The procurement arrangements employed by Regional Council of Lombardy (RCL) were based primarily on political (no private involvement), economic (drive cost down) and enabling the Contracting Authority to limit its total capital expenditure whilst drawing on private capital investment. Rosli et al., (2006) “states that it is imperative to carefully consider all factors when selecting the most appropriate procurement approach. Because the features and peculiarities of the approach will influence the outcome of the project.”
Advantages and disadvantages of FPC
suggests that price certainty is one of FPC’s main advantages. RCL was aware that the hospital project would cost €360 million. RCL was also aware of the project scope, performance specifications and the expectations of DEC Spa to implement and meet the specified functionality and performance criteria (Smith, 2002; Turner, 2003) Effort level and the 15% cost of hiring sub-contractors previously agreed. Project risks were to be managed by the contractor and RCL had less need to follow up on project progress on the assumption that the project would proceed according to defined scope. But this was also a disadvantage, because it led to a decrease in the RCL’s involvement in the project, leading to limited information exchange and coordination . Lack of technical expertise, length and stress of the procurement process and the inability of RCL to adequately assess the project led to scope creep while the subterranean waterhole increased project cost by €156 million.
Advantages and disadvantages of PPP
(Valdimarsson, 2007) states that risks transfer is the most important factor when considering a PPP. There is also quicker execution and delivery of the project once contract is signed. The hospital car park was delivered on time and within budget. RCL was also able maintain constant cash flow and it minimized government involvement by outsourcing non-core activities over to the private sector. But this can be perceived to be a disadvantage, because it can lead to the absence of a careful project monitoring, and projects may be at risk of incurring additional expenditure, as was the case with the car park. PPP payments postponed for the later periods can reflect negatively on public sector fiscal indicators and project profits can vary depending on the level of risk allocation. RCL failed to adequately allocate the design risk to BHP Spa, thus leading to the re-negotiation and extension of the project’s lifespan.
Mechanisms for improvement
Contracts in project context are designed to assist in aligning the owner’s and contractor’s goal (Turner, 2003). Nevertheless, the complexity, scope, scale, and length of large projects makes it susceptible to future uncertainties (Drexler and Larson, 2000; Hartmann and Marshall, 2011; Miller and Lessard, 2000; Sanderson, 2012). Consequently, any new risks may in turn cause disagreements and collapse amongst the stakeholders. To address such threats, RCL needs to build collaborative and more adaptable relationships based on intentionally designed governance structuresalso suggest that, in future RCL should ensure that in-depth feasibility studies are undertaken to justify business viability, revenue, cost estimations, benefits and risk assessment of projects to reduce the risk of scope creep. RCL should develop a simple but effective procurement strategy that ensures appropriate procurement processs are implemented by effective institutions with the relevant expertise and experience to identify project technical requirements. Further studies suggest that an appropriate contract should be chosen to promote owner and contractor working relationship to achieve the best outcomes in accordance to their agreed goals and within expected risk (Morris and Pinto, 2007; PMI, 2008; Smith, 2002; Turner, 2009; Walker and Rowlinson, 2008).
(Cuttaree, 2008) also suggests, to mitigate the disadvantages RCL should ensure that all parties involved comply and adhere to the terms and conditions stipulated in the contractual agreement. That it develops an effective stakeholder management strategy to ensure it identifies stakeholder requirements. It implements lessons learnt from previous projects to improve its procurement strategy. There should be strong institutional arrangement that can provide adequate and necessary support throughout the life cycle of the contractual agreement and the implementation of an effective and appropriate procurement framework that assist in mitigating against all unforeseen risk and uncertainties.
Conclusion
Procurement arrangements are very important to an organisation’s project management structure and the successful delivery of its projects. Thus, it is imperative to ensure that it fits your project size and complexity and the parties involved understand their obligations, rights and adhere to the mutually agreed terms and conditions of the contract. RCL must develop a simple but effective procurement process that is clear and transparent, ensuring that project objectives and outcomes are achieved.
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