vital role in the overall development of the software solution as well as analyzes the risk associated with the construction company. fixed price model


Fig: Fixed price model

The level of responsibilities that are carried by the customers for the entire process is quite higher than the estimated fixed price. However, the customers are ready along with their team members to bill for the real-time incurred on the project development within Walker Construction UK Ltd. This type of contract generally consists of a total fixed price for the construction associated with the various activities. It can be related to the incentives or other benefits for the early termination or have a certain amount of penalties that could cause liquidation damage to their concerned company (Bernstein, 2013). However, the contract shall be taken into account in case the risk required to be transferred to the builder as well as the owner of Walker construction to avoid the changes orders for any unspecified work. Moreover, the contractors need to consider the total percentage cost related to carrying that particular risk in the implementation phases of the project. These costs are generally hidden in the fixed price contract, therefore it is difficult to get credit back from the total work that does not get finished at the prescribed timeframe.

The relevance of the contract type together with the conclusion 

In the case of a fixed-price contract, consideration is a crucial aspect that must be used to bargain for a particular party, and it a vital reason for the party to enter into the contract. It must be of certain value as well as exchange for the overall performance by the other person. However, a valid contract tends to be always involving certain considerations for every person involved in the contract (Fu, Lee, and Teo, 2010). Moreover, the consideration in a fixed price contract is the exchange of anything of value from their party. It has been determined that consideration could be consists of various types such as Money, personal property, and promise to act. Thus, it has been analyzed that one party involved in the contract is already legally obligated to act as particularly mentioned by the contract. Therefore, it is quite relevant for the company to involve in this contract so that chances of losses or risk can easily be managed in the future.

CONCLUSION

Through the entire project report, it has been summarised that a fixed-price contract tends to provide maximum benefit to the party that is involved in some kind of work. The project manager needs to follow all the specific considerations and factors that can be reliable for the success of a project in the future. However, it has been recommended to service providers as well as customers to carry out their scope, price, and resources effectively so that their individual, as well as organizational objectives could be achieved in a limited time.