Understanding Project Delivery Methods in Australian Construction Projects (2024)

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Key Takeaways

  1. The choice of project delivery method can significantly impact the success of a construction project.
  2. Factors such as project value, timeline, risk appetite, long-term vision, design flexibility, control level, innovation, and local industry familiarity should be considered when choosing a project delivery method.
  3. Regularly updating your knowledge about different project delivery methods can help you make more informed decisions.

Introduction

When carrying out any construction, infrastructure, or other project, it's essential to use the appropriate project delivery method that matches your required budget, timeframe, and project deliverables. Deciding on which project delivery method to use at the start of the project will save you time and costs as the project progresses and will lay a solid foundation for the project’s ultimate success. Consider whether your internal policies and procedures contain guidelines that must be followed when deciding your preferred project delivery method. 

If not, here are 8 key issues that you should take into account.

The success of a construction project largely depends on choosing the right project delivery method. This decision lays the foundation for how the project will be executed and managed.

1. Understanding the Value of the Project

The budget of a project significantly influences the choice of project delivery method.

The Impact of Project Budget on the Project Delivery Method

The approved budget of the project will have a significant impact on how that project will be delivered. It may not be appropriate, for example, to use a purchase order or a minor works contract for a larger value project, nor for a smaller project with a high degree of risk (such as one containing design obligations). 

If it has been determined, the project’s budget may influence the delivery method that is chosen. A tight project budget may lend itself to a construct only or design and construct contract, perhaps with a guaranteed maximum price to put a “cap” on costs.

Alternatively, you may need to engage a contractor to assist you to scope and price the project as its deliverables are refined. Here, an early contractor involvement or managing contractor method of project delivery may help you save costs as the parties work together to develop the project.

2. Assessing the Project Timeline

In my experience, the timeline of a project is a critical factor that can dictate the choice of project delivery method. (Rachelle Hare, Blaze Business & Legal)

The Role of Project Timeline in Choosing the Delivery Method

If timing is critical for the project, it may be preferable to use a more standard contract that both you and the contractor are familiar with, to reduce time spent in contract negotiations and revisions to the draft contract prior to execution.

Construct only or design and construct contracts may be a better choice, potentially with revisions to place more emphasis on finishing on time by limiting the qualifying causes of delay and increasing the liquidated damages payable by the contractor for late completion.

A construction management model where the contractor receives an incentive for early completion may also be an option.

While the early contractor involvement and managing contractor methods do require careful selection of the contractor and a potentially longer tender process (due to its collaborative nature), the earlier in the project that the contractor is involved, the earlier the project design and planning can be completed. This may enable the contractor to commence ordering construction supplies or materials to make allowance for long lead times.

3. Evaluating Your Risk Appetite

You need to understand your businesses' risk tolerance in order to select the most suitable project delivery method. (Rachelle Hare, Blaze Business & Legal)

How Risk Appetite Influences the Choice of Project Delivery Method

What is your risk appetite? Considerations about your risk appetite, and how risk adverse you are, may impact on the choice of project delivery method. If you are more comfortable with a traditional contractual structure, fixed risk allocation, and fixed time and costs, you may prefer a construct only or a design and construct contract in which you can shift the various risks of the project (including time, cost, and quality) more towards the contractor. If you are risk adverse, you should avoid entering into an alliance agreement or other “relationship contract”, since risks in those models are generally shared between the parties or transferred to the party best able to manage those risks.

Comparison of Project Delivery Methods

Project Delivery Method
Pros
Cons
Design-Bid-Build
Clear roles and responsibilities, established process
Potential for adversarial relationships, design changes can be costly
Design-Build
Single point of responsibility, potential for time and cost savings
Less owner control, potential for lower design quality
Construction Management at Risk
Early cost guarantee, potential for time savings
Potential for adversarial relationships, less cost certainty
Integrated Project Delivery
High level of collaboration, potential for innovation
Requires high level of trust, shared risk and reward
Direct Managed
High level of control, potential for cost savings
Requires significant resources, high level of risk
Early Contractor Involvement
Potential for cost and time savings, collaborative
Requires high level of trust, shared risk and reward
Managing Contractor
High level of collaboration, potential for innovation
Requires high level of trust, shared risk and reward
Public Private Partnership
Potential for innovation, long-term maintenance included
Complex contracts, potential for higher costs
Alliance Agreement
High level of collaboration, shared risk and reward
Requires high level of trust, potential for higher costs
Design, Build, Operate and Maintain
Long-term maintenance included, potential for innovation
Complex contracts, potential for higher costs

4. Envisioning the Long-Term Goals of the Project

In my experience, the long-term vision for the project plays a significant role in determining the most appropriate project delivery method. (Rachelle Hare, Blaze Business & Legal)

The Influence of Long-Term Vision on Project Delivery Method

An important factor to consider is what is being constructed and how it will be used.

Consider whether the project is destined for public use. Will there be significant public interest in the project? Are non-pecuniary goals, such as safety and environmental protection, important? Will the project require maintenance into the future, with such maintenance services to be carried out by the same party who constructed the works?

If so, a public private partnership, an alliance agreement, or a design, build, operate and maintain agreement may be more appropriate.

5. Determining the Design Flexibility

The level of design flexibility required can greatly influence the choice of project delivery method.

The Role of Design Flexibility in Choosing the Delivery Method

Ask some important questions... Is the design fully worked out? Has the design of the project been prepared internally or does it require development through consultation with external parties?

If the design of the project is likely to be varied during the term, flexibility in the delivery method would be preferable to avoid repeat variations to the contract or the scope of the works. 

Delivery methods that enable such flexibility include Managing Contractor and Early Contractor Involvement, where the contractor can provide advice as to design and buildability aspects as well as assist you and your consultants to refine the design as the project progresses.

In circumstances where the project’s design can be finalised before the construction works are commenced, a Construct Only Contract, where the contractor constructs the works on the basis of the finalised design and does not bear any design risk, may be more appropriate.

Consider the potential “gap”, however, between design responsibility and construction responsibility, and whether you would prefer single-line responsibility by novating the consultant’s contract to the construction contractor under a Design and Construct arrangement.

6. Deciding the Level of Control Over the Project

In my experience, the level of control you wish to maintain over the project can guide the selection of the project delivery method. (Rachelle Hare, Blaze Business & Legal)

How Control Level Affects the Choice of Project Delivery Method

How much control do you want over the project?

If you possess the necessary in-house resources to manage the project, such as a Contract Management division, the Direct-Managed project delivery method (in which you engage and manage all the consultants and trade contractors and take ultimate responsibility for the project’s delivery) will give you more control over the project.

For higher risk projects, however, you may be better protected through a project delivery method where the contractor takes single-line responsibility for all aspects of delivering that project (eg Construct-Only or Design and Construct).

7. Encouraging Innovation and Cost Savings

The desire to encourage innovation and achieve cost savings can impact the choice of project delivery method.

The Impact of Innovation and Cost Savings on Project Delivery Method

Do you wish to encourage innovation and cost savings?

In circumstances where you would like to encourage innovation in a project or work with the contractor to achieve cost savings (perhaps with an incentive structure built into the contract whereby savings are shared between the parties), the more relationship-focused project delivery methods may be more appropriate.

Other methods such as Construct Only, Design and Construct, and Design, Build, Operate and Maintain operate within a more restricted structure due to the defined contractual obligations, risk shifting, and focus on fixed time and costs.

8. Understanding the Local Industry

The choice of project delivery method should take into account local industry preferences. (Rachelle Hare, Blaze Business & Legal)

The Role of Local Industry Knowledge in Choosing the Project Delivery Method

It will be important to consider whether the industry is familiar with the type of project delivery method that you choose.

For example, Construct Only and Design & Construct Contracts are much more commonly used within the ACT. 

However, while Alliance Agreements and Public Private Partnerships are more common in NSW and Victoria, they are less commonly used in the ACT.

Local contractors may not be as experienced in delivering projects through those methods and may therefore build extra costs into their fee to protect themselves against unknown risks in a contract that they are not familiar or comfortable with.

Detailed Comparison of Project Delivery Methods

Project Delivery Method

Pros

Cons

Suitability

Complexity

Risk Level

Cost Efficiency

Time Efficiency

Flexibility

Owner Control

Contract Complexity

Design-Bid-Build

Clear roles and responsibilities, established process

Potential for adversarial relationships, design changes can be costly

Large, straightforward projects

Low

Medium

High

Medium

Low

High

Low

Design-Build

Single point of responsibility, potential for time and cost savings

Less owner control, potential for lower design quality

Fast-track projects, projects with clear scope

Medium

Medium

High

High

Medium

Medium

Medium

Construction Management at Risk

Early cost guarantee, potential for time savings

Potential for adversarial relationships, less cost certainty

Complex projects, projects with uncertain scope

High

High

Medium

High

High

High

High

Integrated Project Delivery

High level of collaboration, potential for innovation

Requires high level of trust, shared risk and reward

Complex, high-value projects

High

High

Medium

High

High

Medium

High

Direct Managed

High level of control, potential for cost savings

Requires significant resources, high level of risk

Projects with sufficient in-house resources

Medium

High

High

Medium

High

High

Medium

Early Contractor Involvement

Potential for cost and time savings, collaborative

Requires high level of trust, shared risk and reward

Complex projects, projects with uncertain scope

High

Medium

High

High

High

Medium

High

Managing Contractor

High level of collaboration, potential for innovation

Requires high level of trust, shared risk and reward

Large, complex projects

High

Medium

High

High

High

Medium

High

Public Private Partnership

Potential for innovation, long-term maintenance included

Complex contracts, potential for higher costs

Large public infrastructure projects

High

Low

Medium

Medium

Low

Low

High

Alliance Agreement

High level of collaboration, shared risk and reward

Requires high level of trust, potential for higher costs

Large, complex projects

High

Low

Medium

High

High

Low

High

Design, Build, Operate and Maintain

Long-term maintenance included, potential for innovation

Complex contracts, potential for higher costs

Projects requiring long-term maintenance

High

Low

Medium

Medium

Low

Low

High

Conclusion

Choosing the right project delivery method is a critical step in ensuring the success of your construction project. By considering factors such as project value, timeline, risk appetite, long-term vision, design flexibility, control level, innovation, and local industry familiarity, you can make an informed decision that aligns with your project's needs and goals.

FAQs

1. What is a project delivery method?

A project delivery method is a system used to organise and finance design, construction, operations, and maintenance services for a structure or facility by entering into legal agreements with one or more entities or parties.

2. What are the different types of project delivery methods?

There are several types of project delivery methods, including design-bid-build, design-build, construction management at risk, and integrated project delivery.

3. How does the project value influence the choice of project delivery method?

The project’s budget can significantly impact the choice of project delivery method. For instance, a larger project may require a more comprehensive contract than a smaller one.

4. How does the project timeline affect the choice of project delivery method?

If timing is critical for the project, it may be preferable to use a more standard contract that both you and the contractor are familiar with, to reduce time spent in contract negotiations.

5. What is the impact of risk appetite on the choice of project delivery method?

Your risk appetite can influence the choice of project delivery method. If you are more comfortable with a traditional contractual structure, fixed risk allocation, and fixed time and costs, you may prefer a construct only or a design and construct contract.

6. How does the long-term vision for the project influence the choice of project delivery method?

The long-term vision for the project, including how the project will be used and whether it will require future maintenance, can influence the choice of project delivery method.

7. How does the level of control over the project affect the choice of project delivery method?

If you have the necessary resources to manage the project, the direct managed project delivery method will give you more control over the project. For higher-risk projects, however, you may be better protected through a project delivery method where the contractor takes responsibility for all aspects of delivering the project

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