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Procurement Perspectives: What’s the net benefit of major capital projects?

0 61 Government

by Stephen Bauld

As I look forward to 2017 and the prospects of government and the construction industry working together, I think of the net benefit of future projects.
Stephen Bauld
Stephen Bauld

I spent New Year's Eve in Washington this year and got to talk politics and construction with several of the guests attending an event held at the Trump International Hotel. The new Trump hotel was a renovation of the old post office, which was turned into a blend of old and new to form a very lavish yet charming environment. I had the chance to talk to some of the major players involved in the complete transformation of the property and I found it fascinating as to the process and the magnitude of this project.

I was told that this was the 14th major hotel project by the Trump organization. The main theme for any major capital project is usually considered to be a success when it satisfies the following criteria: it is completed on time, on budget, with all the features and functions originally specified and addresses the problem at which it was aimed.

However, in the interest of maximizing value for money, it is equally important to consider whether a proposed solution is the optimal approach for addressing those problems. To do so, the proposed solution must be subjected to a process of critical review before any measure is taken to implement it.

Contract review of a proposed solution begins very early in the process of approving a major capital project. I would suggest a series of questions or issues that should be addressed in structuring a proposed project. Equally important is a process of critical review to determine that the proper range of proposed solutions have been considered to address the problem the capital project is intended to deal. If, for instance, the problem is that the present city hall is too small and in poor condition, there are a range of solutions that might be pursued as an alternative to building a new one.

These include:

• purchasing an existing newer or larger facility;

• refurbishing and expanding the existing facility; and

• considering some sort of public-private partnership involving a commitment to rent a specified amount of space in a new private facility to accommodate staff who cannot be accommodated in the existing facility with the balance to be rented to private sector tenants.

The senior management of the municipality must take reasonable steps to confirm that the proposed solution is the best solution in terms of the municipality's long-term interests. There are a variety of methods that may be employed for this purpose.

Generally, the more exacting the demands that a proposed project will place on the revenues and resources, the more rigorous the methods that should be employed to confirm that the right decision is being made.

I always say that a request for proposal (RFP) is not ready to go out for bid merely because it is a complete document. All municipalities would be well advised to red-team all RFPs that contemplate substantial expenditure so as to subject them to proper reality testing. Such a review can uncover the drawbacks that can cause a proposal to fail.

It is also worth observing that for a capital project that has an expected annual cost of $5 million, even a one per cent saving is worth $50,000 per year to the municipality. Thus, given the relatively low cost of such a review, it is possible to justify some effort to assess whether there are latent weaknesses in any given RFP.

I am hopeful that 2017 will bring the dramatic changes required by government procurement managers and elected officials to implement these policies.

Checks and balances and measuring results should be the goal for all of us as we strive to move forward.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.

Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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